TAP THE POTENTIAL
THE ROLE OF THE PRIVATE SECTOR IN
STEPPING UP THE PACE OF SUPPLY OF
HIV/AIDS COMMODITIES
Sponsored by:
With co-sponsors:
Agenda
Hour 1
• Introductions
• Overview presentation
• Audience reactions and questions
Hour 2
• Discussion
• Audience reactions and questions
After
• Networking reception
The session and the presentations and opinions expressed are those of the sponsors and do not necessarily
reflect the views or policies of the US government.
Overview Presentation
Gordon Comstock
Director of Global Supply Chain, PFSCM
Gordon has over 30 years of consulting and management experience with the
University of Illinois College of Medicine, LifeScience Partners, Deloitte &
Touche , Opinion Research Corporation, The Hay Group, MAP International and
Management Sciences for Health.
The African economy is growing
rapidly, creating new
opportunities for the
private sector.
Globally, the proportion of the world’s population living in
middle income countries is on the rise, creating new consumers
of goods and services, including private health services.
8,000,000,000
7,000,000,000
Low income countries
6,000,000,000
Population
5,000,000,000
Population living in
middle income
countries
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
High income
countries
0
1960
World Bank Data, accessed 2014.
1970
1980
1990
2000
2010
By 2020, models indicate that more than half of African
households will have discretionary income to spend.
Household income in 2005 PPP $
Globals (>20,000)
Households with
discretionary
income
Consuming middle class
(10,000-20,000)
Emerging consumers
(5,000-10,000)
Households
only meeting
basic needs
Basic consumer needs
(2,000-5,000)
Destitute (<2,000)
2000
2008
% of householdes by income bracket
McKinsey Global Institute. “Lions on the Move.” June 2010.
2020F
HIV/AIDS had a dramatic impact on life expectancy in subSaharan Africa, but also made a dramatic recovery following
global investments in prevention and treatment.
Ambassador Deborah L. Birx, MD. “Delivering an AIDS-free Generation.” Kaiser Family Foundation Town
Hall Forum. 23 June 2014.
Africa is demonstrating remarkable growth across sectors,
including key categories for private sector growth.
Public administration
4.6%
Manufacturing
Agriculture
Real estate, business services
6.8%
Wholesale and retail
Other services
Resources
Utilities
Construction
7.8%
Transport, telecommunications
Financial intermediation
Tourism
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Compound annual growth rate
McKinsey Global Institute. “Lions on the Move.” June 2010.
8.0%
9.0% 10.0%
The financial cost of starting a new business in Africa is
rapidly decreasing, but still remains high compared to
wealthier countries around the world.
Cost of business start up as % GNI per capita
350
300
250
200
150
100
Sub-Saharan Africa
(developing
countries)
50
BRICS
High income
0
2003
2004
2005
World Bank Data, accessed 2014.
2006
2007
2008
2009
2010
2011
2012
2013
Direct foreign investment in Africa has
spiked massively in the past decade.
World Bank Data, accessed 2014.
Mobile money is
booming in Africa,
changing the way
both individuals
and businesses buy
and sell goods and
services.
Claire Penicaud & Arunjay Katakam. “Mobile Money for the Unbanked. “State of the Industry 2013:
Mobile Financial Services for the Unbanked.” GSMA
Investments are being made to
improve trade as shipping
corridors throughout Africa and
freight volume continue to grow.
The cost to import and export goods across borders varies
widely, and remains higher within Africa than in other parts of
the world, but sub-Saharan Africa continues to lead in the
number of trade reforms.
52 reforms from
2007-2012
Sub-Saharan Africa
Latin America & Caribbean
Middle East & North Africa
E. Europe & Central Asia
East Asia & Pacific
OECD High Income
South Asia
0
10
20
30
40
Total number of trade reforms, 2007-2012
Doing Business 2012. “Trading Across Borders”
50
60
Importing and exporting goods across country borders requires a
number of steps, each of which have a cost associated with them.
