Chinese pharma finds the going tough in Africa

Published: 30-Mar-2016

Investing in the pharma sector in sub-Saharan Africa is fraught with difficulties, as Chinese companies are discovering

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China pharmaceutical industry investors want to help sub-Saharan African countries meet growing domestic demand for medicine in return for tax breaks and private-public partnership initiatives. But there are difficulties, including product quality and standards issues that impede the flow of Chinese Yuan into African pharma production. Indeed, converting financial resources into operating manufacturing plants can be a slow and troublesome process in the region’s less than optimal corporate governance climate.

Nigeria, now Africa’s largest economy, with a population of 173 million, is a key target for Chinese investors, but progress has been slow: its volatile security situation, rising inflation and cumbersome ports are major obstacles for Chinese companies used to working in less challenging environments. In October 2015, Frank Jacobs, President of the Manufacturers Association of Nigeria (MAN) described the current drug distribution system in Nigeria as chaotic, adding that it continues to expose consumers to the dangers of substandard and counterfeit medicines.

So for now, only Asian Tiger Pharmaceutical Ltd Nigeria has established significant operations at Lekki, near Lagos, and continues to expand manufacturing in Nigeria. Other companies, such as Guangzhou Pharmaceutical Holdings, Xiuzheng Pharmaceutical, Yangtze River Pharmaceuticals Group, Harbin Pharmaceutical Group Holding, Weigao Holding, North China Pharmaceutical Group, CSPC Pharmaceutical Group, and the China National Pharmaceutical Group, are involved mainly in importing manufactured products from China.

With signs that Nigerian political stability may be solidifying, there is hope that Chinese investors may seek to expand China-owned pharma manufacturing in Nigeria

But with signs that Nigerian political stability may be solidifying following the ascent to power last May of President Mohammadu Buhari, there is hope that Chinese investors may seek to expand China-owned pharma manufacturing in Nigeria. The country is a target of a proposed US$206bn China-Africa Development Fund budget; the fund is operated by the China Development Bank. The financing aims to stimulate investment in Nigerian pharmaceutical companies, and foster Sino-African investment through bridging financial advice, specific managerial advice, and identification of potential investment opportunities as well as connecting Nigerian pharmaceutical projects with potential Chinese investors.

Meanwhile, the Nigerian Investment Promotion Commission (NIPC) and the Chinese Qingdao International Chambers of Commerce for the Private Sector (QICCPS) have signed a memorandum of understanding (MoU) to encourage more inflow of investment from China into Nigeria, which is expected to promote investment in the pharma sector.

The MoU, signed by the commission’s Executive Secretary Uju Aisha Hassan Baba and the QICCPS Chairman Shang Yongle in Abuja, the Nigerian capital, on 5 August 2015, spelled out that the two organisations shall proactively encourage Chinese businesses to invest in Nigeria, with pharmaceuticals being one of seven target sectors. Yongle said Chinese investors are keen to tap investment opportunities in Nigeria, but Uju warned that NIPC would facilitate only those Chinese investments that comply with Nigerian law.

MAN, the Pharmaceutical Society of Nigeria (PSN), and the federal health ministry also insisted that foreign-invested and owned companies, as well as domestic pharma firms fully comply with Nigeria’s National Drug Distribution Guidelines (NDDG), which have been developed by the federal government, the Pharmacists Council of Nigeria (PCN) and the National Agency for Food and Drug Administration and Control (NAFDAC).

Wuhan-based Human Well Healthcare Group has released statements saying it plans to begin manufacturing medicines in Ethiopia, although it has not yet said when and where

Meanwhile, in East Africa, the continent’s second-most populous country Ethiopia (94 million people) has seen interest from Chinese pharmaceutical companies. Indeed, the Wuhan-based Human Well Healthcare Group has released statements saying it plans to begin manufacturing medicines in Ethiopia, although it has not yet said when and where such production would be launched. Human Well Healthcare is a major supplier of anaesthetics and fertility medicine.

And investment in Ethiopia by Chinese pharma companies looks set to increase after a delegation visited Ethiopia in October, according to an official from the Ethiopian Investment Commission.

‘Ethiopia’s pharmaceutical sector has been getting a lot of attention from countries such as China as they are keen to develop our manufacturing capacity and supply the growing demand in our domestic market,’ said Professor Tsige Gebre-Mariam from the School of Pharmacy, at Addis Ababa University.

According to Ethiopia’s Pharmaceutical Fund and Supply Agency, the private pharmaceutical market is estimated to be worth between $400m and $500m and growing annually by 25%. This is based on Ethiopia having the fastest-growing economy in sub-Saharan Africa with an expectation of double-digit growth in 2015, having increased by 9.9% in 2014, according to World Bank figures.

The role of Chinese investment in Ethiopia’s recent economic expansion is significant – with total Chinese investment in the country reaching almost $17bn, according to the investment commission.

