by Heather Esper
New and exciting ideas are being rolled out in attempts to improve health at the base of the pyramid. One of which is the Africa Health Fund which focuses on increasing access to health related services and goods for Africans, specially the poor, while providing investors with long-term financial returns. The other is the Advance Market Commitments (AMCs) which provides funding to stimulate the development and manufacturing of vaccines for developing countries.
Africa Health Fund
There is great need for such a fund. The “Business of Health in Africa” study [PDF] by the International Finance Corporation (IFC) found that about 50% of total health expenditure goes to private providers, and private sources such as out of pocket financing, fund 60% of healthcare in Africa. Another study conducted by Aureos in 2007, supported by the Norwegian Investment Fund for Developing Countries, found that many severe bottlenecks exist in the African healthcare sector. They found large amounts of market fragmentation, a lack of effective supply chains, inefficient distribution channels, an absence of economies of scale, high manufacturing costs, price distortions, and low productivity.
According to Scots Featherston, a Nairobi based official with the IFC, initially the IFC “hoped to set up our own health facilities in Africa but later decided to enlist the services of private equity fund managers to reach the highest number of people at the bottom of the pyramid with affordable quality healthcare while ensuring good returns on investment in the institutions."
As of the first closing in June 2009, $57 million has been invested by the IFC ($20m), African Development Bank (AFDB) ($20m), Deutsche Investitions- und Entwicklungsgesellschaft (DEG) ($10m), and the Bill & Melinda Gates Foundation ($7m) which is expected to increase to $100 million by the final closing. Aureos is managing the project, and is responsible for sourcing investments, evaluating investment opportunities and providing the finance.
The fund will invest in Small and Medium-Sized Enterprises (SMEs) providing health services including health service delivery, risk pooling and financing vehicles, distribution and retail organizations, pharmaceutical and medical-related manufacturing companies, medical education, as well as ancillary businesses. Investments are expected to be between $250,000 and $5 million, in the form of either equity or quasi-equity, with an expected exit from individual investments after 5-7 years. Although all SMEs in sub-Saharan African countries are eligible for financing, there are a number of target countries, including: Nigeria, Ghana, Cote d’Ivoire, Senegal, Kenya, Tanzania, Uganda, Mozambique, Zambia, Angola, Rwanda, Burundi, DRC, South Africa, and Ethiopia.
The fund's first investment is with the Nairobi Women’s Hospital, and was announced January 2010. The hospital provides inpatient and outpatient services to children and women, along with specialized services such as antenatal, breast cancer detection and surgery, gynecology, and obstetrics. The hospital also has a Gender and Violence Recovery Center, the first such center in East Africa. The $2.6 million quasi-equity investment includes a management buyout and will also be used to build three hospitals which will provide more than half their services to Nairobi’s poor.
However, the flow of private capital into African public hospitals has been limited. Despite the 2008 passing, by the Cabinet, of Kenya’s public private sector policy framework, which outlines rules of engagement between government institutions and private entities, the health sector has yet to adopt the law. The September 2010 Kenya Private Health Sector Assessment by the United States Agency for International Development (USAID) recommends the formation of a Public-Private Partnership (PPP) unit within the health ministry in order to create an enabling environment for private sector investments in the health sector. Featherston has also noted that donor funding has begun to decrease, making the adoption of the PPP framework all the more urgent.
Advance Market Commitments
A $1.5 billion AMC pilot was collectively launched last June with the governments of Italy ($635m), the United Kingdom ($485m), Canada ($200m), the Russian Federation ($80m), Norway ($50m) and the Gates foundation ($50m). Additionally, the Global Alliance for Vaccines and Immunization (GAVI) also committed $1.3 billion to help fund the vaccines between 2010-2015. Decisions regarding which diseases to target are made by an independent advisory group with factors such as the effectiveness, price and long term availability of the vaccine taken into consideration.
“Finally public and private sectors join forces to fight poverty and disease. Together, we can make a difference.” -Giulio Tremonti, Minister of the Economy and Finance, Italy
Under the pilot the vaccines are made available for a fraction of the cost in developed countries. Vaccine manufacturers have committed to provide their vaccine for 10 years at a price no higher than $3.50 per dose which will be paid by GAVI and co-financed by the developing country government. The co-pay of $0.10-$0.30 will gradually increase over the 10 year period. The manufacturers will also receive an additional $3.50 per dose for 20% of the vaccines, which will be financed with the AMC donor funds.
These funds provide vaccine producers with the incentive they need to invest resources (staff, research, facilities, etc) to produce the vaccines. Vaccine manufacturers also make a commitment to supply the vaccine at a lower price once the donor funding is completed. This allows developing country governments to better plan for immunization programs.
The first vaccine to be piloted will be the pneumococcal vaccine. The expert committee that chose to focus on this vaccine included members from both developing and developed countries with background in epidemiology, public health, industry economics, vaccine development and law. It is estimated that this decision has resulted in having the pneumococcal vaccine available 10-15 years earlier than it would have been.
Pneumococcal disease causes 1.6 million deaths per year, including one million children under the age of five. Pneumonia, the most common form, causes one in every four child deaths, and is the leading cause of death among young children. It is estimated that approximately 90 percent of these deaths occur in developing countries. The pilot is expected to prevent more than seven million childhood deaths by 2030, as well as make a large contribution towards achieving Millennium Development Goal 4.
The two chosen vaccine manufacturers are GlaxoSmithKline (GSK) and Pfizer. Both manufacturers will provide 30 million doses annually over the 10 year period. In order to meet this demand, both companies will scale up their manufacturing capacity. However, before the vaccines can be administered, they must first be screened by the World Health Organization and approved by the AMC’s Independent Assessment Committee, which is expected to occur in late 2010. Once approval is granted, GSK is set to start administering vaccines in January 2012, and Pfizer in January 2013. GSK and Pfizer have also agreed to provide 7.2 million vaccines in 2010, 24.2 million vaccines in 2011, and 20 million vaccines in 2012. More firms can still make offers under the AMC as new calls for supply offers will be issued over time, and are expected to further decrease the vaccine price.
“The AMC demonstrates how innovative thinking about global markets can save lives in the world’s poorest countries.” - Tachi Yamada, President of the Gates Foundation’s Global Health Program.
As of now the GAVI Board has approved the following countries to receive the vaccines: Cameroon, the Central African Republic, the Congo, the Democratic Republic of the Congo, the Gambia, Guyana, Honduras, Kenya, Mali, Nicaragua, Rwanda, Sierra Leone and Yemen.
In terms of monitoring and evaluation, annual monitoring will occur, along with a baseline study (results expected end of June 2010), process evaluation in 2012, and impact evaluation in 2014 to assess causality.
AMC also hopes to introduce a vaccine against rotavirus, a major killer of children and cause of diarrhea. It is estimated that together, the two vaccines could save the lives of up to 11 million children by 2030.
Heather Esper is a staff write for NextBillion and is a Research Associate at the William Davidson Institute at the University of Michigan. She is part of the Base of the Pyramid (BoP) Initiative team, which addresses the intersection of business strategy and poverty alleviation.
This article originally appeared on NextBillion.net.
Image of smallpox eradication in the early 1970s in Bangla, Nepal by Jean Roy, courtesy of the CDC Public Health Image Library.