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What Works in Africa

From the January/February 2007 Issue

With little fanfare, businesses are trying to fight disease in Africa. ROGER BATE tells who does it right and who does it wrong. The best spur to benevolence: the profit motive.

With a mixture of self-interest and moneymaking zeal, private businesses are combating one of the world’s most intrac­table problems: the scourge of disease in Africa. Some of the efforts are working, some not, and the keys to success seem to be honesty, sound science, and, of all things, the profit motive. Here’s a look at three programs, all poorly understood, if known at all, by the public: attempts to combat malaria by global corporations, efforts to fight HIV/AIDS by pharmaceutical companies, and a low-cost approach to providing essential medicines.

 
Malaria

At least one million Africans, the vast major­ity of them children, die each year from malaria. In Liberia, for instance, malaria is the number-one cause of death, responsible for 47 percent of all mortality. Malaria is transmitted to humans by the anopheles mosquito, which is repelled by the organic insecticide DDT (dichlorodiphenyltri­chloroethane). Unfortunately, DDT was the main villain of Rachel Carson’s popular 1962 book, Silent Spring, which claimed that the compound caused cancer and made the eggshells of birds dangerously fragile (thus, the book’s title). Partly as a result, DDT was widely banned for agricultural use. And since its public health functions were no longer impor­tant in the United States and Europe, where DDT helped eradicate malaria and other insect-borne diseases in the 1940s and early 1950s, support for its use globally evaporated quickly.

The dangers of were greatly exaggerated, and it was only last September that the World Health Organization announced that “nearly 30 years after phasing out the widespread use of indoor spraying with DDT…to control malaria,” its policy had changed, and DDT “will once again play a major role in efforts to fight the disease.”[1]

The best-known partnership raising awareness of malaria in Africa is Roll Back Malaria (RBM), which includes multilateral aid agencies such as the World Bank and the U.S. Agency for International Development (USAID) plus corporate supporters such as ExxonMobil, Novartis, and Bayer. RBM has indeed raised the profile of malaria, and it provides a way to bring businesses into the act of fighting dis­ease, but, like other international programs of this nature, it is infested with policies often more polit­ically correct than soundly scientific. One of those policies is a preference for bed nets and medical treatment over indoor spraying with small amounts of DDT.

Africa 1Roll Back Malaria has been described by the British Medical Journal as a “failing” program, and other objective observers, such as Amir Attaran of the University of Ottawa, writing in Nature mag­azine, concur. But perhaps the best evidence that RBM’s approach is mistaken is that countries that do not require aid to fight malaria (such as South Africa) totally ignore its advice. In 1998, RBM announced a target to halve malaria rates but produced no baseline data, and today the avail­able evidence is that malaria rates have increased globally, while declining in the pockets of the world—such as South Africa, Swaziland, Botswana, Namibia, Zimbabwe, and Zambia—where internal spraying with DDT has been used.

Companies that, in their own business operations, stress tough empiricism go all wobbly in their char­itable efforts if there’s a risk of criticism, as there appears to be with DDT use. “But,” says the British Medical Journal, “dicophane [that is, DDT] is effec­tive, with a remarkable safety record when used in small quantities for indoor spraying in endemic regions. Malaria cases soared in the KwaZulu Natal province of South Africa after it stopped using dico­phane in 1996…. Dicophane, a ‘dirty word’ in the malaria world, must surely be reintroduced into the conversation on rolling back malaria.”

If I had an award to give to the business that is doing the most to fight malaria and other diseases in Africa, it would go to the mining company Anglo American plc. The firm’s operations are centered in South Africa, which has one of the few govern­ments that champion indoor spraying. South Africa also promotes artemisinin, the latest pharmaceuti­cal therapy proven effective for malaria treatment. In countries where DDT is banned for malaria con­trol, Brian Brink, Anglo American’s health director, has persisted with other available methods to com­bat the disease.

Anglo American’s efforts are not pure selfless­ness. The company’s miners can’t work if they are sick with malaria. But what is sadly unusual about Anglo American is that it takes the same clear-eyed approach to combating disease that it does to tak­ing gold and copper out of the ground.

