News Item: Kenya and Healthcare: The Opportunities of an Emerging Market
(Category: Finance)
Posted by Thomas Omogi
Friday 26 February 2016 - 15:33:30

Kenya and Healthcare: The Opportunities of an Emerging Market. By Thomas Omogi 

Since attaining independence in 1963 from Great Britain, Kenya has steadily labored to improve the health systems and resulting outcomes of its population, more than 50 percent of whom reside in rural areas. By the late 1980s, the country had quadrupled the quantity of health facilities that serve its burgeoning population, increased life expectancy to 62 years from 40 years, and produced higher child survival rates. However, the economic crisis of the 1980s along with the HIV/AIDS pandemic in the following decade exacerbated the challenges Kenya faces to provide quality health care across the population, with nearly 45 percent of them living in poverty. These challenges include providing health care services to geographically dispersed populations, ensuring access to health care providers in critical regions, and securing appropriate financing to sustain and increase the health care infrastructure at the national, district and provincial levels. Along with tackling persistently high levels of infectious diseases, including tuberculosis, HIV/AIDS, and malaria, Kenya has seen a growth in chronic diseases such as diabetes, cancer and cardiovascular disease. Since the 1990s, Kenya has seen some early improvements in health care measurements begin to reverse. Over the last 20 years, child mortality rates have risen slightly, and life expectancy has declined to around 53 years. Moreover, Kenya continues to depend upon **** country **** to enhance its national healthcare budget, and that dependence has increased. In 2006, 14.8 percent of the healthcare budget came from outside donors. That figure rose from 4.9 percent in 1995, although that figure continues to be lower than some comparable countries, where outside funding represents 30-40 percent of healthcare budgets. Unfortunately, Kenya is not on target to achieve the Millennium Development Goals on health outcomes by the 2015 deadline. However, Kenya has worked to initiate key processes to bolster its health system along with coordination amongst donors and other development stakeholders to prevent further healthcare measurement reversals. FINANCING As a percentage of GDP, Kenya’s expenditures on healthcare were 4.6 percent in 2006, as per the World Health Statistics Report of 2009. In 2006, the country spent the equivalent of $29 U.S. dollars on healthcare services, 15 percent less than the $34 that WHO sets as a target for minimum health services expenditures. Kenyans who have secured employment and whose annual incomes exceed a set limit contribute to the National Health Insurance Fund (NHIF). By the 1990s, approximately 1.3 million workers and their nearly 8 million dependents had coverage through this system that became established in 1966. Recent efforts to overhaul and streamline the NHIF and expand its services to reach a larger portion of Kenya’s population through the National Social Health Insurance Fund have faced considerable resistance from political opposition. Originally proposed as a prepaid insurance system to facilitate the setting aside of funds for future medical procedures, physician visits and medications, the idea faced opposition from private medical associations, who feared that the plan would lead to preferred provider and facility designations, thus decimating the own patient base. In addition, the plan faced resistance from teachers’ and civil service unions, as members were unwilling to sacrifice their healthcare benefits as cash payments that supplemented salaries. Regarding government expenditures, the Ministry of Finance creates three-year budget maximums for every sector in the country. Thus, the Ministry of Health sets a budget centered on the projected allocations from the Ministry of Finance rather than submitting budget requests that reflect actual needs. The Ministry of Health then disburses funds it receives through the District Health Management Boards. Moreover, the budget contains two primary components: recurrent expenses including salaries, pharmaceutical procurement, and maintenance, and a development financial plan for program implementation and construction of new healthcare facilities. According to the World Health Organization, Kenya’s government pays approximately 38 percent of total healthcare expenditures, whereas private spending represents approximately 62 percent of overall spending. In 2006, nearly 80 percent of the private spending was out-of-pocket expenditures for healthcare services. **** ISSUES One crucial element to healthcare funding is Kenya is the country’s reliance upon outside donors to supplement its national health budget. In 2006, outside funding represented 14.8 percent of total health care expenditures in Kenya. The United States represents the largest ****, and it channels its donated funding through the President’s Malaria Initiative (PEPFAR) and through USAID. In fact, in 2009, the US committed approximately $525 million through PEPFAR programs. Other significant **** nations include the United Kingdom, Denmark, Germany, the Netherlands and Japan. In