By Uditha Jayasinghe
The Rs. 40 billion pharmaceutical industry’s prognosis is that foreign investors will stay away from an investment zone if proposed price controls are imposed by the Government, an official said yesterday.
Sri Lanka Chamber of Pharmaceutical Industry (SLCPI) Chairman V. Govindasamy told Daily FT that priced control mechanisms to be imposed by the Government next month would drive away foreign investors from an investment zone designed to encourage local production and bring down costs.
Cabinet approval was given in October to establish an industrial zone in Sri Lanka exclusively for investment from pharmaceutical companies so that the Government can save money by purchasing drugs locally.
The Industry and Commerce Ministry has already allocated 48 acres of land in Kurunegala for the project and is engaged in getting the project up and running as soon as possible. Government reports have indicated that there are already 10 companies interested in setting up shop in the investment zone, but no details have been released to the media as yet.
“Once price controls are imposed, foreign and local companies will be reluctant to invest as they will not have the freedom to earn profits,” he said, adding that provisions provided for in Budget 2012 to promote investment would be wasted.
Pharmaceutical manufacturers have already raised this point with Health Minister Maithripala Sirisena as well as pointing out that the drug prices in Sri Lanka are the lowest in the region. However, indications are that the Government plans to implement drug control policies in January.
“We have shown that within the last 10 years drug prices have either stayed the same or reduced due to intense competition. This is the right way; the market decides the price and quality is assured. If price control is imposed, we could lose some companies, reducing competition and causing prices to escalate.”
However, if price controls are introduced, Govindasamy stated that the industry would follow them. Currently the SLCPI has about 60 members that account for 90% of pharmaceutical trade in Sri Lanka.
The Government is the largest consumer of drugs in Sri Lanka due to a State sponsored health policy that ensures largely free healthcare for the people.
In 2010, the estimated size of the local pharmaceutical market was Rs. 40 billion (US$ 350 million) but local contribution was only about 10 per cent, leaving huge potential for investment. Government consumption alone was Rs. 15 billion (about US$ 133 million).
The annual growth of the local pharmaceutical industry is expected to be around 15 per cent for the next four years.