RH Commodity Supplies Financing Study Workstream A

RH Commodity Supplies Financing Study Workstream A: « Mobilizing Additional Dollars « Workstream B: Financing Mechanism Analysis: « Better Money « RHSC Meeting NY, April 27 -28, 2006

Estimated Costs and Donor Support for Contraceptives and Condoms for STI/HIV Prevention Developed by DSW based on data from: Ross, 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 & +/n n n Donors & related Organisations Private sector Philanthropy IFIs Public, as solidarity contributor To be Mobilised Whenever Possible n n 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 n n 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 n 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 Ø Preliminary report end of May Ø Workstream B Advisory Group to start providing advice, feedback under Workstream A Ø Aim: To single-out and further develop up to 3 options Ø Final report by end of July

Financing Mechanism Analysis: “Better Money” n n Improving efficiencies in the reproductive health commodity financing/procurement system Focus areas: – Low/middle income recipient countries – Global level donor lens (bilateral & multilateral) n 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 n n Literature review Advisory Group – – – n n n Georgia Taylor (Dfid) Jagdish Upadhyay (UNFPA) Jacqui Darroch (Gates Foundation) Kees Kostermans (World Bank) Wolfgang Bichmann (Kf. W) 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) n n n 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: $35 m (max: $69) n Direct Impact: ~$5 m n Indirect Impact: n – Smooth funding & secure product availability n 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 4. 3 14. 1 2. 8 11. 3 4. 5 Condoms Total order amount Percent of total 100 % Vendors not Vendors per providing perorder volume based discounts ~ 40 % Subscale: 611% savings potential if aggregated ~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) n n 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) n Addressable: $62 m ($83 max) Direct Impact: n Indirect Impact: n Costs: n – Cost savings: $2. 6 -8. 2 m – Reduce supply lead time – Guaranteed volume may attract new suppliers and reduce price – Incentive for suppliers to submit products for prequalification increase product quality – Administrative costs ~ structure – Unused product procurement ~ risk appetite

Next Steps n Review findings in Systems Strengthening Working Group n Assess value in testing assumptions n Explore pilot option