Sick Development Ep 2 - The Key Man
This is Sick Development, a podcast that shines a spotlight on the harms caused by rich country governments channeling billions in development funds to for profit health care in Africa, Asia, and Latin America. I'm your host Maaza Seyoum and thank you for joining us for the second episode of this Oxfam produced series. In the first episode, we gave an overview of two reports by Oxfam that have revealed shocking evidence, including the imprisonment of patients, and the denial of emergency health care by private hospitals funded by publicly funded and government owned development banks. We also share the broad base of evidence collected by Oxfam, that the private hospitals in receipt of development funds are just plain expensive, out of reach of the majority of people. I encourage you to go back and listen to episode one if you missed it. Today, we want to dig a bit deeper and unpack two issues raised by the Oxfam papers that we think frankly, are slightly difficult to get our heads around. Firstly, how it came to pass that such a controversial and unsubstantiated idea that for profit healthcare is key to ending poverty in lower income countries came to be so normalized and largely unchallenged in development circles. And secondly, how was it that multimillion dollar private equity funds became the vehicle of choice for so many governments backed healthcare investments? On the face of it, these two developments in global health that put commercial actors center stage are at best strange, but at worst, hugely risky, as they inevitably lead to profits being prioritized above fair access at every turn. What seems especially weird or actually hypocritical, is that these trends are being pushed by European governments, who in their own countries run universal health care systems based on solidarity and redistribution. How then is it that such a different model is being promoted and financed by these governments in other people's countries? Today, we will try and explore some of the answers as to how this all came to pass by discussing the story of one man and his private equity firm. That man is Arif Naqvi, and his company was called Abraj. Arif Naqvi was a key character in the emergence of what has come to be known as the billions to trillions narrative. This is a theory that has become so dominant today that the enormous funding gap to achieve global development goals could only possibly be met by using billions of dollars of public funding to crowd in trillions in private finance. The theory of course justifies an ever closer and closer partnership between public and commercial actors. Naqvi, a businessperson and investor traveled the world and was given a platform by the World Economic Forum at Davos, but also the UN and other leading development figures to deliver his enticing mantra that by investing in the likes of Abraj's just private equity funds, capitalism can be harnessed to make lots of money for the rich while also ending the suffering of the poor. His theory proved both popular and convenient, rather than rein in the excesses of capitalism and pay fair taxes to increase funding for quality universal and equitable free public services such as health care, the global elite, and with them development institutions could continue to expand profit maximizing initiatives in more territories, including in the health sector, and now feel really good about it. And so it came to pass that government owned development finance institutions poured millions of tax backed development dollars into Abraj's various private equity funds 'to make profit while doing good.'
And one of Naqvi's flagship private equity funds, the $1 billion global markets health fund was focused, yes, you guessed it on private health care. The stated ambition was to expand affordable access to millions of low-income patients. The Bill and Melinda Gates Foundation helped to initiate the fund and invested in it together with the DFIs of the World Bank Group, and the UK, US and French governments, among others. But the Abraj fairy tale spectacularly collapsed in 2018. In one of the largest corporate frauds in history, it was simply too good to be true. The unraveling of the Abraj Group began when hundreds of millions of dollars literally went missing from this flagship billion-dollar health fund. Investigations that followed alleged that Naqvi had been plundering the health fund to pay for his billionaire lifestyle for his lavish events where he invited the great and the good to talk about fighting poverty with private equity. Millions were also being taken from the health fund to cover up fraud and corruption and other other Abraj funds in which many DFIs were also invested. Naqvi's role and that of Abraj in duping the development sector have now been brilliantly documented in the book The Key Man by Simon Clark and Will Louch two journalists from the Wall Street Journal. They're also featured in the very good BBC documentary Billion Dollar Downfall. Despite the millions that went missing the scandalous revelations of alleged endemic fraud and corruption, the hugely significant role played by the DFIs in entrusting hundreds of millions in development dollars to Abraj has not received the scrutiny it deserves. Key questions in the public interest remain unanswered. Like how did their due diligence go so badly wrong? Why did the DFI is not challenged some alarming conflict of interest involving their own investments? But also, why in all the scandal had the DFIs only focused on the financial crimes and finding their missing money while turning their backs entirely on the behavior and practices of the private hospitals Abraj was investing in on their behalf? Why on earth did it take Oxfam to reveal that these hospitals like Nairobi Women's Hospital in Kenya, and Care Hospitals in India have been engaging in alleged and confirmed cases like detaining patients and refusing emergency treatment to those too poor to pay? I'm really happy to be joined today by Simon Clark, one of the authors of The Key Man to take a deeper dive into Arif Naqvi's story, and the lessons that government and all of us should be learning from this case. Thank you so much for taking the time to speak with me, Simon.
