W1 Pharmaceuticals Policy Brief

THE AfCFTA AND TRANSFORMATIVE INDUSTRIALISATION WEBINAR SERIES

PHARMACEUTICALS, HEALTH CARE VALUE CHAINS AND HEALTH RESILIENCE POLICY BRIEF 2021, Cape Town

Linkoping House 27 Burg Road Rondebosch 7700 Cape Town T +27 (0) 21 650 1420 F +27 (0) 21 650 5709 E mandelaschool@uct.ac.za www.mandelaschool.uct.ac.za

Design: Mandy Darling, Magenta Media

Contents Introductory Note........................................................................................................................................... 2 Speaker Bios .................................................................................................................................................... 3 The prospects for regional value chains in Africa’s pharmaceutical sector....................................... 7 Summary........................................................................................................................................................... 7

1. Introduction ....................................................................................................................................... 8

2. The current state of the pharmaceutical industry in Africa .................................................. 10 The socio-economic context of Africa...................................................................................... 10 Pharmaceutical markets in Africa .............................................................................................. 10 Local pharmaceutical production ..............................................................................................12 Challenges and opportunities of the African pharmaceutical industry .............................13 Niches for expansion of local product portfolios ...................................................................15

3. Requirements for regional pharmaceutical value chains in Africa........................................18

4. Conclusion and policy recommendations..................................................................................21

References............................................................................................................................................ 22

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Introductory Note AfCFTA and Transformative Industrialisation Dear Reader, 2020 proved to be a challenging year for people across the world.

Of note the impact of the Covid-19 pandemic on families, communities and nations reminded us of the need to strengthen democratic governance and pursue development sustainably. The African Continental Free Trade Agreement presented a unique opportunity to explore the challenges and opportunities for better integration of regional value chains in the pharmaceutical, agricultural and textile industries.

Successful delivery of our four-part webinar series was made possible through partnership with the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg, the Centre for Comparative Law in Africa (CCLA) and the Policy Research in International Services and Marketing (PRISM) at the University of Cape Town, Trade and Industrial Policy Strategies at the University of Pretoria, the Toyota Wessels Institute of Manufacturing Studies (TWIMS) in Durban, the Nigerian Institute of Advanced Legal Studies and the Africa International Trade & Commerce Research in Nigeria.

We are especially grateful to our distinguished speakers who shared their experience and recommendations, thereby contributing to vibrant

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discussions during our webinar series. We had the opportunity to relay these recommendations to the Secretary General of the AfCFTA Secretariat, H.E. Wamkele Mene, in December 2020.

This Policy Brief on Pharmaceuticals, Healthcare Value Chains and Health Resilience, outlines key policy issues to improve pharmaceutical production and promote regional value chains in Africa.

We would like to thank Mr George Awuah, a member of our research team on the AfCFTA and Transformative Industrialisation Project, who compiled this policy brief.

This work forms the foundation in our efforts to build a network of experts working on issues related to transformative and sustainable industrialisation through the Industrialisation and Development Forum. In 2021, we will continue this series to explore digitisation and opportunities for green industrialisation.

We hope you enjoy reading this report and look forward to your comments. If you would like to receive more information about this ongoing project, please contact Ms Mabel Nederlof-Sithole, who is leading our Building Bridges Programme (mabel.sithole@uct.ac.za).

Click here to view webinar videos.

Warm regards, Faizel Ismail

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

Speaker Bios (In order of appearance) Dr Arkebe Oqubay Arkebe Oqubay, PhD, is a Senior Minister and Special Adviser to the Prime Minister of Ethiopia, and has been at the centre of policymaking for over 30 years. He has served as a chair and vice-chair on the boards of several leading public organizations and international advisory boards. He is the former mayor of Addis Ababa, won the ABN’s Best African Mayor of 2006 award for transforming the city, and was a finalist in the World Mayor Award 2006. Dr Arkebe was recognized by the New African as one of the 100 Most Influential Africans of 2016 and a “leading thinker on Africa’s strategic development” for his work on industrialization and industrial policies, both theoretical and practical. The Order of the Rising Sun, Gold and Silver Star, was presented to him by the Emperor of Japan in recognition of his distinguished achievements.

He is a Professor of Practice at the University of Johannesburg (South Africa), a visiting professor at Sciences Po (Paris) and Nanyang Technological University (Singapore), and a distinguished visiting professor at Fudan University (Shanghai). Dr Arkebe is a UNU-WIDER Honorary Research Fellow, a Distinguished Fellow at the London-based think-tank the Overseas Development Institute (ODI), and a research associate at the Centre of African Studies in the University of London. He holds a PhD in development studies from SOAS, University of London.

His research focuses on core development economics issues, including structural transformation, industrial policy, economic catch-up, and global transformation, with a particular interest in developing countries. His published works include the path-breaking Made in Africa (Oxford University Press, 2015); The Oxford Handbook of the Ethiopian Economy (Oxford University Press, 2019); How Nations Learn: Technological Learning, Industrial Policy, and Catch-Up (Oxford University Press, 2019); China-Africa and an Economic Transformation

(Oxford University Press, 2019); African Economic Development: Evidence, Theory, and Policy (Oxford University Press, 2020); The Oxford Handbook of Industrial Hubs and Economic Development (Oxford University, 2020); and The Oxford Handbook of Industrial Policy (Oxford University Press, 2020).

Pharm (Mazi) Sam Ohuabunwa Pharm Mazi Sam Ohuabunwa, OFR, is the national president, Pharmaceutical Society of Nigeria. He is a fellow of several professional organizations, the most prominent being, the Pharmaceutical Society of Nigeria (FPSN), the Nigerian Academy of Pharmacy (FNA. Pharm), the West African Postgraduate College of Pharmacists (FPC. Pharm), the Nigerian Institute of Management (FNIM), the National Institute of Marketing of Nigeria (FNIMN), the Nigerian Institute of Public Relations (FNIPR), and the Institute of Management Consultants (FIMC).

Pharm Sam is the Past Chairman, Nigerian Economic Summit Group (NESG), Past President, Nigeria Employers Consultative Association (NECA), Past Chairman, Manufacturers Association of Nigeria (MAN), Ikeja and once National President of the Nigerian American Chamber of Commerce (NACC).

