The Future of Foreign Aid
– Or What Drug Donations Reveal about the Unintended Consequences of International Support
The AIDS pandemic both exposed and exacerbated the dire situation of health care systems in low-income countries, including an extremely limited access to good-quality and affordable medicines. This was hardly, however, a new revelation. Already in the late 1970s and early 1980s, governments of developing countries mobilized against the punitive prices of brand-name drugs. Still, starting in the late 1990s, the magnitude of the suffering, combined with effective global AIDS activism – including the very effective access to medicines campaign – put access to good-quality medicines at the forefront of global health considerations.
A historical perspective suggests that at least in some respects, market forces – combined with state as well as international policies – have significantly improved drug markets also in developing countries. Until the 1980s, brand-name multinational pharmaceutical companies (mostly, European or American) completely dominated the global drug market. In developing countries, multinational pharmaceutical companies did not only take advantage of their market position to charge extremely high prices, but they were also accused of selling in those under-regulated market drugs that were expired, unsafe, or not authorized for sale elsewhere. But government policies that encouraged both the procurement and the prescription of generic drugs, combined with the meteoric rise of a generic pharmaceutical sector in India, among other places, led to a dramatic reversal in the origins of the drugs imported to developing countries. The manufacturing of generic drugs in India did not only improve access to the more basic essential medicines, but also allowed an effective response to the AIDS crisis. Rather than buying extremely expensive brand-name drugs under patent – developing countries were able, with the support of international donations, to buy the much cheaper generic drugs.(1)
Still, relying on the ability or willingness of Indian drug manufacturers to offer affordable drugs might not be, on its own, a sustainable solution, for a number of reasons.
To begin with, many developing countries cannot afford even considerably cheap generic medicines. This is particularly the case in regard to antiretroviral medicines (ARVs) and relatively new medicines for chronic or non-infectious diseases; but it is also the case in regard to simpler medicines. Indeed, developing countries often rely on donations for supplying their drugs.
In addition, while it is true that the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), signed under the auspices of the World Trade Organization (WTO), should not have an effect on the ability of Indian firms to manufacture many first-line ARVs, it does have an effect on the ability to overcome patent protection of newer drugs. This means that the access to second-line and other new and yet-to-be-developed drugs is presently diminished.
Finally, and independently of intellectual property concerns, there is some fear that as Indian manufacturers get access to regulated markets in the US, Europe and elsewhere, they have less interest in manufacturing the kind of drugs needed in developing countries. Why manufacture simple drugs for a market with minimal returns when one could sell to a market with much higher profit? This would affect not only access to new drugs, but to older drugs as well.(2)
Concerns regarding the over-reliance on Indian-made generic drugs have led to an interest, however cautious, in what was at the background since the early 1980s: locally-owned pharmaceutical companies. In East Africa, where I conduct my research, the first locally-owned companies were state-owned, but in Kenya and then also Uganda and Tanzania, privately-owned pharmaceutical firms have also opened. These are small firms, mostly manufacturing simple drugs and do not normally follow the kind of Good Manufacturing Practices (GMP) recommended by the World Health Organization (WHO); but they nevertheless supply a non-trivial percentage of the essential medicines in these countries. These locally-owned pharmaceutical firms, some have suggested, could offer an attractive alternative to imported medicines, one that could potentially solve the concerns related to over-dependence on imports in such a sensitive sector. There are many challenges to that view, however. For one, while self-sufficiency is a major motivation for supporting local pharmaceutical production, local firms in East Africa at the moment cannot, of course, provide all the needs of the population. Indeed, local firms produce a relatively narrow range of the drugs consumed in the respective countries and, to repeat, their drugs at time are of questionable quality.
There are no easy solutions for those challenges and therefore no clear path that could guarantee stable access to good-quality medicines in developing countries. Nevertheless, I suggest that foreign aid – specifically, foreign aid that is committed to the provision of medicines in developing countries, with explicit indifference to the concern of local pharmaceutical production – had the unintended consequences of improving the range and quality standards of some local drug manufacturers in Kenya, Tanzania and Uganda.
Access to medicines has been long a concern for bilateral development agencies and international health organizations. In the 1980s, for example, as part of the WHO’s Essential Drugs Programme (EDP), donors funded pre-packed ration drug kits that were distributed in rural areas. But the funds devoted to the procurement of these ration kits, or to the procurement of other drugs in other internationally-sponsored programs, pale compared to the funds that have been devoted in the last 15 years or so to the procurement of medicines for AIDS, malaria and TB patients. The two main actors in this field are the Global Fund to Fight AIDS, Tuberculosis and Malaria and the US-based President’s Emergency Plan for AIDS Relief (PEPFAR). Thanks to their donations, 60-70% of people who live with HIV/AIDS in East Africa today do have access to the medication they need.
