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Committee on Creation of Science-Based Industries in Developing Countries, National Research Council

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria

NATIONAL ACADEMIES PRESS

Contents

Summary...................................................................................11 Introduction............................................................................11Nigeria...................................................................................13Filling the Gaps: Three Technologies to Meet Three Major Needs............................15Doing Business with the Poor..............................................................192 Methodology.............................................................................26Hypothetical Case Studies.................................................................28Nigerian Adaptation,......................................................................293 The Case Studies........................................................................31Solar Photovoltaics.......................................................................31Financing the Enterprise..................................................................36Water Purification........................................................................37Antimalarial Artemisinin Combination Therapy (ACT)........................................454 Meeting Needs...........................................................................55Mobilizing the Private Sector to Provide Public Goods.....................................57The Special Case of Artemisinin...........................................................59Linking Science-Based Enterprises to Research.............................................615 Recommendations.........................................................................63Incentives for Private Companies to Provide Public Goods and Services.....................63The Challenge of Artemisinin Combination Therapies........................................66Consumer Education and Training...........................................................67The Role of Philanthropic Foundations and Donor Agencies..................................68The Role of the Nigerian Academy of Science...............................................70Appendixes: Workshop Reports..............................................................75A Solar Photovoltaics: Hypothetical Case Study............................................77B Water Purification: Hypothetical Case Study.............................................90C Artemisinin-Based Malaria Therapy: Hypothetical Case Study..............................108

Chapter One

This report is the product of collaboration between the U.S. National Academies and the Nigerian Academy of Science. Nigeria is an example of a mostly rural developing country whose government is unable to provide some basic services, such as potable piped water and electric power, to a large proportion of the population in an affordable manner. In other developing countries, many of these services are available from private, profit-making companies using readily accessible technologies. This report examines how Nigeria can mobilize private companies to provide some basic services that might be sustainable and cost-effective for government, company, and consumer.

In Nigeria, about two-thirds of the population lacks safe water and access to the electricity grid. A similar proportion lacks effective treatment for malaria, a major cause of child mortality and loss of productivity. Because the government does not provide malaria drugs (or other medicines as well), most people buy their medicines privately. However, in Africa the malaria parasite has become immune to the existing low-cost drugs, and, as for HIV/AIDS, the newer, more effective treatment is too expensive for the majority of patients. In response to this problem, the international community, including the World Health Organization (WHO) and World Bank, has been exploring ways to subsidize these drugs, which, if successful, will expand manufacturing opportunities for the new products.

The word sustainable is generally applied in the international development context to solutions that do not depend on donor funds or ongoing government financial support. Services provided by private enterprises may be considered sustainable when the enterprises are able to make a profit. People without electrical power, safe water, and effective medicines are usually poor, but any firms that provide the poor with these essential services must be able to profit from doing so. Thus, they would require a business model designed for serving a large number of clients who have very little disposable income. The extremely dense urban environment and highly dispersed rural communities that characterize the bottom of the economic pyramid in the developing world require a new approach. Some companies have developed such models and do relatively well in other countries. Elements of these business models include the following:

a focus on the price performance of products and markets

incorporation of innovative hybrid solutions that use advanced technologies blended with the existing culture and with products designed to work in hostile environments characterized by, among other things, an irregular power supply, contaminated water, low skill levels, and unreliable infrastructure

an emphasis on reducing, conserving, and recycling resources, especially packaging

adoption of innovative processes for local manufacture

application of innovative methods of financing, distribution, and marketing

Microcredit, service contracts, and franchising opportunities also are important elements of the business models.

As limiting as the conditions in developing countries seem to be, the great advantage is the huge number of potential clients. An estimated 100 million Nigerians lack safe water, electric power in the home, and effective malaria therapy, or more than the total populations of all but a handful of countries. In India and other big countries with large numbers of poor people, companies (including multinationals) aiming at the customer base at the wide bottom of the economic pyramid have produced new, innovative products and services at substantial profit to themselves as well as with benefits for their customers.

