To run a pharmaceutical  firm in Uganda or not to?

Uganda’s desire to create a pharmaceutical hub to supply medicine for use in public health facilities is underscored by the fact that the industry currently enjoys a beefy 14 percent of the national Budget.
The ever-increasing demand for pharmaceuticals worldwide is driving a boom in the pharmaceutical industry. This capital-intensive sector has, however, proven difficult to accelerate in developing countries like Uganda where life expectancy is just 63.7. This is due to the high initial expenditures associated with infrastructure and patents, as well as the protracted period needed to see a financial return. 

Many industry players note that there is no earmarked investment for funding into this sector. They contend that while the Uganda Development Bank (UDB), for example, provides funding for trade and manufacturing, pharmaceuticals need particular consideration because they rarely receive funding from the Science ministry’s research and innovation programme. 
Repayment of bank loans is further complicated by extremely high interest rates that reach up to 30 percent.

“When you have some of these investments in the country, you need development financing like what UDC [Uganda Development Corporation] is doing because commercial financing is impatient with repayment and it can cost your business. [The] government should make sure UDB is solid and makes it easier for local pharmaceuticals to access financing,” Dr Charles Ayume, the chairperson of Parliament’s Health Committee, said.

The World Health Organisation (WHO) has launched a number of investment initiatives to support pharmaceutical production on the continent through Trade-Related Aspects of Intellectual Property Rights (TRIPS). The undertaking permits exceptions to patent rights and mandatory licences to third parties for the import and manufacture of generic but patented medicines.

Additionally, local manufacturers receive support from the United Nations Industrial Development Organisation (UNIDO) to implement WHO good manufacturing practices in accordance with minimal acceptable quality standards. But many Ugandan pharmaceutical companies feel neglected by their government, and they contend that incentives are only granted to a small number of listed companies, some of which receive funding directly from Parliament rather than through UDB and UDC as standard government criteria mandates.

Architecture in Uganda
There are currently more than 20 registered manufacturing companies in Uganda, according to data from the National Drug Authority (NDA). Collectively, they produce 173 pharmaceutical products, including both sterile and non-sterile drugs. But they lack several important medications, including immunosuppressive drugs, muscle relaxants, hormonal therapies, vasoprotectives, proteins, and anesthetics.

Not much research has been done on these companies and their attempts to become self-sufficient mostly because the Ugandan government has long received drug grants and depended on the private sector to plug any gaps. A 2022 study conducted by the continental research firm Afya na Haki with a focus on Ugandan indigenous pharmaceutical companies unearthed anomalies associated with these firms. The study revealed that the industrialisation tax incentive regime of the governments is causing frustration to a couple of entrepreneurs in this industry.

The government tax incentives for investors, the researchers noted, are stated in general terms and do not specify what they cover, including industry-specific needs— something that derails shipped-in consignments for their factory fittings.
“The processing equipment is not as costly as the factory fittings that are needed to achieve the requisite standards of cleanliness and hygiene in a modern medicine manufacturing facility,” the study notes, adding, “Hence, it was a big shock to the promoters that the most expensive imports for setting up a pharmaceutical plant were ineligible for tax exemption under the existing incentive regime.”

Steep hurdles
The other challenge is that securing incentives is less known and is only available through referrals from the national Treasury that are sent directly to the taxman. Many drug makers noted that “there is no framework that guarantees equal opportunities for investors. The incentives are given out selectively and any incentives one may get are not sufficient to offset costs.”

“We are targeting the local market. We want to meet the good manufacturing practices of WHO, but WHO pre-qualification is not in our medium-term plans, given how expensive it is,” they said of the service that assesses the quality, safety and efficacy of medicinal products that can be globally acceptable on the market for sale and consumption.

The workaround for this is to source locally unavailable inputs, such as tablet-making cornstarch and cassava starch. The utilisation of available varieties, supply sustainability, and the extraction process of pharmaceutical-grade material are the issues that come with this, “all posing challenges and costly.”

The drug makers added: “It would require farmers to grow appropriate varieties of maize throughout the year, which currently is not happening due to the seasonal and sometimes unpredictable nature of rain.”
Eucalyptus would also provide eucalyptus oil as a local input into pharmaceutical production. But unlike other countries where farmers grow eucalyptus forests specifically for extraction, in Uganda eucalyptus is grown on a small scale.

