In many sectors, including pharmaceuticals, industry growth in the emerging world is rapidly outpacing mature markets like Europe and the US, as companies operating in developed countries struggle against market stagnation. While the BRICMT economies (Brazil, Russia, India, China, Mexico and Turkey) along with Southeast Asia are attracting the lion’s share of attention from potential investors, Africa is a potentially massive pharma market that could benefit hugely from increased international investment and the development of local industry.
Although at present the pharma industries across Africa account for just 2% of the global medicines market, the sector's rapid growth would be the envy of virtually any highly advanced pharmaceutical market in the world. The value of Africa’s combined pharmaceutical industry has grown from $4.7bn in 2003 to $20.8bn in 2013, and that pace is likely to be sustained in the coming years – global consulting firm McKinsey has projected that the total value of Africa’s pharma businesses will hit somewhere between $40bn and $65bn by 2020.
African pharma: an economic and medical role to play
“There are many exciting and distinct aspects to Africa’s pharma sector,” says Tania Holt, principal of McKinsey’s healthcare, pharmaceuticals and medical products practice in Johannesburg. “For one, the consumer class continues to grow and increased healthcare capacity is being added to the system. The market is still highly underpenetrated in a global comparison, and most importantly, there is still great opportunity to help patients.”
Developing pharmaceutical innovation and domestic drug manufacturing capacity provides a dual benefit – to the economy and to public health – for any country, but it’s especially important in Africa, a continent in need of more non-resource-dependent industrial sectors, and which disproportionately bears the brunt of the global disease burden.
During Africa Development Week in Addis Ababa at the beginning of April this year, a panel event chaired by the African Union commissioner for trade and industry Fatima Haram Acyl discussed the pharma industry’s potential to play a major role in the “socio-economic transformation of Africa”, and economically, it’s clear to see the potential for a transformative surge of pharmaceutical activity on the continent.
“Investments in the pharmaceutical sector are investments in the health sector with the greatest potential both in terms of financial viability and individual deal size,” said the African Development Bank in a June 2014 statement. “Job creation prospects are also immense all along the pharmaceutical value chain.”
And in terms of public health, the scope for improvement is similarly huge. Africa represents 11% of the world’s population but shoulders 24% of the global disease burden, with almost half of the world’s deaths of children under five occurring in Africa. The continent suffers three quarters of the world’s HIV/AIDS cases, 90% of malaria deaths and the majority of tuberculosis infections. Adding to this is the rapid growth of non-communicable diseases in many African countries, spurred by urbanisation and shifting demographics.
Opportunity in Africa: the international pharma perspective
For international pharma companies, these massive health challenges, coupled with increasing pharmaceutical spending in Africa – expected to reach $45bn across the continent by 2020 – make this an increasingly attractive collection of markets to target.
Widespread urbanisation in many African countries is driving much of this growth in pharma spending, as the process is supporting the rise of middle class city-dwellers who typically have larger disposable incomes and longer life expectancy. In turn, lifestyle changes in large African cities is playing a major role in the increase of non-communicable diseases (NCDs) such as cardiovascular disorders, cancer and diabetes, which in the past have been characterised as ‘Western’ health issues. According to World Health Organization data, NCDs are predicted to account for 60% of illnesses and 65% of deaths in Africa in 2020, compared to 28% and 35%, respectively, in 1990.
As well as major multinational pharma companies such as GlaxoSmithKline, Johnson & Johnson and Sanofi with a large footprint in Africa, large-scale generic manufacturers from China and India are also increasing their exports to the continent. South Africa alone spent more than $500m on Indian drugs in 2014-15, while Chinese pharmaceutical sales are often tied into China’s aid deals with African countries.
So what are the factors that foreign pharma players have to keep in mind when considering investing in Africa? The huge variance between national markets on the continent is the key concern – effective regulation is a problem throughout Africa, but while some countries effectively have no oversight of pharma markets, others, such as South Africa with its well-established Marketing Code Authority and Medicines Control Council (for the approval of new medicines), provide a relatively stable, if sluggish, regulatory landscape. And from a more general business perspective, in-depth knowledge of intra-African and regional market differences – from country to country and city to city – is vital.