addition, the European Union commits funds for healthcare in Kenya, and the country receives other monies from the World Bank and agencies of the United Nations, including UNAIDS, WHO, UNFPA and UNICEF. Private donors include the Clinton Foundation in the US, and faith-based organizations including Lutheran World Relief, Catholic Relief Services and the Aga Khan Foundation. Moreover, The Global Fund to Fight AIDS, Tuberculosis and Malaria supports key projects in the country. By working in collaboration with this organization, Kenya can submit a national strategy application (NSA), which will trigger a feasibility study of adopting the NSA as a template to streamline the monetary support request process. The increase of healthcare **** into Kenya since the 1990s, along with work to prevent duplication of efforts, led Kenya and its development stakeholders to create the Kenya Health Sector Wide Approach Code of Conduct (SWAp) in 2007. This non-binding agreement was signed by Denmark, the United States, Japan, Germany and the European Union, in addition to multilateral agencies. It commits the parties to work towards bolstering Kenya’s healthcare sector by aligning goals that seek to reverse “the decline in the health status of Kenyans…through an efficient, high quality health care system that is accessible, equitable, and affordable for every Kenyan.” The agreement’s primary principles emphasize the critical need for donors to align their commitments with the government’s development agenda for maximum utilization of funds. Contemporaneously, the agreement promotes the development and deployment of common methodologies between the government, donors and NGOs in the budgeting and disbursement of monies, the reporting on outcomes, and the procurement of commodities. This code of conduct seeks to garner reliable commitments of funding beyond a year at a time, thereby enhancing the planning process of the Ministry of Health. After the acceptance of the SWAp Code of Conduct, Kenya worked to strengthen its assurances to its stakeholders that it would collaborate with the International Health Partnership (IHP+) that launched in 2007 to facilitate and “achieve better health results by improving the way developing countries, international agencies, and donors work together to develop and implement national health plans.” By late 2007, Kenya had a formulated approach for collaborative partnerships for the promotion of healthcare, and since that time, the government has received funds from the WHO, the World Bank, and the UK’s Department for International Development (DFID) to streamline and enhance its healthcare-related strategies and expenditure tracking. However, the political violence of 2007-2008 and its effects on the progression of healthcare in Kenya cannot be understated. The intense violence following the elections in December 2007 impacted healthcare in several ways. In addition to the deaths and injuries, the warring factions utilized sexual violence as a weapon, which in turn spread HIV/AIDS at a time when the fighting made it difficult to deliver and implement antiretroviral therapies. In addition, the psychological trauma has left deep scars as well. In an effort to resolve the conflict, an agreement of power-sharing between President Kibaki and Prime Minister Odinga led to changes in health policies as well. Now, Kenya has two agencies with Ministers of Health: the Public Health and Sanitation Agency and the Minister of Medical Services. However, the two agencies share their budget, and inter-agency collaboration and cooperation is necessary for the effective implementation of the overall healthcare access strategy. Currently, the competing roles and resources has had a negative impact on the government’s capacity to organize **** activities, thus the SWAp process may very well need a completely renewed focus and commitment. POPULATION The burgeoning population of Kenya has created a critical need for renewed efforts at cooperation and coordination between competing government and **** stakeholders. The country’s population has doubled over the last several decades to around 40 million people, and Kenya expects rapid population growth to continue. According to current United Nations projections, the population will increase by about 1 million people per year, almost 3,000 each day, over the next four decades to reach nearly 85 million by 2050. Obviously, these projections may prove to be inaccurate, and the actual increases may be affected by the economic environment and government policies. However, population science tends to be relatively accurate as behaviors and social frameworks generally modify gradually. This rapid expansion of the population, and the urbanization that tends to result, will influence Kenya’s development expectations for decades. The transformation along geographic and demographic lines will impact social stability, which remains tenuous even today. While a quick perusal of the country’s population growth may indicate that the increases have been steady, a more in-depth study will show that the growth occurs over two distinct periods. Up to around the year 2000, the growth came from rising numbers of children. However, from 1978 to 2008, the number of children in each family