The Role of the Private Sector in Health in Africa: Findings and IFC Strategy

1. The Role of the Private Sector in Health in Africa: Findings and IFC Strategy Guy Ellena, Director, IFC’s Health and Educationa Department Presentation to the Donor Forum Paris, France, May 2008

2. In Health, the Private Sector Plays a Dominant Role * 52% of expenditure is on private providers when extrapolated for SSA (excluding South Africa) from most recent year available between 1995-2002 from NHA reports for Ethiopia, Kenya, Malawi, Namibia, Nigeria, Rwanda, Tanzania, Uganda, Zambia, Zimbabwe; 41% when other sources for an additional 13 countries are included (at average exchange rate) Source: NHA, MoH, WHR 2006, team analysis

3. Health Expenditure is Expected to Grow

4. Significant Investment will be Required to Meet this Increased Demand

5. Although Most Investment Opportunities are Expected to be Small (<$3m)

6. Increase Access to Capital New Equity Investment Vehicle Risk Participation with Local Banks Limited access to capital contrains growth and creates sector fragmentation Improve Regulatory Environment Country Health Sector Assessments Technical Assistance to Governments Knowledge Sharing Regulatory environment often impedes growth of private health sector Out-of-pocket payments result in unpredictable revenues for providers and is a regressive financing mechanism Advisory Services to Govnts/Donors Funding Output-based Aid Programs Investments in Innovative Models Promote Risk Pooling Alleviate Human Resource Shortage Risk Sharing for Student Loan Programs Facilitate PPPs for training programs Investments in training instiutions Shortage of skilled health workers and managers limits expansion of the private sector IFC’s Strategy Aims to Address the Key Barriers to the Further Development of the Private Health Sector

7. 1 2 3 4 IFC’s Proposed Investment Strategy • The current healthcare investment landscape demonstrates a financing gap for small (requiring <$5 million), but profitable enterprises • IFC will focus its investment strategy through an equity vehicle and risk participation facilities with local banks, investing in a prioritized set of countries • The equity vehicle will be characterized by: • Estimated need of $250 - $300 million over next 5 years, with $100 - $150 million to begin • A focus on building sustainable companies, identifying market opportunities, consolidation of fragmented markets – not purely on returns • External management and configured as an investment company/fund outside of IFC • Multiple tiers of investors • Utilization of equity and quasi-equity instruments according to exit options • Significant Technical Assistance, with an estimated budget of 5-10% of investment size to provide technical assistance to investee companies • IFC will develop risk participation facilities with local banks: • Estimated need of $400 - $500 million over next 5 years • May require first loss or subordinated funds to accelerate rollout • Technical assistance to be provided to banks to help them understand the health sector better, and to borrowers to assist them with business planning, financial management etc.

8. 1 2 3 IFC’s Proposed Operating Climate Strategy IFC’s operating climate strategy should enable private sector development and leverage World Bank and IFC core capabilities This component of the strategy will involve three areas of activity: • The conduct of in-depth assessments of the environment facing private sector health businesses as a means of informing government-facing TA efforts and overall investment strategy • Provision of technical assistance to governments for both reforming the overall regulatory environment and expanding formal public-private interactions (e.g., PPPs, PFIs) • Developing public report highlighting aspects of the healthcare investment climate across sub-Saharan Africa and successful or innovative models of private sector activity and engagement Implementation of this element of the strategy will be done in closeconsultation and cooperation with the World Bank. Other development partners will be welcomed to the process as appropriate whenever practical.

9. IFC’s Proposed Medical Education and Risk Pooling Strategies Medical Education • Advisory Services assistance to private education institutions; • Risk sharing student loan programs for students undertaking health worker education; • Investments in increasing capacity of training institutions and/or new institutions; • Facilitation of Public-Private Partnerships with governments aimed at leveraging the capacities of the private sector to improve the volume of medical professionals trained e.g. could include interventions to create sufficient volumes for domestic and “export” purposes as in Philippines and Thailand; and • Provision of Output-Based Aid (refer next slide for description) to private companies providing education services to encourage them to expand. Risk Pooling • Supporting governments in developing the often complex regulatory frameworks required for effective operation of private sector risk pooling arrangements; • Working with donors in designing aid approaches that help overcome cultural barriers to saving and insurance, and encourage individual participation in risk pooling arrangements; and • Provision of Output-Based Aid to private HMO and insurance companies to encourage them to extend their products to those who could not otherwise afford them. In addition, IFC will seek to realize catalytic investments in SSA through, for example, smaller scale financing of innovative risk pooling businesses in SSA through the equity vehile.

