Read the Conversation
Meeting highlights:
- Mexico’s demographic shifts and market structure make healthcare investments promising.
- Key investment decision factors include understanding local healthcare system design, regulation, competition structure and exit strategies as foreign investor interest grows.
- Improved leadership is boosting management quality, along with a focus on quality and ESG standards.
- Adoption of AI solutions and health data mining are increasing but interoperability remains a challenge.
- Local health tech ecosystem could grow significantly with the right enablers such as more venture capital funding and supportive policies and incentives.
- IFC has a long-term commitment to Mexican healthcare and aims at supporting value-based healthcare models as well as quality standards and processes.
- Mexico’s pharmaceutical market offers significant opportunities due to its skilled workforce and established pharmaceutical base.
- There is strong potential to develop a more sophisticated value chain in medical devices, especially through partnerships with large firms and upskilling.
EF: It's January 2025, and you are participating in a panel focused on attracting health investments to Mexico at the “JP Morgan Healthcare Conference” in the USA. What message would you convey? Why is investing a dollar in Mexico more advantageous than investing it elsewhere?
AF: I would compare the Mexican private healthcare market to Brazil about fifteen years ago. Mexico has low private insurance penetration, a fragmented private market and lots of potential for operational upside; for instance, an average private hospital has only twenty-five beds. Those who invested in the healthcare sector in Brazil fifteen years ago saw significant returns, and I believe the same opportunity exists in Mexico now. We are witnessing movements in the market, with emerging consolidators at good valuations that are buying hospitals and are focused on efficiencies and providing value to the payors be it the patients or insurers. Regional operators have entered Mexico and some aim to develop verticalized business models with elements of HMOs. This process is just beginning and is still in its early stages. As the second-largest country in Latin America, Mexico presents many investment opportunities, and we are in the right cycle of the market. The growing and aging population, the market structure and the current demand-offer imbalance make it a compelling investment opportunity.
EF: Looking into the pillars of sustainable healthcare, how do you assess the pillars for a good investment? What are you looking for? What are the KPIs for a good investment in healthcare in Mexico?
AF: One important parameter is comprehending the structure of the healthcare system in each country, healthcare is a domestic business. For example, the design of the system in Colombia is different than in Mexico or Peru. Who pays for services, who provides them, and who is involved in the value chain? In Colombia, the public sector is the main payor; in Mexico, patients out-of-pocket payments are high; and in Brazil, people typically rely on private insurance. The payors influence the design and incentives within the system. Understanding this dynamic is essential for grasping the value chain and identifying who holds the negotiating power. Next, consider the structure of the competition in the subsegment you wish to invest in. What is the current state of the market? Is it fragmented or dominated by a few large companies? Are there any regulatory protections in place? Healthcare is a highly regulated sector. For instance, regulatory controls over pricing can significantly impact the system, so these factors must be considered, along with the time horizon and risk appetite. An understanding of the competitive landscape and its regulations is crucial. Additionally, it is important to assess the risk appetite and the investment time horizon. There is a significant difference between investing in a publicly listed company in Brazil and, investing in a private company in Mexico; the investment thesis will vary. In Mexico, investments are primarily made in private companies where liquidity events or timely exits have historically been challenging. However, the market is undergoing positive changes, with renewed interest from institutional investors. Previously, investments were mainly from family offices or local funds, but that has also shifted to include international investors who are expected to facilitate exits for earlier investors.
IFC has a double bottom line: i) to catalyze investment in the sector by generating good returns and ii) positive development impact by promoting sustainable business models that adopts high standards regarding quality, environmental and social aspects. Gender, climate change are key transversal themes for us cross-sectors that we aim to promote. Additionally, we have developed sector-specific advisory programs around quality standards and digital transformation for the health and pharmaceuticals sector.
EF: Five or six years ago, Mexico did not have a capital problem, but it has struggled with a lack of projects and sound management and leaders, how is the situation now?
AF: We are witnessing a virtuous circle. Regional and international private equity funds and strategics are keen to invest in the sector and more entrepreneurs are trying to address the service gaps in the sector creating more investment opportunities. The management team’s execution capacity is key to success in healthcare investments. I have observed significant improvements in the management team’s quality with a lot of cross-border exchanges. For instance, some Brazilian managers are coming to Mexico to strengthen Mexican teams and can bring interesting perspectives from a market that is more mature.
EF: Have you identified any Mexican companies connected to capacity and data architecture? Is there a market opportunity and need for this?
AF: The health tech ecosystem in Mexico is still young compared to other venture capital sectors; most corporate players use solutions that are not developed locally. When there are local solutions, they tend to be simple, such as electronic medical records. One concern is that it is difficult to develop cookie-cutter business models that can apply to all healthcare systems and address specific issues of each making the target addressable market and scalability more complex. But I do think there is a wide space for tech solutions that support these systems, make it more efficient and those are scalable regionally. Three key elements are needed to develop a thriving ecosystem: (i) appropriate incentives and regulations, (ii) human capital and (iii) private investors’ engagement such as Venture Capital investors that have a tremendous role in supporting early-stage ecosystems. These three elements have room for improvement in Mexico and in the region.
EF: What legacy are you building to strengthen Mexico's pharma and healthcare sector? After five years in Mexico, are you passionate about any specific project, and how has it developed?
AF: IFC is part of the World Bank Group and as a group, IFC and the World Bank aim to achieve a greater impact by fostering closer collaboration and further integration between the two entities. By combining the public sector expertise of our World Bank colleagues with IFC’s private sector expertise in healthcare, we can harness diverse perspectives and insights to develop comprehensive solutions for the complex Mexican healthcare system. We currently have projects that involve both sides of the Group, and I think these initiatives will benefit the entire system.
In addition to that, IFC has been very focused on generating value for its clients, and I believe we have successfully achieved this goal. We have listened to our clients’ bottlenecks or concerns and have developed solutions to help them solve some of these challenges. For instance, a digital transformation value advisory program to assist companies on their digital transformation journeys.
IFC, has invested in healthcare, pharmaceuticals and medical devices for the past thirty years in Mexico and our goal is to attract other investors in the sector. As we move forward and some sub-segments become very much invested, we look forward to support innovative project and or companies with ambitious plans.
Mexico is key for IFC. Our goal is to invest one billion dollars annually in the country across all sectors and Healthcare is a priority sector for IFC.
EF: Where do you see the biggest opportunities?
AF: There is a significant opportunity to enhance the sophistication of the value chain in the medical device and pharmaceutical sectors to increase competitiveness. For instance, the pharmaceutical industry is well-established but biosimilars and biotech are still untapped. On the medical devices side, Mexico needs more sophisticated local suppliers capable of providing innovative products to MNCs, which partially source assemble their products in Mexico. By doing so, suppliers could produce highly sophisticated and innovative components for these machines and strengthen their competitiveness as well as dominance in international markets.
EF: Is there any reflection you would like to add?
AF: I believe Mexico presents tremendous opportunities. It’s important to note that not everything revolves around nearshoring; while it may happen, the potential in Mexico exists regardless. Certain sectors, such as pharmaceuticals, have a robust ecosystem and a talented workforce, providing a wealth of opportunities.
