DRAFT Ethiopia country report - International Centre … TOWN DECEMBER 2009 Ethiopia country report...

STRICTLY CONFIDENTIAL

DRAFT

CAPE TOWN DECEMBER 2009

Ethiopia country report

Pharmaceutical production&

technology transfer

- a private sector perspective -

STRICTLY CONFIDENTIAL2

Contents

IFHA

Health systems in Africa


Scope of IFHA research

Economic landscape

Competitiveness

Protection of local industry

Technology transfer PIC/S GMP Joint ventures:

Sinio-Ethiop East African Pharmaceuticals & Cadila

Conclusion


Contents

IFHA




Economic landscape

Competitiveness


Technology transfer: PIC/S GMP Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

Conclusion

IFHAIFHA


Anchor Investors in IFHA

Size of Investment Investors

2nd ClosingInvestors

1st ClosingInvestors

1st ClosingInvestors: SIFA

• IFC

•African Development Bank

•Pfizer

•APG


Contents

IFHA




Economic landscape

Competitiveness




Conclusion

Health systems in AfricaHealth systems in Africa


Africa spends very little on health care

750

5.703

PopulationX mio

Total health expenditure

x $ mio

Burden of communicablediseasesDALYS

AfricaAfrica

Rest of theworld

Rest of theworld

265

345

38046

4.351.772

Source, WHO 2008

Health in Africa is underfunded



Traditional approach

Aid US$

Traditional approach

Top-down (trickle down)Supply/input drivenPatient is passive receiver



Public services benefit the rich most

Percentage of lowest and highest quintile using public healthservices

23%

36%34% 33%

15%

12%

16%

10%

primairy care outpatient inpatient total

highest quintilelowest quintile

Source: Preker AS, Langenbrunner JC et al (2005)

The poor are often not reached



Data based on usage, not expenditure (most recent survey year available between 1995-2006; data not available for all countriesSource: Africa Development Indicators, World Bank 2006

The private for-profit health sector is an importantprovider for the poor

Percentage of lowest and highest quintile receiving care fromprivate providers

> 40% in lowest income quintile receive healthcare from private providers

51%

67%61%

48%

64%

53%45% 44%

Nigeria Uganda Kenya Ethiopia

Highest income quintile

Lowest income quintile




0%

25%

50%

75%

100%

Value receivedby customerValue receivedby customer

Inadequatebuyingpractices

Qualificationproblems

Inefficientprocurement

Inefficientdistribution

Irrationalprescription

Noncompliance bypatients

Source: The World Bank 1994

88% of every dollar of publicexpenditure on medication is

lost to inefficiencies

Public systems are very inefficient

Much money is lost



Social security and private prepaid health care spending

0%

10%

20%

30%

40%

50%

Sout

h Afri

ca

Cape V

erde

Namibi

aMali

Zimba

bwe

Botsw

ana

Sene

gal

Swaz

iland

Rwan

daKe

nya

Côte d'

Ivoire To

go

Maurit

ius Benin

Nigeria

Niger

Tanz

ania

Madag

ascar

Seyc

helle

s

Gabon

Malawi

Guinea

-Biss

au

Burki

na Fa

so

Ethiop

ia

Guinea

Chad

Mozam

bique

Ugand

a

Camer

oon

China

Perc

ent

of t

otal

hea

lth

expe

ndit

ure Only 4% of total health

expenditure in Africa isfinanced throughhealth insurance

Only 4% of total healthexpenditure in Africa isfinanced throughhealth insurance

Source: WHO 2008

Africans lack protection against medical costs; solidarityis limited



0%

25%

50%

75%

100%

Sout

h Afri

ca

Sao T

ome &

Prin

c.

Maurit

ania

Seyc

helle

s

Botsw

ana

Madag

asca

r

Cong

o B.

Maurit

ius

Sierra

Leon

eMali

Nige

r

Zambia

Benin

Burk

ina Fa

so

Eritr

eaSu

dan

Chad

Cent

ral A

frica

n Rep

.

