Value for money conundrum

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Aid donors are increasingly paying attention to value for money in their programmes.  While donors have always wanted the biggest “bang for their buck”, in recent years there has been a step change in the approaches and tools for calculating value for money and in the expectations placed on funding candidates (whether they are governments or NGOs) in terms of demonstrating their value for money (VFM).

Good.  But there’s quite a big catch which, as far as I am aware, is not being addressed.  Donors are applying VFM analysis to their own investments but they aren’t always applying it to the “entire” investment being made in a country.

Take the global response to AIDS, for instance.  As of 2011, for the first time in history, less than half of all money spent on HIV and AIDS in low and middle income countries came from international donors – 51% came from national sources.  But the extent to which the 49% can be spent on programmes that are “VFM certified” largely depends on what the 51% is being spent on.

First example.  In one country, most of the international aid money for AIDS comes from the Global Fund to fight AIDS, Tuberculosis and Malaria.  A good chunk of that money is spent on antiretroviral drugs.  But not any old ARVs: just the most expensive ones. The country produces all of its first-line ARVs – the ones that are the cheapest to manufacture, and that bring economies of scale because they are the ones that are needed at the greatest volume.  What the country  needs assistance for is the second and third line drugs – the ones that have to be imported, and that have to be purchased in much smaller quantities.  For the same budget, the Global Fund could, theoretically, be paying for far more treatments, but it isn’t.  But the imported drugs are no less essential – once someone fails on first line treatment, it is essential to move them on to the next regimen.

Second example.  It is well known that the highest VFM proposition for spending on HIV prevention is to invest in comprehensive programmes with highly affected populations like men who have sex with men, sex workers, and people who inject drugs (“key populations”).  Despite some improvements in recent years, programmes with these populations continue to be chronically underfunded.  Even more significantly, over 90% of money for these programmes comes from international aid sources.  National governments don’t like spending money on this area of programming at all.  In this case, international donors are getting the best VFM (providing the programmes are being implemented properly).  In the longer term though, if the trend toward higher shares of domestic funding continues (and there is no reason to suppose it won’t), these programmes look to be at very high risk of losing support.

A straight contest between the first country and one of the countries where donors pay for all of the key populations work would suggest that the latter is a far more suitable investment.  But it is not that simple. In both cases donors are filling a shortfall in a national response – albeit for different reasons.  It may be that when looked at as a whole, the first country’s response is more economically efficient, even if the aid investment doesn’t make it seem so.  Moreover because things like effective HIV prevention and treatment are made up of many interconnected and complementary interventions, and indeed because prevention and treatment are themselves interconnected and complementary, the cost effectiveness of each intervention often depends on other interventions being implemented.

When looking at value for money, major international donors should think of funding as being “fungible” and should be looking much more at the whole national context and environment for a given programme rather than precisely what they are spending money on.  And if they are funding things that simply can’t or won’t be procured by domestic funds, they need to be thinking about what happens if and when they pull their own funding out.

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