Innovative Financing
(Supply & Country)
SD & DFAM
GMT Side-Meeting
September 2015
Objectives
• Debrief the Regional and HQ Directors on the range of work underway on
supply and country financing
• Get a steer from the group on whether we are taking the right approach,
synergies with other areas of work, future areas of work, working in
partnership
• Obtain feedback on the idea of an internal ‘think tank’ to further steer
the work during this evolving period
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Debrief
Secured Financing
A look back…
4 – 5 years ago, we began a body of work in financing, initially focusing on transactional activities:
- Delayed funds which prevented supply transactions moving forward
- Financial backing for special contracts to generate exceptional savings
But it’s organically grown to adjacent activities and has become quite robust. Here are some highlights:
2010
• Inaugural formalized pre-financing transactions
• Sierra Leone $6.7m LLINs thru 7% set-aside fund: Zambia: $4.4m LLINs (delayed WB loan) thru LoC;
2011
• Novartis OPV Firm Contract – Kept a supplier in a constrained market for 2 extra years
• Rotavirus special contracting with partners $650m of savings over 5 years
2012
• First U.S. Fund’s Bridge Fund transactions ($500k RUTF Burkina Faso)
• First ‘partial firm’ transaction (Sanofi OPV); high returns / efficient capital
2013
• $54m worth of pre-financings for COs and Countries, including polio transactions for Nigeria and Pakistan
• Special contracting to secure IPV supply via VII; special contracting for penta via GAVI/BMGF
2014
• ~$30m of pre-financings for COs and Countries, including Ebola-related; VII transition to SD
• UNICEF-led penta special contracting, novel option + commercial financing design  $57m in savings
2015
• VII Expansion ExB Approval; ~$50m worth of pre-financings YTD; Nigeria RI credit line
• Launch of domestic supplier base expansion / financing activities
4
Financing has primarily been within the
Supply Chain Optimization Spectrum
Improve Performance
• Reduce stock-outs Most recent financing work resides here
• Lower
transportation
costs
Improving supply chain performance
within different
modalities
• Ensure timely delivery
Definition of Need
Budgeting& Planning
e
Different modalities of
Service-Delivery
Inspection
Warehousing, Distribution
& Reorder
Utilisation
Monitoring & Evaluation
Government
UNICEF
Government
UNICEF
c
d
Delivery & Clearance
UNICEF
a
b
Procurement
Government
UNICEF
Government
Government
Capacity Development: Focus on sharing UNICEF added-value (expertise on markets, products, inventory, monitoring & convene StS
(predominantly e)
Strengthening together (a, b, c, d)
Optimising UNICEF (a, b, c)
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Current Scope: 2014-2017
To respond to these needs, we‘ve conducted activities through 4 workstreams:
Impact on Countries
Pre-Financing
Delayed Grants
and MoH Budgets
• ~$50m worth of transactions pre-financed in
2015YTD
• VII Expansion & USF’s Bridge Fund related to PS
• Nigeria $21m credit line for Routine Immunization
Increasing Gov’t
Fiscal Space
• Support country-owned budgeting and
sustainability initiatives
• Facilitate implementation of local public-private
trust funds; access to commercial markets
Country
Financing
Special Contracting
• Penta Special Contracting  $57m+ savings over 2
years (MICs-GAVI price parity)
• Additional models to achieve “firm” contracts
including multiple partial-firm models, optionbased models
Local Supplier Base
Development
• Support access of new suppliers in programme
countries to financing via leveraging UNICEF’s
network, convening ability and credit profile
Supply
Financing

Addressing cash
flow timing gaps

Increasing
availability of
funds / budgets

Lower prices,
secured quantities,
etc.

Lower prices +
domestic
economic
development
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Current Trends in Supply Financing
Pre-financing need for delayed grants and government disbursements
• $100m annual supply pre-financing requests (all commodities); $225m+ by 2020
 Expanding pre-financing activities –2015YTD (July) ~$50M worth of pre-financings (~½
through VII) / Worth noting that since its inception the US Fund’s Bridge Fund in 2012 has
supported $100M of pre-financings and government related PS activities.
Vaccine Independence Initiative– expanding scope and capital base per Executive Board approval in
2015
• Active: Kenya, Chad, Niger, Capo Verde, PICs, Nigeria: Soon active: Lao PDR, Cameroon, Ghana
• By end 2015, capital fund’s effective base will increase from $10M to $30M (including most recently
$5m from GAVI). Target is $100M by 2020.
