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Tap the potential: The Role of the Private Sector in Stepping up the Pace of Supply of HIV/AIDS Commodities
- 1. TAP THE POTENTIAL THE ROLE OF THE PRIVATE SECTOR IN STEPPING UP THE PACE OF SUPPLY OF HIV/AIDS COMMODITIES Sponsored by: With co-sponsors:
- 2. The African economy is growing rapidly, creating new opportunities for the private sector.
- 3. Globally, the proportion of the world’s population living in middle income countries is on the rise, creating new consumers of goods and services, including private health services. World Bank Data, accessed 2014.
- 4. By 2020, models indicate that more than half of African households will have discretionary income to spend. McKinsey Global Institute. “Lions on the Move.” June 2010.
- 5. HIV/AIDS had a dramatic impact on life expectancy in sub-Saharan Africa, but also made a dramatic recovery following global investments in prevention and treatment. Ambassador Deborah L. Birx, MD. “Delivering an AIDS-free Generation.” Kaiser Family Foundation Town Hall Forum. 23 June 2014.
- 6. Africa is demonstrating remarkable growth across sectors, including key categories for private sector growth. McKinsey Global Institute. “Lions on the Move.” June 2010.
- 7. The financial cost of starting a new business in Africa is rapidly decreasing, but still remains high compared to wealthier countries around the world. World Bank Data, accessed 2014.
- 8. Direct foreign investment in Africa has spiked massively in the past decade. World Bank Data, accessed 2014.
- 9. Mobile money is booming in Africa, changing the way both individuals and businesses buy and sell goods and services. Claire Penicaud & Arunjay Katakam. “Mobile Money for the Unbanked. “State of the Industry 2013: Mobile Financial Services for the Unbanked.” GSMA
- 10. Investments are being made to improve trade as shipping corridors throughout Africa and freight volume continue to grow.
- 11. The cost to import and export goods across borders varies widely, and remains higher within Africa than in other parts of the world, but sub-Saharan Africa continues to lead in the number of trade reforms. Doing Business 2012. “Trading Across Borders”
- 12. Importing and exporting goods across country borders requires a number of steps, each of which have a cost associated with them. Doing Business 2012. “Trading Across Borders”
- 13. Since 1990, more than $13 billion has been invested by the private sector in infrastructure projects across sub-Saharan Africa. Railroads Seaports Roadways Airports World Bank Group Private Participation in Infrastruture Database, Regional Snapshots, accessed 2014.
- 14. Air freight volume also continues to grow. In the past decade alone, air freight volume through Africa has grown by 33%. World Bank Data, accessed 2014.
- 15. Distribution of air freight (2009) across African countries World Bank, Transport Sector Board, and International Trade Department. “Air Freight: A Market Study with Implications for Landlocked Countries.” August 2009
- 16. The volume of goods shipped through other African ports is also rapidly increasing annually. World Bank Data, accessed 2014.
- 17. Investments are being made to upgrade the infrastructure and processing systems in major ports around the continent.
- 18. Map from PriceWaterhouseCoopers. Annual container volume by port from various sources.
- 19. Durban South Africa 2.6 million TEUs (2012) Largest shipping terminal in Africa Handles 31.4 million tons of cargo each year
- 20. Mombasa Kenya 903,443 TEUs (2012) Undergoing a $366 million upgrade Will increase handling capacity by 200,000 TEUs a year
- 21. Tema Ghana 822,131 TEUs (2013) Ghana Ports & Harbours Authority investing $2.5 billion in improvements by 2018 Traffic has already risen five-fold since 2000 and will double to 2 million TEUs by 2018.
- 22. At the same time that investments are being made in infrastructure and shipment volumes increase, the cost to import a container of goods in countries with key ports continues to increase. World Bank Data, accessed 2014.
- 23. Though the quality of the roads in Africa has continued to improve, the African Development Bank anticipates that road freight will continue to be somewhat costly and inefficient until competition in the trucking industry is increased and barriers to trade are lifted.
- 24. High road freight tariffs and administrative and border delays create additional barriers to road shipment. African Development Bank, sourced from Teravaninthorn and Raballand, 2008.
- 25. Investment and growth in technology is also changing the business environment across the continent.
- 26. Mobile coverage continues to increase across Africa, which is now the second largest mobile market in the world after Asia. Mobile penetration (%), 2012
- 27. For each fixed line in sub-Saharan Africa, there are 28 mobile phone connections, demonstrating the dominance of mobile as a means of communication. Mobile Fixed line GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”
- 28. The average annual cost of mobile phone ownership has decreased dramatically across the continent. In East Africa, the average monthly cost to own a mobile phone has declined by up to 72% from 2008 to 2011. GSMA, 2013.
