Practical analysis for investment professionals
10 November 2014

Fighting Ebola with Impact Investment

The Ebola outbreak in West Africa has made daily headlines during the past few months. As the World Health Organization (WHO) reports, the current Ebola crisis began in Guinea in December 2013. The transmission of the virus has been mainly in Guinea, Liberia, and Sierra Leone.

As of 29 October 2014, the three countries have reported 13,676 cases. About 5,000 people have died so far. This is the largest outbreak of the disease ever recorded. The WHO has declared the crisis an “international public health emergency.”

In response, many unaffected countries have made preparations to screen international travelers. However, because health workers have been quarantined in the United States with Ebola symptoms, a new urgency has entered the discussion. International donors and organizations have taken note: total funding for the Ebola crisis currently hovers around $1.4 billion, according to collated figures of the United Nations’ Office for the Coordination of Humanitarian Affairs (OCHA) and the World Bank.

The following graph tallies the current humanitarian assistance of the largest donors, excluding pledged funds.


Figure 1

Sources: OCHA and World Bank.


However, one actor is missing in this discussion: the global impact investment community. Let’s first zoom in on current initiatives in the fight against Ebola by global organizations and private donors and then address how impact investment could complement them.

Developing a Vaccine

Gavi, the Vaccine Alliance, is examining how it could speed up the development of an Ebola vaccine. According to Gavi’s Executive Committee, the alliance is reviewing how it can mobilize its partners that are already active in the response to Ebola, including providing support in affected countries. One Ebola vaccine is currently in Phase 1 with human trials, and there are several others in development. With its expertise in shaping vaccine markets and scaling up access to vaccines, Gavi hopes to accelerate the availability of potential vaccines to stem the spread of the epidemic.

Gavi funds its initiatives with innovative financial instruments. For example, under the Gavi Matching Fund, the UK Department for International Development and the Bill and Melinda Gates Foundation have pledged about $130 million to match contributions from foundations, corporations, and other partners to vaccination programs in the developing world.

When a vaccine will be available is uncertain, however. In the meantime, qualified personnel in affected countries could help contain the disease to hopefully avoid its global spread. This is where the World Bank comes in.

Private Pledges

Last month, Paul Allen, the co-founder of Microsoft, pledged $100 million to increase the number of foreign health workers, with much of the funding going toward medical evacuation services for foreign health workers who contract Ebola. The European Commission and the United States also pledged to support medical evacuation of infected foreign health workers. Facebook founder Mark Zuckerberg pledged $25 million of his own money for the same purpose.

World Bank Response

The World Bank recently announced an extra $100 million funding in its response to the Ebola crisis. It states the funds are mainly necessary to deploy foreign health workers to the three most affected countries in West Africa. The announcement increases the World Bank’s funding for the Ebola fight over the last three months in Guinea, Liberia, and Sierra Leone to more than $500 million.

The bank’s financing will help set up a coordination hub together with the three countries, the WHO, the UN’s main Ebola coordination body in Ghana, and other agencies. The goal is to train foreign health workers and to resolve issues blocking their recruitment, such as concerns about safety and medical evacuations for any infected staff.

Where Are the Impact Investors?

The impact investment community has been remarkably quiet about Ebola. This is understandable because the investment style mandates longer lead times for careful planning and examination of investment opportunities. Even though impact investment addresses social and environmental causes in the least developed countries, it is markedly different from philanthropy and donations. Impact investors are open to receiving a lower return on their investment to ensure it makes a difference. However, economic incentives and a financial return must be achievable with portfolio projects to qualify as impact investments.

At the same time, the recent loan by the World Bank is hardly free money. The bank usually lends at the current lending rate that meets the short- and medium-term financing needs of the private sector. This rate differs according to the creditworthiness of borrowers and objectives of financing. The terms and conditions differ by country, which somewhat limits their comparability. In any event, the lending rates for the countries most affected by Ebola — Guinea, Liberia, and Sierra Leone — are high. The World Bank has complete data for the rates of the latter two, whereas data for Guinea end after 2000. The following graph shows the lending rates for the three countries in 2000 and 2013.