This study aims to demonstrate that for the three examples chosen-solar electric power, safe household water, and effective malaria therapy-it should be possible to make a profit providing these products in Nigeria without direct government support (although for malaria drugs, a global subsidy of some kind probably would be needed). Nevertheless, actions the government might take to encourage private sector participation and extend the benefits to large segments of the population are described in this report.

METHODOLOGY

The methodology used to demonstrate the viability of the business models is called a hypothetical case study. It was originally devised as part of the knowledge assessment methodology prepared by the U.S. National Academies for the World Bank to identify opportunities for developing countries to find niches in global markets by exploiting technologies not yet in use in the countries.

A workshop was held on each of the selected technologies (solar energy, December 8-9, 2005, in Lagos; safe water, December 12-13, 2005, in Lagos; malaria therapy, April 24-25, 2006, in Paris). The workshops were designed to exploit the interactions among international experts and entrepreneurs who had successfully created enterprises based on each technology in similar countries and local scientists and business experts who understood the economic and social environment of Nigeria. The aim of all the participants was to identify the conditions for success and produce a sample business plan and cost estimate for creating an enterprise that would exploit the technology in Nigeria. Nearly all the information used in the report was supplied by the expert and local participants in the workshops. For this reason, the emphasis is not on providing formulas and specifications, which must be checked and updated, but on providing a range of technological choices and the questions that potential entrepreneurs and investors must ask in selecting among those choices. The workshops identified obstacles and proposed solutions to them. When these solutions require action by government, private sector associations, and other institutions, the actions are reflected in the report's recommendations, which are summarized here and presented in detail in Chapter 5.

THE TECHNOLOGIES

Solar photovoltaic systems are installed in a home or community. The example used by the workshop was the Solar Electric Light Company (SELCO) in Karnataka State, India. For the time being, the solar cells would have to be imported into Nigeria, but small local companies can provide installation and maintenance services. In the SELCO model, maintenance services are very important, and they must be provided onsite and regularly. With the proper consumer credit, the system can be made affordable to poor homeowners and small rural businesses. Recent rises in the cost of the kerosene presently used for lighting in rural villages may further motivate Nigerian companies to install and service solar home systems, especially because government support of the local manufacture of solar photovoltaic units is already becoming available.

Safe water can be provided in many ways. The workshop considered both ceramic filters, which can be operated in the home and were designed by Potters for Peace in Nicaragua, and the more elaborate ultraviolet (UV) filters, made by WaterHealth International of California and distributed in several developing countries. The UV filters can be purchased by a community or by franchisees who sell safe water to households. Because both filtering units must be operated by the user, training is an important part of the service. Nevertheless, the price of the water to the consumer is low, the savings on the medical services avoided from water-borne diseases is high, and most families should be able to afford such technologies without assistance.

Although they are now recommended by WHO as the first-line treatment for uncomplicated malaria, artemisinin combination therapies are used in only a minority of cases, largely because countries cannot afford to purchase these high-price medicines in sufficient quantities, even though most have adopted them as official policy. Nigerian companies may have an early opportunity to become part of the global value chain, while assuring reliable supplies to Nigerians. But the viability of this model depends on the international community agreeing on a way in which it can reduce the cost of these drugs to consumers. The current situation- an acknowledged crisis-is the subject of deliberations that should lead to some resolution relatively soon. Nigerian researchers growing the plant from which artemisinin is extracted (Artemisia annua) and officers of Nigerian pharmaceutical companies producing malaria medicines participated in the workshop.

RECOMMENDATIONS

Incentives for Private Companies to Provide Public goods and Services

Nearly two-thirds of the Nigerian population does not have home lighting, safe drinking water, or effective malaria therapy. Lacking the resources to more than double the number of people served by the electricity grid and piped water network, the Nigerian government can turn to the highly active private sector to provide these basic products and services through a program of financial incentives and technical assistance to encourage responsible service. If a large proportion of poor and isolated communities are to be served, a solution engaging the private sector may require the involvement of a large number of new companies, many of them start-ups. First-stage financing or venture capital will perhaps be required for the majority of them.

Recommendation: The Nigerian government should develop a system of incentives to encourage private companies to sell and service solar electric systems for the home to rural residents who are not connected to the national grid. The Nigerian government also should develop a system of incentives to encourage private companies to sell and service water purification systems to communities that are not served by municipal or national water supplies, or to produce household filtering systems for safe drinking water.

