Industry Map: Nigeria Pharmaceutical Manufacturing – Competitive Space Remains Highly Sensitive to Foreign Exchange

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Nigeria’s pharmaceutical firms rely on imports for 98% of their inputs, according to the government. A lack of local production for key inputs – such as APIs and expedients – means the country must turn to India and China for supply, driving up prices and increasing foreign exchange risk.

Over the last few years, Nigeria has grappled with a scarcity of foreign exchange, which has contributed to an increase in the cost of imported drugs by as much as 200%, according to the Pharmaceutical Society of Nigeria (PSN). For some firms, this has supported demand for Made-in-Nigeria goods: domestic firm, Fidson Healthcare, for example, has partially attributed recent sales growth to this. The firm’s revenues hit $27 million at the end of Q3 2017, surpassing full-year revenue of $21.1 million in 2016.

Sector is producing well below its overall capacity in the face of operating challenges

According to Pharmaceutical Manufacturers Group of Manufacturers Association of Nigeria (PMG-MAN), domestic capacity utilization dropped to 20% in 2016, with 30% of PMG-MAN members shutting down production completely. This has been attributed to inadequate funds, little government patronage, foreign
competition, and weak infrastructure, with an unstable power supply forcing most facilities to use expensive diesel generators.

The most recent National Bureau of Statistics indicates that the real value of the sector grew by just 1.19% in 2016, with four successive periods of negative growth between Q3 2016 and Q2 2017. The sector barely returned to positive growth in Q3 2017 where it expanded by 0.24%.

Nigeria has adjusted its tariff regime to boost local production of finished drugs

The return to growth was aided in part by a reversal of the ECOWAS Common External Tariff (CET), which initially favored imported drugs with a 0% tariff and a tariff of 5-20% on raw materials and packaging materials. The policy was reversed in 2016 with a 20% import tax adjustment on four groups of imported drugs which can be adequately produced by local manufacturers. Meanwhile, import taxes on other imported drugs, such as insulin, was left at 0%, as there is little or no capacity to produce locally. The tax on raw materials was reversed to 0% from between 5-20%.

Quality remains an issue for the majority of producers looking to break into the export market

Only four of the operational manufacturers in Nigeria have obtained World Health Organization Good Manufacturing Practice (WHOGMP) certification on their facilities: Chi Pharmaceuticals, Evans Medical, May & Baker, and Swiss Pharma Nigeria.

WHOGMP certification signifies that the four facilities meet global quality standards and can compete at an international level, meaning that the remaining market players are essentially locked out of the export market.

Standardisation of the distribution network set to commence by 2019.

By 2019 the government is set to implement the National Drug Distribution Guidelines to structure pharmaceutical distribution. The guidelines outline that there should be State Drug Distribution Centers and Mega Drug Distribution Centers for the private sector in six zones. This aims to ensure that there is data on all products and that distribution is tracked.

At present, there is little structure for distribution at the national level, with most producers forced to work with distinct distributors in each state. Aside from the logistical and financial burden of this, the disjointed distribution network leaves room for counterfeit products to enter the supply chain.

Sub-Sector Sizing

The PSN estimates the industry to be worth around $1.3 billion, which accounts for less than 0.25% of GDP despite there being 132 local manufacturers licensed to operate in the space. National Bureau of Statistics data indicates that the chemical and pharmaceutical manufacturing sector in Nigeria grew by 1.19% in 2016.
Despite their size, several manufacturers are highly diversified when it comes to product type.

Top Pharmaceutical Manufacturers by Product Diversity

European multinationals such as GlaxoSmithKline lead the market with branded drugs mostly sold to the private sector, with a focus on vaccines, anti-infectives, insulin, and antihypertensives.

Indian pharmaceutical companies – such as Ranbaxy Nigeria and Unique Pharmaceuticals – are gradually expanding their activities in the country, providing generic products and offering competitive pricing. Most of the Indian firms source raw materials at lower prices due to partnerships with raw material-producing companies in their base country.

Local pharmaceutical manufacturers like Fidson and May & Baker partner with multinationals in the form of contract manufacturing and licensing arrangements, which allows them to sell branded products along with their locally produced generic drugs.

Performance

Fitch/BMI data put the value of pharmaceutical sales at around $600 million for 2017, having gone through consecutive quarters of decline since 2016 (when sales totaled $719 million). Forecasts suggest sales grow modestly in value over the next three years, carrying diminishing weight as a percentage of GDP.

Total Pharmaceutical Sales by Value and GDP Contribution (2015-2021)

Dr. Fidelis Ayebae, Managing Director of Fidson Healthcare, suggested to Asoko that the “government should engage industrial sectors to recognize what is best for businesses and should strive to create enabling environments for businesses to thrive.”

Nigerian producers struggle to compete with imported medicines despite changes to the import tax regime. While this varies by product type, imports service an average of 89% of local pharmaceutical demand, or as much as 95% for antiretroviral and tuberculosis drugs. Nigerian producers perform best in the production of analgesics, antirheumatics, and antipyretics, where they cover about a quarter of domestic demand.

Proportion of Local Demand Serviced by Local Producers vs. Imports (2016)

TradeMap data, from the International Trade Centre, indicates that in 2016 Nigerians imported around $405 million worth of pharmaceuticals, primarily from India, China, Switzerland, UK, and Belgium. Imports, including raw materials and finished products, have been growing by an average of 16.27% since 2012, Asoko has determined. According to the PSN, imports are expected to reach $789 million by 2018. Meanwhile, Nigerian goods only raised $923,000 on export markets with Ghana and Kenya receiving the bulk of exports – around 60%. This is a marked drop from 2013/14 when exports topped $7 million.

Value of Imported and Exported Pharmaceuticals (2012-2016)

Value Chain Structure:

Supply

About 95% of raw materials used by local manufacturers are imported from India and China. The equipment used in manufacturing the drugs is also imported, and either bought as produced or built based on specifications provided by local manufacturers.

Distribution

The current system is unstructured with no national distributor. There are about 350 importers which are seen as the financially strong distributors and are able to push their goods to wholesalers, which sell to retailers. Most local manufacturers hire a distribution team across the country and sell to the open drug market (i.e. informal market). There are more than 5,795 licensed pharmaceutical distributors and vendors in Nigeria, and over 1,500 are in Lagos alone.

Pharmaceutical Supply Chain Snapshot

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