On 18 January 2023, the Word Economic Forum (WEF) published a report outlining the high-potential sectors, business and investment-supporting initiatives, and the operational tools that would enable the actualisation of the African Continental Free Trade Area (AfCFTA). Officially launched in 2021, the AfCFTA aims to, among others, create a single African market that is expected to grow to 1.7 billion people, as well as US$6.7 trillion in consumer and business spending, by 2030. The AfCFTA also aims to remove trade barriers that have hampered Africa’s participation in the regional and global value chain, and to unlock business potential across the continent. One of the sectors that stand to benefit the most from the realisation of the AfCFTA is the pharmaceutical industry. Here is why.
According to the report, the AfCFTA identifies four sectors as crucial business areas, namely the automotive industry, agriculture and agro-processing, transport and logistics, and pharmaceuticals. Together, these sectors account for US$130 billion in goods and services imports. The pharmaceutical sector was selected as one of the four sectors to focus on for two main reasons. One is the sector’s viability of addressing trade barriers and production in a short period of time. The other is its potential for meeting high local demand. As it stands, the largest imports for Africa (within the pharmaceutical segment) are made up of packaged medicines and medical instruments which constitute 65% and 12% of the US$17 billion pharmaceutical imports, respectively. The total demand for all packaged medicines on the continent is about US$18 billion per annum, of which 61% is imported, while 36% is manufactured locally. Intra-African trade only meets 3% of demand, which leads to high dependency on imports from outside the continent even though increased local pharmaceutical production is possible. Given their high percentage of imports, packaged medicines represent the biggest opportunity for the sector. Additionally, pharmaceuticals have high product complexity which can result in increased opportunities for high local value-added production.
The high projected growth of the pharmaceutical industry in Africa (around 5.13% compound annual growth rate between 2022 and 2027) will be driven by different factors, some of which are of particular interest to investors. One is the fact that Africa’s regulatory environment is maturing and, as a result, there is now an improved investment climate. Indeed, the African Medicines Regulatory Harmonisation initiative has been in existence for over a decade and it is serving as the foundation for the establishment of a continental regulator, the African Medicines Agency (AMA), which will be headquartered in Rwanda. Part of the mandate of the AMA is to promote the adoption and harmonisation of medicines regulatory policies and standards, as well as to offer scientific guidelines and coordinate existing regulatory harmonisation initiatives. Also, the continent now has five national medicines regulatory authorities that are recognised by the World Health Organization. This is important for regulatory oversight of local manufacturing and is good for investors as it guarantees that products entering the market are manufactured in line with international quality standards. Pharmaceutical sector investors can also confidently distribute their products to other territories knowing that they comply with stringent requirements. Moreover, well-functioning National Regulatory Agencies (NRAs) perform key functions such as faster marketing authorisation of medical products, which benefits investors and the African population. The latter will have access to medicines in a shorter time frame.
Another factor is the high public confidence in generic medicines, which has also led to an increased drive for domestic manufacturing. Currently, the continent has about 600 manufacturers of packaged medicines and these companies are generally found in eight countries, mostly in North Africa. Only four countries have more than 50 manufacturers and 22 countries have none. Seventy per cent of local pharmaceutical production is currently concentrated on generic medicines with simple production processes. The processes have little upstream research and development activities and there is limited production of active pharmaceutical ingredients and intermediates which require complex biological and chemical processes. Essentially, processes are concentrated downstream in formulations and packaging. There is, therefore, a unique opportunity in Africa’s pharmaceutical industry for the private sector to pursue and take advantage of the vast investment opening in the upstream side of pharmaceutical production.
In brief, the implementation of the AfCFTA presents four key opportunities for the pharmaceutical industry. Firstly, it will address some of the existing regulatory challenges which have impeded the growth of the pharmaceutical industry on the continent and scale up harmonisation initiatives by acting as a liaison for the AMA and local pharmaceutical manufacturers. Regulatory harmonisation is a key facilitator for innovation, for both regional and international companies, as it enables research and knowledge management at national, regional and continental levels. It also reduces market fragmentation by ensuring that independent countries synergise to implement and use the same policies and regulatory frameworks which can assist in the reduction of medicine import prices. Secondly, the AfCFTA will allow investors to overcome the challenge of small fragmented markets that have been the order of the day in Africa. Market fragmentation has prevented African manufacturers from favourably competing with their Asian counterparts. With a continent-wide market created by the AfCFTA, greater economies of scale will be more sustainable and this will potentially incite the private sector to increase their production volumes. Thirdly, increased research and development as well as training and retention of competent human resources are anticipated, and these will benefit the industry. Lastly, there is an opportunity for the AfCFTA to open a wider range of opportunities for activities such as the construction of quality healthcare infrastructure and vaccine manufacturing that can be performed and sourced in Africa. The AfCFTA will enable the foregoing by facilitating the movement of goods, services and human resources.
There are clearly many opportunities here for African entrepreneurs to invest and play an important role in the development of critical local and regional value chains on the continent.
