Africa must “mobilize local production” of AIDS drugs because the global recession threatens the supply of foreign-aid financed imports, the African Union's Commissioner of Social Affairs Bience Gawanas declared this month. UNAIDS chief Michel Sidibé demanded the same thing last month. Both may know a lot about AIDS but they obviously don't know much about economics or drug quality.
These officials are following the World Health Organization's similar call for a publicly-funded boost to local drug manufacturing but this idea has a long and dangerous pedigree. Back in the 1930s, American tariffs (designed to encourage American industry) stifled global trade and turned a recession into The Great Depression. In the 1960s and 1970s, protecting local industries in Asia, Africa, Latin America and the United Kingdom led to inefficient producers making (trashy) shoddy products that no-one wanted.
While substandard cars or washing machines are annoying, substandard drugs can kill.
That is not to say that local production of medicines is a bad thing in itself: there are many excellent African companies producing high quality medicines. The problems start when politicians intervene by pouring public money into new factories and into propping up businesses which would otherwise go bust. Quality is usually the first victim
The African pharmaceutical sector has developed rapidly and already supplies around 40 per cent of the continent's demand for pharmaceutical products for HIV, Malaria and TB. But there are many reasons why it cannot yet meet that demand in full.
First, many of the components for drug manufacture have to be imported, typically from Europe or the USA. This can be expensive and requires scarce hard currency. Furthermore, such products often face heavy tariffs, duties and taxes and other duties. A World Health Organization report in May 2006 said: “Taxes and duties levied on medicines, as well as the mark-ups applied, frequently contribute more to the final price than the actual manufacturers' price does.” The politicians who preach local production are often in governments that put up those barriers to imports of these vital components.
It also costs a fortune to run plants, which require extremely high levels of safety and hygiene standards, as well as specific professional expertise. Costs are pushed up by poor infrastructure, such as unreliable electricity supply: high quality production requires constant energy for manufacturing and refrigeration. If this is not guaranteed, they need to bear the cost of private generators and fuel.
Complex modern drugs cannot be copied easily: they need to achieve "bioequivalence," having exactly the same effect as the original, or they can cause death and drug resistance. In West Africa, there are no laboratories capable of testing for bioequivalence.
It is therefore no wonder that this industry has not blossomed further and that many companies are harming patients: in a study last year in major cities in six countries (Ghana, Kenya, Nigeria, Uganda, Rwanda, and Tanzania),nearly half the antimalarial drugs made in Africa were significantly substandard.
This problem is not just confined to Africa. In Thailand, the government manufactures its own AIDS drugs but evidence shows that many patients rapidly developed resistance, most likely because the drugs were not manufactured to the necessary standard.
Subsidised drug production is not only risky but is rarely cheaper than importing. A study by the US National Academies of Science showed that producing antimalarial drugs from start to finish in Nigeria would cost 15% more than simply importing them directly. The German aid agency GTZ says drugs produced locally in Ghana are often more expensive than imports from India, China, or Europe.
Such insights are not surprising: with globalisation demonstrating all the time that the production of certain goods is more suited to certain areas. This is why the Swedish don't bother to grow grapefruit but do produce cars.
So why does this political support for state-financed local production continue? It is economically illiterate and endangers the health of Africans but it appeals greatly to activists and to vested political and business interests.
Any government that does really care about the health of its people must first drop the tariffs and taxes that hamper local production and that deter imports: unlike some doomed Five-Year Plan, it's an immediate boost to all patients, especially the poor.
Franklin Cudjoe is editor of www.Africanliberty.org and executive director of IMANI. The Foreign Policy Magazine named IMANI, the sixth most influential think tank in Africa for 2009.
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