INNOVATIVE FINANCING FOR NUTRITION INTERVENTIONS IN NIGERIA

INNOVATIVE FINANCING FOR NUTRITION INTERVENTIONS IN

NIGERIA

A review of existing and potential models By Dr. Osondu Ogbuoji

Presented to Dr. Liman Mohammed

20th September 2017

RATIONALE FOR REVIEW

• Over 450,000 Nigerian children die every year from malnutrition-linked causes

• WINNN program has worked with the Nigerian government and other stakeholders to tackle undernutrition in five states – Jigawa, Katsina, Kebbi,Yobe, and Zamfara

• Recent economic shocks threaten to stall or reverse gains achieved in the battle against

undernutrition in these five states • Nutrition strategic plans developed by WINNN states will cost over $1.9 billion over five

years which far exceeds existing state resources

• Innovative financing models are needed to plug the gap in nutrition funding

OBJECTIVE OF THE REVIEW

• To identify potential innovative financing models to enhance planning, and improve resource allocation/mobilization for nutrition interventions in the five WINNN states.

• To analyze potentials for implementation of identified models

METHODS

• Searched peer-reviewed literature, grey literature, and news media

• Expanded search to include other health and development programmes

Inclusion Criteria

1. Not currently practiced on a wide-scale in Nigeria

2. Currently operational somewhere

3. Potential for implementation at state-level

4. No significant upfront investment required from the state

5. Evidence of success in similar situations

6. Results possible within 24 to 36 months

RESULTS – INNOVATIVE FINANCING MODELS

Financing Model Examples 1 Debt Conversion Instruments Debt2Health Initiative in Cote

d’Ivoire 2 Public Private Partnerships

Market Guarantees Global Alliance for Vaccines Initiative (GAVI)

Agricultural Pull Mechanism Initiative (AGPMI)

Tax breaks Agricultural tax-breaks Matching Grants DFID, USAID, GTZ

3 Nigerian National Health Act 2014 4 Crowdfunding www.civicinvest.org

RESULTS – INNOVATIVE FINANCING MODELS

Financing Model Examples 5 Taxes

Consumption taxes South Africa sugar taxes, Philippines “sin Tax Reform Law”

Employment taxes/levies Zimbabwe AIDS Trust Fund 6 Bonds

Impact Bonds Social Impact Bonds & Development Impact Bonds

Diaspora Bonds State Bank of India Development Cooperation of Israel

GDP-Indexed Bonds Brady bonds – e.g. Costa-Rica Future Flow Securitization Mortgage-backed securities

MODELS NOT CONSIDERED

• Regular borrowing

• Reallocation of funds

• Increased fiscal space

• Revenue increase

• Sovereign wealth funds

DEBT CONVERSION INSTRUMENTS

How it works • Conditional conversion of state debt to grants

• Usually include requirements to channel debt payments towards investments in social programs

• Bipartite agreements include debtor and creditor only

• Tripartite agreements include a third-party who buys part/all of loan

Examples • Cote d’Ivoire – $27 million through the Global Fund Debt2Health initiative

• Botswana National HIV/AIDS prevention – $50 million from IBRD-World Bank

PROS

• Relieves the government of part/all of its debt-servicing burden

• Funds channeled into sectors that previously lacked funds

• Results manifest quickly

• Simple to structure

CONS

• Government still needs to make payments as agreed

• Forgiveness is usually formalized ex-post

• Potential for default still exists

• More complex if third-parties are involved

DEBT CONVERSION INSTRUMENTS (2)

PUBLIC PRIVATE PARTNERSHIPS

MARKET GUARANTEES

How it works

• Government (or other organization) undertakes to cover risks of doing business

• Guarantees may include advance market commitments, raw materials provision, or provision of security

• May include reliable third-parties

Examples • Agricultural Pull Mechanism Initiative (AGPMI) by the World Bank, Gates Foundation,

US Gov. etc.

• Global Alliance for Vaccines Initiative (GAVI)

PROS

• Good for capital intensive projects

• Little or no upfront investments by government (or organization)

• Stimulates local economy

• Attracts relevant technical expertise

CONS

• Usually requires significant capital outlays by investor

• Delayed results from time needed to build production capacity

• Potentials for crowding-out other important economic activities

MARKET GUARANTEES (2)

TAX BREAKS

How it works

• Government offers tax breaks to incentivize investments in agriculture or nutrition related economic activities

• Tax-free periods are long enough to encourage long-term investments

Examples

• Tax-breaks for post-harvest agricultural activities e.g. Food processing plants

