Olu Akanmu contends that the current foreign exchange squeeze in Nigeria makes it imperative to develop a local pharmaceutical industry that is less import-dependent
For the Nigerian pharmaceutical industry that is virtually import-dependent from raw materials to finished products, the quantum of negative exchange rate movement over the last one year has meant skyrocketing prices for pharmaceutical products for those who could source forex. It has also meant reduced capacity utilization for the pharmaceutical companies who are unable to source foreign exchange for their raw materials. The current situation however calls for a deeper reflection on how we would build and develop a pharmaceutical industry that is increasingly less import dependent, and by so doing can absorb the shocks of foreign exchange volatility, which is inevitable in the boom and bursts of global economic cycles. How do we build a pharmaceutical industry that is competitive, at least in some areas of the pharmaceutical industry value chain; and become a critical local player in addressing the health needs of our people while also dominating the exports market in West Africa? Professor Charles Soludo in his lecture titled “Can Nigeria Manufacturing and Pharmaceutical Industry Compete” at the Nigeria Association of Industrial Pharmacists Conference six years ago, in September 2001 x-rayed these issues. The summary of Professor Soludo’s argument, which I extend further, is that the competiveness of the pharmaceutical industry cannot be divorced from the competitiveness of the overall manufacturing sector and the Nigerian economy. Nigeria has consistently ranked near the bottom on international competitiveness ratings such as the recent World Bank’s Ease Doing Business (released last month) where Nigeria ranked 169th out of 190 countries, the World Economic Forum’s Global Competitiveness Index (GCI) also released last month where Nigeria dropped 3 places to 127th out of 138 countries and was only better than countries like Sierra Leone and Malawi, Mo Ibrahim’s Africa governance index (36th out of 54 countries), Transparency International’s corruption perception index (136th) , UN’s Human Development Index , Failed State Index where Nigeria is in the top 15 of the most fragile states in the world.
The competitiveness issues where Nigeria has consistently scored low include infrastructure, access to finance, security, corruption and governance, quality of education, skilled manpower and labour productivity. This low competitiveness prevents Nigeria from benefiting from the “flying geese” economic theory model that says that when labour cost increases in developed markets, old technologies, factories and production moves from developed countries to lesser-developed countries with cheaper labour cost.
China and Japan benefitted from these model as factories moved production from the US and Europe to China. You will recall that this is one the electoral campaign issues of Mr. Donald Trump in the American elections. It should normally have been expected that as China gets more prosperous with wages and labour cost increasing, that global factories and production will then also move to Africa especially Nigeria, given our huge population. This is however unlikely to happen as we do not have the basics in place, like infrastructure, governance, transparency and regulation, skilled and vocational workforce to harness this economic dynamic. The extension of this argument is that while we have seen global pharmaceuticals in a flying geese from Europe (Beechams and Glaxos in the UK) to Asia (in the Ranbaxys in India), unless we deploy the right economic and governance actions, we may not see the pharmaceutical geese flying from Asia to Africa or Nigeria. The geese may be stuck in Asia, in India and China for a long time to come. This is essentially what we have today with the Nigeria pharmaceutical industry with Western multi-nationals dominating advance medicines category and the Indian and Chinese companies dominating the manufacturing of basic generic medicines, leaving our local players to be largely importers of finished products or raw materials.
What must we do to make the pharmaceutical industry geese fly to Nigeria in Africa from India and China in Asia?
Nigeria must develop and adopt a formal comprehensive “National Strategy and Plan of Action for Pharmaceutical Manufacturing”. While researching this paper, I was shocked to see that right under our eyes, some smart African countries like Ethiopia have developed such framework and implementing such , essentially leaving Nigeria behind. The following recommendations on the issues, which the National Strategy and Plan of Action for Pharmaceutical Manufacturing must address, are largely adapted from the Ethiopian framework.