Consumers of home solar electric systems will need consumer credit to purchase their units. Financial institutions should be encouraged and trained to make small loans for such systems, including service contracts, ultimately secured only by the system itself, as has been done in other countries.

Recommendation: The Nigerian government should work with banks and other financial institutions to establish microloan funds that would be dedicated to providing consumer credit for home solar electric and water filtration systems in rural areas.

Many householders are not aware of the advantages to their families and the improvements in their lifestyles and educational and business opportunities of having electric lighting, radios and televisions, and refrigerators in their homes. Many also do not realize the harmful effects that contaminated water can have on their children and the cost to themselves and the nation.

Recommendation: The Nigerian government should sponsor an educational campaign to encourage people to invest in electric power and safe water.

Existing legislation might actually make it legally hazardous for private companies to bring electric power into people's homes, because this service is now the exclusive mandate of a federal ministry.

Recommendation: A legal remedy should be found to the prohibition on private companies or individuals providing power to homes in Nigeria. In the context of legislation on renewable energy sources, it might give additional impetus to the proposed program.

The Challenge of Artemisinin Combination Therapies

The only first-line therapies for uncomplicated falciparum malaria (the most deadly form of the disease) recommended by the World Health Organization are artemisinin combination therapies (ACTs), based on extracts of Artemisia annua, a plant commonly found in the wild. The production of ACTs by Nigerian companies is unlikely to succeed without various types of assistance by the government. A viable market, not just in Nigeria but globally, depends on reducing the price of ACTs to consumers, which will require subsidization, even assuming efficient manufacturing and small profit margins. An international effort is under way to provide these subsidies in every country.

Meanwhile, Nigerian pharmaceutical companies and public health officials may not be sufficiently informed of developments in the international arena that will affect their plans, including progress toward subsidization and the global technical standards for manufacturing ACTs. The government could stimulate ACTs production by ensuring that all interested officials and companies along the supply chain, from cultivation of A. annua through manufacture and packaging of ACTs, are informed of current and developing conditions.

Recommendations:

The Nigerian government should support private sector participation in the global ACTs market. It should do this by tracking international developments related to the economic and technical requirements of all aspects of ACTs production and establishing formal and informal links to academic, public, and for-profit entities that could play a role in that production. The Nigerian Academy of Science could play an important role by convening potential participants for the exchange of information with the government and the international community. The Nigerian government should ban all counterfeit drugs, illegal clones, low-quality products, and artemisinin monotherapies from the Nigerian market by means of proactive enforcement against illegal activity. It also should prohibit the advertising of such products.

Duties and other impediments to the importation of the equipment, raw materials, solvents, and other materials needed for ACTs research and production should be removed. The Nigerian government should support training and research on the agronomy and selection of the best cultivars of Artemisia annua in collaboration with the global malaria community. Public health laboratories should participate in surveillance to determine the levels of resistance to possible partner drugs for different ACTs formulations.

Consumer Education and Training

In every modern society, consumers are confronted by a bewildering array of products and services that affect their health, well-being, and economic security. However, most countries offer little formal consumer training, and so consumers are expected to educate themselves by means of the media, their friends and community, and commercial advertising. Sometimes, consumers receive advice from the public regulatory agencies or private nongovernmental organizations (NGOs) that monitor product safety, drug efficacy, and truth in packaging. When these watchdog agencies are ineffective or nonexistent, or when populations are illiterate or isolated, public agencies must step in and provide more explicit consumer education through the schools or in public campaigns or pronouncements.

Recommendation: The high mortality rates in Nigeria from diarrheal disease and malaria argue that the Nigerian government should offer health education and training in the schools that would address the importance of safe drinking water, how to maintain a sanitary water supply, and how to choose effective medicines. Other relevant topics might include nutrition, hygiene, safe sex, and the prevention and treatment of common diseases such as respiratory infections, diarrhea, and HIV/AIDS. This program should be supplemented by public pronouncements on topics such as filtering water and a public information campaign on the importance of using the most effective antimalarial therapy-currently ACTs-and the necessity of completing the course of treatment.

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