A target set by the Trade Development Authority of Pakistan to double exports to Sri Lanka appears far too fetched as medicines, the top third export item, could hardly contribute much because of an irrational drug pricing mechanism and a flawed regulatory framework.
Sources say, "Pakistan aims to double exports to Sri Lanka in a year. The Trade Development Authority of Pakistan wants to take the exports to $1 billion to Sri Lanka making the use of a Free-Trade Agreement. Currently, pharmaceuticals exports from Pakistan value $20 million and even doubling this amount looks a tall task."
They claim the authority's initiative and that of the High Commission of Pakistan in Sri Lanka aims to boost the bilateral trade between the two countries.
"The Trade Development Authority of Pakistan has prioritised the pharmaceutical sector with other sectors at the single-country exhibition in Colombo this week. Pakistan has only used 29 percent of the Free-Trade Agreement Concessions [which came into effect in 2005] so far," it is claimed. "If Pakistan effectively uses duty concession under the Free-Trade Agreement, the country can increase its export significantly. Priority to pharmaceutical sector has been given but it is imperative that the government introduces pricing reforms and change contract manufacturing legislation which can multiply the pharmaceutical exports."
An industrialist claims, "The Sri Lankan market has a huge potential for us but the current exports to Sri Lanka are very low. One of the big reasons is the pricing issue which does not account for inflation. On the one hand, the pricing issue is hitting the industry. On the other, low investment in the sector does not provide manufactures excess capacity for export production.
"The undue procedures imposed on manufacturers have increased the cost of production. Additionally, the Drug Regulatory Authority of Pakistan has imposed huge fees on documenting the medicine for export. Lack of a Federal Drug Authority approval is another barrier and the production units are unable to comply with the standards of the World Health Organisation. Furthermore import tariff on production machinery discourages production which results in low exports."
He goes on, "The Pakistani government needs to reduce the restricted activities, by considering the pricing issue companies face and accordingly making price adjustments for inflation, improving the regulatory conditions and the government procurement policies, providing R&D grants and tax benefits to pharmaceutical industry, and in the end ensuring that all the policies and conditions are actually benefiting the pharmaceutical industry, in order to increase the exports to Sri Lanka."
While Taha Khan Javed, the Research Alfalah Securities Director says, "Because of freeze on pricing in the last decade, the pharmaceutical sector of Pakistan is ultimately becoming the worst investment proposition for global health care companies. Because of unreasonably low prices, the much needed investment is not happening in Pakistan. A margin comparison of gross profit and operating profits also validates this point, showing that margins of pharmaceutical companies are lower than other manufacturing companies listed on Pakistan Stock Exchange, such as the fertiliser and cement sectors."
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