View from the Middle: Markets can work for development gain
Howard Sharman explains how markets that redefine "value" can save millions of lives, and at lower economic cost
Saving $630m over the next five years is a decent target for a development-related public private partnership. Especially when that money can then be used to deliver life-saving treatment to 300 million people.
This is all about mosquito nets, market failure and market repair – through coordinated state, donor, NGO and manufacturer action.
That, to my mind, makes it a proper partnership between the public and private realms, one where each party does what it does best and is not some semi-phoney “transfer of risk” to the private sector that is really a disguised way of moving debt off the public sector’s balance sheet.
The work that outlines how this could be achieved has been carried out by the Results for Development Institute (R4D) based in Washington DC.
On World Malaria Day, April 25, the Institute released its report that shows how this $630m could be saved and then reinvested in properly life-saving nets.
Roughly half of the money ($290m), they estimate, could be saved through rationalising the specification of long-lasting insecticide-treated bed nets (LLINs) – through regulation. This would be informal regulation rather than government imposed, but they argue that the number of different types of net on offer – the market effect – has gone beyond offering choice to offering chaos and needs to be brought back into line.
They found that there are currently more than 200 different types of LLIN on offer – covering all shapes, sizes, colours – but that only 25 of these are commonly purchased. And some of the 200 LLINs on offer are very expensive because of their irregular size or specialised packaging – without offering any corresponding benefits to the users from this increased cost.
R4D’s solution is to “use rigorous analysis to identify 70-plus product choices that optimally balance cost and usage benefits”. Donors and countries (ie governments) would then be encouraged to endorse this guidance and require that LLIN procurement using donor/government money buys only from within these 70 products.
In essence, this is saying that malaria control is too important to be left to the market alone. And that public money should only be spent on products that have a high probability of delivering a good outcome.
However, in parallel, they are proposing that local evidence on usage benefits should be collected and that this evidence could then be used to justify an alternative net specification that could be shown to be effective locally.
Allowing 70 products to go forward initially allows the market space in which to operate, and allowing local evidence to be gathered allows new products to emerge over time that can be shown to be effective.
All very sensible and striving to strike a balance between market forces and regulation.
More worrying is the source of the other half of the saving ($340m) as this will involve a culture and attitude change amongst the buyers of nets. As was shown in Lord Ashdown’s humanitarian emergency response review committee report for the UK’s Department for International Development in 2011, NGO buyers cannot be relied on to buy the best and most effective products. “Plastic sheeting,” the report said (and sheeting is one of the staples of emergencies), “can be good but most often is low quality and falls apart immediately”.
The same theme emerges from the R4D report that says that there is now “a focus on purchasing nets on the basis of lowest price. This price-focused approach reduces overall value for money (VFM) while creating market disincentives for manufacturers to invest in improving net performance.”
So the way that the world is buying LLIN bed nets – the market effect – is positively encouraging manufacturers to reduce costs rather than improve product quality and product effectiveness. This means that we have a classic race to the bottom where only the cheapest can win.
The conundrum of how $340m can be saved by driving prices up is resolved by reference to the VFM concept.
R4D suggests that purchasing criteria should in future focus not on cost per net, but on “cost per year of net life”. That is, purchasers should focus on value for money and not on price.
It’s so obvious really, but in a world of “transparent” tendering, where bids are assessed almost entirely on price, and corruption is rampant, it currently takes a brave procurement professional to recommend a bid that does not offer the lowest price.
All of that can be circumvented, again, if some element of regulation is introduced. In this case, R4D is working with WHO and other partners on the development of what it calls net performance guidance.
This will assess the performance of nets over time and lead to guidance on which products (or mixes of products, taking into account net materials and insecticides) offer the best value for money (VFM).
Donors and countries will then be encouraged to run their procurement based on VFM rather than price, using both the approved list of 70 products and the net performance guidance.
This in turn should re-orientate manufacturer efforts from price reduction to value enhancement and make it commercially worthwhile for them to produce nets that last longer, or combat mosquitoes more effectively. With luck and a following wind this could turn what is currently a downward spiral of effectiveness – which may well be allowing malaria-related deaths to increase again following a 25% decline in these deaths over the past decade – into an upward spiral of improved products with improved effectiveness.
One reason to be optimistic that this could be achieved is that 90% of LLIN bed nets are funded by three major donors – the Global Fund to Fight Aids, Tuberculosis and Malaria, the President’s Malaria Initiative and the World Bank. So there are only a few people who need to be persuaded of the need for change.
R4D’s third recommendation – after rationalising the fragmentation of products and re-focusing procurement on value for money rather than price – harks back to a recent Ethical Corporation column. Mosquitoes are becoming increasingly resistant to the insecticides currently used on LLINs and there is an urgent need for new chemicals to be developed that can address the threat of resistance.
But, R4D reports, “the approximately $200m R&D investment required to develop these poses a significant hurdle”. The Bill and Melinda Gates Foundation has underwritten GSK’s research into developing a malaria vaccine – and it does look as though this research work may have been successful.
But in addition to any vaccine, there is clearly a pressing need to develop new insecticides for the estimated 560m LLINs that will be needed over the next three years.
The next step is a combination of foundation and chemical/pharmaceutical company that will replicate for insecticides the work of Gates and GSK on a malaria vaccine.