How project finance could transform the global healthcare; A case study of Africa viola-funding June 20, 2023

How project finance could transform the global healthcare; A case study of Africa

How project finance could transform the global healthcare; A case study of Africa
Healthcare and hospital financing in Africa; a transformation agenda

Health care in Sub-Saharan Africa remains the worst in the world, with few countries able to spend the $34 to $40 a year per person that the World Health Organization considers the minimum for basic health care. And despite widespread poverty, an astonishing 50 percent expenditure of  healthcare and hospital financing in Africa is by out-of-pocket payments from individuals. This is according to IFC

Donor attention has yielded remarkable efforts to fight HIV/AIDS, tuberculosis, and malaria. But most of the region lacks the infrastructure to deliver health care and faces a severe shortage of trained medical personnel. As Africa’s economies improve, the demand for good quality health care will only increase further.

Viola Funding Limited provides financing for construction, modernization of hospital and healthcare infrastructure in Africa.

Reasons for poor healthcare and hospital financing in Africa

Poor healthcare facilities in Africa draws down to resources. Especially as the price of globally healthcare  continues to increase. Jon Guber, a Professor of Economics at MIT describes how in 1950, the American government spent 5% of GDP on healthcare. In 2012, it spent almost 20% of GDP on healthcare. By 2075, its projected to be 40%. That means 40 cents out of every $1 generated in America will go to healthcare. Africa makes up 16% of the world population and carries 23% of the global disease burden, yet it accounted for just 1% of total global health expenditures in 2015. Africa has a population of 1.3bn people and an economy smaller than California’s (population 40m), this level of poverty magnifies the need for healthcare whilst simultaneously decreasing the capacity to pay for it.

The concepts of project finance

Project finance, which flourished in the 20th century in the healthcare sector, today offer ample opportunities for the implementation of ambitious projects, including the development and construction of hospitals and the expansion of healthcare sectors.

Project financing involves raising funds on a limited recourse or nonrecourse basis to finance an economically separable capital investment project by issuing securities that are designed to be serviced and redeemed exclusively out of cash flow.

This financing approach has been used to develop transformative projects across Africa such as industrial properties, airports and power stations. But has been underutilized in healthcare because of what I believe to be three main reasons.

1. Firstly, healthcare is not seen as a priority for most Africa politicians. Africans, unlike Americans, don’t not vote on the basis of healthcare. This study from the Atlantic council shows that the top three issues for Nigerian voters were corruption, security and the economy.

This contrasts with places like Britain and America where healthcare is much higher up on a politicians agenda. The politics around funding of the UK NHS and Obamacare vs alternative US healthcare plans are front and center during political campaigns. Healthcare is a make or break election issue in these countries. Finland’s entire government once had to resign over failed healthcare policy.

2. Secondly, healthcare investing requires specialist knowledge. Much of this knowledge is held by doctors who do not particularly understand or care to understand finance. Whilst bankers who have the finance, do not really care to understand the complexities of healthcare investment. Many countries have recognized how nuanced healthcare investment is and have developed the specialist knowledge to develop and invest in healthcare projects.

Project finance is an ideal tool for the development of healthcare infrastructure

Large investments in the hospital and healthcare sector require the mobilization of capital at all levels, including financing from commercial banks, investment funds, government agencies, and so on. Insufficient investment in the extraction and transportation of energy resources can lead to fuel shortages, rising prices and a slowdown in the global economy.

The below are reasons why project finance remain an ideal tools for health care transformation;

  1. Increases healthcare budget: Healthcare financing in Africa is extremely low. The type of offtake agreements such as minimum patient number guarantees that make these type of infrastructure projects bankable also increase the amount of money available for healthcare to citizens whilst protecting the government off-takers against healthcare inflation.
  2. The children’s hospital in Dublin cost nearly $3bn in capex alone. That level of healthcare infrastructure spend in Africa would be unthinkable. But it is possible to deliver quality healthcare infrastructure at a fraction of that cost. However, even that level of capex cost would be difficult to achieve for many African governments. Spreading payments over time help countries to manage their fiscal space making it possible to do more with less.
  3. It doesn’t depend on balance sheet of an existing company, therefore can be used to develop projects quickly
  4. There are other benefits to governments: economic growth and increased productivity. Africa’s health financing gap is at least $66 billion, and business opportunities in the healthcare and wellness sector in Africa are estimated to be worth $259 billion by 2030. This holds the potential to create sixteen million jobs!

Project finance participants in healthcare sector

The structure and participants of project finance schemes reflect the needs of all stakeholders for reliable and sustainable financing, taking into account risk minimization. Understanding this structure is critical to the success of capital-intensive projects under high uncertainty.

This scheme usually involves one large lender or a group of several lenders who negotiate with the project proponents with the participation of a wide range of external parties, including independent consultants, engineering companies and even government bodies. This is due to the need for professional evaluation, monitoring and control of the project at different stages.

Stages of project financing in African Hospital and healthcare sector

The stages of project finance for most sectors are similar as funding is sourced and provided through the same mechanisms based on the future cash flows of a particular project.

Whether it is an upstream project or the construction of hospitals the project rationale and profit forecast will play a key role in the decision of the lenders, but not the assets of the initiators.

Health care and hospital project finance documentation

Since project finance differs from other financing schemes in its complex and multifaceted contractual structure, the preparation of a transaction requires a serious effort from all parties.

Each of the agreements within the framework of a particular project performs its function in close connection with other project documents. Accordingly, each document must be legally perfect, fully meeting the needs of the project in a certain time horizon.

Experts distinguish two groups of project finance documents in relation to the hospital and  healthcare sector, which are formed in close cooperation with different parties: 

• Project documentation. This type of documentation includes drawings, calculations, and agreements made with so-called “non-funding” project participants. This includes engineering companies, equipment suppliers, construction companies, etc.

• Financial documents. This broad group includes loan agreements, insurance agreements, bank guarantees and other documents that are directly related to the financing of a particular project.

A comprehensive project agreement structure is being created with the main goal of ensuring understandable and transparent rights and obligations of all participants, as well as establishing procedures for dealing with project failure or underachievement of planned indicators.

Viola Funding Limited  is ready to offer flexible personalized solutions for large companies, including healthcare hospital financing in Africa, industrial and commercial loan, Industrial and Commercial loans for all sectors of economy.

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