Governments of the East African Community (EAC) have made a fatal error. Their decision to give preferential treatment to local manufacturers of pharmaceutical products will not "create" a thriving pharmaceutical industry. Instead, it will adversely affect their sickest and most vulnerable members of society. The decision may even prove life-threatening for the very people the governments hope to assist.
At the EAC conference held in Nairobi towards the end of last year, it was decided that "preferential treatment of locally produced pharmaceutical products in government procurement is key to creating the necessary demand for locally manufactured products and thus more investments. To this end, the governments of East African Partner States and the private sector are called upon to give a preferential margin of up to 30% to the domestic manufacturers."
Protectionist policies will not improve access to medicines, nor will they improve quality. Under the guise of improving access to healthcare, these governments will provide favours to special interest groups. This amounts to healthcare via crony capitalism, sticking taxpayers with the bill for more expensive locally produced goods that could be of lower quality.
By agreeing to pay inflated prices for locally manufactured pharmaceuticals, the EAC community will have less money available to spend in other areas of the economy, including, but not limited to, the basic determinants of health such as nutrition, clean water, sanitation and affordable energy.
Most economists agree that the best way to move from poverty to prosperity is to reduce barriers to trade. An ever-increasing amount of evidence supports the fact that, contrary to concerns espoused by antiglobalisation critics, countries that are more open to international trade are wealthier and healthier.
To establish a thriving pharmaceutical manufacturing sector is easier said than done. It is going to take considerable time to invest in manufacturing capacity and to acquire and build up the necessary skills to operate a highly sophisticated production plant.
To justify the investment, such a plant would have to gain World Health Organisation (WHO) approval before it could export any of its products, which it would need to do, as relying exclusively on individuals within the EAC would not be financially sustainable.
We trade with foreigners because it is a win-win situation. Imported drugs are frequently cheaper than domestically manufactured drugs and they are often better quality. No country has prospered by closing itself off to the rest of the world.
There is no economic justification to exclude certain goods from entering the EAC, especially if they are helping the most vulnerable members of society.
If the EAC truly wants a healthier and more prosperous community, it should reduce barriers to trade rather than erect them.
Trade liberalisation in general leads to improved incomes, which allows people to spend their money on things that make their lives better. Increased trade liberalisation in the pharmaceutical sector allows developing nations to leapfrog up the developmental ladder.
Technologies developed by more prosperous and technically advanced economies can only be transferred to developing economies that are open to trade. For example, vaccines or pharmaceutical drugs and devices produced and manufactured in developed countries will benefit developing countries only if they can enter those countries without delays caused by bureaucratic procedures and other obstacles.
This preferential procurement policy, no doubt, will not be supported by those countries in the region that already have pharmaceutical manufacturing plants that adhere to the WHO’s good manufacturing practices.
Governments can support local pharmaceutical manufacturers by simply getting out of the way. They can do this by reducing the tax and regulatory burdens that hinder their competitiveness. And this should be extended to all sectors of the economy.
With this kind of "support" from the government, local pharmaceutical manufacturers would be encouraged to expand their plants and invest in producing higher-quality products that would enable them to compete with manufacturers from across the world.
Rather than introducing protectionist policies that have long since been discredited, governments in the region should commit to purchasing the best available medicines at the best possible prices, no matter the origin.
This is essential if they wish to increase the access individuals residing within the EAC have to WHO-approved medicines — individuals who would then form a healthy and productive workforce.
• Urbach is an economist and director of the Free Market Foundation
This article was first published in Business Day on 6 January 2017
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