GSK, Sanofi Exit Nigerian Market Amid Lingering Foreign Exchange Crisis

Nigerian market

Pictured: Collage of biopharma production and Nigeria/Nicole Bean for BioSpace

Late last year, Sanofi shuttered its distribution operations in Nigeria. Instead, the company will transition to a third-party model, with a local company supplying and marketing its medicines and vaccines in the African country. Three months earlier, GlaxoSmithKline also made its exit from Nigeria.

While the companies maintain that the change will not affect the availability of medicines, some doctors think it could, in fact, lead to drug shortages that might endanger Nigerians’ health.

Experts blame the departures on the country’s economic crisis, especially the continuous decline in the value of its currency, the naira. The Central Bank of Nigeria eliminated the fixed price for foreign exchange trading in the country last June, a strategy to close the gap between the demand and supply of foreign currencies like the U.S. dollar. The move, however, seems to have created more problems for multinational companies operating in the country, said Muda Yusuf, CEO of the Centre for the Promotion of Public Enterprise, an NGO that advocates for a favorable environment for private enterprises in Nigeria.

“The dollar value of their earnings has contracted considerably,” he told BioSpace.

Revenues Contend with Fluctuating Conversion Rates

In the second quarter of 2022, GSK’s Nigerian arm generated a revenue of ₦7.4 million, exchanging at around ₦420 per U.S. dollar for a total of US$17,619. In the second quarter of 2023, the company’s revenue declined to ₦3.7 million while the exchange rate almost doubled to ₦727 per dollar, a U.S. total of about $5,000. Yusuf said this is a big problem for companies headquartered abroad.

“They [GSK] have not been growing [in Nigeria]; they have been declining,” Olumide Ashade, a financial analyst at TLcom Capital, told BioSpace. He added that it was quite reasonable for GSK and Sanofi to pull the plug on the Nigerian market because there is no end in sight for their losses.

A GSK spokesperson told BioSpace in an email that the exchange rate was indeed a factor in the recent decision to move to a third-party distribution model, noting that “in recent years [it has] impacted our local operations and affected our ability to maintain a consistent supply of medicines and vaccines in the market.” The spokesperson stated that the shift in the operating model will not affect the availability of medicines to Nigerians and should ideally “enable more sustainable future supply.”

GSK appointed World Wide Commercial Ventures Limited to distribute its products in Nigeria, while Sanofi is handing off the distribution chain in the country to CFAO Healthcare.

In an emailed statement, a Sanofi representative told BioSpace that partnering with CFAO will ensure that medicines and vaccines continue to reach patients in a sustainable way and that the new business model “does not foresee any change for the physicians or patients in any way in accessing our drugs and vaccines.”

But a trio of healthcare practitioners wrote to The Lancet that the exits could lead to drug shortages, which they said the government should address by boosting domestic pharmaceutical manufacturing and issuing incentives to promote local production.

The Future of Nigerian Drug Supply Chains

Although the foreign exchange crisis was primarily responsible for the companies’ exit, other factors such as energy and manufacturing costs also played a part, Yusuf told BioSpace. “The prevailing economic condition was too difficult for them to operate.”

Tunji Alausa, the minister of state for health and social welfare, faulted the non-implementation of Nigerian laws for the companies’ exit, according to local media reports from the World Cancer Day Symposium. The National Agency for Food & Drug Administration and Control’s (NAFDAC) 5 + 5 policy mandates that foreign pharmaceutical companies either partner with local manufacturers or start manufacturing their products in the country after marketing imported products for ten years. While GSK does manufacture some of its medicines in Nigeria, Sanofi was still marketing imported products.

“They didn’t domesticate their products, and they continued to market for decades,” Alausa told local reporters.

Ashade cited the healthcare system as a contributing factor to the poor growth recorded by the companies. “In Nigeria, our healthcare system is not yet advanced,” he told BioSpace. “What that means is that most people pay out of pocket for health-related expenses.” He explained that an average Nigerian household spends more than 60% of its income on food alone, leaving just 40% as disposable income, and only a small portion of this is spent on healthcare. Hence, it is difficult for pharmaceutical companies to generate substantial revenue from sales in the country.

In such an economy, “importing and selling directly and not managing all the other bottlenecks in between is a much smarter business model” than manufacturing in the country, Ashade said.

To attract more investment into Nigeria, Ashade recommended the government create a system where foreign investors have a reasonable assurance that they will get a return. This starts with stabilizing the exchange rate, reducing inflation (currently at 29.9%) and making the economy grow faster, he said. “If you have a growing human population, the economy has to grow significantly faster to have a significant impact on the average person.” Nigeria’s population went from 94 million to 216 million in three decades, and it’s expected to rise to 375 million by 2050.

Yusuf told BioSpace that the Central Bank of Nigeria is taking steps to liquidate foreign exchange and make the market more transparent. He encouraged investors “to be more patient with the government and wait for the outcome,” adding that the result of these actions should start materializing by the middle of 2024.

Patience Asanga is a Nigeria-based freelance science journalist who writes about the environment, biotechnology and life sciences.

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