Investment funds with a social focus have proven themselves as instruments for development cooperation. Recently, they have also been increasingly used to finance the development of new drugs, vaccines and medical equipment. This is demonstrated by the success story of a pilot fund for global health, which KfW is supporting on behalf of the German Federal Government.
Some diseases are more common in low- and middle-income countries than in rich countries. These include infectious diseases such as cholera, but also malaria, HIV and hepatitis. Other globally spread diseases are not diagnosed as reliably in developing countries as they are in developed countries. And if they are detected, they either cannot be treated at all, or can only be treated poorly with the medicines and equipment available there.
It is often not financially worthwhile for pharmaceutical manufacturers to get involved. In 2012, the idea for a health fund to address this problem was developed in the context of the Bill and Melinda Gates Foundation. On behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), KfW contributed EUR 10 million to the Global Health Investment Fund (GHIF) founded at that time. The Global Health Investment Corporation (GHIC) acts as fund manager of GHIF and at the same time represents an important partner in implementation for KfW.
The GHIF, which began as a pilot project for a start-up scene and whose developmental and economic viability was uncertain, has now far exceeded investors’ expectations. The fund has now financed the development of 14 products, including a cholera vaccine and mobile systems for decentralised vaccine production in Africa. In addition, tests have been developed to safely diagnose malaria, HIV, COVID-19 and hepatitis C. This helps to improve the health of twelve million people and save 250,000 lives every year.
At best, investors initially anticipated a return of up to 2% from the fund. In fact, more than 20% has been generated each year so far. This was due to the careful selection of young companies and their products, which were almost all successful.
The right markets were also addressed. Some of the financed equipment and diagnostics are not only used in developing countries, but are also sold in larger and more affluent markets. This is because the advantages are obvious: the innovative products financed with the help of the fund are not only more robust and easier to use – as they have also been specifically designed for use in developing countries – but are also cheaper and more accurate due to new research.
The success of the pioneer GHIF led to the creation of further similar funds with a volume of around one billion euros, in which Germany also participated in part as a central public investor. This includes the Adjuvant Global Health Technology Fund (Adjuvant GHTF) founded in 2019. This fund also aims to make new or improved healthcare products available at reasonable prices and in sufficient quantities. KfW contributed USD 22 million to its volume of USD 300 million on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). Adjuvant GHTF runs until at least 2029, but with its investments has already contributed to the development of eight vaccines, six therapeutics and two diagnostics, as well as new medical equipment. The first products have already been approved. The total effect so far amounts to 600,000 years of life, which would otherwise have been lost to illness or death.
The Federal Ministry for Economic Cooperation and Development (BMZ) invested part of its income generated from the GHIF, together with new funds, in another health fund: the Women’s and Children’s Health Technology Fund (WCHTF), which was launched at the end of 2021 and was able to raise USD 90 million by the end of 2023. Through KfW, Germany participated in two financing rounds of the fund, with a total of around EUR 20 million.
For the first time, the WCHTF is focusing exclusively on the health of women, children and young people. This target group is particularly in need in developing and emerging economies, as research and market introduction of essential health products and technologies for women, children and young people have so far been neglected. The fund aims to make at least ten investments in innovative products, saving 400,000 lives by the end of its term in 2031 and improving the health of eight million people.
In addition to the leverage effect, the funds also enable targeted supply to poorer countries. After all, all companies that receive funds must contractually agree to make their products and technologies available in developing countries at affordable prices.
Participation in social impact funds is a proven way of leveraging limited public funds with cooperative financial projects by attracting private investors to development policy objectives. These complement and increase public sector contributions. For every one euro from the state, three to four euros from private donors are added. The funds are therefore an important building block in achieving the UN Sustainable Development Goals, which no longer seems possible with public funds alone.
