New funds aim to tackle gaps in African health financing

The impact investing market is about $1.2 trillion, but less than 2% of that total goes to health-related investments in Africa — and most goes to supporting businesses aimed at middle-income or wealthier clients largely focused in urban areas. Closing funding gaps will likely require solutions that blend commercial and concessional capital, Colleen Connell, managing director of the Health Finance Coalition, said at a Devex event in Geneva last week. Enter the Transform Health Fund, which is designed to address current market gaps and finance the scaling of locally led health supply chain, digital, and care delivery solutions on the continent. Announced last year at the U.S.-Africa summit in Washington, the blended finance fund has now raised $50 million and is officially open for business. The goal is to eventually reach $100 million. And the fund has a unique feature: a deal construction team that is working with businesses to get them ready for investment, according to Martin Edlund, executive director of the Health Finance Coalition, which is co-leading the fund alongside AfricInvest. The Health Finance Coalition is a group of health donors and investors seeking to scale blended finance solutions to achieve universal health care in Africa. AfricInvest, for its part, is a pan-African private equity investor focused on growing small and mid-sized companies on the continent. The Transform Health Fund will invest in businesses supporting underserved populations in three key areas: health supply chains, innovative care delivery, and digital innovation. A number of investors have already committed, including the U.S. International Development Finance Corporation, U.S. Agency for International Development, Royal Philips, Merck & Co., Inc., known as MSD outside of the United States and Canada, FSD Africa Investments, Chemonics International and several foundations. The deal construction team has already been working with companies, and the AfricInvest fund team has been building a pipeline of investments. AfricInvest is in late-stage discussions with some of those companies and expects to make several investments in the next year, said Noorin Mawani, co-lead of the Transform Health Fund. The fund is focused on “self-liquidating investments,” which means primarily debt investments, in part because the companies it is looking to support more often need loans to help make upfront investments or for working capital. It will likely invest between $3 million and $8 million in each company, which could be paid out over time, she said. The fund also has a longer life than other traditional private equity or private credit structures — it will be around for 12 years, with the option to extend for two more, allowing it to be more patient. “Success for this fund is demonstrating that businesses addressing the underserved population are investable and can deliver returns to investors at scale,” she said. Investments targeting underserved populations “can make a big difference in the market but don’t hit commercial expectations of private investors,” said John Simon, founding partner at Total Impact Capital, which helped structure the Transform Health Fund. Blended finance funds that target a more modest return will allow for more impact, he said. One of the big challenges is that many companies may be contending with dysfunctional systems around them but there is a big business opportunity in overcoming fragmentation and creating more streamlined supply chains, he said. And that’s what he’s working on now. In fact, Total Impact Capital recently was named part of the initial cohort of the Outcomes Accelerator, an initiative backed by the UBS Optimus Foundation and the Swiss and U.K. governments. The accelerator is a global initiative to help develop and expand outcomes-based funding approaches. The money, connections, and technical assistance from the accelerator will help further develop a new funding mechanism: a pay-for-performance supply chain trust fund. It aims to help businesses working to improve health supply chains in Africa where medications are often damaged, not available where they are needed, or are expired. There are also problems with counterfeits. The challenges for businesses working to tackle these problems is that they can’t get the funding they need to scale. While many of them already have contracts with governments, far more of the health supply chains in Africa are controlled by global donors, Simon said. And big donors, like USAID, are hesitant to work with some of these smaller companies. Simon said he’s hopeful this new vehicle will provide them with a less risky way to engage. Donors could contribute to the trust fund and then pay these companies based on their performance. For example, if drug availability increased by an agreed percentage, that company would be paid. The company could then use that funding to grow. “If we want impact priced into business and investment decisions we need social and environmental outcomes measured and integrated,” said Maya Ziswiler, CEO of the UBS Optimus Foundation, which is backing the Outcomes Accelerator. “Part of this work is about trying to get funding channeled to outcomes that can be measured and then implemented into the actual economy,” she said.