World leaders gathered in Gleneagles, Scotland, to discuss the great issues of the day and had their deliberations cruelly interrupted. However, Make Poverty History (MPH) campaigners had already cashed in on their much publicised emotional tirade against what they believe perpetuates poverty in Africa: debts, free trade and insufficient aid. The US government had already announced that it would scrap cotton subsidies it has long given to the US farmers after the WTO ruled it was illegal. This undoubtedly will boost the economies of Sub-Saharan cotton producers but paradoxically, MHP campaigners urge poor nations to erect high tariffs against Western imports.
Millions more dollars will be committed to fighting diseases on the continent. But what matters more is what poor countries can do for themselves. In that regard we can learn much from the mistakes of others. In the 1950s and 1960s, governments of many countries in Africa and Latin America erected trade barriers. The plan was to enable the industries of their countries to grow, 'protected' from outside competition. What actually happened was the opposite.
Although the industries in these 'protected' countries grew for a short period, the lack of competition meant that their industries became inefficient and fell behind the rest of the world. Also, because imports were very expensive or even unavailable, their costs of production rose as they were stuck using inefficient old technologies. Soon these 'protected' industries were producing goods that few people wanted, exports fell and, in many cases, the industries – usually run by friends of the President – had to be subsidised by the state in order to keep them afloat.
Governments paid for these subsidies by taxing farmers (either directly or by forcing farmers to sell to marketing boards) and by borrowing (that is one of the reasons why so many African and Latin American countries have such large debts.) Some governments, such as Brazil's, printed money to pay off the debt and this led to hyperinflation, reduced confidence in the economy and caused massive disinvestment.
The lesson we should learn from this is that governments should not try to create national champions by 'protecting' them from competition or by subsidising them. This can be applied to wealthy countries, that currently 'protect' farmers with tariffs and subsidies, and lower-income countries as well, that are egged on by various Western NGOs to protect infant-industries.
Brazil is an interesting case. It had one of the most extreme 'import substitution' programmes in the 1950s and 1960s, which lead to a ballooning debt during the 1970s followed by hyperinflation and, finally, massive debt rescheduling. After a bout of good economic governance in the 1990s it has been growing steadily as a result. But there are some signs of a return to the old days.
Brazil's government recently announced that it plans to break patents on AIDS drugs. It claims that it wants to reduce the cost of providing drugs to 180,000 people with HIV. But if it wanted to do that, would it not be better to negotiate a price differentiation scheme with the manufacturers, rather than forcing the production of drugs locally? This smacks of a return to the bad old protectionist policies of yesteryear. But there is another, more disturbing aspect to the decision to break patents. Brazil currently benefits from the billions of dollars pumped into the development of AIDS medicines by the research-based pharmaceutical industry. As the incidence of HIV/AIDS in wealthy countries gradually declines, so demand for new drugs in those countries will wane. Yet AIDS remains a very serious problem in many poorer countries, including Brazil. What would happen if all poorer countries chose to break the patents on AIDS medicines? I'll tell you: there would be few if any new AIDS medicines.
Research-based drug firms seem to be taking notice of unfavourable market conditions for AIDS medicines created by the governments of Brazil and some other countries. Fewer and fewer drug companies are engaged in AIDS research as they have been characterised as killers of babies in Africa and find little attraction in continuing research. Over the past six years the number of HIV/AIDS medicines and vaccines in the pipeline has decreased by over 30%. In 1999 there were 125 drugs and vaccines in the R&D pipeline; today there are fewer than 85. This is worrying because resistance to existing AIDS medicines is continuously rising and better new medicines will be needed to keep people alive in the future.
Instead of pursuing dubious industrial policies by breaking patents, the governments of middle-income countries should be paying a fair price for the medicines they buy – otherwise there will be no more medicines with which to treat AIDS patients in the future. This is of particular concern to the people of Africa, because more than half of the global number of persons infected with HIV/AIDS reside in this continent – and most of them do not have access to drugs.
In a discussion with Richard Tren of Africa Fighting Malaria, he revealed that the South African government (and people in the NEPAD secretariat) are very keen to increase the amount of generic drugs. Yet simply producing something locally does not mean that it will be cheaper or more accessible than importing it. Supporting more white elephants is not what Africans need, especially when the likelihood is that access to medicines will not improve. Given the removal of several Indian produced generic AIDS medicines from the WHO pre-qualification list, governments should also be extra vigilant about the quality of the generic drugs; setting up lots of local production units may not guarantee good quality or good prices.
In the short term, the unfortunate reality is that the situation in Africa will not change much. Distributing drugs to all of those who would benefit from them is likely to be too costly and difficult. A major problem is that in most African countries, the health infrastructure is simply too poorly developed to be able reliably to deliver AIDS medications to great numbers of people.
For us in Africa, the real nuts to crack are excessive government regulations, poor education, punitive local taxes on drugs and poor health infrastructure both in terms of personnel and materiel. It is significant to note also that most HIV/Aids victims in Africa especially cannot afford decent meals not to mention clean water to help gulp down antiretrovirals.
Author: Franklin Cudjoe is the Director of Imani: The Centre for Humane Education, Ghana www.imanighana.org. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.
FMF Feature Article / 12 July 2005 - Policy Bulletin / 01 December 2009