“We need structured, long term capital in the health care system, private sector driven”

Enitan Sanusi, chief executive officer of ICWAPH Health and Social Care Funding SPV Plc, is a former Credit Lyonnais banker and investment expert who is now involved in structuring and channeling finance and investments into the healthcare and well-being space. He has been running Godi Health and Fitness Club, Lagos for decades and has more than 22 years expertise and experience in asset ownership and investment management of health and wellness facilities, as well as advising operators, investors, lenders and donors on sourcing, originating, structuring and managing of health and social care enterprises and projects with strong prospect for profitable growth and high returns on investment. He was the guest speaker at the 6^th monthly business a.m. GTI Finance & Investment Dialogue (FiD) held in Lagos last week. Before he made his presentation he fielded questions from PHILLIP ISAKPA. The following are the excerpts from the interview.        PHOTO CREDIT: ISAAC JAYEOLA

You are going to be speaking on health and finance shortly. Can we start by having you talk us through the state of healthcare and financing in Nigeria presently?

The health space is basically a social impact business and that’s what it’s been taken to be. And there are very different models. We have the United States model that is private sector driven; and you have the rest of the world, that are majorly public sector driven, or a combination of both. But the most important thing is actually with the outcome, which is able to develop to give the best health outcome for the wellbeing of the population and, of course, accessibility to it with affordability. These are the basic issues that are happening in the health and wellbeing space.

The debate is still raging out there; which model gives the best outcome, whether private sector driven, which is being championed by U.S. or a combination of public and private sector. These are the major issues right now.

So, we are more concerned about the quality of the healthcare system, the strengthening of the healthcare system and the outcome that the healthcare system is able to deliver.

We are also concerned about the issue of healthcare for all, the wellbeing of the generality of the populace. These are the basic issues right now, and we are very much in that debate and space and we are passionate to have public and private sector partnership to drive the best outcomes and to drive the best affordability for the people. The issue of universal health coverage is very germane and we are also part of that discussion.

What model, from your experience and knowledge of the health care delivery business, is operating in Nigeria?

I think it’s essentially government sector driven, and we also have the private sector in that space. The private sector is so fragmented and that is the issue, they are majorly undercapitalized, and that is why they are not delivering the best outcomes essentially. We have also the public sector that is funded from budget appropriation, from donors and international organizations. Basically that in itself is not delivering because the mechanism, the delivering process, is actually challenged; and that has been the issue.

The issue basically is that most of the funding, structured funding, from major donors goes into government; but the way and manner it is being used is still a problem. So, that in itself is not delivering. That is why most of the public sector health system needs to be strengthened to meet global best practices, to have some measure of corporatization or commercialization of it, to have some measure of having big operators, global operators to actually be part of that process, to have equity stake, even in the government area.

So, that is what we believe can drive outcomes; we need a dose of private sector discipline, capital discipline, management discipline, operational discipline into the public sector health system to get the best outcomes for the populace. As I said, again the private sector is pretty undercapitalized, mostly they are family owned, and they are incapacitated to be able to have the infrastructure they require to deliver optimally. So we still have a lot of sub-optimal performance. The private sector is really where we have many different levels. Of course, at the city level and up market level, they are probably giving very good service, but at the middle class level, the mass density area, they are still providing sub-optimal services.

In terms of delivering good healthcare, how can the challenges of affordability, accessibility, and funding, especially of the public sector health system, be resolved? I hear you talk about PPP, what would you be suggesting as a solution?

Yes, the public sector funding needs to be enhanced; but more importantly also, the management needs to be enhanced. That is why one is recommending private sector discipline. Even when you increase the appropriation to that sector, many feel it is not sufficient; but the major issue is actually utilization, how the funds are being utilized.

We still have a lot of challenges there. Of course, we have the universal health coverage, the insurance coverage, which is supposed to enhance liquidity in the system but it has challenges of its own; it is not delivering and the sector’s funding is not as regular as it should be and the way it is being managed is still challenging. Those are the challenges we have in the public sector. We need to have a real private sector management discipline in the public sector, we need to make them autonomous, we need to make them self-accounting, we need to make them corporate entities on their own; we need to have them accept a private sector driven model with all the reports, boards, by a professional managers and operators. We need to have deliverables and outcomes; we need to have accountability, integrity and openness in the industry.

We need a real dose of private sector discipline so that the funds that are being allocated are well accounted for, with some measure of deliverables and outcomes that needs to be filled, some level of efficiency in the hospitals, primary clinics; and we have to do it ourselves, we need to have that political will to reform the system and take it out from the civil service culture and take it to the private domain. As they always say, we need to have private sector discipline, to make it very effective. Because by and large, the health sector is still largely funded by the government and the allocation is from there. Most of the donor funds is still coming, through the government, to support public health system.

