The international development community increasingly looks to the private sector to fill financing gaps, and global health is no exception. But if we track private investment into emerging and frontier markets, we find that the vast majority goes to Asia — mostly Southeast Asia, China, and India, according to EMPEA’s 2018 Global Limited Partners Survey — and fuels sectors such as infrastructure, fintech, agriculture, and energy.
Meanwhile, the U.S. Agency for International Development estimates that we need to triple global health funding to achieve our collective goals in this space — and USAID has even developed a roadmap to crowd in private capital to the sector. The Institute for Health Metrics and Evaluation finds a $370 billion annual financing gap for health in frontier countries, especially Africa, between now and the Sustainable Development Goal target year of 2030.
Cause for concern? Yes. Cause for alarm? No, because the good news is that global health is attracting attention from private investors. EMPEA’s 2016 Global Limited Partners Survey ranked health care among the most attractive sectors for emerging market private equity, with more than 400 health care companies receiving private investment between 2011 and 2016, accounting for 7% of the total.
In other words, private money is flowing into the health sector — but it’s perhaps not happening in the way that the global health community might assume. Instead, it’s flowing through mechanisms such as trade hubs, economic growth projects, initiatives to improve water, sanitation, and hygiene, and so forth. As development professionals, we need to tailor our activities and priorities accordingly.
In frontier countries, we see a trend wherein commercially oriented health-related opportunities are indeed attractive, but not necessarily precisely aligned to the priorities of international donors. Donors such as USAID tend to focus on distinct topics such as, say, TB in India, cholera in Haiti, malaria in Africa, or maternal and child health globally. In contrast, many health sector investment opportunities arise within the context of competitiveness, trade, and investment projects.
These transactions tend to involve a combination of expanding access to care and improving the quality of care, and they are generally (although not exclusively) oriented toward middle- and upper-income consumers. Beyond addressing health objectives, they also help create jobs and economic growth opportunities. Like investments in other sectors, these health-related businesses require assistance with investment facilitation, including identifying and negotiating with international investors, as well as local government authorities. Without facilitation services, investors may get frustrated and transactions don’t close.
For instance, in Ethiopia, investors have requested help from USAID’s East Africa Trade and Investment Hub to navigate the local investment environment and processes, understand local actors, cope with licensing and permits, and so on. What kind of enterprises are we talking about? Examples include a joint venture between a Kenyan pharmaceutical manufacturer and an Ethiopian importer seeking to manufacture drugs out of one of Ethiopia’s booming industrial parks; a medical company establishing a low-cost, high-quality oncology center; and a partnership between a U.S. investor and a domestic health bureau planning to produce medical oxygen.
At the same time, companies seek help to find investors. In Al Abdali, Amman’s new urban development, for example, a new $300 million hospital plans a soft opening in July 2019. The Abdali Investment and Development Company is looking to develop the area around the hospital as a health care cluster. USAID’s Jordan Competitiveness Project is promoting the investment opportunity and assisting with the master plan, a market assessment, and other prep work.
Seeing these trends, some donor programs are testing new ways to blend their resources and catalyze private capital. USAID's Office of American Schools and Hospitals Abroad, for example, is exploring how to use its grants program to create innovative financing and risk management options for teaching facilities abroad. Opportunities might include funding for renewable water and energy systems, new medical equipment, or new construction.
Increasingly, development companies and INGOs are investing directly in health-tech companies. For instance, DAI recently invested in medtech company ClickMedix to expand its digital health care footprint in developing countries. The 2018 report “amplifyii the next mile of impact investing for INGOs” highlights industry initiatives such as PACT Ventures that include a focus on health and technology. And these disparate initiatives may be part of a larger trend. Boston Consulting Group reported in 2017 that “Medical technology is poised to become one of the next industries to break out of emerging markets and play on the global stage.” An outstanding question for development finance professionals is how we can harness the excitement around innovation in technology to support global health.
Donors and development finance institutions are exploring ways to mobilize private capital to address health priorities. In recent years, development impact bonds have sought to address cataracts in Cameroon and improve maternal and newborn health in India. New health- and hygiene-related DIBs are under development. However, DIBs have proven costly, due to their complex management structure, financial arrangements, and need for third-party verification of outcomes, although these costs may be offset by increased transparency and eventual gains in efficiency and sustainability.
In many markets, simpler solutions can address issues such as equipment and working capital needs. Equipment buy-backs and loan guarantees, such as those afforded by the U.S. government’s Development Credit Authority, can help lenders mitigate credit risk and overcome the reputational risk of enforcing loan repayment from health service providers. At the same time, these instruments help to build local financial markets.
In short, the global health financing gap is real, but so is investor interest in health and related frontier markets. To capitalize on this interest, the development community must create more space and additional opportunities for the global health and investment sectors to interact and understand each other better. Speaking the same language about the potential of investment facilitation and innovative financial instruments — whether they offset origination costs through transaction advisory services, mitigate risks through loan guarantees, or advance proven solutions with DIBS or other mechanisms — will be critical for driving more private capital into health.