DRUG FINANCING IN ETHIOPIA

September 2007
Addis Ababa, Ethiopia

Federal Democratic
Republic of Ethiopia World Health Organization
Ministry of Health
 TBLE OF CONTENT

Page
Acknowledgment ……………………………………………………………………….. iii
Acronyms ………………………………………………………………………………. iv
List of figures …………………………………………………………………………… vi
List of tables ……………………………………………………………………………. vii
Executive Summary ……………………………………………………………………. 1
1 Introduction ……………………………………………………………………… 5
1.1 Geographic, socio-demographic and economic data …………………………... 5
1.2 The health sector ………………………………………………………………. 5
1.2.1 Health status …………………………………………………………... 5
1.2.2 The health delivery system …………………………………………… 5
1.3 The pharmaceutical sector …………………………………………………….. 6
1.3.1 Policy and regulation …………………………………………………. 6
1.3.2 Procurement and distribution …………………………………………. 6
1.4 Definition of drug and drug financing …………………………………………. 7
1.4.1 Definition of drug …………………………………………………….. 7
1.4.2 What is drug financing ……………………………………………….. 8
1.5 Rationale of the study ………………………………………………………….. 9
1.6 Objectives of the study ………………………………………………………… 9
1.7 Organization of the study report ……………………………………………….. 9
2 Methodology ……………………………………………………………………… 10
2.1 Data sources and data collection instruments ………………………………… 10
2.1.1 Government sources …………………………………………………. 10
2.1.2 Public enterprises ……………………………………………………... 11
2.1.3 Donor sources ………………………………………………………… 11
2.1.4 NGO sources …………………………………………………………. 12
2.1.5 Private sources………………………………………………………… 12
2.1.6 Drug supply and import ………………………………………………. 12
2.2 Data collection process ………………………………………………………… 13
2.3 Challenges in the data collection ……………………………………………… 14
2.4 Limitations of the study ………………………………………………………... 15
3 Findings of the study ……………………………………………………………… 16
3.1 Government budget and expenditure on drugs ………………………………… 16
3.1.1 Budget allocation and expenditure by federal Government 17
Organizations…………………………………………………………..
3.1.2 Drug budget allocation and expenditure at the regional level ………… 20
3.1.3 Donors’ expenditure on drugs at regional level (BOH) ………………. 21
3.1.4 Summary of drug financing at regional level ………………………… 22
3.1.5 Summary of drug budget expenditure at federal and Regional 26
Governments levels…………………………………………………….
3.2 Major donors …………………………………………………………………... 28
3.2.1 UNICEF ………………………………………………………………. 28

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 3.2.2 Global Fund …………………………………………………………... 28
3.2.3 UNFPA ………………………………………………………………. 29
3.2.4 WHO ………………………………………………………………….. 30
3.2.5 USAID ………………………………………………………………... 30
3.3 Expenditure by parastatals ……………………………………………………... 31
3.4 NGO expenditure ……………………………………………………………… 31
3.4.1 The role of NGOs ……………………………………………………. 31
3.4.2 Major players in the NGO sector …………………………………….. 33
3.4.2.1 Regional based NGOs ……………………………………………. 33
3.4.2.2 DKT ……………………………………………………………… 34
3.5 Private expenditure on drugs …………………………………………………... 34
3.5.1 Out-Of-Pocket expenditure on drugs by house holds …………………. 34
3.5.2 Expenditure by private enterprises ……………………………………. 35
3.5.2.1 Coverage by insurance companies ……………………………….. 35
3.5.2.2 Coverage by private employers ………………………………….. 36
4 Summary and conclusion ………………………………………………………… 38
4.1 Sources of drug finance ……………………………………………………….. 38
4.2 Per capita expenditure…………………………………………………………. 39
4.3 Conclusion…………………………………………………………………….. 40
4.4 Policy implications of the drug financing study ……………………………….. 42
4.4.1 Government expenditure on drugs ………………………………….. 42
4.4.2 The role of donors in drug financing ………………………………… 43
4.4.3 House hold expenditure on drugs …………………………………….. 43
4.4.4 Equity …………………………………………………………………. 43
4.4.5 The role of insurance intermediaries in managing drug financing ……. 43
4.4.6 Amount of finance ear marked for drugs ……………………………... 43
4.4.7 The role of social insurance …………………………………………... 44
4.5 Recommendations ……………………………………………………………... 44
Annexes
Annex I Drug supply and distribution in Ethiopia ……………………………... 45
Annex II List of donors to which queries were sent …………………………… 52
References …………………………………………………………………………… 53

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 ACKNOWLEDGEMENT

This study on drug financing was commissioned by the Pharmaceutical Supplies and
Logistics Department (PSLD) of the Federal Ministry of Health (FMOH) and conducted
by ABD Consult with the financial support of the World Health Organization and
European Community.
We would like to thank the different government organizations, NGOs, donors and the
private sector organizations that collaborated with consultancy firm in providing the
necessary information and data. Our special thanks go to MOFED, Regional Health
Bureaus and the staff of PSLD/FMOH for their effort and time in providing the necessary
data.
We also acknowledge with gratitude the contribution of all the people who participated in
the stakeholders’ workshop in different capacities and those who gave comment on the
draft report, particularly Mr Jeffery Sanderson (Lead technical advisor to PLMP/IST). Our
special thanks go to Mr Tesfaye Seifu form PSLD/FMOH and Mr Bruck Messele from the
School of Pharmacy, Addis Ababa University, for their participation as members of the
technical committee for overseeing the work of the consultancy firm as well as for their
invaluable assistance in the organization of the stake holders’ workshop.
We would like also to extend our sincere thanks to Mr Birhanu Feissa, who is the head of
PSLD/FMOH, for his committed support to the study as well as organization of the stake
holders’ workshop.

Lastly, we would like to acknowledge the contribution of Mr Bekele Tefera, who is the
NPO/EDM of the WHO country office, for his support to the data collection process, for
reviewing and editing this report and also for organizing the stake holders’ workshop
successfully.

The drug financing study was conducted and this document produced with the financial assistance of the European
Community. The views expressed herein are those of the authors and can therefore in no way be taken to reflect the
official opinion of the European Community.

iii
 ACRONYMS

APA Amhara Development Association

ARV Anti-Retroviral Drugs
BOFED Bureau of Finance and Economic Development
CCM Country Coordinating Mechanism (Office for Global Funds)
CIF Cost of Insurance and Freight
CMH Commission on Macro Economics and Health
CRDA Christian Relief and Development Association
CSA Central Statistics Authority
DACA Drug Administration and Control Authority
DH District Hospitals
DKT Dehandra K.T. Yaji
EC Ethiopian Calendar
EDL Essential Drug List
EDM Essential Drugs and Medicines
EPI Expanded Program of Immunization
ERCS Ethiopian Red Cross Society
ETB Ethiopian Birr
FMOH Federal Ministry of Health
GDP Gross Domestic Product
HC Health Center
HCF Health Care Financing
HIV Human Immuno-deficiency Virus
HP Health Post
HSDP Health Sector Development Plan
ICT Information, Communication and Technology
MDG Millennium Development Goals
MOE Ministry of Education
MOFED Ministry of Finance and Economic Development
NGO Non-Government Organization
NHA National Health Account
NPO National Professional Officer
ORDA Organization for Rehabilitation and Development of Amhara
PASDEP Plan for Accelerated and Sustained Development to End Poverty

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PHCU Primary Health Care Unit
PLMP Pharmaceuticals Logistics Master Plan
PLMP/IST Pharmaceuticals Logistics Master Plan Implementation Support Team
PSLD Pharmaceutical Supplies and Logistics Department
REST Relief Society of Tigray
RH Referral Hospitals
RHB Regional Health Bureau
SDPRP Sustained Development for Poverty Reduction Program
SNNPR Southern Nations, Nationalities and Peoples Region
TB Tuberculosis
TDA Tigray Development Association
UN United Nations
UNFPA United Nations Population Fund
UNICEF United Nations Children Fund
WHO World Health Organization
WoHO Woreda Health Office
ZH Zonal Hospitals
ZHD Zonal Health Desk

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 LIST OF FIGURES

Figure 1.1 Flow of procurement and distribution

Figure 1.2 Relationship in drug financing
Figure 3.1 Break down of drug budget expenditure at federal level, 2004/05.
Figure 3.2 Break down of drug budget expenditure at federal level, 2005/06
Figure 3.3 Regional drug budget allocation and expenditure, 2003/04 - 2005/06
Figure 3.4 Total regional drug budget allocation and expenditure, 2003/04 – 2005/06
Figure 3.5 Expenditure on drugs by sources, 2003/04 – 2005/06

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 LIST OF TABLES
Table 3.1 Drug budget allocation and expenditure at federal level, 2003/04 – 2005/06
Table 3.2 Break down of expenditure of federal Government drug budget
Table 3.3 Regional drug budget allocation and expenditure
Table 3.4 Regional drug budget expenditure by sources of finance (BOFED)
Table 3.5 Donors’ assistance to Regional Health Bureaus for drugs (All values in
Birr)
Table 3.6 Summary of drug financing at Regional level
Table 3.7 Drug budget expenditure by source in the Regions (Amount in Birr)
Table 3.8 Summary of drug budget expenditure by source (Federal and Regional
Governments)
Table 3.9 Import of drugs by UNIDEF for MOH (All values in Birr)
Table 3.10 Portfolio of grants to Ethiopia from Global Fund
Table 3.11 Contributions of fund for drugs from Global Fund
Table 3.12 Assistance of UNFPA on drugs
Table 3.13 Assistance of WHO on drugs
Table 3.14 Assistance of USAID on drugs (All values in Birr)
Table 3.15 Drug financing by parastatals
Table 3.16 Summary of financing of drugs by NGOs
Table 3.17 Financing of drugs by REST
Table 3.18 Value drugs covered by Out-Of-Pocket Payment
Table 3.19 Estimates for drugs made available by insurance companies
Table 3.20 Coverage of drug costs by private employers
Table A1.1 Total import of drugs (Birr)
Table A1.2 Import of drugs, medical supplies and equipment by PHARMID (Birr)
Table A1.3 Import of drugs, medical supplies and equipment by the private sector (Birr)
Table A1.4 Value of drugs received and distributed by PSLD/FMOH to the regions
Table A1.5 Distribution of drugs for HIV/AIDS and TB to the regions by PSLD/FMOH
Table A1.6 Distribution of drugs for malaria and emergency to the regions by
PSLD/FMOH
Table A1.7 Distribution of drugs for HIV/AIDS and TB to individual organizations by
PSLD/FMOH

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 EXECUTIVE SUMMARY
Access to health care, which includes access to essential drugs, is part of the fulfillment of
the fundamental human right to health. Essential medicines save lives and improve health
when they are available, affordable, of assured quality and properly used.
Providing access to affordable essential medicines is also one of the targets (Target 17) set
for achieving the health-related Millennium Development Goals (MDGs) to which the
international community is committed. Availability of adequate and sustainable drug
financing mechanisms is one of the ways of ensuring access to drugs.

In order to develop appropriate policy and sound drug financing mechanism, policy makers
and other stake holders need up-to-date and reliable information on the drug financing
situation of the country.

However, available data and information regarding the drug financing in Ethiopia are not
adequate. Although three previous National Health Accounts study have been undertaken,
their coverage of the pharmaceutical sector is only superficial. Hence, there is a need to
generate detailed information and establish data base for the drug financing situation in the
country.

The general objective of the study is to provide current information for policy makers,
planners, researchers and program managers on the different sources of drug finance and
the contribution of each source to the national drug fund pool as well as the trend in drug
fund allocation and expenditure in the country.

A countrywide survey was undertaken from beginning of June to end of August 2007 to
identify the major sources of drug finance and to assess budgetary allocation and
expenditure from these sources over a period of three years (2003/04 – 2005/06).
Appropriate data collection instruments were developed and sent to government, donors,
households, NGOs and the private sector respondents. Initial results of the study were
discussed at a workshop of stakeholders conducted in Adama city on September 17, 2007.
The major findings, policy implications and recommendations of the study are summarized
as follows.

Major Findings of the Study

Total Expenditure on Drugs: Ethiopia spent a total of Birr 2,439,186,538 on drugs in

2005/06 from all sources. The total drug expenditure grew over the three years covered by
the study from Birr 1,499,989,690 in 2003/04 to Birr 2,439,186,538 in 2005/06. This
growth on the average was about 28% annually. However, this level of drug expenditure is
very low compared to global and regional levels.

