STRICTLY CONFIDENTIAL
DRAFT
CAPE TOWN DECEMBER 2009
Ethiopia country report
Pharmaceutical production&
technology transfer
- a private sector perspective -
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer PIC/S GMP Joint ventures:
Sinio-Ethiop East African Pharmaceuticals & Cadila
Conclusion
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer: PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
Conclusion
IFHAIFHA
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Anchor Investors in IFHA
Size of Investment Investors
2nd ClosingInvestors
1st ClosingInvestors
1st ClosingInvestors: SIFA
• IFC
•African Development Bank
•Pfizer
•APG
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer: PIC/S GMP Joint ventures:
Sinio-Ethiop East African Pharmaceuticals & Cadila
Conclusion
Health systems in AfricaHealth systems in Africa
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Africa spends very little on health care
750
5.703
PopulationX mio
Total health expenditure
x $ mio
Burden of communicablediseasesDALYS
AfricaAfrica
Rest of theworld
Rest of theworld
265
345
38046
4.351.772
Source, WHO 2008
Health in Africa is underfunded
Health systems in Africa
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Traditional approach
Aid US$
Traditional approach
Top-down (trickle down)Supply/input drivenPatient is passive receiver
Health systems in Africa
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Public services benefit the rich most
Percentage of lowest and highest quintile using public healthservices
23%
36%34% 33%
15%
12%
16%
10%
primairy care outpatient inpatient total
highest quintilelowest quintile
Source: Preker AS, Langenbrunner JC et al (2005)
The poor are often not reached
Health systems in Africa
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Data based on usage, not expenditure (most recent survey year available between 1995-2006; data not available for all countriesSource: Africa Development Indicators, World Bank 2006
The private for-profit health sector is an importantprovider for the poor
Percentage of lowest and highest quintile receiving care fromprivate providers
> 40% in lowest income quintile receive healthcare from private providers
51%
67%61%
48%
64%
53%45% 44%
Nigeria Uganda Kenya Ethiopia
Highest income quintile
Lowest income quintile
Health systems in Africa
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Health systems in Africa
0%
25%
50%
75%
100%
Value receivedby customerValue receivedby customer
Inadequatebuyingpractices
Qualificationproblems
Inefficientprocurement
Inefficientdistribution
Irrationalprescription
Noncompliance bypatients
Source: The World Bank 1994
88% of every dollar of publicexpenditure on medication is
lost to inefficiencies
Public systems are very inefficient
Much money is lost
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Health systems in Africa
Social security and private prepaid health care spending
0%
10%
20%
30%
40%
50%
Sout
h Afri
ca
Cape V
erde
Namibi
aMali
Zimba
bwe
Botsw
ana
Sene
gal
Swaz
iland
Rwan
daKe
nya
Côte d'
Ivoire To
go
Maurit
ius Benin
Nigeria
Niger
Tanz
ania
Madag
ascar
Seyc
helle
s
Gabon
Malawi
Guinea
-Biss
au
Burki
na Fa
so
Ethiop
ia
Guinea
Chad
Mozam
bique
Ugand
a
Camer
oon
China
Perc
ent
of t
otal
hea
lth
expe
ndit
ure Only 4% of total health
expenditure in Africa isfinanced throughhealth insurance
Only 4% of total healthexpenditure in Africa isfinanced throughhealth insurance
Source: WHO 2008
Africans lack protection against medical costs; solidarityis limited
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Health systems in Africa
0%
25%
50%
75%
100%
Sout
h Afri
ca
Sao T
ome &
Prin
c.
Maurit
ania
Seyc
helle
s
Botsw
ana
Madag
asca
r
Cong
o B.
Maurit
ius
Sierra
Leon
eMali
Nige
r
Zambia
Benin
Burk
ina Fa
so
Eritr
eaSu
dan
Chad
Cent
ral A
frica
n Rep
.