Cote

d'Ivo

ire

Ugan

da

Camer

oon

Buru

ndi

Guin

ea

Out

-of-

pock

et h

ealt

h ex

pend

itur

e(a

s %

of

tota

l he

alth

exp

endi

ture

)

Source: WHO 2008

Private out-of-pocket expenses are 50% of total health expenditure

Many fall in a poverty trap


Fina

ncin

g

Del

iver

y

African health systems are stuck in a vicious circle

Demand

Medicalcare usage

Supply

Qualityhealthcare


The bill is paid by the poor


Investments in the private health sector in Africa are non-existent

Amount of IFC’s private investments inhealth (loans and equity 1997-2007)

266

10998 95

3

Asia Lat Am Eur Middle E SSAfrica

Amount invested (in US$ million)

Source: Improving effectiveness and outcomes for the poorin health, nutrition & population, World Bank 2009



Donor funding for health to Africa has increased rapidly

1,0

1,5 1,6

2,3

3,13,4

4,0

4,6

2000 2001 2002 2003 2004 2005 2006 2007

Amount in US$ billion

Source: Financing of global health: tracking developmentassistance for health from 1997 to 2007, Lancet 2009

......to large extent due to the rise of vertical fundingBulk donor funding is channelled to the public system



Development and health policy

1

2

3

4

5

6

7

8

9

4 5 6 7 8 9 10 11 12

Log GDP/capita

Log

Hea

lthE

xpen

ditu

res/

capi

ta

Tight relationship between income and health expenditure leaveslittle room for impact of policy variables


Development and health policy

% Out of Pocket Expenses of Total Health Expenditureversus GDP per capita

0%

20%

40%

60%

80%

100%100 1.000 10.000 100.000

GDP/ Capita (log scale)

% O

ut o

f Poc

ket

Africa versus developped countries (GDP/Capita>$15000)

Logaritmisch (Africa versus developped countries (GDP/Capita>$15000))

A

AGO

SLE

MRT

LSO

NAM

DZA

CPVCOG

SWZ

ZAF

GAB

BWA

MUS

SGP

TZA

NGA

ZMB

UGA

LUX

USA

FRA

The second law of health economics; out-of-pocket expenses

Rich countries have lower out-of-pocket expenses thanpoor countries


Contents

IFHA




Economic landscape

Competitiveness




Conclusion

Scope of researchScope of research


Ethiopia – scope of IFHA research

Field trip November 2009- Companies and government institutions interviewed -

Field trip November 2009- Companies and government institutions interviewed -

Companies Sinio-Ethiop Associate (Africa) PLC Cadila Pharmaceuticals (Ethiopia) PLC East African Pharmaceuticals Pharmaceutical manufacturing Association

GTZ & Engineering Capacity Building Program

Government agencies: Drug registration authorities Development Bank of Ethiopia Ethiopian Investment Agency National Bank of Ethiopia Ministry of Trade and Finance


Contents

IFHA


Ethiopia country report:


Economic landscape

Competitiveness




Conclusion

Economic landscapeEconomic landscape


Ethiopia – economic landscape

21

80 million inhabitants, 100+ million by 2015 Largest cattle population in Africa East African trade zone (Comesa) Very low labor costs / relatively well educated workforce Ongoing privatization of pharmaceutical industry Equal treatment of foreigners No TRIPS until 2016. Ethiopian IP laws offer opportunities for

generic production Substantial investments in infrastructure & utilities Ethiopia forecast (Ernst & Young report Oct 2009):

Third-largest sub-Saharan economy by 2023 GDP from USD 70 (2008) to 472 billion (2023) GDP/Capita to 4,000 USD by 2023

Potential: rapidly growing market, economy opening upPotential: rapidly growing market, economy opening up


Ethiopia: GDP per capita comparison



Ethiopia: real GDP growth comparison



Ethiopia: forecast key economic indicators



Population 81 million

Infant mortalityrate (MR) 77

Under-5 MR 123

Maternal MR 720

Total healthexpenditure (THE) as % GDP 4.9%

Total healthexpenditure per capita US$ 7

Private expenditure as % of THE 32%

Private prepaid expenditure as % of THE 1%

% peopleusing the private health sector 48% (richest 20%), 44% (poorest 20%)

# physicians 1936 = 1 for > 40,000 population

# nurses and midwives 15544 = 1 for > 5,000 population

Nurses & midwives / physicians 7.3

# pharmaceutical personnel 1343 = 1 for 60,000 population

# laboratory health workers 2703 = 1 for 30,000 population

Hospital beds per 10,000 population 2

% of births attended by skilled personnel 6%

Source: WHO November 2009



Ethiopia: health financing statistics

Indicator Ethiopia Africa (excludingSouthAfrica)

Central governmentrevenue as % of GDP 17.1%

Total healthexpenditure (THE) as % GDP 4.9% 4.4%

Total health expenditure per capita US$ 7 US$ 24 (exclSouthAfrica)

Out-of-pocket as % of THE 32% 46%

Private prepaid expenditure as % of THE 1% 3.3%

Source: EIU September 2009, WHO November 2009



Ethiopia: health and health care statistics

Indicator Ethiopia

Life expectancy at birth 55.4 years

Infant mortality rate 77

Under-5 mortality rate 123

Maternal mortality rate 720

HIV prevalence rate (15-49 years) 2%

# people living with HIV 980,000

% people using the private health sector 48% (richest 20%), 44% (poorest 20%)