Special contracting to achieve improved pricing for countries
• MICs-GAVI penta pricing parity + $57m savings
• Improved pricing  increased fiscal space for other interventions
 Cost-effective / less capital-intensive special contracting mechanisms
Sourcing of supplies from programme countries
• Domestic suppliers’ poor access to affordable financing
• RMNCAH-commodities to be locally sourced by Countries
 Support domestic supplier growth while respecting FRRs and public procurement principles
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Supply Financing
Pre/Bridge Financing of programme needs
•
•
2012-2015YTD (July): $141m worth of supply pre-financings vs. ~$367m of requests
~$50m worth of successful supply pre-financings for 2015YTD (July)
Ability to meet requests is improving:
• VII Expansion (most flexible tool), can now broadly support non-vaccine commodities
• Triage by SD, DFAM, EMOPs and COs to determine the ‘right’ pre-financing mechanism (“the 5
Buckets” = RR, 7% Set aside, EPF, VII & USF’s Bridge Fund)
• Working with EMOPs to develop ‘fast-acting’ resource mobilization, especially for those
countries which can ultimately self-fund at least part of their response
• Seen by partners as a leader in pre-financing / revolving funds (many incoming consultations)
Most Recent Pre-Financing Examples
Date
Country
Transaction
August 2015
Zimbabwe (CO)
$1.4m essential medicines while waiting on delayed EU grant
August 2015
Chad (CO)
$525k RUTF advanced while waiting on delayed ECHO grant
July 2015
Ukraine (CO)
$1.9m ARVs advanced while awaiting delayed GFATM grant
June 2015
WHO
$6.24m mOPV2 stockpile secured in preparation for the “Switch”
May 2015
Nigeria (MoH)
$21m credit line for self-funded Routine Immunization via VII ($14m
of vaccines ordered)
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Special Contracting
Special Contracting refers to commercial transactions with terms or features which are not part of our
standard contracting, including:
- Firm Contracting
- Pre-payments
- Partial Firm Contract
UNICEF organically leading development of these
- Pre-payment equivalent
` of firm contract
tools w/in partners (GFATM, GAVI, BMGF)
- Option-based contracting
Special contracting tools typically require dollar-for-dollar coverage of financial risk.
Recent Examples
• Firm contract to secure IPV supplies, before end-users had been identified (ultimately, used in 2014
Nigeria IPV campaigns).
• Special contracting with penta supplier  $57m of savings and MIC-GAVI pricing parity (Philippines,
Egypt, others now buying penta at the GAVI price)
• In 2016, expect another special contracting tool to accelerate availability / reduce pricing for a pointof-care, pneumonia diagnostic device… stay tuned!
What does it mean for Countries? Lower prices, faster availability, reasonable convergence of pricing
across income groups
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Impact of Special Contracting in terms of price
Financial Savings of over $789M (2011-2016)
Transaction
signed by UNI CEF & Supplier
Novartis - OPV 20112012 (BMGF)
Originally
Anticipated
Savings ($)*
Commitment ($)
Duration
IRR
11,130,000
63,070,000
2 years
18.0%
650,000,000
221,818,182
5 years
129.6%
1,731,250
41,800,000
9 months
13.2%
Sanofi - OPV 2013-2016
(U.S. Fund)
BioE- Penta 2013-2016
(GAVI/BMGF)
10,090,000
16,915,000
4 years
23.5%
59,500,000
179,500,000
4 years
18.2%
SII - Penta 2015-2016
(GAVI/Commercial)
56,950,000
83,500,000
2 years
119.0%
GSK-Rotavirus **
(GAVI / BMGF)
BioE - Penta 2012**
(GAVI / BMGF)
Context - Primary Driver
Cost savings. Plus keep large supplier in market for another 2
years. The transaction did not generate the full savings as the
supplier did not have the full quantity available due to
production issues.
Cost Savings and Market Influence: achieved new lowest market
price. BMGF played an important role in negotiating terms. We
note that there are significant pre-payments also made with this
transaction which also contribute to the low price.
Market influence: achieved new lowest price. Terms were
informed by BMGF bilateral agreement (below). Pre-payment
incorporated into transaction.
Cost savings
Cost savings. Terms were informed by BMGF bilateral agreement
(below). Does not include effect of advance payment which
generates additional savings.
Cost savings and market influence: improved convergence of
prices and achievement of MIC-GAVI parity for pentavalent.
Utilised commercial financing sources to provide security for
transaction.
* At time of transaction.
** Also, includes some pre-payment terms. Where possible, analysis seeks to identify effect of only contracting on firm basis.