Firstly, we must have improvement of access to medicines through quality local production and implementation of the Good Manufacturing Plan Road Map. Nigeria now has four local companies certified as compliant with WHO Good Manufacturing Standard. We congratulate them on the achievement. We however need to make such standards the norm and not the exception. A formal public and private, inter-sectorial partnership, involving the Federal Ministry of Health, Federal Ministry of Trade and Industry, NAFDAC, PGMAN, PSNand the multilateral agencies need to be deployed to make this happen. This is indeed the model that has been deployed in Ethiopian Plan of Action.
Secondly, we must strengthen the National Medicine Regulatory System. We must continue to strengthen efforts and capacity to eradicate fake drugs and medicine in the pharmaceutical supply chain.
Thirdly, we must create incentives to move our local companies progressively along the pharmaceutical industry value chain from importation of finished products to local manufacturing. We must drive import substitution more aggressively. Government must deploy incentives that moves local players increasingly from importation and distribution of finished pharmaceutical products (Level 1 of the pharmaceutical value chain) to packaging and labeling of imported bulk finished products (Level 2) and then to real product manufacturing which is the manufacturing of finished products from imported active pharmaceutical ingredients (APIs) LEVEL 3, and then to local Active Pharmaceutical Ingredient manufacturing in Nigeria at Level 4) and ultimately Research and Development of new chemical or biological entities( Level 5) .
An audit of the distribution of local players in the pharmaceutical industry value chain suggests that most of our local play is largely between Levels 1 and 3 with about 90% of local players largely in the importation and distribution of finished pharmaceutical products in Level 1 and just about 10% of local players in packaging and labeling and product manufacturing according UNIDO Pharmaceutical Sector report on Nigeria in 2011. To encourage local manufacturing, government must deploy incentives that encourage importers to become local producers through the right discriminatory tariffs and tax policies. The current ECOWAS unified tariff model where tariffs on imported finished pharmaceutical products are lower than pharmaceutical raw materials for local manufacturing therefore needs to be reviewed. It delivers exactly the opposite of this policy objective. It dis-incentivize local manufacturing while encouraging importation of finished products. It kills local jobs in the Nigerian pharmaceutical manufacturing industry while creating jobs in in China and India.
Other incentives will include the encouragement of pooled procurement of raw materials to get scale and cost benefits for local manufacturers, a firm formal policy to patronize local players and local products by government, where there are local manufacturing capacities, where prices are competitive and there is adequate compliance to Good Manufacturing Standards. Similar policies are being implemented called “Local Content” policy in the oil industry to encourage local players. Federal, States and local governments should implement such “local content” policy in their procurement of drugs and medicaments.
Fourthly, we must develop our human resources and local technical capacity through relevant education and training. We must build a stronger university-industry partnership to promote technology innovation, entrepreneurship, supply chain and regulatory management to support the progressive movement of the local pharmaceutical industry to higher levels of the value chain.
Fifthly, we must develop geographic clusters for the production of active pharmaceutical ingredients (APIs). In locations around Lagos, Onitsha and Kano where the pharmaceutical forward supply chain is well-developed, deliberate pharmaceutical industry clusters or industrial parks could be developed that bring local players and their value chain suppliers together with adequate and shared infrastructure for good pharmaceutical manufacturing and distribution. Industrial clusters development in a country with constrained resources allows resources to be concentrated in fewer geographic locations at levels above the minimum effective threshold, that support industrial development rather than scattering them uncoordinatedly and ineffectively across the country. Can we for example plan a pharmaceutical cluster at the Lekki Free Zone around the petrochemical refineries coming on stream and build geographic, and value chain complementarities to support the manufacturing of Active Pharmaceutical Ingredients? (Igwillo, 2016). Lastly, we must develop a national system to coordinate health technology research across our universities and research institutes working closely with industry.