“Approximately 85% of the [African pharma] market is located in the top 15 countries,” says Holt. “Some might talk about the ‘bedrock’ countries being South Africa, Algeria, Egypt and Morocco, while the growth driver markets are Nigeria, Kenya and others with often double-digit growth rates.
“Increasingly, industry representatives are also paying attention to the next tier of markets, such as Ethiopia and Angola. While the regulation of pharma happens at a country level, many of the ‘hot spots’ are characterised by the presence of large urban settings, as Africa is increasingly urbanising and the growth of wealth – the middle class – is more significant in its cities. So when assessing ‘hot spots’ for the pharmaceutical industry, a company would need to take a country and city lens to effectively evaluate the opportunity.”
Developing local production
As important as the participation of international pharma companies and suppliers is to continued pharma development in African countries, there are clear warnings that excessive reliance on externally-developed, manufactured and procured medicines has clear disadvantages that could best be counteracted by increasing domestic development and manufacturing activity.
The African Development Bank has noted that leaning too hard on foreign imports “significantly affects health expenditures and household incomes”. Supply chain integrity is an ongoing issue throughout Africa, and the problem of criminal counterfeiting as well as broader drug quality can be exacerbated by the huge volumes of medicines imported from generic production powerhouses such as India, where there is a feeling that emerging markets often get stuck with the industry’s leftovers.
“On average [India] sends the better quality medications to countries like the United States,” American Enterprise Institute health economist Roger Bate told Voice of America in December 2015. “And the medicines that do not pass quality control, it sends to poorer nations, particularly those in Africa.”
Increasing the capacity for local generic drug development and production would help to curtail many of these issues, and while foreign multinationals can play a strong supporting role here – countries including Nigeria, Algeria and South Africa offer tax breaks, reduced land prices and other incentives for companies to set up local research or manufacturing sites – increasing the participation of African companies is important as countries seek to exert more control on drug access, affordability and quality.
It’s a long-term project that is proceeding in a lop-sided fashion – South Africa and the North African economies (Holt’s ‘bedrock’ countries) are shifting towards more domestic clinical research and manufacturing. South Africa’s Aspen Pharmacare has grown into Africa’s largest drug company and one of the world’s top 10 generic producers. But for huge swathes of sub-Saharan Africa, there are few clinical studies or manufacturing operations that aren’t sponsored by international firms.
Challenges for African pharma companies include uncertain regulatory conditions in many countries, as well as an uphill battle to meet international standards without support.
“Most African companies still struggle to fully comply with FDA [US Food and Drug Administration] and EMA [European Medicines Agency] standards, which is further exacerbated by high production costs – lack of power, no local production of API [Active Pharmaceutical Ingredient] and lack of skilled workers – reducing the international competitiveness of many locally produced products,” says Holt.
The road ahead
A pan-African approach has been taken to boosting the continent’s domestic pharma production base, with large-scale schemes such as the African Union’s Pharmaceutical Manufacturing Plan for Africa (PMPA) and ‘Strengthening Pharmaceutical Innovation in Africa’ report, which have developed shared templates and tools for industrial development and are encouraging countries to draw on centralised resources and adapt them to their specific national situations. Panellists at the recent Africa Development Week pharma event highlighted these two initiatives as important and in need of “a shot in the arm” if they’re to properly service African countries’ long-term development goals.
Africans have to be involved in the pharmaceutical sector in a much more extensive way than they are now, along with continuing partnerships with international companies and a renewed focus on education and building the skills necessary to nurture the next generation of African researchers and pharma leaders. Industry-specific training and education could also benefit from the contributions of the private sector, according to Holt.
“There’s a real question for governments to re-consider whether it’s only the universities that can produce the next generation of researchers or whether private companies could also play a larger role,” she says.
There are many entrenched challenges to confront if African countries are going to realise the true benefits of an economically-vibrant pharma sector that responds much more quickly to the health needs of local people. But the rewards on the horizon are too huge, and too important, to pass up. As African Union commissioner for social affairs Bience P. Gawanas put it in the foreword to the PMPA Business Plan, published in 2012: “The road ahead remains long and challenging but the desired objectives remain compelling and non-negotiable.”