Localise drug manufacturing to spur growth

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The Covid-19 coronavirus pandemic has laid bare the many fault lines in our economy and highlighted our external dependence on many lifesaving medicines and medical devices. Picture: iStock
The Covid-19 coronavirus pandemic has laid bare the many fault lines in our economy and highlighted our external dependence on many lifesaving medicines and medical devices. Picture: iStock

VOICES


South Africa has one of the most disproportionate disease burdens in the world.

We harbour 18% of the world’s HIV population and are facing a rising tide of noncommunicable, lifestyle-related diseases such as diabetes, hypertension and cardiovascular disorders.

Against this backdrop, our reliance on imported pharmaceutical and medical device products is growing, compounding an ever-increasing pharmaceutical trade deficit that stood at R20 billion in the department of trade, industry and competition’s latest industrial policy action plan.

With time, this overreliance on imports weakens our domestic industry and thwarts our best efforts to reindustrialise our economy. This is an unsustainable trend as we edge ever closer to the fiscal cliff.

The Covid-19 coronavirus pandemic has laid bare the many fault lines in our economy and highlighted our external dependence on many lifesaving medicines and medical devices.

South Africa must urgently localise and reindustrialise its pharmaceutical industry by further supporting existing pharmaceutical investors and aspirant black pharmaceutical industrialists.

Read: Pandemic lessons: Digitising everyday living is a must for healthcare

The pharmaceutical industry has been identified in President Cyril Ramaphosa’s economic reconstruction and recovery plan as one of the critical sectors in driving economic recovery, improving the country’s fiscal performance and reducing our trade deficit.

Working collaboratively in multistakeholder forums like Nedlac, all the parties agree on the urgent need for enabling environments that leverage latent economies of scale in local manufacturing, not just for the local market and value chains, but also to strengthen our export orientation.

Localising and developing new value chains is a vital aspect to our economic recovery.

The self-evident numbers further expose the faultlines. Pharmaceuticals and medical devices are the fifth biggest contributor to the country’s current account deficit. Pharma alone generates an annual trade deficit of R20 billion against estimated revenue of R58 billion (at factory exit prices).

Astonishingly, antiretroviral (ARV) imports account for the largest portion of this deficit – a sad state of affairs, considering that we earlier pioneered generic ARVs on the continent, making these accessible and affordable to millions who had previously not had access.

Local producers have since lost ground to low-cost competitors from Asia that, in addition to competing on the finished ARV product, control the supply of the active pharmaceutical ingredient that makes up almost 70% of the cost of ARVs.

Almost 80% of our country’s medicine volume purchasing resides in the public sector. In rand value terms, however, it’s the private sector that dominates. Government can use these economies of scale to benefit our country.

Investors, whether foreign or domestic, need certainty and predictability.

To do so, it must fix the current tendering cycle that, on average, runs every two years, and has been one of the biggest causes of deindustrialisation in the sector.

If government had longer-term agreements with local manufacturers that provide guaranteed off-takes, it would help introduce a mind-set in procurement decisions that also assesses the localisation benefits for the country and the multiplier effect back into the economy.

Domestic manufacturing the world over has proven to be one of the most effective triggers for economic growth and sustainable job creation.

The department of trade, industry and competition, together with the Industrial Development Corporation, released a study some time back on locally produced pharmaceuticals, which demonstrated that, for every R1 procured in the public sector from an importer, we lost R0.32 that could have gone back into the economy through the multiplier effect from manufacturing locally, increased tax revenue, jobs and other tangible downstream benefits.

That’s why localising and developing new value chains is a vital aspect to our economic recovery.

Read: HIV | ‘Jozini needs help because all we’re trying to do is just survive’

The current short-term cyclical procurement process poses a big challenge. Issuing multibillion-rand contracts, which require restructuring of factories and supply chain investments, on such short-term bases creates too much uncertainty.

Investors, whether foreign or domestic, need certainty and predictability.

Aspirant pharmaceutical industrialists cannot plan plant capacity or capital expenditure on such short cycles and, as a result, the sector’s deindustrialisation continues unabated.

This also hampers efforts to grow small and medium enterprises (SMEs) in the sector.

Pharmaceuticals Made in SA (PharmiSA), which represents local manufacturers such as Aspen, Adcock Ingram and Biovac, has been making the case on how to sustainably leverage local procurement to attract and retain investment in the sector. We have no time to waste.

Our action-oriented three-point plan proposed at Nedlac is simple to implement, and requires immediate and urgent momentum as the pharmaceutical investment clock moves on.

CREATE PREDICTABILITY IN SOURCING FROM LOCAL SUPPLIERS: This means amending the two-year tendering cycles into longer-term agreements with appropriate price benchmarks and guaranteed off-takes.

For example, South Africa has a steady monthly consumption of close to 6 million ARV patient treatments.

Local manufacturers already have the capacity to make about 2 million of these products and we could further meet demand by supporting SMEs to enter the sector. At the moment, we are not optimising existing in-country capacity.

This would place smaller producers in a better position to source funding on the back of more predictable and sustainable off-take agreements and invest for long-term growth.

However, this requires better certainty and predictability and an optimal management of contract cycles to reverse the current deindustrialisation. Above all, we need the will to press ahead with these basic procurement reforms in the public sector.

ENCOURAGE LOCALISATION THROUGH LOCAL PROCUREMENT: South Africa has an existing mechanism to encourage localisation.

Section 8 of the Preferential Procurement Policy Framework Act makes provision for a department (such as health), in conjunction with the department of trade, industry and competition, to designate a range of products (and their tendering) for local manufacture.

Government is working with the local manufacturing industry in a concerted effort to develop such a list, which would reduce our reliance on imported pharmaceutical products.

A simple place to begin would be ranking the country’s most imported products and assessing the feasibility of reversing the import bias of some of these.

This targeted and measurable approach would go a long way towards addressing the trade deficit, ensuring technology transfers, shorter supply chains and, ultimately, better skilled job opportunities as the sector employs highly skilled people.

THE REGULATOR AS AN ENABLER OF LOCALISATION AND TRANSFORMATION IN THE SECTORWith enabling regulatory conditions, the pharmaceutical sector is ideally positioned to drive increased local investment.

This would provide enticing opportunities to existing domestic investors and black pharmaceutical industrialists, as well as greater SME participation, in line with the country’s transformation and economic revitalisation agenda.

The SA Health Products Regulatory Authority is the agency mandated with ensuring the quality, safety and efficacy of medicines in accordance with the Medicines and Related Substances Act.

The regulatory authority fulfils an important function in ensuring the medicines we take are safe and efficacious.

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However, its mandate under the correct framework, particularly at this time when our economy is struggling to reignite, can be expanded to cover more effective localisation through a fast-tracked registration of locally produced products.

Many countries use their drug regulatory agencies to boost localisation and to either retain or attract new investment.

The above plan resides at Nedlac and has the full buy-in of all social partners. However, as with all of our country’s best laid plans, it will only succeed if we implement it in a focused way, with the least possible red tape and any attendant distractions.

Nicolaou is the chairperson of PharmiSA, a board member of Brand SA and Proudly SA, and a senior executive at Aspen Pharmacare Holdings. He is also a director of Business Unity SA, a member of the Brics Business Council and represents the pharmaceutical sector at Nedlac


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