For many years, the government has sought an equity partner for its state-owned pharmaceutical manufacturer Ketlaphela. What it fails to recognise is that rather than trying to produce pharmaceutical drugs, it should instead be creating a better economic and business environment in which existing manufacturers can thrive.
Efficient governments do not invest in the production of goods and services. They leave that terrain to competitive private enterprises. If the government wishes to dispense welfare to the indigent, it could better achieve that goal by purchasing quality goods and services at the lowest prices from privately competing providers.
Ketlaphela’s initial objective is to produce drugs to treat the communicable diseases of HIV/AIDS, tuberculosis and malaria, but also plans to target noncommunicable diseases such as cancer.
However, the government would do well to recognise that not only does it already have access to drugs produced by highly efficient manufacturers, but it is also able to access these drugs at a fraction of the price that they sell for internationally and to the private sector in SA.
When asked if Ketlaphela would compel the government to pay a premium for locally produced ARVs, board chairman, Ivan Radebe, said: "Of course we have to provide value, which can be defined in many ways, not only price. There are associated benefits that the country will derive when the country has its own state-owned pharmaceutical company." However, the ethics of this kind of policy are thorny since it means that, given a fixed budget, fewer drugs to treat the major communicable diseases will be bought and fewer patients will be treated.
Like other state-owned enterprises, Ketlaphela will have no economic incentive to operate efficiently because taxpayers will be expected to provide whatever cash injections it requires.
Director, Free Market Foundation
This article was first published in Business Day on 22 March 2018