Developing new markets
By Syed M. Aslam
Apr 07 - 13, 2003
Pakistan houses about 2.4 per cent of the world population but its share in the global pharma market is unproportionately low 0.31 per cent. Despite the low share, the Pakistani pharmaceutical industry, otherwise, is well developed not only to meet local demand but to also exports its products to over 90 countries last year.
Though growth trends in the pharmaceutical industry differs from country to country, the global market of pharmaceutical industry has been on a constant rise — from $ 307 billion in 1998 to $ 339 billion in 1999 and to almost $ 363 billion in 2000. It was projected to grow to $ 408 billion last year. For details please look at the chart.
The US is the single biggest pharmaceutical market of the world. In 2000 it enjoyed a market share of almost 42 per cent while Japan was a distant second with 16 per cent of the market share worldwide. Germany, France and UK were the third, fourth and fifth biggest markets respectively at 4.7, 4.6 and 3 per cent respectively. Pakistan with around $ 918 million worth of sales lags far behind not only to the developed countries but against many developing countries.
The review of Pakistani pharmaceutical show that there are around 450 companies which are registered with the Ministry of Health, some 350 manufacturing units operating in the country including dozen multinationals. Multinational pharmaceutical companies have played a vital role to provide the base for the growth of the pharmaceutical industry since the emergence of Pakistan an independent country on the map of the world almost 56 years ago. They also enjoyed the bulk of the business, and keep enjoying it presently, though their collective market share has dropped significantly during last 18 years. In 1985, the MNCs enjoyed 65 per cent of the market share while the national companies had 35 per cent of it. The national pharmaceutical companies have since improved their market share by an average 1.2 per cent every year to push it to 53 per cent in 2000 and this 18 per cent gain has come at the cost of MNCs whose collective share has dropped by an equal percentage to 47 per cent during the same period. Thus in 2000, the share of national companies stood at 53 per cent, 6 per cent more than that of the MNCs.
Besides improving their market share within the country, the national pharmaceutical companies, about 20 in all, are also actively engaged in exploring new markets for their products overseas. Though pharma exports from Pakistan have been going on for last two decades, it remained negligible just about half a decade ago. It has only picked up in recent years to touch a significant figure of $ 40.6 million in 1999-2000, the highest exports ever. However, trends of pharma exports from Pakistan reeks of inconsistent performance — pharma exports dropped to $ 37.7 million in 2000-01 only to surpass it negligibly to $ 38.7 million a year later in 2001-2002. The inconsistent performance of pharma exports is visible from the Table forming part of this article.
So what could explain the inconsistent performance of pharma exports? Muhammad Younus Batla, the general manager exports of national pharmaceutical, Nabi Qasim, attribute it to a pervasive absence of export-orientation on the part of the pharma industry, particularly the national companies only a small segment of whom are actively engaged in exports. His view is shared by Wahid Raza Shami, manager export of another such company, ATCO Laboratories.
But 'attitude' is just one the reasons discouraging expansion of the base of pharma exports. To better understand the situation it is imperative to look at the major markets of the Pakistani pharmaceutical products. As mentioned earlier, Pakistan exported almost $ 39 million worth of pharmaceutical products in fiscal 2001-2002. Though little, what is significant about this is that Africa emerged as the top destination of Pakistani pharma products absorbing over 44 per cent of total exports to surpass exports to the Asia region which contributed 39 per cent to the total exports. A year earlier in 2000-01 Asia was the top region of the exports absorbing 35.6 per cent closely followed by 34.9 per cent by Africa.
In 2001-02, the top five destinations of pharma exports were Nigeria, Sri Lanka, Singapore, UK and Dubai. These five countries, part of over 7 dozen others, collectively contributed $ 21.6 million or 53 per cent to the total exports last year. What has made the emergence of Africa region, led by Nigeria, significant is that Pakistani pharmaceutical products have been able to make inroads into the most populated markets in the African continent.
