Global Fund Plagued by Corrupt Distribution Network

Last week a major international health donor had to admit it had lost over two million dollars of medicines and $34 million in cash to corruption. But the situation is worse than publicly acknowledged and is set to deteriorate further.

The Global Fund to Fight AIDS TB and Malaria, a UN-backed group, funds the procurement of commodities, particularly drugs, for emerging markets. It has dispersed $13 billion in the past 8 years since it first opened its taxpayer-funded checkbook. Even its critics acknowledge it has been a success, saving thousands of lives, through its financial support of medicines for ministries of health and other intermediaries.

Read Roger Bate's related article, "Theft and Corruption at the Global Fund."

But the Fund has grown so quickly and has tried to do so many things in so many places that oversight has suffered. In a couple of instances drugs arriving in countries have been stolen from the airport, but most of the drugs at least make it to government Central Medical Stores (CMS). Unfortunately many CMS from Angola to Zimbabwe are porous, with weak physical security and even poorer stock management techniques, drugs routinely disappear. Distribution to the regions creates even more opportunities for graft and when drugs arrive in the regions, sometimes non-existent patients in non-existent clinics are allocated medicines that simply disappear. In Africa two thirds of medicines are bought from pharmacies and general stores, and such drugs are highly fungible, almost as good as cash. As a result, millions, perhaps tens of millions, of donated products have disappeared, due to corruption.

The Global Fund's response to the inevitable criticism has been naturally defensive, but also unnecessarily paranoid. While some of its staff are taking the criticism personally, others are worried that the Fund will only respond with cosmetic changes and have leaked documents to the press, which is why we know that at least 13 countries have had Global Fund donated drugs stolen from them.

Partly as a result donors, including Sweden and Germany, have suspended hundreds of millions of dollars in support, and it is only a matter of time before Republicans in US Congress force a similar state of affairs in US too. But blanket cuts are not the best response, it will be far better to pressure the Fund back to its core mission – operating in fewer countries, which can actually distribute products properly.

My own research from 11 African cities shows that up to 30% of the private market across Africa is made up of the most commonly-donated medicines, those routinely stolen and diverted from public stores. Yet this problem is set to get worse. The Global Fund is pushing ahead with a program to subsidize high quality malaria drugs for sale in the private sector. The idea is a good one in principle. A combination of two drugs reduces the likelihood that the malarial parasite develops resistance to artemisinin, the most effective single antimalarial therapy. But these combination drugs are expensive, often $5 and many companies have supplied the artemisinin on its own, which increases the chance resistance will grab hold, as it appears to be doing in parts of the border areas of Thailand, Burma and Cambodia.

The subsidy for the combination therapies will lower their price (from $5 to 50 cents), hopefully driving the artemisinin monotherapies and older therapies from the market. Two of the countries participating in the subsidy program are Ghana and Nigeria, where prices of the combination drugs appear to be lower, and demand for these products will probably increase as a result, probably saving more lives.

But flooding the market with subsidized products is a gift to opportunists and the corrupt power players in these markets. Within two weeks of subsidized drugs arriving in Ghana, some have been found by my colleagues in open air markets in neighboring Togo, which is not participating in the first phase of the program.

Cheap good quality drugs, even if they are stolen and diverted across borders, are hardly the worst problem facing West African nations. But there is a risk that the drugs won't remain good for long. Illegal distributors are not known for their quality handling practices, and these drugs are not very robust and can degrade fairly quickly, becoming useless in weeks. It is also a serious problem if donors help criminals and corrupt political actors in these locations.

Enabling corrupt delivery systems to flourish is never a good outcome, yet it is the inevitable result when large quantities of drugs are dumped on systems that simply cannot handle them. If the lessons of elsewhere are a guide, fake versions of the stolen products will also appear rapidly. It is naïve to think that criminals can't make money from faking a drug where the legitimate version only cost 50 US cents. Fake drugs selling for as cheap as 10-25 cents are found all over the developing world.

Perhaps the short run benefits of providing cheap drugs will outweigh the possible long run costs in terms of corruption and lower product quality, but such a calculus is not even being considered by the Global Fund, which worryingly denies any significant downside exists.

Former Botswanan President, Festus Mogae, and former Governor, Michael Leavitt, are leading a review of Global Fund practices. They will investigate such problems and hopefully help the Fund rectify them. If they don't then the Fund may well permanently lose the confidence of its backers.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

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