Andrew Jack at the Financial Times reports that the International Finance Corporation (IFC) is "in discussions" to create a $500 million fund to finance commercial healthcare projects in Africa.
The project draws on a $2.6m research project conducted by McKinsey, the management consultancy, which is being finalised and was funded jointly by the Bill & Melinda Gates Foundation and the IFC.
Bringing the local private health sector in to help solve the profound health problems in Africa is an exciting idea. Despite the significant role of private spending for and delivery of healthcare services in poor countries, most development assistance focuses almost exclusively on the public sector. So, engaging the private sector is surely needed. Nevertheless, the FT article reveals nothing new on this score...yet. The IFC has been investing in and lending to health sector companies in developing countries for 12 years (23 projects since 1995). But a brief look at their
portfolio reveals the considerable challenges they face in using bankable investments to pursue health development objectives.
For the IFC, or any investor, to make an investment, it must be large enough to cover the cost of preparation and supervision. IFC equity investments in health average about $10 million. In order for the IFC to minimize the risk associated with their investment, they need to have other co-investors or lenders -- so the total project size must be even larger (in the range of $30 million). The projects must also yield a rate of return sufficient to merit the investment bankable. For the IFC health projects, this has entailed expected rates of return in the range of 12-20%. And the IFC needs to have the ability to liquidate their investment.
As part of the World Bank group, the IFC only operates in low- and middle-income countries. However, under these requirements the majority of their investments have been to build or upgrade hospitals that are primarily used by the better-off inhabitants. In most cases, the anticipated development impact is constrained to "enhancing standards," by showing the kind of care that can be delivered in poor countries, even if only in very well-resourced facilities. And only three investments are in Africa. This is not a criticism of IFC staff, who are no doubt looking very hard to find investments that could make a difference for the poorer people in these countries. The focus of the portfolio comes directly from the requirements about the soundness of the investments.
The FT mentions a $50 million pool of funds for some form of technical assistance. It's tempting to speculate what exactly McKinsey proposes could be done with $50 million that would enable such a paradigm shift in the business model to get investments into Africa, and in such a way as to achieve a real development impact by improving access to or quality of services and/or reducing out-of-pocket payments health services and products for the poor.
Will the McKinsey report really reveal a new approach to investment which will allow the IFC, or the to-be-created fund, to invest in or lend to ventures that serve the poor? Or even ventures that bring up the quality of the health products or services used by the middle class in poor African countries? Stay tuned. But one thing's for sure: the devil is in the details, and so is the development impact.
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