Assessing Efficiency in the Pharmaceutical Sector of Nigeria

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Thursday, February 28, 2019  01:55 PM / CBN

The study analyses, empirically, the efficiency of the Pharmaceutical sector in Nigeria. Employing a balanced panel of 20 pharmaceutical firms between 2012 and 2016, the paper uses a non-parametric technique (Data Envelopment Analysis) to analyze the firms’ efficiency under the constant returns to scale (CRS) and variable returns to scale (VRS) assumptions. The results obtained shows inefficiency in the pharmaceutical sector as it operates under a decreasing return to scale. This calls for an appropriate policy mix to stimulate the efficiency of the pharmaceutical sector in Nigeria by enhancing research and development (R&D) as ell as regulations within the sector.

Introduction

The pharmaceutical sector in any economy plays a prominent role in the general health of citizens residing in the country. Nigeria is not an exception. Owing to its significance in the general welfare of the economy, it is imperative to give serious attention to issues that concern this sector. The Nigerian pharmaceutical sector is known to be complex as it involves numerous players (manufacturers, national regulators, wholesalers and retailers, government ministries and other stakeholders). This means that there is need for these stakeholders to put in additional effort to create an enabling environment to exploit the full potentials of the sector.

The Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN, 2010) asserted that the Nigerian pharmaceutical sector has the potential to be a leader in the production and distribution of pharmaceuticals Sub-Saharan Africa, with nine Nigerian pharmaceutical firms (Drugfield Pharmaceuticals Ltd, Emzor Pharmaceutical Industries Ltd, Evans Medical Plc, Fidson Healthcare Plc, GlaxoSmithKline Nigeria, May & Baker Nigeria Plc, Mopson Pharmaceutical Industries Ltd, Neimeth International Pharmaceuticals and PZ Cussons Plc) exporting their products to various ECOWAS countries.

Although Nigeria has a large human capital (approximately 190 million people) and vast natural resources, the country is still fraught with poverty, diseases and malnutrition (World Health Organisation, 2013). The World Health Organisation (WHO) rated Nigeria’s health sector 187th out of 191 members (WHO, 2000). The poor rating of the sector is due to a lack of standard equipment for production and storage of pharmaceuticals. As such, only a few of the pharmaceutical firms in Nigeria have the capacity to participate in the supply of anti-malaria, anti-TB medicines, anti-retroviral and other pharmaceuticals in international tenders (Lead Capital Ltd, 2008).

Efficiency in the pharmaceutical sector can be measured using: (i) allocative efficiency, (ii) X-efficiency, (iii) distributional efficiency and (iv) technical efficiency coefficients. There are abundant empirical studies on efficiency and its determinants in the pharmaceutical sector of developed economies (Praven and Tapan, 2005; Adhikari, 2005; Jiankang, 2014; Chadda, 2006; Gupta, 2007; Chaturvedi and Chataway, 2006), but there exists a dearth of such studies for developing countries like Nigeria.

The growth of the Nigerian Pharmaceutical industry has been featured in few empirical studies, but to the best of our knowledge, a comprehensive work on the efficiency of the industry in a multivariate framework has not been carried out. One of the recent works in this area is that of Wakeel and Ekundayo (2016). Their emphasis however, was on the determinants of the performance of the pharmaceutical industry in Nigeria.

This study aims to fill this gap by analyzing empirically, the efficiency of the Pharmaceutical sector in Nigeria using a non-parametric technique (Data Envelopment Analysis) for a balanced panel of 20 pharmaceutical firms between 2012 and 2016.

The remaining part of the paper is structured as follows; section 2 gives a review of related literature, section 3 provides the methodology; section 4 analyzes the results obtained; and section 5 concludes the study with policy recommendations.


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