unit has declined dramatically from 8.1 to 4.6 children per family. This trend means that the number of children aged 14 and under will increase to 24.5 million from 17.5 million for an increase of 40 percent by 2050. Yet, the total population is expected to grow by more than 50 percent. Why does the population increase despite a decline in family size? Generally, two reasons contribute to this trend. One, earlier high fertility rates created more families, which in turn created more children, despite smaller families. Secondly, the life expectancy rate has increased and is expected to increase to 68 by the year 2050. With fewer adults dying, the population grows, and the segment aged 15 to 64 is the fastest growing segment. Projections predict that Kenya will have approximately 56 million working-aged individuals by 2050. This means that Kenya is on the edge of a demographic revolution in which fertility rates decline and individuals live longer. This will lead to a vast improvement on the dependency ratio defined as the number of working-aged individuals that will grow more quickly than the elderly and young groups that depend upon them. This very well could be a boon to Kenya and its healthcare efforts as the gap will begin to widen significantly beginning around 2020. While burgeoning population growth continues to remain a challenge in some poorer countries, the debate about rapid growth now centers on a strong correlation between economic development and population density, or urbanization. According to the World Bank’s report in 2009, “Reshaping Economic Geography,” wealthy countries are increasingly urban countries. In fact, the study found no examples of a wealthy country that remained rural. Moreover, vibrant urban centers present two critical economic opportunities. First, as an increasing number of people share information, innovation spreads. Second, an urban-based service economy has lower barriers to entry than manufacturing and agriculture. This creates more opportunities for entrepreneurs. Secondly, larger segments of society that live in close proximity to one another promote economies of scale. Organizations can produce goods more cheaply and in larger numbers, thus serving a growing base of consumers. Kenya has benefited from the emergence of such companies that effectively target the growing base of lower to middle income groups, generally the larger base of the consumer pyramid. This business model is feasible because the market to a consumer base that has increased by 25 percent over the last decade and is expected to continue with rapid growth. With these facts in mind, Kenya’s projected pattern of population growth can be viewed as a positive, especially for healthcare. A well-educated and urbanized population generally promotes a steady middle class and healthy private sector. While economic development may not be guaranteed in a country that is moving towards urbanization, growth in population makes that economic development more viable and easier to sustain and achieve. Thus, its efforts to upgrade and streamline its healthcare initiatives and implementation will be facilitated by improvements in the dependency ratio as the country comes closer to projections for 2050. Kenya will face challenges and opportunities as it improves its governance and upgrades its infrastructure; indeed, constraints can be turned into an impetus for positive development, especially in sectors that benefit hugely from economies of scale, such as manufacturing, with appropriate risk planning and management. Economic Environment Kenya set its economic horizons on growth in the private sector in the early 2000s. This business-friendly policy was folded into the Vision 2030, which delineates development benchmarks for a broad base of industries. This Vision 2030 complements the East African Community (EAC) and the 2005 establishment of the customs union along with a common market in 2010. In addition, Kenya belongs to the Common Market for Eastern and Southern Africa (COMESA), in which 14 of 19 members belong to the Free Trade Area (FTA). These groups represent nearly 600 million people, and they work to develop a framework to implement the Free Trade Area by 2015. After the conflict of 2007-2008, Kenya has experienced an upward trend in gross domestic product (GDP) with a peak of 8.4 percent in 2010, a decline to 4.5 percent growth in 2012-still substantial, then an increase to 5.7 percent in 2013. Among drivers for this improvement are extensive economic reforms, fundamental reforms in its judiciary, executive and legislative branches of government, and its new constitution. The primary sectors driving the growth are construction and building, manufacturing, infrastructure development, transport and services, agriculture, wholesale and retail, and tourism. Operating Risks While Kenya has several crucial advantages including its location, a strong economic performance across many industry sectors, and the growth of a middle class, it faces several challenges to sustaining this performance. One critical concern remains its dependence upon non-irrigated agriculture for its food source. Drought can lead to severe shortages of food available across the population. In addition, concerns continue regarding