Monday, January 10, 2021 / 08:30 PM / OpEd Dr. Awosusi
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The ongoing coronavirus pandemic has shown the urgent need to expand production capacity for medical products in Africa to meet emergency and routine demands. Although the economic impact of the pandemic has led to a smaller fiscal space, there is a compelling case for higher government spending on health to achieve health for all. In recognition of these needs, one of the four strategic objectives of Nigeria's newly launched National Development Plan (2021 - 2025) is to develop a well-educated and healthy population. Other objectives are structural and governance reforms with infrastructure investments to create a diversified, resilient and inclusive economy.
The Nigerian government views the growth of agriculture, resource, manufacturing and service sectors as crucial for socioeconomic development. The Presidential mantra is to "produce what we consume, and consume what we produce." With a gradual increase in the contribution of the industrial sector to the Gross Domestic Product, the government promotes special economic zones (SEZs) as vital instruments for accelerating industrialization. A special economic zone is a delineated geographical area with centralized management and shared infrastructure. A zone usually provides import-duty waivers alongside tax, credit and regulatory incentives to firms within an integrated ecosystem.
Special economic zones attract foreign direct investment, spur learning and innovation, and create jobs. They also strengthen export capabilities of participating foreign businesses and domestic enterprises. A zone is not synonymous with an industrial cluster which is a concentration of inter-related institutions in an area but evidence suggests that a successful zone can evolve into an industrial cluster.
Creating Medical Special Economic Zones
According to the Nigerian Export Processing Zones Authority (NEPZA), there are 42 registered SEZs spread across the country. About half of all existing zones are functional; most of the active sites are in Lagos. In addition, the Federal Government approved four international airports (Abuja, Kano, Lagos and Port Harcourt) in June 2021 as SEZs. Some of the prevalent challenges of these zones are inadequate infrastructure, limited financing to ease operational constraints and poor alignment of interests between zone firms and government agencies. However, there are attempts by the NEPZA with its allied ministry to work with public and private agencies to improve the performance of existing zones.
Besides, the government intends to develop specialized zones focused on health service delivery, pharmaceutical production and ancillary services. There is an ongoing engagement with stakeholders at national and subnational levels to explore the feasibility and readiness of key actors for the medical special economic zones (MSEZ). It is envisioned that a unique partnership of federal and state governments with private sector players can help create viable health zones to reverse outbound medical tourism and increase domestic production of health products including generic medicines. The initiative can address some of the risks of investing in Nigeria's pharma market. This move also potentially aligns with the continental plan to produce more than half of all vaccines consumed on the continent by 2040 through the African Union/Africa CDC-led Partnerships for African Vaccine Manufacturing.
Relevant Country Examples
Evidence suggests that one of the major factors responsible for China's widely recognized economic miracle is the development of SEZs and industrial clusters in carefully selected locations to drive innovation, technology transfer, new management models and investments. With context-specific governance reforms, long-term economic planning, gradual openness and strategic partnerships as well as pragmatic execution, the country has lifted hundreds of millions of its citizens out of poverty and emerged as a major player in global trade and international development. Its shrewd use of SEZs in the last four decades including the development of biotech clusters has transformed its pharmaceutical industry which currently has deals for COVID-19 vaccine technology transfer with companies mainly in North Africa.
While the biggest pharmaceutical companies in the world are mainly American and European, China and India are the leading producers of active pharmaceutical ingredients (APIs) used across the globe. As a manufacturing powerhouse with a vision to become the leading healthcare market in the world by 2030, China is the global leader in the production of APIs. On the other hand, India is generally regarded as the "Pharmacy of the Developing World": It is the largest producer of generic drugs and hosts the largest vaccine manufacturer in the world (by volume). Each of these global leaders used innovation hubs and clusters to build biopharma capabilities: Boston (US), London (UK), Biotech Munich (Germany), Shanghai (China) and Hyderabad (India) are notable examples. Besides, SEZ Technopolis Moscow played a key role in the development of Russia's COVID vaccine.
Efficient Production at Scale
Nigeria has a large healthcare market with new public support for pharmaceutical research. Development of efficient production sites (alongside other building blocks) signals readiness to harness biopharma opportunities for an integrated continental market: For example, the Bill and Melinda Gates Foundation recently provided grants to a medical product manufacturer which operates in an Export Processing Zone in Kenya. Thus, a plausible path for policy makers is to build entirely new heath economic zone or restructure an inactive zone for the MSEZ in line with relevant legal and regulatory standards. It is also possible to stimulate health portfolio in active zones: A recent fDI Intelligence report shows that the globally recognized Lagos Free Zone is considering opportunities in the healthcare market. Besides, a fully operational Dangote Petrochemicals Complex, located within the Lekki Free Trade Zone, can be a new source of useful inputs for the pharmaceutical industry.
Although technology transfer can take place outside SEZs, it is crucial to explore specialized health zones to develop competitive local manufacturers working with willing global players from the United States, Europe and Asia. The competitive advantage of Chinese and Indian manufacturers is the capacity for efficient production of large volume of pharmaceuticals and vaccines for large domestic and global markets. With import duty waivers for raw materials and equipment, domestic producers in Nigeria can combine research subsidies, new manufacturing technologies and optimal zone infrastructure to achieve competitive production cost. Other useful incentives are tax credits and guaranteed long-term access to public and international procurement systems.
The Long Journey Ahead
The long journey to enhancing production capacity in Nigeria and other parts of Africa requires consistent investments in workforce development, regulatory harmonization, business environment reforms and access to finance. In view of ongoing negotiations on continental market integration, there is a need for clarification on how the rules of origin for a regional economic community (e.g. ECOWAS) and the African continental free trade area will affect the development and operations of SEZs. It is unclear how the economic impact of the pandemic will affect the scope and sustainability of public investments in SEZs in Nigeria. There is also a need to explore how flexibilities in the global intellectual property system can enhance local production of health products.
Despite the risks associated with political transitions in Nigeria, it is expected that bureaucratic continuity and private sector leadership can steer health access initiatives like the MSEZ forward with minimal interruption. And as the global pandemic response focuses on widespread COVID-19 vaccination (alongside other vital public health tools) and pandemic preparedness with distributed manufacturing sites, Nigeria has a unique opportunity to leverage innovation hubs, industrial parks, SEZs and other relevant instruments to expand production capacity to meet the needs of the populace.
Dr. Biodun Awosusi is Director of the Capacity Investment Lab and Health Economist at Health Systems and Development Enterprise. He is Chair of the African Alliance for Health Technology Access and market intelligence contributor on Proshare, BusinessDay, CNBC Africa and NextBillion. He is a member of the Harvard Business Review Advisory Council and MIT Technology Review Global Panel.
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