Per Capita Expenditure on Drugs: The amount of money expended on drugs on per capita
basis was only 32 Birr or 3.80 USD in 2006/06. This figure is only 45% of the average per

1
capita for low income countries. The situation would be worse if we consider only the
public drug budget. The per capita share of the government expenditure on drugs was Birr
2.94, Br 2.66 and Birr 3.80 in 2003/04, 2004/05 and 2005/06, respectively.

A study quoted in a WHO document published in 1997 suggested that USD10 to USD 50
should be enough to satisfy the entire need of the population in a country.

Sources of Drug Expenditure: The main sources of drug expenditure in Ethiopia in order
of importance are: households’ out-of-pocket account for 47% of the total drug
expenditures. Donor’s sources cover 27% and NGOs 16%. Federal and Regional
Government sources from taxes and revenue cover about 10% of total drug expenditures
and private employers only 0.2 %. The Government share in drug finance is small whereas
the share of donors and NGOs is high reflecting the recent increases in funding from global
sources.

Government Expenditure on Drugs: The Federal and Regional Government share in

expenditure on drugs has been falling from 2003/04 – 2005/06. In particular regional
governments have been allocating fewer funds for drugs. This is in spite of the fact that
during the period under consideration the costs of drugs have been increasing.

Donors Expenditure on Drugs: The contribution of donors on drug financing has been
increasing over the three years covered by the study. The increase in donor financing came
from major global initiatives instituted recently to support the health sector. This has been
very useful in making drugs available in the health facilities.

House Hold Expenditure on Drugs: The private out-of-pocket payment is the largest
single source of drug financing. The amount in absolute terms grew from Br 934.8 million
in 2003/04 to a level of Br 1.146 billion in 2005/06. Its relative share, however, continues
to decline from 62.3% in 2003/04 and 52.2% in 2004/05 to 47% in 2005/06.

NGO Expenditure on Drugs: NGOs are important providers of drugs and drug fund for
many programs in Ethiopia. Many NGOs are involved in development activities, but only a
few are in the health services and a limited number of them are helping communities to
have access to drugs. During epidemics and in connection with serious health threats like
HIV/AIDS, NGOs provide drugs through different programs in Ethiopia. In 2005/06, the
share of NGOs was 16.2%, which is a big jump from 4.4% in 2004/05.

Parastatals Expenditure on Drugs: These are state owned commercial organizations

managed differently from civil service organizations. They provide health services like free
medication based on specific collective agreements with their labor unions. They have very
little contribution to the national drug fund. It was only 0.4% in 2005/06.

Private Employers Expenditure on Drugs: Private employers arrange insurance schemes

for the health of their employees. Drug costs are covered by these schemes. The scheme is
at its rudimentary level and the contribution to the national drug fund is only about 0.2%.
Private employers sometimes cover medical expenses of their employees by providing the

2
services at their own health service providers or they refund expenses met by their
employees.

Policy Implications of the Findings

Overall Expenditure on Drugs: Both the overall level of expenditure and per capita
expenditures in Ethiopia are low when compared with global and regional standards. This
is because finance available for drugs from all sources is quite limited. This low level of
expenditure becomes even more glaring if further examined form the point of view of the
high disease burden in the country. Therefore, a review of budget allocation for drugs is
timely; seeking ways and means of increasing drug funds from sources that help ensure
equity and sustainable financing should be the prime issue in drug policy review.

Government Expenditure on Drugs: The decline in drug budget allocation and

expenditure by the government is worrying. It means that less and less drugs would be
available for the health facilities. This is not a healthy development. Particular attention
should be given to this fact and measures to correct the decline should be considered.

Donors Expenditure on Drugs: While it is necessary for scaling up health interventions

and improving health services delivery, NGO assistance or donation should be
complementary to government effort. Excessive dependence on aid should be avoided
since it not sustainable. It is very important to consider appropriate drug financing
mechanisms to ensure an uninterrupted supply of drugs in the event of suspension of drug
funding from donors. A policy has to be forged out to prepare the nation for such
eventuality.

House Hold Expenditure on Drugs: The share of out-of-pocket expenditure on drugs is

very high. This implies that a large segment of the population purchase their drugs from
private drug retail outlets where prices of drugs are quite high compared to their prices in
the public sector. This results in low economic access to drugs, particularly by the poor,
and creates equity problem.

It is believed that out-of-pocket spending is a result of failure by the government to

allocate sufficient resources and absence or inadequacy of other drug financing
mechanisms which ensure sustainable and equitable access to drugs (e.g. insurance). 47%
out-of-pocket spending in a country where nearly half of the population lies below poverty
line introduces a lot of inequalities in the system. Therefore, there is a need for diversifying
the health-financing portfolio in the country.

The new initiative to develop social insurance by the MOH is a good start but this scheme
needs to be further expanded and look for ways to capture the majority of the poor. It is
also necessary to expedite the implementation of the revised waiver and exemption system
by the MOH.

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The Role of Insurance Intermediaries in Managing Drug Financing: In developing
countries, insurance companies are useful in managing funds from policyholders. In
Ethiopia, the role of the insurance companies is very much underdeveloped. Policies may
have to be devised in order to help insurance companies play a more dominant role in
managing funds. Although parastatals and private employers have used these, the schemes
are at rudimentary level and the contribution to the national drug fund is small. This could
be a growing sector provided that there is a well thought-out and well planned policy
framework.

The Role of Social Insurance: Social insurance includes schemes like employers drug
insurance (along with health insurance), mutual fund for drugs, community drug schemes
and other policies, which ensure that premium payments are according to ability to pay and
drug provision is according to needs. This way, the burden is shared among a larger group
and drugs are made available for a wider portion of the public. Such schemes must be
considered as part of drug access policy framework. FMOH is currently developing such
schemes and this is a commendable beginning.

Policy Recommendations

It is recommended that sustainable and workable drug financing mechanisms should be

introduced in the country to ensure adequate and regular drug supply as well equitable
access to them by taking the following measures:

ƒ Increase government drug budget allocation to ensure sustainable and equitable access to
drugs, particularly by the poor.
ƒ Develop policy framework for the creation of diversified drug financing portfolio by
involving stake holders such as government, the private sector, multilateral and bilateral
donors, NGOs, health professionals’ and the public representatives
ƒ Expand comprehensive social insurance to address the issue of equity by risk –sharing
mechanism.
ƒ Expand further the new initiative of the Ministry of Health to develop social insurance
and look for ways to capture the majority of the poor.
ƒ Expedite implementation of the revised waiver or exemption system of the Ministry of
Health.
ƒ Give due attention to the establishment of data recording and reporting system at
different levels of the drug supply chain such as health facilities, regional health bureaus,
woreda health offices and other procurement and distribution organizations.
ƒ Undertake similar studies at appropriate time intervals to track trends in drug fund
allocation and expenditure as well as monitor progress towards establishment of
adequate and sustainable drug financing mechanism in the country.

4
1. INTRODUCTION

1.1 Geography, socio-demographic and economic data

Ethiopia has a total land surface area of about 1.1 million square kilometer and an
estimated population of 75 million in 2005/06 of which 84% live in rural areas. The
country is a Federal Democratic Republic divided in to 9 National Regional States,
namely, Tigray, Afar, Amhara, Oromiya, Somali, Benishangu-Gumuz, Southern Nations
and Nationalities and Peoples Region (SNNPR), Gambell, Harari and two Administrative
States (Addis Ababa City Administration and Dire Dawa City Council).

Enrollment at the primary level has increased substantially in the last decade. However, it
is still 64% (54% for females). Literacy rate is only 29%. Life expectancy at birth is 54.4
for females and 53.4 years for males (1).
The economy is mainly agrarian and agriculture accounts for 54% of the Gross Domestic
Product (GDP), employs 80% of the population and contributes to 90% of the export. The
annual per capita income in 2004 was US$ 110 and the GDP at current market price in
2005/06 was 112.6 Billion Birr. (2). About 47% of the populations live below poverty line
(3).
1.2 The health sector
1.2.1 Health status
Ethiopia has poor health status largely attributable to preventable infectious diseases,
nutritional deficiencies.
The major health indicators include: Infant mortality rate 77 per 1000 live births, maternal
mortality rate 673 per 100, 000 live births and Under 5 mortality rate 123 per 1000 live
births. Potential health service coverage and EPI coverage were 76.9% and 75.6%,
respectively. However, the health service utilization was 0.33. Adult prevalence of
HIV.AIDS is 3.6% (Urban 10.5%, Rural 1.9%) (1). Access to safe drinking water and
excreta disposal system were 37% and 29%, respectively (4).
1.2.2 The health delivery system
The health system is guided by the National Health Policy issued in 1993 (5) and the
Health Sector Development Program (HSDP), which is currently in its third phase of
implementation, provides a long term plan framework.
The health service delivery system has a three-tier pyramidal structure with Primary Health
Care Units (PHCUs) at the base followed by district hospitals, zonal hospitals and
specialized hospitals up the hierarchy in that order. A PHCU consists of a health Center
with 5 satellite health posts which serve as first contact points of the health service.
The Federal Ministry of Health (FMOH) and Regional Health Bureaus (RHBs) are
responsible for the issuance of policy and guidelines for implementation of health care
programs. These levels oversee the strategic direction of the health sector as policy makers,
manage overall resource allocation and monitor policy targets and outcomes. They ensure

5
that adequate and regular supply of effective, safe and good quality drugs, medical supplies
and equipment at affordable price to reach the regions.

Below each RHB, there are Zonal Health Departments (ZHDs) and Woreda (District)
Health Offices. A Zonal Health Desk currently functions as sort of a branch to a Regional
Health Bureau. Its major role is coordination and serving as a bridge between the regions
and Woreda Health Offices (WoHOs), which are structurally positioned below Zonal
Health Departments. The ZHD also provides technical support to woredas.

Woreda health Offices ensure that health facilities deliver required services, provide
funding and give guidance and support in planning and setting of appropriate targets. They
make sure that each facility gets appropriate resources to reach agreed upon targets. They
are responsible for coordinating and organizing supportive supervision, for timely supply
of sufficient drugs and medical supplies to each health facilities and for efficient utilization
of these resources. They are also responsible for ensuring the availability of staff for
delivery of health services in the Woredas. The Woredas manage the PHCUs.

1.3 The pharmaceutical sector

1.3.1 Policy and regulation

The pharmaceutical sector is guided by the National Drug Policy (6). The HSDPIII has
eight components one of which is “Pharmaceutical service”. Proclamation No. 176/99
provides the legal basis for the regulation of the sector and the Drug Administration and
Control Agency (DACA) was established by this proclamation. The Regional Health
Bureaus and Woreda Health Offices also participate in the regulation of the pharmaceutical
sector.

1.3.2 Procurement and distribution

The goal of the pharmaceutical sector is to ensure the regular and adequate availability of
safe, effective and of good quality drugs and medical supplies at affordable price and their
rational use.

The national demand for drugs and medical supplies is met through, import (purchase and
donation) and local production. Governmental organizations, private importers, NGOs and
International Agencies such as UNICEF, WHO, etc. participate in the import and
distribution task. The local production is done by governmental and private companies.
Currently, there are 8 private factories and one government owned factory engaged in the
local production of drugs and medical supplies.

Local and International procurement for the public health facilities is mainly done by two
governmental agencies called PHARMID and Pharmaceutical Supply and Logistics
Department (PSLD) of the FMOH. PHARMID distributes drugs and medical supplies to
all regions through its eight wholesale distribution branch offices located in different
regions. The RHBs and Woreda Health Offices also procure drugs from PHARMID,

6
PSLD, as well as private suppliers and distribute to health facilities. Currently, about 61
private importers and wholesalers (private suppliers) are involved in the procurement and
distribution task.

In 2005/06, there were 246 pharmacies, 475 drug shops and 1754 rural drug vendors which
dispense drugs directly to consumers (1). The overall procurement and distribution of
drugs and medical supplies from Federal level to public health facilities and users is shown
in the figure below.

