The COVID-19 pandemic has brought into sharp relief the highly unsustainable fact that African countries together import over 70% of all pharmaceutical and medical products. Yet, 34 out of 55 African countries have some level of pharmaceutical production, with countries offering an array of incentives to encourage pharmaceutical investment. These opportunities have been available and well known to investors from Europe and other OECD countries for many years, and many have been grabbed by Indian manufacturers. But what about Chinese investors? What is their perspective of the African market? Can they play a role in rectifying this situation, including for COVID-19 recovery?
To gain insight into this question, Development Reimagined spoke to Li Wensheng, CEO of Humanwell Healthcare Group Africa, a private Chinese pharmaceutical company already operating in Mali and Ethiopia.
LI WENSHENG: First up, as reported by Goldstein Market Intelligence, in 2017 the value of the continent’s pharmaceutical industry was $28.56 billion – a substantial increase from its $5.5 billion value just a decade earlier. Despite this, the market remains underdeveloped and highly fragmented. The entire continent only has 375 pharmaceutical companies, with a significant number concentrated in North Africa. When accounting for just Sub-Saharan Africa, the pharmaceutical market shrinks to only $14 billion. This is further dwarfed when compared to other countries with similar-sized populations as the continents. China, for instance, has around 5,000 drug manufacturers and a market value of $120 billion, whilst India has 10,500 drug manufacturers and a $19 billion market value. There is no doubt in my experience that the sector is underdeveloped here in Africa.
And the implications of this underdevelopment have been illuminated by the pandemic. Only 3 African countries plan to produce vaccines (Morocco, Egypt and South Africa), with most countries relying on imports which place additional fiscal pressure on governments. The Africa Centre of Disease Control (Africa CDC) has estimated the cost of vaccinating 60% of the population will be between $7-$10 billion. Supporting local manufacturing and building capacity simply cannot wait, nor can the people waiting for lifesaving or essential drugs.
The idea of new partnerships between China and Africa to support the sector’s growth has been around for a few years now. For example, pharmaceutical investment was included in the 2015 Forum on China-Africa Cooperation Beijing Action Plan. Additionally, just before the pandemic outbreak, the China Chamber of Commerce for Import & Export of Medicines & Health Products (CCCMHPIE) hosted the Convention on Pharmaceuticals China, which facilitated talks between Chinese pharmaceutical investors with African delegates.
DEVELOPMENT REIMAGINED: Why is China-Africa pharmaceutical investment important? Isn’t one of the issues that China is exporting to Africa too much?
LI: Far from stopping the development of the sector, there are actually several ways Chinese investors can support the growth of Africa’s pharmaceutical sector. For instance, Chinese investment can combat the counterfeit medicine trade, which is particularly rife in Africa, with 42% of all counterfeit medicines reported to the WHO from 2013 to 2017[MOU1] coming from the continent. This is extremely dangerous and has led to avoidable deaths and extra costs. One analysis estimated that fake or poor quality antimalarials in Africa had caused around 116,000 further deaths, creating additional fiscal pressure of $38.5 million to treat those who required care. But as investment in the pharmaceutical industry grows, and access to high-quality medicines expands, the market for fake medical products will shrink.
Another way we can help as investors is to build capacity through skills transfer and improvement in local management techniques. The pharmaceutical industry requires standardization with strict regulations, with highly technical practices. Chinese enterprises, through direct investment and joint ventures, can provide advanced management techniques and share knowledge we have developed from our own pharmaceutical development experience. Transferring this knowledge to local workers and managers will support the industry’s long-term development.
Finally, and most importantly, we can increase the accessibility of lifesaving and everyday pharmaceutical supplies. For example, in the first few months of the pandemic, between April and June 2020, the continents’ total exports of COVID-19 medical supplies equated to only $422 million, with South Africa accounting for 92% of this. Comparatively, between January and June 2020, total imports of COVID-19 medical supplies equated to roughly $2.7 billion, with three main import sources being China (26%), India (16%), and the US (11%).
This imbalance, this dependency is unsustainable. But when manufacturing is localized, the factory can produce supplies most suited to the local market needs and enables governments to better address health concerns through this enhanced capacity. Transaction costs will also decline through the reduction in import and logistic costs, which in turn decreases the price of medicine, making them more affordable and accessible.