Cote
d'Ivo
ire
Ugan
da
Camer
oon
Buru
ndi
Guin
ea
Out
-of-
pock
et h
ealt
h ex
pend
itur
e(a
s %
of
tota
l he
alth
exp
endi
ture
)
Source: WHO 2008
Private out-of-pocket expenses are 50% of total health expenditure
Many fall in a poverty trap
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Fina
ncin
g
Del
iver
y
African health systems are stuck in a vicious circle
Demand
Medicalcare usage
Supply
Qualityhealthcare
Health systems in Africa
The bill is paid by the poor
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Investments in the private health sector in Africa are non-existent
Amount of IFC’s private investments inhealth (loans and equity 1997-2007)
266
10998 95
3
Asia Lat Am Eur Middle E SSAfrica
Amount invested (in US$ million)
Source: Improving effectiveness and outcomes for the poorin health, nutrition & population, World Bank 2009
Health systems in Africa
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Donor funding for health to Africa has increased rapidly
1,0
1,5 1,6
2,3
3,13,4
4,0
4,6
2000 2001 2002 2003 2004 2005 2006 2007
Amount in US$ billion
Source: Financing of global health: tracking developmentassistance for health from 1997 to 2007, Lancet 2009
......to large extent due to the rise of vertical fundingBulk donor funding is channelled to the public system
Health systems in Africa
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Development and health policy
1
2
3
4
5
6
7
8
9
4 5 6 7 8 9 10 11 12
Log GDP/capita
Log
Hea
lthE
xpen
ditu
res/
capi
ta
Tight relationship between income and health expenditure leaveslittle room for impact of policy variables
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Development and health policy
% Out of Pocket Expenses of Total Health Expenditureversus GDP per capita
0%
20%
40%
60%
80%
100%100 1.000 10.000 100.000
GDP/ Capita (log scale)
% O
ut o
f Poc
ket
Africa versus developped countries (GDP/Capita>$15000)
Logaritmisch (Africa versus developped countries (GDP/Capita>$15000))
A
AGO
SLE
MRT
LSO
NAM
DZA
CPVCOG
SWZ
ZAF
GAB
BWA
MUS
SGP
TZA
NGA
ZMB
UGA
LUX
USA
FRA
The second law of health economics; out-of-pocket expenses
Rich countries have lower out-of-pocket expenses thanpoor countries
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer PIC/S GMP Joint ventures:
Sinio-Ethiop East African Pharmaceuticals & Cadila
Conclusion
Scope of researchScope of research
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Ethiopia – scope of IFHA research
Field trip November 2009- Companies and government institutions interviewed -
Field trip November 2009- Companies and government institutions interviewed -
Companies Sinio-Ethiop Associate (Africa) PLC Cadila Pharmaceuticals (Ethiopia) PLC East African Pharmaceuticals Pharmaceutical manufacturing Association
GTZ & Engineering Capacity Building Program
Government agencies: Drug registration authorities Development Bank of Ethiopia Ethiopian Investment Agency National Bank of Ethiopia Ministry of Trade and Finance
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Contents
IFHA
Health systems in Africa
Ethiopia country report:
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer: PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
Conclusion
Economic landscapeEconomic landscape
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Ethiopia – economic landscape
21
80 million inhabitants, 100+ million by 2015 Largest cattle population in Africa East African trade zone (Comesa) Very low labor costs / relatively well educated workforce Ongoing privatization of pharmaceutical industry Equal treatment of foreigners No TRIPS until 2016. Ethiopian IP laws offer opportunities for
generic production Substantial investments in infrastructure & utilities Ethiopia forecast (Ernst & Young report Oct 2009):
Third-largest sub-Saharan economy by 2023 GDP from USD 70 (2008) to 472 billion (2023) GDP/Capita to 4,000 USD by 2023
Potential: rapidly growing market, economy opening upPotential: rapidly growing market, economy opening up
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Ethiopia: GDP per capita comparison
Ethiopia – economic landscape