• Tax-breaks of fertilizer production and distribution

PROS

• No initial investment by state government

• Attracts inflow of external resources

• Potential for strong long-term results

• Potential for positive externalities

• Ability to target specific economic activities

CONS

• Tax-breaks may not be big enough to encourage desired investments

• Government forfeiture of potential tax revenue

• Results may be delayed

TAX BREAKS (2)

MATCHING GRANTS

How it works • Government (or other organization) issues a request for applications to implement a

project

• Terms include a counterpart funding requirement

• Once awarded, government/organization monitors to ensure counterpart funds are invested in project

• Award could go to private enterprise or other government organization (e.g. LGA)

Examples

• Various models implemented by USAID, DFID, GTZ grants

PROS

• Leverages current finances through matching requirements

• Flexibility in the nature and volume of counterpart funding required

• Attracts technical expertise to the state • Encourages private sector participation

with potential improvements in efficiency • Government can give or receive matching

grants

CONS

• Requires ex-ante allocation of funds

• State may not be experienced in grant management

• Capacity to effectively monitor implementation may be lacking

MATCHING GRANTS (2)

CIVIC CROWDFUNDING

How it works • Government (or other organization) advertises development project with a financial

goal on a crowdfunding platform like www.indiegogo.com or www.citizinvestor.com

• Individuals invest/donate varying small amounts in/to the project until the financial goal is met

• Government/organization is held accountable by investors

Examples

• Uganda – Non-toxic mosquito control patches built by Kite

• Kenya – Solar energy for off-grid communities

PROS

• Little or no upfront investment

• Increases citizen participation in development

• Improves accountability and transparency in governance

• Requires clarity of goals and objectives

• Best for projects with tangible results

CONS

• Relatively new model

• Few examples in developing countries

• Requires learning a new way of doing business

CIVIC CROWDFUNDING (2)

NATIONAL HEALTH ACT (NHA) 2014

How it would work

• States required to set-up agencies and mechanisms to access NHA 2014 funds from NPHCDA and NHIS

• Initial round of funding for capacity building

• Subsequent rounds based on performance

• States required to provide matching funds

PROS

• Implementation through existing structures

• Some nutrition interventions included in basic health care package

• Pay for performance increases likelihood of successful implementation

CONS

• States may not have sufficient matching funds for maximum draw-dawn

• Depends on successful implementation at the Federal level

• Requires a strong monitoring and evaluation system

NATIONAL HEALTH ACT (2)

TAXES

CONSUMPTION TAXES

How it works

• Government taxes the use of a particular product or service

• Tax revenue is used to fund specified health programmes

• Also known as “sin tax” when product/service is believed to have negative public health effects e.g. cigarettes, smoking, sugar, gambling.

Examples

• Philippines Republic Act 10351, or the Sin Tax Reform Law

• South Africa and Mexico – Sugar consumption taxes

PROS

• Ready source of revenue

• Quick results once implemented

• Fully controlled by government

• Increases tax base of the state

• Positive externalities from reduction in consumption of “sin” goods.

CONS

• Success requires strong state enforcement capacity

• Revenues decrease over time from decreased consumption of item/service

• May have unintended consequences e.g. Black-markets

• Potential competition with federal government. E.g. import duties on sugar vs state taxation of sugar consumption

CONSUMPTION TAXES (2)

EMPLOYMENT TAXES/LEVIES

How it works

• Government places a tax/levy on formal sector employers and employees

• Tax revenue is earmarked for specified programmes Examples

• Zimbabwe AIDS Trust Fund: 3% levy on employers and employees. Generated $52.7 million over 3 years

• Kenya, Uganda, and Tanzania on track to start similar programmes.

PROS

• Ready source of revenue

• Quick results once implemented

• Fully controlled by government

• Increases tax base of the state

• Possible to securitize future flow

CONS

• May be politically risky

• Success requires a reasonably large formal sector

• Requires strong tax collection capacity

EMPLOYMENT TAXES/LEVIES (2)

BONDS

IMPACT BONDS – “PAY FOR SUCCESS”

How it works

• Government issues a bond for a desired health outcome

• Private sector investors implement programmes to achieve outcomes and make reasonable profit

• Payment is made only when desired outcomes are met

Examples • Social Impact bonds: Government pays for desired outcomes e.g. Decreased

incidence of malnutirion

• Development Impact bonds: Donor/Philiantropist pays for desired outcome

PROS

• Great potential for cost-savings • Mitigates risks from direct government

investment • Increases efficiency through private sector

participation in service delivery • With development impact bonds, the State

has no financial obligation • Usually limited to evidence-based

interventions

CONS

• Requires a strong monitoring and evaluation system

• Not attractive to investors if government’s financial viability is in question

• Limited examples in developing countries

IMPACT BONDS (2) – “PAY FOR SUCCESS”

