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TAP THE POTENTIAL THE ROLE OF THE PRIVATE SECTOR INSTEPPING UP THE PACE OF SUPPLY OF

HIV/AIDS COMMODITIES

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AgendaHour 1• Introductions• Overview presentation• Audience reactions and questionsHour 2• Discussion• Audience reactions and questionsAfter• Networking receptionThe 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 ComstockDirector of Global Supply Chain, PFSCMGordon 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.

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000

High income countries

Population living in middle income coun-

tries

Low income countries

Popu

latio

n

World Bank Data, accessed 2014.

By 2020, models indicate that more than half of African households will have discretionary income to spend.

McKinsey Global Institute. “Lions on the Move.” June 2010.

2000 2008 2020F

Globals (>20,000)

Consuming middle class(10,000-20,000)

Emerging consumers(5,000-10,000)

Basic consumer needs(2,000-5,000)

Destitute (<2,000)

Households with discretionary in-come

Households only meeting ba-sic needs

Household income in 2005 PPP $

% of householdes by income bracket

HIV/AIDS had a dramatic impact on life expectancy in sub-Saharan 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.

Tourism

Financial intermediation

Transport, telecommunications

Construction

Utilities

Resources

Other services

Wholesale and retail

Real estate, business services

Agriculture

Manufacturing

Public administration

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

7.8%

6.8%

4.6%

Compound annual growth rate

McKinsey Global Institute. “Lions on the Move.” June 2010.

The financial cost of starting a new business in Africa is rapidly decreasing, but still remains high compared to wealthier countries around the world.

World Bank Data, accessed 2014.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

50

100

150

200

250

300

350

Cost

of b

usin

ess s

tart

up

as %

GNI

per

capi

ta

Sub-Saharan Africa (developing coun-tries)

BRICSHigh income

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.

South Asia

OECD High Income

East Asia & Pacific

E. Europe & Central Asia

Middle East & North Africa

Latin America & Caribbean

Sub-Saharan Africa

0 10 20 30 40 50 60

52 reforms from 2007-2012

Total number of trade reforms, 2007-2012

Doing Business 2012. “Trading Across Borders”

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%

Kenya; 15%

Egypt; 14%Sudan; 13%

Congo; 5%

Morocco; 4%

Ethiopia; 3%

Uganda; 3%

Other; 23%

(2009)

Distribution of air

freight across African

countries

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.

0% 10% 20% 30% 40% 50% 60% 70% 80%

World

Sudan

Tanzania

Egypt

Algeria

Ghana

Kenya

Nigeria

Republic of Congo

Change in total container volume (2008-2013)

World Bank Data, accessed 2014.

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.

Largest shipping terminal in AfricaHandles 31.4 million tons of cargo each year

Durban South Africa2.6 million TEUs (2012)

Mombasa Kenya903,443 TEUs (2012)

Undergoing a $366 million upgradeWill increase handling capacity by 200,000 TEUs a year

Tema Ghana822,131 TEUs (2013)

Ghana Ports & Harbours Authority investing $2.5 billion in improvements by 2018Traffic 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.

2005 2006 2007 2008 2009 2010 2011 2012 2013 $-

$500

$1,000

$1,500

$2,000

$2,500

South Africa

Nigeria

Tanzania

World Bank Data, accessed 2014.

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.

Global average

Southern Eastern Western Central0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.03

0.05

0.070.08

0.13

mill

ion

$

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.

Fixed lineMobile

GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”

Uganda Tanzania Ethiopia Kenya0

2

4

6

8

10

12

14

16

$11.11

$15.04

$6.65

$10.11

$5.49$6.15

$2.7 $2.83

2008 2011

Mon

thly

cost

of m

obile

ow

ners

hip

(US

dolla

rs)

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.

GSMA, 2013.

Increased demand for mobile communications services has sparked investment in network infrastructure, including cell towers, 3G connectivity, and more.

GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”

$- $2 $4 $6 $8 $10 $12 $14 $16

CapEx Investments (billion $)

Airtel$1.5 billion in 2013Africa

France Telecom$9.3 billion from 2010-2015

Africa

Etisalat$15 billion from 2010-2015

Africa & Middle East

MTN Group$9.3 billion from 2008-2013

Africa & Middle East

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.