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Ethiopia: real GDP growth comparison
Ethiopia – economic landscape
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Ethiopia: forecast key economic indicators
Ethiopia – economic landscape
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Population 81 million
Infant mortalityrate (MR) 77
Under-5 MR 123
Maternal MR 720
Total healthexpenditure (THE) as % GDP 4.9%
Total healthexpenditure per capita US$ 7
Private expenditure as % of THE 32%
Private prepaid expenditure as % of THE 1%
% peopleusing the private health sector 48% (richest 20%), 44% (poorest 20%)
# physicians 1936 = 1 for > 40,000 population
# nurses and midwives 15544 = 1 for > 5,000 population
Nurses & midwives / physicians 7.3
# pharmaceutical personnel 1343 = 1 for 60,000 population
# laboratory health workers 2703 = 1 for 30,000 population
Hospital beds per 10,000 population 2
% of births attended by skilled personnel 6%
Source: WHO November 2009
Ethiopia – economic landscape
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Ethiopia: health financing statistics
Indicator Ethiopia Africa (excludingSouthAfrica)
Central governmentrevenue as % of GDP 17.1%
Total healthexpenditure (THE) as % GDP 4.9% 4.4%
Total health expenditure per capita US$ 7 US$ 24 (exclSouthAfrica)
Out-of-pocket as % of THE 32% 46%
Private prepaid expenditure as % of THE 1% 3.3%
Source: EIU September 2009, WHO November 2009
Ethiopia – economic landscape
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Ethiopia: health and health care statistics
Indicator Ethiopia
Life expectancy at birth 55.4 years
Infant mortality rate 77
Under-5 mortality rate 123
Maternal mortality rate 720
HIV prevalence rate (15-49 years) 2%
# people living with HIV 980,000
% people using the private health sector 48% (richest 20%), 44% (poorest 20%)
# physicians 1936 = 1 for > 40,000 population
# nurses and midwives 15544 = 1 for > 5,000 population
Nurses & midwives / physicians 7.3
# pharmaceutical personnel 1343 = 1 for 60,000 population
# hospital beds per 10,000 population 2
% of births attended by skilled personnel 6%
Source: WHO November 2009
Ethiopia – economic landscape
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer: PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
Conclusion
CompetitivenessCompetitiveness
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Ethiopia – competitiveness
29
Today, the Ethiopian market for pharmaceuticals is estimated tobe 200 million USD (at the most)
85% of all medication in Ethiopia is imported
All raw materials to be imported (Ethiopia lacks the requiredchemical industry)
Up until today, local pharmaceutical manufacturers have beenfacing severe difficulties. Half of the app. 10 local manufacturersbankrupt over the last years
Pharmaceutical market EthiopiaPharmaceutical market Ethiopia
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Ethiopia – competitiveness
30
Imported finished products from India and China are cheaperthan locally produced medication
China and India far ahead of Ethiopia in know-how, productioncapacity, quality, efficiency, logistics, marketing and sales
There are no/low tariffs or duties on import of end products
Severe competition from India and ChinaSevere competition from India and China
The limited size of the Ethiopian market vs high investmentsneeded for building pharmaceutical plants
Estimated market size: Maximum 200 Million USD Government plans capacity investment hospitals, clinics etc.
Market sizeMarket size
Lack of skillsLack of skills University focus on clinical skills Need for more industrial and managerial skills Government plans capacity investment in universities
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Ethiopia – competitiveness
31
Ethiopian banks underdeveloped. Loans are difficult toobtain/approvals take too long
Lack of expertise on pharmaceutical sector within governmentinstitutions. E.g. the Ethiopian Development Bank (EDB) tops up70% of loans by local banks (in Birr), but due to the lack ofexpertise the lead times for obtaining such loans are up to 1.5year.
