Thursday, 15 October 2009

Rio 2016 -- who will pay, and how?

In a piece for the IAM Blog entitled "Pharma companies may well end up subsidising Rio 2016" Joff Wild, the respected editor of Intellectual Asset Management magazine writes:
"I would not be surprised if the parties are still going strong in Brazil following the decision to give the 2016 Olympic Games to Rio de Janeiro. ...

As with all Olympics, of course, the question now is how will it all be paid for. The next games will take place in IAM's home town, London. The original budget for these was set at £9.3 billion or around $15 billion. It now seems pretty clear we are going to end up paying a lot more. It will not be a surprise if the same thing happens to Rio. It seems to be a usual occurrence whoever the host happens to be.

But even if Rio does defy the odds and sticks to budget, the extra money to hold the games is still going to have to be found from somewhere. And one place the Brazilians have always looked to reduce costs in the past is in their dealings with the research-based pharmaceutical industry. It may be the world's eighth largest economy, but Brazil still sees itself very much as a developing country. As a result, it does not believe it should pay top dollar for its medicines. In fact, the country believes it should not pay very much at all.

Interestingly, Brazil currently imports $8 billion worth of drugs and medicines a year -- which is about half the cost of a London Olympics give or take a billion or so. My guess is that even if they are not sponsoring events in Rio in 2016, pharma companies may well find that they make a significant contribution to their success as Brazil seeks to find compulsory licensing savings in order to finance building and other infrastructure projects".
Will this prediction come true? And what will it mean both for the financing of the Olympic Games and for the pharma industry? At this stage it is too early to speculate, but I image that by 2016 the cost of pharma products to Brazil and all the rest of the world's actually and self-designated developing countries will be far lower than it is now, on account of (i) the continued growth of the generic sector, (ii) the increased success of the anti-patent lobby in branding pharma patents as 'toxic' and (iii) the reluctant acceptance by proprietary pharma that, outside North America, the EU, Japan and a few other ringfenced markets, it will make no worthwhile profits at all. Accordingly, the savings to the Brazilian government through compulsory licensing might be in real terms a lot less than the sort of figures we're looking at now.

There are two further points to consider. The first is that money saved on Brazil's health budget is unlikely to flow effortlessly into the coffers that support the Olympic Games project, since -- whatever the degree of prestige accorded to Rio 2016, the Brazilian government has many other demands on its cash. Secondly, a prudent Brazilian treasury will be slow to pay public money towards an event that attracts private sector investment as strongly as the Olympics do without first looking carefully to see how much of the necessary funding does indeed come from private sector sources.

3 comments:

Anonymous said...

What does Jeremy mean by "actual" and "self-designated" developing countries? I take from the tone of this piece the implication that Brazil is not a developing country. However, although Brazil is clearly richer than some, it is officially classed as a developing country by the UN's Human Development Index (http://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Index#Very_high_human_development) and a middle-income (ie. developing)country by the World Bank.

Jeremy said...

In one sense virtually every country is "developing" and the categorisation is inevitably going to be an arbitrary one.

Brazil, along with China, Russia and Mexico (and probably a few more jurisdictions) is seen as one of the leading pack of countries heading towards "developed" status -- but there doesn't seem to be much written about countries 'officially' ceasing to be developing and joining the ranks of the developed. Assuming that Brazil and the other countries continue to progress, is it inconceivable that any of them will cross the line?

My belief is that, until any country can demonstrably be seen to be better off when designated a developed one than a developing one, countries will continue to confer 'developing' status upon themselves until they can no longer get away with it.

jon said...

Jeremy, I think you're being unfair. While any definition such as "developed", "developing" is always going to be rather vague, the two definitions cited above - World Bank Income Groupings, and UN HDI, are the closest there is to an objective measure. Looking at the 2008 World Bank page it shows that there is movement between groups. Croatia became a high-income country for the first time. Others, including Peru, Colombia, became upper-middle income. Brazil is close to making the transition to high income.

Importantly, what these types of measure do, is show that while countries can be getting richer - as their GDP grows - individuals in those countries can still be very poor. Measures that work on a per-capita basis show this better than basic GDP (though can still fail to show massive gaps between rich and poor).

I agree that Brazil and others may want to spin out "developing" status as long as possible, when it confers certain benefits upon them, but they can't do so for ever.

And coming back to intellectual property, all emerging economies tend to move from IP copying to IP owning - Japan, the UK and US have all done so in the past. There's no reason to think Brazil will do otherwise.