Pharm Mazi Sam Ohuabunwa studied Pharmacy at the University of IFE (Now OAU) graduating in 1976. He did Postgraduate training in Business and Organizational Management at Columbia University, N.Y, USA and the Lagos Business School. He joined Pfizer Products Plc. in 1978 as a Pharmaceutical Sales Representative and rose to become the Chairman/CEO in 1993. In 1997, Mazi Sam Ohuabunwa led the Management Buy-Over of Pfizer Inc. shares in Pfizer Products Plc., transforming the resultant company – Neimeth International Pharmaceuticals Plc. into a medium-sized Nigerian R&D Based Pharmaceutical company. He voluntarily retired from the company after 33 years’ service in the industry, 18 years of which were at CEO level.

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Dr Daniella Munene

Pharm Ignatius Anukwu

A pharmaceutical professional with experience in strategic planning, business development, team leadership, and management of key stakeholder relationships in health. Over the course of her career, Daniella has focused on quality management systems for the health supply chain, organizational regulatory compliance and is now engaged in advocacy for better health systems. Armed with a strong passion for equitable health for all, Daniella is involved in policy recommendations and idea mobilization in the pharmaceutical sector towards attainment of universal healthcare coverage.

She has contributed to development of various health sector policies, notably the WHO Guidelines on self-care interventions for sexual and reproductive health and rights.

IG Anukwu is the National Chairman of the Association of Industrial Pharmacists of Nigeria (NAIP) where he leads National Advocacy for the establishment of Pharmaceutical Manufacturing Parks in Nigeria as a panacea for unleashing the Nigerian Pharmaceutical Industry.

Dr Skhumbuzo Ngozwana Dr Ngozwana is CEO of Kiara Health, a South African based Africa-focused healthcare company. He is an international expert on the African Pharmaceutical industry and has worked with both the private and global public health organizations. He consulted to the World Health Organization (WHO), United Nations Industrial Development Organization (UNIDO) and the United States Pharmacopeia Convention (USP). He co-authored the Pharmaceutical Manufacturing Plan for Africa. The plan was the output of the extensive research and analytical work he conducted on the African pharmaceutical industry.

He co-authored the Ethiopian Pharmaceutical Sector Strategy and Action Plan and the pharmaceutical sector strategies of several countries. He consulted for USP on their Africa strategy and authored a Thought Leadership Paper titled, The Next Frontiers for the Public Health Medicines Market: Rethinking Priorities for Improved Access to Quality-Assured Medicines for Universal Access.

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IG Anukwu holds a Bachelor of Pharmacy degree from the University of Nigeria, Nsukka and a Master of Pharmacy degree in Clinical Pharmacy and Bio-Pharmacy from the University of Lagos.

With over 25 years of experience in the Nigeria Pharma Industry, IG has a track record of leading innovation through planning and successful implementation of business strategies. He is currently the Chief Operating Officer of Alpha Pharmacy; a wholly indigenous firm renowned for providing rare ethical pharmaceutical products across the length and breadth of Nigeria.

Alpha Pharmacy and Stores Limited also operates a retail chain across the country where IG is achieving corporate goals through the development and motivation of people.

Prior to joining Alpha Pharmacy, IG has recorded outstanding performance and leadership in diverse roles of increasing responsibility in the industry through formulation and implementation of Sales, Marketing, Brand Planning and Business Development Strategies to drive revenue growth.

IG Anukwu is a Merit Award winner of the Lagos State Pharmaceutical Society of Nigeria.

He has served the Pharmaceutical Society of Nigeria in various capacities and is, at present, a member of the National Executive Committee (NEC) and council of the PSN. IG is a member of the International Pharmaceutical Federation (FIP).

IG Anukwu is married to Isioma and their marriage is blessed with children.

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

Mr Seth Akweshie Seth Akweshie, who holds qualifications in economics, international business management and accountancy, has a distinguished career as an academic (Fulbright scholar and university lecturer) and industrial civil servant and is an accomplished industrial development consultant specialising in African industry.

His more than 40 years’ experience encompasses regional, national, sector and company issues. He has particular experience in inclusive and sustainable industrial development; sustainability & cleaner production; industrial governance; industrial upgrading and modernisation; and industrial cooperation and regional value chains.

He has worked across Southern, East and Central Africa for key UN agencies and regional trade groupings. He was appointed by UNIDO as the SADC Regional Coordinator for the African Productive Capacity Initiative (APCI) and is well-connected to senior industrial sector policy makers throughout the region. He was the Industrialization Advisor to the SADC Secretariat from March 2017 to May 2018.

Ms Kirti Narsai Kirti Narsai has 23 years of experience of working in various roles in the healthcare industry and has won several awards during her career for leadership, innovation, and performance. She has held many technical and managerial roles which have given her broad exposure across commercial and noncommercial areas across broad geographical areas. She currently runs her own consultancy focusing on health and trade policy issues in Africa while completing her PhD in Pharmaceutical Policy at the Utrecht University, Netherlands focusing on health products regulation

in the Southern African region. Prior to this, she served as Senior Director, Government Affairs & Policy at Johnson & Johnson with responsibility for Sub Saharan Africa where she was responsible for proactively assessing, influencing and shaping the rapidly evolving Health Policy environment in the region across the company’s core focus areas: medical devices, pharmaceuticals and consumer products. She also completed the Ascend Accelerated Leadership Development Program at Johnson & Johnson during 2018, reserved for women identified for accelerated development. She has facilitated the African Regional Business Network meeting of the World Economic Forum for Africa and appeared in a panel interview on CNBC Africa on the African Continental Free Trade Agreement.

She has held several board positions at Johnson & Johnson Medical Devices, South Africa, Johnson & Johnson Consumer, Sub-Saharan Africa, Nepad Business Foundation, Janssen, Pharmaceutical Companies of Johnson & Johnson, South Africa, American Chamber of Commerce, South Africa, National Business Initiative. She has also been a member of several special interest groups: World Economic Forum, African Regional Business Network, Johnson & Johnson, Africa Innovation Challenge Leadership team, Transformation Advisory Committee – National Business Initiative, Gauteng government task team for investment in pharmaceutical and medical devices sector.