# physicians 1936 = 1 for > 40,000 population

# nurses and midwives 15544 = 1 for > 5,000 population

Nurses & midwives / physicians 7.3

# pharmaceutical personnel 1343 = 1 for 60,000 population

# hospital beds per 10,000 population 2

% of births attended by skilled personnel 6%

Source: WHO November 2009



Contents

IFHA




Economic landscape

Competitiveness




Conclusion

CompetitivenessCompetitiveness


Ethiopia – competitiveness

29

Today, the Ethiopian market for pharmaceuticals is estimated tobe 200 million USD (at the most)

85% of all medication in Ethiopia is imported

All raw materials to be imported (Ethiopia lacks the requiredchemical industry)

Up until today, local pharmaceutical manufacturers have beenfacing severe difficulties. Half of the app. 10 local manufacturersbankrupt over the last years

Pharmaceutical market EthiopiaPharmaceutical market Ethiopia



30

Imported finished products from India and China are cheaperthan locally produced medication

China and India far ahead of Ethiopia in know-how, productioncapacity, quality, efficiency, logistics, marketing and sales

There are no/low tariffs or duties on import of end products

Severe competition from India and ChinaSevere competition from India and China

The limited size of the Ethiopian market vs high investmentsneeded for building pharmaceutical plants

Estimated market size: Maximum 200 Million USD Government plans capacity investment hospitals, clinics etc.

Market sizeMarket size

Lack of skillsLack of skills University focus on clinical skills Need for more industrial and managerial skills Government plans capacity investment in universities



31

Ethiopian banks underdeveloped. Loans are difficult toobtain/approvals take too long

Lack of expertise on pharmaceutical sector within governmentinstitutions. E.g. the Ethiopian Development Bank (EDB) tops up70% of loans by local banks (in Birr), but due to the lack ofexpertise the lead times for obtaining such loans are up to 1.5year.

Multilaterals and NGO’s fail to provide assistance to the EDB

Lack of foreign currency needed for importation of raw material.Waiting lists for foreign currency are long. Only exportingcompanies have faster, but still limited and regulated, access toUSD

Lack of working capitalLack of working capital



32

Potential dilution of profits in hard currency:

Financial market closed to foreigners No foreign banks Birr not exchangeable on international currency markets Shortage hard currency (import, dividend, capital gain)

Permits National Bank for investments, import, export Foreign loans are prohibited Once a USD investment permit is obtained, the National Bank

guarantees that foreign investments can be taken out freely (individend or capital gain), but Bureaucracy in exchanging Birr back into USD Subject to delays

Inflation rate: 44.4% in 2008

Investment hurdle: financial restrictions & inflation of the BirrInvestment hurdle: financial restrictions & inflation of the Birr



Government not pro-actively attracting foreign investors

Uncertainty about durability of planned protective measures andinvestments in health capacity (new hospitals, universities)

Investment hurdle: no culture to attract foreign investorsInvestment hurdle: no culture to attract foreign investors

Investment hurdle: distribution and retail excludedInvestment hurdle: distribution and retail excluded

Distribution/import, services and retail are not open to foreigninvestment


Contents

IFHA




Economic landscape

Competitiveness




Conclusion

Protection of local industryProtection of local industry


Ethiopia – protection of local industry

35

Recently the government announced some measures:

Lower/no tariffs on import of (most) raw materials (took 7 yearsto change)

Any foreign investment is matched by loan of EthiopianDevelopment Bank up to 70%

Local pharma granted a 20% margin advantage over importersin government tenders

30% advance payment of government purchases 3 million USD paid over last 3 months

Potential tax breaks

Stimulus for development of local marketStimulus for development of local market


Ethiopia – protection of local industry

36

Recent government measures:

Clear determination to support industry

No clarity: durability of measures mid & long term government policy:

not embedded in regulations not clear what budget is made available health not official priority area for the

government upcoming elections (spring 2010)


Contents

IFHA




Economic landscape

Competitiveness




Conclusion

PIC/S GMPPIC/S GMP


Ethiopia – technology transfer

38

GTZ advises Ethiopian regulatory authorities (DACA)and local manufacturers on PIC/S GMP certification

GMP PIC/S drives export (mainly within Africa) andfacilitates sales to donors (Unicef, Global Fund)