Simon Clark 07:37
It's great to be talking to you, Maaza.
So, Simon, your book subtitle is 'how the global elite was duped by a capitalist fairy tale.' Can you start by telling our listeners a little bit about this fairy tale,
Simon Clark 07:51
The fairy tale, in short, is the notion that capitalist’s businessman, women, investors can solve the world's problems on their own. They can't. They can help solve the problems, but not they can't do on their own. They need the work of politicians and regular regulators, and citizens around the world, as well. But there are these very large conferences and forums which take place around the world. Perhaps the most famous of them is the World Economic Forum, which takes place in Davos in Switzerland every January, February, where billionaires investors, business CEOs get together, and they become very adept at arguing that they can help make the world a better place. And they can do that, but they certainly can't do on their own. So, the fairytale is simply that.
And you know, Simon, I know you've written a whole book about this, and I'm sorry to ask you to summarize in this way, but can you summarize then, for us what went wrong and the scale of the scandal with this fairy tale, and what went wrong particularly do you think on the side of these development finance institutions who, after all, as we know have been entrusted to invest on behalf of governments to promote development and and fight poverty?
Simon Clark 09:29
Well, perhaps it helps a little bit the story of Abraj the private equity firm, which which Arif Naqvi founded. So, at the beginning Abraj was a private equity firm it bought companies try to boost their profits and sales and then try to sell them within five years for a multiple of what was paid to make big profits for the investors in Abraj's funds and for the executives of Abraj. Abraj was successful, it made some some very profitable investments in the early 2000s, investing in companies in the Middle East, and also across Africa, and South Asia. And what really was the critical in the story of Abraj was that Arif Naqvi, the founder realized at a certain point that he could also pitch what he was doing not just as a way to make profits for investors or funds, but often based in Europe and North America, but he could also argue that he was making investments which would help end poverty in in developing countries by providing goods and services or creating jobs in health care, food production, logistics, or a whole range of companies. And he became very adept at making this this argument that investment in Abraj could be both profitable and ethical, in that it would, you know, reduce poverty, or help solve environmental problems. A critical moment in Abraj story really was in the wake of the global financial crisis of 2008, there was more introspection within the global financial system within big banks like JP Morgan, where there was more of a recognition the world economy wasn't really working brilliantly for everyone. And this boosted a debate about what to do about this. How could investment capital, you know, the trillions of dollars flowing through global financial centers every day? How could this money perhaps be used in a more constructive way? And one of the movements which came out of this in response was what has come to be known as impact investing?
Ah, yes, I know that one of the chapters of your book is actually titled impact investing. Can you tell our listeners what these impact investments are supposed to be?
Simon Clark 12:08
Impact investments claim to be investments, which can make profits, but also produce positive social environmental outcome? And Arif was sort of very much on top of this trend in arguing that his firm Abraj was best placed, you know, for investors who wanted to achieve this objective? You know, the answer was to give Abraj hundreds or billions of dollars, which they did. One of the key funds that abroad raised was called Billion Dollar Global Healthcare Fund, which was set up with $100 million commitment from the Bill and Melinda Gates Foundation, another 100 million dollars from the World Bank's International Finance Corp. and commitments of 10s of millions of dollars from the development finance institutions of of governments, including the British, the French, and the US government. The pitch was that this fund would invest in for profit hospitals and clinics across Africa and Asia, it would buy or build these hospitals and clinics, and in doing so, it would help reduce healthcare poverty in some of the poorest countries on Earth, such as Kenya and Pakistan. The investments that this fund made needed to make a profit, and the people who worked in the hospitals which the fund was buying, and the people at Abraj, who were overseeing these investments were paid a lot of money. So, in order for this fun to work financially, the investments needed to generate a lot of profit. Now, in order to generate that profit, the services that the hospitals and clinics provided, you know needed to charge a certain amount of money. The problem was that the services which these hospitals and clinics provided, were too expensive for the poor people who were living in Kenya and Pakistan and Nigeria and other countries where these hospitals were operating. So, there was a there was a real mismatch between the messaging of what was the purpose of this fund and what this fund was capable of doing.