Fig 1.1 Flow of procurement and distribution

Federal Level

Disease Control
& Prevention PSLD Private importers &
Dept PHARMID Wholesalers, NGOs
UNICEF
Family Health
Department

Private
Suppliers

Regional Health Zonal Health Woredas

Bureaus Departments

Regional Level PHC Facilities

Source: Adapted from HSDP II Evaluation Report

1.4 Definition of drug and drug financing

1.4.1 Definition of Drug
According to Proclamation No 176/19999 of FDRE, drugs are defined as follows:
"Drugs" are substances used in the diagnosis, treatment, mitigation or prevention of
diseases that include narcotic and psychotropic substances, pesticides, animal food
additives, poisons, blood and blood products, vaccine, sera, radio active
pharmaceuticals, cosmetics and sanitary items, medical instruments and medical
supplies.
“Medical Supplies" include articles for diagnosis or treatment of diseases such as
suturing materials, syringes and needles, bandages, gauze, cotton and other similar
articles, artificial teeth, chemicals and x-ray films;
“Medical equipments" include various diagnostic, laboratory, surgical and dental
medical instruments (7).

7
However, for the purpose of this study, the term “Drug” encompasses modern human
drugs, medical supplies and medical equipment. It does not include animal drugs,
traditional medicine, pesticides, poisons and raw materials for domestic
manufacturing.

1.4.2 What is drug financing study?

Drug financing study is part of National Health Accounts study and it describes the
flow of drug funds through the pharmaceutical system of a country. It shows where
drug funds come from, who spends them, for whom and how much. This information
helps policy makers and other stake holders to monitor trends of drug fund allocation
and expenditure over time and develop policy and appropriate drug financing
mechanism to ensure access to medicines.
Figure --- shows the triangular relationship between patients (consumers), providers
of drugs or pharmaceutical services and payers for drugs.

Figure 1.2 Relationships in drug financing.

Direct payment /
exemption
document
Patients Providers of drugs
(Consumers)
Drugs

Request, Budget /
Taxes or Claims, Bills Payment
premiums Insurance
Coverage

Allocators / Payers
(Government, Insurers)

Source: Adapted partly from (8).

In the Ethiopian case, the principal sources of drug funds include government
(MoFED), private sector (households and employers), and external sources (donors
and NGOs). Drug providers (health facilities, drug dispensing outlets) receive funds
from the payers/intermediaries (MOH, MOE, insurance companies, etc) and use

8
them to pay for drugs. Patients (Consumers) receive drugs from the providers upon
direct payment (out-of-pocket) or through insurance coverage or free of charge
depending on the predetermined modalities of payment.

1.5 Rationale for the Study

Health is a fundamental human right. Access to health care, which includes access to
essential drugs, is a prerequisite for realizing that right. Essential medicines save lives
and improve health when they are available, affordable, of assured quality and
properly used (9).
Providing access to affordable essential medicines is also one of the targets (Target
17) set for achieving the health-related Millennium Development Goals (MDGs) to
which the international community is committed. Availability of adequate and
sustainable drug financing mechanisms is one of the ways of ensuring access to drugs.
In order to develop appropriate policy and sound drug financing mechanism, policy
makers and other stake holders need up-to-date and reliable information on the drug
financing situation of the country.

However, available data and information regarding the drug financing in Ethiopia are
not adequate. Although three previous National Health Accounts study have been
undertaken, their coverage of the pharmaceutical sector is only superficial. Hence,
there is a need to generate detailed information and establish data base for the drug
financing situation in the country.

1.6 Objective of the study

The general objective of the study is to provide current information for policy makers,
planners, researchers and program managers on the different sources of drug finance
and the contribution of each source to the national drug fund pool as well as the trend
in drug fund allocation and expenditure in the country.

1.7 Organization of the report

The report is organized in four sections. Section 1 has already given us an

introduction. Section 2 discusses the methodology including the data sources, data
collection and its challenges, as well as limitations of the study. Section 3 presents the
findings of the study in detail. Section 4 summarizes the salient points of the findings
and their policy implications; draws conclusion and forwards recommendations for
improvement. Annex I shows overview of the drug supply and distribution situation
in the country only as supplementary information about the supply side.

9
 2. METHODOLOGY

This drug financing study was commissioned by the Federal Ministry of Health and
conducted by ABD Consult with the financial assistance of the World Health
Organization obtained from European Commission.

The study was carried out from beginning of June to end of August 2007.A stake
holders workshop was then conducted on 17 September 2007 to discuss on the
results of the study. This report was prepared by incorporating the comments given
during the workshop in to the first draft report and after it is extensively reviewed
and edited by the Essential Drugs and Medicines (EDM) program of the WHO
country office in Ethiopia.
The methodology was developed, in line with the objective of the study to capture
drug budget allocation and expenditure data from all the major financing sources.
Accordingly, the drug expenditure from these sources, namely the government,
donors, households, NGOs and the private sector has been captured. In addition, to
assess the role played by the insurance sector in managing funds, all insurance
companies have been surveyed as part of this study. Following are the methods and
formats applied for collecting data from the various sources.
2.1 Data sources and data collection instruments
2.1.1 Government sources
The Government is one of the major sources of drug finance. Thus
data for the three years 2003/04, 2004/05 and 2005/06 were
collected from various federal and regional government sources
using questionnaires. (Data on the 2006/07 budget allocation was
also requested and collected where available)
At the Federal level, the main source of data for drug budget is the
Ministry of Finance and Economic Development (MOFED). The
budget allocations and actual expenditures for drugs, medical
supplies and equipments are recorded by MOFED under two budget
heads, namely, recurrent and capital budget with account codes 6214
and 6313, respectively. These data were collected using Form F.
The data include the government own funds from its own sources
and the direct budget support it receives from donors- otherwise
known as Channel One. The allocations are transferred to regions in
block grants as subsidy.
The data is adjusted for cost recovery from drugs. The cost recovery
amount reported under a separate Account Code No. 1512 from the
budget together with the estimate for cost recovery by the National
Health Account study have been used to make the adjustments. This
has been applied for all the three years (2003/04 to 2005/06) for
which the national drug financing study was conducted.

10
At the Regional level, the drug budget is augmented by donations
from different donor sources including bilateral and multilateral
sources, which make funding available directly to the FMOH and
the Regional Health Bureaus. The FMOH allocates funds it receives
in this way to the regions. Such sources (the transfers through the
FMOH and those donated directly to the RHBs) are referred to as
Channel Two and are very crucial in financing drugs. The regions
thus finance their drug budget from the funds they receive from
MOFED (the subsidy) and donor funds transferred through FMOH
and directly by the donors themselves. These have been collected on
the basis of Form A which is used for registering data from Regional
Bureaus. In addition to allocations under budget account codes 6214
and 6313 under the recurrent and capital budget heads, the
questionnaire specifically requests data on the amount of fund
allocated for drugs, supplies and medical equipment from channel
two sources. (Questionnaires can be made available on request).
2.1.2 Public enterprises
Expenditure of public enterprises (Parastatals) is another financing
source. To estimate the expenditure from this source, two main
methods have been applied. On the one hand an attempt has been
made to estimate its contribution using the data acquired from
questionnaire returns from insurance companies. And on the other
hand the NHA III study findings have been referred to for more
comprehensive information.
Form C was used for collecting data from insurance companies. The
insurance companies in many cases provide life insurance as well as
other forms of health related coverage. From this information was
sought on the amount of fund expended on drugs in the past years.
All insurance companies have been approached and data from most
of them have been obtained.
2.1.3 Donor sources
Donors are a major source of finance for drug acquisition. They also
make drugs available in kind. The donor drug funds are directed to
Ethiopia through three major channels.
Channel One is direct budget support and it flows through the general
budget of the Ministry of Finance and Economic Development
(MOFED). This data is obtained from the Ministry and data for
three years has been collected.
Channel Two flows through the Federal Ministry of Health (FMOH)
and /or the Regional Health Bureaus (RHBs) of the relevant regions.
This has been obtained from the regions and the FMOH. Clearly the
data may not be fully available and be consistent with the
expenditure data obtained from MOFED.

11
 Channel Three - is direct support to projects where the donor
administers the funds. This fund may not be traced accurately by
RHBs or FMOH, unless the donors or the implementing NGOs
dutifully report regularly. This regular reporting is not practiced. So
it was necessary for this study to identify the fund through direct
questionnaire filled by the donors.
Data were collected from identified donor sources using Form E. The
questionnaire was distributed to a list of 16 donors most of them members of
the HPN donor group supporting the health sector. Among them are to be
found UNICEF, Global Fund, Italian Cooperation, World Bank, USAID,
etc. Some of these donors that are active in drug finance responded to the
questionnaire (for the complete list see Annex II).
On the basis of Form E data were collected on resources, which are
earmarked for drug, medical supplies and medical equipment. Also data on
drug supply in kind were collected. The data from all the channels have
been collected and tabulated in the report.
2.1.4 NGO sources
NGOs are important sources of drug financing. NGOs support drug supply
to the country in many ways. Some run their own programs and import
drugs, supplies and medical equipment. Many others import and distribute
them to various health institutions in the country.
Some 29 NGOs presumed to be involved in participating in the health
sector were identified and data collection Form D was distributed for each
of them. Out of these, only about 12 were found to be involved in health
and 8 responded to the specific formats as active in drugs finance.
Form D used to obtain data from NGOs was also used to obtain from region-
based Development Associations. The data from Form D were used to
identify drug expenditure from Channels Two and Three. These also
indicated the extent of cost recovery.
Another source of data on NGOs involvement in the financing of drugs for
the country is DACA. Import figures from DACA have been extensively
used to supplement data from the questionnaires.
2.1.5 Private sources
The out-of-pocket payment of households is another major source of drug
financing. Drug related expenditure of private enterprises for their
employees also falls under the private financing category.
The household out of pocket expenditure level has been obtained from the
Third National Health Account Study (NHA III). This has been projected to
reflect the situation in the current study period. Two important methods are
used for the projection.
ƒ Projecting the population from the survey period to the study period

12
ƒ Applying the GDP growth over the years to reflect over the level of
expenditure for drugs and medical supplies.
Regarding the amount of expenditure by private enterprises, two main
sources have been used similar to Parastatals. Firstly an attempt has been
made to estimate their contribution using the data acquired from insurance
companies. And secondly, the NHA III finding has been used.
Form C has been used for collecting information on private employers’
expenditure on drugs.
2.1.6 Drug supply and import
To supplement data from the above sources and to highlight the drug supply
and import situation, data and information have been collected from:
♦ The Ethiopian Customs Authority
♦ The Ethiopia Drug Administration and Control Authority.
The data from the Customs office is comprehensive and provided CIF value
of the imports. Drugs and supplies as well as medical equipment are
categorized under different Codes. These have been carefully segregated
and summed for each year. A portion of the imports is used as input to the
drug and supplies manufacturing sector.
The DACA source identifies imports by origin also. It provides information
on the amount of drugs and medical supplies imported by:
ƒ Ministry of Health
ƒ Government Organizations
ƒ NGOs
ƒ The private sector
This has been used to identify the sources of the drug and the
amount of money involved in the supply. This is a very useful data
and the calculation is based on actual imports.
The results of the analysis on Drug Supply and Distribution have been
attached as Annex I.
2.2 Data collection process
Data collection was undertaken over a period of four weeks with three to
four days in each region. The data collection was administered through the
forms developed by the consultant and described above. Before application
these were tested in Addis Ababa and Oromia regions and outlying
Woredas.

13
 The data collection was conducted by the consultant’s experts and three
other health officers with experiences in health data collection. The data
collectors were briefed on the data collection forms. The consultant
dispatched the experts to discuss issues and collect the information required
for the study. Each region has been visited and data from Health Bureaus
and the Bureaus of Finance and Economic Development have been
collected***.
The data from the regions was collected both from the RHBs and BoFEDs.
Whenever differences of records between the two bureaus were detected,
further follow-up took place to firmly establish the volume of direct
assistance to the RHBs through Channel Two.
Medical equipment categorized under 6313 was unfortunately found to
include large amounts of construction equipment, generators, office
equipment and furniture together with medical equipment. In fact the
medical equipment component was usually small. To circumvent this
problem, Form A requested the Bureau officials to specifically identify
expenditure on listed equipment from Budget Account Code No. 6313 from
which the proportion on medical equipment could be worked out.
The consultant also approached two to three Woredas (depending on
accessibility) in all visited Regions to appreciate the situation with respect
to drug supply and funding. The finance and health offices of these
Woredas have been requested to furnish relevant data on the basis of Form
B, which seeks to identify the sources of drug and drug fund and how the
Health Centers and Health Posts obtain their supply of drugs.
The data from the insurance companies, the various ministries, the different
offices of the government, the private sector, the NGOs and the donors were
collected by the experts themselves.
2.3 Challenges in data collection
There is considerable difference in the keeping of accounts at regions. Some
regions could produce the required accounts within short periods. Detailed
figures are kept by the Bureaus of Finance and Economic Development of
Amhara, Tigray, and SNNPR. The figures appear to be reliable. The
Oromia Bureau of Finance could provide the pertinent figures for the
required three years but details are lacking. Accounts are provided from the
other regions as well. However, the system of accounts processing at these
regions will need sometime to bring it to the level of the three larger states.

