Minister of Health Joe Phaahla recently agreed to a second price increase for private sector medicine sales this year after intense lobbying by South Africa’s industry association for pharmaceutical manufacturers.
He agreed to an increase of up to 1.73% after the worryingly low 3.28% increase, which took effect in January. Although this marginal increase should offer pharmaceutical manufacturers some relief from increasing input costs, it is still unable to offset inflation, which averaged 6% in the first half of this year.
These developments form part of a far larger debate that deserves our critical attention if we want to ensure medicine supply security in our country over the long term. For those who may be unaware, the Department of Health regulates medicine prices in the private sector and will usually permit one upward adjustment to the single exit price (SEP) a year. Phaahla has the authority to make additional increases throughout the course of the year, but rarely does so.
This is cause for concern, as the operating environment will only dis-incentivise pharmaceutical manufacturers from expanding – and improving – their operational capacity and outputs in our country today.
Increasing input costs have increased the cost of local manufacturing to unprecedented levels. Labour unions have increased wages above inflation against substantial increases to the price of electricity.
These factors, combined with numerous increases in shipping and transport fees, the global container crisis, and the recent truck driver protests, are contributing significantly to the conditions affecting the development of the pharmaceutical manufacturing industry in South Africa.
If the sector continues to experience a shrinking profit margin, manufacturers in our country simply won’t be able to produce medicine sustainably anymore.
Phaahla should consider the adverse effect this will have on South Africa’s medicine supply and security. If the SEP goes up below our CPI, manufacturers will continue to eat into their profit margins.
You simply cannot hope to grow a sector using a business model that expects the industry to mitigate against these conditions into perpetuity 20 to 30 years down the line. Instead, the SEP should be increased consistently against market dynamics, even if only once a year.
* Avacare Health, Cape Town Group Executive and Business Strategist Michael Mynhardt.
** The views expressed here are not necessarily those of Independent Media.
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