- 29. Increased demand for mobile communications services has sparked investment in network infrastructure, including cell towers, 3G connectivity, and more. GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”
- 30. Broadband access continues to grow, including new fiber optic cable around the continent. Steve Song, ManyPossibilities.net
- 31. Even across landlocked countries, entrepreneurs like Liquid Telecom are working to provide fast, reliable broadband access. $350 million invested to install 17,500 km of fiber cable across 12 countries The Economist. “Cabling Africa’s Interior: Many Rivers to Cross.” 5 July 2014.
- 32. Access to the internet through broadband and mobile devices is rapidly increasing across sub-Saharan Africa. GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”
- 33. As ICT becomes more accessible and affordable, it is increasingly being leveraged in logistics and supply chain management. A recent landscape analysis by the mHealth Alliance identified more than 40 different electronic logistic management systems currently in use in countries around the continent and the world.
- 34. The African pharmaceutical market is rapidly expanding.
- 35. Total health expenditure in Africa has increased more than three-fold in the past decade. African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and Finance for Results in Africa Summary Report.” September 2013.
- 36. African Pharmaceutical Growth African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and Finance for Results in Africa Summary Report.” September 2013.
- 37. The total annual pharmaceutical spending in Africa is expected to more than double within this decade. 2010 $21 billion Today $29 billion 2020 $45 billion IMS. “Africa: A Ripe Opportunity.” White Paper
- 38. An estimated $25-30 billion in new investments will be needed to meet demand for improved distribution and retail systems for pharmaceutical and medical supply product facilities between now and 2016. $11-20 billion of those funds are likely to come from the private sector.
- 39. As new producers come into the market, many multinational pharmaceutical companies expect to see declines in revenue of up to 40% between 2008 and 2015. PriceWaterhouseCoopers Pharma2020 Report
- 40. Local manufacturers are game changers in pharmaceutical procurement. Tanzania Ethiopia 13 essential medicines procured through local suppliers Reduced landed cost by 5.3% Reduced lead time by more than 50% of 45 total essential medicines Data from the Partnership for Supply Chain Management on local procurement in 2012
- 41. Right-sizing responsibility with capacity. HIGH VOLUME / RELIABILITY SUPPLIERS 7 Top X 27 Major suppliers hospitals = 70% of volumes Determined on a case-by-case basis 40% goods – CMS Docking bulk handling workload of administrative for Cross-Reduce the operational reduce and functions and LOW VOLUME SITES HIGH VOLUME SITES LOW VOLUME / RELIABILITY SUPPLIERS HIGH VOLUME / RELIABILITY SUPPLIERS CMS – 30% Stock from small suppliers (or infrequent deliverers) AND to consolidate stock for small volume clinics Direct Delivery – 30% Full truck load product volume
Editor's Notes
- Tapping the potential -- the role of the private sector in stepping up the pace of supply of HIV/AIDS commodities. Deliberations around the expiring Millennium Development Goals, and what comes after them are infused with optimism that the end of extreme poverty is within the world’s grasp. A decade ago, the idea that the private sector could become a major contributor to this development effort was unthinkable. Today, it is acknowledged as not only a major player, but as potentially as the major player. Since the 1980s, private foreign investment in developing countries has risen 15-fold. And since 2000, private capital has accounted for 80 percent of all capital flowing to these countries. Even low-income countries get one third of their external funds from private sources. Small and medium-sized enterprises -- often focused on new business opportunities targeting moderately low-income households – have achieved development impact through economic growth and the creation of new jobs. Africa’s economic pulse has quickened , infusing the continent with a new commercial vibrancy.
- When the UN secretary-general, convened a global high-level panel to forge a new post-2015 development agenda, the centerpiece of the final report called for “eradicating extreme poverty from the face of the earth by 2030.” The prospects for achieving this goal do not seem so far-fetched. During the last 15 years, half a billion people have been lifted out of extreme poverty -- those living under $1.25 per day. The proportion of the world’s population living in middle income countries is on the rise, creating new consumers of goods and services, including private health services. However, further progress will require broad-based and sustainable economic growth across the developing world. Notably, the private sector -- from small and medium-sized enterprises to major global corporations -- must play an expanded role if this vision is to be realized. By some measures, this shift is well underway. In the span of one decade, the private sector has become a prominent contributor to global development -- and the fight against HIV and AIDS -- even in low-income and post-conflict situations.
