Pharma industry’s N300bn investment threatened by CET, NNDG

Structural deficiencies in the Common External Tariff (CET) and the New National Drug Distribution Guidelines (NNDG) are threatening to close down Nigeria’s 150 pharmaceutical firms and cripple N300 billion worth of investment made so far in the sector, industry stakeholders have said.

The CET began early June among the 15 countries of the Economic Community of West African States (ECOWAS), targeting free trade among the countries through uniform tariff lines.

The CET has, however, proven to be inimical to the pharmaceutical industry as it places zero (no) tariff on finished imported drugs while imposing five to 20 percent tariff on essential raw and packaging materials needed for local production. By implication, importers can now bring in foreign drugs without paying any duty, while Nigerian pharmaceuticals are forced to pay up to 20 percent tariff on raw materials that will be used in their factories.

“This policy, if implemented, reverses the gains made towards the nation’s self-sufficiency in essential medicine and opens all doors for total importation of finished medicine,” said Okey Akpa, chairman, Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN), at a press conference last Thursday in Lagos.

“The policy undoubtedly spells doom for the local industry as imported medicines will become far cheaper than locally produced ones,” Akpa said.

According to him, CET implementation could lead to loss of one million direct and indirect jobs in the sector, while also weakening the local manufacturing capacity, leading to influx of cheap imported drugs of doubtful quality.

“The lack of demand for locally manufactured medicines as a result of cheap imports will lead to idle capacity and will negatively impact previous investments in the sector worth over N300 billion,” he said.

Akpa said if the situation is not reversed, it could spike fake and substandard products, further deplete the already volatile naira and enthrone skills stagnation.

“An Import Adjustment Tax of 20 percent on imported finished pharmaceutical products of HS Codes 3003 and 3004 should be imposed immediately as applied to other sectors where Nigeria has capacity as allowed by CET,” the PG-MAN helmsman recommended.

He also prescribed that under the National List within the CET, input into pharmaceutical manufacturing such as raw materials, ‘excipients’ and packaging should be allowed to be imported at zero percent duty by true drug producers in the country.

Similarly, Nigeria’s Federal Ministry of Health recently began the implementation of the New National Drug Distribution Guidelines with a view to finding a lasting solution to problems associated with drug distribution.

But this system has brought about unfairness in the distribution chain as it has handed over the pharmaceutical industry to cartels and syndicates, according to Akpa.

AKpa said the NNDG has restricted sale of drugs to only a few, mostly foreign-owned, distribution companies that are then required to sell to manufacturers’ wholesalers.

He said this will cause significant reduction in access to essential medicines, between 25 and 35 percent hike in prices of basic drugs, unemployment of over one million people and loss of business. He stressed if manufacturers are not allowed to deal with wholesalers in the open market, there could also be inefficiencies and loss of over N100 billion of the sector’s working capital.

“The backbone of the current distribution network is the open markets, which serve as major sources of purchase to hospitals, wholesalers and retailers. These open markets, which control about 80 percent of the drug distribution system in volume and value, would be closed with the advent of NDDG,” he explained.

The drug makers recommended that NDDG be reviewed in consultation with stakeholders, adding that the July 1 2015 deadline for implementation of the guidelines is unrealistic.

Sam Ohabunwa, founding president/CEO, Neimeth International Pharmaceuticals plc, said drug makers in the country want a well-articulated framework that will allow manufacturers to sell to wholesalers and then wholesalers to retailers.

“You do not need to elongate the chain without creating any value. You have your mega distributors but to restrict manufacturers to sell to two or three mega distributors is wrong,” Ohabunwa said.

On the CET, he said,”If you have a system where you bring in finished drugs and pay no duty but bring in raw materials and pay 20 percent duty, will it encourage industrialisation which the current government seeks to achieve?,” he asked.

Bunmi Olaopa, group managing director, Evans Medical plc, said the CET is most unfriendly to Nigeria’s pharmaceutical industry given that the country has the largest number of pharmaceutical companies in the region.

“There is the need for the government to protect its industries. Even Ghana with 36 companies has not implemented CET because they know it will be inimical to their industries,” Olaopa said, adding that the government should revisit the NDDG in line with what is happening in other countries.

Steve Onya, managing director/CEO, Chi Pharm, said drug makers are crying out that the Buhari administration should revisit the two issues so that industries will not close down.

“Government should protect local industries by reversing the tariff structure and imposing tariff on imported products. There is no place in the world where inefficiency is rewarded,” Onya said.

ODINAKA ANUDU