Multilaterals and NGO’s fail to provide assistance to the EDB
Lack of foreign currency needed for importation of raw material.Waiting lists for foreign currency are long. Only exportingcompanies have faster, but still limited and regulated, access toUSD
Lack of working capitalLack of working capital
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Ethiopia – competitiveness
32
Potential dilution of profits in hard currency:
Financial market closed to foreigners No foreign banks Birr not exchangeable on international currency markets Shortage hard currency (import, dividend, capital gain)
Permits National Bank for investments, import, export Foreign loans are prohibited Once a USD investment permit is obtained, the National Bank
guarantees that foreign investments can be taken out freely (individend or capital gain), but Bureaucracy in exchanging Birr back into USD Subject to delays
Inflation rate: 44.4% in 2008
Investment hurdle: financial restrictions & inflation of the BirrInvestment hurdle: financial restrictions & inflation of the Birr
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Ethiopia – competitiveness
Government not pro-actively attracting foreign investors
Uncertainty about durability of planned protective measures andinvestments in health capacity (new hospitals, universities)
Investment hurdle: no culture to attract foreign investorsInvestment hurdle: no culture to attract foreign investors
Investment hurdle: distribution and retail excludedInvestment hurdle: distribution and retail excluded
Distribution/import, services and retail are not open to foreigninvestment
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
Conclusion
Protection of local industryProtection of local industry
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Ethiopia – protection of local industry
35
Recently the government announced some measures:
Lower/no tariffs on import of (most) raw materials (took 7 yearsto change)
Any foreign investment is matched by loan of EthiopianDevelopment Bank up to 70%
Local pharma granted a 20% margin advantage over importersin government tenders
30% advance payment of government purchases 3 million USD paid over last 3 months
Potential tax breaks
Stimulus for development of local marketStimulus for development of local market
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Ethiopia – protection of local industry
36
Recent government measures:
Clear determination to support industry
No clarity: durability of measures mid & long term government policy:
not embedded in regulations not clear what budget is made available health not official priority area for the
government upcoming elections (spring 2010)
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
Conclusion
PIC/S GMPPIC/S GMP
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Ethiopia – technology transfer
38
GTZ advises Ethiopian regulatory authorities (DACA)and local manufacturers on PIC/S GMP certification
GMP PIC/S drives export (mainly within Africa) andfacilitates sales to donors (Unicef, Global Fund)
GTZ will continue activities over the coming years
PIC/S GMPPIC/S GMP
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Contents
IFHA
Health systems in Africa
Scope of IFHA research
Ethiopia country report
Economic landscape
Competitiveness
Protection of local industry
Technology transfer PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
Conclusion
Joint venturesJoint ventures
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Ethiopia – technology transfer
40
Joint ventures: China and India started to invest inlocal production in Ethiopia
A few pharmaceutical companies established withforeign investments and technology transfer
Three companies started export (mainly to sub-Saharan countries)
Joint venturesJoint ventures
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Ethiopia – technology transfer
41
Sinio-Ethiop
Ownership: 35% shares = Jin Wan (private Chinese company) 35% shares = China Associates (state owned) 30% shares = Zaf (Ethiopian private, former
distributor of Chinese partners)
Management & staff: MD & senior staff Ethiopian. Chief engineer Chinese Negotiations re equity investments by Chinese
Joint venturesJoint ventures
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Ethiopia – technology transfer
42
Sinio-Ethiop
Technology transferred: All machines from China (arms length purchases)
JV partner (Jin Wan) produces capsules in China
Start 2004: one year to become operational transportation of machines 6 to 12 Chinese engineers in Ethiopia for training
during one year
Joint venturesJoint ventures
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Ethiopia – technology transfer
43
Sinio-Ethiop
Produces 1.2 billion hard gelatin capsules annually
Production insufficient to meet local demand
Total market Africa: 30 billion capsules (today mainlysupplied by China, India, South Korea)
Obtained GMP/pic in 2009
Joint venturesJoint ventures
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Ethiopia – technology transfer
44
Sinio-Ethiop
2006: start upgrading to PIC/S – implementation hascost 2.5 million Birr
GMP PIC/S certified (May 2009), sales went up
Good quality of capsules confirmed by buyers
Joint venturesJoint ventures
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Ethiopia – technology transfer
45
Sinio-Ethiop
71.4 million Birr invested (app. 6 million USD)
2009: 18-20 million Birr revenue.
