Policy woes threaten health investment prospects in 2025

…Investors urge govt’s action

Lingering policy challenges from 2024 are sneaking into 2025, threatening to stall critical investments and derail growth ambitions for Nigeria’s health sector.

At the core, health businesses that struggled with high lending rates, exorbitant energy costs, the spiral effect of foreign exchange reforms, and unexecuted tariff exemptions on medical imports, still have the same issues to contend with.

The Federal Government stepped up efforts to strengthen healthcare governance in 2024 with bold initiatives to streamline the implementation of health insurance coverage to every Nigerian, restructure the funding and administration of primary healthcare, and offer new incentives to keep medical professionals in-country.

It adopted a sector-wide approach (SWAp) designed to align the government, private sector, and development partners under a unified framework. The initiative aimed to enhance resource allocation, streamline interventions, and set the stage for measurable improvements in healthcare delivery.

Impact on private sector

However, these underlying challenges continue to hinder the private health sector’s potential to drive substantial growth and contribute to achieving better health outcomes.

From hospitals to pharmaceuticals, diagnostics, and health-tech companies, these challenges affect them to different degrees, and without decisive action, analysts say they could dampen prospects in 2025.

Hospitals bear brunt

For example, the hospital segment, a service-based industry, faced an unprecedented surge in energy costs after an electricity tariff review resulted in a more than 300 percent increase in tariffs.

This significantly increased their operational costs, coinciding with the spiraling effects of naira devaluation and reforms aimed at unifying the official and parallel foreign exchange markets.

It became tougher to import medical inputs from specialised drugs, kits, consumables, and equipment with the naira devalued by more than 300 percent.

Oluwafemi Olaleye, head of health banking, at FSDH Merchant Bank, said many hospitals were forced to sell out their businesses as they struggled to keep the costs of operation under check.

According to the Health Care Providers Association of Nigeria, about 20 percent of Nigeria’s small and medium-sized private hospitals shut down by the end of the first quarter of 2024 due to crippling operating costs.

“For hospitals, 2024 was not a very good year because the operating costs of many players were through the roof. They were unable to make as much as they spent with inflation and high energy costs,” Olaleye said.

“A lot of owners had to give up and sell their businesses because it’s just not sustainable. It’s a service sector, people come in there and are lodged and they take treatment. So, the cost of keeping the lights on and the cost of keeping the equipment functional are very high. And HMO payments and out-of-pocket payments are not enough to cover for most of those hospitals.”

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Modupe Elebute-Odunsin, CEO of Marcelle Ruth Cancer Centre and Specialist Hospital, noted that investment in specialty-driven medicine was steadily growing with private investment, public-private partnerships, and government initiatives, but a lot of them are struggling.

“Our electricity bill went from N3 million to N5 million every month to N13 to N17 million. We cannot pass those costs to our patients. So, the support is going to be needed,” Elebute-Odunsin said.

In response, the Federal Government announced an electricity subsidy to help healthcare facilities reduce energy costs. However, the initiative excluded private hospitals and remains unimplemented.

Pharmaceuticals funding hurdle

For pharmaceutical manufacturing companies, the Central Bank of Nigeria’s effort to curb inflation and end volatility by raising the interest rate to 27.5 percent by the end of 2024 has eroded access to cheap funding, making the cost of doing business exceedingly high.

Interest on loans from top commercial banks at some point soared to 35–38 percent, forcing companies to seek alternative funding sources such as private equity, commercial papers, and development finance institutions. This financial pressure slowed several expansion projects, including the establishment of new production plants, according to industry stakeholders.

While the executive order to exempt pharmaceutical inputs and devices from value-added tax and excise duties could have offered some relief by reducing production costs and lowering drug prices, its implementation has been significantly delayed.

Akinjide Adeosun, chairman of St. Racheal’s Pharma, a Lagos-based pharmaceutical company, highlighted that the worsening economic conditions—driven by currency instability, high lending rates, inflation, and energy costs—have rendered essential medicines, such as antibiotics, unaffordable for many Nigerians.

Prospects for 2025

To address this, Adeosun proposed that the National Assembly should accelerate the enactment of a bill to establish the Health Development Bank of Nigeria.

This bank would provide medium and long-term credit facilities to health institutions at a single-digit lending rate, which he believes would significantly lower the cost of doing business across the pharmaceutical value chain.

“Businesses are finding ways to navigate,” Adeosun said. “Some are shifting from band A to band B or investing in solar energy sources. And even though the currency is relatively stable enough to plan with; it is not where we want it.”

He emphasised that the burden ultimately falls on patients, stating, “The current situation of a full dose of antibiotics costing about N20,000 is unacceptable and harmful. The establishment of a health bank has the twin benefit of reducing patient deaths and enhancing the life expectancy of the pharmaceutical industry in Nigeria.”

With projections that interest rates will decline in 2025, analysts expect that capital flow will increase in the healthcare space in terms of debt affordability.

“We expect that many of the banks like the Development Bank of Nigeria and Bank of Industry, will be able to give more single-digit facilities to players to aid capital investment and purchases,” Olaleye, FSDH head of health banking said.

New hospital projects on horizon

Meanwhile, analysts are also expecting some mega ongoing hospital projects to take off operations this year. The Africa Medical Centre of Excellence in Abuja, an Afreximbank project is billed to open by the end of the first half of the year.

The Oakwood Hospital, funded by AfyA Care, a Lagos-based health investment company is coming up along the Lekki Corridor.

The Lagos Medipark project, a public-private partnership involving the Lagos State government, IASO Consortium, and Iwosan Investments Limited is expected to be 140-bed units.

Looking ahead

Pamela Ajayi, president of the Health Federation of Nigeria (HFN), acknowledged that 2024 was a year of significant progress, marked by critical reforms, strategic partnerships, and innovative programmes aimed at improving health outcomes for all Nigerians. However, she emphasised the need to amplify the private sector’s impact on the healthcare ecosystem.