The government has implemented policies to encourage industrialisation, but import substitution has not been shown to be a viable long-term plan for achieving medical self-sufficiency. Progress is slow and now the market has been flooded by cheap imports.

Work cut out
Several industry participants who would rather remain anonymous contend that the strategy for increasing the human resource capacity for pharmaceutical manufacturing is lacking within this framework.
“Investors who are setting up industries are relying on engineers from India, Kenya, and other countries because Ugandan engineers are taught to do domestic wiring, not industrial wiring. 

The manufacturer has, for example, had to bring a team of 38 Indians to undertake wiring and other fittings and is currently employing six expatriates to run the factory,” one industry player said, adding, “Indian technical schools are very focused and they have detailed apprenticeship. You will find engineers trained specifically to do electrical for pharmaceutical industries.”

This lack of necessary practical skills to oversee pharmaceutical plants makes operating a pharmaceutical factory more difficult than establishing one, our source said. The dearth of personnel with advanced skills in pharmaceutical biotechnology and production science compounds matters. The stringent immigration regulations and expensive work permit fees makes hiring expatriates a costly and time-consuming alternative.
Other sources cited the high utility bills as a stumbling block.

Govt interest
In spite of all of this, there are indications that the government is hungry for drug makers. Through its public service, it has been able to guarantee Quality Chemicals Industries Ltd access to the market for its drugs. It also acquired an 8.54 percent stake in the company through its public service.
In addition, DEI Pharma Ltd, a different private pharmaceutical company in operation since 2021, has already received Shs145b from the government. 

The company is set to get an extra Shs578 billion through a supplementary budget one month before the current fiscal year ends. There has been no shortage of scepticism, including from the national Treasury, that is not worried about the company struggling to clear a bank loan.
Dr Cosmas Mukirize, a member of the science staff at the Science ministry, told Parliament’s Budget Committee that DEI Pharma is concerned about the $100m (Shs377.6b) that it borrowed from Equity Bank.

According to Dr  Kenneth Omona, the minister of State in the Prime Minister’s Office, the goal of this investment is to encourage import substitution.
“The pharmaceutical industry of Uganda is worth $301m (Shs1.1 trillion), meaning, if we were to import, this is money we would be giving out. [The] government should support those who manufacture here so that we can increase our import substitution strategy,” he said on the floor of parliament on April 30, adding that “the government must be very serious in ensuring that we have value for money for these investments.”

What’s the priority?
The challenge is that the August House had also budgeted this amount to pay off a loan it has outstanding—more than Shs3 trillion—with the Bank of Uganda. This sum accrues interest for late payment as well. Attorney General Kiryowa Kiwanuka, regardless, requested that Dr Monica Musenero, the Science minister, appraises the company’s assets so that the government can purchase stock equal to the funds allotted to it. Minister Musenero had in an April 29 letter described supporting DEI Pharma as a “strategic investment that is aligned with our goals to enhance our nation’s capabilities in the pathogen economy.”

According to her ministry, a thorough valuation process has been started for the business. This, the ministry adds, is an important procedure that takes into account the company’s physical assets, vast portfolio of intellectual property (IP), capital structure, and prospects for growth. 

“The process requires a team of experts and various technical people to ensure the valuation process is thorough and conforms to the highest standards of accuracy and fairness,” she wrote.

“Given the strategic importance of this investment to our nation, I kindly request that the Budget Committee approve the required funds with our assurance that no funds shall be disbursed to the company until the valuation process is completed and the government’s stake in the company is formally established,” she added. The money was ultimately approved by Parliament on that assurance.

Concerted promise

In February, Health minister Jane Ruth Aceng Ocero disclosed that “the government is committed to supporting the development of the pharmaceutical society.” It has, she proceeded to note, “put in place civil policies” and is “amending the NDA law [to] make it easier for all your products to be registered very fast [and] support the processes of local manufacturing.” 

Minister Aceng also revealed that there are funders ready to invest in companies involved in local manufacturing of vaccines.
“The Vaccine Alliance (GAVI) has put forward $1 million (Shs3.8b)to local manufacturers in Africa to manufacture vaccines,” she said, adding, ”The Global Fund is also willing to buy more than three million test kits from Africa.”

The Health ministry and the Uganda Investment Authority are already collaborating to build a major pharmaceutical park in Nakasongola that spans more than 500 acres and is fully equipped to support both human and veterinary care.