The most startling example of Anglo American’s success has come in the northern copper belt of Zambia, where it shared ownership of the Konkola Copper Mines (KCM) with the government. In the towns of Chingola and Chililobombwe, in one of the poorest areas of Africa, KCM lowered malaria rates by 75 percent in two years. The death rate fell to zero. Currently, indoor residual spray­ing, abbreviated IRS, protects 37,000 dwellings (32,000 sprayed with DDT and roughly 5,000 with alternative insecticides) housing nearly 400,000 Zambians. Konkola was so successful that other mines reproduced the approach, and, soon after, the Zambian government, assisted by the Global Fund to Fight AIDS, Tuberculosis and Malaria, and even the World Bank, copied the effort. The Global Fund and the World Bank, by the way, publicized their involvement in these programs without acknowledging that it was a mining company from South Africa that started them.

BHP Billiton plc, which, like Anglo American, is a global resources com­pany with headquarters in London, also deserves high praise for its work in Mozambique and other African nations. The clinics that visited recently at the Mozal aluminum smelter outside Maputo in Mozambique are a model of good medical prac­tice, using IRS and newer medicines and educating workers through a kind of industrial theater on how to prevent AIDS and other diseases.

Houston-based Marathon Oil Corporation is suc­cessfully using IRS in Equatorial Guinea, which has an especially undemocratic and corrupt leadership. Critics want Marathon to pull out of the country, but one should ask whether companies from China and India, which would undoubtedly replace Marathon, would do as good a job combating disease as Marathon does. Based on my experience, the answer is probably no.

In contrast to Anglo American, BHP Billiton, and Marathon, there is Bayer Crop Sciences, a division of the German chemical giant Bayer AG, which has been trying to discourage the use of DDT, using its influence as an industry representative to the Roll Back Malaria partnership. An article in The Financial Times in September 2005, headlined “Commercial motive hinted at in restrictions on DDT,” linked Bayer’s warnings about the insecticide to its own manufacture of more expensive alternatives.

British American Tobacco (BAT) has also been up to anti-DDT mischief, though unintentionally. Concerned that tobacco grown in Uganda would be “contam­inated” with DDT, the company asked Uganda’s government to await more research. The result was a delay in DDT use in that country, where 70,000 children die from malaria every year. The irony, of course, is that tobacco, when smoked, releases deadly carcinogens, while DDT has not been linked to any human cancer.

More puzzling is that BAT has not asked for the same assurances from other African nations, includ­ing Zambia, where the company does good work with the Ministry of Health to combat malaria. Martin Summers, BAT’s international corporate social responsibility manager, assures me that the Uganda mistake won’t be repeated—but it’s evi­dence of the inconsistent nature of health policies in Africa among large global corporations and inter­national health organizations. For example, while Roll Back Malaria has slowed progress in fighting the disease, some of its partners, including USAID and WHO, are doing highly effective work.

 
HIV/AIDS

Unlike most other global industries, pharmaceuti­cal corporations are already in the health business. So you would think they would be in an advanta­geous position to help the sick and poor of Africa.

Africa 4Yes and no. Unlike the oil, mining, and agri­culture companies that come to Africa to extract resources, drug companies find little of value on the continent—certainly not technical innovation or a market in which to sell drugs. Africa contributes only about 1 percent of the pharmaceutical indus­try’s global revenues (and even that amount comes from the wealthy elites, many of whom can fly to the West for surgery and sophisticated drug thera­pies). Meanwhile, the cost of registering new drugs is often high, and corruption and tariffs discour­age companies from filing patents in most African nations. GlaxoSmithKline is the only multinational company that has systematically sought patents for its drugs in Africa, and, for its efforts, GSK has been consistently and aggressively attacked by AIDS activists.

These activists—and allies at nongovernmental organizations like Médecins Sans Frontières—want pharmaceutical companies simply to give their drugs away. Many firms have done so, some well before there was pressure from critics. Probably the most successful is the Merck Mectizan Donation program, established in 1987 to combat river blind­ness, a virulent disease transmitted by black flies. In partnership with the World Bank, WHO, and other international organizations, Merck has donated Mectizan, its treatment for the disease, to 34 coun­tries in Africa, Latin America, and the Middle East. The air-express company DHL provides transport of the medicines at cost. More than 40 million peo­ple receive free Mectizan annually.