10. What is Output-Based Aid? What is OBA? • Output-Based Aid (“OBA”) is a method to improve the delivery of basic services, such as primary healthcare and education, to users who are unable to pay full cost. • It seeks to encourage the private sector to provide services to those it would not otherwise reach by subsidizing the cost of those services. • It aims to deliver these services in ways that promote efficiency and innovation, increase accountability for results, and mobilize commercial financing • OBA uses donor funds to incentivize providers to improve service delivery for target recipients How does it Work? • Subsidies (financed by donor funds or domestic tax revenue) targeting the poor complement user fees for services that are largely public in nature eg: health, education, infrastructure • Disbursement of the subsidy to the HMO, health care provider, or education service provider is linked to the delivery of a specified output (e.g. level of enrollment, quality of care, completion of degree) • Service providers are reimbursed after delivery of the agreed output • Contrast to “input-based” aid programs focused on building health facilities, schools, or buying drugs

11. Examples of Output-Based Aid in Health Queen of Sheba Safe Motherhood Program, Yemen • Description: ‘Mother-Baby package’ of essential quality services such as antenatal care, birth attendance, postnatal care and complicated care services, to eligible women from low-income communities/districts in Sana’a, Yemen. There will be a minimal user fee charged to patients. • Amount of IFC PBGI funding: $7.6m • Partners: Saudi German Hospital (SGH), University of Science and Technology Hospital (USTH) to provide services. SOUL, a reputable local Yemeni NGO working on issues affecting women and children, will serve as the project implementation and promotion unit. • Targets: To provide quality maternal care to eligible women in targeted districts (low income households) in Sana’a It is expected that IFC PBGI funding should result in approximately 40,000 safe child deliveries over the four year project period. • Sustainability: The program has been designed as a first phase pilot to be scaleable and replicable to other districts in Yemen over time. The intention is to encourage participation of other healthcare service providers in Yemen as well as encourage local private large corporate companies e.g. oil and industrial groupings to participate in the program. Other public and private co-financiers including bilateral/multilateral donors will also be approached to participate in the program to ensure sustainability. The pilot may also serve as a model that may be partially adopted by the Yemeni Government. • Status: Operations/services to commence by December 2008

12. Examples of Output-Based Aid in Health cont.. Pre-paid Health Insurance, Nigeria • Description: Subsidized pre-paid health insurance plans covering a basic package of health care services, including some HIV/AIDS treatment, to low-income employees (and their families) of small businesses in an IT village association (the Computer and Allied Products Association – “CAPDAN”) in Lagos. • Amount of IFC PBGI funding: $7.1m over 5 years • Partners: Hygeia HMO and Health Insurance Fund (HIF). Hygeia is a HMO based in Lagos Nigeria which will administer the scheme and which, through its own hospital and clinic network as well as third party providers, will provide the basic services. HIF is an NGO based in Holland which aims to increase health insurance to Africans. • Targets: The project will target employees from 2nd and 3rd tier small companies who will be able to contribute to the premium costs on an increasing scale throughout the project. The envisioned target group consists of approximately 24,000 beneficiaries of employees and their families from the CAPDAN IT village. • Sustainability: The program has been designed as a first phase pilot to be scaleable and replicable to other districts in Nigeria and Africa over time. The intention is to encourage participation in pre-paid health insurance mechanisms by providing large subsidies at first, and then reducing those subsidies over time as the benefits of a pre-paid system become evident. • Status: Operations/services to commence by December 2008

13. Modes of Partner Participation DFIs Investors Donors Grants At risk equity funds Risk sharing facilities and/or lines of credit Equity Vehicle Technical Assistance (PEP-Africa) Output-Based Aid (GPOBA, IFC-IDA) Local Banks Equity Vehicle The equity vehicle will make commercial equity investments in a wide array of health care companies in Africa to support their growth and expansion. Investee companies will be supported by technical assistance. Output based aid structures will encourage the private sector to provide education and training to aspiring health care professionals and to extend insurance products to those who cannot otherwise afford them. Risk sharing facilities and/or lines of credit will encourage local banks to do more lending to the health care sector on better terms. Technical assistance will help train local banks in the health care sector and also assist borrowers in business planning, managing finances etc. Operating Environment Refer next page for more detailed description Debt Facilities

14. Modes of Partner Participation cont … Donors Grants Technical Assistance (PEP-Africa) Output-Based Aid (GPOBA, IFC-IDA) • Tailored technical assistance to investee companies, including market assessment, financial management, corporate governance development, key personnel placement, planning etc. • Investment preparation services to potential investee companies Equity Vehicle Operating Environment • Conduct in-depth assessments of the environment facing private sector health businesses • Provide technical assistance to governments for reforming the regulatory environment and expanding public-private interactions • Biennial public report Debt Facilities • Increase the capacity of local financial institutions to originate loans with health companies • Assist local financial institutions in accurately assessing and pricing risk in health businesses • Work with health companies to develop viable business plans for debt financing by local banks • Assist health companies establish better financial management, corporate governance, quality