Doing Business 2012. “Trading Across Borders”
Since 1990, more than $13 billion has been invested by the
private sector in infrastructure projects across sub-Saharan Africa.
Railroads
Seaports
Roadways
Airports
World Bank Group Private Participation in Infrastruture Database, Regional Snapshots, accessed 2014.
Air freight volume also continues to grow.
In the past decade alone, air freight volume
through Africa has grown by 33%.
World Bank Data, accessed 2014.
South Africa, 20%
Other, 23%
Distribution of
air (2009)
freight
across African
countries
Uganda, 3%
Ethiopia, 3%
Kenya, 15%
Morocco, 4%
Congo, 5%
Sudan, 13%
Egypt, 14%
World Bank, Transport Sector Board, and International Trade Department. “Air Freight: A Market Study
with Implications for Landlocked Countries.” August 2009
The volume of goods shipped through other African ports
is also rapidly increasing annually.
Republic of Congo
Nigeria
Kenya
Ghana
Algeria
Egypt
Tanzania
Sudan
World
0%
10%
20%
30%
40%
50%
Change in total container volume (2008-2013)
World Bank Data, accessed 2014.
60%
70%
80%
Investments are being made to
upgrade the infrastructure and
processing systems in major
ports around the continent.
Map from
PriceWaterhouseCoopers.
Annual container volume by
port from various sources.
Durban South Africa
2.6 million TEUs (2012)
Largest shipping terminal in Africa
Handles 31.4 million tons
of cargo each year
Mombasa Kenya
903,443 TEUs (2012)
Undergoing a $366 million upgrade
Will increase handling capacity by
200,000 TEUs a year
Tema Ghana
822,131 TEUs (2013)
Ghana Ports & Harbours Authority
investing $2.5 billion in
improvements by 2018
Traffic has already risen five-fold
since 2000 and will double to 2
million TEUs by 2018.
At the same time that investments are being made in
infrastructure and shipment volumes increase, the cost
to import a container of goods in countries with key
ports continues to increase.
$2,500
South Africa
$2,000
Nigeria
$1,500
Tanzania
$1,000
$500
$2005
World Bank Data, accessed 2014.
2007
2009
2011
2013
Though the quality of the roads in Africa has
continued to improve, the African Development Bank
anticipates that road freight will continue to be
somewhat costly and inefficient until competition
in the trucking industry is increased
and barriers to trade are lifted.
High road freight tariffs and
administrative and border
delays create additional barriers
to road shipment.
0.14
0.13
0.12
0.1
million $
0.08
0.08
0.07
0.06
0.04
0.05
0.03
0.02
0
Global Southern Eastern Western Central
average
tariffs in million $ per ton-km
African Development Bank, sourced from Teravaninthorn and Raballand, 2008.
Investment and growth in
technology is also changing the
business environment across
the continent.
Mobile coverage
continues to increase
across Africa, which is
now the second largest
mobile market in the
world after Asia.
Mobile penetration (%), 2012
For each fixed line in sub-Saharan Africa, there are 28
mobile phone connections, demonstrating the
dominance of mobile as a means of communication.
Mobile
Fixed line
GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”
The average annual cost of mobile phone ownership has
decreased dramatically across the continent.
In East Africa, the average monthly cost to own a mobile
phone has declined by up to 72% from 2008 to 2011.
16
$15.04
Monthly cost of mobile ownership
(US dollars)
14
12
$11.11
$10.11
10
8
6
$5.49
$6.15
$6.65
4
$2.7
$2.83
2
0
Uganda
GSMA, 2013.
Tanzania
2008
Ethiopia
2011
Kenya
Increased demand for mobile communications services has
sparked investment in network infrastructure, including cell
towers, 3G connectivity, and more.