Not surprisingly, the medicines purchased with donor funds are almost all imported. Interestingly, however, these donations had the unintended consequence of improving quality standards of local manufacturers. This is counter-intuitive since the expectation, if there was one, was that local producers would be the big losers of international donations that explicitly prioritized cost and quality over local industrialization. And in some cases, local manufacturers did lose. In particular, the supply of free Artemisinin-based Combination Therapy (ACTs) for malaria patients in the public sector – and, even more so, the supply of heavily subsidized ACTs in the private sector – have severely hurt local manufacturers, given the fact that until then simple anti-malarial drugs were among the fastest-moving medicines.
Still, the opposite has also happened. Recently, some manufacturers have increased the range (and complexity) of the drugs that they produce. And, more significantly, they improved their quality standards as well. How to explain this response? I argue that three factors led to the fact that foreign aid devoted to the provision of imported commodities had a surprisingly positive impact on local manufacturing. First, because the Global Fund did not a-priori exclude the possibility of purchasing from local manufacturers – some local manufacturers saw in the Global Fund not a threat to their business but an opportunity. These companies consequently invested in learning how to produce the so-called “Global Fund drugs,” including ARVs and ACTs. To sell to the Global Fund, however, manufacturers need to make it into the WHO pre-qualification list. To get WHO prequalification, in turn, these companies went through careful evaluation conducted by experienced inspectors, who followed stringent standards in certifying the quality, safety and efficacy of the drugs inspected. In practice, this WHO prequalification scheme complements – or, at time, serves in lieu of – regulatory agencies at home that have only limited capacity to assure the quality of the drugs that are imported or locally manufactured. In short, if the Global Fund provides market incentives to local drugs manufacturers to produce a broader range of high-quality drugs, the WHO pre-qualification scheme provides monitoring. In addition to the promise of a market and the monitoring of quality, the last factor that has lead to the quality upgrading of local manufacturers is access to technical know-how. Quality upgrading in the pharmaceutical sector is not a trivial matter, and most East African companies had no private means to figure it out on their own. Instead, technology transfer was in many cases enabled by international or bilateral development agencies.
This is a case in which foreign aid that focused on the provision of needed commodities had the unintended consequence of shaping the local industry in a way that goes against what one would expect. We could have predicted that donated drugs would have no effect on local manufacturers given the fact that most of the donated drugs did not directly compete with the locally-manufactured drugs; or we could have predicted that donated drugs that do compete with locally-manufactured drugs would destroy local enterprises. Instead, the creation of a market that did not exist before, combined with effective monitoring and adequate technology transfer, provided some new opportunities to local producers.
What lessons can we learn from this on foreign aid, and its future? Many people, from economists and journalists to foreign aid professionals and laypersons, are skeptical about foreign aid. My study of local pharmaceutical production in Kenya, Uganda and Tanzania leads me, however, to conclusions that contradict the arguments held both by those who oppose foreign aid on the grounds that foreign aid cannot compensate for deficiencies of domestic governments and by those who defend foreign aid, but focus on the provision of services or commodities, not on supporting a local industry that would provide those commodities. Instead, one of the lessons here is that a focus on the provision of commodities, if provided with additional transnational support, could not only improve the conditions of those receiving the commodities, but possibly strengthen the local industry providing those commodities as well.
(1) See: Chorev, Nitsan “Changing Global Norms through Reactive Diffusion: The Case of Intellectual Property Protection of AIDS Drugs.” American Sociological Review 77(5): 831-853.
(2) Shadlen, Kenneth C. 2007. “The Political Economy of AIDS Treatment: Intellectual Property and the Transformation of Generic Supply.” International Studies Quarterly 51(3): 559–581.
Nitsan Chorev is the Harmon Family Professor of Sociology and International and Public Affairs at Brown University, Rhode Island. She is the author of Remaking U.S. Trade Policy: From Protectionism to Globalization (2007) and The World Health Organization between North and South (2012). She is the co-editor, with J. Timmons Robers and Amy Bellone Hite, of The Globalization and Development Reader (2014). She is currently working on a book project on local pharmaceutical production in Kenya, Tanzania and Uganda.
Banner Image: Based on photo of a pharmaceutical storage facility in Kenya, taken by Nitsan Chorev, 2015.
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