***
The data from Beni Shangul Region was collected from other sources and confirmed with close contacts with the relevant
authorities

14
 All regions have reported their expenses on drugs for the year 2003/04 to
the Central Accounts of the MoFED. The consultant has used the figures
from the two sources to counter check the accuracies. If there are
differences, then explanations are sought. In the cases of the Regions of
SNNPR, Amhara, Tigray and Oromia, the figures match. In other regions
the figures have called for counter checking and adjustments are made
through discussions with relevant regional offices.
Accounts at Woreda level are also available at the MoFED for 2003/04 and
2004/05. These are also used to check the figures at the regional level.
Moreover, the figures obtained from sample Woredas in various parts of the
country are checked with the MoFED figures and these were found to be
well in agreement.
2.4 Limitations of the study
The study bases its analysis and reporting on various data from different
organizations. Inaccuracies from these sources directly reflect on the
conclusions of the study. The recording systems of the regions, which are
the main sources of the data, differ from region to region. Some regions
make use of modern office automation system to an appreciable degree.
Other still use manual recording. Some are quite detailed while others are
not. All these defects and omissions may be reflected on the report.
Some Donors and NGOs have recording systems, which could not directly
avail data for this study using the records of Ethiopia Customs Authority.
Many NGOs may be working on health supporting projects and the data on
expenses includes training, constructions, studies, transport, travel, and
maintenance as well as drug purchases. Separating the drug expenses could
be difficult and there may be a degree of error in their reporting. Some
NGOs have found it too difficult to segregate costs for drugs and they may
have responded by saying that they have no involvement in drug financing.
In addition, the low level of response from these organizations would
underestimate the amount of expenditure from the sectors. Especially the
low level of response from donors and NGOs is a major challenge.
Major suppliers of fund for drugs, like Global Fund, do not work and avail
reports on financial years used in Ethiopia. They actually operate in
tranches and the periods do not coincide with the reporting periods of this
study. So the accuracy of the period is compromised to that extent.

15
 3. FINDINGS OF THE STUDY

3.1. Government budget and expenditure on drugs

Government budget appropriations and expenditure on drugs, medical
supplies and equipment are made at three levels:
♦ The federal government,
♦ The regional governments, and
♦ Parastatals.
At both the federal and regional government levels, budgets for drugs are
kept under two headings, namely: recurrent budgets and capital budgets.
The sources of Federal government expenditure on drugs and medical
supplies are the treasury and direct budgetary support from donors. The
Federal government makes allocations to the regions as well as to various
organizations from its own sources i.e. treasury and from donor support,
which for the regions is in the form of subsidy.
The regions use this together with their own sources and other direct donor
support they get to purchase the drugs and supplies. There are thus at least
three sources for the regional budgets for drugs. These are:
♦ The Federal subsidy,
♦ Own sources, (taxes and retained revenue)
♦ Donor support (Special Assistance and Loan).
****

The above funds are, in general, made available through the Regional
Bureaus of Finance and Economic Development (BOFED). However,
additional funds and drugs are also made available through the Regional
Health Bureaus, (RHBs). The Regional Health Bureaus obtain these funds
and drugs directly from donors and NGOs and from the Federal Ministry of
Health, which receives the funds and drugs from donors and sends the same
to the regions. Such assistances, categorized as Channel Two, mainly come
from donors such as UNICEF, WHO, Global Fund, etc.

****
For the purpose of following already accepted government budget source classification, donor financed assistance
(channel one) is treated under government financing section. However, when one strictly tracks source of finance, this
component will be summed up with donor financing. Hence, when share of each financing source is summed up in the last
section of this chapter, assistance component will be deducted from government and added to donors.

16
 3.1.1 Budget allocation and expenditure by Federal Government
Organizations
Some Government organizations operating at the Federal level receive their
drug budget directly from MOFED. The Federal Government Departments
and Organizations with relatively high budget for drugs include:
ƒ The Federal Ministry of Health
ƒ The Ministry of Defense
ƒ The Federal Police
ƒ The Prison Commission
ƒ Ministry of Agriculture and Rural Development
ƒ Ministry of Education (the Universities of Addis Ababa, Jimma,
Hawasa, Mekele and Gondar).
ƒ Ethiopian Health and Nutrition Research Institute.
The Federal Ministry of Health and the Regional Health Bureaus are the
most important government institutions in terms of channeling drug funds.
This is so because these are the institutions that are mandated with availing
drugs for the wider public while the other government institutions
mentioned above focus on specific sections of the society. The budget
allocations and the actual expenditures for the above organizations in the
past three years are as indicated on Table 3.1 below. (Note: All funds are in
Birr unless specified otherwise.)

Table 3.1 Drug budget allocation and expenditure at federal level,

(2003/04 to 2005/06)

Year Budget Expenditure % of Expenditure Expenditure after

over Budget Cost Recovery
2003/04 93,050,648 84,967,141 91% 79,084,424
2004/05 505,371,493 497,030,816 98.3% 489,788,237
2005/06 358,271,196 352,984,153 98.5% 343,186,719
Source: MOFED, Relevant Years Reports.
The above figures are adjusted for cost recovery on the basis of information
obtained on drug financing during regional data collection for this survey.
The regional reports that have been received show cost recovery on drugs
whose amounts varied from region to region but approximately worked out
to be 7% of the total budget on drugs. One important source of finance for
the cost recovery component of government revenue is household sources.
Hence, this 7% cost recovery amount was deducted from total government
expenditure (excluding the budget from assistance) on drugs to avoid

17
 double counting. The total expenditure shown on the table is, therefore,
modified by the 7% cost recovery and shown in the last column.
It can be observed from the table that the budget/expenditure levels in the
last two years have risen much higher than the much smaller levels for
2003/04. The rapid rise in the subsequent years can be explained more
clearly by looking at the breakdown of the annual budgetary expenditures
by sources.
The Federal Government expenditure by sources of finance is shown in the
following table and indicates the percentage shares of the various sources1.
Obviously, the assistance during the year 2003/04 was quite low and the
portion from the treasury is the most important source of drug finance.
(Note that the figures given in the subsequent tables are all after cost
recovery of 7% on the budget.)

Table 3.2 Breakdown of expenditure of Federal Government drug budget

Source 2003/2004 2004/2005 2005/2006

Birr % Birr % Birr %
78,156,096 99 96,222,823 19.6 130,165,916 38
Treasury
44,222 0.1 393,550,430 80.4 200,093,088 58
Assistance
884,106 1.1 14,984 12,927,715 4
Loan
79,084,424 100 489,788,237 100 343,186,719 100
Total
Source: MOFED
The situation for 2004/05 is quite different from 2003/04. This is because
the support from donors significantly increased in the year. The assistance
escalated sharply from 44,222 Br to 393,550,430 Br. This can be read
starkly from Fig 3.1.below.

1
Treasury refers to the budget allocated by the federal government for drugs for which tax and revenue
collections made from services are the main sources. Assistance refers to donations through Channel One in
the Federal case. Loan is fund provided by financiers and is eventually repayable.

18
Figure 3.1: Breakdown of drug budget expenditure at the federal level, 2004/05

Treasury Assistance Loan

Loan
Treasury
0%
19.6%

Assistance
80.4

It could be noted that the 2005/06 budget shows very different percentages of
sources. The assistance gets almost halved, compared to 2004/05. Note that also
the loan increased quite significantly. The contribution of the treasury is
consistently growing in the three years under consideration. The assistance in
2005/06 decreases percentage wise, and the amount is lowered.
Donors play key roles in the financing of drugs. As can be seen from the above,
the Federal budget support is an important source of drug acquisition and finance.
In 2004/05 for example, 80.4% (Table 4.2 and Fig 4.1) of the drug budget by the
Federal Ministry of Finance came from donors in the form of direct budgetary
support. The amount obtained from donors in 2005/06 was 58% of the budget for
drugs.
Figure 3.2: Breakdown of drug budget expenditure at the federal level, 2005/06

Treasury Assistance Loan

Loan
4%
Treasury
38%

Assistance
58%

19
 3.1.2 Drug budget allocation and expenditure at the Regional level
The drug budget of Regions is financed by the subsidy from the Federal
Government, Regions’ own sources and assistance. Assistance to finance drugs can
be made to BOFEDs and directly through the BOHs. The information obtained
from the BOFEDs does not include the amounts received by the BOHs which have
been collected separately and treated in section 4.1.3 below. Some loan is indicated
in the case of Addis Ababa, but this is not seen in other regions*.
The regional health budget and expenditure from BOFEDs is as indicated on
Table 3.3.below. These figures are collected by the consultant’s staff that traveled
to the regions.
Table 3.3 Regional drug Budget allocation and expenditure (BOFED)
% of
Year Budget Expenditure
Expenditure/budget
2003/04 155,482,687 136,395,003 88%
2004/05 137,750,017 109,168,519 79%
2005/06 172,413,134 128,408,637 74%
Source: Regional Bureaus of Finance and Economic Development
The graphical expression of the regional expenditure on drugs is depicted on Fig
3.3 below. The budget and expenditure difference continue to increase over the
years.
Figure 3.3: Regional drug budget allocation and expenditure, 2003/04-2005/06

200,000,000
Budget
180,000,000 Expenditure

160,000,000

140,000,000
Value of Drugs

120,000,000

100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

0
2003/04 2004/05 2005/06
Years

The breakdown of the regional drug expenditure by the sources of finance is as indicated
on the Table 3.4 below.

20
 Table 3.4 Regional drug budget expenditure by Sources of finance (BOFED)

Year Subsidy Own Source Assistance Loan Total

2003/04 64,661,955 66,207,904 5,525,144 136,395,003

2004/05 50,655,707 47,470,777 10,121,038 920,997 109,168,519

2005/06 54,739,763 47,713,414 25,955,460 128,408,637

Sources: Regional BOFED

The regional budget for drugs summarized above includes subsidy from the Federal
Government, own sources (tax and retained revenue) and donor assistance through
BoFED.
3.1.3 Donors expenditure on drugs at Regional level (BOH)
In addition to the direct budgetary support they provide, donors are one of the most
important sources of drug financing through the FMOH and RHBs. The total amount of
such finance by donors in the last 3 years, as reported by the regions and as provided by
FMOH, is shown in the following table 3.5. Data from DACA, on amounts directly
imported by donors under their specific names (e.g. UNICEF, WHO, Italian Cooperation,
etc) and data from PSLD, showing the amount of drug received and distributed by
FMOH, have also been examined. The data from DACA and FMOH are annexed. Note
that the drugs imported by donors are assumed to have been used up the same year.

_______
*The Addis Ababa City Administration expenditure report has the entry under “loan.” No clear and credible explanation is given as
from where and how this loan came about. Some employees have even suggested that the line may be an error. But this study reports
it because of the records.

21
 Table 3.5 Donors’ assistance to Regional Health Bureaus for drugs
(All values in Birr)

Region 2003/04 2004/05 2005/06

Addis Ababa 10,743,986 14,781,912 30,005,698.80
Afar 533,813 2,694,978 6,021,609

Amhara 22,527,393 38,578,041 55,069,036

Benshangul 4,048,223 3,366,613 8,819,553
Dire Dawa 1,426,931 6,370,928 9,982,127.12
Gambella 576,440 4,218,962 4,629,834
Harari 1,190,375 4,378,801 3,447,277

Oromia 68,765,782 103,671,092 147,166,243

SNNPR 66,589,089 30,108,593 60,018,122

Somali 3,199,641 3,103,050 25,613,567

Tigray 12,758,457 47,481,460 62,441,767
Total 192,360,130 258,754,430 413,214,833
Source: Regional Health Bureaus
It can be seen from Table 3.5 that the assistance to regions is quite significant and
is growing. The Table shows the total amount received by the regions from
various donors including donations through FMOH. In limited number of cases, it
also includes Channel Three provided to the regions.
The figures in Table 3.5 are obtained directly from the regions as well as from
donors, which reported to have been working directly with programs involving
clinics and health centers in various parts of the regions.
3.1.4 Summary of drug financing at the Regional Level
Total drug financing at the regional level comprising subsidy from the Federal
Government, own sources, (taxes and service retentions), and assistance, both
through BOFEDs and the RHBs is shown in Table 3.6 below.

