Report to senior management on the waivering of paragraph 6 of the doha declaration on the trips agreement and public health implications for BHP Billiton operations in Southern Africa.

University Degree Subjects allied to Medicine

REPORT TO SENIOR MANAGEMENT

ON THE WAIVERING OF PARAGRAPH 6 OF THE DOHA DECLARATION ON

THE TRIPS AGREEMENT AND PUBLIC HEALTH

IMPLICATIONS FOR BHP BILLITON OPERATIONS IN SOUTHERN AFRICA

BACKGROUND

On the 30 August 2003 the World Trade Organisation (WTO) member governments passed Paragraph 6 of the DOHA declaration on the TRIPS agreement and public health. The legal changes to the agreement will make it easier for poorer countries, like Southern Africa, to import generically cheaper drugs to combat public health issues such as the AIDS epidemic.

The decision ultimately waives countries’ obligations under a provision of the WTO’s intellectual property agreement - Article 31(f) of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement which stated that production under compulsory licensing must be predominantly for the domestic market. This effectively limited the ability of countries in Southern Africa who cannot make pharmaceutical products, from importing cheaper generic drugs from countries where pharmaceuticals are patented.

The decision is to be used in good faith in order to deal with public health problems and recognises the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics. The waiver will last until the WTO’s intellectual property agreement is amended.

AIDS has spread rapidly in Southern Africa due mainly to poverty, unemployment, social and economic conditions, migration and the challenges of development. Of the world’s 42million people infected with HIV or AIDS, 29.4 million live in sub-Saharan Africa, which had 3.5 million new infections last year, and 2.4 million AIDS-related deaths. In Southern Africa, one out of five adults is infected and up to 30% of the mining workforce.

AIDS unlike other diseases kills young and middle-aged adults in their most productive years as employees and customers. As a result the epidemic both adds to companies’ labour costs and slows growth rates in many developing economies. Whilst many corporations derive a competitive advantage from the low cost of labour in developing countries, the disease not only drives up health care costs and benefit payments, it also reduces productivity for years.

AIDS has increased both the risks and costs of doing business in Southern Africa. As BHP Billiton have operations in communities in South Africa and Mozambique where the incidence of HIV/AIDS is among the highest in the world, Governments in those countries struggling to cope with the AIDS epidemic have placed pressure on companies to spend more on dealing with AIDS and to provide jobs and additional money for victims families. Although BHP Billiton has one of the lowest levels of employees with AIDS (14%) amongst mining companies, rising absenteeism and high employee turnover due to HIV/AIDS have forced BHP Billiton to employee and train more people than their other operations globally.

DEVELOPMENTS

Short-Term

In the short to medium term South African Governments will be pushed by NGO’s, the community and industries to develop a comprehensive policy that includes all aspects of physical health for the communities, that not only encompasses nutrition and overall health care, but also includes the public provision of appropriate medications.

Governments, however, will see their role to place further pressure on investors to implement strategies to limit the impact of AIDS amongst employees and the communities. They believe that the ability for investors to import the drugs will assist in stemming the longer reaching affects ...

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DEVELOPMENTS

Short-Term

Governments will rely on corporations such as BHP Billiton to manage the impact of the AIDS situation on their mining employees, in order to protect the viability of their operations. AIDS may be seen globally as a social responsibility rather than a corporate responsibility; however the lack of expertise and funds available to Governments in the short-term will severely hinder them from being effective in the fight against the epidemic. The Governments will lean heavily on investors in the countries to provide indigenous locals with employment and medical benefits, and also to assist the broader community with education and preventative strategies.

Long-Term

With no medication effectively distributed to the people that are currently infected with HIV they will die within the next 8-10 years. A lower overall population and labour force will affect both the production potential of the economy and the expenditure side of the economy.

There will be an increased level of government expenditure as a result of higher demand for public health and social services. HIV/AIDS care will become a substantial part of health care spending. Social and political instability may increase.

Private households will bear the brunt of home care costs of family members living and suffering from AIDS, the cost of funerals, and the care of orphans which will reduce household savings and spending in other areas.

If the Governments are proactive in their policies and use the waiver of the TRIPS agreement to full effect then in the long-term stability and lower costs in providing treatments to HIV/AIDS infected people will assist in stabilising the economy, increase the health of the communities, improve poverty and provide a future for the orphaned children who are already victims of AIDS.

IMPLICATIONS

Threats

If action is not taken in the fight against the AIDS epidemic reports indicate that AIDS could reduce GDP growth rates by 0.5% to 2.6% a year in Southern African countries and this will directly impact on BHP Billiton, reducing turnover of productivity and substantially affecting profit.