Airtel
$1.5 billion in 2013
Africa
France Telecom
$9.3 billion from 2010-2015
Africa
MTN Group
$9.3 billion from 2008-2013
Africa & Middle East
Etisalat
$15 billion from 2010-2015
Africa & Middle East
$-
$2
$4
$6
$8
$10
CapEx Investments (billion $)
GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”
$12
$14
$16
Broadband access continues to grow, including new fiber
optic cable around the continent.
Steve Song, ManyPossibilities.net
Even across landlocked countries, entrepreneurs
like Liquid Telecom are working to provide fast,
reliable broadband access.
$350 million
invested to install
17,500 km of
fiber cable
across 12
countries
The Economist. “Cabling Africa’s Interior: Many Rivers to Cross.” 5 July 2014.
Access to the internet through broadband and mobile devices is rapidly
increasing across sub-Saharan Africa.
Total broadband connections (millions)
180
160
140
120
100
80
60
40
20
0
2012
2013
Total mobile
2014
2015
Total fixed
GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”
2016
As ICT becomes more accessible and affordable, it is
increasingly being leveraged in logistics and supply chain
management.
A recent landscape analysis by the mHealth Alliance
identified more than 40 different electronic logistic
management systems currently in use in countries
around the continent and the world.
The African pharmaceutical
market is rapidly expanding.
Total health expenditure
in Africa has increased
more than three-fold in
the past decade.
Total health expenditure
(USD billions)
100.6
61.7
30.7
2001
2006
2011
African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and
Finance for Results in Africa Summary Report.” September 2013.
Growing
consumerism
African
demographic
trends & rising
medical needs
African Pharmaceutical Growth
Stable
macroeconomic
growth
Maturing
regulatory
environment
African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and
Finance for Results in Africa Summary Report.” September 2013.
The total annual pharmaceutical spending in Africa is
expected to more than double within this decade.
2010
$21 billion
Today
$29 billion
2020
$45 billion
IMS. “Africa: A Ripe Opportunity.” White Paper
An estimated $25-30 billion in new investments will be needed to meet demand
for improved distribution and retail systems for pharmaceutical
and medical supply product facilities between now and 2016.
$11-20 billion of those funds are likely to come
from the private sector.
As new producers come into the market, many
multinational pharmaceutical companies expect to see
declines in revenue of up to 40% between 2008 and 2015.
AstraZeneca
Pfizer
Eli Lilly
Bristo-Myers Squibb
Merck & Co
sanofi-aventis
GlaxoSmithKline
Wyeth
Schering-Plough
Novartis
-50%
-40%
-30%
-20%
-10%
0%
Percent change in annual revenue from 2008-2015
PriceWaterhouseCoopers Pharma2020 Report
10%
20%
Local manufacturers are game changers
in pharmaceutical procurement.
13 essential medicines procured through local suppliers
Tanzania
of 45 total essential medicines
Reduced
landed cost
by 5.3%
Data from the Partnership for Supply Chain Management on local procurement in 2012
Reduced lead time
by more than 50%
Ethiopia
Right-sizing responsibility with capacity.
HIGH VOLUME
/ RELIABILITY
LOW
VOLUME /SUPPLIERS
HIGH VOLUME
SITES
LOW VOLUME
SITES
RELIABILITY SUPPLIERS
HIGH VOLUME / RELIABILITY
SUPPLIERS
7
Top
suppliers
X 27
Major
hospitals
= 70%
of volumes
Local Economic Impact
Study: Preliminary
Findings
Prashant Yadav and Sarah Alphs
Note: These are results from an independent study. SCMS facilitated travel and
lodging for one of the researchers to conduct vendor interviews. The
researchers did not receive any other funding for this research.
SCMS local sourcing-background and
questions
Over the past 7 years, SCMS has contracted 650 local
vendors in 14 African countries to supply
commodities valued over $260 million
What is the local economic impact (direct and
indirect) of local sourcing by SCMS?
–Is SCMS’ strategy of enhancing local value-creating
activities working?
–Is SCMS driving competitive advantage amongst it
local vendors and making them more sustainable?
