A Case for Private Sector Investment in Healthcare in Nigeria
Authors and Contributing author:
Ofovwe Aig-Imoukhuede, Chinonyerem Egekwu, Ifeanyi Ngwoke and Ojukwu M. Ojukwu
Over the past few decades, evidence has shown that many challenges exist with the Nigerian healthcare system, with the nation's healthcare indicators ranking among some of the lowest globally.¹ These challenges stem from factors such as deteriorating infrastructure, inadequate compensation for healthcare workers, brain drain, unregulated practices, shortage of essential medicines and supplies, high out-of-pocket expenditure, and limited access to quality care. The challenges can be traced to poor public healthcare financing and low budgetary allocation for health which has created a cascading effect on the overall performance of the healthcare system.¹,²
In 2023, the Nigerian government allocated 5.75% of the nation's annual budget to health, representing the most significant allocation for health in the country's history³. Despite this milestone, given that Nigeria’s population exceeds 200 million with an annual population growth rate of 2.4%⁴, the allocation of N1.17 trillion for health is inadequate. It falls considerably short of the 2001 African Union (AU) Abuja Declaration Target, where African leaders committed to allocating at least 15% of their annual budgets each year to the health sector1. At the subnational level, there was a 2.5% decline in collective budget allotments for health in the 36 states post-pandemic, dropping from $1.92 billion in 2020 to $1.87 billion in 2022.⁵ Considering the challenges with public sector funding for health in Nigeria, there are immense opportunities for private sector funding within the health landscape.
Despite the implementation of a national policy on Private-Public partnerships (PPPs) in 2005 and the availability of reports showcasing successful human capital development projects based on the PPP model⁶; a remarkable proportion of healthcare investments in Nigeria remains in government-owned health facilities, which make up about 70% of all the health facilities in the country⁵. Interestingly, despite this, 60% of healthcare services in Nigeria are provided by the private sector⁵. This disparity underscores a compelling business case for private sector involvement and investment in the Nigerian health system. A recent health sector market study in Nigeria shows that the demand for healthcare in the country was projected to reach $18 billion by the end of 2023⁵, marking a notable rise from $15 billion in 2018⁷. This increase in demand is attributed to factors such as Nigeria’s rapidly growing population, urbanization, and increased internet access⁸. As a result, the Nigerian healthcare market presents significant opportunities and prospects for medium- to high-yield investments.
A 2020 health report from McKinsey stated that the potential Returns on Investment (ROI) in healthcare in developing economies like Nigeria, could range from 100% to 300% by 2040⁹. Additionally, the Nigeria Economic Summit Group (NESG) Health Financing Whitepaper titled 'Health Policy Commission' reported that healthcare investments are counter-cyclic in nature, defensive and inflation-sensitive, underscoring the remarkable business prospects they present9. This suggests that healthcare investments remain viable even during economic downturns. In addition to the potential for direct investments in hospital, diagnostic, laboratory, and radiology services, expansive opportunities exist in sectors such as medical devices, telemedicine and health insurance. For instance, the medical devices market, valued at $186 million in 2022, is forecasted to grow to $202 million by the end of 20235. Additionally, revenue generated from telemedicine and eHealth solutions reached an impressive $315.2 million in 2022, and is projected to rise to $704 million by 2027, with an expected increase in the eHealth penetration rate from 13.4% in 2022 to 19.2% in 2027⁵. Furthermore, medical subspecialties like oncology, orthopedics, nephrology, and cardiology have been identified as the primary catalysts behind Nigeria's outbound medical tourism⁵. This sector accounted for approximately $1.9 billion in healthcare expenditures within the country in 2019⁵. Investing in healthcare solutions that target these specialised areas align with a market poised for exponential growth.
In the same vein, opportunities abound for investments in the pharmaceutical subsector. It is noteworthy that despite having approximately 132 licensed pharmaceutical manufacturers across the nation5, Nigeria still imports over 90% of its pharmaceutical products. This situation presents a significant opportunity for domestic drug and medical consumables manufacturing. Moreover, Nigeria boasts of a robust distribution network for pharmaceutical products, with nearly 6,000 licensed pharmaceutical distributors actively engaged in the market. These figures underscore the substantial market demand for these products, existing avenues of distribution, and the promising potential for profitability in a health market where pharmaceutical products are valued at over $500 million⁵.