- In 2008, roughly 85 million African households earned $5,000 or more -- the level at which they begin spending roughly half their income on items other than food. The number of households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million households or 1 out of every 2. Africa's long-term growth will be increasingly reflected in interrelated social and demographic trends that are creating new engines of domestic growth. Chief among these are urbanization and the rise of the middle-class consumer. In 1980, just 28 percent of Africans lived in cities. Today 40 percent do - a portion close to China's and higher than India's. By 2030 the continent's top 18 cities could have a combined spending power of $1.3 trillion. As more Africans move from farm work to urban jobs their incomes are rising.
- In the 1990s, life expectancy plummeted across the continent with the emergence of the HIV/AIDS epidemic. The unprecedented investments by the global community during the last decade in prevention and treatment, have had a dramatic impact, turning the corner and returning the trend toward increased life expectancy in sub-Saharan Africa. Working with governments, donors and NGOs, the private sector has contributed significantly to this rebound -- from ensuring there was enough quality ARVs available as programs scaled -- to efficiently moving product through a global supply chain by ocean, air and road -- to in-country warehousing and distribution following good distribution practices. The personal and economic impact of over 12 million people on ART globally -- many in the workforce -- is a key contributing factor to the rapidly growing African economy -- creating new job opportunities in the private sector.
- The commodity boom explains only part of Africa’s growth story, with the rest coming from sectors like wholesale and retail trade, transport, telecomms, and manufacturing. Key reasons behind Africa’s growth surge were microeconomic reforms and improved political and macroeconomic stability. African governments increasingly have adopted policies to energize markets, including privatizing state owned enterprises, reducing trade barriers, cutting corporate taxes, and strengthening regulatory and legal systems. Improvements in industry-specific value chains and policy and regulation have a direct impact on the viability and profitability of businesses, and act as a draw on private capital. These are important steps to enabling a private business sector to emerge. This trend has enabled SCMS to procure more than $260 million in products and services from 650 local businesses in Africa -- enabling us to be more responsive to our clients, strengthening the private sector and growing the local economy.
- The cost of registering a business -- that is the various paperwork and processes required -- is a key indicator of the climate for private sector growth. While the relative cost to register a business in sub-Saharan Africa has declined markedly over the past decade, it still has a ways to go in comparison to wealthy countries. Have the BRICS set a target that is achievable for Africa?
- While data sources vary on the exact amount, this illustrative chart from the World Bank demonstrates that there is no question that the volume of foreign direct investment has increased dramatically, and is likely to continue in coming years. This is happening as international aid flows begin to plateau, and in some countries and regions are declining. In 2011, the combined private capital flows were four times larger than official development assistance from the 23 traditional donor countries to Africa. The developing world is benefiting from the proliferation of thousands of social enterprises that seek to lower the price and increase the accessibility of a range of goods and services for the very poor while still turning a modest profit. But while the private sector’s emergence as a major contributor to international development is gaining recognition, the pursuit of profit is still its primary purpose and responsibility -- not achieving development impact in low-income countries. The question is how these divergent interests can be better aligned, so that the private sector can play an even more effective key role in international development.
- Mobile money is booming in Africa and represents a tremendous opportunity for the private sector enabling customers to access goods and services. It provides an important commercial opportunity for companies building mobile money into their core strategy for achieving future revenue growth.
- Let’s look at some of the infrastructure improvements on the continent. As freight volumes continue to grow, trade investments are being made to improve shipping corridors throughout Africa. When PEPFAR was launched, a study of international aid showed that about 80% was moved by expensive airplane cargo. To achieve value for money, SCMS developed a supply chain to move about 70% of all our ARVs by refrigerated ocean containers and road -- thereby saving the USG tens of millions of dollars.
- The cost to import and export goods across borders varies widely, and remains higher within Africa than in other parts of the world, but sub-Saharan Africa continues to lead in the number of trade reforms. This demonstrates the commitment to improving policy demonstrated across the continent. This is critical to HIV AIDS patients. For example, we use ocean freight to ship our ARVs to Kenya, Ghana and South Africa, and then truck the products to PEPFAR countries sometimes crossing two or three borders. We have procured over $1.1 billion of ARVs, and so far have lost one box worth about $15,000 to theft.
- Improving supply chain infrastructure naturally plays an important part in enhancing trade, but so do policies and regulations that promote the emergence of reliable logistics services and efficient border crossing, particularly for landlocked economies. A recent study in sub-Saharan Africa showed that a 1-day reduction in inland travel times led to a 7% increase in exports. There is a very complex supply chain eco-system for HIV/AIDS products for treatment, care and prevention, providing many challenges to ensure that patients receive quality products on a timely basis. By employing commercial best practices, we are delivering 90-95% of ARV products on-time and 80% for all other products.