–Will the upgrades in technology, new SOPs,
efficiency and quality improvements in production
and distribution by local vendors become a “sticky
equilibrium”?
45
SCMS Local Economic Impact Study
Objectives
•
•
•
To understand the direct and indirect impact of
SCMS program on its local vendors
To understand the direct and indirect impact of
SCMS program on the broader economy
To develop a white paper on lessons learned and
accomplishments achieved thus far
Project Partner
•
46
The Partnership for Supply Chain Management
(PFSCM) has partnered with the William
Davidson Institute (a non-profit research
institute at the University of Michigan in the
USA) to carry out the independent data
collection and analysis for this study.
Assessing Direct and Indirect
Impacts of SCMS Local Sourcing
Direct Impact
• Result of SCMS
sourcing
expenditures
• Direct revenue
and jobs for
SCMS local
suppliers
Indirect
Impact
• Enhancements to
supplier’s long
term business
growth
• Household
spending by
supplier’s
employees
• Increase in
supplier
productivity
• Change in
consumption
by the
household
and its effects
• Effects from
further sourcing
(supplier’s
supplier)
47
Induced
Impact
Assessing Direct and Indirect
Impacts of SCMS Local Sourcing
Direct Impact
• Result of SCMS
sourcing
expenditures
• Direct revenue
and jobs for
SCMS local
suppliers
Indirect
Impact
Induced
Impact
• Enhancements to
supplier’s long
term business
growth
• Household
spending by
supplier’s
employees
• Increase in
supplier
productivity
• Change in
consumption
by the
household
and its effects
• Effects from
further sourcing
(supplier’s
supplier)
Today’s
presentation
48
What would we measure to understand impact
INPUT
SCMS $
ACTIVITY
IMPACT
INDICATOR
DATA SOURCE
↑↓ revenue
Annual revenue pre/post
SCMS award
Cash flow
statements
Training
↑↓ business
output/productivity
# trained
# on-time deliveries
# safety incidents
Good storage practices
Working capital
Company records
Purchase asset
↑↓ assets (e.g.,
vehicles)
Additional/fewer
employees as a result of
SCMS
Access more networks
as a result of SCMS
contract
Expand/contract
business
# of assets obtained/sold
locally
Company records
↑↓ employment
# of additional jobs created
pre/post SCMS
Company records
↑↓ reputation/
competiveness in the
market
# of contracts obtained
pre/post SCMS
Company
records/public
records?
↑↓ services offered
# /types of services offered
pre/post SCMS
Company records
Other indirect impact will be evaluated as well
49
Methodology
Consultation
with SCMS
• Select study countries
• Select vendors
• Understand increases/decreases in the following areas:
Consultation
with Vendors
First level
analysis
Second level
analysis
50
revenue, employment, assets, business productivity, reputation/
competiveness in the market, services offered
Current
status of
project
• Analyze impact based on vendor surveys
• Use economic multipliers and SAM to understand broader
impact of SCMS local sourcing
Country Selection Criteria
51
•
#1 Overall spend with local vendors
– More than 90% of SCMS commodity spend
between FY09-FY11 with local vendors was
in 8 countries: South Africa, Mozambique,
Ethiopia, Kenya, Ivory Coast, Tanzania,
Zambia, Nigeria
•
#2 Geographical considerations
– Maintain initial focus on East African
countries and potentially add some of the
West African countries later
•
Four Countries initially selected for the study:
– Mozambique, Tanzania, Kenya and Ethiopia
Vendor Selection Criteria for
Survey/Interview
•
#1 Substantial contract award value (over $25,000)
•
#2 Supplied at least one order to SCMS between
2005-2013
•
#3 Representation from different industries (lab,
pharmaceutical, IT services, logistics, warehousing,
etc.)
•
#4 Representation of both smaller and larger
businesses
•
#5 Availability of the vendor to meet while the
consultant was in-country
Approximately 10 vendors were selected and
interviewed in each study country
52
Who are SCMS’ local vendors?
