This blog is part of a series on Universal Health Coverage (UHC). The series includes contributions from external bloggers and reflects their views. Follow the conversation on Twitter #HealthForAll.
Health spending around the world has increased to $8 trillion (2016). However, World Bank estimates indicate that the financing gap between available resources and required levels to deliver on global health priorities by 2030 will reach $176 billion annually in 54 of the poorest countries.
In parallel, foreign direct investment (FDI) has steadily increased in comparison to public capital. Since the 1960s, FDI in developing countries has grown from 29 percent to 84 percent of all financial flows with a declining share of public financing from 71 percent to nine percent. Between 2010 and 2015, developing and emerging economies accounted for almost 70 percent of global output and consumption growth. Projected growth in consumer spending in emerging economies is estimated to be three times faster than in developed countries. This includes the 4.5 billion low-income people in developing countries who are spending $5 trillion a year on goods such as health, food, energy and transportation.
The private sector plays a crucial role in all sectors including health through supply chain, service delivery and financing. Nine out of ten jobs in developing countries are in the private sector, which makes it a powerful force in lifting families out of poverty. The private sector influences consumption of health care, food and schooling. There is increasing alignment of interests between the private sector, governments and donors, as host nations seek private investment to diversify their economies, upgrade their infrastructure, and improve delivery of critical services. Likewise, companies and investors are constantly looking for new markets and shifting their core strategies to incorporate longer-term social impact goals, and align with development outcomes.
Donors can help host governments connect consumer demand with supply from the private sector, and leverage the latter’s expertise and resources to unblock bottlenecks on development objectives. USAID’s approach enabling “self-reliance” among our partner countries for their development priorities is to strengthen each country’s own systems, advance primary health care and apply an enterprise-driven model promoting inclusive growth with public and private sectors, civil society and the development community. The G20 alliance, comprising the largest economies of the world that account for 80% of world trade and two thirds of the world’s population, provides a strategic platform for key stakeholders to collaborate on this critical agenda.
Recently, blended finance has emerged as a way for the public and philanthropic sector to catalyze private investment into markets and sectors that may be underserved by private investors. The Organization for Economic Cooperation and Development (OECD) defines blended finance as “the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets.” Investor concerns about risks and commensurate low returns can be addressed through a variety of instruments including grants, concessional capital and financial tools like credit guarantees, which open up opportunities for investing with positive returns. In the reproductive, maternal and child health space, blended finance is gaining traction, with eight different investments (or “deals”) that mobilized approximately $560 million for women’s and children’s health.
Challenges, and a learning agenda
Despite the interest from key stakeholders, a number of unresolved issues need to be addressed if blended finance is to meet its full potential. Equity is a key concern in transactions with the private sector, and is related to the capacity of government regulation. A strong regulatory and policy environment is critical to catalyzing private investment, both foreign and domestic, and ensuring transparency and accountability to the host nation and its people, especially those in poverty. On the flip side, over-regulation can also discourage private investment. Thus, a balance is necessary in promoting market growth while ensuring safeguards on access and equity. Enabling universal access to, and coverage for, health care require donors, development finance institutions, host governments, and the private sector to work together for resources to flow to where they are needed the most.
Defining and measuring impact are also key concerns. Critics point to a lack of evidence demonstrating the impact of blended finance on actual increase in financing as well as health status improvements. The issue is not so cut and dried. Public and private sectors often have different definitions of impact, metrics and methods for measurement. Additionally, monitoring and evaluation can be costly, especially if the timeline for impact is long. Alignment of metrics at the outset of a transaction or partnership, and agreement on roles and responsibility for data collection, will be critical to overcome this challenge.
The New York Times recently reported that impact investing, i.e. investing in companies that make a positive change on society, is more broadly popular than commonly perceived. Now is the pivotal point in time to systematically track and analyze financial and social returns on such investments.