Barring pharmaceutical imports will not heal Africa’s economy
• Focus on local manufacturing means reduced innovation and less access for the sick
The influential market research firm Frost & Sullivan recently released a report estimating that the African pharmaceutical market would grow to $40bn per year.
The African Development Bank echoed this by noting that “Africa’s pharmaceutical industry is the fastest-growing in the world”. In an oft-cited 2012 report, the McKinsey Institute predicted that the African pharmaceutical market would be worth $45bn-$60bn by 2020.
This growth is evidence of Africa’s success in human development. The good news: Africa’s people are living longer. Yes, the continent of vicious disease, war, corruption and famine has been experiencing an overall increase in life expectancy. Between 2000 and 2015, Africa experienced steady economic growth, a concomitant increase in life expectancy and decrease in infant mortality.
This is significant as it has been occurring since shortly after the HIV/AIDS epidemic in the 1990s and the Ebola outbreak five years ago.
The bad news, however, is that while people are living longer, they are now more susceptible to being diagnosed with the chronic diseases that afflict the middle class across the globe, such as cancer, diabetes and cardiovascular disease.
Not only are Africans living longer, but there is also a growing middle class. In 1980 the African middle class was made up of 111-million people, representing 26% of the population. According to the African Development Bank, by 2010 the number had grown to 313-million, or 34.3% of the population.
With communicable diseases such as HIV/AIDS, tuberculosis and malaria present but in decline, and the growing number of cases of noncommunicable diseases, it is clear that Africa needs access to the same set of interventions as in more developed countries. These include cutting-edge drugs, vaccines and medical devices.
Growth in the African pharmaceutical market presents a “win-win” for companies and patients. It would not only lead to a larger selection of drugs, but could also lead to lower prices for prescriptions for chronic diseases. The McKinsey Institute report concluded that patients would also have “access to medicines previously unavailable on the continent”.
In the area of cancer, Africa will experience an increase that mirrors the rates in developed countries. According to the World Health Organisation (WHO), “the proportional contribution of noncommunicable diseases to the healthcare burden in Africa will rise by 21% through 2030”.
WHO regional director Matshidiso Moeti has stated that the death rate due to cancer is expected to double in the next 20 to 30 years. From this rise “African countries are likely to be the most affected”.
Yet despite this evidence of a rising middle class and an increase in noncommunicable diseases, the cry for barriers to the free flow of medicines into Africa is growing.
The East African Community recently stated its intention to implement a plan to foster local production of drugs and protect domestic markets through high tariff walls against imports. Ethiopia has followed a similar strategy and the director of the West Africa Health Organisation recently visited Ghana to encourage newly elected President Nana AkufoAddo to implement a local manufacturing plan.
If the track record for such measures was different, I would not be so alarmed. But these measures are just another chapter in the woeful saga of African import substitution. Whether it be steel or consumer goods, the effect of import substitution has been higher prices, lower quality and the creation of economic oligarchies often utilising nefarious tools to lock up their market share.
It might be more justifiable if such measures were likely to create jobs, as might have been the case with steel or textiles. However, the pharmaceutical manufacturing business is very capital-intensive.
To build a plant that meets minimum safety standards, modern facilities and processes — which are very mechanised — must be constructed. Indeed, industry sources estimate that only 25% of the cost of a pill is distributable to the manufacturing process, with the remainder expended on research, drug trials, education and marketing.
Even in SA, a developed market which has a large middle class, its largest generic pharmaceutical manufacturer, Aspen Pharmaceuticals, reported disappointing sales in 2016 into the rest of sub-Saharan Africa despite capital investment in modern production facilities.
Even in an integrated market such as the East African Community, will barriers be erected to bar entry of South African manufacturers? In effect, the result is a tax on the sick and a drain on the productivity of a national workforce.
If Africans really want to grow their economies, they should move away from protected trade to a model based on innovation. In a recent article in Quartz Africa, Harvard research fellow Efosa Ojomo said: “Once innovation is at the core of development, trade will happen and prosperity will emerge.”
Africa should create enabling environments that afford protection of intellectual property and offer competitive tax regimes to attract investment, research and development, and construct corresponding educational institutions to support that investment.
African governments need to engage private-sector investors to help guide policies that encourage competition and enable entrepreneurship, and question proposals that would erect barriers to trade or create harmful local cartels.
Costa Rica and Jordan are two middle-income economies that pursued such policies, with great results. In fact, Jordan was so successful that a local drug maker met US federal drug administration standards and imported products directly into the US market. Africa could follow a similar model to success.
IF AFRICANS WANT TO GROW THEIR ECONOMIES, THEY SHOULD MOVE AWAY FROM PROTECTED TRADE