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Local Supplier Base Development
Our newest category of work… financing tools to support local domestic supplier growth
SD’s 2014-17 Supply Outcomes have explicit targets on sourcing from Programme Countries
- 50% of RUTF is sourced from local manufacturers by 2016
- The 10 products of UN LSCWC sourced from at least 2 local sources by 2015
- Contract 3 local kit-packers of health kits in Africa by 2014; Issue guidance on how to kit pack
locally in SM by 2015
Access to affordable working and growth capital remains an important barrier to growth
- Businesses with $1m+ of UNICEF revenue encounter 10-12%+ interest rates
- Growth capital is just as hard to find
- UNICEF cannot be a financier / investor in the companies it procures from
Therefore…
- We are using our convening role and industry consultations as a forum for suppliers and
financers / investors to meet
- Developing financing models which leverage UNICEF’s creditworthiness for UNICEF suppliers
to reduce borrowing costs to these suppliers
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Impact of Local Supplier Base Development
Example of a local Supplier obtaining financing… without UNICEF financing the supplier
Local Supplier
$
LC
Issue & Adv ise LC
International Bank
Discount
LC ($)
Domestic Bank
($)
We are currently working with a Nutrition supplier to operationalize the above.
Supplier is located in a programme country and is charged 10%+ for working capital borrowings,
limiting growth potential
By engaging in the above / other structures (including with other suppliers), we are helping
reduce borrowing cost (by at least ½)
- UNICEF, Countries and Partners will share in the generated price savings
- Supporting sustainable local development.
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Country Financing
Expanding to help countries position-prepare for changing ODA context
20+ countries are predicted to enter GAVI-graduation through 2020.
2014
Bhutan
Honduras
Mongolia
Sri Lanka
Moldova
Indonesia
Kiribati
Bolivia
Angola
Armenia
Azerbaijan
Congo, Rp.
Georgia
Timor-Leste
Guyana
Nicaragua
Papua New Guinea
Uzbekistan
Ghana
Nigeria
Solomon Islands
Vietnam
Lesotho
Lao PDR
Zambia
Cote d'Ivoire
Djibouti
Sao Tome & Principe
2015
2016
2017
2018
2019
2020
2021
2022
EAPRO
LACRO
ROSA
WCARO
ESARO
CEE/CIS
MENA
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Toolkit to Support GAVI Graduating Countries- a combination of
country and supply financing
What support could UNICEF provide to countries based on the different issues?
‘Sliding’ financial
transition rather than
cliff
•
•
•
Country co-financing, including monitoring & advocacy at country level
Budgeting quantification support
Engagement with MoH + MoF
Vaccine prices
•
•
•
•
Companies agreeing to maintain prices at GAVI price for 5-10 year post
graduation
Closer engagement with RO/CO/Gov’t
Transparency
Special Contracting
Increase local fiscal
space for
immunization/health
•
•
•
Advocacy
Tool-kit for local options (trust funds, other commercial)
Financing tools, including commercial and ring-fencing
Government selfprocurement
•
•
Support to more efficient payment & procurement systems;
Vaccine procurement practitioner's exchange
Buy or negotiate on
behalf of Governments
•
•
Expanding VII & making available PS
Establish reference prices
Work in Partnership
•
•
WB, WHO, GAVI, bilateral donors, GFF
At local, regional and HQ levels
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Fiscal Space Work – Country Spectrum
•
GAVI, GFATM and other multilateral initiatives tend to rely on GNI / income-based
measures to categorize countries and levels of support.
•
The arbitrary delineation, particularly between the thresholds of WB-income grouping
(low vs. lower-middle vs. upper middle)  contributes to artificial price floors, including
via tiered pricing
•
The strength of systems is heterogeneous and not necessarily linked to GNI: e.g., some
LMICs continue to have weaker procurement/budgeting capacity/political will. Some
LICs are high-performing and have good ‘budget maturity’
Donor Funded
•
Self-Funding
+ Procurement
Services including
VII
Self-Funding
+ standard
Procurement
Services
Self Procurement
The current GNI-based model creates an acute financial and technical support cliff.
Approaching support to countries instead based upon where they fall in the above
continuum should create more sustainable financing solutions.
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Fiscal Space Work – Snapshot of work underway at Countries
Ghana
• Ad hoc pre-financing to resolve RI stock-out / co-financing default.
• Establishing more sustainable ~$2.5-5M credit line for immunization procurement (via VII)
• Basic budgeting and timing release support
Senegal
• Improved synchronization of vaccine forecasting with the national budget process.
• Depreciation of the CFA  UNICEF to explore if can reduce foreign exchange swing effect.