Private investments in the Nigerian healthcare sector have consistently yielded positive returns, despite varying profit margins. Over the past year, there has been a notable 48% growth within the Nigerian Stock Exchange (NSE) for healthcare companies. These companies collectively accumulated earnings exceeding N5.7 billion over the preceding three years, marking a significant increase of 52% according to a stock exchange report that listed seven healthcare companies¹⁰. Notably, none of the listed healthcare companies encountered losses during this period.
Nevertheless, despite the significant potential of the Nigerian healthcare market, investing in this sector presents challenges due to prevailing constraints. The country's notably low healthcare expenditure, reported at $76 per capita in 2019 by the World Bank, is a substantial hurdle, significantly below the African average of $186. Consequently, although Nigeria boasts a sizable population, the portion of the market able to afford healthcare services is considerably smaller. Additionally, the infrastructure gap that exists in the country means that investors must also consider the costs associated with providing essential utilities like electricity and water, making such investments highly capital-intensive¹¹. Finally, there is a shortage of qualified medical professionals with a doctor to patient ratio of 3.9 per 10,000, much lower than the WHO recommended ratio of 17 doctors per 10,000 as of 2022¹². Despite these constraints, the size of Nigeria’s outbound medical tourism market is a clear indicator that opportunities exist for investors to close the local healthcare provision gap, at least for those at the top of the pyramid. However, the Nigerian context means that the return on investment may not be as linear and straightforward as in other economies and so the type of capital needed to close this gap requires more patience with a long-term investment focus. Distant, hypothetical returns are less attractive in comparison to short-term investments. As such, Nigeria lags behind in its health equity investments compared to other African nations. For example, between 2016 and 2022, Egypt, South Africa, Morocco and Kenya received $1.5 billion, $935 million, $615 million and $379 million worth of investments into their respective healthcare industries, outpacing Nigeria, which received just $351 million over the same period¹³. Nevertheless, this gap in equity investment is being bridged by local private sector investors. An example of progress is the growth of the HMO market in providing affordable healthcare, promoting preventive care and overall wellness, and boosting infrastructure development in the health sector towards universal health coverage¹⁴. This growth is linked to the increasing penetration of health insurance in the country, which rose from 5.1% in 2018¹⁵ to 8.8% in 2021, and the reaccreditation of about 52 HMOs as of 2018¹⁶. Additionally, on the supply side big hospital groups such as the Reddington Hospital group and the Lagoon group, are investing heavily in the market.
For the rest of Nigeria's large population who do not present a profitable market for investors, philanthropy can fill the gap by collaborating with the Nigerian government to facilitate access to healthcare for citizens at the bottom of the pyramid. Initiatives like the Adopt-a-Healthcare-Facility Programme, led by the Private Sector Health Alliance of Nigeria, and the Basic Healthcare Provision Fund can promote more equitable healthcare distribution. By directly funding primary health care centers, these programs ensure that people with low incomes can access necessary medical care without the burden of high costs.
In summary, the Nigerian healthcare industry remains an untapped sector. Investments in the healthcare sector may not initially seem as appealing as those in other sectors, such as oil and gas, agriculture, and telecommunications, but a growing urban middle class, expanding internet access, and a well-established distribution network, ¹⁷ indicate a promising future for the medical industry. A mindful and long-term investment approach in the healthcare industry can therefore create substantial gains for investors and a transformational effect for the nation. Beyond financial profits, private sector investments in healthcare can yield non-monetary and indirect benefits, such as job creation, improved healthcare system efficiency, enhanced access to healthcare services, and strengthened research and development capabilities.
