How State intervention could boost the fortunes of Kenya's pharmaceutical sector

Kill two birds with one stone. This standard Mandarin Chinese epigram epitomises the development strategies employed by virtually all Asian countries.

In Kenya today, the Big Four agenda could benefit from this Asian model of development by using, for example, the pharmaceutical industry as a stepping stone to enhance affordable healthcare and manufacturing.

According to the United Nations Industrial Development Organization (UNIDO), Kenya is a regional hub for pharmaceutical products but its capacity to exploit pharmaceutical opportunities in the market is small.

The industry needs a significant injection of capital in order to attain Good Manufacturing Practices (GMP).

In a joint report by the Government of Kenya, UNIDO noted that most pharmaceutical companies are small, family-owned or closely held businesses with a few, often related, shareholders, and they fall within the definition of small and medium-sized enterprises (SMEs). Their capacity to raise significant capital is limited.

In contrast, India’s pharmaceutical industry was largely government-led, starting in 1930 with Bengal Chemicals and Pharmaceutical Works, which is still one of the five government-owned drug manufacturers.

INDIAN PHARMACEUTICALS

Until 1970, there was not much about the Indian pharmaceutical industry. However, with more focused state interventions (the Indian Patents Act of 1970) India gained immense importance and carved a niche for itself in the global pharmaceutical market.

The Act dealt away with product patenting only allowing process patenting for a period of seven years. This effectively removed the monopoly enjoyed by multinationals.

The law allowed for compulsory licences granted by the state in the case of a patent holder not granting voluntary licences on fair conditions.

In a 2002 article, "The success story of the Indian pharmaceutical industry", Von Richard Gerster noted that as a result of these policy changes, India profited from a large section of well-qualified experts who made good use of the new opportunities.

Data from the India Brand Equity Foundation (IBEF) shows that the country is the world's largest provider of generic drugs.

The Indian pharmaceutical sector supplies over 50 percent of global demand for various vaccines, 40 percent of generic demand in the US and 25 percent of all medicine in UK.

Over 80 percent of antiretroviral drugs used globally to combat Aids are supplied by Indian pharmaceutical firms.

Further, IBEF says, the pharmaceutical sector was valued at $33 billion in 2017. The country’s pharmaceutical industry is expected to expand at a combined average growth rate of 22.4 percent over 2015–2020 to reach $55 billion.

EXPORTS

India’s pharmaceutical exports stood at $17.27 billion in 2017-18 and are expected to reach $20 billion by 2020.

The rate of this industry's expansion in India is similar to that of Kenya's pharmaceutical industry. What lacks in Kenya is State intervention to reap the benefits of the African Continental Free Trade Area (AfCFTA) and lower the cost of healthcare.

However, the State must first carefully scrutinise laws that hold us back and make deliberate interventions.

Economists refer to countries pursuing state led-development as “developmental states”. Indian, Japanese and bureaucrats in many other Asian countries used this approach to successfully propel their economies.
Japan, for example, leveraged the ministry of international trade and industry (MITI) to rapidly industrialise.

Chalmers Johnson, one of the first academics to conceptualise the idea of developmental states, noted the following in his book, MITI and the Japanese Miracle:

In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on developmental functions. These two differing orientations toward private economic activities, the regulatory orientation and the developmental orientation, produced two different kinds of business-government relationships. The United States is a good example of a state in which the regulatory orientation predominates, whereas Japan is a good example of a state in which the developmental orientation predominates.

FREE-MARKET ECONOMY

Kenya has leaned heavily toward regulatory orientation, choosing to present itself as a free-market economy, a romanticised system in which the open market and consumers determine the prices for goods and services.

It is a system in which ideally the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority, but sometimes it becomes so overbearing that the state has to intervene.

It is time we question whether the system serves our long-term interest of achieving both Vision 2030 and the Sustainable Development Goals.

Let me now elaborate how the pharmaceutical industry will help us achieve both universal healthcare and faster industrialisation.

First is to rethink the usefulness of the current intellectual property (IP) laws.

The Industrial Property Act of 2001, for example, need to read more like India’s IP Act of 1970 in order to facilitate competition in case of multinationals enjoying monopoly status longer than usual in other countries.

PATENTING

Pharmaceutical history is replete with stories of how nations fought patenting in order to create room for themselves to get a foothold in the manufacture of medicines.

At the end of 19th century, the Swiss pharmaceutical industry was on the receiving end when Switzerland was referred to by Germans as the “state of robber barons”, with the Swiss having disregarded patenting as a strategy to imitate foreign drugs such as Aspirin.

France, too, was branded a "country of counterfeiters" for fighting patenting. It wasn’t until 1978 that Switzerland started product patenting for medicines.

Patents create monopolistic barriers that multinational corporations use to exploit local enterprises and make the prices of medicines high in countries that hardly have food security.

In my view, it is not irrational if Africa dealt away with patents until such a time that we have built sufficient capability to effectively compete.

After all, the entire Asian continent benefited from the absence of patents. India achieved its status through a threats and tough fight. This is a route Africa must consider if the continent is to contain runaway healthcare cost.

Even if Africa wins such war, it will require injecting a sizeable amount of capital into the industry, build massive capacity, and exploit local resources to extract active ingredients.

The industry at the moment is not equipped to compete at any level. It can be best described as compounding (assembling plants).

ACTIVE INGREDIENTS

There is no single manufacturer of active ingredients in Africa. In Kenya, for example, primary resources for artemisinin are exported then imported as active ingredients for the malaria drug. It is the same story for several other drugs.

Virtually all the glass packaging and other ancillary products are imported from India though we have silica (key ingredient in glass manufacturing) in the country to produce our glass locally and create jobs.

In a free-market economy, the assumption that someone will see the opportunity and exploit it is fallacious. Such opportunities ought to be exploited through a developmental state then sold through the stock market to the people.

In my brief review of the history of pharmaceutical development in many countries I have mentioned in this article, it is clear that Kenya must rethink her development model by emulating most of the Asian countries.

It is an arduous journey that must be taken, but one that will enable us to kill two birds with one stone, that is, affordable healthcare and manufacturing – two of the Big Four agenda items.

The writer is an associate professor at the University of Nairobi’s School of Business.