22
 Table 3.6 Summary of drug financing at Regional level

Year Subsidy Own Source Assistance Loan Total

2003/04 64,661,955 66,207,904 197,885,274 328,755,133

2004/05 50,655,707 47,470,777 268,875,468 920,997 367,922,949

2005/06 54,739,763 47,713,414 439,170,294 541,623,471

It is to be noted that the level of subsidy and own source financing are lower in
the latter years than the earlier years. This shows that the regional allocation for
drugs from own sources is declining. On the other hand the share of assistance in
drug financing grows nearly 3 times in the three years. It looks that the regions
rely more on assistance than from own resources for drug funding♣. This is
further illustrated by the fact that assistance to regional health bureaus increases
significantly in the years 2003/04 to 2005/06. (Refer to Table 3.5)
The trend in drug financing of the regions over the period of the study is as
illustrated in Fig 3.4 below:
Figure 3.4: Total Regional drug budget allocation and expenditure, 2003/04-2005/06 (BOFED)

Subsidy Own Source Assistance Total

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0
2003/04 2004/05 2005/06

The graph illustrates clearly the decline in the budget from subsidy and from own
sources. At the same time assistance continues to rise over the years. Given the rising

♣
The reasons for the decline are varied. From the discussions with officials, it was possible to see that in some cases the reasons are :
issues of priority, trying to fill the gap from assistance, limitations of revenue, etc.

23
 cost of drugs, one would expect the budget to rise and not to decline. The availability of
drugs should be a key factor in health and in the welfare of the public. It is also a major
prerequisite for economic development.
Table 3.7 below provides a more detailed regional breakdown of drug budgets. It shows
the distribution of drug expenditure between the regions by source. It can be seen that the
figures do not show a persistent growth trend.
It may be noted that whereas the subsidy contribution shows some growth in some cases
(Harari, Tigray, Somali and SNNPR) it shows declines in many of the remaining regions.
The fact that the Own Source in Table 3.7 decreases in many cases indicates that the
regions allocation of fund for drugs is declining. This is a significant development and
reflects the reliance on the assistance obtained through Channels One and Two.
It should be noted that the per capita expenditure on drugs, based on Table 3.7 include
drug expenditure from regional and government subsidy sources and assistance. It does
not show federal financed organizations. Further, drug financing by regionally based
NGOs and other Channel Three sources are not included.

Table 3.7 Drug budget expenditure by Source in the Regions (Amount in Birr)
Per Capita
Federal Own Drug
Region/Year Subsidy Source Assistance Total Population Expenditure
AA
2003/04 7923892 33016980 10829835 51770707 2805000 18
2004/05 7242472 19516667 15,856,817 42,615,955 2887615 15
2005/06 7264925 19255084 30005699 56525708 2973000 19
Oromia
2003/04 16764865 15911420 72958165 105634450 25098000 4
2004/05 16154319 15331955 107710796 139197070 25817132 5
2005/06 14113817 13395328 150695680 178204825 26553000 7
Tigray
2003/04 5399971 2000039 12929457 20329467 4113000 5
2004/05 5006209 1851611 47481460 54339280 4223014 13
2005/06 7409515 2740505 65201767 75351787 4335000 17

24
 Federal Own Per Capita Drug
Region/Year Subsidy Source Assistance Total Population Expenditure
Gambella
2003/04 773252 733888 769807 2276947 234000 10
2004/05 381909 362467 4314466 5058842 240394 21
2005/06 445688 422999 4741287 5609974 247000 23
Amhara
2003/04 20989537 7763253 22527393 51280184 18143000 3
2004/05 11428732 4227065 38583840 54239637 18626047 3
2005/06 10991901 4065497 55069036 70126434 19120000 4
SNNPR
2003/04 9281242 3432788 66589089 79303119 14085000 6
2004/05 6438688 2381432 34933593 43753713 14489705 3
2005/06 10256821 3793619 78508122 92558562 14902000 6
Afar
2003/04 1169703 1110157 826320 3106180 1330000 2
2004/05 1404592 1333088 3046224 5783904 1358718 4
2005/06 417313 396068 6125966 6939347 1389000 5
Harari
2003/04 586222 556379 1336971 2479573 185000 13
2004/05 886921 841771 4600593 6329284 189550 33
2005/06 901713 855810 3672768 5430290 196000 28
Dire Dawa
2003/04 672045 637834 1594989 2904868 370000 8
2004/05 771206 731946 6563783 8066935 383529 21
2005/06 379394 360080 10077002 10816476 398000 27
Somali
2003/04 298397 283207 3274261 3855864 4109000 0.94
2004/05 298397 283207 3177670 3759273 4218000 0.89
2005/06 1809157 1717058 26065982 29592197 4329000 7
Benishangul
2003/04 802828 761959 4248986 5813773 594000 10
2004/05 642263 609567 3527223 4779053 609509 8
2005/06 749520 711365 9006985 10467870 625000 17
Source: BOFED, BOHs and FMOH
*With Addis Ababa, there is a loan of 920,997 Br. This looks anomalous and this is added to the
total summation.

25
 The table shows considerable variations between the regions. Most regions (Addis
Ababa, Oromia, Gambella, Amhara, Afar, Harari, and Beni Shangul) show
declines in expenditure on drugs from subsidy and own sources during the report
periods. For the other regions, expenditure on drugs has shown modest increases
mainly because of increase in external assistance.
3.1.5 Summary of drug budget expenditure at Federal and Regional
Government Levels
A summary of total drug expenditure by sources for the Federal and Regional Governments
is given on Table 3.8 below.
Table 3.8 Summary of drug budget expenditure by source (Federal and Regional
Governments)
Year Federal Regional Assistance Total
Government Governments and Loan
2003/04 78,156,096 130,869,858 198,813,602 407,839,556
2004/05 96,222,824 98,126,483 663,361,880 857,711,187
2005/06 130,165,916 102,453,178 652,191,097 884,810,191
Source: Summary of relevant years reports from the Regions
The total expenditure on drugs may be described as increasing. But this increase
is mainly a result of growing fund injection from donors. Such infusion of drug
fund, while welcome, should be complementary and be based on long term
sustainability considerations. The nation is indeed exposed to drug supply
situations, which are far outside of its control, and a crisis could precipitate in the
event of this source drying up any time. It should be noted that in 2004/05, nearly
two-thirds of the drug expenditure was from assistance. The expenditure from
2003/04 to 2004/05 has more than doubled.
Fig 3.5 below shows the relative sizes of the different budget sources for drugs
over the study period.

26
 Figure 3.5: Expenditure on drugs by Sources, 2003/04-2005/06

Federal Government Regional (Subsidy and Own) Assistance Total

Birr 1,000,000,000
900,000,000
800,000,000
700,000,000
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
0
2003/04 2004/05 2005/06
Years

It can be noted from the graph that.

♦ The overall total expenditure over the three years has increased,
♦ Assistance has been growing consistently,
♦ Regional expenditure has been declining
♦ Federal expenditure has been growing at a slow pace
This outcome is in the face of the general rise in the costs of drugs. This calls for
review by the concerned authorities and the public.
The observed decline in domestic sources and growing dependence on external
resources calls for a revised approach to drug financing and critical review of
policies related to sustained drug supply. Increased financing of drugs expenditure
from domestic sources with the ultimate objective of self-sufficiency but with the
immediate aim of raising domestic and additional external resources on a
sustainable basis to meet planned targets should be the main considerations.

27
3.2 Major donors
Some donor organizations play important roles in the supply of drugs and
equipment to Ethiopia. The information is not additional to the values already
provided. They are treated here separately from the rest because of their
importance in the funding of drugs in Ethiopia. The donations for drugs for each
year have been shown. It is important to note that the information, which is
provided by the donors themselves, may not tally with those reported by the
disbursing authorities. This is because the donors report what they have approved
in the year as donation while this may not be received for disbursement in the
same year by the recipients. The drugs may have been available in the subsequent
budget years. The actual expenditures for the years are those indicated as
expenditure by the federal and regional governments. This section then shows the
importance of a few major donors in the financing of drugs and medical
equipment.
3.2.1 UNICEF
In the list of donors for drugs, one of the most important ones is UNICEF.
UNICEF supplies a significant quantity of vaccines and related drugs and
supplies. It also provides procurement services to FMoH using UNICEF office at
Copenhagen, Denmark. So, in some cases, the name UNICEF may appear on the
import list and that may not mean that the fund comes directly from the UNICEF
itself. The total value of drugs, supplies and medical equipment imported by
UNICEF for the indicated years are given below.
Table 3.9 Import of drugs by UNICEF for MOH (All in Birr)

Year Donors Share

2003/04 70,173,579
2004/05 172,613,519
2005/06 203,266,337
2006/07 154,479,123
SOURCE: PSLD/ MOH
3.2.2. Global Fund
The Global Fund is a special grouping of international donors operating worldwide.
The Global Fund in Ethiopia focuses on three major health problems. These are:
HIV/AIDS, Tuberculosis and Malaria.
The total contribution of Global Fund for drug is very high. The information
obtained from the CCM Secretariat in Addis Ababa is indicated below.
A government office known as HIV/AIDS Prevention and Control Office (HPCO)
administers the funds. Global Fund provides its support in phases and rounds.
There have been two rounds in Phase I and four rounds in Phase II. The total
request approval in disbursement is given below:

28
 Table 3.10 Portfolio of grants to Ethiopia from Global Fund
(All Currencies are in USD)
No. Component Round Grant Total Fund Approved Total Fund
Start Requested Funding Disbursed
Date (May 2007)
1 HIV/AIDS 02 & 04 01/01/04 541,290,971 181,280,972 179,416,557
(34%) (99%)
2 Tuberculosis 01 & 06 01/08/03 71,414,782 26,980,649 15,327,331
(37.8%) (56.8%)
3 Malaria 02 & 05 01/10/03 214,562,624 132,989,040 107,989,811
(62%) (81.2% )
Source: CCM, reply to queries for this study
The amount of fund available for the fight against HIV/AIDS, Tuberculosis and
Malaria is not entirely for drugs. A significant portion also goes into the
procurement of medial equipment and other supplies. The specific fund that goes
into the purchase of drugs is mainly channeled to the MOH. The following table
indicates the amount of fund expended on drugs.
Table 3.11 Contributions of fund for drugs from the Global Fund
No. Year Medicines, medical supplies and Medical Total yearly fund
Equipment for released to MOH for
TB Malaria HIV/AIDS purchase of drugs

1 2004/05 35,556,504.00 225,105,897.00 104,414,546.00 365,076,947.00

2 2005/06 36,823,195.00 25,560,455.00 122,349,060.00 184,732,710.00

3 2006/07 43,204,377.08 301,371,884.88 99,278,064.15 443,854,326.11

Source: CCM, HAPCO and FMOH, reply to queries for this study
Note that the table above shows the amount passed to FMOH for drug purchase.
This may not have entered the country at the years shown, but rather in the
subsequent three years.
3.2.3. UNFPA
United Nations Population Fund (UNFPA) has been providing assistance in the
drug financing. The organization is also directly financing the Federal Ministry of
Health. The amount has varied over the years.

29
The following table indicates the values over the years.
Table 3.12 Assistance of UNFPA on drugs

Year Value of Assistance

2003/04 49,112,607

2004/05 2,828,280

2005/06 3,375,000

Source: UNFPA reply to queries in this study

It appears that the assistance is mainly in the area of contraceptive supplies,
reagents, and vaccines. It is also noted that the UNFPA assistance includes other
areas like ICT and training.
3.2.4 WHO
The World Health Organization (WHO) engagement is mainly in the provision of
technical support, and not directly in providing fund or material assistance in
drugs, supplies and medical equipment. Nonetheless, there have been various
forms of assistance in the health sector in cases of emergency and epidemics.
WHO has provided drugs and vaccines for meningitis and yellow fever epidemic
center and cold chain equipment for EPI. The following table indicates the values
of such assistance over the last three years.