Previously she was Head: Scientific and Regulatory Affairs at the Pharmaceutical Industry Association of South Africa (PIASA), a trade association representing pharmaceutical companies in South Africa. Kirti focused on strategic scientific, health and pharmaceutical policy issues affecting pharmaceutical companies operating in South Africa and other African countries across 4 regional economic communities.

Kirti has published several reports, submissions and research papers in international peer reviewed journals on policy issues affecting the pharmaceutical industry. She facilitated and chaired various industry working groups focusing on key policy issues and also convened the first Cold Chain forum in SA. She was responsible for trade industry submissions on various draft policy issues, including National Health Insurance, Pharmaco-economics, draft

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regulations, and reimbursement of medicines, product quality, pharmacovigilance and clinical trials. Kirti began her career in the pharmaceutical industry with Janssen, pharmaceutical companies of Johnson & Johnson in 1997 in Medical Affairs and Pharmacovigilance. She held several positions of increasing responsibility in Medical Affairs at AstraZeneca Pharmaceuticals. She was also Programme Manager at a leading health insurance company, PruHealth (a division of Discovery Health). Kirti is a qualified pharmacist, with a M.Sc. (Pharmaceutics) (cum laude) and an MBA (GIBS) (dissertation with distinction). Kirti is passionate about health and related policies and their impact on patients and public health in African countries.

Mr Marlon Burgess Having held Management and Director positions with many local and international brands such as Johnson and Johnson, Dinaledi Medical, Philips and Stryker, Marlon Burgess brings a wealth of knowledge and years of experience to ASH. In 2015, Marlon completed his tenure as Chairman of SAMED and still is an active Board Member. Marlon also Chairs: AMCHAM Health Forum and SAMED’s Public Sector Committee.

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Professor Caroline Ncube Prof Caroline Ncube is an NRF rated researcher and holds the DST/NRF SARChI Research Chair in Intellectual Property, Innovation and Development. She holds a PhD from the University of Cape Town, an LLB degree from the University of Zimbabwe and an LLM from the University of Cambridge. She is a Fellow of the Cambridge Commonwealth Society and a Shell Centenary Fund Scholar.

She is an Associate Member of the Centre for Law, Technology and Society, at the University of Ottawa.

Professor Ncube joined the Department of Commercial Law, as a lecturer, in January 2005. Since then, she has served as Head of the Department of Commercial Law (2014 -2016) and Deputy Dean, Postgraduate Studies (2017). Before joining UCT, she lectured at the University of Limpopo (formerly University of the North) and the University of Zimbabwe.

Prior to embarking on an academic career, she briefly practised as an attorney.

Professor Ncube plays an active role in various professional associations and networks. She is often invited to give lectures and seminars in Intellectual Property to various constituencies.

She is also actively involved in research projects that focus on open development, access to knowledge and the promotion of a balanced approach to IP. She is the founding co-editor of the South African Intellectual Property Law Journal and serves on the editorial boards of the Journal of Corporate and Commercial Law & Practice, the African Journal of Intellectual Property and the African Journal of Information and Communication.

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

The prospects for regional value chains in Africa’s pharmaceutical sector Summary Local pharmaceutical production has been acknowledged as important to ensuring reliable access to affordable and quality-assured medicines in the developing world. For Africa, the high and shifting disease burden, together with rapid urbanisation and other factors that are driving a surge in demand for healthcare products and services, represent a significant industrialisation opportunity if competitive regional pharmaceutical value chains can be developed at a rate at which the demand is growing. This policy brief examines the prospects for the evolution of African pharmaceutical value chains in light of the promise that the African Continental Free Trade Area (AfCFTA) for more impactful intraregional trade that supports transformative industrialisation. It is emphasised that even though the AfCFTA affords market economies an opportunity to revisit and overcome the constraints to boosting local pharmaceutical production, it is not a panacea for the continent’s excessive dependence on pharmaceutical imports. It is argued that the current global climate of Coronavirus Disease and Africa’s scramble for vaccines and medicine to counter this menace, in the context of launching a continent-wide trade bloc, makes it even more imperative for the AfCFTA to prioritise the pharmaceutical value chain in its implementation programme.

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1. Introduction Transformative industrialisation remains a development imperative for Africa. Over the last two decades, positive anecdotes of economic growth on the continent have largely been driven by gains in primary resource export. Lopes and te Velde (2021) have argued that while Africa’s share of manufacturing value-added between 2000 and 2017 reflects a slight decline from 12.6 to 11.3% of GDP, its overall level of industrial growth since 2000 has been significant. However, economic growth, as the African Development Bank (2016) recounts, has not been inclusive enough in creating jobs and improving the quality of life.

Today, there is still a heavy reliance on imports for manufactured goods, including essentials such as medicines.

Examples of dynamic industrial clusters, large scale indigenous manufacturing firms and domestic technological development are few

and far between (Markowitz & Black, 2019).

More conspicuous, however, is the virtual absence of regional value chains (RVCs), which have been an integral aspect of rapid industrialisation success in Asia (UNESCAP, 2015).

Trade in value-added goods within the region is by far the lowest in comparison with Asia and Latin America (Slany, 2019).

In this context, the African Continental Free Trade Area (AfCFTA) offers an opportunity for the continent to recommit itself to transformative industrialisation by building competitive and robust RVCs that exploit existing comparative advantages and complementary features within the region including differentiated labour cost, productive capabilities, natural resource endowment and geopolitical advantages (Weigert & El Dahshan, 2019). The appeal of RVCs as an industrialisation pathway for the African continent is four-fold (Figure 1).

Mitigating negative distributional impacts In the context of AfCFTA, RVCs constitute a viable strategy for mitigating possible negative distributional impacts that Africa’s smaller and more vulnerable economies are likely to suffer under AfCFTA trade liberalisation (Ismail, 2018).

Transitional solution for competitive integration into GVCs Given the individual African countries’ lack of competitiveness in global trade, RVCs offer transitional solutions for regional firms to progressively upgrade their production process and optimise productivity before integrating competitively into global value chains (GVCs) (Weigert, 2016; Slany, 2019).

Opportunity for diversifying from global supply chains and their risks RVCs offer an opportunity for diversifying from global supply chains thereby reducing the continent’s exposure to future adverse global shocks (Banga et al, 2020).

