Government and pharma industry unite to tackle manufacturing crisis

Stephen Grootes (0:00)

Well, Business Live, reporting this evening, President Cyril Ramaphosa, Establishing a Government Business Task Force. It will try and manage the problem of where the drugs used by the Health Department should be made here.

Our pharmaceutical industry, you can imagine their view. South Africa's government should buy local. The Health Department should buy local. If I were there, that would be mine too. But the Health Department says, it has to ensure value for money. It will look for the cheapest drugs. And in a volume space, you can imagine why that might be. Dr. Stavros Nicolaou is the Chair of the Pharmaceutical Industry Group, Pharmisa.

Stavros, good evening. Good to talk to you again. Obviously, the Health Department would be a major client for you. Are they not buying local at the moment?

Stavros Nicolaou (0:42)

Stephen, firstly, good evening to you and the viewers. And thanks very much for having me back on your show.

I'm, in fact, representing the PTG, which represents the entirety of the pharmaceutical industry in South Africa this evening. That includes importers and local producers. It also includes the multinationals at the R&D based companies. Now, at the core of the issue here is that the pharmaceutical sector presents a real industrialization opportunity for our country. There are not too many sectors that I think we can industrialize and turn into globally competitive sectors at this point in time. I know there's the automotive sector and I'm excluding things outside of commodities and minerals. At a manufacturing level, there are not many sectors that we can say hand on heart are globally competitive. Pharmaceuticals is interesting because Africa has the most disproportionate disease burden and per capita consumes a disproportionate amount of pharmaceuticals. So it presents certainly at a volume level, or if you were to aggregate volumes on the continent, it presents an opportunity.

Pharmaceuticals have also been identified as a sector for or one of the key sectors for industrialization in our country. Now, having given that background, let me answer your question.

And again, at the core of what you're asking is, any country should look at what constitutes best value for money, when they buy the pharmaceutical products and their vaccines. And best value for money doesn't necessarily mean the cheapest.

It means what is going to give you the best economic value, both to the FISCUS and more broadly to the country. So, let me give you an example. I mean, if you were buying an antiretroviral for 10 rand, I'm Stephen making up these numbers. And the imported product was 9 rand and the locally produced product was 10 rand, and you're buying a million units, we might say that that is a good procurement decision if you buy the 9 rand product, because you've saved yourself a million rand. However, if you're losing 3 rand out of that 10 rand, which is roughly what the case is, by not manufacturing locally and not getting the multiply economic impact into the economy, you're actually minus 2 rand or 2 million rand worse off in the example that I've cited. So one should look at this from the perspective of what constitutes best value for money for the country, and not necessarily what is the cheapest. Now, having said that, I should also clarify that producing local doesn't necessarily mean that it's the most expensive either. There are many cases where locally produced products trump the prices of imported products. But I guess where you want to get this to is, you want to achieve an industry that is competitive, that's resilient, is sustainable, and above all can respond to the needs and demands of the local populace and the citizens of the country.

Stephen Grootes (4:22)

So I get all of that, and I get that government should play a role in stimulating local industry. For the patient, it is really about making sure there are enough drugs available and that the health department has a big enough budget to get those drugs. Now if you were to say to a patient for, let's just say with antiretroviral drugs because they save lives, it would be an awful thing. And I know this does not happen, but it would be an awful thing to say, I'm sorry, you can't get it because we didn't have enough money to buy enough.

So you have to get around that problem. This takes us really to how big is the price discrepancy between the drugs produced here and the drugs that may be procured from other countries?

Stavros Nicolaou (5:03)

So let's stick to ARV symmetry on that topic.

If one analyzes the current antiretroviral contract, they are imported products that are more expensive than the locally produced ones.