Box 1 Good manufacturing practice (GMP) standards – an explanation
4. The pharmaceutical market in Ethiopia
With an estimated population of 81 million in 2008, Ethiopia has the potential to become a significant market for pharmaceutical products in sub-Saharan Africa (World Bank, 2009). The main economic activities in the country are services (45.1% of gross domestic product; GDP), agriculture (43% of GDP) and industry (11.3% of GDP) (Access Capital, 2010). Major exports include coffee, gold, leather products, live animals and oilseeds (UNCTAD, 2009). The country’s GDP measured in purchasing power parity (PPP) is forecasted to grow from US$ 70 billion in 2008 to US$ 472 billion by 2023 (Negatu, 2009).14 During interviews, stakeholders highlighted the importance of the opportunities for Ethiopian companies within the Common Market for Eastern and Southern Africa (COMESA).15
However, the Ethiopian market for pharmaceuticals is still rather limited.
It is currently estimated at around US$ 200 million, due mainly to low per-capita income levels. The per per-capita GDP at PPP is estimated to reach only US$ 1101 in 2010 (Economist Intelligence Unit, 2009). Ethiopia has more than double the population of Kenya, but in terms of infrastructure and personnel the Ethiopian health care system is about one-third of the size of Kenya’s.
Currently, there is slightly higher total health expenditure at 4.9% of GDP in Ethiopia than in other countries in Africa, excluding South Africa, but the per-capita expenditure is among the lowest in the region (Wamai, 2009). Ethiopia’s health indicators reveal a country with human immunodeficiency virus (HIV) prevalence at 2.1% among inhabitants aged 15–49 years (Wamai, 2009).
The main source of drug expenditure in Ethiopia is household out-of-pocket expenses covering 47% of total drug expenditures. Donor sources,
14 According to Ernst & Young, Ethiopia is expected to become the third-largest sub-Saharan economy by 2023.
15 Article 10 of the Treaty Establishing a Common Market for Eastern and Southern Africa (COMESA) (1993) calls for cooperation in health-related fields, including the production of pharmaceuticals.
governments and nongovernmental organizations (NGOs) cover the rest of expenditure. The Pharmaceutical Fund and Supply Agency (PFSA) of the Federal Ministry of Health undertakes procurement for public health facilities throughout the country. Although recent figures are missing, in 2005–2006 private importers accounted for around 42% of drugs imported into Ethiopia, while the Ethiopian Government and donors imported the rest (Wamai, 2009).
Government procurement and the local market for pharmaceuticals are open to foreign participation, although foreign suppliers cannot engage directly in retail distribution (Ethiopian Investment Agency, 2009). Foreign suppliers can participate in tenders by appointing representatives that register their products locally. Public-sector procurement is done through international and local open tenders, restricted tenders, direct purchasing or negotiation.
Public procurement is limited to medicaments on the List of Drugs for Ethiopia (LIDE), revised and supplemented in 2008 (DACA, 2007, 2008a).
Estimates on the share of the market held by local producers of pharmaceuticals vary between 15 and 30% of the market. Ethiopian Pharmaceutical Manufacturing Company S.C. (EPHARM) was the first pharmaceutical company established in the country, having been founded in 1964. It was nationalized in 1975 and is currently being floated for privatization. Following the market reforms of the 1990s, 17 private companies were established, producing a range of pharmaceutical-related products, excipients, medical supplies and veterinary products. These companies were frequently financing acquisition of technology and production of pharmaceuticals through a combination of bank loans and joint venture investments. The local producers engaged in final formulation of drugs combining the API with excipients. There is no API production in Ethiopia (Von Rosenstiel, 2007). According to the President of EPMSMA, the private-sector initiative in the pharmaceutical sector was not matched by government support until 2007. Of the 17 private companies that were producing pharmaceuticals and medical supplies, 4 have gone out of business. One of the companies, ETAB Inter-Medical PLC, which was producing disposable syringes, went bankrupt due to severe competition from imports.
The founder attributes the problem to imports that were purportedly sold below production cost.16 Bethlehem Pharmaceuticals PLC was producing antimalarials and other pharmaceuticals until it closed down in 2006. Former employees attribute the failure to a combination of factors, including lack of knowledge by the investor and the banks, and difficulty in accessing the market. Five of the companies still in operation are joint ventures, including SEAA. The fact-finding mission visited two of these joint ventures to obtain a better understanding of the wider pharmaceutical manufacturing market in which SEAA operates.
