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Can China Help Build Africa’s Nascent Pharmaceutical Sector?

People wait in a line to enter a pharmacy in Kampala, Uganda, on March 26, 2020. Badru KATUMBA / AFP

As COVID-19 continues its rampage across most of the planet, including in Africa, the vulnerabilities of Africa’s reliance on imported medical and pharmaceutical products are being exposed, and attention is increasingly focused on the need to strengthen local and regional manufacturing capabilities and supply chains.

The desire to boost African pharmaceutical capabilities is not a new one: as far back as 2007, the African Union Development Agency-NEPAD’s predecessor the New Partnership for Africa’s Development issued a pharmaceutical manufacturing business plan, with the aim of enhancing capacity to produce cheap and high-quality pharmaceuticals on the continent.

But, while Africa does have some pharmaceutical success stories, such as South Africa’s Aspen Pharma, a major multinational selling products across Africa and the wider global market, these decades-long efforts have largely not borne fruit.

African citizens remain dependent on imports from outside the continent for around 80% of their pharmaceutical and medical products. And even in countries like Kenya, which has East Africa’s most advanced pharmaceutical industry, dependence on imports from abroad still stands at 70%.

This lack of local capabilities has significant consequences. Poorly-regulated imports have long been blamed for the prevalence of dangerous counterfeit and/or sub-standard medical products in African markets, and in 2018 Beijing-based consultancy Development Reimagined highlighted that 47% of people in Africa do not have access to quality medicines.

The Economic Case for Stronger Domestic Pharma

In addition to the clear health rationale for upgrading Africa’s pharmaceutical capacity, there is also an economic imperative. A thriving manufacturing sector, which moves labor from the lower productivity agricultural sector to higher value added industry, is critical to economic development. (This was the model followed by China, Korea, Singapore, and other rapidly-growing Asian economies in their early years of rapid economic growth). A stronger pharmaceutical manufacturing industry – alongside other industrial sectors – would help set African states further along the path of economic development.

Pharmaceutical manufacturing could also help create more employment opportunities for Africa’s large, youthful population, a need which is further compounded by the economic fallout from COVID-19. According to  a recent report by the UN Economic Commission for Africa, the consequences of COVID are expected to push between 5 and 29 million more African people into extreme poverty.

In addition, building stronger domestic manufacturing capabilities, including in the pharmaceutical sector, would also contribute to reducing longstanding imbalances in African trade with the rest of the world. Historically, Africa has exported lower value added raw materials in exchange for higher value added manufactured goods, which means that Africa gains less from trade than its partners (indeed, this has long been a critique of China’s trading relationship with Africa, but it is also a feature of African trade with Western countries). 

So, if African countries can go from buying medical products from abroad to producing them domestically, there is potential for significant health and economic benefits.

Can China Help?

Foreign investment can support this process by providing capital, technology, and expertise to build pharmaceutical plants and factories on African soil. And as Chinese influence on the continent grows, there are increasing hopes that China has a major role to play. 

There are, however, significant challenges. First of all, Chinese pharmaceuticals have a reputation for poor quality in Africa, due to a widespread perception that it is imports from China – alongside India – that are the main source of the dangerous counterfeits that plague the African market for medical products. Indeed, the widely-reported fear in Africa about the quality of Chinese COVID-19 supplies during the pandemic points to the skepticism that Chinese pharma companies may face in establishing operations in Africa.

Another challenge is that pharmaceuticals, being a relatively capital intensive industry that requires significant research and development, may be less likely to attract Chinese investment than low cost light manufacturing products such as clothes and shoes, which are more in line with the comparative advantage of most African countries.

On the other hand, however, the large and growing African domestic market for pharmaceutical products presents an economically attractive prospect. Pre-COVID, the African pharmaceutical market was estimated to present a $45bn market opportunity, a figure that the pandemic is likely to have increased.

The attractiveness of the market can be enhanced through local and regional initiatives and incentives to support foreign investment and/or Africa-made medical products. For example, the African Union’s Africa Medical Supplies Platform promotes “Made in Africa” COVID-19 response goods such as masks, testing kits, and oxygen concentrators.

Lessons From Chinese Investment in the Ethiopian Pharma Sector

Chinese investment in Ethiopia’s pharmaceutical sector typifies these opportunities. In 2018, Sansheng pharmaceuticals, a firm headquartered in China’s southwestern megacity of Chongqing, inaugurated its $85mn Ethiopia-based factory, with plans to serve both Ethiopia’s vast and booming local demand, as well as export to other African countries, and – eventually – the rest of the world.

In addition to providing home-grown pharma products (including hand sanitizer during the pandemic), the company also provides local jobs. As of May 2018, it employed 300 people, of which 270 are Ethiopians. Through simultaneously serving the local market and exporting its products, it also contributes to mitigating Ethiopia’s chronic shortage of foreign currency.

Sansheng is helped by the fact that the Ethiopian government has identified pharmaceuticals as a strategic sector, and in 2015 it launched an ambitious 10-year plan to raise the share of pharmaceutical and medical products produced locally to 50% by 2025. Crucially, the aim is backed up by specific targeted incentives and a willingness to engage with investor needs and concerns.  In the pharmaceutical sector, incentives for foreign investment include reduced taxes and preferential market access in the national procurement system for locally-based firms.

Sansheng also benefits from the improved transport, electrical, and other infrastructure in and around its location in the Eastern Industry Zone, a Chinese-built industrial park in the capital city of Addis Ababa, as well as the Zone’s “One Stop Shop” service to assist with customs and other administration.

Nonetheless, Ethiopia is exceptional among African states for its commitment to supporting foreign investment in strategic sectors, and the number of Chinese pharmaceutical firms manufacturing on the wider African continent remains small at present. If the potential for Chinese investment in African pharma is to be realized, targeted, strategic support from African states – as in the Ethiopian case – is likely to be needed.

Pippa Morgan is a Lecturer in Political Science at Duke Kunshan University.

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