Healthcare and Economic Growth in Africa: Innovative Financing

This is the second article in a planned series which will review the findings of the recently-released Healthcare and Economic Growth in Africa report. The report provides an overview of the state of African health and health systems, with the aim of guiding investments and shaping narratives around health in Africa.

This article offers insight into the status of, and opportunities for, innovative financing strategies for improving health financing across the continent (last month’s article focused on the present state and future potential for digital technology in helping to address health challenges in Africa). This month’s issue of GBCHealth’s News & Opportunities newsletter includes additional in-depth examples and discussions of innovative financing techniques.

The financing gap for healthcare in Africa is well-established, estimated conservatively at US$66 billion per year. The report identifies ways in which governments can facilitate health financing, such as focusing on achieving broad-based economic growth and prudent macroeconomic management that includes strengthening of debt management frameworks and strategies; improved tax administration to increase tax revenues; strengthening of financial administration to reduce illicit financial flows; and prioritizing public funding for health by reducing fossil-fuel subsidies and other wasteful expenditures.

The report highlighted two innovative financing techniques, Debt-to-Health swaps and health bonds, which can help mobilize resources to bridge the health gap and ensure universal access to healthcare. These techniques include some that have the potential to help harness the strength of the private sector in filling the financing gap.

Debt-to-health swaps

Debt-to-Health (or, D2H) swaps, which were originally launched in a pilot phase in 2007, are innovative financing mechanisms that encourage domestic financing in health by converting debt repayments into investments in health. Under individually negotiated D2H agreements, a creditor nation foregoes repayment of a loan when the beneficiary nation agrees to invest part or all of the freed-up resources into a Global Fund-supported domestic health program. To date, a total of close to €200 million have been swapped under this arrangement with the support of Australia, Germany and Spain.

As an example, the Global Fund’s latest D2H initiative, announced in 2017, allows Cameroon to invest €9.3 million in HIV programs; the Democratic Republic of Congo to invest US$3.4 million in malaria programs; and Ethiopia to invest €3.2 million to strengthen its health system. By cancelling the debts through the D2H program, Spain is assured that the mobilized funds go directly to country-led programs as part of the respective national health strategies, which are supported and monitored by the Global Fund partnership.

Health bonds

With a huge government healthcare financing gap across Africa, and with limited opportunities for increasing either public funding or external assistance for health, there is considerable interest in innovative financing models such as Performance-Based Financing (PBF), Development Impact Bonds (DIBs) and Social Impact Bonds (SIBs). These are considered to “have the potential to revolutionize development financing and better leverage the private sector’s growing capacity.”

DIBs and SIBs are results-oriented funding mechanisms that coordinate public, philanthropic and private sector resources to leverage upfront financing for service delivery. Typically, they involve four main players:

  1. investors who provide the start-up or growth capital for an intervention and bear some financial risk,
  2. service providers (also referred to as implementing organizations) who use the capital to implement the intervention,
  3. outcome funders (also referred to as outcome payers) who agree to repay investors their principal plus some rate of interest if the intervention reaches certain previously agreed-upon targets, and
  4. an independent third party who must verify the results generated by the intervention before the outcome funder repays the investor.

The only difference between DIBs and SIBs is that in the latter, domestic governments are the outcome funders. Many of the DIBs in development relate to health, such as those for:

  • enhancing cataract surgeries in Cameroon (also known as The Cataract Bond);
  • addressing sleeping sickness in Uganda with the UK’s Department for International Development (DFID) as the outcome funder;
  • addressing the prevalence of malaria in Mozambique for which the RBM Partnership to End Malaria 3-year pilot project was funded by the restaurant group, Nando’s;
  • increasing the amount of skin-to-skin contact between mothers and their newborns in Cameroon through Kangaroo Mother Care.

Of these, the Cameroon Cataract Bond is the most developed, even though it also faced numerous challenges during launch; there are many lessons to be learnt from its implementation. The Cataract Bond was issued to address a critical shortage of cataract surgery services in Cameroon as well as in neighboring countries. It is based on the social enterprise model of eye-care first popularized in India by the Aravind Eye Care System. The Hilton Foundation serves as the principal outcome funder. The service provider is the Magrabi ICO Cameroon Eye Institute (MICEI). The secondary goal of the cataract bond was to leave the legacy of a financially sustainable hospital after 5 years and serve as a center of excellence in the Central African Economic and Monetary Community (CEMAC).

The report acknowledges that owing to the relative novelty of this financial instrument, there are scarcely any data currently; therefore it is difficult to assess the validity and success of health bonds in healthcare financing. It also points out that health bonds are more likely to succeed in countries where legislative and institutional arrangements for public–private partnerships are well established.

USAID’s recently-released Unleashing Private Capital for Global Health Innovation publication, which details methods to facilitate the interaction between investors and innovative companies in order to catalyze investment in health innovation, highlights results-based innovative financing models such as those discussed here as among the most promising ways to achieve this goal. These sorts of models can improve perceived risk for private investors, while ensuring performance-based goals that are important for impact investors. You can read more about USAID’s report in GBCHealth’s News & Opportunities newsletter here.

The demarcation of roles and responsibilities of the various partners, together with the design, definition of targets and benchmarks, and focus on health outcomes are crucial elements to the success of these initiatives. Furthermore, the timing of the issuance of the bond and the investor climate at the time of the launch are also vital issues. Finally, the data needed to develop DIBs, and in particular health bonds, are built on best practices that are often difficult to obtain.

Still the impact bonds, particularly in the health sector, offer viable alternatives in mobilizing resources from the for-profit private sector to help bridge the health gap and ensure universal access to healthcare.

Future Insight & Opportunities

The central question is not whether the private sector has a role to play (in many countries in Africa the majority of healthcare services are already delivered by the private sector), it is rather how to put private sector skills to best use and direct their investment interests to meet public health priorities and goals. It is imperative that countries enhance funding for the health sector by identifying innovative sources of finance and accessing private financial investment.

Private funding and private capital hold great potential for growth. The opportunity is such that public–private synergies are vital to the development of the industry. New business models and partnerships applicable to Africa should be designed to better meet the specific requirements of the continent. To that end, a future article in this series will discuss the potential of public-private partnerships (PPPs) to expand access to higher-quality health services by leveraging capital, managerial capacity and know-how from the private sector.


This piece is extracted from “Healthcare and Economic Growth in Africa”, a joint publication of UNECA, GBCHealth and Aliko Dangote Foundation. The report was launched in February 2019 at the Africa Business: Health Forum in Addis Ababa, and provided the basis for much of the event discussion. It was here that private sector champions and their public sector counterparts gathered to chart a profitable course for turning the maxim – health is wealth – into practical, realistic results. Nearly 350 delegates attended the forum, convened by GBCHealth, United Nations Economic Commission for Africa (UNECA) and Aliko Dangote Foundation. We will continue to take a deep dive into this report over the coming months through GBCHealth’s News & Opportunities newsletter and webinars, focusing on topics such as the link between healthcare and economic growth.

Matt RomneyHealthcare and Economic Growth in Africa: Innovative Financing