Successful penetration of the Nigerian market is a welcome sign indeed for a number of reasons: It is the most populated country in Africa with a GNP of around $ 38 billion and most important of all, its health care spending is around $ 9 per person. Pharmaceutical manufacturing in Nigeria is limited to few multinational companies and it has to import drugs from other countries to meet the local demand.
Making inroads into Nigeria is also important from another perspectives. According to Mr. Batla, Nigeria offers two distinct benefits. Number one, it is an established trading hub for West Africa, particularly the pharmaceuticals to serve as a distribution point for the region. Number two, it itself is the biggest and the most populated country in Africa as mentioned earlier. The opening up of the Nigerian market, irrespective of the problems as we will highlight later, is a significant development indeed.
"This is because African continent offers an immense potential for pharma exports, particularly pharma manufacturing has still to take roots there and countries in the region are dependent on imports to bridge the ever widening gap between the supply and demand. True, that a beginning has been made but Negerian-led African market offers challenges unique to its own.
"Despite low consciousness about health mainly due to poverty, low local manufacturing, limited buying power and presence of expensive multinationals' products (like Pakistan MNCs are also comparatively expensive elsewhere) consumers of pharmaceuticals in Nigeria and the region are reluctant to comprise on quality. By and large they seem to prefer to compromise on price rather than on quality. That explains why Pakistan has been able to successfully make inroads into Nigeria despite stiff competition from India, which has been there all along, as well as from China, whose pharma products are comparatively cheaper than Pakistani counterparts. Pakistani products have also been able to make inroads in other similar markets."
As stated elsewhere, Pakistan exported pharmaceuticals to 92 countries last fiscal, 12 more than in the previous year. While value of exports to most of these markets is small, only thousands of dollars in the majority of cases and as low as just $ 1,000 in the case of Malawi, it added up to a respectable sum of $ 39 million. The very fact that Pakistani pharma exports have been able to find a welcome niche in many of these markets despite presence of cheaper Indian and Chinese counterparts in itself can be seen as an acheivement. That's, however, should not in anyway be allowed to become smug. Rather, it necessitates the need to solidify the position by further developing, nurturing and exploiting these markets to help push the value of pharma exports. The way the comparatively higher priced Pakistani pharmaceuticals have been able to find receptive markets in an otherwise price conscious African and other developing markets offers many challenges as well as opportunities for the local industry.
However, it is also necessary to highlight the problems so as to tackle them more efficiently. As stated above the major hurdle to solidify Pakistani presence in these markets, and more importantly to keep maintaining the fruits of the breakthrough already made, is the absence of export-orientation on the part of the industry. Mr. Shamsi attributed it on lengthy and exhaustive paperwork as well as on the initial investment needed for a relevant presence and exposure in these countries.
Nigeria, the top market of Pakistan pharma products, serves as an ideal case to highlight the problems with other markets in Africa as well as many other markets in the developing world. According to Mr. Shamsi, Nigeria and for that matter other markets in the Africa region, is highly unregulated. "Around 80 per cent of pharma imports into the country comprise products which are finding their way into the country through illegal or extra-legal means including connivance with the customs authorities. The market is so unregulated that even drugs not registered in the country are easily finding their way into Nigeria. However, the government has announced to regulate the pharma trade much more strictly including registration of drugs by the Nigerian Ministry of Health. The measure aimed at better regulating the pharma trade in Nigeria, however, means a number of challenges for the Pakistani exports.
"The drug registration fee in Nigeria is one of the most expensive in the region to further discourage an already export-shy national-companies'-lead pharma industry of Pakistan by pushing the initial investment costs and already lengthy and exhaustive registration costs in a country not known for good business practices."
NIGERIAN MARKET: A CASE STUDY
Just how discouragingly high the registration fee is in Nigeria? Mr. Batla told PAGE that it is $ 2,200 per product for prescribed drugs and $ 10,000 per product for Over-The-Counter (OTC) drugs. "A separately registration is required for each variation of a drug be it a tablet, capsule, syrup and injection as well as all variable dosages of a same tablet be it 50 mg, 100 mg or any other variation thereof."
