Report from: Pakistan

Although its domestic market is on the rise, Pakistan's market conditions have not proved welcoming enough to keep foreign investors.
Jan 02, 2009
Volume 33, Issue 1

Pakistan's ambassador to the Philippines, Muhammad Naeem Khan, recently invited an official of the Philippine International Trading Corporation to visit Pakistan to explore the possibility of selling pharmaceuticals to the country. The action drove home the point that Pakistan's pharmaceutical industry has become strong and affordable.

Local industry on the rise. Indeed, Pakistan's pharmaceutical sector has developed by leaps and bounds over the past few years. The sector is valued at $1.2 billion and has experienced recent annual growth rates of 10–15%. More than 400 local firms are engaged in pharmaceutical manufacturing, meeting 80% of domestic demand, according to the country's Drugs Control Organization.

Several local companies, including Karachi-based Hilton Pharma, have moved into the Middle East, Far East, Africa, Sri Lanka, and Latin America with strong support from Pakistan's Export Promotion Bureau. Getz Pharma (Karachi) has successfully partnered with companies such as Sicor (Vilnius, Lithuania), and E-Pharma (Ravina di Trento, Italy) in pharma licensing. The Pakistani government has forged international alliances as well, including signing a Memorandum of Understanding with Brunei that harmonizes surgical procedures, training, and the pharmaceutical industry. And in January 2004, the government gave the green light to allow imports from India and China through custom-duty concessions under the South East Preferential Trade Agreement, thereby allowing the population to access cheaper drugs.

Despite stiff competition from neighboring China and India, Pakistan's local industry has actually eclipsed the presence of some 30 multinational companies (MNCs) in the country. Drug controller of Pakistan's Ministry of Health Dr. Fernaz Malik says that the market position of MNCs has dwindled from 80% to 45% during the past 20 years due to the growing domestic market. But this is not necessarily good news.

Foreign investment shrinking. There is more than domestic growth forcing MNCs out of Pakistan. "One of the biggest problems for our members is the inability to predict the direction of the Pakistani market," says Jonathan Kimball, associate international vice-president of the Pharmaceutical Research and Manufacturers of America (PhRMA). "The Pakistani government is interested in attracting pharmaceutical investments, but their policies have not promoted an environment that attracts them."

Taxes, for example, have increased despite Pakistan's trade liberalization policy enacted in 2002. The government does not grant special tariffs or tax exemptions to firms that have started manufacturing on Pakistan's soil. In India, the tax and tariff component is 34.57% for a locally produced product. At that rate, manufacturers are incented to increase prices to secure desired profit margins. In contrast, after joining the World Trade Organization in 2003, China reduced tariffs by 60% from 9.6% to 4.2%.

In addition, Pakistan increased charges on imports that remain competitive. And sales taxes on imported pharmaceutical packaging and raw materials are on the rise; firms are not allowed to pass the extra costs to consumers.

Disputes over custom procedures are commonplace in Pakistan as well. Cases involving frequent and unexplained rate changes, granting of preferential tariff rates to locally produced goods, and bribery all have occurred.

Intellectual property (IP) remains a thorny issue for the Pakistani authority and MNCs alike. A 2007 PhRMA report, National Trade Estimate Report on Foreign Trade Barriers, stated that IP rights in Pakistan are devalued because of new amendments to the country's 2002 Patent Act, which, among other things, restricts patent filings to single chemical entities for pharmaceutical and agrochemical inventions. The report recommended that Pakistan exercise and enforce protection of data as well as data conclusions so that an application cannot be made until a product's full term of protection expires, or until a party generates supporting data or obtains consent from PhRMA. In addition, the report suggested Pakistan put in place safeguards to prevent data leakage. Making matters worse, the US Trade Representative listed Pakistan on the United States' Priority Watchlist for 2008 because of its poor IP controls.

With a poorly regulated market in which local firms have a free hand in introducing products, MNCs, therefore, have been discouraged from launching new brands in the country.

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