A Story About Sumitomo Chemical and the Market for Bednets
When I first learnt about the partnership of Sumitomo Chemical and A to Z Textile Mills Ltd. in Tanzania it seemed like pure success. In 2007, I was working on the UNDP report “Creating Value for All”, and the story about local manufacturing of mosquito nets was one of my favourite case studies. Sumitomo Chemical, the large Japanese chemical company, had licensed its technology to produce long-lasting insecticide treated mosquito nets (LLINs) to local manufacturer A to Z free of charge. Acumen fund lent A to Z US$325,000 to buy the requisite machinery and specialized chemicals. In 2004, the local company thus became the only producer of LLINs on the African continent. By 2006, the business had already created 3,200 new direct jobs, 90% of which were filled by women. A voucher scheme made sure pregnant women and children - the high risk groups - would have access to nets.
In September 2011, I visited A to Z in Arusha as part of the Harvard Kennedy Schools CSR Initiative’s research into strengthening inclusive business ecosystems. I found myself in a quiet production hall. The machines stood still. Energy prices in Tanzania had reached an all time high, and order books for LLINs were empty. The 7500 jobs in the factory were in jeopardy. What had happened?
Global attention - soaring demand
The collaboration between Sumitomo Chemical had first been propelled by an unprecedented global fight against malaria. In a reaction to the steep rise in malaria mortality and morbidity since the 1980s, WHO, UNICEF, UNDP and the World Bank launched the Roll Back Malaria (RBM) Partnership in 1998. In 2000, the MDGs called for reversing the incidence of malaria by 2015. In 2008, the UN Secretary General called for universal coverage with mosquito nets by the end of 2010 to halt malaria deaths.
As a result of the increased attention, international funding for malaria control rose steeply. Disbursements reached their highest levels in 2009 at US$ 1.5 billion, but new commitments for malaria control stagnated in 2010. The biggest donors were the Global Fund to fight HIV/AIDS, Malaria and Tuberculosis, the US President’s Malaria Initiative, and the World Bank. By the end of 2010, approximately 289 million nets had been delivered to sub-Saharan Africa.
In Tanzania, these global commitments were implemented via several campaigns. Since 2004, a voucher scheme provided subsidized nets to pregnant women and infants, The Under-five Catch Up Campaign provided a free LLIN to every child under five between 2008 and May 2010 and distributed more than 8.7 million nets. The Universal Coverage Campaign provided free LLINs to cover all remaining sleeping spaces not already reached by previous campaigns, distributing 16.6 million nets.
A to Z could hardly meet the enormous demand resulting from these campaigns. It entered a joint venture with Sumitomo Chemical and founded VHI, with another loan from Acumen. The new factory started production in 2008. It increased capacity significantly and created many more jobs.
Global stop - local stop
In September 2011, the machines in Arusha stood still because the Global Fund had stopped ordering nets. The goals of the universal coverage campaign were seen as widely achieved. Round 11 of the Global Fund’s funding cycle was delayed indefinitely due to resource constraints as a result of the global financial crisis.
In the meantime, the local market for mosquito nets in Tanzania had seized to exist. Due to the free and subsidized nets, market demand was close to zero. The dense network of wholesalers and retailers that had evolved by 2008, also with support from donors and social marketing efforts, was now gone. Besides A to Z, none of the four former manufacturers were producing nets anymore.
With neither a global or a local market, A to Z started to diversify into other products. Sumitomo Chemical invested in building a market for nets in Kenya. However, both strategies would not create enough orders to fully utilize the capacity of the joint factory.
Filling holes in ecosystems
Sumitomo Chemical had entered the market for nets due to its commitment to fight malaria. It had supported a local manufacturer to create jobs. It had thus invested in strengthening the local ecosystem for LLINs. However, it had never gotten seriously involved with the global political system around LLINs.
The case poses questions for companies.
The case also poses questions for players from development organizations.
The case study of Sumitomo Chemical and the LLIN market highlights the challenges of strengthening ecosystems through private initiative, but also shows its potential. Technology transfers and the accompanying capacity building can lift local companies in developing countries into the league of global players, creating employment and economic opportunity. By providing evidence of the positive impact of such initiatives, companies can make the case to public agencies to revise their procurement policies and support similar initiatives. Sumitomo Chemical has now started to get more engaged in discussions with donors about these issues.
In my last call with Sumitomo Chemical in September 2013, I was glad to learn that demand for nets from global donors has picked up and no jobs have been lost in Tanzania. Also, the market for LLINs in Kenya, which Sumitomo Chemical had started to develop, was growing. After all, the holes had not let people fall through.