Mr. Shamsi informed PAGE that drug registration fee in Pakistan and other African countries are much less. "Just how high the registration fee in Nigeria is evident from the fact that registration fee in Pakistan is Rs 15,000 or just $ 260 at current exchange rates. Registration fee in almost all other African countries, all of whom have various degrees of Pakistani presence, are also much less compared to Nigeria — $ 500 in Ethiopia, $ 1,000 in Kenya, $ 500 in Ghana, $ 300 in Uganda, $ 250 in Sudan."
Despite the immense potential that Nigeria offers to Pakistani pharmaceutical industry as the major distribution point into West Africa, there are many problems that are shying away local traders. The biggest problem is the lack of trust on the part of Pakistani exporters and traders due primarily to the absence of good business practices necessary to conduct mutually beneficial business. "There are cases where Pakistani exporters lost monies when bank drafts turned out be fakes," said Mr. Batla.
Another major problem is that Nigeria still much remains an extremely unregulated market. According to Mr. Shamsi 80 per cent of the Nigerian pharma market is flooded with drugs finding their way into the country illegally. "This includes drugs not registered into the country by the unscrupulous elements having connection in the right circles. The rampant unethical business practices surrounding all areas of pharma market in Nigeria is discouraging many potential exporters to take risks."
CATEGORY OF EXPORTERS
That explains why commercial exporters are playing the leading role to help develop market for Pakistani products in Nigeria, and for that many other similar markets such as Somalia, Rwanda, Burundi and Myanamar. According to estimates the share of commercial exporters is around 60 per cent, pharma companies about 25 per cent while the remaining comprises non-pharma products such as cotton, gauze etc.
Mr. Shamsi said that Nigeria importers prefer to buy pharma products from commercial exporters in Pakistan instead of buying the products directly from the company. "The companies have to follow all the rules and laws thus making it hard for them to export pharmaceuticals to Nigeria while dealing with commercial exporters leave a whole lot of room for play which has become almost a rule in the unregulated market."
The commercial exporters, thus, are playing a pivotal role to develop markets and continue maintaining presence in Africa and elsewhere. While the national companies are the major beneficiary of pharma exports, the multinationals are also benefiting from it in part. The commercial exporters buy the products from the market directly and in many cases also act as an agent for many companies who don't want to get directly involved with exports for one of many reasons mentioned above. The commercial exporters with offices with local staffs who understand the ground realities in their particular company buy products directly from the market or acting as an agent have to stock up these markets with particular products as and when required. Thus while the national companies are the main beneficiary the MNCs are also benefiting from exports without getting involved directly with it. In any case the real beneficiary is the Pakistani pharma industry.
Though, commercial exporters understanding the preference of products of MNCS in the African market, are more inclined to ship the branded products the overall ratio of MNCs and national companies in pharma exports is 50 per cent each. Mr. Batla claimed that 80 per cent of all pharma exports by the commercial exporters comprise MNCs' products and only 20 per cent of it is made up of products of the national companies.
PRICES: THE DECIDING FACTOR
OK so we have been able to make inroads into major and minor markets across the globe. We also enjoy an edge over such established and comparatively cheaper competitors as India and China as far as quality is concerned. However, both of these two competitors enjoy an edge over pharma products in term of price. Indian products are cheaper and Chinese, even cheaper. The question is: would we be able to make deeper penetration of pharma markets in various stages of development?
Mr. Batla feels that there would be no major changes in the next few years. "We will just not be able to do anything to make our pharma products more price competitive in these markets for the simple reason that Pakistani pharmaceutical industry, both MNCs or national, are heavily dependent on imported basic raw materials. Unlike India and China the basic raw materials required for the manufacture of drugs are not produced locally thus pushing our production costs resulting in comparatively high drug prices."
In addition, the costs of such major inputs as utilities and petroleum have been on a constant rise to push the production costs even further. Pakistani pharma products in the overseas markets are more expensive not only than Indian and Chinese counterparts but also Egyptian products.