Figure 2

Source: World Bank.


As an investment thesis, fighting Ebola would clearly qualify as an impact investment. It should be possible for impact investors to complement World Bank funding at competitive lending rates. Let’s look at two financing instruments to combat the outbreak that would qualify as impact investments.

Matching Funds

A relatively straightforward approach to impact investment is a matching fund. Such a fund would match the contributions of private donors or aid organizations but would make them available in the form of loans, similar to those of the World Bank. As we have seen, the lending rates for the three West African countries are relatively high. Impact investors could find a middle ground between lending to the government at this rate and making the capital available as a donation. If impact investors agreed to accept a haircut, they could potentially make available large amounts of capital quickly.

Development Impact Bonds

Another way to set up impact investments are development impact bonds (DIBs). They bring the private sector together with civil society organizations, governments, and donors. DIBs are a variation of social impact bonds (SIBs), which have been in effect in the United Kingdom and the United States since 2010. Both vehicles share the same makeup. The main distinction is that DIBs follow a development mandate, whereas SIBs center more on social issues.

The Center for Global Development explains DIB contracts in more detail. The sequence of a DIB starts with public, private, and not-for-profit actors defining a common goal they wish to achieve. In this case, it may be the development of a vaccine or containment of the disease. The initial actors decide on a method for measuring success. To coordinate the different actors in the DIB, an intermediary organization is necessary. The different actors are:

  • Investors, who provide funds to roll out a project;
  • Service providers, who work to deliver results;
  • Outcomes funders, who pay when the project achieved results.

Outcomes funders can be governments of affected countries or the international community. If projects are successful, the returns are social as well as financial. Investors receive their principal and a coupon, similar to a zero-coupon bond. However, if outcomes fail, investors recover only part of their principal or nothing at all, according to the bond covenants. The diagram below shows the basic makeup of a DIB.


Figure 3


DIB contracts allow investors and service providers more flexibility to carry out projects than traditional contracts. Especially in complex projects, such as vaccine development and deployment, this can be a central benefit. It also enables investors to better manage their risk because the service providers they finance — private companies or nongovernmental organizations (NGOs) — can innovate to meet the needs of the project. Often these needs change over the course of the project, so service providers need to be agile. This should increase investors’ potential to deliver results and help them reduce risk in DIB contracts.

Moving Fast Could Make a Difference

Time and money are of the essence in containing a viral outbreak, such as in the current Ebola crisis. The international community and several development organizations have made more than a billion dollars available for aid. Nevertheless, this is still only a drop in the bucket compared with what it costs to contain the crisis and develop and deploy a vaccine on an international scale. If impact investors rose to the challenge with innovative funding vehicles, they could mobilize large amounts of capital to complement the existing efforts.

Still lacking in impact investment is a global platform to coordinate initiatives according to global standards. The more responsive financial professionals are to opportunities for applying this innovative investment style, the faster such a platform could emerge. Not only would this help in the battle against Ebola and other viral diseases, but it would also be an excellent proof of concept for the impact investment style.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo Credit: AP Photo/Michael Duff, File

About the Author(s)
Manuel Stagars, CFA, CAIA, ERP

Manuel Stagars is an economist, serial entrepreneur, and author. He holds the Chartered Alternative Investment Analyst (CAIA) and Energy Risk Professional (ERP) designations.

2 thoughts on “Fighting Ebola with Impact Investment”

  1. Bobby says:

    Using this logic, every problem can be dealt with by impact investing. Just because Ebola is making news headlines is no reason for impact investing to turn to it. Otherwise, there is more reason for impact investing to create robots that would go and fight for us in the Middle East. Impact investing is a great thing, but it is no panacea, nothing is.

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