Listening to you, Simon, and also having read your book and watch the BBC documentary Billion Dollar Downfall on this story. One of my overarching thoughts is that the DFIs want to get off here, by saying that they identified the fraud and dealt with it and Naqvi was one bad apple. One guy in your book was even quoted as saying, 'I guess we didn't call that one right, we put our money on the wrong horse.' But that sounds misguided to me because it's not about one horse, right? The system is flawed, that I mean, there is, of course, the enormous problem of lack of transparency and accountability with private equity. But isn't there also something inherently ridiculous about a bunch of wealthy people who don't want to pay their taxes meeting and luxurious surroundings to talk about how to help the poor by investing in fee charging private hospitals?
Simon Clark 15:32
I agree with you. It is inherently ridiculous. People who have great wealth should have a voice in the conversation about how solve the world's problems including health care, but they shouldn't be in the room on their own talking about it, there needs to be a wider conversation, otherwise, their conversation may become detached from reality. And I think that's what the story of Abraj really shows. There are people in the private equity industry who would like us to believe that the story of Abraj is a story of one bad apple of one bad actor, but that isn't the story that I think is is being shown here, we have with Abraj as an extreme case. It's not unique. The issues which its failure reveals are systemic. The fact that a firm like this could raise so much money based on it pitching itself as doing good for the world as as well as making profits means that there is a problem, there is a case to be answered. I know there are other firms and funds which have failed in secrecy, about which we know very little, what made the abroad story so unique was that we had such good sourcing on it. And we were able to get such a high level of documentation to tell the story in great detail. But the issue is it raises are issues for an industry, there are issues for our world. And there are issues which we all have a stake in, in this world. If financial firms are going to raise money and make investments and say they're doing us all a favor, then then we have a right to participate in the conversation whether we agree with them or not. One of the conclusions of of The Key Man of the book that we wrote was that, you know, if there are going to be global conversations, conferences about poverty, about health care inequality, you know, if there are no people involved in those conversations, who live on low incomes, then those conversations have as much integrity as a room full of men discussing gender inequality, which is to say those conversations have no integrity. Now, the Gates Foundation and the DFIs of the UK, the US, France, and the IFC did play an important role in identifying the problem as Abraj was collapsing. But they subsequently to me and my colleagues, the Wall Street Journal revealing these problems, they haven't wanted to talk about them publicly. And this is something which I think is is quite problematic. Now, there are some good reasons for this silence in the the collapse of Abraj triggered a huge legal mess. There are civil and criminal cases going on, around the world relating to abroad. And so, the people involved, the investors involved are to some extent restricted in what they can say. But they've really said nothing at all. And and given that it is public money, taxpayers' money, which has been invested in Abraj, so I really think that, you know, those taxpayers have a right to know much more about what has been going on. And if it wasn't for the work of journalists like me and my colleague Will Louch and nonprofits like Oxfam, even less would be known about this. So yes, there are structural issues here. There is a systemic problem, private investors can play a role in making the world a better place, but in the case of Abraj, it went badly wrong. And now very few people want to talk about it. It's really important that we talk about what goes well in finance and public policy. It's also really important We talk about what doesn't go well in finance and public policy so we can learn lessons.
Is there one lesson in particular that you think we should take away from the story, especially for our listeners who are interested in addressing global inequality and health rights.
Simon Clark 20:16
Specifically, in the case of healthcare and health care in developing countries, I don't think that Western governments should making investments in private health care, because the Abraj case shows that it can't provide health services to the poorest people in these countries. And I really, really questioned that. I do think that evidence which shows that there can be a problem with private health care provision in developing countries is very important evidence and should be heard and read by as many people as possible.
And you investigated with forensic detail the alleged Financial Crimes and Misdemeanors behind the enormous abroad scandal. So, with this in mind, Simon, can you share your reflections on Oxfam's investigations, including the findings that via Abraj, these DFIs were invested in hospitals that repeatedly imprisoned patients in Kenya and reportedly denied emergency treatment in India.
