The investment case for SA drug manufacturing
President Cyril Ramaphosa recently addressed the nation about his economic reconstruction and recovery plan.
One of the proposals for job creation is a focus on reversing the decline in local manufacturing. The pharmaceutical sector has sadly been a prime example of this trend. Although the economic argument for reviving local manufacturing is a compelling one, it is not the only one.
Alarmingly for us, over the past 15 years, South Africa has seen 40 pharmaceutical manufacturing facilities close. Most of these facilities were owned by multinational companies and manufactured their patented original products in South Africa. The companies that remain import almost all of their finished formulations.
A large proportion of these finished pharmaceutical products, as well as active pharmaceutical ingredients (APIs), are imported from countries like India, while India, in turn, is reliant on China for 68 percent of its supply of APIs. This dependence on foreign countries has a ripple effect throughout Africa.
South Africa has the most developed pharmaceutical industry among the Southern African Development Community (SADC) nations, and so these countries constitute its main pharmaceutical export markets. When South Africa’s capacity falters, the entire region is affected.
Our reliance on imported pharmaceutical products also means that the pharmaceutical industry is the fifth biggest contributor to South Africa’s trade deficit, which soared to R28.5 billion last year. This is unsustainable when you consider the medical realities we face.
The burden of disease in South Africa is largely skewed towards infectious diseases and HIV. Despite more than 25 percent of the world’s HIV population, the highest disease burden in the world, residing here, South Africa remains dependent on imports for more than 90 percent of finished products for essential anti-retroviral treatment. Furthermore, the 10 percent that is manufactured locally is dependent on imported ingredients.
The loss of local manufacturing capacity is therefore a matter of grave concern. Think ahead to when a vaccine has been developed for Covid-19. Countries with the capacity to produce the vaccine will distribute it to their populations first, and those countries that can afford it will buy the vaccine for their people first. South Africa, along with all our neighbours, will stand at the back of the line.
The public and private sectors have a shared interest in co-operating to secure South Africa’s healthy future. And for private sector investors, this investment isn’t just feel-good rhetoric. The South African pharmaceutical market is valued at R56.4bn annually and accounts for 1.8 percent of South Africa’s gross domestic product.
The continental market is estimated at an impressive $45bn, or R780bn at today’s rate. Coupled with the political will to implement some simple yet significant improvement measures, South African manufacturers could make a significant contribution to the growth of the African pharmaceutical market.
Even by the most conservative estimates, the industry's potential in South Africa is exciting. With sufficient investment, we estimate that the sector could create close to 60 000 jobs – up from the current 9 500. And if the government, investors and the local manufacturing industry work together, we have the opportunity to reshape the pharmaceutical landscape of the entire continent and create an African pharmaceutical success story.
The solution may seem obvious: South Africa needs to develop a sustainable local manufacturing base. Yet there is an immense chasm between where we find ourselves and where we need to be. There is much more work to be done by the government to create an environment in which we can attract the investment we need to boost local pharmaceutical manufacturing.
For starters, some conflicting policies advanced by the Department of Trade and Industry and the Department of Health must be resolved. For example, the health department advocates for zero import tariffs on APIs and finished products, but the DTI imposes tariffs as way to promote the growth of domestic capacity.
While National Health Insurance is being planned to address unacceptable inequalities in access to healthcare, a thriving, sustainable and transformed local pharmaceutical manufacturing industry that can produce safe and affordable medication is just as important. Recognising this fact, the government has created and joined national and continental initiatives that should move us closer to this goal across the African pharmaceutical market.
These include the Dube Trade Port to increase the ease of doing business, as well as the African Union and the SADC’s initiatives to harmonise the fragmented regulatory and excise systems in the region and on the continent. Through these harmonisation initiatives, we can expedite the registration of essential medicines and improve access to safe, effective and quality medicines across the continent.
The investments we make today will ensure that future generations are spared the fear and insecurity which we and past generations have endured with every new health crisis. It is a welcome benefit that, in the process, we can create jobs, opportunities and a growing interest in the pharmaceutical industry for a new cohort of business and science leaders in Africa.
These objectives are the key motivation behind Austell’s R25 million acquisition of Ascendis Health subsidiary, Dezzo Trading, which supplies generic drugs and over-the-counter medications to the public and private sector.
South Africa can manufacture world-class products to rival global market leaders. But all this rests on the commitment of national leaders to ensure greater policy certainty and coherence, and of regional leaders to implement these great harmonisation initiatives. Only then will we create an environment in which private sector investors can enthusiastically back our local manufacturers. The opportunities in local pharmaceutical manufacturing are plentiful. Our job is to seize them.
Suhail Gani is the chief executive of Austell Pharmaceuticals, a black-owned pharmaceutical company