2012 2013 2014 2015 20160

20

40

60

80

100

120

140

160

180

Total mobile Total fixed

Tota

l bro

adba

nd co

nnec

tions

(mill

ions

)

GSMA and Deloitte “Sub-Saharan Africa Mobile Data Observatory, 2012”

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.

African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and Finance for Results in Africa Summary Report.” September 2013.

2001 2006 2011

30.7

61.7

100.6Total health expenditure (USD billions)

Growing consumerism

African demographic

trends & rising medical needs

Stable macroeconomi

c growth

Maturing regulatory

environment

African Pharmaceutical

Growth

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

2020$45 billion

IMS. “Africa: A Ripe Opportunity.” White Paper

Today$29 billion

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.

Novartis

Schering-Plough

Wyeth

GlaxoSmithKline

sanofi-aventis

Merck & Co

Bristo-Myers Squibb

Eli Lilly

Pfizer

AstraZeneca

-50% -40% -30% -20% -10% 0% 10% 20%

Percent change in annual revenue from 2008-2015

PriceWaterhouseCoopers Pharma2020 Report

Local manufacturers are game changers in pharmaceutical procurement.

Tanzania

EthiopiaReduced

landed cost by 5.3%

Reduced lead time by more than 50%

Data from the Partnership for Supply Chain Management on local procurement in 2012

13 essential medicines procured through local suppliers

of 45 total essential medicines

Right-sizing responsibility with capacity.HIGH VOLUME / RELIABILITY

SUPPLIERS

7 X 27 = 70% Top suppliers

Major hospitals

of volumes

Determined on a

case-by-case basis

Cross-Docking – 40%

Reduce handling of b

ulk goods

and reduce th

e workload for C

MS

operational and administrative

functions

HIGH

VO

LUM

E SI

TES

LOW

VO

LUM

E SI

TES

LOW VOLUME / RELIABILITY SUPPLIERS

HIGH VOLUME / RELIABILITY SUPPLIERS

CMS – 30%

Stock from sm

all suppliers

(or infre

quent deliverers)

AND to co

nsolidate stock

for small v

olume clinics

Direct

Delivery – 30%

Full t

ruck load

product vo

lume

Local Economic Impact Study:

Preliminary Findings

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.

Prashant Yadav and Sarah Alphs

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

• 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.

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Assessing Direct and Indirect Impacts of SCMS

Local SourcingDirect Impact

• Result of SCMS sourcing expenditures

• Direct revenue and jobs for SCMS local suppliers

Indirect Impact

• Enhancements to supplier’s long term business growth

• Increase in supplier productivity

• Effects from further sourcing (supplier’s supplier)

Induced Impact

• Household spending by supplier’s employees

• Change in consumption by the household and its effects

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Assessing Direct and Indirect Impacts of SCMS

Local SourcingDirect Impact

• Result of SCMS sourcing expenditures

• Direct revenue and jobs for SCMS local suppliers

Indirect Impact

• Enhancements to supplier’s long term business growth

• Increase in supplier productivity

• Effects from further sourcing (supplier’s supplier)

Induced Impact

• Household spending by supplier’s employees

• Change in consumption by the household and its effects

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Today’s presentation

INPUT ACTIVITY IMPACT INDICATOR DATA SOURCE

SCMS $ 

  ↑↓ revenue Annual revenue pre/post SCMS award

Cash flow statements

Training↑↓ business output/productivity

# trained# on-time deliveries# safety incidentsGood storage practicesWorking capital

 Company records

Purchase asset ↑↓ assets (e.g., vehicles)

# of assets obtained/sold locally 

Company records

Additional/fewer employees as a result of SCMS

↑↓ employment # of additional jobs created pre/post SCMS

Company records

Access more networks as a result of SCMS contract

↑↓ reputation/competiveness in the market

# of contracts obtained pre/post SCMS

Company records/public records?

Expand/contract business

↑↓ services offered

# /types of services offered pre/post SCMS

Company records

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What would we measure to understand impact

Other indirect impact will be evaluated as well

Methodology

50

Consultation with SCMS

• Select study countries• Select vendors

Consultation with Vendors

• Understand increases/decreases in the following areas: revenue, employment, assets, business productivity, reputation/ competiveness in the market, services offered

First level analysis

• Analyze impact based on vendor surveys

Second level analysis

• Use economic multipliers and SAM to understand broader impact of SCMS local sourcing

Current status of project

• #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

Country Selection Criteria

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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

54

Lab and/or Pharma Supplier

71%

IT products and services

8%

Security3%

Warehousing3%

Logistics5%

Trucks, Forklifts, Ve-hicle Spare parts

5%

Office supplies/printing5%

Vendor Type across the Countries

A total of 38 vendors were interviewed across the 4 countries

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?

