It came as no surprise that the recent decision by the Central Bank of Egypt to float the Egyptian Pound, which resulted in a near-50 per cent drop in its value, has led to confusion in the various sectors of the economy. The pharmaceutical sector is among those which were highly affected; a state of instability now looms over the medicine market due to the high increase in the value of the US dollar.
The pharmaceutical market in Egypt is heavily regulated. All drugs and medicines are sold to the public at prices mandated or approved by the government; any deviation from the administered or approved price brings on a heavy penalty for the seller.
Pharmaceutical manufacturers and pharmacies are forced to sell basic or much-needed drugs at prices well below the cost price, with the government subsidising the difference. Even though medicine producers complain that the subsidy is never enough to fully cover the cost of production, public sector manufacturers have no option but to acquiesce. Private manufacturers, however, refrain altogether from producing such drugs since, as non-public sector companies, they would get no subsidy; this means they would lose heavily if they manufacture the drug.
All other pharmaceutical products, whether locally produced or imported, are government-priced. It is a common complaint of pharmacists and pharmaceutical manufacturers that the pricing system allows them meagre profits, meaning there is absolutely no room for such costly but much-needed activity as innovation and research. The government for its part argues that medicines represent a commodity that has to be made available to a population the majority of which is poor and can ill-afford costly drugs to maintain their health or battle disease.
Given that the pharmaceutical sector is dependent on imported inputs or on imported medicine, the floating of the Egyptian pound and the consequent loss of 50 per cent of its value has had a devastating effect on the sector.
Ibrahim Ali, a pharmacist, told Watani he believed that the decision of the government to float the Egyptian pound did not take into account the grave consequences. “The pharmaceutical industry is threatened,” he said, “because even in case of locally-produced medicines, the raw materials are imported. The devaluation of the EGP will impede the import of production inputs and consequently cause shortages of all medicines on the Egyptian market.”
A sales representative who spoke on the condition of anonymity said that his [pharmaceutical] firm contemplated raising the prices of its products by 48 per cent to match the increase in the value of the US dollar. “The company got official approval to raise the prices of a number of the medicines it produces by 40 per cent, and to raise the prices of others by EGP5,” he said. “Other pharmaceutical companies are following suit. Pharmaceutical warehouses have refrained from selling medicines to pharmacies until new prices are put into effect.”
Inji Ghobrial, a pharmaceutical sales representative, said that her company issued a new sales policy cutting off all offers it used to give to pharmacies. “We used to reward pharmacies with special bonuses such as giving them free medicine boxes for each number of boxes they bought,” she explains. “Pharmacies used to rely on the selling of these free boxes to compensate for the low profit margin they make from selling locally manufactured drugs. Now that there are no such offers, pharmaceutical sales will definitely nosedive.”
With shortages expected, there are fears that the rush by patients to hoard the medicines they regularly need would compound the problem. “Please don’t rush to hoard insulin, there is no crisis yet. Just buy what you need so that others too may have a chance,” pharmacist Robert Ramsis posted on his Facebook page.
Pharmacists appear to be at their wits end on how to deal with the crisis. “The entire profession is threatened,” pharmacist Albert Rizq told Watani. “It is better for us to close our pharmacies for six months till the price of the dollar stabilises. Our current stock of medicine must be sold at government-administered prices set long before the dollar price hike. But we will buy our next stock at prices far exceeding the current selling prices. This means we will be incurring huge losses. If I temporarily close my pharmacy until after the prices increase, I would sell my current stock at the new prices and make a profit enough to buy a new stock.”
Pharmacist Atef Awad says that one way to reduce the expected losses is that pharmacies must refrain from giving discounts to their clients. “After the devaluation of the EGP, the expected shortage of some medicines, the increase in prices of the medicines and the running costs such as electricity and workers’ salaries, all pharmacies must agree to stop offering discounts or free services to customers. As the profit margin shrinks and costs rise, many pharmacies now face the gloomy fate of bankruptcy.”
According to Pharmacist Marianne Saber, however, there is a higher cause. “Please don’t be harsh on the patients,” she says. “If we calculate the increase in cost of the services or discounts we offer, we will find it not too high and definitely not worth increasing the burden on patients. Let’s not forget that our real problem is with the government and the pharmaceutical companies, not with those in dire need of our services.”