Suited for industrial development in sectors unique to the continent RVCs are uniquely well-suited for industrial development in sectors where idiosyncratic factors determine consumption behaviours and market opportunities (Weigert & El Dahshan, 2019).

Figure 1: The appeal of RVCs as an industrialisation pathway for the African continent

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Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

The case for African RVCs is compelling, especially in the pharmaceutical sector. From the continent’s high disease burden and excessive dependence on imports of essential medicines, to the distinctive regional health problems for which there is no investment case for large extra-regional pharmaceutical firms, the need for an African pharmaceutical production network cannot be overemphasized. Undeniably, the Coronavirus pandemic (Covid-19) has exposed the supply chain risks of Africa’s excessive import dependency for pharmaceuticals and amplified the urgency to build competitive and robust value chains in this sector on the continent (Banga et al, 2020; Steele et al, 2020). Yet, an even more compelling boost to local African pharmaceutical production, is the economies of scale the AfCFTA affords in overcoming the market size constraints, commonly cited as an obstacle for pharmaceutical manufacturers on the continent (Chaudhuri et al, 2010; Kaplan & Laing, 2005).

To this end, the question of whether Africa will continue to rely on imports to meet pharmaceutical demands or focus resources on the development of local industries and competitive RVCs requires urgent consideration. Drawing on discussions organised under the “AfCFTA and Transformative Industrialisation Webinar

Series” this policy brief examines the potential of building a competitive and robust regional pharmaceutical value chain on the African continent. The rest of the paper is structured as follows. Section 2 presents an examination of the current state of the pharmaceutical industry in Africa. The requirements for achieving a competitive regional pharmaceutical production network are set out in Section 3. Section 4 then presents the conclusion and policy recommendations.

“If it is a health problem that has caused this economic meltdown, should we not be reverseengineering the entire process to strengthen our system to protect the economy?”

Mr Marlon Burgess (Chairman, Medical Device Manufacturers of South Africa (MDMSA))

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2. The current state of the pharmaceutical industry in Africa The socio-economic context of Africa

(about 35% in 2015) that have pushed many people into poverty (UNECA, 2020).

The African continent is a diverse region, with wide variations across countries in terms of population, disease burden and health outcomes. Yet, as the home to about 16% of the world’s population, the continent bears a disproportionate global disease burden of about 23% (UN, 2020; GHDx, 2020). Besides accounting for the bulk of the global infectious disease burden, including 75% of the world’s HIV/AIDS cases and 90% of the deaths due to malaria, there is a growing prevalence of non-communicable diseases (NCDs) such as cancer, hypertension and diabetes which are projected to overtake communicable diseases as the leading causes of death by 2030 (Mathers & Loncar, 2006). In 2015, for instance, Africa accounted for just 1% of total global health expenditures. In per capita terms, current health expenditure averaged US$121, which is very low compared to the global average of US$833 (Table 1) (Ogbuoji et al, 2019). Unpredictable donor aid, scarce public resources, growing health financing needs and rising healthcare demands have meant huge health financing gaps (about US$66 billion per year) and private out-of-pocket expenditure

Pharmaceutical markets in Africa The pharmaceutical industry in Africa is one of the fastest-growing industries in the world and it is projected to grow even stronger, propelled by rapid urbanisation, the expansion in healthcare capacity and the maturing of the business environment (Holt et al, 2015). With projected 2020 value between US$40 billion and US$60 billion, Africa’s pharmaceutical market is far below the US (with an estimated value of US$393 billion) and Japan (US$123 billion).

Nevertheless, with an estimated compound annual growth rate (CAGR) of 9.8% – compared with just 2% for the US and 1% for Japan – the promise of the African pharmaceutical industry lies not in its market size but in its rapid growth and the dynamics that drive sustainable growth at a time when the major established pharmaceutical markets face a slow and stagnating growth.

The impressive headline figures, however, mask a much more complex reality: Africa is not one unified market but 55 distinct ones, with

Table 1: Health expenditure information by region, 2015 Region

Total health expenditure (% of GDP)

Total health expenditure (USD per capita)

Africa

6

Americas

Funding Source (%)

Buyers

Domestic

External

Government

Household

121

77

23

32

44

7

975

97

3

55

42

10

Eastern Mediterranean

5

566

97

3

50

47

6

Europe

8

2 232

99

1

63

36

5

South East Asia

4

170

94

6

45

49

7

Western Pacific

7

931

85

15

59

26

6

World

6

833

91

9

51

41

8

Source: WHO Global Health Expenditure Database (2020)

10

Other

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

Figure 2: Top 10 African importers of medicinal and pharmaceutical products (US$ M, average 2016–18) Egypt

2382

South Africa

2306

Algeria

2065

Nigeria

943

Morocco

Tunisia

South Africa

460

Egypt

238

Kenya

104

Morocco

102

Tunisia

678

Ethopia

Figure 3: Top 10 African exporters of medicinal and pharmaceutical products (US$ M, average 2016–18)

Mauritius

614 539

52 34

DRC

27

Kenya

483

Uganda

20

Sudan

418

Eswatini

15

Ghana

14

Tanzania

374 0

500 1000 1500 2000 2500 US$ million

0 100 200 300 400 500 US$ million

Source: UNECA (2020) based UNCTADstat data

Source: UNECA (2020) based UNCTADstat data

great diversity between countries in terms of both their market size and growth trajectory.

Indeed, the rapid industrial growth is driven by only a small number of countries – South Africa, Nigeria, Ghana, North Africa and some Eastern African countries (Figure 2 and 3) (Banga et al, 2020).

Even worse, all African countries are net importers of medical and pharmaceutical products, with the continent as a whole importing 94% of its pharmaceuticals (UNECA, 2020). Indeed, trends in pharmaceutical trade over the past decade shows that while pharmaceutical exports from the continent have been relatively stagnant, imports have grown steadily. And while intra-continental trade forms a significant share of the continent’s pharmaceutical exports, sources of African pharmaceuticals imports are extra-regional, with the EU27, India and Switzerland being the top three imports sources (Figure 4 and 5).