• Potential commercial financing options for the longer-term, leveraging the AfriVac trust fund.
• TA for operational support for AfriVac trust fund staffing and RM.
Cameroon
• Dedicated vaccine financing through “loi de vaccination” (taxes on alcohol and tobacco).
• Analysis of increasing co-financing, fx rate fluctuations as well as falling oil prices impact.
• Support application to VII, evaluating whether an ad hoc pre-financing could be completed.
Kenya
• Current VII country: working on optimization of budget releases
• Quantification of budgetary needs
• Resolution of outstanding payments
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WCARO Financing for Immunization & Health Supplies Workshop
•
•
4Q 2015 in Dakar, Senegal (tbc)
WCARO COs and potentially some ESARO
Objectives
• Review the immunization (and health supplies) financing challenges
• Understand the status and challenges of the commercial banking markets
• Evaluate potential commercial financing solutions including bank guarantees (to support
pre-financings of budgetary disbursements) and financial trust fund structures (for
dedicated funding and financing)
• Develop commercial models which address constraints and challenges.
Targeted Participants
• Representatives of Countries: MoH, MoF, Parliamentary stakeholders
• UN Affiliates and Development Partners: GAVI, WHO, World Bank, USAID, etc.
• Representatives of commercial financial institutions with presence and activity
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Fiscal Space Work- moving forward?
 20+ countries are predicted to enter GAVI-graduation through 2020.
 New domestically-funded requirements via GFF, other global initiatives put add’l
demands on finite gov’t budgets
•
Pre-financing supports self-funded countries, but is not a permanent financing tool, nor
does it address fundamental budget gaps.
•
Expanding our financing work to help design structural solutions to increase fiscal space,
including implementing dedicated funding structures, for example:
•
•
•
•
Ring-fenced budget funded by “sin” taxes such as alcohol or tobacco (Cameroon)
Domestic trust funds financed by private – public partnerships (Senegal)
With bilaterals and WB
Other complementary financing measures to improve sustainability include promoting:
• Improved access to local capital markets
• Set up of commercial bank guarantee structures
 Effectively creates same prioritization of development spending on par with more ‘visible
investments’ (roads, buildings, etc.)
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Feedback–
approach, scope, synergies, future
Scope of work, internal partners
Taking stock of where we are ½ through the UNICEF Strategic Plan:
-
Supply financing activities have been transaction-related driven and reactive
A silo-thematic approach to financing  often zero-sum (another programme loses)
‘Graduating’ countries not meeting commitments (Ghana, Angola, Congo-Rep.)
Not clear we are leveraging existing strengths and capacity appropriately?
Once engaged on financing issues, CO and RO staff have unique presence and can reach beyond traditional
MoH-CO relationship and can credibly engage with MoF
We don’t have a standalone / cross-divisional financing strategy
SD & DFAM have been working closely with many parts of UNICEF, principally:
- COs and ROs (typically programme and supply)
- OED-Legal; EMOPs, PPD; PD; PFP (& Natcoms)
We would like to broaden our collaboration to more explicitly include:
- DRP
- Social Policy
- Operations officers (both RO and CO)
- [Others?]
There is a rich body of work whose experience supply financing would benefit from.
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Should we document the work and potential to develop
an internal strategy/framework?
E.g.,
“Reactive”  “Planned/Proactive” financing
- Expand analytical and diagnostic framework (+ other tools)
- Incorporate total country system cost in addition to current (and future) commodity needs
Support countries’ development of sustainable “exit plans”
- Holistic view of health, education AND development funding and financing (remove the
“vaccine bias”).
Raise the supply and services financing profile within UNICEF and externally through
- Increased financing communication
- Capacity building on supply financing issues and financial literacy
- Active engagement with financing partners and work streams (e.g., GAVI-graduation and
other commodity groups)
Leverage and build on existing mechanisms and platforms
- Maintain balance between standardization and flexibility
- Protect financing capital sources
- Leverage existing (and future) partnerships – UNICEF can’t do everything (need WB and
others)
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Discussion topics
- What ongoing activities have natural overlap and can leverage each other?
- Are we approaching this with the right philosophy, initial strategy components?
- Could the approach we are taking be scaled to beyond supply financing, to
include total systems and programmatic financing?
- Should UNICEF take a more proactive role in country fiscal-space financing
issues in some contexts?
- Should we expand knowledge / share information on work underway? And to
whom?
- How about establishing a ‘think tank’ to steer a programme of work as we learn
more? Then report back in 12 months?
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Thank you!