Ethiopia’s pharmaceutical industry currently consists of 22 manufacturers engaged in producing human and veterinary pharma products, only three of which are involved in the export market. However, the industry is facing critical under-capacity, delivering less than 90% of the 380 products needed on the national medicine list, so last year Ethiopia’s government announced a 10-year national strategy to boost Ethiopia’s pharma manufacturing capacity.

Tax breaks are likely to be a key tool in attracting Chinese and other investment to make this happen. Incentives to attract foreign investment from countries such as China include a 100% exemption from import tax on machinery, equipment and construction material. Companies exporting 50% of their products or services are exempt from income tax for five years, while those exporting less than 50% or supplying only to the domestic market do not pay income tax for two years. Foreign pharmaceutical companies are expected to work in partnership with Ethiopian pharma firms.

In Kenya, the pharmaceutical industry has welcomed Chinese investment to help meet demand for medication across the country

In East Africa’s economic dynamo Kenya, the pharmaceuticals industry has welcomed Chinese investment to help meet demand for medication across the country. Dr Kipkerich Koskei, the Chief Pharmacist at the Kenyan health ministry, said that although there is no official supply partnership between China and Kenya, Chinese companies are using Kenya as an entry point for East Africa. ‘Chinese manufacturers with interest in this part of the world, East Africa, have engaged us to evaluate their products, which we have done, and those that have been found to comply with international standards have been allowed into the market,’ he said.

Kenya has approved a range of Chinese-made pharmaceutical products through research carried out by the Nairobi-based Pharmacists and Poisons Board. Permitted goods include antibiotics, intravenous fluids and herbal medications in the form of tablets, creams and syrups.

Production is another matter, however, although Kenyan newspapers have reported that a handful of Chinese pharmaceutical companies have expressed interest in investing in Kenyan production. These include Beijing Tong Ren Tang Technologies, which makes traditional Chinese medicine as well as modern drugs; medicine exporter China Sunshine; China Sinopharm International Corporation and Farmasino Pharmaceuticals. There have also been reports that Huawei Kenya has plans to invest in Kenya pharma production.

Economically troubled Zimbabwe also has capacity shortages and has found that it cannot meet local medicine demands without urgent Chinese investment

Further south, economically troubled Zimbabwe also has capacity shortages and has found that it cannot meet local medicine demands without urgent Chinese investment. Industry and commerce minister Mike Bimha has called on Chinese investors to consider the ailing pharmaceutical sector in the country. Bimha said during a visit of a Chinese government and business delegation last June that Zimbabwe’s pharma industry is in urgent need of an $80m injection, offering 10-year special contractual rights and competitive interest rates of 5% to attract funding: ‘There are various opportunities that Chinese investors could consider taking up in the country,’ he said.

The Chinese Council for Promoting South-South Corporation ranks Zimbabwe among the top five Chinese investment destinations in Africa. However, according to information obtained from the Chinese embassy in Zimbabwe, Chinese investments in the country have thus far been concentrated in manufacturing, construction, agriculture and mining. As yet, there has been no significant investment in pharma by Chinese players, although Chinese finance worth $100m was involved in the purchase of medical equipment in March 2015 for Zimbabwe’s health services.

According to the Zimbabwe Investment Authority (ZIA), an opportunity exists for the development of medical products from locally grown, natural raw materials, including the controlled growth of prescribed drugs for the industry that Chinese investors could snap up.

In an interview, Zimbabwe Investment Authority Chairman Nigel Chanakira expressed confidence that the country will attract investment from China for the pharma sector. ‘China has been one of the major investors in the country. Looking ahead, we are confident we will continue to be a dominant destination for Chinese investments in Africa,’ he said.

According to statistics from the Chinese government, inward foreign direct investment (FDI) from China to Zimbabwe was at $460m in 2011, which was only second in the whole of Africa. Investments from China into Zimbabwe fell to $287m in 2012, but rebounded in 2013 to $601m in a year when the country attracted the most FDI from China on the continent.

One obvious target of Chinese pharma investment and activity in sub-Saharan Africa is in Chinese traditional medicine, notably serving Chinese communities that are spread across the continent

Of course, one obvious target of Chinese pharma investment and activity in sub-Saharan Africa is in Chinese traditional medicine, notably serving Chinese communities that are spread across the continent. But investment and distribution is still largely informal.

For instance, the Chinese community in Douala – Cameroon’s biggest city – numbers about 5,000, some of whom sell and distribute traditional medication. According to Dr Yamba Beyas Martin, a senior health ministry official for the Douala region, while there are no officially registered suppliers of Chinese medicines, there are many Chinese medical centres dotted around the city.

An IT director at Cameroon Customs office added that most traditional Chinese medicines enter the country illegally – he said legal importation was ‘insignificant’.

In 2012, China represented about 13% of Cameroon’s foreign trade according to trade figures from the national institute of statistics. Chinese companies are involved in 70% of Cameroon’s official infrastructure projects, which includes the building of hospitals. But with French companies retaining strong influence over local pharma manufacturing, Chinese investment in this sector within Cameroon is not expected any time soon.

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