Access to affordable and quality-assured medicines, while essential for achieving equitable health systems and better public health outcomes, remains a challenge for many communities on the African continent. Approximately half of the population in Africa lacks regular access to essential medicines and many are required to pay for medicines before receiving care (Chaudhuri et al, 2010; Leive & Xu, 2008, as cited in Broccoli et al, 2018). Barriers to the attainment of quality and affordable medicines include low patient purchasing power coupled with high out-of-pocket payments, prevalence of sub-standard and falsified medicines and more importantly, weak local pharmaceutical manufacturing capacity (EQUINET, 2013; Cartwright & Baric, 2018).

Less apparent from the excessive import dependency is the continent’s weak backward integration into the global pharmaceutical manufacturing value chains. Besides heavy importation of finished pharmaceutical products, local pharmaceutical firms on the continent also rely heavily on imports for raw materials. A classic demonstration of weak backward integration capability is the Kenyan pharmaceutical manufacturers’ dependence on imports for processed artemisinin to make

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Figure 4: Africa’s import sources of pharmaceuticals (2016–2018)

3,3

Figure 5: Africa’s export destinations for pharmaceuticals (2016–2018)

8,7

3,3

3

2,6

4,3 18

5,2 7,7

51,5

56,6

16,5

19,3

■ EU-27

■ India

■ Switzerland

■ Africa

■ EU-27

■ Other

■ China

■ US

■ UK

■ Saudi Arabia

■ US

■ Yemen

■ Other

Source: UNECA (2020) based UNCTADstat data

Source: UNECA (2020) based UNCTADstat data

anti-malarial drugs even though Kenya exports raw artemisinin (Asoko Insight, 2019, as cited in Banga et al 2020). Across the continent, India and China constitute the main sources of imported intermediate pharmaceutical products (Table 2).

In terms of value creation, local producers also play in a limited range of the value chain. The majority of the local manufacturers in the African pharmaceutical industry predominantly focus on importation and sales of finished products, manufacturing activities largely confined to secondary manufacturing (ie formulation and production of finished dosage forms), or packaging and labelling of finished products.

For instance, there are only three pharmaceutical companies on the continent – two in South Africa and one in Ghana – that produce active pharmaceutical ingredients (APIs). Around 100 of the manufacturers on the continent are also limited to packaging and labelling of finished products. All other manufacturers focus on simple formulation and mixtures, purchasing APIs from Indian and Chinese manufacturers and formulating them into finished medicines (McKinsey & Company, 2019).

Local pharmaceutical production Local pharmaceutical production in Africa lags behind other regions. Numbering roughly 375, local manufacturers on the continent produce only 25–30% of pharmaceuticals and less than 10% of medical supplies that are distributed in the African market (Banga et al, 2020). The 375 drug makers, mostly in North Africa, within a continent with a population of around 1.3 billion people, compares with as many as 5 000 and 10,500 drug manufacturers operating within populations of roughly 1.4 billion in China and India respectively. In sub-Saharan Africa, only Kenya, Nigeria and South Africa have a relatively sizable industry, with dozens of companies that produce for their local markets and, in some cases, for export to neighbouring countries (McKinsey & Company, 2019).

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Local pharmaceutical companies on the continent also report underutilisation of installed capacity. In east Africa, for instance, while local companies are projected to have sufficient capacity to cater for most of the pharmaceu-

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

Table 2: Share of China and India in African imports of intermediate pharmaceutical products Importing country

Exporting country

Intermediate pharmaceutical product HS 3001 Glands and other organs for organotherapeutic uses

Ghana

Kenya

Tanzania

2.13

1.60

India

58.34

45.93

China

10.65

South Africa

Medicaments consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses

HS 3005 Wadding, gauze, bandages and similar articles

HS 3006 Pharmaceutical goods not elsewhere specified (n.e.s.)

64.62

10.08

56.07

10.88

8.57

1.08

15.90

70.95

27.15

25.81

11.41

4.37

5.47

3.55

12.67

96.02

57.89

India

33.49

30.81

0.14

1.78

China

1.83

0.28

78.82

60.47

18.54

91.76

4.75

13.79

China

0.21

0.01

76.62

4.45

India

14.15

47.22

3.52

9.04

China

India Uganda

HS 3003

Human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses

China

India Nigeria

HS 3002

9.88

95.17

China

20.10

0.12

18.97

32.47

7.36

India

0.08

0.27

34.85

2.96

0.34

Source: Banga et al (2020) based on Data from UN Comtrade

tical needs of the region, firms underutilise their installed capacity by up to 60% in some formulations (EAC, 2018). Lack of cost competitiveness is commonly cited for capacity underutilisation among local firms, with the main cost drivers ranging from the cost of APIs to operations management and logistics, including foreign exchange losses (Clinton Health Access Initiative, 2016; EAC, 2018).

Due to financial and technical constraints, local pharmaceutical companies are struggling to meet international Current Good Manufacturing Practices (cGMP) standards, including the WHO (World Health Organization) prequalification, requirements which are required to participate in international tenders for accessing the bulk of the regional donor-funded markets for the procurement of medicines (United Nations Industrial Development Organization 2015, as cited in Ekeigwe, 2019). Local manufacturers presently having WHO prequalification are few, including Cipla Quality Chemicals in Uganda and Universal Corporation in Kenya (Anderson, 2010; Steele et al, 2020).

Challenges and opportunities of the African pharmaceutical industry African pharmaceuticals manufacturers generally produce at a cost disadvantage to larger generic product manufacturers internationally. According to one estimate, a leading African manufacturer suffers 30–40% cost disadvantage relative to high-scale Indian manufacturers, with roughly a third of this cost disadvantage attributable to scale (EAC, 2012).

Besides scale, other challenges that render local pharmaceutical manufacturing uncompetitive include unreliable energy, water and transport infrastructure; import dependency for pharmaceutical inputs including machinery, packaging and APIs; high import tariffs on inputs; shortage of skilled technical personnel in drug development and manufacturing; lack of appropriate and affordable financing for the sector; weak policy environment and limited governmental support; gaps in the regulatory framework and enforcement coupled with the lack of reciprocal recognition of regulatory processes across borders; fragmentation of

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distribution networks; and corruption (Kaplan & Laing, 2005; Anderson, 2010; AUC-UNIDO, 2012; EQUINET, 2013; SADC Secretariat, 2016; EAC, 2018; Ekeigwe, 2019).