Table 3.13 Assistance of WHO on drugs

Year Value of Assistance

2003/04 4,275,972
2004/05 15,811,630
2005/06 29,415,100
Source: WHO reply to queries for this study
3.2.5. USAID
USAID is another import source of funding of drugs. The assistance has gone to
various organizations like the Federal Ministry of Health, and the regions.
USAID also provides assistance for drugs to some NGOs and regionally based
organizations like REST of Tigray. The following table shows the scale of the
assistance.

30
 Table 3.14 Assistance of USAID on drugs (All values in Birr)
Year Value of assistance
2003/04 30,447,385
2004/05 55,663,173
2005/06 66,113,987
SOURCE: USAID reply to queries in this study
USAID has indicated that the assistance on drug mainly related to ARV drugs,
contraceptive, and others. Laboratory equipment and facilities like refrigerator are
also included.
3.3 Expenditure by Parastatals
Public enterprises are one of the financing sources for health expenditure. Government
owned commercially operating organizations cover medical expenses of their employees
depending on the collective agreement they enter with their employees. This is done
through three main mechanisms i.e. direct reimbursement of the cost of drugs incurred by
employees, service provision through own clinics and dispensary, and/or purchase of
insurance health policy for employees.
The figures for such financing have been obtained from secondary sources. This is
particularly treated by the NHA III study report and the following table indicating drug
financing by parastatals is drawn from it.
Table 3.15 Drug financing by Parastatals
Year Value of Drugs in Birr
2003/04 7,542,588
2004/05 8,440,156
2005/06 9,250,411

Source: NHA III

Table 3.15 above shows that the role of parastatals in drug financing is quite limited in
extent and covers a segment of the population, which is very small. But it is of
significance in that the per capita drug expenditure is comparatively higher than the
national average considering the number of people served by the drug financing scheme
of the Parastatals.
3.4 NGO expenditure on drugs
3.4.1 The role of NGOs
Non-Government organizations (NGOs) have various definitions. The definitions
are given in an attempt to capture the services and the missions of the
organizations. The Christian Relief and Development Association (CRDA) has
defined NGOs in 1999 as follows. “NGO is a voluntary not-for-profit, non-self-
servicing, non-governmental, non-partisan and independent organization or

31
association involved in the promotion of social justice and development.” More
often than not NGOs operate with the objective of supporting the interest of the
poor and help alleviate sufferings, protect the environment and undertake
community development.
The support by NGOs towards the supply of drugs over the years is noted to be
significant. Traditionally, the NGOs were mainly involved in relief effort in
Ethiopia. Many NGOs have set-up health related projects. In 2001, for example,
there were 1,195 projects established and operated by NGOs. Out of these 225
projects (18.8%) were related to health. In addition to these there were other
projects, which aided at curbing the spread of HIV/AIDS and supporting victims
of the epidemic (10).
It may be appropriate to mention the role of faith-based NGOs in establishing
hospitals and clinics in many parts of Ethiopia. They also provide drugs at very
minimal costs and in many cases free charge. Such services have taken special
enhancement as a result of the HIV/AIDS epidemic in the country.
The ideal source for tracking NGO expenditure on drugs would have been by
capturing the data directly form the source i.e. NGO surveys. An attempt was
made to survey NGOs working in health. However, the response from such NGOs
was not complete. Hence, this study had to resort to a second best data source
option i.e. import data obtained from DACA. DACA records the imports of drugs
by the importers. The imports by NGOs for each year are available. The imported
drugs are assumed to have been expended on the same year. According to this, the
total amount of drugs financed by NGOs is shown in the following Table.

Table 3.16 Summary of financing of drugs by NGOs

YEAR Amount in Birr

2003/04 146,450,000

2004/05 88,210,000

2005/06 394,547,000

Source: DACA
In the context of DACA data, NGO includes international NGOs and those locally
registered companies not working for profit. NGOs registered as providers of
medical services are allowed to import drugs and supplies. They are, like all
others, required to pay 5% tax on drugs. Their imports are also subject to the
inspection by DACA.
In this survey attempts have been made to estimate the value of the total direct
supply of drugs to the regions and the Woredas. It was difficult to get hold of
accurate figures, as in many cases, drugs are supplied in kind and without

32
 monetary values. And so the drug amount could not be comprehensively collected
from the regions.
In many instances, NGOs run their own clinics, health centers, and hospitals.
According to 1998 EFY statistics from the FMOH, currently there are 12
hospitals and 480 clinics run by NGOs. These health facilities are also located in
areas outside main cities. The service is, therefore, mainly available in the rural
communities and, in some cases, also to urban poor. In general there is virtually
no cost recovery system on drugs provided by NGOs. In limited cases, there may
be revolving funds, which apply cost recovery systems. However, it has proven
difficult to trace and to report these because of the low rate of NGO response to
the survey. Drugs are given free to those who may not afford to buy them. In this
report, no cost recovery from drug supplied by NGOs is assumed, except in cases
of the Ethiopia Red Cross Society, which has a special permit to import and vend
drugs and this is done with the intent of providing drugs to the population at much
reasonable rates than elsewhere.
The involvement of NGOs in the supply of drugs is enhanced when disaster and
epidemic situations arise. In such cases, the distribution of drugs is absolutely
free.
3.4.2. Major players in the NGO Sector
3.4.2.1 Regional based NGOs

There are many regionally based NGOs and they vary in strength and their
contribution to drug financing. To illustration the role of the sector in drug
financing, the contribution of only three major such NGOs will be discussed.
The Relief Society of Tigray (REST) is perhaps the most dynamic regionally
based NGO in Ethiopia. It raises funds from various sources including domestic
donors and international supporters. It campaigns among the Diaspora and
provides rural and urban services in the Tigray Region of Ethiopia.
REST runs its own programs in health services in various parts of Tigray. It
acquires drugs from domestic and international sources and avails them free of
charge to the community. Of the total supply of drugs, 22.5% is reported to
come from external sources. The rest comes from domestic sources, which may
include international organizations operating in Ethiopia. The following table
provides the financing of drugs in rural Tigray by REST.
Table 3.17 Financing of drugs by REST

Year Amount (in Birr)

2003/04 740,681.00
2004/05 1,973,773.00
2005/06 955,628.00
Source: REST reply to queries for this study

33
 A sister organization of REST is Tigray Development Association (TDA). It
supports various health related projects, among others, in Tigray. TDA mainly
works in development fields and its involvement in financing of drugs is limited.
Nonetheless, it plays active role in the supply of drugs particularly when seasonal
epidemics like malaria occur.
Two major regionally based NGOs operate in the Amhara region. One of them is
“Organization for Rehabilitation and Development of Amhara (ORDA)”. This
NGO provides drugs for its own health support programs in the region. The
amount involved was Br. 533,382 in 2005/06.
The second NGO involved in the development of the Amhara region is the
“Amhara Development Association”. However, drug financing is not its major
involvement. In 2003/04, a total of Br 108,000 was expended in the acquisition of
drugs. In 2005/06, the amount was Br 92,000.
3.4.2.2 DKT
DKT is an international NGO, which is very active in the supply of items to fight
the spread of HIV/AIDS. DKT is very much known as the supplier of condoms all
over Ethiopia. It has a four-year program of supply 108,000,000 Birr worth of
contraceptives through social marketing. This value is given in reply to the
queries posed by this study. This is a relatively new concept in Ethiopia marketing
strategy and it is having positive effect in combating HIV/AIDS epidemic. This
makes DKT one of the major NGOs involved in the supply of these items. The
four year program (2005-2008) of 108,000,000 Birr is indeed a note worthy
project.
3.5 Private Expenditure on Drugs
3.5.1 Out of Pocket Expenditure on Drugs by Households
Private expenditure on drugs comprises the out-of-pocket payment of households
and drug related expenditure of private enterprise employers. The out-of-pocket
payment of households is the major source of drug financing. The private sector
out-of-pocket expenditure is responsible for the largest portion of health sector
expenses. The portion was 53% in 2001 (10). The household out-of-pocket
expenditure level has been obtained from the NHA III study which has identified
the amount the households in Ethiopia expend on drugs. The Third National
Health Account for Ethiopia has estimated the household expenditure on drugs for
2004/05. The estimated amounted is Br 1,046,048,267. The value is 76% of the
total household health expenditure. This has been projected to reflect the situation
in the study period. Two important methods are used for the projection.
ƒ Projecting the population from the survey period to the study period
ƒ Applying the GDP growth over the years to reflect over the level of
expenditure for drugs and medical supplies.
Based on the combined methods the estimated household expenditure on drugs is
as shown in the table below.

34
 Table 3.18 Value of drugs covered by Out-of-Pocket Payment

Year Amount in Birr

2003/04 934,806,315
2004/05 1,046,048,267
2005/06 1,146,468,901
Source: Calculation based on NHA III
3.5.2 Expenditure by private enterprises
The amount of expenditure by private enterprises is indicated from two sources:
♦ Data acquired from insurance companies and
♦ The NHA III findings.
3.5.2.1 Coverage by Insurance Companies
The employer coverage could come under three channels:
♦ purchase of insurance policies,
♦ provision of health service in-house within own clinics
♦ direct reimbursement of expenses on drugs to employees.
Employers acquire polices for their employees enabling them obtain medical
services and receive pharmaceuticals based on the prescription of physician. The
drug purchase is normally covered fully by the insurance companies. In some
cases, only a percentage of expense is covered by the insurance companies. The
government employer also covers medical expenses including drug costs. This
coverage is normally about 50% and may only be covered if the service is
obtained from government owned facilities.
Strictly speaking insurance companies are not the source of financing. The actual
source is the employer or the one who acquires the policy for covering such
expenses. It is noted that in the developed world the insurance company’s role in
covering medical expenses including drugs is quite significant. In Ethiopia,
however, the penetration of insurance services is very limited.
Many Insurance companies in Ethiopia provide three types of health related
services. These are:
♦ Group personnel accident,
♦ Workmen compensation, and
♦ Life insurance.
Not all insurance companies provide all these policies.
With these policies, expenses on drugs are usually covered. But the coverage may
depend on the type of policy acquired.

35
 In this survey, insurance companies were approached to provide data on expenses
related to drug. In many instances, the segregation of drug expenses from other
medical expenses has not been easy. This is because the policies are general and
the available data is on all medical services including hospitalization, laboratories,
drugs, compensations, etc. But insurance companies were urged to provide
estimates as percentages of the total expense. These values have been obtained
from the insurance companies and tabulated below.
Table 3.19 Estimates for drugs made available by Insurance Companies

Year Total claims on drugs

2003/04 12,730,792
2004/05 14,076,147
2005/06 19,826,336

Source: Reply to queries for this study by eight insurance companies.

Data from the insurance companies is averaged and the calculation is made for the
number of insurance companies operating and providing the specific policy. It can
be seen that the amount is not high.
The sources of funding for these drug expenses passing through the insurance
sector are three i.e. private companies, parastatals, and households. However, the
expenditure between the three sources couldn’t be disaggregated by the insurance
companies. The second best alternative for disaggregating insurance data was
referring to the NHA III report. Based on the details provided, one can infer that,
of the total claims on drugs stated above, 65% is financed by parastatals, 29% by
private employers, and remaining 6% by households.
3.5.2.2 Coverage by private employers
According to the findings of NHA III, the total private employer’s expenditure on
health in 2004/05 is Br. 52,715,900 (10). It can be seen that this amount is for all
medical expenses including hospitalization, physicians’ fee and laboratory costs.
The amount is also about 1% of total health expenditure. This is a very small
share, which is even smaller when considering expenditure on drugs. The same
report indicates expenditure on pharmacies of only Birr 3,750,063 in the same
year.
Based on the findings of NHA III, the expenditures on drugs by the private
employers is worked out. The following the result of the projects for 2003/04 and
2005/06.
The private employers cover costs of drugs by means of insurance, normally. But
some others provide their own clinical service. This may include companies
involved in construction and manufacturing. Such companies may find it
expedient to provide drugs directly from their own clinics or cover costs of
medication. These types of companies are treated in this section. The amount is
also quite small but the indications are it may increase in the future.

