Ethiopia’s pharmaceutical industry struggles to meet demand
Ethiopia is consistently investing in its health sector. One strategic approach is to strengthen the pharmaceutical manufacturing sector recognizing the importance of the role of the local pharmaceutical industry in the manufacture of essential medicines form both from the health and economic development perspective.
According to Pharmaceutical Fund and Supply Agency (PFSA Ethiopia), Ethiopian private pharmaceutical market is estimated to be worth between 400 and 500 million USD and said to be growing at an impressive rate of 25 per cent per annum. Studies also suggest that the market could witness a slightly 14 per cent growth rate to reach an approximate value of just under 1 billion USD in the year 2018.
Although the pharmaceutical market holds great potential, the manufacturing and the market itself faces many challenges. The pharmaceutical industry currently contains only 22 manufacturers engaged in producing various human pharmaceutical and veterinary applications and three are involved in export market. There are approximately 200 importers of pharmaceutical products and medical consumables, according to Ministry of Health (MoH) and Ministry of Industry (MoI) based on WHO 2015 Report.
The ownership of the companies is diverse and ranges from two large companies to smaller entities and joint ventures between Ethiopian entrepreneurs and foreign investors from Europe, China, India, United Arab Emirates (UAE) and Jordan.
Most of the local pharmaceutical manufacturing plants operate below their designed capacity and share not more than 20 per cent of the market. The rest of essential medicines demand is fulfilled from international market, suffering from prolonged procurement process and interruption of supplies.
In 2014, the local companies supplied products to the value of 44,225 million USD. They have also limited portfolios and are reputed to be able to supply only 90 per cent of the more than 380 products on the national essential medicine list. Around 35-40 per cent of their total output is supplied to the private sector at as price premium of 10 per cent.
The industry exported close to 2 million USD of pharmaceutical products, which was far below the GTP I target of 20 million USD. The bulk of the exports were accounted for by Sino-Ethiopia which exported empty gelatines capsules.
Thus, MoH introduced a 10 year, (2015-2025) visionary National Strategy and Plan of Action for Pharmaceutical Manufacturing Development with clear targets and recommendable actions for effective implementation, fully aligned with the Health Sector Transformation Plan and the GTP II.
State Minster of Health Dr. Kebede Worku said the government has been taking a number of steps to give incentive to local pharmaceutical manufacturing in the last five years with observable positive impacts. Yet we haven’t achieved the targets set, he said at the national workshop organized to deliberate on the draft Action Plan two days ago.
“The programme of action, if implemented from value chain perspective in a committed and sustainable manner by making the required investments and by forging strategic partnership can transform the pharmaceutical sector in the country.”
It can result in creating a Research and Development (R&D) based industry which would effectively contribute in establishing a growing knowledge economy as well as lift the whole sector and long with it a number of associated industries. As well as hugely contribute in improving public access to locally produced quality essential medications, among others. According to him, the Action Plan will be operational in the coming July simultaneously with the GTP II (2015-2020).
On the occasion, Industry State Minster Dr. Mebrahtu Meles also said that, “The forth coming GTP II anticipated that by 2020 the pharmaceutical industry particularly will achieve capacity utilization of more than 90 per cent; raise the share of domestic market to 50 per cent; increase export earnings to 110 million USD and create job opportunities to about 7,000 people.
“However, much more needs to be done still in order to achieve these targets.” He added, the industry is still very small in size and has low capacity. “Arguably, it contributes about 25 per cent of the domestic market supply.”
WHO was requested to assist the government in developing a long term vision and plan fro the pharmaceutical industry in the country which can explicitly combine objectives of the industrial development policy as well as those of health policy so that the sector can develop, the economy can grow and people can access locally produced good quality and affordable medicine.
Dr. Pierre MPELE-KIEBOU, WHO Country Representative, pointed out that WHO is providing policy advice and technical assistance needed to strengthen the Ethiopian pharmaceutical industry and medicine regulatory system and will continue its support.
The request is also influenced by the Pharmaceutical Plan for Africa (PMPA) which was developed under the auspices of the African Union Commission (AUC) and was endorsed by the Head of States of Africa in 2007.
“Since PMPA was developed various initiatives aimed at strengthening the sector have been implemented across the continent albeit in a poorly coordinated manner, said Dr. Janet Byaruhanga, Health Policy Officer, on behalf of AUC. “The AUC working with partners is in the process of facilitating coordination and the creation of appropriate synergies that will potentate the efficient delivery of sustainable results.”
The government has been providing different kinds of support to the local pharmaceutical industry. During the GTP I period, in order to promote substitution, export growth, transfer of technology, job creation but also to increase the production of essential medicines to improve access, in addition to technical assistance and consultancy support to comply to international drug manufacturing standards.
For instance, government procurement systems provide precedence to local pharmaceutical companies and offer advanced payment for up to 30 per cent of value of the orders. Current incentives also include tax free loans of up to 70 per cent for new investments provided by the Development Bank of Ethiopia and up to 60 per cent for upgrading projects for the first five years. The investors, thus needs to invest only 30 per cent of the project capital at inception. There is also a 100 per cent custom duty exemption on import of all the granted capital goods, such as plants, machinery, equipment and construction material. Spare parts are exempted 15 per cent of total value of imported investment capital goods.
Those exporting 50 per cent their products or services or supplying 75 per cent of their products or services as production or services input to an exporter are exempt from income tax for five years. While, those exporting less than 50 per cent or supplying only to the domestic market are exempted form paying income tax for two years.
Investors who are inclined to invest in propriety areas, that is to produce mainly export products will be provided land necessary for their investment at reduced rates. PFSA grants local manufacturers a 25 per cent price preference, and also pre-pays 30 per cent of the tender value upon contract award. Where as the balance of the 70 per cent of the award value can be accessed through the Development Bank Ethiopia, if the local company requires additional capital and is willing to cede the tender to the Bank.
Despite the significant support the pharmaceutical industry faces some significant challenges including but not limited to the absence of a national strategic and action plan, human resource capacity constraints, limited access to foreign currency and raw material procurement difficulties.
The Ethiopian Government is opening increasing number of pharmacies in rural areas to overcome distribution challenges and investing in education and training programmes to reduce the shortage of pharmaceutical personnel, says the Frost & Sullivan 2012 research.
The local pharmaceutical companies should form strategic partnerships with overseas manufacturers, thereby enabling them to have access to technical expertise and ability to import raw materials at cost-effective prices. Thus far, the majority of these partnerships have been with Chinese manufacturers. “Access to technical skills will facilitate local companies to upgrade their production processes to conform to international standards, paving the way for export opportunities and donor markets,” underlines the research, “access to bigger markets will allow companies to produce at larger scales that will be sufficient to lower production costs and consequently selling prices.”
Although these challenges exist as possible hurdles for the growth of many pharmaceutical companies, the impact of these challenges on the market is subsiding, making Ethiopia a country with high potential for many opportunities, according to Frost & Sullivan. Large multinational pharmaceutical companies, such as GlaxoSmithKline (GSK), AstraZeneca and MSD, have already managed to gain a firm footing, featuring prominent roles in both the public and private sectors. Earmarked as a country with high growth potential, Ethiopia is set to become the next big thing.