Julie Wallace, Head of Impact at LeapFrog Investments, explains why digital technology holds the key to better wealth and health outcomes in emerging markets.
Urgent and concerted action is needed to set the world back on a trajectory towards achieving UN Sustainable Development Goal (SDG) 3, after the Covid-19 pandemic derailed efforts to achieve good health and wellbeing worldwide.
This is the assessment made in the UN’s Sustainable Development Goals Report 2022, which also states: “The pandemic has severely disrupted essential health services, triggered an increase in the prevalence of anxiety and depression, lowered global life expectancy, derailed progress towards ending HIV, tuberculosis and malaria, and halted two decades of work towards making health coverage universal.”
To make matters worse, developing countries already suffering from “huge regional disparities” in healthcare and wellbeing services, are the worst affected by the pandemic.
Jayati Ghosh, Professor of Economics at the University of Massachusetts at Amherst, told the UN Department for Economic and Social Affairs: “For most of the world, [the pandemic] is not over. This catastrophe is continuing. In the North, there are signs of economic recovery as vaccination rates increase, but in developing world this crisis is just starting and the world needs to respond with more urgency.”
Wealth and health
To respond effectively, however, the world needs to understand where the developing world has the most pressing health and financial wellbeing needs.
Last month, LeapFrog Investments, a “profit with purpose investment firm”, published its first Emerging Wealth and Health index which surveyed 4,000 consumers across India, Indonesia, Vietnam, Bangladesh, Egypt, Ghana, Kenya, and Nigeria.
LeapFrog, which provides private equity finance to the financial and healthcare sectors in developing countries, says the survey is “a timely update on the rapidly evolving consumption habits of emerging consumers, including the technologies they use, the trade-offs they face, barriers that stop them accessing what they want, and their experiences both positive and negative of accessing wealth and health services”.
The data will supplement other major surveys like the World Bank’s Global Findex Database, and the Consultative Group to Assist the Poor’s case studies and surveys in emerging markets.
Julie Wallace, Head of Impact at LeapFrog, says: “If you look at the sustainable development goals, and how they will be achieved, so much of it relies on supporting the lower income emerging countries by investing in them and focusing on their needs. Our Wealth and Health Index goes towards that.”
The Index reveals clear challenges for developing world inhabitants in access healthcare and financial products.
The data also reveals a two-tiered economy for the digitally enabled versus the digitally excluded.
These findings are important, Wallace says, since smartphones are the dominant method for many emerging market wealth and health products.
“Those who use a smartphone on a regular basis have much higher rates of access to insurance and banking, report greater reduction in stress due to their use of financial products, improved ability to cover household expenses, and improved capacity to save and plan ahead,” she says.
The survey also uncovered “huge gaps” in the penetration and quality of health products.
For example, more than two out of five respondents never get a check-up for potential health conditions, particularly in Kenya, Nigeria, and Egypt.
LeapFrog’s research reveals that many of those suffering chronic condition live outside of cities, facing significant inconvenience when travelling to healthcare clinics and hospitals.
New low-cost, decentralised, and tech-enabled approaches to healthcare can help overcome this inconvenience, and the survey reveals 46% of those with a chronic condition say they more likely to use their smartphones to order medicines online.
Wallace says it is no surprise that many with chronic conditions, including the very elderly, are driving demand for online medicines and diagnostics.
“These high rates of exclusion and informality point to the enormous potential for reliable, quality wealth and health companies to plug gaps in these markets. Emerging consumers will increasingly gravitate to offerings that are more accessible, cheaper, and of better quality. These consumers are acutely aware of their lack of access to the essential services they need to rise into economic security.”
Making a difference
This information, Wallace says, helps match impact investors with the companies most likely to make a difference, and a return while doing so.
“For our portfolio companies and for other companies working in these markets, it’s helpful to look at these insights to think about the products they could develop.”
Wallace also argues that, in some cases, the innovations that target developing markets can be later exported to their developed counterparts, which increases the return potential for investors.
“The innovation that’s coming out of the emerging markets will potentially drive global innovation,” she says.
According to LeapFrog’s 2021 annual impact results, its investee companies have reached 342 million people with healthcare or financial services, across 30 global growth markets, while delivering 27% average annual revenue growth, for over a decade, with valuations exceeding benchmarks across all regions.
The investments include a US$61 million allocation made this May with Redcliffe Labs, an Indian company offering at-home diagnostics for noncommunicable diseases such as cancer and diabetes which, if left unaddressed, will cost India approximately US$3.55 trillion in economic losses by 2030.
India has just 1,200 accredited laboratories to cater to a population of 1.4 billion. This compares to the US, which has 260,000 accredited medical laboratories and a quarter of India’s population.
LeapFrog’s investment in Redcliffe will see the service expanded across India, saving thousands of low-income households the time and cost of travelling to the few available laboratories.
This May, Redcliffe’s annualised revenue run rate stood at around US$55-60 million and it expects to reach US$100 million this year.
Wallace says these types of investment demonstrate LeapFrog’s ability to deliver profit with a purpose.
“We embed ESG assessment and impact measurement in every single investment that we make, and that’s from the beginning of the investment cycle to the exit. We’re always explaining to our investors that the model is about adding value and how we’re serving the emerging consumer, which links back to the SDGs,” Wallace says.
Following the Wealth and Health Index, LeapFrog has since launched a climate strategy which will focus on companies providing products and services that address both mitigation and adaptation challenges.
Developed with a similar ethos to that which informed the Wealth and Health Index, the Climate Strategy focuses on understanding the needs of consumers in emerging markets, and then investing in companies that will meet those demands.
The goal is to give consumers in emerging markets “a pathway to ‘leapfrog’ to low-carbon consumption as they join the middle class”, giving access to affordable, less polluting, safer, healthier, digital, and climate resilient products and services.
Wallace says: “We’re always looking at our depth of impact, and how we can take all the data we have collected and all the knowledge we have from the relationships with our portfolio companies to grow our impact story narrative. We are particularly focused on integrating climate considerations with our portfolio companies and working in partnership with them to serve the needs of consumers in these important markets.”