EAP was an initiative of British and Sudanese nationals. It had difficulties at the outset when the cost of the investment was driven up because of the decision of FMHACA to order the company to rebuild its plant shortly after the plant started operations, to comply with GMP. In 2003, US$ 4.3 million was invested to get the facilities up and running. In 2009, the factory ran at 30%
16 Interview with Ms Etenesh Abraha W/Giorgis, President, EPMSMA, 16 November 2009.
of its capacity. It produces human and veterinary medicines, which are sold mainly locally, although a small portion is exported to neighbouring Sudan.
The company has consistently been running at a break-even level or at a small profit, depending on the year, according to its Sudanese general manager. The management is considering increasing its veterinary medicine production as a strategy for survival. Ethiopia’s livestock population is among the largest in Africa (Central Statistical Agency of Ethiopia, 2008). Compared with the market for human medicines, the veterinary medicines market is largely private and is more easily accessible, according to the firm’s management. EAP has been coached by FMHACA to meet its GMP requirements for years. The first cGMP certificate was issued to the company in May 2006 after repeated inspections and frequent feedback. The company has been authorized to market more than 50 dosage forms since then. However, the cGMP certificate was suspended in January 2009 since the company failed to keep up with cGMP.
In 2007, Cadila Pharmaceuticals Ltd (India) and Almeta Impex PLC, Ethiopia established CPEL, owning 57% and 43% of the company, respectively. CPEL became operational in 2008. The initial investment to get the factory up and running amounted to US$ 11 million. According to the General Manager of CPEL, Almeta Impex PLC enjoyed a previous working relationship with Cadila India as its distributor in Ethiopia, which was a major factor in the choice of partner to set up a joint venture in Ethiopia. In addition, the market size, including easy access from Ethiopia to other east African countries, motivated the investment. All machines and raw materials are imported from India. Cadila Pharmaceuticals Ltd (India) had registered its products in Ethiopia for export purposes before it established CPEL with the local partner. Since CPEL uses the technology of Cadila Pharmaceuticals Ltd (India), the lead time to register the products to be produced under the new location was very short. This helped CPEL to start production immediately after setting up the production facility. The selection of the products for production is based on first-hand experience from the exports of Cadila Pharmaceuticals Ltd (India) to Ethiopia.
CPEL’s plant has the capacity to manufacture 390 million tablets, 165 million capsules and 144 million litres per year. It produces 30 products, all of which are also produced by Cadila Pharmaceuticals Ltd (India). The plant is currently running at full capacity. CPEL sells its products in Ethiopia and exports some products to Djibouti, Kenya, Rwanda and the United Republic of Tanzania.
Currently, 5% of CPEL staff members are expatriates. The general manager is from India. Although CPEL operated at a loss in 2008, the company expects to be profitable in the near future.
Other examples of Ethiopian-based joint ventures include PharmaCure PLC, a Swedish turnkey in an Ethiopian-Saudi investment, established in 1998, that is currently producing intravenous (IV) fluids. Rx Africa (Ethiopia) PLC is an Ethiopian-United States joint venture established in 2007 through the acquisition of a local company called Sunshine Pharmaceuticals. It launched 36 products in 2009 and plans to roll out further generics in malaria, HIV/acquired immunodeficiency syndrome (AIDS) and tuberculosis (TB) treatment. Another example, APF, is the largest Ethiopian company in terms of production and sales. Established in 1992 with US$ 30 million, APF is 100% locally owned.
It currently produces 92 products with equipment acquired from European suppliers. It is projected to achieve profitability along with above 50%
utilization of capacity in 2010.17 APF is seeking partnerships to fully utilize its capacity and introduce new products to the local market. As a final example, Fäwes Pharmaceuticals PLC is 100% locally owned and produces IV fluids for the Ethiopian market.
As well as its geographical advantage, the presence of multiple joint ventures in pharmaceuticals attests to a certain degree of skilled labour and a manageable regulatory framework for drug manufacture and investment, along with a relatively strong local pharmaceutical manufacturers’ association. Other positive factors that have weighed in favour of pharmaceutical production, relative to some other countries in the region, appear to be personal safety and investment security according to the management of CPEL, SEAA and EAP.
At the same time, the pharmaceutical companies in Ethiopia have identified various problems. There is a gap between lists of compounds and other ingredients for tax exemptions compared with what they import; there is a shortage or irregular supply of electricity; and, more recently, there is a hard currency shortage that limits the ability to import raw materials.18 The President of EPMSMA also stated that many small and medium-sized pharmaceutical producers in Ethiopia cannot cope with the severe competition of the low-cost exports of large-scale Asian producers.