These challenges notwithstanding, the scope for improved local African pharmaceutical production and its potential developmental and health benefits have increasingly aroused policy interest among African and international policymakers, researchers, and some donors and suppliers (Anderson, 2010). Indeed, over the last decade, there has been an upsurge in policies geared towards strengthening and supporting African local pharmaceutical production. Besides active policy development by the African Union (AU) and a number of governments on the continent (including those of South Africa, Uganda, Nigeria and Ghana), there is currently substantial international support from the UNIDO and from some aid agencies, notably GIZ, for strengthening local pharmaceutical production in Africa (Mujinja et al, 2014).

Moreover, with slow and stagnating growth in the established pharmaceutical markets, emerging markets including those on the continent are increasingly considered the next frontier, with both western pharmaceutical multinational corporations and Asian generic manufacturers starting to invest in developing production capacity within the continent (Steele et al, 2020). Ultimately, however, the prospect of local pharmaceutical production lies in the continent’s young and growing population with an expanding middle class, continued prevalence of infectious diseases, increasing NCD burden, a notable rise in healthcare investment and spending across the region (including the growth of health insurance schemes), an improved business climate, a mature regulatory environment and increased confidence in generic products, and extension of the period on the use of public health-related WTO TRIPS flexibilities by least developed countries until 2033 (Chaudhuri et al, 2010; EAC, 2018).

Niches for expansion of local product portfolios Building on enabling factors, including the continuous improvements in both the policy context and regulatory environment as well as extension in the use of public health-related

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Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

WTO TRIPS flexibilities until 2033 and the coming off patent of a high number of innovator molecules, there are a number of potential niches for expansion of local product portfolios that can be pursued.

One such niche is the neglected epidemics of non-communicable diseases such as cancer, hypertension and diabetes which are on the rise both globally and regionally but for which there is an enormous gap in access to medication.

The continent, as Aikins, Boynton and Atanga (2010) note is facing a “neglected epidemic” of non-communicable disease owing to an exclusive focus on communicable diseases and an unexpected rise in chronic conditions such as diabetes and heart diseases. The “neglected epidemic”, however, presents an avenue for potential expansion of local production portfolio. The promise of this market lies in being less saturated and competitive relative to markets for HIV, tuberculosis and malaria medicines, where competition with Indian and Chinese producers is intense (Kardas-Nelson, 2015).

The medical devices sector constitutes another niche for potential expansion of local production. The sector is one of the fastest-growing industries in the world and according to one estimate, the value of the African market should exceed US$10 billion in 2020 (EAC, 2018).

Yet, the healthcare market on the continent is almost entirely reliant on imports for medical devices, laboratory diagnostic equipment, dental products, clinical chemistry, healthcare IT, and diagnostics. Local manufacturers can, therefore, consider expanding their product portfolio to include both medical devices and consumable products such as imaging devices, monitoring devices, in-vitro diagnostics (IVD) and basic products. This might require collaboration among local manufacturers with large global companies for knowledge and technology transfer while developing or adapting technology to market requirements.

“... leveraging Africa’s natural resource endowments to uncover sustainable growth of pharmacy and other economic sectors” Mr Seth Akweshie (Group Managing Director, FINACCO Group International)

Traditional medicines and natural products can also be a market niche for African pharmaceutical manufacturers given the continent’s rich biodiversity, long history of using such products and rising global market shares. Extracts from natural products and popular materials are potential candidates for APIs and could also be used as excipients in the drug formulation process. Indeed, given growing resistance of malaria parasites, mycobacteria and other bacterial infections to existing medications, traditional medicines and natural products can be a useful source in the search for new compounds.

Veterinary medicines also constitute a niche that local manufacturers can expand into. While the livestock sector is rapidly growing on the continent, there is an increasing prevalence of livestock diseases owing to the tropical climate.

Even worse, there is an increasing incidence of zoonotic diseases which has dire public health implications and thus requires adequate prevention and control (EAC, 2018). Yet, veterinary medicines in Africa are largely imported. Other sources of veterinary products are informal and unregulated (Grasswitz et al, 2014). Local pharmaceutical manufacturers can step up to the challenge and expand their product portfolio into veterinary medicines, sustaining the livestock sector and safeguarding public health.

Pharmaceutical products for distinctive African health problems including neglected tropical diseases such as hookworm and schistosomiasis and environmental health challenges such as humidity and sun exposure also constitute a niche market for local manufacturing. For such regionally relevant diseases or environmental health challenges, there is either little or no treatment available or the products currently available are inadequate as large, research-intensive extra-regional multinational companies (MNCs) that have the capacity to develop such products largely have little incentive.

Further, the provision of excipients and packaging materials constitutes a viable market niche for local firms. To cater for the needs of the growing pharmaceutical industry, local firms can expand to the production of common excipients such as starch and starch derivatives and packaging materials such as glass bottles for suspensions or cartons for outer packaging, which are increasingly required but still mainly imported.

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“A recent statistic suggests about 70% of vaccines are manufactured in the developing world… We should also be looking at how can we scale up vaccine manufacturing in Africa.”

Ms Kirti Narsai (Director, HealthValue Consulting (Pty) Ltd)

Complex products such as vaccines, sterile preparations and blood products for which there is high regulation can also be a market niche for African firms that are already more advanced in terms of GMP adherence. Regarding vaccines, for instance, supply in Africa is almost totally external and highly influenced by the funding sources. The few low levels of local vaccine production on the continent are focused in Senegal, Egypt and South Africa.

And whilst it is established that there is limited space for multiple African players as a result of more stringent regulatory requirements, high entry barriers, increasing cost and high risk of failures, a number of sub-regional players could be established with the right level of political and technical support, under a clear and funded regional policy and plan to develop the necessary ecosystem (UNIDO, 2017).

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Last but not least, the growing pharmaceutical industry also requires a well-established support service including repair and maintenance services for pharmaceutical equipment and laboratory instruments which are barely available in the region (EAC, 2018). The current shortage of support services on the continent negatively impacts the overall competitiveness of the sector as it leads to delays, extends downtime of equipment and increases the budget for maintenance and repairs. Local firms can step up to provide such urgently required services.

