In my last blog I made a case for protecting vaccine IP and for the rich and developed countries to work with vaccine manufacturers to rapidly increase the availability of authorized vaccines; not just for their own countries, but also to help fund the vaccines for low and medium income countries (LMICs). I am glad that the US government has since moved away from the proposal to waive COVID-19 vaccine patents and suspend aspects of WTO TRIPS.
I outlined this proposal from an ethical, legal, and public policy perspective. However, in looking through my multi-disciplinary PBH lenses, the Economics lens was not covered in my last blog. Is my proposed solution even economically feasible? Is there an economic case for such global collaboration? As I will elaborate in this blog, I believe there is a compelling economic case that makes this solution a no-brainer!
Frst, let me recap the solution I proposed in my earlier blog. The most important points are:
- The COVID-19 pandemic is a global public health emergency; no country is truly safe unless all countries have vaccinated the majority of their population
- It is not fair nor ethical for developed countries to not help developing countries and LMICs rapidly gain access to approved and effective vaccines
- IP of the vaccine manufacturing companies should be protected; they should be reasonably rewarded for developing highly efficacious and safe COVID-19 vaccines in record time to help save lives and reopen economies
- Rich, developed countries and vaccine manufacturers should jointly work on a global solution for this pandemic; work collaboratively to create a win-win solution
Although this blog will focus on economics, I do not want to diminish the extensive human cost and suffering endured throughout the COVID-19 pandemic. I have discussed this cost extensively in my earlier blogs. I am presenting the economic case with the goal to bring us closer to the end of this pandemic, and ensure recovery is faster and more fair for all across the globe.
Having taken four semesters of business electives in high school, I will try to make the economic case. My intent isn’t to be precise, as there is so much varying raw economic data available. I will be using estimates, in order to see if the solution I have proposed for months is economically justifiable. To accomplish this, I will attempt to look at the economics business case in terms of both macroeconomics and microeconomics.
Macroeconomic Lens:
From a macro-level, the solution I proposed can be justified by comparing three values. These are: the cost of financing the vaccinations for LMICs, compared to the economic cost of the pandemic and the cost of post-pandemic recovery in terms of government stimulus. Given the recent high-profile G7 meeting in the UK that was in the news, I thought I would use the G7 countries to represent the rich and developed countries.
The cost of providing vaccines for low to middle income countries, by my estimation, is approximately $52 billion. I came up with this estimate as follows:
- The current world population is about 7.75 billion, split into: ~1.25 billion in high-income countries; ~6.5 billion in low and middle income countries
- Serum Institute of India (SII) is one of the largest vaccine manufacturers and makes several WHO approved vaccines for LMICs. The per person price of a 2-dose WHO authorized SII COVID-19 vaccine can be estimated to be $10 per person (Indian Rupees (INR) 600 for two doses (Times of India), which translates to $8.1. Plus say an additional manufacturer profit of $1.9 = $10 per person)
- Assuming a realistic goal of vaccinating 80% of the LMIC population, that translates to a goal to vaccinate 5.2 billion people
- Vaccine cost to reach this LMIC goal: ~$52 billion. Even if higher costing vaccines, like Pfizer, are considered, this will still be a small fraction of the cost to the G7 economies.
Next, we can look at the cost of the pandemic to developed, high income countries in two ways. We can focus on the most developed countries; the Group of Seven (G7) countries. These include the US, Japan, Germany, France, UK, Italy and Canada. The G7 GDP in 2019 was approximately $40 trillion. Assuming that in 2020 – due to COVID-19 pandemic – the G7 economies shrank on an average 4.2% (The Guardian), we can calculate an approximate GDP loss of $1.7 trillion.
Another way to look at the cost of the pandemic on G7 countries is to look at the extra relief and stimulus spending undertaken by these countries, due to the pandemic. By looking at each of the G7 countries’ GDP and their respective COVID-19 fiscal stimulus – as a percentage of GDP – this is estimated at ~$11 trillion (Atlantic Council) (Nation Master).
If helping vaccinate those in low and middle income countries can help prevent the resurgence of the pandemic, then $52 billion seems like a good investment. This would prevent G7 countries from losing $1.7 trillion in economic output (GDP), or having to spend $11 trillion in pandemic relief or stimulus, due to a prolonged or recurring pandemic.
Microeconomic Lense:
It’s also important to look at my proposal from a microeconomic perspective. This solution – where developed countries partner with and fund the purchase of low-cost effective vaccines for LMICs – should also work for the vaccine manufacturing companies.
Let’s take India’s SII, for example. SII offered to sell the Indian government two doses, at prices ranging from INR 300 to INR 600. While we could assume that INR 300 is the cost to manufacture for the company, a more conservative assumption would be to take the midpoint: INR 450 ($6.1) as the cost of two doses of the vaccine for SII. Earlier we assumed the price of the two doses as $10. Using this assumption, it translates to a profit of $3.9 per 2-doses of the vaccine for the vaccine manufacturers. Based on the 5.2 billion person LMIC vaccination target, mentioned above, that should translate to a profit for the vaccine manufacturers of approximately $20 billion, on a revenue of $52 billion. I am using SII as one example of a LMIC vaccine manufacturer. The volume, revenue and profit estimate is a combined estimate for all LMIC vaccine manufacturers.
In summary, an investment of ~$52 billion could prevent economic costs in excess of $1.7 trillion, while generating a healthy, but not excessive, profit for the innovative vaccine manufacturers. Rewarding the vaccine manufacturers for their innovation and protecting their IP while saving millions of lives at a reasonable price. This to me is a win – win – win solution for the developed countries, LMICs, and vaccine companies. From an economic perspective, this solution is a no-brainer!