Ethiopian government has identified several strategic investment areas as a priority that deserve incentives in order to attract the private sector. One of the major area that is currently enjoying a significant amount government incentives is the manufacturing sector. With the objective substituting the bulk import of manufactured products, which is consuming the already scarce hard currency of the country, the government has been providing incentives for the private sector interested to be engaged in a range of light industries.
Agro-processing such as production of textiles, leather and food processing and packaging are identified by the government as strategic sectors that have the potential to create a huge amount job while supporting the agriculture sector that mainly depend on small scale farmers, who provide their products as an input for these industries.
In addition, the government has also been encouraging the local production of medicines and chemicals, with the main intention of saving the several hundreds of millions of hard currency the country spend in importing the products and facilitating the technology transfer in the sector.
But most of all, local production of generic medicines promises affordability, accessibility and availability of needed drugs, according to report of the World Health Organization (WHO).
Pharmaceutical sector of Ethiopia
Currently Ethiopia’s pharmaceuticals market is estimated to reach around half a billion dollars. Frost and Sullivan in its 2012 survey estimated that Ethiopian pharmaceutical market could grow by 14% annually and reaches around one billion dollars by 2018.
There are around nine local pharmaceutical manufacturers in the country, out of which only three have WHO’s Good Manufacturing Practice (GMP), which allow them to export their products and participate in government tenders financed by donors.
Some 200 importers of pharmaceuticals products and medical consumables are also operating in the country. The local industry currently comprises of 22 pharmaceutical and medical supplies, manufacturers, of which nine are directly involved in the manufacture of pharmaceutical products.
The Ethiopian Food, Medicines, Healthcare Administration and Control Authority procurement has reached to $310 million in 2014 from $27 million in 2007.
The incentives
Current incentives by the government for local production of pharmaceutical products include tax free loans of up to 70% for new investments and up to 60% for upgrading projects for the first five years from the dedicated government bank- the Development Bank of Ethiopia.
There is also a 100% custom duty exemption on import of all granted capital goods, such as plants, machinery equipment, and construction materials. Spare parts at up to 15% of the total value of imported investment capital goods are exempted from customs duty.
Those exporting 50% their products or services, or supplying 75% of their products or services as production or services input to an exporter are exempted from income tax for five years. While those exporting less than 50% of their products or services of their products or those supplying only to the domestic market are exempted from income tax for two years. Investors who invest in priority areas to produce mainly export products will be provided with land necessary for their investment at reduced lease rates.
The tender authority grants local manufacturers a 25% price preference, and also prepays 30% of the tender value upon contract award. The balance of the 70% of the award value can be accessed through the Development Bank of Ethiopia if the local company requires additional capital and is willing to cede the tender to the bank. While product registration for local manufacturers is also reduced to an average of one month.
Meanwhile the 25 pages document states that “on their own, these incentives are not enough to spur the development of the industry.”
The result
There are around nine local pharmaceutical manufacturers in the country, out of which only three have WHO’s Good Manufacturing Practice (GMP), which allow them to export their products and participate in government tenders financed by donors.
Pharmaceutical industry performance report shows that most the manufacturers in the country have been operating below their capacities due to several problems, and supply only around above 20% of the market.
At the same time the variety of products by the local pharmaceutical manufacturers is also limited. They have been producing only 90 of the more than 380 products on the national essential medicines list.
In 2014, local pharmaceutical companies supplied products to the value of close to $44.23 million. In addition to the absence of national strategic and action plan, the Ethiopian pharmaceutical industry has been facing significant challenges such as human resource capacity constraints, limited access to foreign currency and raw material procurement difficulties.
With all the supports extended to the sector and ambitious targets set for the sector, the performance of local manufacturing of medicines was insignificant. Even though the country has planned to produce locally and export worth $20 million pharmaceutical products from 2010 – 2015, it only attains 10% of its target. The local products cover only 20% of the total local market.
What next?
Supported by the WHO, the government has revealed a five year strategic and action plan to boost local production of essential medicines. Labeled ‘A national strategy and plan of Action for pharmaceutical manufacturing development in Ethiopia (2015-2025)’ was brought for discussion in Addis Ababa last month (June).
The document was produced by the WHO based on the request by the government of Ethiopia. It “explicitly combines the objectives of industrial development policy and those of health policy in order to develop the sector, grow the economy and help the people to access locally produced good quality affordable medicines.”
“We are not interested in supporting local pharmaceutical industries if local people and local population continue to suffer and die because of lack of access to essential medicines,” says, Dr. Zafar Mirza, Coordinator, public health innovation and intellectual rights at WHO.
This ten years strategic vision and five years action plan generally envisages to boost the share of local manufacturing to 50% and make essential medicines affordable to the public at large. “Though the pharmaceutical sector was identified by the government as one of the eight priority sectors, we had no comprehensive strategy like this one,” says Dr. Kebede Worku, State Minister of Health of Ethiopia, in commenting on the document tabled for discussion on June 2, 2015.
The strategy now envisages export of $30 million five years after and $80 million by 2015. It aims to make essential drugs affordable for local people while at the same time creating jobs and cutting the over $300 million dollars hard currency every year, which the country invests for importing pharmaceutical products and drugs
During Ethiopia’s 2nd round Growth and Transformation Plan (GTP II) – 2015-2020, the country envisages to raise the share of domestic pharmaceuticals industry market to 50% and create jobs to close to 7,000 people.
Dr. Mebrhatu Meles, Ethiopia’s State Minister of Industry thinks that the targets are attainable with additional incentives and special focuses to the sector. “However, much more is still to be done in order to achieve these targets,” he says indicating that the government is considering additional incentives.
“As the pharmaceuticals industry operates under complex internal and external requirements, the [strategic] document is believed to encompass, among other things, issues such as human resource development, regulatory infrastructure, quality standards, WHO’s Good Manufacturing Practices (GMP), supply chain, research and development, technology transfer pharmaceutical data and information and financing,” he said.
Creation of windows of opportunity such as through incentive packages and protection of local manufacturers are crucial, according to Dr. Skhumbuzon Ngozwana, WHO consultant, who also suggested more incentives for companies to invest in the pharmaceutical sector of Ethiopia.
“Ethiopia is building the ship as it sails”, said Prof. Tsige Gebre Mariam, one of WHO consultants engaged in preparation of the strategic plan, commenting on the multiple challenges the sector has been facing.
Now the major challenge for the sector regulators is to figure out what they can do differently, which they haven’t done during the first growth and transformation period (2010-2015) in order to boost the performance of local manufacturing of essential drugs.
[Ethio American Diaspora Business Forum Magazine]