An analysis of the pharmaceutical industry in Africa, highlighting the strengths, weaknesses, opportunities and threats (SWOT) is depicted in Figure 6 right.

“As we think about boosting African capacity to manufacture let’s also remember the services that support that capacity and those are logistics, distribution, digitisation of the supply chain for traceability and visibility.”

Dr Daniella Munene (CEO, Pharmaceutical Society of Kenya)

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

Figure 6: SWOT analysis of pharmaceutical production in Africa

Strengths

Weaknesses

• Enabling strategic policy context and heightened political interest • Strengthening of regulatory capacity, albeit off a weak base • Existence of underutilised scientific and technical institutions • Increasing healthcare and pharmaceutical spending • Existence of established as well as a developing pharmaceutical production base • Massive investments in infrastructure • The continent is a free trade area with effect from January 2021

• Ineffective and inadequate government support • Limited supporting industries for inputs and support services • Lack of coordinated policies and sector development strategies in most countries • High utility costs and unreliable supply • Limited availability of affordable and longer-term finance • Inadequate pharmaceutical human resources across the region • Weak and inconsistent regulatory procedures across borders • Limited availability of bioequivalence study centres in the region

S

W

O

T

Opportunities

Threats

• Momentum of continental, regional and national initiatives to promote local pharmaceutical production • A larger budgetary allocation to the health sector • Extension in the use of public health-related WTO TRIPS flexibilities until 2033 • A high number of innovator molecules coming off patent • Public sector preference for generic medicines • Niches for expansion of local product portfolio – including traditional medicine, neglected tropical diseases and veterinary medicines

• Cheap imports and penetration of sub-standard and counterfeit medicines • Poor enforcement by regulatory authorities • Unregulated parallel pharmaceutical trade • Negative perception of locally produced products • Brain drain – emigration of qualified and experienced staff

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3. Requirements for regional pharmaceutical value chains in Africa Properly structured continent-wide pharmaceutical value chains – encompassing research, development, cultivation of medicinal plants, production, packaging, marketing, storage, distribution and retailing – can help build competitive and robust pharmaceutical production industry capable of serving national, regional and international markets. Based on the SWOT analysis, however, a number of interventions are needed at the regional, national and institutional level to address the threats and weaknesses in national and regional markets.

The foremost requirement for viable regional pharmaceutical value chains is sufficient market size. An adequate regional demand is essential to driving foreign direct investment, enhancing product portfolios, promoting access to technology and ultimately ensuring regional production is at scale. Yet, for the top pharmaceutical markets in Africa – unlike emerging markets in India and Brazil that have sufficient scale in their own right – production capacity and utilisation are very low, outweighing any theoretical production-cost advantages that the countries might enjoy relative to other emerging markets (McKinsey & Company, 2019). Evolving globally competitive pharmaceutical industry on the continent, therefore, requires integrating the large number of subscale investment attempts across countries into a regional production network via regional integration and trade liberalisation.

A comparison of the pharmaceutical industry in Africa with that of India, shown in Table 3,

indicates the extent of the problem – but also the degree of opportunity in evolving a production network that integrates both the major markets and producer countries on the periphery to create a robust regional pharmaceutical value chain.

The African Continental Free Trade Area, then, is timely in addressing the market challenges of pharmaceutical industrial productivity on the continent. Bringing together 55 countries with a population of 1.2 billion people and a combined GDP of US$3.4 trillion between them, the AfCFTA would provide wider markets for medicines produced, generating economies of scale, better use of installed capacities, and greater possibilities of local supply of active ingredients and other raw materials.

Yet regional trade integration, while essential, is not enough to enable the creation of competitive and robust regional value chains for pharmaceuticals on the continent. The highly specialised nature of the pharmaceutical industry and the weaknesses in the national, regional and institutional environment imply many more efforts are required to build a competitive pharmaceutical industry on the continent.

For a start, there is a need for regulatory strengthening and harmonisation. Stringent regulatory systems are critical for safeguarding public health. While the regulatory landscape in Africa has seen remarkable changes over

Table 3: India and Africa pharma markets, production and trade (2019) India

Africa

GDP (in US$ billion)

2869

2600

Population (in billion)

1.353

1.320

Per capita GDP (in US$)

2120

1989

Pharma imports (in US$ million)

2526.00

16813.46

Pharma exports (in US$ million)

16264.00

1134.80

+13738

-15678.66

Net pharma trade balance Source: IMF data; ITC Trademap data

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Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

the past few years with progressive improvements in the regulatory capacity of National Medicines Regulatory Authorities (NMRAs) – particularly in quality control and post-marketing surveillance, pharmacovigilance and clinical trials oversight – no national medicine regulatory authority in Africa can undertake the full range of regulatory functions (Ndomondo-Sigonda et al, 2017). Strengthening the pharmaceutical regulatory capacity of NMRAs to ensure a functional regulatory authority with an adequate enforcement infrastructure is, therefore, essential (EQUINET, 2013).

Ultimately, the goal ought to be helping local manufacturers to upgrade and attain internationally recognised quality standards. In terms of regulatory harmonisation, there is a need for a regional framework for technical cooperation and mutual recognition of harmonised medicines registration, Pharmacovigilance and GMP inspections. Whereas the African Medicines Regulatory Harmonisation effort has yielded noteworthy results, it is still not possible for companies to file a single registration that is recognised by neighbouring countries anywhere in sub-Saharan Africa today, mainly as a result of confidentiality clauses that are embedded in the national legislation(s), hence the reason the African Union Commission is envisaging coming up with the Common Law that will counter this part. Until that happens, no at-scale company can realistically serve multiple countries. Also, specific strategies, such as having preferences or expedited reviews and approvals for products that are domestic-market oriented, can help reduce the cost and catalyse the development of the local industry.

Another requirement pertains to the development of human capital. The shortage of appropriately skilled pharmaceutical personnel for the region’s pharmaceutical industry needs to be addressed sustainably if a competitive regional pharmaceutical value chain is to be evolved. Specific interventions could include a regional strategy for promoting the availability of appropriate skills mix for the local pharmaceutical manufacturing industry, promotion of industry-academia linkages for skills development, harmonisation of pharmaceutical curricula among AU Member States and establishment of a regional centre for pharmaceutical sciences and technology (EAC, 2018). Also, given the high brain drain from the continent, human capital interventions should go beyond

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“In the pharma industry, it is important to recognise that the government has a much bigger contribution than other sectors because of government’s responsibility of ensuring public health.”