(not based on a truly representative sample)
53
Basic characteristics of vendors
interviewed
Trucks, Forklifts,
Vehicle Spare parts
5%
Office
supplies/printing
5%
Logistics
5%
Warehousing
3%
Security
3%
IT products and
services
8%
Lab and/or Pharma
Supplier
71%
Vendor Type across the Countries
A total of 38 vendors were interviewed across the 4 countries
54
A large portion of local spend is on suppliers of pharmaceuticals and
laboratory services or lab reagents
Age of business:
Established business or new guys on the block?
30%
25%
20%
15%
10%
5%
0%
2-5 years
55
6-10 years 11-15 years 16-20 years 21-30 years
over 50
years
SCMS local vendors represent an even mix of new businesses and
more established businesses
Size of the business
30%
25%
20%
15%
10%
5%
0%
56
Median revenue of SCMS local is 1-5million USD with some as high
as 50 million USD
Number of employees
30%
25%
20%
15%
10%
5%
0%
10-24
25-49
50-74
75-99
Other
There is an even mix in number of employees.
SCMS local vendors include small business and large businesses
57
How big is SCMS business as part of
their overall business?
30%
25%
20%
15%
10%
5%
0%
SCMS is our
biggest client
Top 5
Top 10
Top 11-15
Top 100
50% of vendors list SCMS as their top client or top 5 client.
Question: Who are the other 4 top clients? How can SCMS understand
their supplier’s customer landscape better?
58
Did we interview the right respondents?
Deputy
Managing
Director
5%
Department
Head
8%
Operations
Manager
/Director
16%
Sales
Manager
/Director
11%
Managing
Director or
CEO
38%
Owner
22%
Business impact studies often rely on interviews with line staff. We ensured
we interview the leadership level in each vendor. This enables understanding
the holistic picture of how SCMS has transformed their business
59
What happened to their overall business after
initiating business with SCMS?
60
Immediate vs. Long Term
Sustainable Impact
Immediate
Business Impact
Skill Development
• Did they hire
more
employees?
• Did their
business grow?
• Did they
acquire new
assets?
• Did they develop
new skill sets?
• Are they better
equipped to
obtain new
business?
• Are they able to
access capital?
Easier to capture
61
(Preparing for
Sustainability)
More difficult to capture
Leveraging Skills for
Sustainability
• Are they
leveraging new
skills to get new
business?
• Are they
leveraging new
assets/capital to
grow business?
New employees after start of business
with SCMS
Percentage of respondents
84.6% of the businesses reported an increase in the number of
employees after receiving a contract from SCMS
14%
12%
10%
8%
6%
4%
2%
0%
4
9
10
20
25
30
51
67
100
Number of employees added
Employee salaries have a trickle down/multiplier effect on the local
economy.
62
Nature of the training offered
30%
25%
20%
15%
10%
5%
0%
IT
new products
existing/new
products
marketing/sales
quality
warehouse
management
technical training
for engineers
driving
logistics
25% started offering new technical training for engineers
Training on quality and use of new products also started by many vendors
The technical training for engineers and other types of training will have
trickle down effects on quality improvement and efficiency beyond products
and service supplied to SCMS
63
New Standard Operating Procedures
Established
• ~80% report that they have established new SOPs since
start of work with SCMS
SOP TYPE
As per International Standards (ISO,
WHO-PQ, etc.)