- Since 1990, more than $13 billion has been invested by the private sector in infrastructure projects across sub-Saharan Africa – with rail and sea leading the way. Governments are also developing new funding sources such as the recent 2% Railway Development Levy in Kenya. These investments improve the supply chain for HIV products and services. The improvements in roads means easier access to rural clinics for products, as well as staff. ARVs come through ports, so our ability to deliver on time is linked to port improvements. Many lab commodities -- especially reagents -- have short shelf lives, so customs improvements helps SCMS deliver while there's still ample shelf life on them to be used.
- Air freight volume also continues to grow. In the past decade alone, air freight volume through Africa has grown by 33%.
- The distribution of air freight across the African continent shows South Africa and Kenya combine for over a third of the volume.
- In the past five years, eight African countries have increased their annual shipping container volume by more than 20% -- exceeding the 16% world average
- Investments are being made to upgrade the infrastructure and processing systems in major ports around the continent. Customs is a key domain for improvements, including moving to electronic and web-based processing systems that improve efficiencies. In 2013, the World Customs Organization and DFID signed a 323 thousand Euro grant to support customs administrations in East and Southern Africa.
- The major ports around the continent include Durban, Lagos, Dar es Salaam, Mombasa, Tema and Beira. The bubble size is proportional to the number of twenty foot equivalent containers traversing the port.
- The Port of Durban is the largest and busiest shipping terminal on the African continent. Durban is the 4th largest container terminal in the Southern Hemisphere handling 2.5 million twenty foot equivalent containers per year.
- The Kenya port of Mombasa is undergoing a $366 million upgrade, serving Uganda, Rwanda, Burundi, and the eastern gateway for Congo.Mombasa is one of the most important ports in East Africa, but struggles to cope with heavy traffic.
- The Ghana Ports and Harbours Authority will award contracts worth $2.5 billion through 2018 to double capacity, handle larger ships and reduce waiting time for vessels. The capacity for twenty-foot equivalent containers will double to 2 million a year by 2018.
- However these infrastructure improvements are costly. At the same time that investments are being made in infrastructure, and shipment volumes increase, the cost to import a container of goods into key ports continues to rise in Africa. The costs shown here are levied on a 20-foot container and include all fees associated with completing the procedures to export or import the goods.
- The African Development Bank reports that the costs of trucking in Africa—even when road quality and corruption are taken into account—are not that significantly higher than in other parts of the world. The main reason for the high tariffs paid in the region is the lack of competition in the trucking industry, which allows firms to sustain high profit margins. In Central and West Africa particularly, trucking cartels and restrictive practices in traffic allocation and dispatching are responsible for low vehicle mileages and poor fleet quality. Of equal concern are long administrative delays at border crossings. These keep the effective velocity of international road freight below 12 kilometers per hour, or about as fast as a horse and buggy, even though trucks are managing speeds on the order of 60 kilometers per hour when in motion.
- Despite improvements in the quality of roads, Africa continues to be handicapped by very high road-freight tariffs. These range from 5 cents per ton-kilometer in southern Africa to 13 cents per ton-kilometer in Central Africa – significantly above the global average of 2 to 4 cents. Only 12% of Africa’s trade takes place within the continent. In comparison, 60% of European countries’ trade is with one another.
- Investment and growth in technology is also changing the business environment across the continent.
- Mobile coverage continues to increase across Africa, which is now the second largest mobile market in the world, after Asia. The penetration of the mobile phone market is nearly 80% of the 1 billion Africans -- with total connections nearing 60%. === Mobile penetration (%) is calculated as mobile connections divided by population, which is why a number of countries have more than 100% mobile penetration, particularly in countries where it’s common to have multiple SIMs in order to access services across networks.
- For each fixed line in sub-Saharan Africa, there are 28 mobile phone connections, demonstrating the dominance of mobile as a means of communication.
- The average annual cost of mobile phone ownership has decreased dramatically across the continent. In East Africa, the average monthly cost to own a mobile phone has declined by up to 72% from 2008 to 2011. Public health workers are using cell phone technology in many ways to help improve services for HIV/AIDS patients, including reporting stock levels and ordering more supplies when needed.
- Healthy revenue and market growth has prompted operators to invest significantly. This investment includes not only mobile network expansion, but also core networks, billing systems, spectrum licenses, as well as investment in handset subsidies. Overall, operators in the five key markets invested a total of $16.5 billion over the past five years. The number of base stations in selected countries has increased by 250% between 2007 and 2012.
