Pakistan needs a road map and a clear API policy

Pakistan’s pharma industry has been steadily growing over the past few decades. It demonstrates huge potential, especially in the API sector, but this needs a clear road map in the form of a comprehensive API policy and China’s help and understanding. And this is why the Pakistani delegation with the PM Imran Khan kept it on the agenda during ministerial talks in Beijing.


Khalid Mansoor, State Minister and SAPM for CPEC, in his discussion with Global Village Space before leaving for China for CPEC related ministerial talks, informed the public that the Pakistani side also seeks Chinese cooperation in pharmaceuticals. Mainly, this cooperation is being sought to manufacture Active Pharmaceutical Products (API) in Pakistan.

Branded medicines – whether produced by multinationals like GSK or local pharma manufacturers like Getz Pharma sold at the retail chemist shops and hospitals are all made from these active pharmaceutical products (API). API sector thus provides the foundation to the whole pharmaceutical industry.

Currently, Pakistan’s pharmaceutical (finished medicine) market size is about Rs. 550 billion growing at around 10 percent p.a. Almost 90 percent of medicines are produced locally by around 600 manufacturing units duly licensed by the Drug Regulatory Authority of Pakistan (DRAP), while approximately 10 percent are imported in finished form.

Pakistan’s pharmaceutical exports are around US$ 200 million p.a. However, even the locally produced medicines, as hinted above, essentially depend upon imported APIs; in value terms, only 12 percent of API are being produced in Pakistan. The rest of the APIs are being imported from China and India.

Read more: Pakistan’s Pharma: An Industry Set to Rise

Over the past three decades, the API industry in Pakistan has steadily grown. Starting with a handful of APIs being produced in the early 1990’s, to today over 30 APIs are being manufactured mostly by about six-seven local API producers. The quality of these local APIs meets international standards, and are being supplied to multinationals and large and small pharma companies inside Pakistan.

For instance, Amoxicillin is being provided to GlaxoSmithKline (GSK) for Augmentin and Amoxil; Ampicillin and Cloxacillin are being provided for Ampiclox and Cephradine in Velosef. Paracetamol is being provided to multinationals like GSK and local manufacturers like Getz Pharma for Panadol; similarly, Cefixim in Cefspan and Ceprofloxacin in Novidat are being obtained from local API producers.

But this local API market is small, and in value terms, around 88 percent of API are still being imported. On the other hand, in India, 70 percent of APIs are locally produced, and US$ 3.5 billion worth of APIs are exported per annum.

Economic Benefits of local API manufacture

Industry sources argue that If 70 percent of APIs required in Pakistan are locally produced, gradually import substitution to the tune of US$ 500 million p.a. can be realised. But this is not merely a statistics game; promoting a local API industry would enhance industrialization, technical and general employment, sophisticated skill development, value addition, better management, and related economic activity in the country.

A robust API manufacturing base would ensure self-reliance in the pharmaceutical and health sectors, which is very much a need of the hour, and it can help in price stabilization – as reliance on imported APIs reduces. It now becomes more significant due to recent supply chain disruptions due to Covid and an unfriendly regional environment.

Read more: Contract Manufacturing Policy for Pharmaceuticals gets Government approval

As API manufacturing technologies and local capacities are enhanced, APIs can be exported in large amounts to both regulated and non-regulated markets. India’s exports of APIs are around US$ 3.5 billion, and its total pharmaceutical exports are more than $20 billion as compared to a mere US $ 200 million from Pakistan.

Pakistan needs a comprehensive API Policy

Industry sources are confident that with a new policy and support from the federal government in Pakistan, local API manufacturers can target a Pakistani market of around Rs.130 billion annually, to begin with, in terms of import substitution coupled with sizeable export potential – with passage of time these dividends can expand.

But to kick start, this needs a comprehensive Active Pharmaceutical Ingredient (API) Policy that will provide incentives and protections to the local manufacturers, investors, and potential foreign partners that may bring capital and much-needed technological support. To enter into Joint Ventures (JVs), these foreign partners can, in all probability, be Chinese given their proximity, their edge in pharmaceutical production, and the potential of CPEC phase-II.

