The early days of the US International Development Finance Corporation (DFC) have been defined by a mixed record, and its health-focused investments are no exception. In the face of competing foreign (and even domestic) policy priorities under the Trump Administration and pandemic-related shifts in the broader development landscape, the agency has struggled to build a solid pipeline of projects in lower-income markets and systematically articulate a strong development rationale for its financing.
Yet DFC is well placed to contribute to the Biden-Harris administration’s goal to “build back better” from the COVID-19 crisis. But doing so will require the agency to apply a more systematic approach to safeguard effectiveness, leverage, and equitable impact as it expands its health portfolio. COVID-19 has severely disrupted health product supply chains and delivery of essential health services. DFC investments could help strengthen private sector manufacturing and delivery capacity to reverse these losses and insure against future health crises. Health sector investments are also a key opportunity for DFC to demonstrate global leadership and refocus on its development mandate, driving broader economic benefits and contributing to global economic recovery.
In a new paper, we spotlight high-priority opportunities for DFC in the health sector and outline key principles to guide future health-related investments. By contributing much-needed finance and incentivizing innovative health solutions in ways that promote health equity and impact, DFC can live up to its promising potential within the global health ecosystem. Here’s a summary of what we recommend:
Three critical areas for future DFC investments in health
DFC has pursued a proactive role in responding to COVID-19 and safeguarding broader health needs thus far, as evidenced by its 2020-2025 strategy and Health and Prosperity Initiative, which commit to directly investing $2 billion and catalyzing a total of $5 billion for health over the next three years. To harness high-impact opportunities with these resources (and course-correct from past missteps), DFC should prioritize future investments within the following three areas:
Build regional manufacturing hubs for health supplies: Expanding manufacturing capacity requires significant upfront investment, but regional manufacturers face numerous supply- and demand-side obstacles that limit their access to capital. DFC investments can support: short-term pandemic recovery through vaccine manufacturing and distribution; medium-term access to essential medicines through enhanced regional manufacturing; and long-term pandemic preparedness and resilience via a distributed and scaled network of vaccine manufacturing facilities. To create a solid project portfolio, DFC should partner with other development finance institutions (DFIs) to conduct a comprehensive landscaping assessment that identifies manufacturing bottlenecks and harmonizes investment selection criteria. DFC should also work with global health partners and procurement agents to establish an overarching policy framework that links to longer-term procurement practices and demand-side considerations.
Encouragingly, DFC is already collaborating with other DFIs to take this agenda forward. The recently announced partnership with IFC, Proparco, and DEG to support expansion of regional manufacturing capacity in Africa for both COVID-19 vaccines and future pandemic response—including a €600 million financing package to Aspen Pharmacare in South Africa—is welcome news. These nascent efforts deserve close observation as they unfold; their direction may hold extensive implications for future DFI collaborations.
Provide R&D incentives for biotechnology: To help address challenges in the global health innovation ecosystem, DFC can leverage its equity authority and risk appetite to act as a “venture capital” investor across a portfolio of moonshot-level biotechnology investments in areas like genomic sequencing technology and products to prevent and treat malaria, tuberculosis, emerging viruses, and neglected tropical diseases. In addition to shaping “push” incentives to reduce the costs of R&D borne by developers, DFC can help “pull” health innovations through development, manufacturing, and/or delivery using volume guarantees or other financial instruments that underwrite public sector purchase commitments and guarantee revenues.
Support robust supply chains for health-adjacent services and delivery models: COVID-19 has accelerated the deployment of telemedicine, low-cost transportation services, “no-touch” product delivery, and other tech-enabled interventions, but opportunities for more expansive scale-up remain. Amidst a capital-constrained and highly fragmented market, DFC can provide financing to ease credit limits faced by downstream start-ups and mid-sized private distribution and delivery companies—with a focus on how these businesses can work towards diversified markets, broader socioeconomic reach, and equitable access (e.g., through eventual integration into national health systems).
Key guiding principles
DFC’s phased expansion in these three health-focused areas should be informed by core guiding principles:
- Pro-equity development impact: DFC is legally required to fulfill a development mandate, but the agency must do more to direct investments to lower-income countries, utilize loan conditions, institutionalize performance metrics, and deploy other mechanisms to advance development impact. Specifically, DFC should (1) focus on investments that are compatible with countries’ long-term universal health coverage goals by supporting products and services that offer public payers good value for money in the long term; (2) set up accountability and learning processes surrounding the assessment, use, and integration of impact tracking metrics throughout the investment selection and management process; and (3) scale up staffing in target regions to enable better engagement with clients and increasingly implement smaller, riskier deals.
- Additionality: In the world of DFIs, additionality refers to the ways in which an investment leads to better outcomes than what would have otherwise occurred. Depending on the investment, DFI additionality in the health sector should involve demonstrating how the investment helps to get the right market incentives and regulations in place to increase quality and speed while lowering prices, with clear ties to DFC’s impact assessment and learning processes. This should take place during the selection stage, when DFIs can most effectively promote fidelity to development impact. At minimum, DFC should require additionality to be articulated in the public domain as part of each investment decision; such assurance is central to good stewardship of US taxpayer resources.
- Co-financing: Given DFC’s potentially larger risk tolerance than other DFIs, co-financing is an important way for DFC to leverage different risk appetites across investors and collaborate with development partners, including bilateral US global health programs and multilateral development banks, on developing an investment pipeline.
Building a diverse portfolio in the health sector will require balancing sometimes competing imperatives related to health equity, commercial viability, and foreign policy interests. As DFC seeks to scale its role in the health sector, the agency will need to prioritize investments even within the outlined key areas, taking into consideration its own staffing capacity, the need for greater project development, and portfolio-wide trade-offs between risk and profitability. Mitigating stakeholder expectations of the profitability of DFC investments in health could be helpful in the long run, allowing DFC the space and flexibility to drive equitable health impact and expand its efforts and ambitions in the sector over time.
DFC is well positioned to strengthen pandemic preparedness and expand equitable access to health products and innovation—with the prospect of further expanding efforts in the sector, with resources commensurate to its ambitions, over time.
You can read the full paper here.