African Governments could manipulate the provisions of Government distributed mining rights contracts and stipulate that current and potential investors in their countries are responsible for providing indigenous employees, their families and the community with education, health benefits and appropriate treatment for diseases such as AIDS, tuberculosis and malaria. Such actions by the Government will directly impact on costs to current and future investors in Southern Africa.

The cost to current and future investors will total $800AUS per worker per year for HIV/AIDS treatments. BHP Billiton currently has 16,627 employees in South Africa and Mozambique, of which 14% are infected with the virus, therefore treatments would total $1.86M per annum for the corporation. Add to this additional cost for the education and support of employee’s families, and the community.

Governments may also increase taxes on current and future investors in their countries to cover costs for the education and provision and supply of pharmaceuticals for treatments of diseases such as AIDS, tuberculosis and malaria.

Investor’s looking to Southern African will need to factor in costs associated with preventing and treating AIDS infected employees, families and communities. Investigations may indicate that the African continent is no longer a viable location for international corporations even with the cheap labour force.

Opportunities

Whilst the onus on current and future investors in Southern Africa may seem overwhelming, the waiver on the TRIPS agreement enables corporations to provide employees, families and communities with a more cost effective method to combat the AIDS epidemic than was previously available, therefore limiting the impact both on the future of the business and employees.

There is an opportunity for BHP Billiton to capitalise further on their current health strategies by increasing the provision of AIDS treatments to employees and establish stable mining communities.

Direct costs including medical care, benefits payments, recruitment and training of replacement workers, insurance premiums, accidents due to ill workers and inexperience replacement works will be reduced. Indirect costs such as reduced on-the-job productivity, reduced productivity due to employer’s absences, production disruptions, depressed morale, and loss of experience workers and the deterioration of labour relations will also be greatly reduced.

STRATEGY OPTIONS

Continue with current strategies in the prevention and treatment of employees infected with HIV/AIDS, and monitor the South African and Mozambique Governments reactions to the waiver of the TRIPS agreement.
Establish a government relations strategy with the South African and Mozambique Governments and National Aids Council (NAC) to drive the implementation of a policy that includes all aspects of physical health for the communities, that not only encompasses nutrition and overall health care, but also includes the public provision of appropriate medications
Independently establish an agreement with an international pharmaceutical company to import genetically cheaper drugs to treat employees, their families and the communities of the BHP Billiton mining sites in Southern Africa, and continuing with current preventative and treatment strategies.

STRATEGY RECOMMENDATIONS

That BHP Billiton adopts strategy option two and establishes a government relations strategy with South African and Mozambique Governments.

RISKS

That the Governments will take advantage of the corporation, pressuring them to be the financial drivers behind the strategy, therefore costing the corporation more than if then if they were to continue with their own prevention and treatment strategies.

That other corporations will take advantage of the policy and not contribute financially or resourcefully to its implementation.

That the policy will move too slowly to benefit any employees already infected with HIV/AIDS.

BENEFITS

If South African and Mozambique Governments work with BHP Billiton to import AIDS treatment drugs at a substantially discounted rate, it will enable current treatments provided by the company to be distributed more effectively and broadly to infected employees and communities at a lower cost to the company.

There will be strength with Government and industry combined support when establishing single supplier contracts to import pharmaceutical products to treat diseases such as AIDS, tuberculosis and malaria.

No one entity can act alone to change the path of the AIDS epidemic, it will take all groups working together to bring a stop to the epidemic. A strategic alliance with the Governments will increase the strength and success of preventative and treatment programs implemented by the organisation.

The expense of anti-AIDS drugs and providing resources for the implementation of the policy would be less than the long-term costs of dealing with effects of the disease.

STRATEGY ACTION PLAN

That contact is established with the Governments in South Africa and Mozambique stating BHP Billiton’s current strategies in the prevention and treatment of AIDS amongst its employees, and confirming its support of the waiver on the TRIPS agreement.
Establish a government relations strategy task force to launch communications with the governments about implementation of policy that improves the physical health of the communities and as a part of the policy, ensure that AIDS medication is available and distributed by the Government to people infected with the disease.
Show-case BHP Billiton’s current strategies on prevention and treatment of the HIV/AIDS disease to the Government and industries, specifying that have been successful in limiting the impact both on the future of the business and its employees. Strategies include:

Limiting the use of migrant workers;
Encouraging private home ownership, therefore reducing the number of workers residing in high-density accommodation;
Delivering a broad educational and awareness program to ensure the workforce is provided with relevant information on HIV/AIDS;
Promoting a healthy lifestyle;
Providing free condoms;
Providing a free counselling service at all mining sites;
Provide anonymous testing of employees for HIV; followed by voluntary testing programs.

In conjunction with the Governments establish contact with countries willing to import patent pharmaceutical drugs to Africa, and explore the possibility of single supplier at the best price.

Chris Alday, RMIT University student

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