¹ Abubakar I, Dalglish SL, Angell B, Sanuade O, Abimbola S, Adamu AL, Adetifa IMO, Colbourn T, Ogunlesi AO, Onwujekwe O, Owoaje ET, Okeke IN, Adeyemo A, Aliyu G, Aliyu MH, Aliyu SH, Ameh EA, Archibong B, Ezeh A, Gadanya MA, Ihekweazu C, Ihekweazu V, Iliyasu Z, Kwaku Chiroma A, Mabayoje DA, Nasir Sambo M, Obaro S, Yinka-Ogunleye A, Okonofua F, Oni T, Onyimadu O, Pate MA, Salako BL, Shuaib F, Tsiga-Ahmed F, Zanna FH. (2022). The Lancet Nigeria Commission: investing in health and the future of the nation. Lancet. 399(10330):1155-1200. doi: 10.1016/S0140-6736(21)02488-0.
² Oleribe OO, Momoh J, Uzochukwu BS, Mbofana F, Adebiyi A, Barbera T, Williams R, Taylor-Robinson SD. (2019). Identifying Key Challenges Facing Healthcare Systems In Africa And Potential Solutions. Int J Gen Med. 6;12:395-403. doi: 10.2147/IJGM.S223882. PMID: 31819592; PMCID: PMC6844097.
³ Adebowale-Tambe, Nike. (2022). 2023 Budget: Health gets highest allocation ever but fails to meet AU commitment. Premium Times. Published October 19th, 2022.
⁴ Ogunro, Julius. (2023). Nigeria’s population timebomb. The Cable. Published February 23rd 2023.
⁵ PharmAccess Foundation’s Nigeria Office. (2022). Nigeria Health Sector - Market Study Report.
⁶ Anakwenze Akinfenwa CP, Ibraheem A, Nwankwo K, Lasebikan N, Ali-Gombe M, Aliyu UM, Ikhile E, Adegboyega O, Abdullahi A, Klopp AH, Schmeler K, Lin LL, Jhingran A, Page BR, Leng J, Grover S, Ntekim A. (2021). Emerging Use of Public-Private Partnerships in Public Radiotherapy Facilities in Nigeria. JCO Glob Oncol. ;7:1260-1269. doi: 10.1200/GO.21.00066.
⁷ International Trade Administration. (2023). Nigeria—Country Commercial Guide. https://www.trade.gov/healthcare-resource-guide-nigeria.
⁸ The NESG Health Policy Commission. (2003). Attracting Funding for the Nigerian Health Sector: Outlining the Opportunities, Financing Options, and Challenges. Policy Paper.
⁹ Remes, J., Linzer, K., Singhal, S., Dewhurst, M., Dash, P., Woetzel, J., Smit, S., Evers, M., Wilson, M., Rutter, K., Ramdorai, A. (2020). Prioritizing Health: A Prescription for Prosperity. McKinsey Global Institute.
¹⁰ Simply Wall Street. (2023). Nigeria (NSE) Health Sector Analysis.
¹¹ Response from Key Informant Interview with Mrs. Fola Laoye, CEO, Iwo San Investments Limited. May, 2024.
¹² World Health Organization 2024 data.who.int, Density of physicians (per 10 000 population) [Indicator]. https://data.who.int/indicators/i/CCCEBB2/217795A
¹³ Proper Africa, African Healthcare Investment Opportunities Report (2023) https://www.prosperafrica.gov/wp-content/uploads/2024/01/Prosper-Africa-Healthcare-Investment-Report_2023_vF_DIGITAL_C.pdf
¹⁴ Health Maintenance Organisation (HMO) Industry Report 2023 https://www.augustoresearch.com/report/2023-hmo-industry-report/
¹⁵ This is based on a report on HMOs in Nigeria by Augusto & Co., 2018.
¹⁶ Nigeria Health Sector Market Study Report, 2022. PharmAccess Foundation’s Nigeria Office
¹⁷ Remes, J., Linzer, K., Singhal, S., Dewhurst, M., Dash, P., Woetzel, J., Smit, S., Evers, M., Wilson, M., Rutter, K., Ramdorai, A. (2020). Prioritizing Health: A Prescription for Prosperity. McKinsey Global Institute.