3.5 million USD investment for expansion planned toincrease capacity (loan is slow: no forex in localbanks – IFC takes minimum 6–12 months)
Joint venturesJoint ventures
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Ethiopia – technology transfer
46
Sinio-Ethiop
Ethiopian government companies largest customers: APM – production PHARMID – wholesale & distribution
30% export (RSA, Yemen, Zambia, DRC, Kenya)
Joint venturesJoint ventures
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Ethiopia – technology transfer
47
Sinio-Ethiop
Local production of capsules cost efficient (asopposed to importing): High transportation costs
All raw materials imported
Still 10% tariffs on gelatine
Tariffs on some other raw materials reduced to 0-5%
Joint venturesJoint ventures
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Ethiopia – technology transfer
48
East African Pharmaceuticals
Ownership: UK and Sudan MD Sudanese, senior staff from Ethiopia and India Human and veterinary (only plant in Ethiopia) Export to Sudan Start operations 2000 Had difficulties to survive
India competition Was forced by government to rebuild plant Lack of working capital and hard currency
Factory runs at 30% of it’s capacity
Joint venturesJoint ventures
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Ethiopia – technology transfer
49
East African Pharmaceuticals
USD 4.3 million investment (driven up because ofrebuilding of plant)
15 – 20 million Birr turn-over Financing need for expansion GTZ GMP PIC/S certification scheduled Q1 2010 No need for other technology transfer (other than
hiring key functions from abroad)
Joint venturesJoint ventures
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Ethiopia – technology transfer
50
Cadila
Machines and all raw materials imported from India Quality plant Ethiopia similar to Cadila India GTZ GMP PIC/S certification scheduled Q1 2010 Considers expanding to veterinary (like Cadila India) Market share: estimated 8% of local production Choice for Ethiopia based on:
History with distributor Local market size Sufficient skill level in Ethiopia Free trade agreement for East Africa
Joint venturesJoint ventures
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Ethiopia – technology transfer
51
Cadila
Ownership: 45 % Almeta (Ethiopia) 55% Cadila India GM from India. Ethiopian technical staff in higher
technical management positions. 5% expats Production: March 2008 (30 Cadila India products) Investment: 10 million USD, all facilities newly build Profitability later than planned: import competition Cadila India and Cadila Ethiopia potentially compete
within sub-Saharan Africa Export to Djibouti, Kenya, Tanzania, Rwanda
Joint venturesJoint ventures
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Contents
IFHA
Health systems in Africa
Ethiopia country report
Scope of IFHA research
Economic landscape
Competitiveness
Protection of local industry
Technology transfer PIC/S GMP Joint ventures:
Sinio-Ethiop East AfricanPharmaceuticals&Cadila
ConclusionConclusionConclusion
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Ethiopia – conclusion
53
Market size is growing, significant future potential GTZ project is very much needed and practical No/very little ‘location advantage’ for the production
of pharmaceuticals, due to lack of raw materials Only possible through protection of local market High discount rate Conditions for profitability, attracting foreign
technology and investments: Privatisation needs to continue Issues re discount rate to be dealt with Government guarantees needed on future
reliability of recent stimulus-measures Financial market needs to open up
Conditionally attractive marketConditionally attractive market
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Ethiopia – conclusion
54
Key questionsKey questions
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A situation of insufficiencyA situation of insufficiency
No GMP approved factories, no FDA aproved factorieswith exception of Aspen
The key questions are: (1) Can donors purchase drugs that are not allowed on
their own markets (2) What premium do you allow to facilitate local
production (3) Should you not focus on certain niches WITH a
competitive advantage
Conclusions
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