36
 Table 3.20 Coverage of drug costs private employers

No Year Amount expended on

drugs (Birr)
1 2003/04 3,351, 000

2 2004/05 3,750,000

3 2005/06 4,110,000

Source: NHA III

Figure 3.8 Amount in Birr expended on drugs by private employers

4,500,000

4,000,000

3,500,000
A
mo 3,000,000
unt
in 2,500,000
Bir
r 2,000,000

1,500,000

1,000,000

500,000

0
2003/04 2004/05 2005/06
Years

37
 4. SUMMARY AND CONCLUSIONS

4.1 Sources of drug finance

Sources of drug funding vary depending on the situation of each country. The
different sources of drug fund identified in Ethiopia are summarized in Table 4.1 and
discussed in detail below.
a. Public funding. This refers to the fund from the governments where the ultimate
source is public money collected as tax and other non-tax revenues. In the case of
Ethiopia, the public sources are Federal and Regional Governments. It is reported that
in developed countries, over 70% of the drugs are financed by the public fund (11). In
Ethiopia the public fund is about 11%, taking the average of the years 2003/04 to
2005/06. (See Table 4.1 below)
b. Donor. These include sources are bilateral and multi-lateral organizations,
development financiers, international associations or even companies and
philanthropists. In Ethiopia, all these bodies are involved. The fund usually comes for
specific programs or as direct support to government budget where expenditure
decisions are left to the government. In many cases, such funds are provided freely to
make it possible for the health institutions to avail the drugs at affordable prices. This
source helps to address the issue of equity and improve access but it is not sustainable
source of finance. There are instances where donors provide drugs in kind. There are
also occasions where the fund is given for drug purchases. The hard currency
availability is very much appreciated by governments in developing countries.
Donations have made it possible that essential drugs are available in the country.
However, they lead into overdependence on donations. Over reliance on donors is
perhaps one aspect which drug policies should consider. Essential drugs supply
should be a strategic issue and any country ought to forge a policy framework for its
financing. In Ethiopia, the share of total drug financing by donors was the highest
(33.1%) in 2004/05 which then decreased to 26.7% in 2005/06. Even then, it was
higher than the share of the government budget (9.5%).
c. NGO. NGOs are important providers of drugs and drug fund for many programs in
Ethiopia. Many NGOs are involved in development activities, but only a few are in
the health services helping communities to have access to drugs. The occurrence of
epidemics and serious health threats like HIV/AIDS have attracted NGOs to take part
in availing drugs for different programs in Ethiopia. In 2005/06, the share of NGOs
has been 16.2%, which is a jump from 2004/05 where the share was only 4.4%.
d. Parastatals Theses are state owned commercial organizations managed differently
from public service organizations. They provide health services including free
medication based on specific collective agreements with their labor force. These have
very little contribution to the national drug finance. It was only 0.4% in 2005/06.
e. Private employers. Private employers provide social insurance for health for their
employees. Drug costs are covered by the scheme. It is important to note that such
insurance policies are directly paid for by the employers. The scheme is at its
rudimentary level and its contribution to the national drug finance is only about 0.2%.

38
 This can be a growing sector provided that there is well thought-out and well planned
policy framework. Recommendation by WHO study urges the expansion of “health
insurance through national, local and employer schemes” (11).
f. Households. Households cover drug costs from out-of-pocket fund. This is the most
significant drug financing system in Ethiopia. Presumably, only the households with
some financial strength can take part in such drug financing options. This financing
option naturally be excludes the poor. The system is inequitable and limits access to
drugs by the poor. Over all, the percentage share of this source in Ethiopia is quite
high (47%) as in the other developing countries.
Out-of-pocket expenses should be gradually shifted to social insurance and other
similar schemes. But this needs special policy formulation. Out-of-pocket expenses
are also looked from the point of view of sustainability. One study recommendation
by WHO states that for sustainable financing of drugs, it is good to “reduce the out-
of-pocket expenses especially by the poor” (11).
Table 4.1 Drug financing from all sources

Financing source 2003/04 2004/05 2005/06

Amount % Amount % Amount %
Federal Government 78,156,096 5.21 96,222,824 4.8 130,165,916 5.3
(Table 3.2)
Regional Governments 130,869,858 8.7 98,126,483 4.9 102,453,178 4.2
(Table 3.4)
Sub-Total 209,025,954 13.93 194,349,307 9.7 232,619,094 9.5
Donors (Table 3.8) 198,813,602 13.3 663,361,880 33.1 652,191,096 26.7
NGOs (Table 3.16) 146,449,968 9.8 88,210,000 4.4 394,546,967 16.2
Parastatals (Table 3.15) 7,542,588 0.5 8,440,156 0.4 9,250,411 0.4
Private Employers (Table 3,351,263 0.22 3,750,063 0.19 4,110,069 0.2
3.20)
Households (Table 3.18) 934,806,315 62.3 1,046,048,267 52.2 1,146,468,901 47
Total 1,499,989,690 100 2,004,159,673 100 2,439,186,538 100
Per capita drug 21.10 27.44 32.49
expenditure in Birr

4.2. Per capita drug expenditure

The per capita expenditure on drugs for Ethiopia is calculated to be 32 Birr or 3.8
USD in 2005/06. This may be compared with global figures.
The per capita expenditure on pharmaceuticals of countries differs according to
the economic level. Table 4.2 shows a marked variation. Note that the column
“private” includes “health insurers, business and NGOs” (12). In other words it

39
 includes social insurance, employers’ drug schemes and NGOs. For developing
countries, the private sector is a major source of drug financing. It accounts for
73% of the cost. This is very different from that of Ethiopia. Perhaps a new policy
consideration is required.
Table 4.2 Per capita expenditure on pharmaceuticals.
(USD at exchange rates of 2000)

No Income clusters Per capita USD.

Private Government Total
1 WHO member states 45 29 74
2 High income 229 167 396
3 Middle Income 22 8 30
4 Low income 3.2 1.1 4.4
Per capita expenditure on drugs for low income countries was 4.4 USD in 2000.
There is no data for Ethiopia then. But if we reflect the per capita of 2.4 USD
(equivalent for Br 21.1 which is the per capita drug expenditure in 2003/04) to
that of 2000 and assume 5% annual exchange reduction and price escalation, the
per capita drug expenditure must have been 1.98 USD. So, Ethiopia was only
45% of the low-income countries, in terms of per capita drug expenditure. This
again calls for policy consideration and a strategy must be drafted to increase drug
fund availability and along with it access to drug by the public.

4.3. Conclusion
Table 4.1 above shows that Ethiopia spent a total of Br 2,439,186,538 on drugs in
2005/06 from all sources. The total drug expenditure also grew over the three
years covered by the study as shown table 4.1 by about 28% annually on the
average.
Looking at the sources for 2005/06, it can be seen that households’ out-of-pocket
payment are the main source of finance accounting for 47% of the total drug
expenditures. Donors’ sources cover 27% and NGOs 16%. Federal and Regional
Government sources from taxes, revenue, assistance and loans cover nearly 10
percent of total drug expenditures and private employers only 0.2 %. The
Government share in drug finance is small whereas the share of donors and NGOs
is high reflecting the recent increases in global funding. The graph below
indicates the situation in 2005/06.

40
 Fig 4.1 Drug Financing by Various Sources for 2005/06

Federal Regional
Government Governments
5% 4%

Households Donors
48% 27%

Private
Employers
NGOs
0%
16%
Parastatals
0%

Although it is increasing, the level of drug expenditure in Ethiopia is very low.

The amount of money expended on drugs in Ethiopia in 2005/06 on per capita
basis was only 32 Birr or 3.8 USD. This figure is much lower than global and
regional averages. One study quoted in a WHO document published in 1997
asserts that 5 USD per capita is far from adequate. Also 5 USD to 10 USD should
supply a large part of the population in developing countries. It recommends 10
USD to 50 USD as per capita drug finance to satisfy the entire drug need of the
population (8). The same source indicates that the per capita pharmaceutical
expenditure for Africa was USD 8.0 in 1990.
The situation would be worse if we consider only the public drug fund in
Ethiopia. The per capita shares of the government expenditure on drugs as
calculated from Table 4.1 were Birr 2.94, Birr 2.66 and Birr 3.10 in 2003/04,
2004/05 and 2005/06, respectively.
It is clear that without considerable increase in drug financing in Ethiopia from
appropriate sources, it will be difficult to bring about major changes in the
delivery of health services. The prevalence of malnutrition, the unsafe drinking
water in the country, the malaria predominance, the presence of epidemics of
various sorts necessitates the use of more drugs. Based on these facts, it can be
said that drug funding in Ethiopia has to be increased.

41
 The extract from this finding is that a special effort has to be exerted to
increase drug fund availability.
Form table 4.1, it can be seen that the out-of-pocket payments are the largest
single components of drug financing. The out-of-pocket expenses continue to
grow, in absolute terms, in the periods under consideration. It was Birr 934.8
million in 2003/04 and attained the level of Birr 1.146 billion in 2005/06. These
however continue to decline in relative terms.
Donors are the second most important sources of drug funding. In 2005/06, nearly
26.7% of the drugs are financed by donors. The sustainability of drug supply from
donors should be examined form the drug availability point of view in the future.
Overdependence on donors for drugs financing may have to be avoided. But this
needs to be looked at from the point of capacity of the nation to address the issue. A
policy framework to address the issue may have to be devised soon.
The role of NGOs in drug financing is noticeable. It was 16% in 2005/06. The
contribution of NGOs to drug financing in 2004/05 showed a decrease by 40%
over that of the previous year. But it took a huge jump of more than 347% in
2005/06.
The Federal and Regional financing of drugs show some growth over the years
under consideration. The percentage shares, however, continue to decline over the
years. It was 13.9% in 2003/04 and went down to 9.7% and 9.5% in 2004/05 and
2005/06, respectively. The overall contribution is small and it is declining.
The other main issue is the role of the insurance schemes to help in the covering of
drug costs. In the developed world, insurance companies collect premiums from the
healthy and use it to subsidize the need of the sick. The general result of the
insurance systems is distribution of the burden of cost coverage or risk sharing. The
low level of the insurance system in Ethiopia does not provide hope in that
direction. Special strategies have to be devised to increase the role of insurance
companies. In fact there is an ongoing initiative to introduce such a scheme by the
FMOH. Attempts have also been made to gain experiences from African countries
who have adopted these earlier.
4.4. Policy implications of the findings of the drug financing study
4.4.1. Government expenditure on drugs
The Federal and Regional Government share in expenditure on drugs has
been falling from 2003/04 – 2005/06. In particular, regional governments
have been allocating smaller funds for drugs. Their expenditure showed
marked decline. It is true that during the period under consideration costs
of drugs have been increasing.
Decline in drug expenditure, therefore, means that less and less drugs
would be available for the health institutions. This is not a healthy

42
 development. Particular attention should be given to this fact and
measures to correct the decline should be considered.
4.4.2 The role of donors in drug financing
The contribution of donors to drug financing has been increasing over the
three years under consideration. Whereas, this has been very useful in
availing drugs for the health facilities, it is not sustainable. The increase in
donor financing also came about from major and non-permanent funding
organizations. It is very important to consider schemes for uninterrupted
supply of drugs in the event that donors cease supplying the funds. A
policy has to be forged out to prepare the nation for the eventuality.
4.4.3 Household expenditure on drugs
The household expenditure on drugs is visibly high. This fact has
surprised many, as there is a general belief that government health
facilities provide drugs free of charge as most patients obtain waivers.
But the reality is quite different. This has negative welfare implications
for the poorest. The government needs to further strengthen its reforms
and work towards improving access to drugs for the wider community like
expanding the special pharmacies or implementation of the
Pharmaceuticals Logistics Master Plan (PLMP).
4.4.4. Equity
The average out-of-pocket payment during the study period was nearly
50%.This big share of out-of-pocket payment, in a country where nearly
half of the population lives below poverty line, raises a big equity concern.
In order to address this issue, it would be necessary to diversify the drug
financing portfolio in the country. The new initiative to develop social
insurance by the MOH is a good start. But such scheme needs to be further
expanded and look for ways to capture the majority of informal sector and
the poor. Also there is a need to expedite the implementation of the
revised waiver and exemption system.
4.4.5 The role of insurance intermediaries in managing drug financing.
Insurance companies are useful in managing funds from policyholders. In
Ethiopia, the role of the insurance companies is very much
underdeveloped. Policies may have to be devised in order to help
insurance companies play a more dominant role in managing drug funds.
4.4.6 Amount of finance earmarked for drugs
The per capita expenditure on drugs for Ethiopia is quite small as
compared with recommended bench marks. The finance available for
drugs from government and other sources is quite limited. There is a need
for reviewing the drug budget allocation with the objective of increasing
drug availability. The decision making process should involve all relevant
sectors.

