Drug manufacturers in hard times
6/22/2012 2:01:50 PM -
Rising production costs and the prolonged delay in reviewing the prices of drugs covered under the National Health Insurance Scheme (NHIS) are threatening to push pharmaceutical manufacturers to the wall, the leading industry body has told the B&FT.
As a result of the weakness of the cedi, manufacturers have to contend with high prices of imported raw materials. Meanwhile, the prices of medications covered under the NHIS, which are supposed to be reviewed every six months, have seen no change in two years.
'Due to the inaction of the NHIA (National Health Insurance Authority), the increasing cost of production brought about by the depreciation of the cedi and the high cost of importing raw materials, manufacturers are now hard-pressed.
We have written to the Authority but they are yet to respond,' Kwabena Asante, General Secretary of the Pharmaceutical Manufacturers Association of Ghana (PMAG), said in an Interview.
'It doesn't look like the Authority is going to review it any time soon,' he added.
In addition, local manufacturers feel that the time and cost of reclaiming VAT entirely negates the purpose of the zero VAT rate they currently enjoy on imported raw materials.
Zero VAT rates exist for 66 of a total of approximately 200 different materials used for manufacturing drugs locally. However, even where the zero VAT rate exists, there is often a lengthy bureaucratic procedure involved in reclaiming VAT payments.
PMAG, he said, has tabled proposals for total VAT exemption on selected raw materials imported for production.
Mr. Asante also worried that the industry is not benefitting from a 'marginal preference' scheme targetted at local drug producers who bid for government contracts.
The marginal preference scheme provides a 15% discount on bidding fees to local pharmaceutical manufacturers.
'This system is not working, mainly because of producers' inability to qualify for bidding.'
The cost of credit is another problem.
'It is not easy for local manufacturers to access finance, both borrowing and equity investment. Bank lending rates are high.
Some local financial institutions have declared a willingness to provide short-term working capital, while others would finance the procurement of equipment only; but very few are willing to consider financing a pharmaceutical production venture in its entirety, building the requisite infrastructure or sharing the risk as local guarantors of foreign loans.'
The Bank of Ghana said last week its May survey of credit conditions showed that banks have tightened their credit stance for both enterprises and households and raised collateral requirements.
In March, the bank's business confidence index plunged to 96.4 from 102.7 in December 2011 over concerns about the weak currency and inflation. Thrice this year, the bank has raised interest rates to rein-in the falling cedi; but the consequence of its actions, businesses fear, is a hike in the borrowing costs of enterprises.
PMAG has said government should create a fund to support the industry, using savings from malaria medicines that it currently purchases at subsidised prices under a financing initiative of the Global Fund to Fight Aids, Tuberculosis and Malaria.