Pakistan’s blanket India trade ban could have been fatal for its pharmaceutical industry
In the last year, rising energy costs, interest rates and taxes have increased the cost of doing business in Pakistan, slowing growth and squeezing profitability. As many industries are reliant on imported materials, the devaluation of the Pakistani Rupee has further increased costs. The impact of increased costs is generally transferred to consumers but that is not the case for the pharmaceutical industry where prices are strictly regulated by the government.
As per government policy, an annual price increase is awarded to all pharmaceutical products based on a 0.7 factor of the official inflation rates (7.1% increase allowed in July 2019) and does not include the 33% impact of currency devaluation seen in 2018-19.
Adding to the woes of the pharmaceutical industry, in response to the revocation of articles 370 in Indian-administered Kashmir, Pakistan immediately stopped trade ties with India, a major source of raw materials for all manufacturers of medicines in Pakistan, many of them life-saving. As per statistics from the Pakistan Pharmaceutical Manufacturers Association (PPMA), the industry imports 30-40% of its raw materials from India.
The sudden decision to stop trade with India created an immediate crisis for Pakistan’s pharmaceutical industry, as they were forced to find alternate suppliers overnight- a long, technical, painstaking process that can take anywhere between three to six months. There is no faster route, because compromised quality in the pharmaceutical sector is simply not an option.
The uncertainty of the last month has also meant the pharmaceutical industry cannot take anymore chances, and must seek opportunities to shift over to non-Indian sources.
First, Good Manufacturing Practice (GMP) certified suppliers would have to be found, those capable of providing raw materials as per the specifications of the Drug Regulatory Authority of Pakistan (DRAP). From them, samples of previous batches must be imported which undergo extensive testing to ensure compliance of chemical and physical parameters. Product formulations may also have to be altered, trial batches produced and stability studies performed which can take months.
These are the very basic steps required in establishing new suppliers, ignoring the need for price and quantity negotiations. With Pakistan’s sudden blanket trade ban with one of its biggest pharma raw material suppliers, India, a daunting story seemed ready to unfold with chaos and severe medicine shortages looming in the days ahead.
But late Monday evening, after considerable concerns raised by the pharmaceutical industry, Pakistan exempted Indian imports for therapeutic products regulated by the DRAP, from the trade ban. This has put an end to the immediate crisis and will allow the industry to fulfil current market demands. However, the uncertainty of the last month has also meant the industry cannot take anymore chances, and must seek opportunities to shift over to non-Indian sources.
In the event of war, or a war-like situation, the consequences of stopping trade with India are extremely severe in the case of more than 100 materials which are simply not available anywhere else. These include materials required for anti-diabetics, anxiolytics and more importantly, life-saving anti-tuberculosis and cancer medicines.
The fate of these products without Indian materials is unclear. It is important to understand that over the years, India has become a major player in the global pharmaceutical industry. Their competitiveness can be judged by the fact that even though their domestic pharmaceutical market is smaller than many developed countries, they are one of the top 10 exporters in the world, with exports of $19.14 billion in 2018-19. Similarly, they are globally competitive in the exports of pharmaceutical raw materials.
It is crucial to evaluate the impact on the industry and consumer if trade ties are stopped again by either country. In cases where non-Indian sources are more expensive, product prices in Pakistan would have to be increased, further burdening the consumers and making Pakistan’s industry uncompetitive in export markets. More importantly, in cases where the only source available globally is Indian, the consumer (diabetics, TB patients, or cancer patients) would be deprived of life-saving medicines, creating a security risk for the nation. The only short term solution exercisable to the government in such cases would be to import expensive finished products from other countries (which also use Indian materials to manufacture the products.)
A long-term solution could be to develop Pakistan’s own capacity to manufacture materials for pharmaceutical products. But given the small size of the domestic market, this is currently not a feasible economic venture and would most definitely require significant government subsidies.
– Hamid Zaka is a health care strategist and a graduate of Warwick Business School.