RH Commodity Supplies Financing
Study
Workstream A:
« Mobilizing Additional Dollars «
Workstream B:
Financing Mechanism Analysis:
« Better Money «
RHSC Meeting
NY, April 27-28, 2006
US $ in Million
Estimated Costs and Donor Support
for Contraceptives and
Condoms for STI/HIV Prevention
$1.800
$1.600
$1.400
$1.200
$1.000
$800
$600
$400
$200
$0
96 9 97 9 98 9 99 0 00 0 01 0 02 0 03 0 04 0 05 0 06 0 07 0 08 0 09 0 10 0 11 0 12 0 13 0 14 0 15
9
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
Total
Total
Total
Total
Total
Est. Contraceptive Cost (UNFPA)
Est. Contraceptive Cost (incl. Condoms) (UNFPA)
Est. Contraceptive Cost (Futures Group)
Est. Contraceptive Cost (incl. Condoms) (Futures Group)
Donor Support (UNFPA)
Developed by DSW based on data from: Ross, John, John Stover and Demi Adelaja, Profiles for Family
Planning and Reproductive Health Programmes 116 Countries (2005); UNFPA Achieving the ICPD Goals:
Reproductive Health Commodity Requirements 2000-2015 (2006); and UNFPA, Global Estimates of
Contraceptive Commodities and Condoms for STI/HIV Prevention 2000-2015 (2000).
CRITERIA
for « Additional $ » Approach







Produce more $ volumes
+ More stable and predictable $
Additional vis-à-vis ODA & existing mechanisms /
If possible build upon existing schemes
Feasibility / Launch speed
Visibility and attractiveness / Compelling brief needed
Foster local ownership and country responsibility /
Reward performance
Efficiency
Sustainability
Possible Sources of « Additional $ »
Each with Specific Requirements & +/




Donors & related Organisations
Private sector
Philanthropy
IFIs
Public, as solidarity contributor
To be Mobilised Whenever Possible


Local Governments
End-users
Range of Approaches investigated
Larger $ Volumes
1.International Solidarity Taxes / Lotteries
2.Vertical instruments
Ex: Gavi, Global Fund
3.Revolving Funds
Ex: PAHO Fund, UNFPA thematic Trust Fund
4.Guarantees / Risk cushions
5.Front-loading
Ex: IFFIm
6. Debt-based Tools
Ex: IDA Buy-down, Debt Securitization, Swaps
More focused $ Volumes
7.Capital Market / Fin. Engineering
If & Where feasible
8.Voluntary Contributions
Ex: Red, Credit card %, UK bonds lottery
9. PPPs
EX: IAVI, FIND
$ Generated from the Field
10. MFIs, Social marketing, Performance-Output Roads
Possible Routes: Three Examples
1. Revolving Fund




Fund is created with initial endowment (Donors and/or others)
Fund procures and pre-finances RH commodities on optimal
terms & conditions
Participating countries commit to reimburse Fund for supplies
+ pay fee (PAHO model)
Participating countries who cannot pay for supplies delivered
can, under certain conditions, have access to ancillary
“bridging fund” (or to direct ODA support)
+
-
Sustainability / Visibility / Countries made responsible
and made to contribute $
Country appetite for joining?
►
Link with Workstream B solutions ?
Possible Routes: Three Examples
2. Use Microfinance to expand Social Marketing

Provide dedicated loans through MFIs in order to strengthen
local RH sales network, including social marketers
+
+
►
Generates more $ from end-users who can afford to pay
for RH supplies
Strengthens awareness, advocacy and use of RH
The “small end” of the $ generation scale
Approach which could be combined with
larger-scale $ generation effort
Possible Routes: Three Examples
3. International Air Ticket Tax




Tax on air tickets (Can be tailored)
France committed to start July 1
Other countries considering to join
If enough join and agree on application of funding,
potential for sizable and predictable $
 International Working Group working on
 i) Implementation details
 ii) Use of funding (Including idea of an International
Drug Purchase Facility / Not exclusive)
►
Why not a RH Commodity Compartment ?
MOVING FORWARD
Suggestions

Preliminary report end of May

Workstream B Advisory Group to start providing advice,
feedback under Workstream A

Aim: To single-out and further develop up to 3 options

Final report by end of July
Financing Mechanism
Analysis: “Better Money”


Improving efficiencies in the reproductive
health commodity financing/procurement
system
Focus areas:
– Low/middle income recipient countries
– Global level donor lens (bilateral & multilateral)

Objectives:
– Smooth external funding volatility (enable long-term
planning, minimize chaos in supply chain
management system)
– Reduce system cost (via price negotiations, advance
notice, reduced costly emergency shipments)
Research Process


Literature review
Advisory Group
–
–
–
–
–



Georgia Taylor (Dfid)
Jagdish Upadhyay (UNFPA)
Jacqui Darroch (Gates Foundation)
Kees Kostermans (World Bank)
Wolfgang Bichmann (KfW)
Interviews/consultations (13 country representatives, 6
manufacturers, private NGOs, procurement agencies,
bilats, & multilats)
Reviewed and narrowed financing mechanism options
Analyses: impact, costs, feasibility assessment/system
alignment, implementation pathway
Pledge Mechanism (1 of 2)

Problem: Donor funding volatility/ delays
– Appraisal process delays
– Budget cycles


Solution: Financing mechanism confirms donor pledge,
negotiates MOU with donor, and releases funding for
recipient country use. Donor funding replenishes
financing mechanism.
Rationale:
– Financing mechanism assumes risk – no debt on books
– Donors typically follow-through with RH commodities even if
not timely
– RH commodities relatively small price tag
– Phase out once donors provide long-term commitments
Pledge Mechanism (2 of 2)



Addressable: $35m (max: $69)
Direct Impact: ~$5m
Indirect Impact:
– Smooth funding & secure product availability

Costs:
– Capital costs ~ market size
– Default costs ~ risk appetite
– Administrative costs ~ structure
Minimum Volume Guarantee
(1 of 3)
Illustrative
20.0
3.1
16.8
Pills
14.1
2.8
Percent of total
100 %
Vendors not
providing perorder volume
based discounts
~ 40 %
4.3
6,8
4.5
11.3
Condoms
Total order
amount
12,6
Subscale: 611% savings
potential if
aggregated
Vendors per
order volume
based discounts
~60%
Target
vendors for
min volume
guarantee
Orders already at
Subscale
maximum
volume orders
discount volume
level
~40%
~20%
Maximum
potential impact
from minimum
volume guarantee
Suboptimal:
5% savings
potential
with longterm/volume
commitment
Minimum Volume Guarantee
(2 of 3)


Solution: Financing mechanism aggregates demand
forecasts and establishes preferred price with
suppliers using minimum offtake. Users can enjoy
preferred price based upon performance (demand ~
offtake). Financing mechanism procures “unused”
products.
Rationale:
– Financing mechanism shares risk of demand
forecasts, while providing incentive to improve
demand forecasting data
– “Unused” product not necessarily lost if shifted
Minimum Volume Guarantee
(3 of 3)


Addressable: $62 m
Direct Impact:
($83 max)
– Cost savings: $2.6-8.2m

Indirect Impact:
– Reduce supply lead time
– Guaranteed volume may attract new suppliers and reduce
price
– Incentive for suppliers to submit products for
prequalification  increase product quality

Costs:
– Administrative costs ~ structure
– Unused product procurement ~ risk appetite
Next Steps

Review findings in
Systems Strengthening Working Group

Assess value in testing assumptions

Explore pilot option