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Pharmarceuticals cautious of new investments despite stock rally

Pharmarceuticals

Nigeria’s drug makers are wary of adding new investments to the manufacturing sector despite the recent rally of pharmaceuticals stocks.

Major CEOs of pharmaceutical firms in Africa’s biggest economy told BusinessDay that they would continue to tread cautiously as long as the country is not making any headway on the Common External Tariff, which makes importation of finished drugs free but puts five to 20 percent duty on imported inputs and packaging materials for local manufacturers.

“The attitude of most pharmaceutical companies is caution,” said Okey Akpa, chairman, Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN) in Lagos.

“The impact of the new FX regime may be too early to judge, but one thing that stands out is that manufacturers are more cautious of expansion now because importers get FX the same way local manufacturers do,” Akpa told BusinessDay on the phone.

“Hence when an importer gets FX the same way as a local manufacturer, he has an added advantage because he brings in his finished products without paying any duty, but a local manufacturer imports his raw materials paying five to 20 percent tariff,” he explained.

GSK’s share price jumped by N1.86, closing at N20.07 from an opening price of N19.12 on Thursday. Fidson’s  share price gained N0.08 to close at N2.02 from an opening price of N1.99 yesterday, as Neimeth’s share price recorded a gain of N0.03 to close at N1.14 from N1.06.

Nigeria’s main share index approached a nine-month high on Thursday, after rising for a third straight day as investors poured cash into banking and consumer goods stocks.

The stock market, which has the second-biggest weighting after Kuwait on the MSCI frontier market index, climbed 2.9 percent to 30,999 points by 12.34 GMT, a level last seen on Oct. 2.

But the stocks’ performances are not enough to command new investments into the struggling industry which added N300 billion new investments in the last ten to 15 years.

Steve Onya, managing director/CEO, Chi Pharmaceuticals, said at a meeting of all local manufacturers recently, that the Federal Government should protect local industries by reversing the tariff structure and imposing tariff on imported products to avoid closure of over 150 drug makers. He said this is a big disincentive to investments, stressing that there is no place in the world where inefficiency is rewarded.

Despite the huge opportunities inherent in the healthcare industry, only seven of the 150 pharmaceutical companies in Africa’s largest economy are listed on the Nigerian Stock Exchange.

The listed companies include Glaxosmithkline Consumer Nigeria Plc, Fidson Healthcare Plc, May & Baker Nigeria Plc, and Neimeth International Pharmaceuticals Plc, Pharm-Deko Plc, Nigeria-German Chemicals Plc, and Evans Medical Plc. These firms have total market capitalisation of N28.85 billion.

Nigerian pharmaceutical companies now share 65 percent of the West African market, having so far invested N300 billion in machinery and quality upgrades in an effort to end drug importation into the country, estimated at $700 million.

Four companies, Evans Medical, Chi Pharmaceuticals, May&Baker and Swiss Pharma, have so far obtained the World Health Organisation (WHO) pre-qualification, while four others are in line to obtain same, in an effort to dig into the local market and remain competitive in the international scene, BusinessDay can report.

These four companies, alongside four others that are processing the WHO prequalification, have invested $50 million in different levels of upgrades in the last five years, Akpa said.

The healthcare providers’ space consists of only three players, which include Union Diagnostic and Clinical services Plc, Morrison Industries Plc and Ekocorp Plc, collectively accounting for N3.79 billion.

Nigeria has critically low levels of human and infrastructure resources for health care, according to Farouk Gumel, a partner with PriceWaterhouseCoopers (PwC), who pointing out that Nigeria possesses just five hospital beds for every 100,000 persons against the world median of 35 beds, South Africa’s 24, Algeria and Egypt’s 18.

The drugs most commonly produced in the country include anti-malaria medication, vaccines, antiretroviral, antibiotics, and oncology and diabetic drugs.

Pharmaceutical imports are expected to reach $789m by 2018, widening the country’s ph­arm­aceu­tical trade deficit from $475million in 2013 to $778m in 2018, available data show.

Statistics from the Federal Ministry of Health reveal that households spend 69 per cent on healthcare, Federal Government spends 12 percent, states eight percent, local government areas four percent, development partners four per cent, and companies three per cent.

Nigeria has 47 federal medical centres and university teaching hospitals to cater for the healthcare needs of its huge population, estimated to be 180 million, according to BusinessDay data.

There are also 700 general hospitals, more than 1,700 maternity units and 4,500 health centres.

Privately provided healthcare, which comprises both profit-seeking and faith-based and voluntary hospitals and clinics, accounts for at least 40 per cent of all facilities in the country, a PWC report noted.

Bunmi Olaopa, president, West African Pharmaceutical Manufacturers Association, recently said many local manufacturers are presently upgrading their factories while others are looking for partners.

“Many more in Nigeria and Ghana are also in the process of acquiring prequalification. So, the issue of low quality of drugs is now over,” Olaopa said.

ODINAKA ANUDU & LOLADE AKINMURELE