political stability and the successful implementation of economic reforms resulting from the adoption of the new constitution in 2011. Other concerns center on infrastructure and governance. These challenges are mitigated somewhat by a relative strong social and political will to produce positive changes. Other issues can be overcome by infrastructure, such as irrigation for agriculture and food production. In an effort to promote national and regional competitiveness initiatives, Kenya has instituted a cluster development strategy with critical locations around the country. In these cluster regions, investors receive incentives and enjoy streamlined investment procedures for outlays. In addition, the Kenya Export Processing Zone, (EPZ) promotes a wide array of incentives to facilitate low-cost and smooth operations, quick entry to market, and higher profitability. The all-in-one service offered by the EPZ Authority simplifies the investment process, and individual offices are located in Athi River, Nairobi, Mombasa, Malindi and Kilifi on the country’s north coastline, and Kimwarer and Voi in the Rift Valley area. Combined, they manage and promote offerings of the Export Processing Zones Authority, which seeks export-oriented investments in the services and manufacturing industries. The EPZ provides an array of attractive tax benefits, which include a 10 year tax holiday for corporations followed by a 25 percent tax afterwards, stamp duty exemption, 10 year withholding tax holiday, perpetual VAT and duty tax exemption on spare parts, machinery, raw materials, construction material, packaging, office equipment, fuel oil and heavy diesel, some motor vehicles and their spare parts. On top of this arrangement, investors may enjoy a 100 percent investment deduction in their initial outlays over 20 years. Another key facilitator for economic growth in the country is the Kenya Industrial Estates (KIE). KIE offers workspace through the construction of “incubators” in business centers. Entrepreneurs can take advantage of services that facilitate growth, such as access to financial means for equipment, working capital, machinery, management and technical assistance, marketing, and other services. SUMMARY In 1994, the government of Kenya produced the Kenya Health Policy Framework Paper, which set forth a vision of providing “quality health care that is acceptable, affordable, and accessible to all” in the country by 2010. The policy committed the country to decentralization of health care management to meet the country’s needs, and the government implemented the framework over two five-year strategic plans from 1999 to 2010. The policy organized the healthcare system framework into a hierarchical pyramid, with village dispensaries representing the largest and lowest level of the structure. Provincial hospitals and district health facilities are fewer in number and next higher on the pyramid. At the top sits the Kenyatta National Hospital in Nairobi. The Ministry of Health developed standards, sets policies and allocates resources for the effective implementation of health services to the broadest population possible. Currently, Kenya has over 5,000 healthcare facilities, and the government oversees over 40 percent of those facilities. NGOs oversee approximately 15 percent and the remaining 45 percent are operated by the private sector. Generally, the private sector manages maternity facilities and nursing homes that serve a wealthier clientele, while the government manages most other healthcare facilities, hospitals and dispensaries. Kenya already has a critical shortage of physicians, with a mere 4,500 serving the whole country, according to WHO. Currently, the United States has approximately 26 doctors for every 20,000 individuals, yet Kenya has only one physician per 10,000 individuals. Moreover, this ratio is under the average for much of the continent of Africa as a whole. Over 50 percent of Kenya’s doctors practice in the capital of Nairobi, which represents only 3 million people of the total population. Only 1,000 doctors serve the public sector, and approximately 37,000 nurses assist in traditional duties such as pharmacists, midwives and community health providers. Many well-educated healthcare providers have left the public sector for higher paying position in the private sector, and this creates a persistent and consistent challenge for Kenya. This dearth of trained, well-educated physicians and healthcare providers creates a burden and multiple obstacles for the Kenyan government to implement its responsibilities in disease surveillance and treatment, maintaining accurate records on disease outbreaks, and sharing critical statistic and data with neighboring countries and other international health organizations. To improve its data gathering, analysis and sharing, Kenya has launched its Health Management Information System (HMIS) to meet its Millennium Development Goals and partner with other international stakeholders to improve not only the delivery of quality care to the highest percentage of Kenyans possible, but also to increase its capacity to provide relevant statistics regarding the country’s overall health situation.

Submitted by Thomas Omogi

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