It does not help that prices of beauty products, commonly sold at pharmacies, have insanely increased. Pharmacist Wagdy Gamil feared people might decide to do without them altogether.
The poor suffer
Amr Selim, head of the health committee at Who Loves Egypt Campaign, expected that floating the EGP was sure to negatively impact the healthcare and pharmaceutical sectors in Egypt. The increase in the price of doctors’ visits and surgeries is expected, he said, especially with the lack of any reference prices set by the Doctors’ Syndicate or the availability of alternative top quality public health services at government-run hospitals.
“No less important,” Dr Selim said, “is the shortage of many imported medicines for the treatment of life threatening conditions such cancer and liver diseases, as well as birth control pills, and the emergence of a parallel market selling these medicines at much higher prices. This prompted local pharmaceutical manufacturers to call for an increase in the prices of medicines and led many factories to halt the production of medicines that sell at government-administered prices.”
Dr Selim suggested activating the role of the Health Ministry’s private medical practice committee in supervising and inspecting private clinics and hospitals and empowering healthcare quality control in hospitals. He also demanded that the Central Administration of Pharmaceutical Affairs (CAPA) should issue strict regulations to close all the procedural loopholes that allow for manipulation of the pharmaceutial market, and to call for bids to supply expensive imported medicines—such as cancer drugs—to government-run hospitals to sell to the public through the hospitals’ pharmacies. He also suggested that medical prescriptions be written using the generic name of the drug rather than its commercial name to allow people to buy whichever brand is available or affordable to them.
Finally, Dr Selim warned that the increase in price of drugs must not be allowed to harm lower-income citizens, given the absence of a comprehensive health insurance plan.
Liberating prices: Out of question
Minister of Health and Population Ahmed Emadeddin Rady assured that there would be no increase in the price of medicines. “All medicine prices in Egypt are administered [or approved] by the government and freeing the prices of medicines is totally out of the question. Pharmaceutical companies may pressure the government as much as they wish to raise the prices, but these attempts will get them nowhere. These companies used to buy the US dollar for EGP18 from the black market; now, after the pound was floated, the dollar is available at a much lower price at the banks. We all know that manufacturers make good profit. They cannot twist our arm; the government has designed a plan to provide medication and basic commodities to citizens because this is a national security issue that is at stake.”
The government has a plan, Dr Rady said, to make foreign currency available to pharmaceutical companies, and thus ease the process of buying production inputs and imported drugs. This should relieve the shortage of vital medicines such as those needed to cure hepatitis C, cancer, heart conditions, hypertension in addition to blood components.
Ossama Rostom, deputy director of the Pharmaceuticals, Cosmetics and Appliances Chamber at the Federation of Egyptian Industries (FEI), said it was normal that the prices of imported medicines should rise by the same rate of increase of the US dollar against the Egyptian pound. “The cost of locally manufactured drugs is also expected to incur a 40 per cent increase,” he said. “Local manufacturers are following closely the effect of floating the Egyptian pound on the EGP45 billion-worth Egyptian pharmaceutical market.”
Overhaul pricing system
The decision to float the Egyptian pound favors foreign investments and the injection of new liquidity into the Egyptian market, Dr Rostom said. When foreign exchange rates stabilise in Egypt, the pharmaceutical sector will emerge safe and sound. Stability in the market can only be achieved when foreign currency is available in the official banking system so that it covers the needs of medicine manufacturers and importers. Should this fail, he warned, the Chamber would hold meetings with the Health Minister and other officials to discuss suggestions, other than price increase, to save the pharmaceutical sector from collapse. “There would not be many solutions in that case,” Dr Rostom said. “Either the government directly subsidises the foreign currency needed to buy the raw material needed for the manufacturing or import of medicines, or it approves to raise the prices of some drugs to compensate for the losses resulting from the increase of the price of the US dollar in the official market. Most importers of medicines are considering halting imports after the dollar price hike especially that their profit margin is already small and cannot withstand the increase in cost.”
Ahmed al-Ezaby, head of the Pharmaceuticals, Cosmetics and Appliances Chamber at the FEI says that the Chamber is currently discussing with State officials the future of the pharmaceutical industry in Egypt, now burdened with the dollar price hike. “The coming period,” Dr Ezaby says, “requires an overhauling of the pricing system to make it more flexible and compatible with the various economic changes which can hit the industry.”
16 November 2016