43
 4.4.7 The role of social insurance
Social insurance includes schemes like employers’ drug insurance (along
with health insurance), mutual fund for drugs, community drug schemes
and other policies, which ensure that payments are according to ability and
drug availability is according to needs. In this way, the burden is shared
among the large groups and drugs are made available for wider portion of
the public. Such schemes might be considered as part of drug access
policy framework.
4.5 Recommendations
ƒ Increase government drug budget allocation to ensure sustainable and equitable
access to drugs, particularly by the poor.
ƒ Develop policy framework for the creation of diversified drug financing
portfolio by involving stake holders such as government, the private sector,
multilateral and bilateral donors, NGOs, health professionals’ and the public
representatives
ƒ Expand comprehensive social insurance to address the issue of equity by risk –
sharing mechanism.
ƒ Expand further the new initiative of the Ministry of Health to develop social
insurance and look for ways to capture the majority of the poor.
ƒ Expedite implementation of the revised waiver or exemption system of the
Ministry of Health.
ƒ Give due attention to the establishment of data recording and reporting system at
different levels of the drug supply chain such as health facilities, regional health
bureaus, woreda health offices and other procurement and distribution
organizations.
ƒ Undertake similar studies at appropriate time intervals to track trends in drug
fund allocation and expenditure as well as monitor progress towards
establishment of adequate and sustainable drug financing mechanism in the
country.

44
 Annex I

Dug supply and distribution in Ethiopia

1. Total drug supply

The total drug supply to the country can be obtained from two sources:
♦ Reports from Ethiopian Customs Authority; and
♦ Ethiopian Drug Administration and Control Authority.
The Customs statistics for drugs using the Harmonized System is reported using the
following code numbers 29.36, 29.41, 30.01 - 30.06. Other equipments from the same
source are obtained under code numbers 40.15, 90.18 – 90.22 and 94.02. The data for the
three years has been collected from Ethiopian Customs Authority reports of relevant
years.
The reports from DACA for the relevant years are obtained from the Authority. The two
statistics indicate slight variation and are not identical. The Customs report may not be
complete because of codification. The following table provides the findings from
examination of the reported statistics of the two sources.
Table A1.1 Total import of drugs (Birr)

2003/04 2004/05 2005/06

Total (donor and NGO) 179,784,391.28 274,571,658.00 466,799,081.57

NGO 146,449,968.90 88,210,100.00 394,546,967.64

Donor 33,334,422.38 186,361,558.00 72,252,113.93

Government 196,681,276.72 87,940,568.78 72,252,113.93

Private 442,137,332.00 489,962,295.22 795,404,987.09

DACA Total 818,603,000.00 852,474,522.00 1,871,022,119.71

Customs Total 753,924,359.29 1,228,367,720.71 1,413,362,566.27

Source: DACA report and Customs reports.

The reports from DACA are assumed to be more reliable. The possible reasons for
variation could be the quantities, the currencies, and most importantly the codification
in Harmonized System by Ethiopian Customs Authority. The figures referred to
NGOs and Donors are as given by the Authorities.

45
 1.2. The role of the private sector and PHARMID in the supply of drugs
The private sector is an important source of drug supply. Households constitute
the final consumption centers of drugs. Households are sources of fund for drug
purchase.
The private hospitals, clinics, pharmacies and drug shops are increasing in
Ethiopia. Their role in the health sector is growing. However, most of the private
for profit health facilities and drug retail outlets are operating in Addis and other
major urban locations.
There are strict regulations governing the vending of drugs in pharmacies, drug
shops and rural drug vendors. It is reported that there are over 3228 Retail outlets.
DACA has around 4000 registered products to acquire and distribute in Ethiopia.
There are also strict regulations regarding drug storage and displays.
One of the major importers of drugs is PHARMID. Because it imports a
significant amount of drugs, special mention is required. The organization is a
parastatal established to avail drugs for the government hospitals and health
institutions and in the process cover its cost from its profit. It also avails its
services to all the private hospitals and private pharmacies. Its imports include:
ƒ Drugs and supplies,
ƒ Medical equipment and laboratory apparatus
PHARMID is governed by a management board and reports to the Privatization
and Public Enterprise Supervising Authority. Its imports of the past years are
indicated below.
Table A1.2 Import of drugs, medical supplies and equipment by PHARMID (Birr)

Item 2003/04 2004/05 2005/06 2006/07

Pharmaceutical 200,730,288 134,454,770 168,870,273 187,913,731
Chemicals 4,340,762 4,871,624 2,424,197 2,306,631
Supplies 19,484,390 21,949,587 35,482,041 39,792,512
Medical 15,706,249 11,431,421 16,616,011 16,708,672
equipment
Total 240,261,689 172,707,402 223,392,522 246,721,546
Source: PHARMID

The total quantity of drugs imported into the country by the private sector is given
below. These include imports by all licensed companies in the country and the
bulk of the quantity is believed to find its way to the pharmacies and drug shops.

46
Table A1.3 Import of drugs, medical supplies and equipment by the private sector (Birr)

Value of drugs received Value of drugs distributed to the

Year by FMOH (Birr) Regions by FMOH (Birr)

2003/04 167,614,701 172,989,665*

2004/05 396,995,535 183,899,602

2005/06 496,577,097 264,305,691

Source: Records of DACA

Note that the medical equipment mentioned in the tables above includes the
import of various medical equipment like X-rays, ultra-sound equipment, blood
chemistry analysis facilities including associated computers and printers. Medical
supplies include items like reagents, chemicals, gloves, injection needles, X-ray
films, and various laboratory and hospital supplies.

1.3 PSLD/FMOH receipt and distribution of drugs

Table A1.4 Value of drugs received and distributed by PSLD/FMOH to the regions

Total value of drugs, medical

Year supplies and medical equipment

2003/2004 201,875,311

2004/2005 317,254,598

2005/2006 572,012,465

Source: PSLD/FMOH for the relevant years

* In some years, the value of drugs distributed is higher than the value of drugs
received possibly because of distribution of drugs from closing stock of
previous year. In other years it may be lower because amounts reported to
have been donated to the FMOH by donors may not be received and
distributed in the same year.

47
 Table A1.5 Distribution of drugs for HIV/AIDS and TB to the regions by PSLD/FMOH

HIV/AIDS TB

Region 2003/04 2004/05 2005/06 2003/04 2004/05 2005/06

Oromia 1,672,070.01 10,467,278.08 19,990,481.87 14,496,968.90 14,650,016.88 20,112,718,12

Amhara 602,303.73 1,212,969.87 2,726,905.49 6,277,336.89 13,347,480.90 14,050,579.71

Tigray 293,521.96 118,790.60 498,988.00 1,592,721.54 1,295,329.08 564,454.23

Afar 135,312.32 158,004.75 1,436,221.90 - 1,109,220.89 960,273.46

Benishangul 97,864.49 248,810.75 1,256,310.70 60,696.86 278,561.55 610,039.73

Somali 198,600.71 248,250.89 321,857.00 2,944.13 578,263.45 4,712,358.09

SNNPR 1,310,418.05 8,203,871.92 10,973,688.10 4,102,691.10 5,397,979.98 7,228,552.51

Dire Dawa 102,648.90 2,782,558.30 1,511,191.36 - 1,992,681.07 2,172,986.64

Addis Ababa 599,847.60 4,845,005,56 5,404,897.11 75,740.58 2,557,477.30 31,048.86

Harari 418,307.78 3,127,148.80 1,542,143.60 227,665.38 330,375.94 627,041.00

Gambella 23,613.20 2,759,678.59 1,579,105.00 128,466.50 237,663.03 1,355,793.90

Total Birr 5,454,508.75 29,327,362.55 47,241,790.13 26,965,231.88 41,775,050.07 32,313,128.13

48
 Table A1.6 Distribution of drugs for Malaria and emergency to the regions by PSLD/FMOH
Malaria Emergency

Region 2003/04 2004/05 2005/06 2003/04 2004/05 2005/06

Oromia 28,584,994.25 60,435,043.49 74,996,407.21 1,262,837.77 2,337,937.46 19,422.95

Amhara 842,130.78 9,147,662.45 16,033,096.45 542,021.44 386,287.00 412,228.00

Tigray 274,117.62 1,319,150.49 8,669,732.00 813,736.52 154,548.00 218,989.00

Afar 190,461.87 714,622.81 987,546.20 128,404.00 225,084.00 355,572.00

Benishangul 188,000.00 1,539,903.62 5,225,170.50 2,943,855.46 539,903.62 214,406.00

Somali 130,422.72 1,074,120.27 8,241,960.78 755,895.14 846,426.72 1,638,975.77

SNNPR 743,898.24 4,013,284.72 2,653,651.03 47,726,247.40 - 148,400.00

Dire Dawa 242,989.22 798,658.49 1,547,711.84 65,612.68 120,497.18 2,476.44

Addis Ababa 398,615.22 414,898.10 914,376.00 298,883.35 23,014.10 -

Harari 127,338.30 317,286.10 624,541.06

Gambella 171,124.00 679,229.76 814,596.23

Total Birr 31,894,092.22 80,453,860.30 120,708,789.30 54,537,493.76 4,633,698.08 3,010,470.16

49
 Table A1.7 Distribution of drugs for HIV/AIDS and TB to individual organization by
PSLD/FMOH
HIV/AIDS
TB
Organizations 2003/04 2004/05 2005/06 2003/04 2004/05 2005/06
Federal Prisons 11,667.50 58,290.90 154,899.75
Ministry of Defense - 1,933,380.06 5,328,574.87 138,905.90 97,466.96 262,293.69
Gondar Hospital - 558,545.55 113,771.65 - 1,624.32 -
Alert Hospital - 60,075.22 273,643.00 - 343,335.40 32,695.18
Felege Hiwot Hospital - 436,421.95 -
Zewditu Hospital - 447,160.05 416,164.90 - 1,624.32 -
Black Lion Hospital - 69,462.00 314,611.26 22,819.58
Police Hospital - 1,055,818.05 3,167,544.04 946,690.40 55,601.31 -
Different Universities 120,366.70 60,390.28 24,401.70
St. Paulos Hospital - - 150,928.41 101,183.44
Yekatit 12 Hospital - - 10,969.25
Adama Hospital - 393,800.55 47,486.51
Red Cross (Blood Bank) - - 10,200.00
Louis Pasteur Institute - 37,283.00 62,664.38
DACA - 866,852.75 2,489,654.25
Magt Science for Health - 57,590.00 8,871,658.70
Pharmid - - 51,131,102.45
Kenema Pharmacy - 979,050.00 419,044.00
Tensae International - - 24,682.80
Meta Abo Brewery - - 2,184.00
Ras Desta Hospital - 799,250.00
Mekdim Ethiopia - 61,748.40
Ethio Leather S.C. 4,368.00
Bete Zatha H.C - 11,632.50
Eth. Orthodox Church - 6,282.45
UNICEF 207,392.30
RPM PLUS 337,140.00
PLC U - 28,701,977.04
Nekempt Hospital - 281,600.00
Negelle Hospital - 281,600.00

50
 HIV/AIDS TB
Organizations 2003/04 2004/05 2005/06 2003/04 2004/05 2005/06
Debre Markos Hospital - 281,600.00
Axum Hospital - 296,670.00
Mekele Hospital - 369,615.60
Afar/Dubti Hospital - 363,735.20
Dessi Hospital - 672,535.41
ENHRI - - 1,902,329.13
Water and Sewerage Authority 8,621,532.40
Federal (Central) Hospitals - 6,141,902.80 5,022,797.07
Kazanchass Hospital 1,624.32
Kombolcha Hospital 1,624.32
Jimma Hospital - - - 1,624.32
Hossana Hospital 1,624.32
St. Petros Hospital - 439,462.66 19,847.30
Miscellaneous Orgn 77,323.99 15,436.09 300,965.42
Total Birr 132,034.20 53,571,421.11 80,822,593.47 1,264,103.73 983,867.92 615,801.59

51
 Annex II

List of donors to which queries were sent

No
ORGANIZATION

1 African Development Bank

2 Austrian Development Cooperation
3 Development Cooperation of Ireland
4 Italian Cooperation
5 Packard Foundation
6 USAID
7 WHO Representative
8 UNICEF
9 Delegation of the European Commission
10 World Bank
11 DFID
12 The Netherlands Embassy
13 UNFPA Representative
14 UNAIDS
15 SIDA
16 JICA

Note: The queries were hand delivered.

52
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