DEVELOPMENT REIMAGINED: Thank you for those important insights. Now, you have invested yourself into the African pharmaceutical sector, what challenges did you meet when doing so?
LI: This is an important question. The biggest challenge was certainly the low levels of infrastructure. The African Development Bank estimates there is a total financing gap of US$52 – $92 billion per year. Inadequate infrastructure has direct implications on the supply chain. For instance, we still rely on some imported products to manufacture our medicines, but the fragmented supply chain makes reduces efficiency and increases our costs.
We also witnessed the realities of poor infrastructure in the pharmaceutical sector with the COVID-19 vaccines, as many countries did not possess appropriate cold storage facilities for vaccine transportation and storage.
A second challenge we have met is a mismatch between donations and local procurement. The Chinese government and international organizations donate – for free – vast amounts of medicines to Africa every year. However, these products are from China and Western countries, whereas procurement from local manufacturers would be more efficient in terms of time, logistics, and cost, plus it would support the domestic manufacturing industry. It is important that in the future this system works better to respond to public health threats in a timely and efficient manner.
Finally, hiring local staff has been challenging, as training costs can be substantial, especially if there are significant gaps in knowledge or skillset. To help build capacity, further support from both the African and Chinese governments is needed through mechanisms such as subsidized training programs. Within this, communication with Chinese pharmaceutical actors is essential, as we have the equipment and facilities for this training.
DEVELOPMENT REIMAGINED: Right – it’s clear that the issues go beyond China-Africa – even to international procurement systems and financing. So, does that mean the African and Chinese government’s role is limited? Can they do anything to encourage more private sector investment in pharmaceuticals, given these challenges?
LI: Yes, the challenges are big, but I have two specific ideas for what can be done.
As I mentioned, many international organizations like the WHO donate medications similar to what we produce, such as anti-malaria or anti-tuberculosis drugs. A monitoring system between the host country government, the Chinese government, and local manufacturers would allow us to establish quarterly plans for donations to ensure that medicine remains high-quality, effective, and in good supply.
Another tool would be to establish robust frameworks on intra-regional pharmaceutical trade. Our products supply Western Africa, including Mali, Senegal, Cote d’Ivoire, which are all members of the Economic Community of West African States (ECOWAS). Technically no tariff should be paid when importing locally produced product from a member country. However, our company experiences issues in getting the required documents when exporting our medicines to other ECOWAS countries – which not only slows down our export process but prolongs the time that countries receive drugs.
DEVELOPMENT REIMAGINED: These are very important suggestions, and we agree – we hope they can be put into action. Now, post-COVID, do you think there will be better or worse opportunities for the continent’s domestic pharmaceutical sector?
LI: African governments have done particularly well in managing the virus. But most still face limited capacity in testing and vaccinating. As reported in March, African countries had received under 2% of the vaccines they ordered – these long delays are postponing economic recovery.
What COVID has revealed is the vital need to expand the variety of products manufactured. Masks, alcohol, and sterilization products, alongside household drugs, will help prepare African countries to respond to disease threats. For instance, the costs of PPE increased massively during COVID – with one report calculating a 6,163% increase for 3M N95 masks (jumping from $0.11 to $6.75 per mask!). There is definitely an opportunity here for Chinese investors to support the local manufacturing of these essentials, especially as China has a firm advantage in producing these products.
But Chinese investors must research the opportunities out there. For instance, the 2018 report commissioned by UNAIDS and CCCMHPIE surveyed 21 African countries – this is really useful. That report reveals that 90% of countries provided import incentives for active pharmaceutical ingredients, excipients, and machinery for production, 80% provided tax incentives, and 60% provided free allocation of land or planned a pharmaceutical industrial park. Such incentives significantly reduce transaction costs for investors.
Further, opportunities in the pharmaceutical industry’s supply chain remain largely untapped. There is a big gap with sourcing raw materials, packaging and labeling, and transportation, which Chinese companies should also seek to invest in. This would support employment creation within Africa as the supply chain becomes more established. A complete supply chain therefore can create a win-win situation for both African countries and Chinese counterparts.
This article was first published on The China Africa Project on April 23rd, 2021.
April 2021
