16 February 2017

Zimbabwe: Pharmaceutical Firms Choke

WORSENING payments gridlock in the financial services sector is choking the pharmaceutical industry with reports of delays in payment of up two months raising fears of implosion.

Sector players this week chronicled how the critical health sector had been hamstrung by shortages of essential drugs, even as authorities had promised that they would prioritise critical products during foreign currency allocation.

Payment delays for drugs and raw materials have affected upstream and downstream industries spiking costs of production.

This has compounded a dire situation as the pharmaceutical industry has been going through deindustrialisation.

The worst affected are drug manufacturers who are failing to import critical raw materials.

Most pharmacies are experiencing shortages of critical drugs, according to players in the industry.

They say this has plunged the entire nation into danger as patients fail to access medicines.

"Supply is generally poor, you have to apply for foreign currency. This is not just a problem unique to us, but also the entire industry," National Pharmaceutical Company (NATPHARM), managing director, Flora Sifeku told the Financial Gazette's Companies & Markets (C&M).

In some major hospitals, reports say operating theaters are poorly resourced or have closed.

Public hospitals are the most affected.

International payments had appeared to normalise around last September after the Reserve Bank of Zimbabwe (RBZ) intervened with US$215 million cash, but the financial services sector has been shaken by a wave of chronic cash shortages.

Suppliers cannot release orders until outstanding payments reflect in their accounts.

Depleted pharmaceutical companies'Nostro accounts have affected payment for imported drugsand raw materials.

Although RBZ, governor, John Mangudya argues that the purchase of medical drugs was on its priority list for foreign currency, the Ministry of Health and Child Care says it has been negotiating with the apex bank to be considered as a priority sector like agriculture.

The RBZ reportedly spends US$400 000 for medicine imports every week.

A snap survey of local pharmacies revealed a worsening shortage of drugs, leaving patients stranded.

Most patients rely on private pharmacies for their medicine since the major hospitals are failing to dispense critical drugs.

For a nation relying on agriculture, mining and manufacturing to turn around fortunes in 2017, a healthy workforce is critical.

Cases of typhoid among other diseases associated with the rainy seasonhave become a cause for concern as the nation maybe sitting on a ticking time bomb.

An industry player who declined to be named confirmed the acute shortage of drugs on the market.

"Some of the drugs have become scarce on the market. I buy from local suppliers who are battling with RBZ in terms of payment-they haven't been able to pay on time," the source said.

Drug manufactures have not been spared as payment delays have grossly affected the importation of raw materials with the association planning a meeting with the RBZ over payment delays.

Pharmaceutical Manufacturers Association (PMA), chairman, Emmanuel Mujuru said:" We have been experiencing delays because money is not available in Nostro accounts to cater for the payment of supplies."

Mujuru added that individual companies had approached banks for reprieve concerning the processing of payments as this was affecting business.

"The situation varies from bank to bank, but we have heard of some of our members whose payments have been delayed by two months. Some of the pharmaceutical companies have been approaching RBZ as individuals, but we are compiling data to present to authorities as an association," said Mujuru.

Private hospital owners, mainly doctors have reportedly been purchasing drugs from foreign markets to adequately stock their institutions, while public hospitals turn away patients

Some industry players say application for foreign currency was taking time to be approved by the RBZ that is allegedly continuing to finance non-essential goods and finished good.

The mining and manufacturing industries have also been bearing the brunt of liquidity challenges, with some companies taking four to five months without making payments.

Capacity utilisation for most firms in the pharmaceutical industry is between 30 and 70 percent.

Zimbabwe's pharmaceutical industry has struggled to recover from the decade-long economic crisis that eased in 2009 and saw the sector registering a massive decline with an estimated 90 percent of all pharmaceutical products being donor-funded or imported drugs.

Although government has been working on the Industrial Development framework that is aimed at increasing manufacturing capacity utilisation to 50 percent by 2021, from 34 percent currently, a myriad of challenges are still haunting the pharmaceutical industry.

For an economy targeting 1,7 percent growth rate amid liquidity constraints, 2017 is promising to be a tough year for the industry.

Natpharm, one of the country's largest drug suppliers has also approached its major shareholder, Ministry of Health and Child Care to speed up payments for drug imports.

Sifeku said the ministry of health was making headwinds towards prioritising the purchase of drugs on the RBZ priority list that has come under scrutiny for being skewed in favour of non-essentials.

"This is one of our major problems, so the ministry is helping so that we get on the priority list," she added.

Natpharm, a government run enterprise has been struggling to stay afloat due to lack of viability and the recent cash flow shortages cause further problems for the company.

Natpharm, Datlabs, Varichem among other pharmaceutical giants have over the years struggled to compete with cheap imported drugs amid soaring costs of production that made local drugs relatively expensive on the market.

Varichem was placed on judicial management in 2014.

Major pharmaceutical companies have been battling to recapitalise, with nowthe CAPS Holdingsdeal failing to take off since government take over last year.

Natpharm which is owed US$25 million by government in storage fees has also been battling to survive, with its accounts almost garnished by the Zimbabwe Revenue Authority (ZIMRA) last year over US$269 000 in tax arrears.

ZIMRA pounced on Natpharmafter Treasury failed to pay backdated tax arrears as agreed in the deal to offset Ministry of Health debt to the pharmaceutical company.

"Recapitalisation is like seed money and we are saying government should pay the debt so that we recapitalise ourselves and as a company we don't expect government to pay all of it at one, but pay gradually," Sifeku told C&M.

She budget last year's budget allocated to Natpharm has not been fulfilled.

"If they give us at least US$5 million, we will be able to get our business running.

Government should come up with a payment plan," said Sifeku.

In bid to force down prices, Natpharm will open community pharmacies in all major hospitals.

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