With the Gates Foundation, Merck has also worked to establish a partnership that provides 60,000 HIV-positive people in Botswana with antiretroviral therapy. Gates and Merck have each contributed $50 million to the program. Similarly, Bristol Myers Squibb has established the Secure the Future Program, operating in nine countries to provide small-scale but sustainable drug treatment that prevents HIV from developing into full-blown AIDS.[2] Both these admirable programs have filled an immediate humanitarian need, but—consider­ing the widespread suffering in Africa—it’s doubtful that charity is the only long-term solution to the continent’s deeper health problems, or even the best solution.

Another approach would be to recognize that try­ing to make a profit in Africa is not a bad thing. What corporations should do is price their prod­ucts efficiently, according to market forces, and leave most of the charity to others.

It makes good economic sense for companies to discriminate on price—that is, to charge lower prices to people who don’t have the means to pay what Europeans or Americans can (in these politically correct times, “discrimi­nation” is being replaced as the word of economic choice with the less inflammatory “tiering”).

Africa 7Consider antiretroviral therapies. They cost hundreds of millions of dollars to develop, and Western companies must recoup the cost or leave the business. A daily dose of such drugs may cost 60 cents to produce at the margin, and, after distribution costs and wholesaler and retailer markups and tariffs, the price might rise to about 95 cents before the medicine can reach a patient. Such drugs may sell for $15 to $20 per daily dose in the West, providing a good return to the com­pany; however, in an African clinic, the price can be set at $1, allowing a small bit of profit, not just for the drug company but more importantly for the local firms along the supply chain. Even at $1, Western companies and their African cohorts have an encouragement to keep copious supplies flowing—a better spur than direct charity. What about patients who can’t afford $1 a day? That’s where donors come in, giving sick people money for the purchase.

The most exciting developments in price discrim­ination are occurring in wealthier non-Western countries—middle-income nations like Brazil, Argentina, China, and India, which are seen as the most attractive markets of the future. Companies taking this approach include Abbott, Gilead, and Merck. In India, Gilead is licensing its drugs to local companies to produce. Those firms then compete on price—which is set by market forces of supply and demand at far lower levels than in Europe and the United States—and everyone gains.

For businesses in a resource industry based in a poor country, it makes sense to help workers and communities directly. That’s the way to build a strong workforce. But if a company is merely selling into a market, its responsibility should pri­marily be to ensure efficient pricing—based on an area’s standard of living—which maximizes profit. Distributing products for free in Africa (especially high-cost drugs) is not sustainable as demand inev­itably increases. This kind of charity also gives the damaging impression that Africa is a no-profit zone, which is not true.

Finally, giving drugs away to clinics undermines local pharmacies and distribution markets. My own experience in Zimbabwe and Zambia is that local clinics often do not stock brand-name anti­retrovirals. They choose instead to stock inferior copies, because these are the products that allow the pharmacies actually to make money. Providing drugs commercially helps build a strong local supply chain.

 
Health Franchises

Western aid contractors have promoted the idea of “social marketing”—that is, selling, at subsidized prices, products such as bed nets treated with insec­ticides to ward off malaria. It’s a sensible notion: people value things they buy. But aid agencies really know little about commerce. They promote prod­ucts where people either have no money or are not truly interested in what’s on offer.[3]

Instead, what Africa needs is its own business solutions—for-profit solutions, at that. One prom­ising approach is developing in Kenya, a nation with a high mortality rate from malaria and other infectious diseases but, as in so many other parts of Africa, a lack of trained medical staff. The World Bank estimates that Kenya has just 13 physicians per 100,000 people (compared with 206 per 100,000 in Brazil) and is not able to replace medical workers it is losing, mainly to Europe. When I visit London hospitals, I find that over half the nurses are African. Not only are Kenyan children dying, but the few people who look after them are leaving. A nonprofit organization based in Minneapolis that is run on a sound business model, the HealthStore Foundation (HSF), has come up with a model to help clinical staff stay.

