Most industries in Egypt are struggling right now, but pharma players say they have it worse than most. Like other industries, the pharma industry is severely impacted by the ongoing FX crunch, which is hampering the industry’s ability to import raw materials and active ingredients for a number of meds and products, according to industry players Enterprise spoke with. Several producers have had to resort to sourcing these ingredients from the black market, according to our sources, while other players are shifting towards manufacturing cosmetics, nutritional supplements, and vitamins instead of medications.

By the numbers: Egypt currently has 170 factories producing pharma products, in addition to another 40 factories currently under construction, head of the Federation of Egyptian Industries’ pharma chamber Gamal El Leithy told Enterprise. There are also around 500 cosmetics factories, along with some 300 factories producing medical equipment, according to El Leithy. We have around 191 licensed factories with a combined 799 production lines, head of the Egyptian Drug Authority Tamer Essam. That’s a notable leap from where we were a decade ago, when Egypt had 130 pharma factories with some 500 production lines, according to Essam.

Pharma has big FX needs because it’s extremely import-reliant, considering manufacturers import around 90% of raw materials, head of the pharma division in the Federation of Egyptian Chamber of Commerce Ali Ouf told Enterprise. That reliance on imports should grant the sector special treatment in at least some regards, Ouf suggested. “We’re facing a crisis due to the inability to compensate for jumps in the cost differences of USD sourcing by pricing it into the products because the sector is regulated by mandatory pricing that can’t be changed without the approval of the Egyptian Drug Authority,” Ouf previously told us. This formula puts the sector under the pressure of facing “huge” cost differences, he said.

The sector has had only a partial solution: While costs jumped 50% last year, the EDA allowed for a 20% increase in prices. The EDA also abides by pricing according to the official exchange rate (EGP 30.96 / USD 1), which is far below the parallel market pricing, further widening the gap between the EDA’s pricing guidelines and the reality for many of these companies. Companies are forced to source FX from the parallel market to ensure operational continuity, which exposes them to sharper cost increases.

But the government isn’t blind to the problems: Cabinet is currently working on ensuring the availability of pharma products and medical equipment, particularly as there is a shortage of certain products, Prime Minister Moustafa Madbouly said in a statement today. Madbouly called for an increase in reserves and stockpiles of critical meds, with Health Minister Khaled Abdel Ghaffar confirming that certain products — particularly those that are imported — have been in short supply in the past period.

More tax deductions are needed, sector says: Pharma companies in Egypt are facing net losses as a result of high fees, taxes, and currency differences, in addition to foreign companies being legally prohibited from purchasing FX from the black market, Ouf said. Authorities should be more lenient with the sector when it comes to imposing fines for delays in production, Ouf suggested, while there should also be a comprehensive view on the sector as a whole, including taxes, incentives, pricing, and FX transactions.

A unified and flexible registration system + fair pricing: The solution for industry obstacles including introducing a new system for registering pharma products, which takes time and lots of money and therefore limits companies’ ability to allocate these resources towards deepening the local product, El Leithy suggests. He also believes that introducing flexibility in pricing will allow factories to improve operational continuity.

The sector has lots of potential — if its problems are addressed: Pharma could export as much as USD 5 bn worth of products by 2030, thanks to the active ingredients we have access to and the range of products we produce, but the sector needs a shot in the arm, Chairman of the Egyptian Federation of Investors’ Association’s Health and Medicine Committee Mohie Hafez said. Introducing flexible pricing, ensuring the availability of active ingredients, and correctly enforcing regulations on the meds market (by preventing the over-the-counter sale of antibiotics and other meds without a doctor’s prescription) would help get the sector in order, Hafez said.

This is all without accounting for external pressures, including the global shipping as a result of tensions in the Red Sea. The crisis — leading many shipping companies to change routes away from the Suez Canal and around the Cape of Good Hope — has left Egypt’s consumer market, including pharma products, particularly vulnerable, Fitch said in a recent risk report. With China and India being the primary suppliers of [chemical] materials to Egypt and the wider MENA region, we predict that Egypt-based drugmakers will face adverse effects due to supply disruptions, potentially hindering their production capabilities and ultimately impacting the stability of Egypt’s pharma sector,” Fitch said.

Your top industrial development stories for the week:

  • IDA offers more land for investors: The Industrial Development Authority (IDA) has listed 456 fully serviced plots on its digital platform for interested investors, in a bid to boost industry localization, and bridge imports/exports gaps, according to an IDA statement. The lands span over 1 mn sqm in 10 governorates, with areas ranging between 200 sqm to 10k sqm. They can be bought through regular ownership contracts, or usufruct agreements with 5% of the plot’s value paid annually. Starting today, Interested investors can head over to the IDA website to buy the plots booklets, which will be available until 22 February.
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