Apparently, a new API Policy was prepared by the Drug Regulatory Authority of Pakistan (DRAP) with input from all relevant stakeholders, but this policy is in the process of getting cabinet approval for the past several months. Delay is frustrating and is harming the industry’s future in a fast-paced globalized world where markets evolve by the hour. A broader public debate can help push this forward.

API Policy has to provide a “Level Playing Field”

For Pakistan’s API sector to grow and realise its due potential as outlined above, it is vital to neutralise the competitive advantage that Chinese and Indian producers enjoy over Pakistan in terms of Ease and Cost of Doing Business.

Chinese and Indian API manufacturers have significant economic and business advantages over Pakistani counterparts in terms of huge plants and economies of scale lowering their production costs; access to locally produced basic chemicals giving them cost advantage; years of technological development in process fine-tuning; huge local markets where overheads can be parked- with exports at low margins. And finally, to top this all, they enjoy Export rebates as part of the policy. An infographic accompanying this article provides an overview.

Read more: Pharma Export Summit and Awards: Chairman Tauqeer Ul Haq’s Address

Pakistani API policy, therefore, has to conceive and implement calculated tariff protections and other incentives to provide a level playing field to the local API industry. Given Pakistan-China FTA-II, this will also involve careful, in-depth negotiations between Pakistan’s Ministry of Commerce and its Chinese counterpart to develop a win/win vision; this is helped by the fact that most JVs of local API producers can take place with Chinese firms so both sides will benefit. And while Pakistan has massive API imports from China, these constitute only a tiny fraction of China’s worldwide market. Chinese exports are meeting almost 80 percent of global API needs.

The local industry believes that the new API Policy should levy 20 percent Additional Custom duty (ACD) on semi basic and 30 percent on basic manufactured APIs as and when local production starts satisfactorily. Only those APIs should be importable from India, which are not locally produced.

The Drug Regulatory Authority of Pakistan (DRAP) should strictly enforce this provision by not giving import clearance permission to such APIs from India as they are locally manufactured. Customs duty on all raw materials inputs for manufacturing APIs to be at the lowest slab available, i.e., 0 percent at present.

Regarding APIs being locally produced, the Government medicine tenders should give preference to sourcing such local APIs for producing the medicines to be supplied to the Government. Duty/Sales Tax-free import of Plant and Machinery for manufacturing APIs should be allowed.

The National Tariff Commission of Pakistan should allow anti-dumping duties on a fast-track basis whenever international exporters employ dumping practices by lowering their API prices and enhancing the rates of intermediates required for producing such APIs locally. Since both regional exporters impose strict non-Tariff barriers (arduous registration processes, etc.) on the import of APIs, Pakistan will have to do the same about such APIs as are locally produced. This can be done through DRAP field offices, which give Clearance Certificates for API imports.

Read more: Pakistan’s first ever Pharma export Awards being held on September 29

Currently, turnover tax on API manufacturers is at 1.25 percent p.a. As API operating margins are slim, this should be reduced to 0.5 percent p.a. But tariff barriers, punitive duties, and tax incentives are only part of the solution. The government also needs to develop a series of SOPs to promote ease of doing business, increase competitiveness and encourage exports – a table accompanying this article provides an overview of industry recommendations in this regard.

Way forward for Pakistan’s API Industry

API industry is the backbone of Pakistan’s health care system – given its fast-growing population (Estimated: 350 million by 2030). Currently, it is in its infancy in Pakistan (Pakistan has 10 API units, India around 1500 API units, and China about 7000 API units)

But the local API industry has shown that it can achieve huge growth whereby not only 70 percebt to 80 percent of Pakistan’s API demand is locally met, but huge quantities can be exported as India is doing. Furthermore, the API sector can attract substantial local and foreign investment.

Read more: Win-Win solution with China on CPEC: SAPM Khalid Mansoor

For this to happen, the Government needs a clear vision for the future; it needs to adopt the new API policy at the earliest and ensure its proper implementation internally through DRAB and through careful negotiations with external stakeholders like China to develop a win/win equation. One hopes that follow-up of the ministerial discussions in Beijing will set a road map for this.

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