Most of the charitable organisations, the likes of Dangote, Bill and Melinda Gates foundations, are very much structured towards government, so there needs to be a more disciplined utilization of funds, disciplined operational efficiency with deliverables and outcomes that is what we need in the public health care system.

Of course, because it is a social service, you would have budgetary support for it, but it has to be certain metrics that everyone understands. Of course, we have the health insurance system, I understand now that the state governments are setting up their own insurance companies that support their hospitals and health system, which is a good thing. It brings liquidity into the system. But most importantly, it is how to make the management of the institutions have private sector discipline, how to put integrity back, accountability and clarity back into the management of these institutions.

The National Health Insurance Scheme was set up largely to ensure that there is liquidity; what do you think are the failings of that system? As a fund manager, what are the other ways you think liquidity can be ramped up?

Basically, NHIS is private sector driven and you are to have a regulator that is monitoring that process, but its delivery, in my judgment, is sub-optimal because the system is not working efficiently as it ought to be. The trust and confidence level in the system is challenged, so to say, and that is making it not to work optimally. Many of the top players, from the corporate entities, in actual fact, are very skeptical in my own judgment, the whole structure where you pay premium and expect your people to get proper service, between the service providers and the insurance, there seems to be lack of confidence and the flow of money is not going as measured.

We need to look at hospital revenue profile, pocket expenses is still very huge, like 75 percent of their revenue drive and the insurance it is delivering maybe 5 percent. That shows how challenging the system has been, which is essentially supposed to be the other way around, at least the health insurance is supposed to be delivering 50 percent of their revenue but it is not working out that way because there is lack of confidence and that shows that the regulators need to ramp up their process and a lot of reforms need to be done in that area. So, it is not working optimally and in the NHIS, two or three players are the dominant players and the rest are basically not there. There are about 43-48 licensed health insurance companies, but just two or three have 60 percent of the market share.

That shows the performance level of the sector and that is the issue, the liquidity that the system is supposed to drive is not coming. It appears that some people think that there is rent in that space but that rent is not coming. So we have the significant players who have strong and global operators backing them that have been able to get that confidence level, two or three, I don’t want to mention names.  They are quite a big business but, as I said before, it refers only to 2-6 hospitals and clinics.

And those, ordinarily, are not accessible by the generality of the people?

Yes, they are not accessible by the generality of the people, and they are up market players, big corporate hospitals, many have corporate clients, so the penetration level is quite low. So, to ramp up to the mass market has been the problem.

Now, is there any out of the box solution to this liquidity issue that has, perhaps, not been tried but needs to be tried?

I think, basically we just need to look at the reform of the whole process, and take another approach to it, which is the modeling we are pushing out. We want to see more structured money or capital coming into the system. We want to see big operators coming into the system, to actually bring liquidity, structured capital and management expertise, into the system. That is what is needed. We need structured, long term capital in the health care system, private sector driven; we also need to have a whole lot of new operators. We need to have pension funds partnering with strong operators, strategic investors going into the health system. That is the basic thing. I think that is what is happening in most developed economies with various levels of players and they all have access to capital and structured management.

So Nigeria has the population, it is the biggest economy by GDP in Africa, what do you think are the challenges of the market that tend to prevent these global markets from looking in here?

Yes, the market opportunities are enormous, and there is a lot of prospects for business here, but we have to create the environment for it, the structured capital and operators have to be in the market. But we are seeing that entrance, it is beginning to happen, we see a lot of strategic partnerships between big operators, DFIs, and foundations setting up big health sector business in Nigeria.

It is beginning to happen, because the market is irresistible for them, they just want to have reliable partners, and counterparts to do business with. They recognize the fact that there is enormous potential in Nigeria, the huge population, the rising middle class, the greater awareness of health and wellbeing, the need for health life span to increase, what is called quality life span, which is just about 46 years old; there is need for this to increase.

So, there is enormous potential, it is a young population, the demography is in our favour, but what is basically just needed is the enabling environment for those things to come in, to have the right partners to be in place, and that is actually the place where we are occupying, and that is the place I would like to dwell on in my presentation, because it is not there to have equitable investment with trunk operators and having a fund that is very relevant in that space and being able to wrap up productive capital and strong operators in the system.