Dr Arkebe Orqubay (Hon. Minister and Special Advisor to the Prime Minister of Ethiopia)

developing competent human resource for the pharmaceutical industry to systematic strategies to retain local professionals and attract others from elsewhere.

Also, there is a need for government facilitation of increased investment in pharmaceutical production. Given the capital-intensive nature of the sector and production bottlenecks on the continent, it is very unlikely that the private sector would have the incentive to invest in the absence of governmental support. Specific strategies can range from national incentive packages for local pharmaceutical production and facilitation of access to affordable and longer-term finance to broader efforts to ensure the coherence of support policies across sectors at both national and regional levels.

For the incentives, the most relevant measures include low tariffs on imported inputs, allocating a portion of public procurement to local companies as well as offering them price preferences and long-term tenders that give certainty about price and volume. Other incentives include establishment of special economic zones and pharmaceutical industrial parks, tax exemptions, utility subsidies, etc. With time, governments can then transfer leadership to pharmaceutical companies, which will take on commercial risks and lead technology development (SADC Secretariat, 2016).

Further, evolving a competitive manufacturing capability would require addressing weaknesses in supporting infrastructure including electricity, water quality and transport that are evident throughout the region. Even though significant progress has been made in

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infrastructure upgrades over the past decade, electricity and quality water supply remain unreliable and costly. Similarly, transport infrastructure such as ports, roads and rail and their interconnectedness remain weak. Addressing these challenges is essential to the evolution of a regional production network as it ensures the location of just-in-time suppliers of raw materials in the region and also reduces the costs of regional trade. Beside infrastructural weaknesses, the pervasive non-tariff barriers, such as customs delays and cumbersome regulations, that mitigate against the location of suppliers in neighbouring countries need to be addressed, and it is noteworthy that the AfCFTA implementation is devoting significant attention to this issue, upfront.

Lastly, creating local technological competencies is a critical requirement for efficient and competitive pharmaceutical production on the continent. Being a knowledge-intensive industry, what is required is a policy-induced space for training, technological learning and upgrading, and discovery by both private and public actors of the scope for reaching international competitiveness in manufacturing.

This implies moving beyond capacities in new drug formulations to the development of the capacity and capability to produce APIs. This would, as experience in India suggests, require close collaboration between government laboratories and private industry. Investment in local biodiversity, indigenous knowledge, science-based innovations and local R&D infrastructure is, therefore, crucial (EQUINET, 2013).

At the regional level, this calls for promotion of regional and international collaboration on innovation, technology transfer and research and development in order to achieve advanced pharmaceutical technology production.

“If we want to talk about real health security, we need to be talking about API production.

And I think that’s something that can easily be done if we pull together as a region to act collectively.”

Dr Skhumbuzo Ngozwana (CEO, Kiara Health)

Pharmaceuticals, Health Care Value Chains and Health Resilience • POLICY BRIEF

4. Conclusion and policy recommendations The discussion in this paper has argued that developing a regional pharmaceutical industry in Africa is fundamental to increasing access to affordable, efficacious, essential medicines; making pharmaceutical supplies more reliable; enhancing local price competition; tackling distinctive local and regional diseases; and making it easier for drug control administration to ensure quality (Chaudhuri et al, 2010). The evidence suggests that the high and growing disease burden in Africa is creating a surge in demand for medicines. Several studies discussed in the paper argue that this represents a significant industrialisation opportunity, if competitive RVCs can be developed. Yet, RVCs in Africa are poorly exploited, although they could serve as a step towards industrial transformation and competitive global integration.

The promulgation of the AfCFTA, however, allows for a positive outlook on the possible evolution of competitive regional pharmaceutical value chains. The free trade area builds economies of scale by creating a market of 1.3 billion people with a potential Gross Domestic Product (GDP) of US$2.5 trillion across the 55 member states of the AU. Stated differently, the AfCFTA-anchored African single market creates conditions for significant investment in pharmaceutical manufacturing across the continent. But beyond economies of scale, the AfCFTA presents an opportunity to revisit and overcome the continent’s non-tariff barriers (NTBs) and other constraints discussed in this paper, to boost local pharmaceutical production. Specifically, the AfCFTA can be leveraged to accelerate the implementation of the Pharmaceutical Manufacturing Plan for Africa (PMPA) and establishment of the African Medicine Agency (AMA) with a special focus on improving regulatory capacity and pursuing convergence and harmonisation of pharmaceutical regulation on the continent.

consultations and engagement between the main stakeholders, including the national governments, local private sector, trade unions and foreign investors. Tariff liberalisation commitments in the AfCFTA will need to be tailored to support the building of a regional industry. Rules of Origin (RoO) will need to be appropriately designed to support localisation and avoid transhipment. Customs regulations will also need to be well managed to prevent the import of low quality and counterfeit medicines. Intellectual property rights policies, laws and institutions must support local innovation, research and development, and harmonisation across the African region.

Ultimately, trade policy measures would be effective only if they are supported by domestic industrial policy measures including supply-side policy instruments, business and labour regulations, and provision of appropriate incentives to local pharmaceutical manufacturing firms at the national level.

Additional support from development finance institutions such as AFREXIMBANK and the African Development Bank would help provide an additional impetus. Other African institutions such as the AUC, the AfCFTA Secretariat and UNECA can play important roles in coordinating efforts and guiding appropriate specialisation strategies based on comparative advantage. Platforms for policy discussions and active engagement with the private sector are important both at the national and regional levels. The AfCFTA Secretariat could facilitate the creation of such a regional industrial development platform for dialogue, knowledge sharing and building of partnerships between the different stakeholders.

Realising the boom that the AfCFTA promises to Africa’s pharmaceutical industry, however, would require putting the pharmaceutical industry at the centre stage of both the AfCFTA agreement and its implementation. Member states will need to identify the pharmaceutical industry as a priority industry for industrialisation and the creation of a regional value chain across the continent. This will require

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