Pharmaceutical industry risk review

Coface, the international credit insurer, released its latest industry risk review covering Pharmaceuticals sector last week.

The pharmaceutical industry is the largest of its kind in Africa, and has been identified by government as a key driver of economic growth, ensuring affordable healthcare is available to the private and public health sector.

While the industry remains dominated by local companies, a number of multinationals distribute and some have become involved in local manufacturing. The country has a relatively well-developed industry, comprising a complex network of manufacturers, distributors and dispensers. Domestic companies produce, almost exclusively, generic pharmaceuticals, which are mainly targeted at the local market.

Very little is exported, and what is, normally makes its way to other African countries. Government has earmarked the South African pharmaceutical industry as an area of growth. Preference will be given to local companies when it comes to national tenders for the supply of medicine. Change is likely to continue in the areas of funding and industry structure with a view to providing increased access to healthcare to all South Africans as efficiently and cost-effectively as possible.

Plans announced by government to build SA's first active public sector pharmaceutical ingredients (API) plant, in a joint venture between the South African government through Pelchem and a leading global pharmaceutical company Lonza.

This is an example of a public-private partnership being created to reduce costs and increase accessibility. Government expects the development to boost South African drug makers and multinationals who have invested in local manufacturing.

Companies operating in this sector normally secure large-scale and long-term tenders from the public sector, ensuring stable income levels and minimal risk. Margins are often predetermined and income guaranteed with minimal chance of a major changes in input costs. These companies are well secured and run minimal risk of failure, even though the sector traditionally operates on low margins.

About Saijil Singh

Saijil Singh is lead analyst for Coface South Africa.
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