Aid from wealthy countries to fight disease and poverty in the developing world has saved countless lives over the past decade. Despite intensified financial efforts toward global health goals, progress seems to be impeded and slow as the 2015 deadline for achieving the Millennium Development Goals draws near.
A recent study by the OECD Development Assistance Committee shows “sobering” results on the Paris Declaration on Aid Effectiveness: Out of thirteen measurable targets, only one – coordinated technical cooperation – has been met. Progress to meet the 2015 health MDGs are being impeded in part due to aid ineffectiveness. As much as $0.28 is lost for every $1 of ODA, and the high volatility in aid adversely impacts patients and health systems.
After more than a decade of steady increases in funding for global health and development programs, foreign aid is flatlining, in many cases dwindling. This will leave millions without prevention and treatment in years to come.
The problems associated with conventional aid, however, extend beyond the funding gap. Among which: (1) traditional aid mostly involves short-term commitments which are inherently unpredictable and unstable, making it difficult for poor countries to plan ahead, and (2) aid is typically paid out against inputs rather than measurable results such as maternal and infant deaths, thus creating failed incentives for improved performance.
With the population of the world now topping 7 billion people, improving global health outcomes has increasingly become a concern in development agendas. In these hard economic times, we can no longer exclusively depend on the good graces of donor governments alone. Rather, we must think creatively about new ways to financially support global health and development goals, without relying on increasing rates of development assistance.
In recent years, scaled-up efforts towards innovative financing for global health have been put in place to effectively address these problems associated with traditional aid financing. The concept of innovative financing is that successful financial instruments in the private sector are recast to suit development objectives, and its goal is to bridge the resource gap and accelerate the procurement of essential health goods to the poor.
Examples of such initiatives include the International Finance Facility for Immunization, or IFFIm, which sells bonds on capital markets that are backed by the long-term commitment of a few donor countries; the Global Alliance for Vaccines and Immunizations, or GAVI, uses these funds to purchase childhood vaccines worldwide; and the advanced market commitment.
A more recent innovation in financing for global health is the use of commercial credit to accelerate health commodity procurement. The Pledge Guarantee for Health, developed through a collaboration of the Reproductive Health Supplies Coalition, the U.N. Foundation and the Bill & Melinda Gates Foundation, is a financial tool that borrows several ideas on trade finance developed by the commercial sector, but applies it to the procurement of health commodities like anti-malaria bednets, contraceptives and medicines, enabling grant recipients to obtain short-term, low cost commercial credit on the basis of pending aid commitments. A donor serves as a guarantor to lending institutions and manufacturers to ensure they will be paid on time and in full. This stretches the value of the donor dollar and hastens the delivery of these commodities to the people who need them. In February, PGH ensured that 800,000 bednets arrived in Zambia months ahead of schedule – and before the peak rainy season. Later this month, PGH will use a receivable financing strategy to enhance affordability and ensure increased access of vital contraceptives developed by leading pharmaceutical manufacturers.
By mitigating the resource gap, the value of donor aid is maximized by smoothing out the unpredictability and instability of the funding source. PGH delivers value for money by removing the risks in the procurement process that lead to price premiums and emergency production. In public health terms, this results in faster, more efficient purchasing of life-saving commodities, while also empowering governments with leverage to negotiate reduced per-item costs.
I have been promoting the concept of “social business” to address health care and other pressing human problems. Social business is a special type of business which is devoted solely to solving problems, rather than bring profit to the investors.
Investors don’t take any profit from these companies, except getting back the original investment. I have created social businesses to produce bednets as a joint-venture with BASF, a water company as a joint venture with Veolia, sanitary napkins for rural women as a joint venture with Uniqlo, a nutrition company as a joint venture with Danone, and many other companies. Many more social business companies can be created if donors and the private sector create social business funds in each Third World country to invest in heath care-related creative social business companies to help the start-ups and replicate successful start-ups. This way, creativity and sustainability will be encouraged and some money can be recycled endlessly. Donor dependence can be minimized.
As the year comes to a close and the 2015 MDG deadline draws near, there is a great challenge to improve aid effectiveness and maximize value for money.
The World Health Organization notes that, in order to meet the MDG goals in 49 of the world’s poorest countries, an extra $250 billion would need to be raised. Being four years away from our deadline and in light of the global recession, raising this amount through traditional financing will prove to be a gargantuan task.
Innovative financing initiatives, particularly access to commercial credit, are proposed solutions to ensure that funding is available and accelerated to meet the growing demand for global health, in an effort to improve aid effectiveness and progress towards meeting the U.N.’s Millennium Development objectives.
A significant part of the aid money can be used to create social business funds in each recipient country. Local and international investors can utilize this money in each country to create health care-related social businesses.