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Cover Story

An interview with Alan R. Eldridge, Chairman & MD of GlaxoWellcome

By Syed M. Aslam
Dec 06 - 12, 1999

GlaxoWellcome Pakistan Limited is a subsidiary of Glaxo Wellcome plc, a research-based pharmaceutical company incorporated in the UK. Formerly Glaxo Laboratories (Pakistan) Limited, has maintained its presence in Pakistan since the country gained independence in 1947. It derives its present name from the take-over of another UK-based pharmaceutical company, which also operated in Pakistan under the name of Wellcome Pakistan Limited.

The Company has made a remarkable progress, particularly between 1990 and 1998— the share capital has doubled from Rs 163 million to 335.5 million; reserves and unappropriated profit has increased almost five-fold from Rs 304.5 million to Rs 1.46 billion. Sales has increased over four-fold from Rs 740.6 million to Rs 3.3 billion and total assets quadrupled from Rs 674.4 million to Rs 2.7 billion.

The Company managed to improve its sales by 27 per cent to Rs 3.3 billion in the year ended December 31, 1998, over the previous year. Since the pharmaceutical companies have not been allowed to increase the prices from November 1996, the substantial growth in sales was totally volume oriented.

Glaxo’s long presence in Pakistan has turned it into an insider which fully understands the realities of the local market, the pattern of the supply and demand, and a vast industry experience regarding investment in Pakistan.

PAGE sent a list of questions to the Chairman and Managing Director of the company, Alan R. Eldridge, to get his view on what could help attract foreign direct investment into the country. The following are the excerpts:

Q: What is your industry experience regarding investment in Pakistan?

A: See following answers.

Q: What is your contribution to the national economy ?

A: The 24 research based multinational pharmaceutical companies represent the largest single group of overseas investors in Pakistan, in numerical terms. The group directly employs over 16,000 highly-skilled managers and workers who support another 90,000 + dependents. In the past, the multinationals have undertaken substantial direct investments in modern manufacturing plants and laboratories to facilitate the transfer of modern technology and the introduction of advanced, research-based products into Pakistan. The multinationals have also supported and developed ancillary local industries such as the glass and packaging industries. The group has been good corporate citizens who have generously supported local charities over the years and have been major corporate tax payers. For example, over Rs.40 billion has been paid by the multinationals as corporate tax over the past 50 years.

Q: What has been the trend of sales and profitability?

A: Recent sales growth rates for the industry have been modest whilst the profits of the foreign-invested firms have been declining rapidly in recent years. For example, in 1998, 10 out of the 24 multinationals actually made losses on their Pakistan operations whilst during the first-half of 1999, another 3 companies also made losses, one of them for the first time in 27 years. The group's collective profit after tax in Pakistan for 1998 stood at a dismally low figure of 2.07% of total net sales whilst the collective return on investment was less than 5% for the same period. Given this very negative environment, it is not surprising that basically all investment plans have been suspended in the sector and without substantive changes, it is feared that a number of companies will be forced to initiate substantial disinvestment programmes.

Q: Does the government policies provide a conducive environment in your particular sector of activities ?

A: Government policies towards the pharmaceutical industry have been very negative in recent times. Pharmaceutical selling prices are strictly controlled by the Government. Despite input cost increases of over 40% over the past 3 years, the previous government did not honour in letter and spirit its written commitment in the form of SRO 1038(I)/94 dated 16th October 1994, which mandates an annual price review on the 1st of November each year, based upon a laid down formula, devised by the Economic Coordination Committee of the Federal Cabinet. In fact, the last increase granted to the industry was on 1st November 1996 and since then, there has been no increases awarded but rather the selling prices of 77 products have been mandatorily reduced by up to 29% without adequate consultation with the industry. The latter was ordered by the previous government on the basis of a very biased and selective comparison of selling prices in India. In fact, an objective survey of the respective selling prices in both countries has graphically revealed that many of the prices in Pakistan for leading medicines are now well-below those prevailing in India which means that local retail prices are now at or near the lowest in the world.

Q: What are your experiences of the implementation of the policies?

A: See above. In addition, the multinationals are disturbed by a perceived reluctance of government officials to grant registration and marketing approval to the most modern medicines often on the basis of subjective and specious pricing arguments. The lack of policing and effective legal action by the responsible officials against the purveyors of spurious and counterfeit pharmaceutical products is also a cause for deep concern as is the perceived reluctance to effectively implement intellectual property protection laws.

Q: How the economic conditions have been affecting the demand and profit margins?

A: As Pakistan is basically a market where the user pays for medicines, demand is directly related to the general state of the economy and in particular, the status of disposable incomes across the population. The poor performance of the Pakistan economy in recent times has markedly inhibited the ability of a large segment of the population to access adequate, high quality medical facilities, including much-needed medicines.

Q: What needs to be done to attract foreign direct investment?

A: The effective implementation of the reform programme recently enunciated by the Chief Executive of Pakistan clearly would be a major step in the right direction in the eyes of potential foreign investors. More specifically, a range of economic and public policy initiatives need to be defined and rigorously implemented and to this end, the detailed economic plan to be announced by the government on 15th December 1999, is eagerly awaited.

For foreign investors, it will be imperative that transparent and consistent policies be put in place and maintained over time to facilitate long-term planning. For example, it is critical that wholesale changes are made to the present taxation system to ensure that all members of society pay their fair share of the costs of running the country. Additionally, the elimination of corruption plus, the removal of law and order problems, would also encourage more foreign investment.

By and large, foreign investors believe that free markets are the best means of delivering high-quality products and services to consumers at competitive prices. Therefore, should the government exhibit a clear commitment to markedly deregulating the economy and accelerating the privatisation of publicly-owned companies, then foreign investment would substantially increase over the medium to longer-term.

Q: How do you feel the IPP's issue has been handled ? What has been its impact on investors' confidence?

A: The IPP's issue has been handled very poorly by the previous government and clearly this issue has negatively impacted on the sentiments of foreign investors. It is axiomatic that major investments have long-term planning horizons and require sustained consistency of government policy if investors are to be encouraged to risk their funds in Pakistan as opposed to other potential, investment destinations. In order to begin the process of restoring Pakistan's reputation as a sound location for investment funds, it is imperative that existing foreign investors such as the IPP's and the multinational pharmaceutical companies be treated fairly and fully in accordance with stated government commitments. To this end, it is to be hoped that the new government moves to quickly resolve the very real difficulties of both investor groups.