Africa 6HSF was founded in 1997 by Scott Hillstrom, a lawyer who was involved in such businesses as technology, health care, and real estate. It is now run by Steve Dahl, who spent ten years in finance and planning posi­tions at such corporations as General Mills, BMC Industries, and Tonka Corporation, and Liza Kimbo, a former senior manager at Standard Chartered Bank in Kenya. The aim was to “prevent needless death and ill­ness by sustainably improving access to essential medicines.” The foundation finds nurses and community health workers who put up a small amount of their own money to buy into a clinic or shop as a franchisee of HSF. The foundation provides up to 88 percent of the capital and gives four weeks of intensive training in mar­keting and management, as well as some medical training. To recoup capital costs, HSF charges a markup on the essential medicines the clinics sell.

The clinics themselves offer testing and diag­nosis of disease in previously neglected locations (from rural villages to the slums of Nairobi) and sell medicines and other health care products as well. Each location is a for-profit enterprise, generating revenue to pay its owners a competitive annual sal­ary, up to about $1,400 a year, compared with an average of $754 a year for a nurse in Kenya.

Of course, even $1,400 is far lower than African nurses can make in Britain and the U.S., but the cost of living is lower in Kenya, and the freedom and responsibility of being an owner are tempting. So far, HSF has helped establish 64 profitable enter­prises, serving more than 400,000 Kenyans. Within a year, the foundation could have well over 100 locations serving one million people. Meanwhile, in 2005 alone, the franchises treated 50,000 cases of malaria.

Says a recent Columbia Business School analysis: “The HealthStore micro-franchise model gives local entrepreneurs the opportunity to own and operate sustainable, profitable businesses while simulta­neously curtailing incentives for corruption…. By aligning the incentives of customers, government regulators and owner-operators, HealthStore’s franchise model is able to deliver a high quality of care to previously underserved Kenyans while real­izing a healthy return on investment.”

The fallout from these HSF clinics is substantial. Drug prices decline in other shops, where com­petition forces service to improve. So, as in other markets, people who never visit HealthStore clinics benefit from their existence. Some government-owned clinics distribute the same medicines for free but are often out of stock, and the HSF clinics could do even swifter trade if they were better informed of such government limitations.

There have been breaches of franchise standards, but the foundation monitors and cracks down. Competition limits price-gouging. Credit facilities have opened up for patients who cannot pay on the spot—and lending experience has been good. Those who can’t pay at all are usually given charitable help, sponsored by HSF. According to Transparency International, Kenya is one of the most corrupt places on the planet, so the HealthStore success is even more remarkable.

What a franchise like this cannot deliver is a service like complex antiretroviral therapy, which requires hospital visits for viral load evaluations. Still, the model should be commended for not overreaching—and for offering a high-quality pri­vate-sector alternative to the inadequate primary healthcare that is typically provided by govern­ments in developing countries. The HSF experience also shows that the limiting factor in fighting dis­ease in Africa is not money but delivery systems, which cannot be simply funded from Washington but have to be discovered and developed on the ground. The profit motive itself is a highly efficient tool for that discovery and development.

As Ngozi Edozien, a vice president at Pfizer, said at a Harvard Business School forum on AIDS in Africa: “We can donate drugs, but if there is no infrastructure to distribute those drugs, we can’t do any good.”

Indeed, as HSF starts work in Uganda, USAID should re-allocate its funding from big contractors to market-oriented, grassroots groups like HSF. Contractors are geared to provide not much more than arm’s-length aid, while HSF-style operations can both save taxpayer dollars and lead to solutions that last. Charity becomes unsustainable when a donor nation loses attention.

In the end, Africa will be able to fight disease successfully only when it is viewed not just as a poverty-stricken venue for resource extraction and charitable giving but as a grand continent open to all kinds of profit-making enterprise.

 

Photography by Scott Davis



[1] Also see, “DDT's New Friend,” Wall Street Journal, September 18, 2006.

[2] The author is working on a paper on the best practices in Africa, including both these examples, to be published by the American Enterprise Institute in 2007.

[3] The author has described this matter in more detail in many American Enterprise Institute publications and in a testimony before the Senate Committee on Homeland Security and Government Affairs Subcommittee on Federal Financial Management, Government Information and International Security. For further research, see Bate R. and Schwab B. 2005. “The Blind Hydra: USAID Policy Falls to Control Malaria, May 12, 2005, Washington.

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