GTZ will continue activities over the coming years

PIC/S GMPPIC/S GMP


Contents

IFHA




Economic landscape

Competitiveness




Conclusion

Joint venturesJoint ventures



40

Joint ventures: China and India started to invest inlocal production in Ethiopia

A few pharmaceutical companies established withforeign investments and technology transfer

Three companies started export (mainly to sub-Saharan countries)




41

Sinio-Ethiop

Ownership: 35% shares = Jin Wan (private Chinese company) 35% shares = China Associates (state owned) 30% shares = Zaf (Ethiopian private, former

distributor of Chinese partners)

Management & staff: MD & senior staff Ethiopian. Chief engineer Chinese Negotiations re equity investments by Chinese




42

Sinio-Ethiop

Technology transferred: All machines from China (arms length purchases)

JV partner (Jin Wan) produces capsules in China

Start 2004: one year to become operational transportation of machines 6 to 12 Chinese engineers in Ethiopia for training

during one year




43

Sinio-Ethiop

Produces 1.2 billion hard gelatin capsules annually

Production insufficient to meet local demand

Total market Africa: 30 billion capsules (today mainlysupplied by China, India, South Korea)

Obtained GMP/pic in 2009




44

Sinio-Ethiop

2006: start upgrading to PIC/S – implementation hascost 2.5 million Birr

GMP PIC/S certified (May 2009), sales went up

Good quality of capsules confirmed by buyers




45

Sinio-Ethiop

71.4 million Birr invested (app. 6 million USD)

2009: 18-20 million Birr revenue.

3.5 million USD investment for expansion planned toincrease capacity (loan is slow: no forex in localbanks – IFC takes minimum 6–12 months)




46

Sinio-Ethiop

Ethiopian government companies largest customers: APM – production PHARMID – wholesale & distribution

30% export (RSA, Yemen, Zambia, DRC, Kenya)




47

Sinio-Ethiop

Local production of capsules cost efficient (asopposed to importing): High transportation costs

All raw materials imported

Still 10% tariffs on gelatine

Tariffs on some other raw materials reduced to 0-5%




48

East African Pharmaceuticals

Ownership: UK and Sudan MD Sudanese, senior staff from Ethiopia and India Human and veterinary (only plant in Ethiopia) Export to Sudan Start operations 2000 Had difficulties to survive

India competition Was forced by government to rebuild plant Lack of working capital and hard currency

Factory runs at 30% of it’s capacity




49

East African Pharmaceuticals

USD 4.3 million investment (driven up because ofrebuilding of plant)

15 – 20 million Birr turn-over Financing need for expansion GTZ GMP PIC/S certification scheduled Q1 2010 No need for other technology transfer (other than

hiring key functions from abroad)




50

Cadila

Machines and all raw materials imported from India Quality plant Ethiopia similar to Cadila India GTZ GMP PIC/S certification scheduled Q1 2010 Considers expanding to veterinary (like Cadila India) Market share: estimated 8% of local production Choice for Ethiopia based on:

History with distributor Local market size Sufficient skill level in Ethiopia Free trade agreement for East Africa




51

Cadila

Ownership: 45 % Almeta (Ethiopia) 55% Cadila India GM from India. Ethiopian technical staff in higher

technical management positions. 5% expats Production: March 2008 (30 Cadila India products) Investment: 10 million USD, all facilities newly build Profitability later than planned: import competition Cadila India and Cadila Ethiopia potentially compete

within sub-Saharan Africa Export to Djibouti, Kenya, Tanzania, Rwanda



Contents

IFHA




Economic landscape

Competitiveness




ConclusionConclusionConclusion


Ethiopia – conclusion

53

Market size is growing, significant future potential GTZ project is very much needed and practical No/very little ‘location advantage’ for the production

of pharmaceuticals, due to lack of raw materials Only possible through protection of local market High discount rate Conditions for profitability, attracting foreign

technology and investments: Privatisation needs to continue Issues re discount rate to be dealt with Government guarantees needed on future

reliability of recent stimulus-measures Financial market needs to open up

Conditionally attractive marketConditionally attractive market


Ethiopia – conclusion

54

Key questionsKey questions


A situation of insufficiencyA situation of insufficiency

No GMP approved factories, no FDA aproved factorieswith exception of Aspen

The key questions are: (1) Can donors purchase drugs that are not allowed on

their own markets (2) What premium do you allow to facilitate local

production (3) Should you not focus on certain niches WITH a

competitive advantage

Conclusions

Date post:	15-Apr-2018
Category:	Documents
Upload:	dangphuc
View:	217 times
Download:	4 times

DRAFT Ethiopia country report - International Centre … TOWN DECEMBER 2009 Ethiopia country report...

Documents