2-5 years 6-10 years 11-15 years 16-20 years 21-30 years over 50 years

0%

5%

10%

15%

20%

25%

30%

55SCMS local vendors represent an even mix of new businesses and more established businesses

Size of the business

250,000-499,999

USD

1-4.9 mil USD

5-9.9 mil USD

15-19.9 mil USD

30-49.9 mil USD

0%

5%

10%

15%

20%

25%

30%

56Median revenue of SCMS local is 1-5million USD with some as high as 50 million USD

Number of employees

10-24 25-49 50-74 75-99 Other0%

5%

10%

15%

20%

25%

30%

57

There is an even mix in number of employees. SCMS local vendors include small business and large businesses

How big is SCMS business as part of their overall

business?

SCMS is our biggest client

Top 5 Top 10 Top 11-15 Top 1000%

5%

10%

15%

20%

25%

30%

58

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?

Did we interview the right respondents?

Managing Director or CEO

38%

Owner22%

Sales Manager/Director

11%

Operations Manager/Director

16%

Department Head8%

Deputy Managing Di-rector

5%

59

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

What happened to their overall business after initiating business with SCMS?

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Immediate vs. Long Term Sustainable Impact

Immediate Business Impact

• Did they hire more employees?

• Did their business grow?

• Did they acquire new assets?

Skill Development(Preparing for Sustainability)

• Did they develop new skill sets?

• Are they better equipped to obtain new business?

• Are they able to access capital?

Leveraging Skills for Sustainability

• Are they leveraging new skills to get new business?

• Are they leveraging new assets/capital to grow business?

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Easier to capture More difficult to capture

New employees after start of business with SCMS

4 9 10 20 25 30 51 67 1000%2%4%6%8%

10%12%14%

84.6% of the businesses reported an increase in the number of employees after receiving a contract from SCMS

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Employee salaries have a trickle down/multiplier effect on the local economy.

Number of employees added

Perc

enta

ge o

f res

pond

ents

Nature of the training offered

IT new products existing/new products

marketing/sales quality warehouse management technical training for engineers

driving logistics0%

5%

10%

15%

20%

25%

30%

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25% started offering new technical training for engineersTraining 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

New Standard Operating Procedures Established

• ~80% report that they have established new SOPs since start of work with SCMS

42%

10%10%

23%

13%

3%

SOP TYPE

As per International Standards (ISO, WHO-PQ, etc.) As per client needsEquipment maintenanceGeneral OperationsDid not specifySafety

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The application of global quality standards and SOPs (42%) improves the global (and local?) competitiveness of these suppliers

Access to Capital from lending sources

Increased Remained about the same

0%10%20%30%40%50%60%70%80%90%

65

Over 75% of vendors can now access more capital from local institutions

Market constraints remain a barrier – APR is high (12-18%), access limited

Note: This does not include working capital increases due to SCMS contract itself

Type of Asset Acquired

66

0%

5%

10%

15%

20%

25%

30%

35%

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

Ability to negotiate prices, quality and other contract terms with their suppliers

better the same mixed0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

67

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?

Did they offers new services after the SCMS contract

More The same0%

10%20%30%40%50%60%70%80%90%

100%

68

SCMS is driving competitive advantage by equipping its vendors with the ability to offer new services

Business growth and competitive advantage• 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%

* not including SCMS new contracts

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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

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Discussion PanelDr. Iain Barton, moderatorManaging 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)

Africa in 2020

$860 billion combined consumer spending (2008)

20 African companies with revenues of at least $3 billion

$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.

Global Players

African governments

African private sector

Public private partnerships

Public private partnerships

Joint Ventures, technology transfers

African Development Bank Group. “The Africa Pharmaceutical Summit: Pharmaceutical Capacity and Finance for Results in Africa Summary Report.” September 2013.

PanelistsDr. 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.

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2012 & 2014

Finalist

2014: Winner of the World Bank’s Science of Delivery Award for the Procurement in Complex Situations Challenge