DIASPORA BONDS

How it works

• Government issues project-specific bonds to attract diaspora investments

• Citizens in diaspora buy bonds in order to contribute towards development at home

• Instrument works like any other state-issued bond Examples

• State Bank of India -- $11.3 billion in three rounds

• Development Cooperation of Israel -- $25 billion since 1951

• Nigeria’s attempt in 2014 with Goldmann Sachs and Stanbic as advisors

PROS

• Large population of Nigerians in diaspora

• Offers investors a patriotic incentive

• Potential for states to allow investments from citizens living in other states within the country

• Encourages citizen participation in governance

CONS

• May require international financial arrangements e.g. with the US SEC

• Investors may lack faith in ability of government to pay the debt. E.g. Ethiopia 2009, Greece 2011

• Limited examples at sub-national level

DIASPORA BONDS (2)

GDP-INDEXED BONDS

How it works

• Government issues project-specific bonds

• Coupons on bonds vary with economic performance (GDP growth) or state’s ability to pay

• Pay-off increases if GDP growth exceeds a set threshold

Examples

• Costa-Rica and Bulgaria: Warrants included in Brady plans

PROS

• Reduces risks associated with cyclical economic performance

• Reduces risk of default and debt crises

CONS

• May attract little investment because of cyclical interest rates

• Not widely practiced

• Complex investment instrument

• Difficulty of tracking state GDP data and potentials for under-reporting

• May likely require public policy intervention

GDP-INDEXED BONDS (2)

FUTURE FLOW SECURITIZATION

How it works

• Asset backed security issued by the government

• Value of instrument based on expected revenue sources e.g. payments from natural resources, accounts receivable, future tax revenue, remittances

Examples

• Diversified payment rights

• Mortgaged-backed securities

PROS

• Potential to fund high-return interventions at low cost

• Access to capital by securitizing future fund-flows

• Low incidence of default

CONS

• Requires a predictable source of revenue flow to attract investors

• May require international agreements to guarantee investor interest

• May require public policy interventions

• Difficult to structure. E.g. None in Kenya in the 3 years following passage of Capital Markets (Asset Backed Securities) Regulations

FUTURE FLOW SECURITIZATION (2)

SUMMARY

Financing Model

Sign

ifica

nt

Init

ial

Inve

stm

ent

Req

uire

d N

et

Gov

ernm

ent

Rev

enue

Com

pati

ble

wit

h ex

isti

ng s

yste

ms

Res

ults

Ons

et in

ye

ars

Debt Conversion Instruments No 0 Yes 1-2

Market Guarantees Maybe - Yes 2-5 Tax breaks No - Yes 2-5 Matching Grants Yes - Maybe 1-2 Nigerian National Health Act (2014) Yes + Yes 1-2 Crowdfunding Little + No <1

SUMMARY (2)

Financing Model

Sign

ifica

nt

Init

ial

Inve

stm

ent

Req

uire

d N

et

Gov

ernm

ent

Rev

enue

Com

pati

ble

wit

h ex

isti

ng s

yste

ms

Res

ults

Ons

et (

in

year

s)

Consumption taxes Maybe + Yes 1-2

Employment taxes/levies Maybe + Yes 1-2 Impact Bonds No 0 or (-) No 2-5 Diaspora Bonds No + No 2-5 GDP-Indexed Bonds No + Maybe 2-3 Future Flow Securitization No 0/+ No 2-3

Issues and Concerns • Focus on RUTF procurement/Black Market for RUTF rather than promotion of appropriate IYCF

• Health Sector coordination

• Incomplete/Delayed release of budget allocations

• Lack of a system to administer funds generated

• Sustainability of funds (Trust funds) linked to donor fatigue

• Stigma and state ownership of the malnutrition problem

• Introduction and collection of taxes : Raising taxes in the states not feasible. “it is only when you create wealth then

you can tax”. • Compliance with taxation

• Many of the implementing states rank low on human capital development. “Natives do not have the expertise to do

contracts so contracts are given to foreigners” The contract tax is an attempt to keep some of the money within the state.

Opportunities • Governors and State House of Assembly speakers Forums

• State Basket Funds and timely release of budget in 3 of the implementing states

• Prioritizing malnutrition as Governmnet agenda in 2 of the implementing states

• Lessons from the Jigawa State Pensions Board and transition from the Gunduma Health system to a Primary Health

Care Delivery system

• Engagement of Civil Society Organizations (CSO) and Emirs as champions of nutrition

• Possible replication of the Anchor Borrowers Scheme. “Once the villagers understand what you’re trying to achieve, they will form their personal NGO, and drive the process themselves”

• Governments’ responsibility should not be downplayed. Quotes: “It is essential for Government to fund programs to see that its people are healthy no matter what.

THANK YOU