Exciting new aid policy

The G7 Finance Ministers met in London this weekend, and agreed to pilot the policy that I have been working on in my day job for the last year.

The idea is simple.  Pharmaceutical companies do not have sufficient incentive to invest in making vaccines for developing countries, against diseases like malaria and HIV, nor to produce large quantities of existing vaccines for diseases such as Hepatitis B, Hib and measles.  The reason is that the markets are too small, even though these vaccines would be a hugely cost-effective way to save lives in developing countries.  To solve this, rich countries could offer a guarantee: if a company can develop a vaccine for a disease like malaria, we will pay for it to be bought in large quantities in developing countries.  This creates strong commercial incentives for the biotech and pharmaceutical industry to accelerate the development of vaccines that will save millions of lives a year in developing countries.

This would be a new way of giving aid: focusing on global public goods; linking payment to results; and harnessing the energy and creativity of the private sector.   For developing countries, it offers the prospect of access to medicines that will save lives cost-effectively.  For companies, it offers larger new markets.  And for donors, there is no cost unless the policy succeeds.

The finance ministers considered a report from Italian Finance Minister Guilio Tremonti which recommended that the G-7 adopt a plan that is based on proposals made in April by a Working Group convened by the Center for Global Development (CGD), in our report Making Markets for Vaccines.   (Our work on this is funded by the Bill & Melinda Gates Foundation).  I am proud to say that the finance ministers welcomed the idea, and decided to pilot this approach.

The communiqué from the G7 Finance Ministers says this:

We welcome Minister Tremonti’s report, published today, on Advance Market Commitments (AMCs) for vaccines. Alongside direct funding of research, AMCs could be a powerful, market-based mechanism to support research and development of vaccines for diseases which affect the poorest countries. We agree to work with others on developing a pilot AMC next year, including continued discussions with expert bodies on the diseases to be addressed.

This is a huge step forward.  I am tired, and very proud of what we have achieved so far. Read more in my vaccines for development blog.

7 thoughts on “Exciting new aid policy”

  1. Well done Owen, clearly this is good stuff. But I’m sure you’re aware that neighbourhoods such as Brooklyn, and Queen’s, were once prosperous and “developed” (using your language, I guess). The reason that in such a short space of time they became drastically poorer and crime ridden is not that “the developing” were poorer, but that there was sufficient numbers to club together and buy out property. In other words, 5 “poor” famlies could outbid 1 “rich” one.

    Even though we know that individuals in the developing world are poor, there are a vast number of them. Clearly this is sufficient for a functioning market to operate, as Walmart and Kwik Save attest.

    I don’t for a minute want to take the gloss off your work, I just want to add the claim that it’s not a lack of capital that hinders developing nations, but the lack of institutions that turn dead capital into tradeable wealth.

    The creation of new markets definately helps, but we shouldn’t assume that it takes a PhD to know which ones to create. Often times they’re being created endogenously and the biggest problem is preventing predaation.

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