Investors wary of development projects that carry risk of financial loss in the first five years can learn from strategies employed by development finance institutions, panel speakers at the Fourth African Healthcare Summit in London said on 14 February 2017.
Speakers from the International Finance Corporation (IFC) and GE Healthcare Africa joined current and former African health ministers at the summit to address barriers to bringing private capital into development from investors seeking high yield, yet who typically avoid investment of long-term capital.
“It’s very important that DFIs educate the market and investors that, in health, an investment cycle is from ten to fourteen years, not five to seven,” said Dr Hatem Elgabaly, Egypt’s former health minister and chairman and CEO of RX Health Management, a firm which aims to raise US$200 million for African healthcare by the third quarter of 2017.
In a period lasting from January 2005 until July 2015, DFIs deployed a total of around US$6.5 billion in West African countries, according to a report by the Global Impact Investing Network (GIIN). This compares with non-DFI investments in West Africa, which reached just US$221 million over the same period. Healthcare systems in the 15 countries surveyed in the report received US$52 million in total direct DFI investment, while non-DFI investors are shown to have channelled around US$5 million into African health projects.
Dr Eric Soubeiga, senior investment officer at IFC, told Development Finance: “Our rule is to put in that initial risk capital and put it in not just for the next five years but take a ten-year-and-beyond view of the investments. That also includes understanding that there will be potential loss-making in the first few years.”
Soubeiga added that DFIs remain “more comfortable than the pure private sector investors”, owing to their use of longer-term capital as well as longer-term impact goals.
Collectively, DFIs invest most heavily in the energy sector in emerging economies in West Africa. Total capital deployment in the region’s sector currently stands at more than US$2 billion, of which the average deal size is US$40 million, compared with US$4.3 million for healthcare.