But price is just one many factors. Thus far the bulk of Pakistani pharma exports to Nigeria and elsewhere comprise unregistered drugs which have been finding their way into these countries for reasons obvious to all of us. However, promises of stricter implementation of the laws by the Nigerian government may pose problems in the near future. Stricter implementation of laws would mean that a sizeable quality of exports, a substantial portion of which comprise unregistered drugs, would just not be able to find its way into these markets.
On the other hand, both Mr. Batla and Mr. Shamsi agreed that the costly drug registration fee for every single variation and form of the same product would shy away many Pakistani exports, both commercial and company, from the Nigerian market. "The high registration fee in such an extremely unregulated market in the absence of good business practices is feared to affectively closed the doors of the Nigerain market for many pharma exporters."
The Pakistani pharmaceutical industry, many national companies in particular, already facing stiff competition from low-priced Indian, Chinese and Egyptian products may not be able to afford the high registration fee. This would be particularly true for national companies encouraged by the rising share of generic products in the world market which has risen from 22 per cent in 1985 to 45 per cent or $ 143 billion in the year 2000. The rising share of the generic products in the global pharmaceutical market can be attributed mainly to the price factor as they retail for as low as one-third of the price of the branded products. That also explains the cool reception of Pakistani pharma products in the price-driven markets of Africa.
PRICE NOT THE ONLY FACTOR
Though price remains the detrimental factor, it is not the onlt factor. Mr. Batla said that the Indian competitors are ready to go to any length to win an export order even if it means circumventing or altogether disregarding the international drugs laws. "India products are certainly cost efficient but they the Indian pharmaceutical industry feels no qualms to disregard international laws to win foreign orders. For instance, Indian exporters are ready to manufacture tailormade order for a 125 mg tablet instead of world accepted variations of 50 mg, 100 mg, 150 mg. In contrast, pharmaceutical manufacturers in Pakistan follow strict international standards where a 125 mg tablet just cannot be manufactured no matter how big the export order is."
Fiscal incentives the worldover play an important role to encourage exports. However, no such incentive was offered to Pakistani pharma exporters till January 1 this year. It came in the form of duty drawback announced by the Revenue Division of the Central Board of Revenue (CBR), the premier tax collecting agency of the country. A 4.15 per cent duty drawback is now offered on the exports of tablets and capsules, 2.5 per cent on liquid and syrups, 2.62 per cent on cream ointments, 3.31 per cent on injections and injectibles and 2.04 per cent on intravenous IV solutions.
However, the main hindrance to pharma exports can be attributed to pervasive lack of commitment to explore and enter export markets. Despite the wide availability of the technology, abundance of skilled manpower, strict adherence to WHO's Good Manufacturing Practices, quality imported basic ingredients and packing materials this lack of commitment to exports is keeping a large number of the receptive markets closed for the majority of pharma manufacturers in Pakistan. These challenges, however, are real opportunities that the local pharmaceutical industry, particularly the national companies should wake up to.
Pharma exports offer unique opportunities and immense potential to find, develop and nurture markets to make it the top non-traditional exports. The challenges are really opportunities in disguise particularly as a meaning-some beginning has already been made in over 90 markets worldwide — some big, some not so big and most very small but all offering immense potential yet remain to be fully tapped. The comparative easy access to markets in Asia and Africa and the growing population and demand in these regions worth the risks, exhaustive process and most of all initial investment to help establish and maintain presence. Most required is to make the industry fully export-oriented.
TOP 10 MARKETS OF PAKISTANI PHARMACEUTICAL PRODUCTS IN 2001-2002
(VALUE US $ MILLION)
2. Sri Lanka
8. Russian Federation
GLOBAL PHAR MARKET: SHARE OF GLOBAL SALS
GLOBAL PHARMA MARKET
PAKISTAN'S EXPORTS OF PHARMACEUTICAL PRODUCTS
+ 19.8 %
+ 28.9 %
- 6.9 %