Ghana authorities launch new fund to develop domestic pharmaceuticals manufacturing

By announcing a $26m grant to support local pharmaceutical production, the government has reiterated its support to the development of an industry it views as a pillar of economic growth. The timing of this initiative is welcome, as local firms struggle to obtain financial assistance at affordable lending rates.

Despite the strictures of the current economic situation, some subsectors are displaying potential for growth and a number of firms are already investing in expansions to serve growing local and regional needs.

Funding Local Producers

In January 2016 the government announced the allocation of about $26m through the Export Development and Agricultural Investment Fund to support local pharmaceutical production, furthering its economic transformation agenda and Made in Ghana product promotion. According to the local press, beneficiary companies include Ernest Chemists, Entrance Pharmaceuticals & Research Centre – a subsidiary of Tobinco Group – Danadams, Dannex Pharmaceuticals, KAMA and Kinapharma. “The grant targeting local pharmaceutical production provides a boost to capital expenditure in the industry, including the construction of new plants and purchase of equipment,” Kwabena Asante Offei, executive secretary at the Pharmaceutical Manufacturers Association of Ghana, told OBG. “The idea is for local producers to improve production quality, increase exports, attract international partners and compete in international tenders.”

The grant is expected to make more funding available to local drug manufacturing companies, who often face financial difficulties given that financial institutions – especially commercial banks – currently offer excessively high lending rates.

Tax Breaks

Pursuant to the petitions of local manufacturers, the government also decided to amend value-added tax (VAT) legislation to extend tax exemptions to the supply of pharmaceuticals in Ghana, the supply or import of active ingredients and selected inputs for the manufacture of pharmaceuticals, and the import of selected drugs or pharmaceuticals. Parliament passed the VAT (Amendment) Act of 2015 (Act 890), together with Legislative Instrument 2218 in October 2015. The amendment extends tax exemptions to over 510 active pharmaceutical ingredients, selected inputs and pharmaceuticals.

Consolidation

Despite challenges, some actors are confident about long-term growth prospects and have been taking action to exploit them. For example, in December 2014 Dannex Pharmaceuticals, a local privately held producer, acquired a majority stake in Starwin Products, the first pharmaceutical company listed on the Ghana Stock Exchange, raising its interest in this company from 2.69% to 71.33%. At the time of publication, the firm was processing the purchase of a 53.45% stake in another major manufacturer, Ayrton Drugs. Arthur Kweku Ackah-Yensu, business development manager at Dannex Pharmaceuticals, told OBG, “Upon completion of this transaction, Dannex’s annual revenue should jump from GHS40m ($10.3m) to GHS75m ($19.4m).”

Room For Growth

In fact, the pharmaceuticals sector has been growing in recent years. According to Offei, Ghanaian pharmaceuticals market revenue has doubled in the past two to three years, from $200m to $400m. With a growing middle class, consumer preferences are starting to change, as people begin to exhibit a preference for branded pharmaceutical products, which they equate with product quality.

Going forward, the outlook is positive. “There is a lot of interest in local manufacturing,” Offei told OBG. “While the resources are lacking, there is political will to improve the situation.” Indeed, government initiatives to offer financial assistance are welcome, while the economic situation stabilises. Other options can be explored to secure additional investment support, including partnering with foreign firms to take advantage of opportunities in a growing market.