- Broadband access continues to grow in Africa, including new fiber optic cables around the continent.
- Even across landlocked countries, entrepreneurs like Liquid Telecom are working to provide fast, reliable broadband access. Taking anything across borders in Africa typically involves reams of red tape and long delays. In general the commercial links between African countries are weak. In such an environment the stamina and know-how to cut through red tape are useful assets. This company has found a way. It is laying around 100 kilomters of cable a week and recently raised $150 million from a group of banks to keep expanding.
- Mobile broadband uptake will be supported in upcoming years by the increased penetration of smartphones. The number of smartphones sold is forecast to grow on average 40% per year up to 2017. In South Africa smartphones are expected to exceed 50% of the subscriber base, followed by Nigeria at 29% and Kenya at 28%.
- As information and communications technology becomes more accessible and affordable, it is increasingly being leveraged in logistics and supply chain management.A recent landscape analysis by the mHealth Alliance identified more than 40 different electronic logistic management systems currently in use in countries around the continent and the world.
- Let’s take a quick look at the African pharmaceutical market.
- Total health expenditures in Africa has increased more than three-fold in the past decade, from $30.7 billion in 2001 to $100.6 billion in 2011 -- or $106 per capita. The BRICS in comparison is approximately $585 per capita -- nearly five times the estimate for Africa. Although India is at $62 per capita and China at $274. === 2011 per capita health expenditure (current USD) was estimated at the following figures for the BRICS countries: Brazil, $1119 Russia, $802.5 South Africa, $669.5 China, $273.8 India, $61.8
- As total health expenditures in Africa continue to grow, there is a corresponding growth in the pharmaceutical industry. This is not only driven by demand -- that is the African demographic trends and rising medical needs -- but also by an improved industry-ecosystem. There is a growing consumerism driven by discretionary income where buyers make choices. The regulatory bodies are maturing and taking responsibility for product quality and availability, including import substitution, molecule stability data, domestic labeling requirements, consumer advertising, and pricing controls. And finally, more stable political environments has led to macroeconomic growth.
- Growth in the African pharmaceutical market is ever-increasing. In 2010, pharmaceutical spending in Africa was $21 billion. Today the projected annual spend will be $29 billion -- and looking forward to 2020 the estimated spend will be $45 billion. While the market is rapidly expanding, the market is also changing, with an influx of generic imports and local manufacturers.
- The IFC estimates that over the next decade, this increase in demand will require $25-30 billion in new investments in health care assets, including hospitals, clinics, and improved distribution and retail systems for pharmaceutical and medical supply products. $11-20 billion – or about half -- of those funds are likely to come from the private sector.
- Multinational pharmaceutical companies continue to see declines in revenue. As new suppliers entered the market, many of them saw declines in revenue by up to 40% between 2008 and 2015.
- The local pharmaceutical industry in sub-Saharan Africa is growing with increased emphasis on quality and competitiveness. There are several WHO pre-qualified manufacturers in countries like Kenya, Nigeria, Uganda, Zimbabwe and South Africa. SCMS has procured from half a dozen African manufacturers. For example, we procure 45 essential medicines in Tanzania, using a local pharmaceutical manufacturer and local importers/distributors meeting SCMS quality standards. The local manufacturer supplies 13 of the products or about 30%. By procuring locally, we have reduced lead times by more than 50% compared with buying from overseas generic producers or international wholesalers. Total landed cost for some items was 5 % lower in comparison to previous international procurements. Our quality testing algorithm for local manufacturing includes consignment procurement -- testing each individual batch locally -- prior to distribution. We procure products for HIV/AIDS patients based on best value -- not price alone – which includes availability, registration, lead time, vendor performance, harmonized labeling, and price.
- Some are challenging the roles of government central medical stores in procuring, storing and distributing public health commodities. In some countries, public sector warehouses and distribution mechanisms are already struggling to manage the existing volume of HIV/AIDS and other health commodities -- and are ill prepared to handle even larger volumes. There is a growing movement to encourage governments to partner with the private sector to help mange the public health supply chain and improve access for clients and patients. By segmenting the supply chain, governments can right-size central medical stores responsibility with capacity. We worked with one provincial depot in South Africa that was collapsing under the burden of growing volumes. An analysis demonstrated, that if you took the top 7 supplier’s products and delivered them directly to their 27 major hospitals -- thereby by passing the depot -- you reduced 70% of the volumes. This freed the depot to handle efficiently the slower moving products for the major hospitals and all products for the smaller hospitals and clinics. This is just commercial best practice -- supply chain segmentation.