Vacciconomy: The Political Economy of Vaccines

Vacciconomy: The Political Economy of Vaccines
Nearly 60% of Pakistan’s population is between ages 15 and 64 and if you add those older than 65 to it, you’re looking at 65% of the total population. The 2017 census counted the population to be somewhere around 207 million, which, estimated at an annual growth rate of 2.4%, comes out to be around 220 million in 2021. 65% of 220 million is 150 million people, which is the subset that will have to be vaccinated. At the beginning of the vaccination period, those who could afford approached private hospitals and health clinics to get vaccinated. Vaccines were administered at a cost slightly below the minimum monthly wage fixed by the government as a price floor in the labour market. Not many in the middle- to low-income categories could, therefore, afford to get privately vaccinated. The government, however, jumped in after forming government-to-government (GTG) contracts with vaccine producing countries and creating regulatory and legislative spaces that allowed it exclusive access to global vaccine supply chains. As a result, a public-sector monopoly over vaccine import and distribution was formed. That monopoly, however, hasn’t yet proved to be ineffective or, as it happens with most monopolistic market structures, exploitative.

The regulatory regime built a centralized and planned vaccine import and administration regime that has amongst other things ensured that vaccines are supplied on a vaccine-for-all, free and equitable basis. While Pakistan has done better than many other developing countries in vaccinating its people, the process of vaccinating around 65% of its population would involve economic planning and management of the highest order, including the handling of certain political economy variables that entail economic costs that poor countries of the global south will find difficult to manage within their annual budgets. I would deal with the understanding of the vaccine economy - the “vacciconomy” - at two levels. The first is to build greater understanding of production capacities and pricing that will determine who gets vaccines and in what quantity and how that will impact the domestic economies of the importing/recipient countries. The second is the political economy of vaccines; that is how diplomatic relations between states and the international political system will impact pricing, access and the distribution mechanism of the vaccines.

At the beginning of the vaccination period, Pakistan was receiving its share of vaccines under the global COVAX initiative, that was expected to vaccinate around 20% of the population. There were little or no direct costs associated with vaccines obtained under COVAX. The share of population that was vaccinated directly under COVAX is largely unknown since data available on vaccine administration is not disaggregated for COVAX and non- COVAX supplies. The other 40% of the population, roughly 100 million people, will have to be vaccinated by the state out of its own resources; that will most certainly include donor financing in the health sector, much of which is being diverted to COVID-19. Data shows that the most popular Chinese vaccine Sinopharm has been selling between US $ 18 to US $ 72. If we assume that the entire population of Pakistan is vaccinated with Sinopharm at US $ 18 per dose (US$ 36 per person), it will require US $ 3.6 billion to be vaccinated.

Four issues regarding the political economy of vaccine need to be specifically understood and reflected in state policy:

i.) the transaction costs involved in the import of vaccines given the protectionist regimes that prevail within certain states and specifically against other rival states, a manifestation of what we saw under the US-China trade war.

ii.) the exchange-rate differences /implications of vaccines; poorer countries will have to manage foreign currency exchange reserves and impending balance of payments crises as they move toward vaccinating larger parts of their populations.

iii.) circles of diplomatic influences like the ones that are formed within South Asia; countries like Pakistan will find it much easier to access the Chinese vaccines than countries like India.

iv.) in addition to access, diplomatic relations would also impact the prices at which vaccines would be sold to various countries. With around 6 countries currently producing vaccines, those countries maintaining friendly relations with one or a few of these countries would be able to access and buy these vaccines at much lower prices than others. This would create variable access and price distortions in the market – enabling an economy of its own around vaccines. To Senegal, Sinopharm has been sold at US $44, much higher than the average price at which the Government of Pakistan would be able to buy Sinopharm.

Under the PSDP, the Minister for Planning reported that the Government has set aside US $ 1 billion for to buy COVID vaccines. That will be sufficient to buy 30 million vaccines, roughly 30% of the 100 million people that the state would want to vaccinate by the close of this year. The global production capacity stands at around 12 billion vaccines in a year. This divided between 200 countries comes out to be 60 million vaccines on average for each of these 200 countries. However, access to a certain share of these 12 billion vaccines would depend on a number of factors including the afforadabilty sets of the countries, diplomatic access, incidence of the virus, size of the population, etc.

Efficient and effective planning and management of vaccines requires greater insight into the Vacciconomy. What lies ahead in terms of vaccine financing, what can you afford to but given exchange rate fluctuations and budget capacities and how will access and availability vary in the future. The NCOC has done extremely well to stay ahead of the Vacciconomy for now, atleast that is what one can infer from the massive administration of the vaccine that has taken place in Pakistan. What the government must also consider is how much can it subsidize and what costs it can or should transfer to the end consumer. Massive subsidization would lead to fiscal deficits while transferring costs to the consumer will see the slowing down of the vaccination process that will have economic implications of its own.

Much is left for the government to decide.