The recent executive order that aims at reducing the crippling tariffs on medical imports will also increase domestic production and drive down drug prices, which have skyrocketed since last year.
Last month, President Bola Tinubu introduced an executive order to suspend import duties and value-added tax on essential medical supplies imported into the country.
Experts in the pharmaceutical industry believe the high cost of locally produced pharmaceuticals will ease and importation will increase.
The policy might increase imports because when prices are reduced, it will stimulate demand, which will lead to the production of raw materials, intermediaries, or finished goods, according to Sam Ohuabunwa, immediate past president of the Pharmaceutical Society of Nigeria (PSN).
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“I expect those to be the positive things if implemented to the letter. I pray that the customs and all the regulating agencies support the government and ensure the speedy translation of these intentions to actions so that when we walk into these pharmacies or hospitals, we will see the drugs at prices that are not prohibitive,” he added.
Chinyere Almona, director-general at Lagos Chamber of Commerce and Industry, said that by significantly reducing production costs, this initiative will enhance the competitiveness of local manufacturers.
“The recent exit of some pharmaceutical firms has made drug availability difficult, leading to higher costs of medications. This policy intervention has come at a good time,” she added.
Data from the International Trade Centre, a multilateral agency, shows that the importation of pharmaceutical products into Africa’s most populous nation fell to the lowest in five years largely on the back of high cost of sourcing foreign exchange and rising inflation.
The amount dropped for the third straight year to $704.6 million in 2023, a 32.9 percent decline from $1.05 billion in the previous year.
The FX liquidity challenges, which worsened last year as a result of the naira devaluation, have led to a scarcity of pharmaceutical raw materials that led to an increase in the prices of drugs.
Ohuabunwa of PSN said the industry is facing a tremendous challenge in accessing FX.
“Over the years, access to FX has reduced imports, especially for raw materials. The devaluation of the naira which has increased the cost of FX has led to a depression in demand for drugs. And with inflation and devaluation, it becomes difficult to recover the price and when you try to recover it, you just become or make yourself unaffordable,” he added.
Nigeria relies heavily on imported drugs, active pharmaceutical ingredients, and equipment used in drug manufacturing from China, India, Malaysia, and the Netherlands.
Pharma West Africa, a major pharmaceutical exhibition in Africa, said that over 70 percent of medicines in Nigeria are imported, with medicines accounting for a chunk of the country’s total healthcare spend of $10 billion.
“Out-of-pocket expenditure can be as high as 62 percent of total healthcare expenditure, mainly due to limited access to health insurance,” it said on its website.
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Two economic recessions in the last eight years have weakened Nigeria’s foreign inflows, resulting in a liquidity challenge in the country’s FX market.
The naira suffered a near 30 percent devaluation this year following a 40 percent devaluation in June last year as a result of the FX reform implemented by the Central Bank of Nigeria to revive the economy.
At the official market, the exchange rate fell from N463.38/$ to N1, 563.8/$ as of July 12, 2024. The naira has hit N1,555/$ at the parallel market, up from 762/$.
Boladele Silva, a pharmaceutical professor at the University of Lagos, said in a recent report by SBM Intelligence that Nigeria’s pharmaceutical industry is highly exposed to shocks from foreign exchange volatility.
“In Nigeria, what we have are packaging hubs. The active pharmaceutical ingredients and most excipients used by the manufacturers are imported. That makes them very vulnerable to economic shocks,” he said.
The SBM report also revealed that between 2019 and 2023, a pack of 500-milligram Ampiclox capsules recorded the highest jump, with the cost price increasing by 1,390 percent and the selling price increasing by 1,100 percent.
It said a pack of 500-milligram Amoxil capsules grew the fastest among all the medicines analysed, with the selling price jumping by 456 percent between 2022 and 2023.
“Over the years, the rate of increase in the cost price was faster than the rate of increase in the selling price. This signals that a larger percentage of the proceeds from the sales of medicines are returned to the manufacturers, giving the retailers less wiggle room to expand their businesses,” the report said.
Last August, GSK, a British multinational pharmaceutical and biotechnology company, announced plans to exit the country this year ending a 51-year-old history of doing business.
Another French pharmaceutical multinational announced its exit from the country in November. Both companies said they would adopt a third-party distribution model to continue product supply in Nigeria.
Despite the jump in prices, five major drug manufacturers saw a decline in their financial performance. The firms are Fidson Healthcare Plc, May & Baker Plc, Morison Industries Plc, GSK Consumer Nigeria Plc and Neimeth International Pharmaceuticals Plc.
BusinessDay analysis of the firms’ 2023 financial statements shows that Fidson Healthcare, May & Baker, and GSK Consumer Nigeria reported a combined after-tax profit of N4.81 billion, down from N6.47 billion in the previous year.
Neimeth reported an after-tax loss of N2.58 billion compared to a profit of N19.1 million, while Morison Industries posted a loss of N89.4 million, down from N107.5 million.
The high cost of forex and import levies has made imports shifter and for every importation, their bill for drugs is huge, said Funmi Akintoye, a Lagos-based pharmacist.
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“The funds are not available to bring in the quantities that are needed on a normal day. It has reduced the quantity of my company’s drugs to half of what we would import on a normal day,” she said.
She added that the low supply of drugs is making people start looking for alternatives like herbs and other natural drugs.
In a statement last year, the National Agency for Food and Drug Administration and Control said the decline in pharmaceutical imports is partly due to an increase in local production even though a lot of boosts in local manufacturing are currently taking place as will be emphasised in the following segments.
Frank Muonemeh, executive secretary of the Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria, said the country’s business environment is not conducive to spurring local production.
“Anything that has to do with public health, the government has a lot of roles to play in it because it is not a free market or market-driven,” Muonemeh said.
He added that the greatest challenge in the industry is political will and that the government needs to see medicines’ security as an act of defence, diplomacy and development. “Until you see it from those angles, then you can improve or increase local manufacturing.”
