Financing Nigeria's Health Sector Through Private Sector Participation - A Capital Market Option


Thursday, October 15, 2020 / 09:20 AM / State Owned Enterprises Department of The Nigerian Stock Exchange (NSE)


According to a World Health Organization (WHO) report titled, 'Strengthening the capacity of governments to constructively engage the private sector in providing essential healthcare services' most countries health-care delivery involves a combination of public provision as well as a range of entrepreneurial initiatives, usually referred to as private sector or private provision.  This Private provision is a substantial and growing sector that is capturing an increasing share of the healthcare market across the world as it is becoming increasingly difficult for governments to continue to adequately finance the sector.


Recognizing the importance and the sizeable financial requirements of the sector, the Heads of State of African Union countries in April 2001 met in Abuja, Nigeria and in a resolution known as the 'Abuja Declaration', pledged to set a target of allocating at least 15% of their annual budget to improve the health sector.


In Nigeria, the increase of the health budget to N440 billion in 2020 is the highest in five years, but it amounts to over 4.5% of the total government budget for the year falling short from the 15% agreed in the Abuja declaration.  The country's health sector has an annual deficit running into almost US$10 billion (N3.86 trillion) in health infrastructure gap and the annual budget for health sector at both the Federal and States level is not sufficient to cater for the growing infrastructural needs of the health sector.


According to BudgiT, a civic organization tracking government spending, a sizeable amount of the health budget is spent on recurrent expenditure and an insufficient amount is allocated towards capital projects.

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Source: NBS

With the dwindling oil price, which accounts for over 70% of government's revenue, it is becoming more apparent that there is a need for deliberate private sector participation in financing the infrastructure deficit of the health sector.


This deficit comes with its own implications as it increases outbound medical tourism as some citizens opt for medical treatment overseas. Consequences of this include the country incurring an economic loss of about $1 billion annually, a weaker health system in Nigeria and indirect capital support of the healthcare industry in destination countries.



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With the COVID-19 pandemic, healthcare systems of both the developed and developing world has seen unprecedented stress with healthcare demand outstripping availability and supply.  Based on that, many countries around the world decided to shut their borders and according to a World Trade Organization report in April 2020, 80 countries and customs territories have banned or limited the export of face masks, protective gear, gloves and other medical equipment to mitigate shortages since the outbreak of Coronavirus.  Confronted with the travel restrictions and limited importation of medical essentials, more concern should be given to the country's own healthcare facilities.


Given the level of healthcare needed for a teeming population of over 200 million people, infrastructure deficit and the financing gap of N3.8 trillion, it is the right time for Federal and State Governments to seek increased private sector participation in that sector and especially via the capital market.  Private sector participation/financing in the health sector has the potential of transforming healthcare from a social service to a business gaining some value addition and efficiency.


With the potential investment opportunities in healthcare for the private sector, Governments at all levels should consider concession of government owned health facilities and hospitals and allow for private sector driven provision of health services.  A simple model that could be considered for the flow of needed financing from the capital market to ensure the establishment of world-class hospitals and diagnostic centers in Nigeria is described below.


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Using this model, Governments can bridge the infrastructural gap in the Health sector through Hospital concessions to enable them execute more health projects within their domain with strong payment security mechanisms. The concessionaires are expected to take up management of the Hospitals and drive adequate value and economic returns to the state.  This implies that the private entity or consortium is the project developer.  The Private entity will create a Special Purpose Vehicle (SPV) which will limit the Governments financial risk exposure.  Equity capital or Long term Bonds will be issued by the SPV, then grouped into tranches and sold to meet the credit risk preferences of a wide range of investors.  Greater private sector participation could also help resolve some of the inadequacies of the public health system, relieve healthcare funding pressures and also enhance healthcare related revenues to government.


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A typical example where the capital market financing was explored to promote access to infrastructure development is in the United States of America, where Congress created the Build America Bonds (BABs) as part of the 2009 American Recovery and Reinvestment Act (ARRA).  With the introduction of BABs, rated governmental hospital borrowers, such as City & County hospitals, hospital districts, and other governmental entities that own health care facilities may issue bonds to acquire or construct needed facilities.  The BABs also had the added advantage of being tradeable in the capital market.

With world-class healthcare hospital and diagnostic centers, we hope to see a reversal of direction of medical tourism in Nigeria from outbound to inbound. The change in direction to inbound medical tourism would save the country over $1billion annually reflective of the amount being spent on outbound medical tourism (According to a Price Waterhouse Coopers 2016 report, Nigerians spend $1bn annually on medical tourism) and consequently, encourage foreign currency inflows to the nation's reserve.  Other benefits derivable from the change in direction would include but not limited to reduced brain drain, as the Nigeria's trained doctors have in recent times sought opportunities in other countries due to a number of reasons including poor healthcare infrastructure and low wages.


Given the level of needed infrastructure, the ongoing pandemic and the significant funding requirements, this presents as the right time for the government to consider capital market funding as an opportunity for private sector participation in funding the health sector of the country.  The Nigerian Stock Exchange (NSE), as a multi-asset exchange hub provides a platform for accessing long-term capital for infrastructure development and continues to support Governments across all levels in unlocking significant value through; private sector participation in infrastructure financing through equity, debt and other asset classes.



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Previous Articles from the State Owned Enterprises Department of the NSE

1.   Accessing the Needed Liquidity from State Owned Assets in the Face of Current Economic Realities

2.  Impact of Privatization on Nigeria's Economy

3.  Can Privatization of Government Owned Enterprises be Instrumental to the Economy's Sustainability?



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