The need to have that platform, and that is what we are actually putting in my place, and that is the essence of this presentation because the traditional financing system can’t do it, the kind of model that we have cannot work, we have a dose of disciplined, structured capital, disciplined and good management operators in this system, and we have to create those platforms for them and that is dedicated to Nigeria. We need to work with major operators to look at our health scheme and have a turnaround of improved operational performances. We need to have those platforms. That is why, as has happened in India, we need to open the market, and that has really improved outcomes, it has improved the sustainability of the health system, we cannot depend solely on the banks, on short term capital for what is actually a social impact investment.

Private sector health providers you mentioned earlier, suffer from shortage of capital for growth and expansion, and looking at the capital market for a long time, we talked about the capital market lacking depth and they are not creating the instruments that, for instance, can service the health sector. What kind of instruments can the capital market create that can help apart, I believe, that just as you have special instruments that are created specifically for certain sectors, wouldn’t there be a channel through which the problem of capital can be taken care of?

Because it is an long term business, and it doesn’t need short term capital, it needs both long term and management, they have to go hand in hand, the traditional way of raising money would not cut it, we need to a continuous process of bringing structured capital to the market, when you float it on the market, of course that investor platform needs to be there, but then as I have said, you need to make that sector attractive to retail investors and institutional investors and the only way to make it attractive is to have the private sector fund that would do the initial work of getting the sector to be viable and delivering outcomes.

So we are seeing that template working but there are coming majorly from the African geographic and so on. We have such things happening, we have seen one or three private capital investments, and Bridge for example but very few. We need to have that on a large scale in Nigeria focused on essentially in Nigeria. The Nigerian market is big and is almost half of the larger African market. It is market that requires a dedicated platform on its own and that is what we are looking at, that is the space we want to be. We are in that space, the private equity space.

So, you are in that space but quietly, because you have financial engineers, investors who play the money and capital market; what is stopping them from creating products, like you are doing, what is making it inactive so to speak, preventing making it a solution, because we don’t have a lot of specialized financial products of this nature and that might be telling something about experts like yourself, what is going on?

What is going on is the attractiveness of that market, of the space. Because of its fragmented nature and the lack of scale, it needs a lot of patient capital inside the space and it is a social impact environment and a very competitive environment. On the scale of opportunities, it doesn’t really rank high, so the basic thing is to have active participants in that sector, to highlight the attractiveness of that sector and to do the initial foundational work that would continue. The health sector is a smaller but integral part of what is called the consumer market, and the consumer market in every sector is actually very big and there are a lot of opportunities there.

It is that subset and has not been very much highlighted because traditionally, we don’t have the big players in this market, big hospital operators are not in this market; traditionally it has always been a family scaled venture, so it has not ranked high in terms of priorities of investors.

The same thing is applicable if you ask the banks, the sector portfolio in the larger consumer portfolio is about 10 percent, people are not living entirely in that space, like only two or three banks have specialized and they are playing in that space. So looking at it, there are opportunities at that end, but there is still a real gap that can be explored in that area, so the returns in that area can be amplified and should be amplified if you have scale, if you have big operators working there, when the likes of big insurance companies come into the market, into the value chain of health care providers, the environment is charged, and the returns is looking quite bright so there is opportunity there and by 2030 or thereabout, we should have many strong players in that sector, many private equity firms in that sector, providing specialized services, providing growth and enhancing services, return generating services in that side.

There’s been resistance to it but it is being broking up because there are opportunities, we now see the opportunities.

So you seem to suggest that private equity funds needs to begin to look at this sector and begin to think about how to rejig what is currently on, now that is one, I want you to reinforce that but I also want to ask you, as it is now, the returns are the key drivers of investment in any sector, so what are returns like now, and what are returns going to be like in the future, by your estimate, if the system is put in place properly, because we need to attract people to look at this, if we don’t talk about this, attention would not be caught so lets look at this?

For the returns as usual, we don’t have figures to drive this but we have one or two players who are in the capital market in both the diagnostic side and medical service side, and the stock has not been performing greatly and that shows the level of returns.

The level of returns is still abysmal poor, and that is basically like I said because we don’t have scale, we need to have scale to attract long term capital, strong operators, and the returns would continually keep ramping up like any other sector, and delivering higher returns and there is a larger consumer market and the FMCG market is quite strong in terms of returns, the opportunities are huge, the distribution channels are there, and in all the various parts of Nigeria, a huge working class, so we are projecting that per capital income could be in the region of $8,000 per household, so there is a lot of prospects out there and we are quite optimistic that the returns would be competitive like any other sector in Nigeria, and you just need to have scale, discipline, capital, and structured operators.

The demand is huge, there is a need for it and the returns would manifest if you really have the structure to take advantage of that sector. While it might abysmal now, we have confidence that within the larger consumer market, which the health sector is a sub-sector of, there are opportunities there.