“High growth rates Expected for the Ethiopian Pharmaceutical Market, but it’s not all smooth sailing – Unpacking the Challenges”
“High growth rates Expected for the Ethiopian Pharmaceutical Market,but it’s not all smooth sailing – Unpacking the Challenges” Shalena Naidoo, Healthcare Research Analyst, Frost and SullivanEthiopia is classified as one of the world’s poorest nations and is ranked a low 174 outof 187 countries, according to the 2011 Human Development Index rating. Poornutritional status, along with poverty and low education levels collectively serve ascontributing factors to the health burdens of the country. Limitations in providing efficienthealthcare to the rural areas exist due to unskilled and few healthcare workers, coupledwith infrastructure problems and high demand for medical care writes HealthcareResearch Analyst, Shalena Naidoo, at growth partnership company, Frost & Sullivan.Despite these highlighted challenges, Ethiopia has rapidly stepped into the publicspotlight. Due to its rapid economic progress amongst non-oil producing Africancountries, averaging a Gross Domestic Product (GDP) growth value of around 7%between 2004 and 2011, the country has attracted a host of opportunists all awaitingthe possibility of reaping the rewards of an emerging economy.Economic growth has fuelled the expansion of social and healthcare infrastructure andaided improved access to healthcare in rural areas. The Ethiopian government hasinitiated many strategies to address the major gaps within the healthcare system. Onestrategic approach the government has opted to prioritise is the strengthening ofprimary care facilities. Considering that more than 80% of health issues are related topreventable infectious and nutritional related diseases, initiatives have been focusedprimarily on preventative approaches.Improving healthcare in Ethiopia has stemmed from the initiation of the Health SectorDevelopment Plan (HSDP) which aims to prioritise major infectious diseases such asHIV/AIDS, tuberculosis, malaria, and diarrheal diseases as well as illnesses affectingchildren. Since the implementation of the HSDP, more than 30,000 Health ExtensionWorkers have been trained and positioned in various community programs.Considering the high economic growth, expansion of healthcare coverage, high diseaseburden, large population size and increased awareness around modern medicine,Ethiopia presents lucrative opportunities for the pharmaceutical business. These factorscollectively serve as key drivers for the expansion of the pharmaceutical market.The Ethiopian pharmaceutical market growth rates are expected to be significantlyhigher than the overall growth of the global pharmaceutical market, which is expected tohave a Compound Annual Growth Rate (CAGR) of about 5%. Frost & Sullivan expects
the Ethiopian pharmaceutical market to witness growth rates of slightly over 14%, toreach an approximate value of just under USD 1 billion in the year 2018.Although the Ethiopian pharmaceutical market holds great potential, the market itselfposes many challenges.Unpacking Market ChallengesEthiopia is a highly price sensitive market. Approximately 39% of the populationcurrently lives below the poverty line with an average earning of about USD 1.25 a day.The affordability of pharmaceuticals is generally limited for the vast majority of thepopulation. As most pharmaceutical products are supplied by the government,inexpensive and quality medicines are the number one factors considered during theissuing of tenders. High price sensitivity within the market increases competition andsupports the demand for low-cost products. Generic pharmaceutical companies fromChina and India are able to leverage on their economies of scale advantage and reducethe price of their medicines, while local and other international pharmaceuticalcompanies often find it challenging to do the same.Pricing is highly unregulated within the market. Supplier mark-ups are uncontrolled andthe consumer ends up paying unreasonably high prices for pharmaceutical products.This lack of price control within the supply chain restrains the growth of thepharmaceutical market by limiting the access of essential medicines to the population.Although a number of infrastructure improvements have been made in recent years,challenges for conducting an efficient business operation in Ethiopia prevail. Inadequateroad networks disrupt the effective transportation of finished products as well as thedistribution of raw material. Communication networks are also often interrupted andunpredictable. Local manufacturers often face the burden of shortages in power supply,therefore resulting in disrupted manufacturing operations.Another significant challenge faced within the Ethiopian market is related to the subjectof currency. Ethiopia currently faces shortages of foreign currency. The issue of openingLetters of Credit, for the processing of international business, poses challenges as onlyselected sectors of the economy are prioritised. This issue negatively influences thepurchase of pharmaceutical product or raw material from international markets therebydiminishing the progression of the domestic market.Ethiopia presents a highly regulated business environment and, more specifically, strictregulations within the pharmaceutical market pose many challenges. Pharmaceuticalproduct distributors suffer the consequence of not being able to gain access to credit,thus hampering the constant supply of pharmaceutical products to relevant retailers.This creates a negative perception towards suppliers within the retail industry.
Weak administration boards often lead to delays in product registration. The listing ofproducts could take up to 2 years before reaching the shelves of retailers.Marketing of pharmaceutical products forms an essential element of generating brandpromotion and awareness. Social marketing is often used as an effective tool forcreating awareness of healthcare issues, such as family planning and HIV/AIDS. Incomparison to various other African countries, Ethiopia’s marketing dynamics areseemingly different. For effective marketing of products, marketing material should becountry specific. Ethiopians relate to advertising that represents their respective culture.The use of inappropriate marketing material may be unfavourable for the promotedbrand.Additional challenges existing within the market are the poor labour skills and the slowadoption of new technologies. Although the Ethiopian government has embarked onvarious initiatives to promote skills development in the country, specialised skills withinthe pharmaceutical sector are limited. Technology applications are inadequate, thuslimiting the advancement of novel concepts and innovation within the market.Local manufacturing accounts for only 20% of the pharmaceutical demands of thecountry notes Frost & Sullivan. The larger local manufacturing companies in Ethiopiainclude Addis Pharmaceutical Factory (APF) and Ethiopian PharmaceuticalManufacturing Factory (EPHARM) who compete in the market for government tenders.Domestic manufacturers are at a constant struggle to meet the demands. Due to thelack of specialised skills and technology, the ability to maintain basic manufacturingstandards, required to secure government tenders, is limited.Although these challenges exist as possible hurdles for the growth of manypharmaceutical companies, the impact of these challenges on the market is subsiding,therefore show casing Ethiopia as a country with high potential for many opportunities.Large multinational pharmaceutical companies, such as GlaxoSmithKline (GSK),AstraZeneca and MSD, have already managed to gain a firm footing, featuringprominent roles in both the public and private sectors. Earmarked as a country with highgrowth potential, Ethiopia is set to become the next big thing.Written by: Shalena Naidoo– Healthcare Research AnalystSamantha JamesCorporate Communications – AfricaP: +27 21 680 3574F: +27 21 680 firstname.lastname@example.org://www.frost.com