Health security is a massively critical topic for African governments, as the continent “has 24% of the world’s disease burden,” according to African Mission Healthcare, an NGO. Jean Kaseya, director general of the Africa Centers for Disease Control, told the IFC that promoting local pharmaceutical manufacturing represents “the second independence of Africa.” The first was liberation from colonial occupation.
That disease burden stems from Africa being the poorest continent, and that “many sub-Saharan countries rely heavily on imported pharmaceuticals, which can be prohibitively expensive … meaning that many people cannot access the treatments they need,” noted Africa Mission Healthcare.
Additionally, “counterfeit and substandard medicines also pose a risk. In some parts of sub-Saharan Africa, up to 30% of medicines on the market are counterfeit,” said African Mission Healthcare.
Egypt could become a reliable pharma supplier to the continent. The Egyptian Drug Authority remains the only drug agency in Africa to receive the World Health Organization’s Maturity Level 3 certification for regulatory excellence. Also, local producers have the capacity to export their medicines, as the country imports just 9% of its pharmaceutical needs. Lastly, Egypt is part of the African Continental Free Trade Agreement (AfCFTA).
However, challenges continue to hinder intra-African pharmaceutical trade, according to a report by ODI Global, a think tank, titled “Supporting Investment and Trade in Africa.”
Pharma-Africa
According to the ODI Global report, “the state of the African pharmaceutical manufacturing landscape shows a vast disparity in production capacity across countries.” Industrialized countries like Egypt, Morocco, and South Africa have strong pharmaceutical industries that meet between 70% and over 90% of their local demand. However, “countries in Central Africa import about 90%” of their pharmaceutical needs, the report noted.
And those imports have been increasing. “In 2021, Africa imported a substantial $17 billion worth of pharmaceutical products from outside the continent, a significant rise from $6.6 billion in 2017,” the report said.
The continent’s top pharma suppliers are India (21% of total imported supply), France and Germany (11% each of Africa’s demand), and the United States (8%). For vaccines, Belgium and the United States were the top exporters to Africa, accounting for 28% and 16% of supply in 2022.
By outright volume, “Egypt and South Africa are … the two largest importers of pharmaceutical products,” the report said. Combined, they account for over 35% of Africa’s pharma imports.
On the flip side, “Africa’s exports to the rest of the world amounted to only $0.9 billion in 2021,” the report said. “South Africa and Egypt are the predominant exporters of pharmaceutical and vaccine products from Africa to the rest of the world (extra-Africa exports). These two nations alone accounted for over 75% of Africa’s exports in 2022.”
The report also noted that medicine prices throughout the continent are generally higher than “the lowest international reference levels” and can vary significantly from one country to the next and even within the same country. “There is a price gap of up to 300% across various procurement channels within a single country.”
The report explained the main reason for the high prices and disparity is “buyer fragmentation,” caused by each government requesting medicines individually, even though neighboring countries might need similar medications. “In a decentralized purchasing system, the buyers are usually price-takers,” said ODI Global.
Centralized purchasing
One solution to Africa’s high pharmaceutical prices and disparities is pooled procurement, where “acting as a single, larger buyer – a monopsony – pooled procurement can leverage its market influence to negotiate significant price reductions on essential medicines and vaccines.”
That approach could be particularly effective in Africa, as “many countries have small economies [that] lack the purchasing power of larger [counterparts], making it challenging for governments to secure favourable prices for essential medicines,” the report said.
Currently, “the Africa Centres for Disease … is spearheading [efforts] to establish an African pooled medicines procurement mechanism … in collaboration with the African Export-Import Bank, United Nations Economic Commission for Africa and AfCFTA.”
The result is the Centralized Pooled Procurement Mechanism (CPPM), a pilot project involving 10 sub-Saharan nations.
Phase one of this four-phase pilot project will “focus on establishing an institutional framework, securing government support and engaging partners.” Phase two will build “coordination [and] information-sharing and ensure transparency” of transactions and pricing.
Phase three will “emphasize shifts to group contracts and consolidating demand, achieved by sharing data to unite demand across countries, and negotiating group contracts for better pricing.” The last phase will “establish a dedicated agency for regional pooled procurement, with clear governance structures and expertise essential for centralized procurement and supply management.”
The challenge to expanding the CPPM pilot project to all 54 African sovereign nations is “harmonization of standards.” In 2019, the Treaty for the Establishment of the African Medicines Agency was established to achieve such unification. To date, 27 countries have signed it, but they have done little to realign their regulations.
Free trade Africa?
Pharmaceutical trade among African governments “is not significant,” noted the ODI report. “In 2021, the intra-Africa trade of pharmaceutical products amounted to $536 million; vaccine trade was smaller, at $51 million, in the same period.”
South Africa leads pharma exports to other African nations, accounting for 57% of demand. Kenya is second, supplying 18%, while Egypt is a distant third with 5%.
Those trade figures are dropping. “In 2021, approximately 35% of Africa’s global [pharmaceutical] exports were traded within Africa [compared to] 2012, when more than 70% of Africa’s pharmaceutical exporters were intra-continental.”
That decline is mainly because almost all African nations, despite signing AfCFTA, impose tariffs on finished pharmaceutical products, vaccines or production inputs such as ingredients and primary and secondary packaging.
That is possible because of AfCFTA’s Rules of Origin (RoO) clause, which applies to end products and all components used to produce them. “The aim of the RoOs is to provide preferential tariff benefits exclusively to AfCFTA member nations while preventing trade diversion from non-member countries,” said ODI Global. “Consequently, products failing to meet RoO requirements are subject to tariffs.”
That clause is problematic as “it is improbable that all pharmaceutical and vaccine production within Africa will meet the RoOs outlined in the agreement,” the report noted. “This is primarily because … pharmaceutical and vaccine production … relies on multiple ingredients and value chains spanning the globe.”
To bypass RoO, African governments have a “most-favored nation (MFN) tariffs” framework, which applies to imported pharmaceutical and vaccine products. It puts zero or near-zero tariffs on imports from specific destinations and on particular products, regardless of where their components were made, ODI Global said. The MFN framework also applies to other African nations, effectively superseding AfCFTA.
Tight-margin market
Not all pharmaceutical producers or medicines can access Africa, especially sub-Saharan nations. “Affordability is the cornerstone of access to pharmaceutical products,” said the report.
To overcome cost barriers, the report stressed the need to produce generic medicines, where a producer uses expired patents to replicate branded ones without incurring R&D costs. “Local manufacturing may be viable in some countries, especially for generic medicines.”
Quality also is essential for “achieving health outcomes that improve human capital for a productive life.” Global market dynamics show the more effective and new the medicine, the more expensive it is.
Achieving quality with affordability will ultimately require increasing manufacturing capacity throughout the continent as well as “developing … continental value chains within the pharmaceutical sector,” the ODI Global report said.
Investors will have investment options as “pharmaceutical sectors involve multi-step production processes, including raw material sourcing,” the report said. “These processes have the potential to be localized within regions, offering opportunities to drive Africa’s industrial transformation under the AfCFTA.”
