African healthcare attracting private investors
Is private investment the future of health care? “Until governments start making the needed investment into public health,” says one Zimbabwean local, “foreign investors are the only ones showing they have an interest in the sector…just hard to understand.” Healthcare expenditures in Sub-Saharan Africa account for about one percent of the world’s healthcare expenditures. African governments work anxiously to put capital into the healthcare sector. But the myriad of low tax receipts, growing healthcare costs, and other essential public expenditures complicate those efforts.
Sub-Saharan Africa’s healthcare market is primed to reach $35 billion by 2016 with a growing middle class and an improved economic outlook. The growth in spending remains insufficient to meet Sub-Saharan Africa’s health needs, says a retired group of doctors working their retirement years in hospitals in East Africa.
Sub-Saharan Africa bears 24 percent of the global disease burden though it only accounts for 11 percent of the world’s population. Ventures Africa previously covered the disturbing low nurse per capita ratio in East Africa and the opportunity it offered. Overall statistics on healthcare workers in Africa paint a similarly bleak picture where there are only 3 health care workers per 1000 persons in Sub-Saharan Africa.
Big donors continue to pour aid money into the Sub-Saharan African healthcare sector. Experts estimate that 25 to 35 percent of the region’s healthcare spending comes from non-governmental institutions (NGOs) and estimate that private capital investments only contributes 10 to 12 percent of the healthcare spending.
TLG Capital is one of the more entrepreneurial private capital firms playing a role in the space. The healthcare sectors has yielded strong returns, says Zachary Latif, Managing Director at TLG Capital. The sector is similar to most other sectors, he says, in that it is all about deal quality.
TLG applies a risk methodology, Mr. Latif says, considering factors that include (1) regional expansion opportunity, (2) government support, and (3) collateralization.
To help ease the path for private capital, many African governments can still upgrade their internal healthcare systems. Implementing a government-subsidized or employer-subsidized insurance program would ensure that more Africans are getting healthcare coverage and are able to pay the bill. “Western experience with employer sponsored healthcare programs raises questions,” says John, a doctor operating in Burundi, “but the concern is not the system but how do we get Africans – middle class or not – to our facilities for medical care…subsidized care is a part of that answer.”
Regulatory reform of subpar standards and enforcement of those reforms would also go far in creating better companies and strengthening those companies already operating at Western standards. McKinsey & Company proposed similar recommendations in a report in 2007 and also ranked Africa’s healthcare sector as more attractive to foreign investors than telecoms and infrastructure.
Things could be finally falling in line with the report. Low returns in developed markets, argues Mr. Latif, will cause a convergence of returns in Africa making more African sectors more attractive, including healthcare. As more investors look to Africa for boosting their portfolio returns, the healthcare sector will see more activity and capital.