Pledge Guarantee For Health (PGH) Reproductive Health Supplies Coalition: Addis Ababa June 24, 2011

Value destruction due to aid volatility Examples of negative impacts Stock-outs: Recipients run out of key heath commodities or face dangerously low stocks while waiting for donor funding Higher per item costs: Delayed funding leads to acute shortages which reduces recipient bargaining power and often leads to supplier charging risk premiums due to payment and production uncertainties Additional emergency costs: emergency production and shipping fees to compensate for the time lost waiting for disbursement High volatility in health aid Aid value ODA in past 15 years $1.00 $0.72 Lost $ for every $1 of aid due to the unpredictability % of value lost Health financing volatility in developing countries destroys value and has adverse impacts on the procurement system and end users (1)Source: P. 4, Brookings Institution. August “Smooth and Predictable Aid for Health – A Role for Innovative Financing?”; Dalberg analysis. 1 Volatility of health aid is higher than government health spending 1 (1993 – 2005) Public health spending volatility Health aid volatility Lack of access to financial tools for recipients of donor financing to effectively manage volatility Adverse impact on patients and systems

What can we learn from the private sector? 2 Inputs source Manufacturer Commercial bank Wholesale / retail store In order for the store to purchase a larger order, manufacturer offers half payment upfront and half in 6 months Manufacturer uses the future receivable as collateral to obtain short- term bridge financing from a bank With the financing secured from the bank, the manufacturer obtain its inputs more efficiently to lower its cost of operations In 6 months, store forwards remaining 50% payment 4 Manufacturer repays bank plus interest 5 Receivables financing, where companies use commitments by customers to pay as collateral in a financing agreement, is a common method of freeing up capital to invest in improving a companies business Recipients of donor funding can use donor commitments as receivables to obtain short-term financing to improve the efficiency of health commodity procurement

PGH increases access to health commodities by allowing donor recipients to leverage L/Cs to accelerate procurement Merck Bayer Pfizer AZ Textiles J&J GSK Merck Bayer Pfizer AZ Textiles J&J GSK UNFPA JSI PFSA PSI Gov agency UNFPA JSI PFSA PSI Gov agency Stanbic SBSA Access Eco Stanbic SBSA Access Eco USAID WB KfW DFID EU USAID WB KfW DFID EU PGH MOH Civil Society MOH Civil Society 2) 50%Guarantee ($10M) 3) $20M L/C 1) Donor commitment to fund a $20 M procurement of 1M implants at $20/unit 8) $20M donor funding disbursement plus financing cost 4) $20M Tender 5) 1M implants delivered SupplierProcurerBank Co.DonorGuarantorRecipient 7) $20M payment of invoice within 30 days of receipt 6) $20M 30 day Invoice Jan ’11 Feb’11 May’11 Sep’11 ILLUSTRATIVE 3 Timing Dec’11 PGH Status quo

PGH can utilized in three different ways 4 Supplier Procurer Recipient Donor Donor funded procurement supply chain Traditional bridge financing backed by a 50% PGH guarantee: For recipients of donor funding, recipients can use donor commitments as collateral along with a 50% PGH guarantee to secure an L/C from commercial banks in order to accelerate procurement Whole-sale bridge financing backed by a 50% PGH guarantee: Procurement agencies that are also experiencing delays in disbursements from their own donors can use donor commitments as collateral and along with a 50% PGH guarantee can secure an L/C from commercial banks to provide immediate liquidity to improve efficiency of their operations Trade financing backed by a 50% PGH guarantee: Suppliers often price in the risk of doing business (likelihood of delay of payment and extra costs due to erratic orders), however with a PGH direct guarantee backing specific donor funded health procurement, suppliers can extend better terms (price discounts and delayed invoices) enabling recipients of donor funding to accelerate access to much needed health commodities

PGH delivers better value for money by accelerating procurement, removing risks that lead to price premiums and empowering procurers to leverage buyer power and negotiate better terms 5 Accelerated Ability to rapidly issue bridge funding while waiting for donor disbursement to avoid stock- outs which can have dangerous impacts on both patients and the community Efficient With better control of the procurement timing recipients will be able to avoid emergency production and delivery which are costly and come at the expense of additional beneficiaries Empowered Allow buyers to leverage negotiating power by removing risks in the procurement process that cause suppliers to price in premiums (e.g. better payment certainty, pooled procurement, etc)

Value destruction due to aid volatility Aid value ODA in past 15 years $1.00 $0.72 Lost $ for every $1 of aid due to the unpredictability % of value lost Getting better value for our money could reduce the unmet needs of the Reproductive Health Sector *Assumes 25% value loss of the current 2009 level commitment of $239 M 6 Examples of negative impacts Stock-outs: Recipients run out of key heath commodities or face dangerously low stocks while waiting for donor funding Higher per item costs: Delayed funding leads to acute shortages which reduces recipient bargaining power and often leads to supplier charging risk premiums due to payment and production uncertainties Additional emergency costs: emergency production and shipping fees to compensate for the time lost waiting for disbursement High volatility in health aid Volatility of health aid is higher than government health spending 1 (1993 – 2005) Public health spending volatility Health aid volatility Adverse impact on patients and systems ~$60M* in value is lost due to inefficiencies (funding, logistics, delivery, etc..)