Life Sciences Blog

The politics of oil wreak havoc on access to medicines




Recent months have seen drug shortages around the world grow worse, particularly in countries in Africa and South America whose economies are reliant on oil exports or depend on oil aid.  Below, I highlight a few of the most prominent examples based on our ongoing analyst coverage of events around the Globe that impact access to medicines.  
 
Venezuela suffers worst shortages
 
Venezuela has been among the worst affected countries. Its economy has long been reliant on revenue from oil exports and ability to pay for basic public services and drug imports has hinged on oil-related income. While the current price of oil is not anywhere near as low as it was 18 months ago, the impact on Venezuela's economy has been devastating and at least so far irreversible. Political uncertainty has further exacerbated the situation, as a March 2017 appropriation of legislative powers by the Supreme Court brought the country closer to one-man rule under President Nicolas Maduro. Drug shortages in the country have become so severe that President Maduro has now reached out to the United Nations to ask for help in plugging the gaps in essential supplies. 
 
While the government is attempting to introduce measures to control the distribution of medicines, Venezuelan pharmacists' association Fefarven indicated the main issue is production. With "less than half" the foreign currency that was available in 2016 available in 2017, companies are struggling to maintain production while also being unable to schedule import of active ingredients or raw materials.  According to Fefarven, medicine shortage levels reached 85% as of January 2017. 
 
Algeria exacerbates shortages with import quotas
 
Algeria - another major oil exporter and member of OPEC - has also suffered the adverse effects of declining oil prices. There has been talk of drug shortages in the country for a while - generally denied by the government. However, in April, doctors and pharmacists raised the alarm stating that drug shortages were evident across several different therapeutic areas, such as cardiology and blood pressure regulation, among others. Among the drugs affected by shortages are carbimazole used for treating overactive thyroid (hyperthyroidism), the high-blood-pressure treatment Avlocardyl (propranolol), and Permixon (lipidosterolic extract of Serenoa repens) used for treating benign prostatic hyperplasia (BPH). 
 
In the case of Algeria, the drug shortages were triggered by a decree issued in March by the Algerian Ministry of Commerce forcing all importers to obtain pre-ordered licences before being able to bring products into the country. The decree was issued after the Algerian government decided to extend its tight control on import licensing to all categories of goods, including essential products such as pharmaceuticals and food commodities.  The import licenses for medicines, released by the Algerian Health Ministry at around the same time the decree was issued, are equivalent to USD1.6 billion, or about 70% of the previous import quotas for medicines. 
 
Egyptian currency depreciation as a contributing factor
 
Egypt has similarly been affected by the oil price decline, although its production output improved after a significant drop in July 2016. In addition, political uncertainty in the country has increased as Saudi Arabia suspended its oil aid to Egypt last year, resulting in a government decision to allow free float of the exchange rate. This move led to a severe depreciation of the Egyptian pound (EGP). Since the government controls medicines prices, the drug shortages in Egypt's case have been triggered by companies' inability to continue selling medicines at the approved price in EGP when the cost of importing raw materials and finished pharmaceuticals from abroad has skyrocketed. As of April, 1,386 medicinal products were affected by shortages in Egypt.
 
Industry sustainability under threat
 
While these countries are by no means the only ones impacted by the current slew of drug shortages, their plight is certainly indicative of the combination of factors behind the current shortages: high dependence of the economy on oil exports, political instability, lack of a viable domestic pharmaceutical manufacturing capacity, and strong government intervention in the pharmaceutical market.  The first two factors undermine a country's ability to pay for medicines and the attractiveness of its market to pharmaceutical importers, while the third makes it dependent on imports. 
 
Understanding this unfortunate combination of factors should encourage governments to seek creative solutions to keep their market attractive to pharmaceutical producers even if their current ability to pay remains limited. Introducing strict controls on drug prices - while popular domestically in the short term - has the unintended consequence of tipping their market's attractiveness to foreign manufacturer to a point so low that imports begin to dry up. For domestic producers - heavily reliant on imported active ingredients - the result is a slow march to bankruptcy. While devising solutions in the short term may be difficult, the respective governments need to consider approaches that safeguard the long-term sustainability of their domestic pharmaceutical production, while also creating incentives for foreign producers to continue importing originator life-saving drugs without generic alternatives.

Milena Izmirlieva is head of the life sciences research team at IHS Markit. 
Posted 31 June 2017

About The Author

Milena Izmirlieva is head of the Life Sciences research team at IHS Markit. Her areas of expertise include market access, pricing and reimbursement, HTA, generics and biosimilars, corporate strategies, and pharma promotion and advertising.