It might seem a bit paradoxical that the otherwise healthy pharmaceutical sector is in need of a cure in the Kingdom. The prescription reads — mergers, more protective policies and a diversification of product lines is the remedy. Although still a major currency earner, with exports of pharmaceutical products throughout this year consistently fluctuating in the top three spots of the local exports list, the industry faces fierce competition that might bring it down.
According to industry officials, the Arab market, where the Jordanian industry was decisive in keeping prices more palatable, is not as lucrative as it once was. “Throughout the late 1970s and 1980s, we helped reduce the health bill in the Arab world and forced multinationals to cut down prices, as we provided products that met international standards at competitive prices,” said, Mazen Darwazah, chairman of the Jordanian Association of Manufacturers of Pharmaceuticals and Medical Appliances.
However, the trend did not last long. Manufacturers of pharmaceutical products have mushroomed across the Arab world in the 1990s, resulting in less dependence on Jordanian products. “Therefore, the Jordanian industry survived based on its high quality and excellence,” explained Darwazah.
The UN-imposed sanctions on Iraq were another set back for the industry. Iraq, which had to rely on Jordan as the sole supplier of pharmaceuticals during the first half of the 90s, severely limited its imports between 1996 and 1997. Exports to the Iraqi market reached their peak of around $70 million in 1995, but then plunged to less than $10 million annually until 1997, said Darwazah.
“Although Jordanian medicines came back to life again in Iraq, the good old days have never been back, as sales to the Kingdom's eastern neighbor currently stands in the range of $30 million annually. Nowadays, our companies are competing with more than 100 companies for a share of the Iraqi market. We have a moral commitment to service the Iraqi market, and some deals are concluded on a break-even basis. But, despite these factors, we have remained competitive,” he added.
With Jordan's accession to the World Trade Organization (WTO), which allows for free competition, the situation has become more complicated. Although the industry's total sales reach around $250 million annually, only $70 million worth is consumed locally, while the larger chunk of $180 million is exported.
Local pharmaceutical manufacturers, Darwazah explains, command 40 percent of the Jordanian market share while 60 percent goes to foreign firms. But this is not a healthy equation. “The formula should be that of at least fifty-fifty,” envisions the chairman, suggesting that local firms should secure a larger share of the market if they are to stand up and face foreign competition.
“We cannot sustain the industry if we cannot succeed in our own country,” said Darwazah, also general manager of the Hikma Group, one of the Kingdom's leading pharmaceutical companies.
The support of the government through the Health Ministry, the Jordan Armed Forces and the University Hospital becomes essential when it comes to inspection procedures. According to official registration rules, explains Darwazah, a company has to be inspected in order to be able to participate in governmental tenders. “However, what happens sometimes is that the company is registered, but its product later fails quality test procedures and so it does not get into the market,” he added.
In such a situation, “the government denies local companies the opportunity to win a tender.
“It is an open market, and the ministry is obliged to buy a foreign product when it is offered at a competitive price,” said the businessman. “It should be a precondition that both the company and the product must be registered before bidding in a tender. I see no logic in the fact that Jordanian companies are asked to register their products if they want to compete in other countries and we don't require the same,” he said in an interview with the Jordan Times.
The low profit margin is yet another hurdle. Darwazah elaborated that foreign competitors enjoy large profit margins, and thus they can spend more on promotion, marketing, and distribution of their goods. Meanwhile, their Jordanian counterparts have meager profit margins, forcing them to tighten their grip over expenditures that enhance their exposure.
The culture or education also has a negative impact. People would opt to buy foreign medication rather than local products, complains Darwazah. Despite all obstacles, the industry recorded 25 percent growth in its export volume during the first six months of 2000.
On the Iraqi front, the recent decision to allow the Iraqi private sector to start importing pharmaceuticals, will be a great prospect for some Jordanian firms as some companies have already started pursuing opportunities through this channel. In addition, raising the Jordanian-Iraqi trade protocol to $450 million next year, up from $300 million in 2000 will have a positive impact on the industry.
Actually, the association is working on achieving a growth rate of 10-15 percent in its share of the Iraqi market next year. Since September the Iraqi government announced that it will stop trading with the dollar and replace it with the euro or any other European currency, Darwazah warned against currency fluctuations.
In the Libyan market where business deals are in euros, Darwazah estimates losses of around $4-5 million in the pharmaceutical industry during 2000. “We have to work on providing a clear system as to how the calculations are going to be done. There could be a big difference in the euro's rate between the time a bid is submitted and when the contract is eventually awarded, said Darwazah. “We need to look at this issue carefully,” he added.
Officials have long stated the need for mergers in the industry as a means for its survival. Mergers among local companies, as the interviewee sees it, are needed for the survival of the companies and better prospects for the economy. “Some companies are seriously studying the issue, and some are carrying out feasibility studies,” he said. He further believes that within 5 years, there will only be 3 or 4 of the existing 18 pharmaceutical companies.
Maintaining that Jordan is a profitable market, Darwazah urged companies to diversify their product lines. “The industry cannot go like this, each company should specialize in a therapeutic class,” said Darwazah.
The Free Trade Agreement with the US, signed on October 24, which provides Jordanian products unimpeded access to the world's largest market, is another golden opportunity. In fact Darwazah shares many officials and businessmen the view that the treaty is ‘a gold mine.’
A tentative meeting in Amman of the Pharmaceutical Research and Manufacturers of America — PhRMA, is expected later in February. The association pins high hopes that the meeting will bring about a better understanding of how Jordan could be marketed as a healthcare hub and lure multinationals to invest in the Kingdom.
Dealings with international pharmaceutical giants have usually been tackled at the individual level, but now the association seeks to make deals at the industry level, for the welfare of all its members.
Some of the 18 Jordanian pharmaceutical companies have already obtained the approval of the us-based Food and Drug Administration (FDA) and the UK's Medical Control Agency (MCA) for some of their products. The approval of the FDA and the MCA are universally accepted guarantees of the quality and reliability of products and facilitate their access into the US and UK markets respectively.
According to Maher Matalka, secretary general of the association, Jordan is among the few countries in the world including the US, Canada and Israel to obtain the Bolar provision from the FDA which allows pharmaceutical firms to develop patent products two years before they expire. This means that firms can market the generic from day one after obtaining a marketing approval.
A recent study, commissioned by Arab Bank Center for Scientific Research and conducted by MMIS Management Consultants, backs up the association's views that the country's pharmaceutical industry needs to enhance technological skills and expertise, apply quality standards and invest in research and development in order to be able to penetrate world markets.
The study revealed that Jordan could be an attractive country for multinational corporations because of its low tax rates. No taxes are levied on exports sales while 15 percent is levied on local sales. The labor cost is low in comparison to international standards, allowing for lower production cost.
The industry is advanced in the field of research and development compared to other countries in the region and it also enjoys tax exemptions on imports of pharmaceutical inputs. If Jordan adheres with the rules and mandates of the WTO and the Jordan-EU Association Agreement, the study said such steps are bound to stimulate more foreign direct investment, enhance technological innovation, transfer of new technologies and know-how.
The latest Central Bank of Jordan figures showed that exports of medical and pharmaceutical products leaped to more than 73.6 million Jordanian dinars (JD) from JD57.8 million during the first seven months of 2000 compared to the same period of 1999. The JD16 million rise was attributed to a boost in drug registration activity. — ( Jordan Times )
By Rana Awwad
© 2000 Mena Report (www.menareport.com)