While addressing the above issues, we must continue to put pressure on government to deal with all the issues constraining our broader national development, such as infrastructure, ease of doing business, quality of education, labour productivity and skilled work force, security, governance and the cankerworm of corruption. These issues, as earlier discussed provide the macro context to support the implementation of the National Strategy and Plan of Action for Pharmaceutical Manufacturing”. They are the macro level issues that have made the manufacturing geese unable to fly to Africa from Asia as it flew earlier from Europe to Asia. We should therefore commend the government for its latest move to deal with corruption in the Nigerian judiciary even if by extra-ordinary means. A corrupt judiciary is dangerous for business. A corrupt judiciary means contracts cannot be enforced. A corrupt judiciary means there will be no remedies for the breach of business contracts. It means a rule of the jungle, a state of anarchy, a business market in which there are no rights, rules or remedies. In such situations, business and markets will malfunction or absolutely collapse to the detriment of national development.
Lessons from India and Brazil: Ensuring a non-stunted development of the Nigerian local pharmaceutical manufacturing base.
The evolution of the pharmaceutical industries in Brazil and India can teach us important lessons in how to ensure that the growth of the Nigerian pharmaceutical industry does not become stunted. Today, the world recognise India as an emerging power in the manufacture and export of generic medicines but little is heard of the Brazilian pharmaceutical industry. This is despite the fact that both countries had similar growth ambition and similar opportunities of the relaxed intellectual property right protection environment in the pre-TRIPS era of the international pharmaceutical market. TRIPS is the World Trade Organisation (WTO) Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) which sets the minimum standards for the protection of intellectual property, including patents for pharmaceuticals.
Guennif and Ramani (2010) in their seminal work titled “Catching up in pharmaceuticals: a comparative study of India and Brazil have identified the following factors for the strong growth trajectory of the local Indian pharmaceutical industry compared to the stunted growth of the pharmaceutical industry in Brazil.
a) A consistent, long commitment and execution by the Indian government of an import substitution model, relative discriminatory tariffs that incentivize local production compared to a vacillating commitment of generations of Brazilian governments to import substitution policy. Guennif and Ramani identified the presence of two powerful opposing lobbies in Brazil of local manufacturers pushing import substitution agenda and a counter powerful lobby that pushed for open and unrestrained market for drug importation, actively supported by the multi-national companies (MNC) and the Washington multi-lateral agencies with the argument that unrestrained market will attract more Foreign Direct Investments. India put up a more united front and selectively implemented the advice of the Washington consensus and the MNCs. Guerniff and Ramani (2010) and Nassif (2007) concluded that the vacillating commitment and the poor implementation of import substitution policy by the Brazilian governments had been disastrous for the Brazilian pharmaceutical industry.
b) Role of local players and their different perceptions of opportunities. Whereas Indian local players saw the pre-TRIPS relaxed Intellectual property environment as an opportunity for duplicative imitation of western medicines and mobilize in series of Schumpeterian innovation, competing among themselves to exploit it for their local huge market and then for export, the Brazilian local players preferred importation of bulk drugs and raw materials. The Brazilian local pharmaceutical firms copying the multi-nationals in fact spent more on commercialization and marketing of products rather than investments in local manufacturing.
Regrettably, our local pharmaceutical industry in Nigeria seem to be following the glide path of a Brazil rather than an India. We seem to be unable to build a consensus even among ourselves in the Pharmaceutical Society, that for the long term good of the industry and for the creation of local jobs, we should be united in supporting an import substitution policy that encourage local manufacturing. It is important to emphasize that import substitution policy does not mean a discrimination against everything imported. A country like Nigeria with limited local capacity for production and manufacturing of medicines will in-fact damage public good and health care with such blanket discrimination against all drug imports. The critical issue is to collaborate and identify the categories and products where there are local capacity and implement progressive and gradual import-substitution policy in these areas, with clear set goals and timelines, and leave the rest for inevitable and necessary importation. The local manufacturers must also produce to global standards and deliver prices that are competitive. Import substitution should never become a policy to promote and protect local production inefficiency, which will be at the detriment of the consumer and public good.