Simon Clark 21:29
So, Oxfam has really done the world a favor by doing this research into private health care in developing countries. The hospital which Oxfam investigated in Kenya, which is called Nairobi Women's Hospital was owned by Abraj, Abraj also owned the hospital in in India, which I think is in the report called Care Hospitals. But the most shocking allegations in the Oxfam report, for me are about Nairobi Women's Hospital, concerning patients who were locked up because they couldn't afford to pay their medical bills. With my co-author Will Louch we spent years writing about Abraj. It was a fantastically complicated story to tell. And we were always under pressure not to get anything wrong, because there would be, you know, a risk of of litigation if we did. And in the telling of this story, we missed the shocking story of Nairobi Women's Hospital, patients being locked up. So I'm very, very glad that Oxfam has dedicated such an important piece of work to this subject.
Thanks, Simon. I know the Oxfam teams who worked on these reports were under similar pressures and are relieved that the information is finally out in the public domain. But for people, let's say taxpayers in the UK or France who ask why does this story concern me? What would you say?
Simon Clark 23:17
I think we should be concerned about the use of private equity funds by development finance institutions, we should certainly be asking more questions of them. As citizens and taxpayers, we should be demanding more transparency, at the very least. Because, you know, if there's public money, going into a private equity fund, which is incorporated in a tax haven, like the Cayman Islands, and then claiming to be investing for good in Africa and South Asia, then then we really need to know what's going on. And it's not okay for development finance institutions, or private firms saying sorry, we can't tell you about that it's commercially sensitive, or you have no right to know. I mean, these are unacceptable responses. And they are the kinds of responses which I have received during reporting on this story and other stories.
Absolutely could not agree with you more, Simon. And finally, you know, and just to wrap up, you've invested a great deal personally in exposing this very nontransparent and troubling intersection between the world of development, especially global health and the world of private finance. What would be your recommendations to governments going forward now, given what you've learned, during this long journey?
Simon Clark 24:47
Talk to more people don't just talk to people with loads of money or loads of political power? Because if we really want to build a better future, a more democratic future that we need to remember that democracy tells us, we're all equal, regardless of how much money or power we have. And if we increasingly hold conversations about the future of our world, in financial conferences, the danger is that those conferences give more voice and more power to people with more money. Now, people who have got loads of money should be participating these conferences, but so should people who have no money. So, we have to remain vigilant that we're having genuinely democratic conversations about the future of our world. The last thing I'd say is that it's not just companies which have entrepreneurial spirit, there are people working in government, and in nonprofits who are entrepreneurial. And I think there's a risk that we've allowed the private sector to convince us that the only place where entrepreneurship happens is in companies. And that's not true. And I think it would be great to hear more from entrepreneurs, who are working in government or for government owned hospitals so we can genuinely find better ways to run the world. I also think it's really important that we have taxpayer funded health care and education services so we can guarantee universal access to those services. And so perhaps, you know, if companies really want to contribute to a better world, then the best one of the best things they can do is make sure they're paying fair amounts of tax in all the countries in which they operate.
Well, thank you so much, Simon, for all of this detailed information. We really, really appreciate you coming on this podcast. You're one of the first people identified as a guest on our on our wish list. Simon Clark with his colleague Will Louch are the authors of The Key Man, we really recommend all of our listeners to to read your amazing book. Thank you so much, Simon, for coming on to our Sick Development mini-series.
Simon Clark 27:15
Thanks very much Maaza for talking to me.
That was such an enlightening conversation, and I hope you all enjoyed it as much as I did. For listeners who want to learn more, I highly recommend the book The Key Man and the BBC documentary Billion Dollar Downfall. You can also follow Simon Clark on Twitter @clarkewriting. As we move forward in this podcast series, we will continue to explore the past, present, and future of development finance institutions. If you missed our first episode with Anna Marriott, the lead author of Oxfam's Sick Development report, please go back and listen, you'll get a good intro on some of the harms caused by this model. Thank you for listening to sick development, in our upcoming episodes we will uncover more truths, expose hidden realities and work towards building a future where health care is a human right. I hope you'll join us.
Simon Clark is a journalist and co-author of The Key Man: How the Global Elite Was Duped by a Capitalist Fairy Tale, which is also covered in a BBC Documentary Billion Dollar Downfall.