3%
13%
As per client needs
42%
Equipment maintenance
General Operations
22%
Did not specify
10%
10%
Safety
The application of global quality standards and SOPs (42%) improves the
global (and local?) competitiveness of these suppliers
64
Access to Capital from lending
sources
100%
Note: This does not include working capital increases due to SCMS contract itself
80%
60%
40%
20%
0%
Increased
Remained about the
same
Over 75% of vendors can now access more capital from local institutions
Market constraints remain a barrier – APR is high (12-18%), access limited
65
Type of Asset Acquired
35%
30%
25%
20%
15%
10%
5%
0%
Additional
Warehouse
Space
Additional Office Office Furniture
Space
and Refurbishing
Machinery
opened new
branch office
Commerical
Vehicles
Forklifts,
Generators, Cold
Rooms etc
Most commonly acquired assets are warehouse space, commercial vehicles
and additional office space. These are generic assets that can be effectively
leveraged for other clients
66
Ability to negotiate prices, quality and
other contract terms with their
suppliers
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
better
the same
mixed
The advantages to productivity that come from the SCMS relationship are
myriad. 80% report greater ability to negotiate prices with their suppliers.
Question: Does this translate into higher profit margins and/or lower
prices?
67
Did they offers new services after the
SCMS contract
100%
80%
60%
40%
20%
0%
More
The same
SCMS is driving competitive advantage by equipping its vendors with
the ability to offer new services
68
Business growth and competitive
advantage
69
• 92% report that their business has
grown since start of work with SCMS
• Only 36% report that the market or their
competition has grown
• SCMS is driving a competitive advantage
through new SOPs, training and assets?
• New* contracts with commercial
businesses after SCMS contract : 77%
• New* tenders after SCMS contract : 67%
Conclusions and Next Steps
•
Local sourcing by SCMS is increasing employment and growing business
for its vendors
•
It is also driving competitive advantage for its local vendors by
equipping them with new techniques, global standards and operating
procedures, and access to capital and new assets
•
Some vendors are already leveraging this enhanced capability to offer
new services and grow their business
•
Indirect business impact is intrinsically difficult to measure. Further
investigation required to achieve rigorous attribution
•
Additional studies needed to better understand indirect impact and
how vendors leverage their enhanced capabilities to become more
sustainable
70
Discussion Panel
Dr. Iain Barton, moderator
Managing Director, Imperial Health Sciences
10 years of medical practice and more than a decade in healthcare supply
chain management. Joined The Fuel Group in 2000 as Strategic Director, before
moving to PHD as CEO in 2005, then Group CEO of RTT in 2010.
Looking forward, global
partnerships between the public
and private sectors will be
essential to long term success in
expanding business in Africa.
Africa Today
$1.6 trillion
collective
GDP (2010)
$860 billion
combined
consumer
spending (2008)
20 African
companies with
revenues of at
least $3 billion
Africa in 2020
$2.6 trillion
collective
GDP
$1.4 trillion
in consumer
spending
128 million
households with
discretionary
income
Strong partnerships are key to long term success.
Joint Ventures,
technology
transfers
Global Players
African
private
sector
Public private
partnerships
African
governments
Public private
partnerships
African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and
Finance for Results in Africa Summary Report.” September 2013.
Panelists
Dr. Owen Mugurungi, the Director of STI HIV AIDS and TB, Zimbabwe Ministry of
Health & Child Welfare
•
Received specialist training in Genito-Urinary Medicine and HIV/ AIDS from the University College of
London. Serves as Chief Advisor to the Minister and Ministry’s top management on HIV AIDS and TB issues
and leads and coordinates the health sector response to AIDS and TB.
Arvind Kanda, Vice President, Mylan Inc.
•
Mechanical Engineer with an MBA from Indian Institute of Management (1999-2001). 16 years of work
experience out of which 10 years in the Pharma Industry. 8+ years now in Matrix/Mylan.
Brian Brink, Chief Medical Office, Anglo American
•
Former Global Fund board member.
Perviz (Palu) Dhanani, Managing Director, Universal Corporation Limited
•
35+ year experience in various businesses in Africa with 30 year in pharmaceutical distribution & last 18
year in pharma manufacturing in Kenya. A board member of Kenya Association of Manufacturers and
Chairman for Federation of Kenyan Pharmaceutical Manufacturers.
2012 &
2014
Finalist
2014: Winner of the World Bank’s Science of Delivery
Award for the Procurement in Complex Situations
Challenge
76