Investments in pharmaceutical industry in Egypt exceed EGP 20 billion
The pharmaceutical industry in Egypt is one of the largest in the country; the volume of investments therein accounts for more than EGP 20 billion (USD 3.35 billion). This industry relies on importing raw materials from abroad, which increases the cost of producing medicine. According to investors in the industry, this has caused a problem recently, with the Government pricing medicine at lower prices than it costs to manufacture.
Milestones
Dr. Majida Shalabi, professor of Economics at Zagazig University, in a report on the development of the pharmaceutical industry in Egypt, highlighted the several stages that the industry has gone through. The first stages began with the Customs Agreement with foreign countries in 1930, and the signing of the Monroe Agreement in 1934 and lasted through until the revolution of July 23, 1952. This period witnessed the establishment of three pharmaceutical companies: the Misr Company for Pharmaceuticals and Chemical Industries, Chemical Development Industries (CDI), and Memphis Pharmaceuticals; however pharmaceutical production was limited at that time. With the issuance of new nationalization laws in 1961, the Egyptian economy entered a second phase which lasted until the mid seventies, through the regulation of the public sector and setting up a comprehensive planning program by establishing the Egyptian Pharmaceutical Association on the one hand, and moving towards subsidizing the public pharmaceutical factories on the other hand, providing necessary supplies, machineries and equipments needed. Moreover, three major foreign pharmaceutical companies (Pfizer Egypt, Hoechst, and Swiss Pharma) were granted licenses to open branches in Egypt in order to impart the European technology of the pharmaceutical industry to Egypt.
Prof. Shalabi stated that the last period of pharmaceutical industry started in 2003 when the State regulated the pharmaceutical sector through the establishment of regulatory bodies, government, and holding companies, to monitor and participate in the industry. Various countries began to exercise their power of control in terms of pharmaceutical registration and pricing; however, the effectiveness of this practice remained relatively limited, especially as regards the pricing matter.
The Importance of the Industry
A report issued by CI Capital on the pharmaceutical industry in Egypt mentioned that this industry is currently one of the largest in the country. The total investment in this sector exceeds EGP 20 billion, with the existence of 120 factories for pharmaceutical manufacturing and 45,000 pharmacies, the majority of which are in Cairo and Alexandria. Pharmaceutical companies import about 85% of the raw materials needed for manufacturing medicines. These factories cover about 93% of pharmaceutics for the domestic market, where the percentage of consumption reached EGP 14 billion in 2009, EGP 15.3 billion by the end of 2010, and is projected to reach EGP 47 billion (more than USD 8 billion) by 2015.
According to a study prepared by The Economist Intelligence Unit on the pharmaceutical industry in Egypt, this sector needs a phased development program starting with re-pricing medicines, as this is a problem currently facing the pharmaceutical companies and preventing them from achieving profits. The other problem is related to the extent of the Egyptian Government's response to the terms of the World Trade Organization's intellectual property rights with regard to manufacturing the various medicines, which will greatly contribute in attracting foreign investments in this sector. The report stated that the pharmaceutical industry will be vulnerable in the coming period as a result of the political instability in Egypt, but that the sector will rebound again once political stability is realized in the near future.
A report issued by Market Publishers on healthcare and the pharmaceutical sector in Egypt in the second quarter of 2011 pointed to an obvious and increased growth in the pharmaceutical industry markets in Egypt. The report noted that Egypt is among the most important emerging markets in the pharmaceutical industry, but that is facing some hurdles in the pricing of medicines and the continued failure of the government to implement a comprehensive health insurance system. The report confirmed that the adoption of the comprehensive plan for health insurance announced by the Government will greatly increase spending on medicines and the growth of the industry. The report concluded that perhaps the fact that 9.8% of the Egyptian people suffer from hepatitis C and that the Government is endeavoring to reduce that figure to 6.8% by 2015 will contribute to the growth of the pharmaceutical industry and the increase of government spending on this sector.
Problems
The Ministry of Industry and Foreign Trade issued a study on the pharmaceutical industry in Egypt which confirmed that the industry is witnessing intense competition from global multinational companies, as well as from the dumping policies followed by the industrialized countries, which will lead to a decline in the industry in the long run, especially with the rising prices of pharmaceutical products. The essence of the problem is the absence of Arab entities or mergers which devise fundamental solutions for this crisis; while foreign pharmaceutical companies are following an integration policy where the assets of each of these companies exceed USD 130 billion, Arab investments are sporadic, ranging from USD 4 to 5 billion.
The study underlined the main problems facing the pharmaceutical sector:
* The dependence of the pharmaceutical companies in Egypt on the policy of importing over 80% of raw materials, which raises the production cost and has associated risks of exposure to the volatile prices of energy, fuel, packaging and wrapping materials as well as transportation costs.
* The absence of funding for research and development in the public sector companies.
* The intellectual property agreement and the consequent prevention of raw materials use: the agreement is limited to the original product or obtaining a license from the patent holder, which is a costly matter.
* The State control of some products' prices, in addition to benchmarking these products against numerous other products, generating losses due to the difference in subsidies.
* · The export difficulties due to the absence of the targeted Arab market, and the presence of foreign companies competing with the Egyptian product.
Pricing
Pricing is one of the main problems facing the pharmaceutical industry in Egypt. It is a permanent point of contention between the State, its regulating authorities, and the pharmaceutical factories in Egypt. Dr. Shalabi perceives the pricing of medicine in Egypt to be based on the mandatory pricing system implemented on August 30, 1988. According to this system, the producing company's margin of profit is set around 25 % of the total cost, excluding the list of basic medicines whose margin of profit is set around 15%; while the law provides a margin of profit up to 8% for the distributor and up to 20% for the pharmacist. It could be argued that the State controls pharmaceutical prices, while taking the social dimension into account.
The Chamber of Pharmaceutical Manufacturing at the Federation of Egyptian Industries issued a report demanding the Egyptian Government to reconsider liberating the pharmaceutical prices without harming the Egyptian consumer. Dr. Makram Mahana, chairman of the Pharmaceutical Industry Section advised that restructuring the pharmaceutical industry is an imperative matter as it is one of the major industries in Egypt where the volume of its investments reaches EGP 40 billion and achieves an average annual increase of 18%. Dr. Mouhanna added that this industry employs more than 100,000 employees across 144 pharmaceutical and diet supplement companies, along with 400 third party manufacturing companies, 107 medical supplies companies, and 233 cosmetics companies. He highlighted the need to liberalize the prices of medicine, particularly at the present period, as their current production cost exceeds their prices. Last but not least, he believes the State should subsidize this industry taking into account the social dimension and the market's need for pharmaceutics and aim at achieving self sufficiency in quality medicines at reasonable prices.
Dr. Sari Mohamed, one of the investors in the pharmaceutical industry, said the industry faces a further challenge: fraud carried out by some of the local pharmaceutical companies. They tend to put expired medicines into circulation and proceed to re-circulate them in the market numerous times. Dr. Sari stressed the need to tighten controls on the market and ensure that pharmacies refrain from dealing with shady pharmaceutics, pointing out the importance of re-pricing medical products to match the cost of medicine, adjusting market prices manipulated by some foreign companies which are controlling their products' price increase, negatively impacting the local industry. Dr. Sari said that in the absence of adequate control in the past, numerous foreign companies succeeded in infiltrating the market and manipulating prices; adding that the Arab market is a promising market for export of Egyptian pharmaceutics, especially with the low prices of antibiotics in Egypt compared with its counterparts in the markets of some of the Arab countries.