VARICHEM, one of Zimbabwe’s enduring pharmaceutical firms, is charting its course through
Zimbabwe’s turbulent economic environment. The Financial Gazette’s Deputy Editor-in-Chief,
Dumisani Ndlela (DN), spoke to the company’s marketing executive, Denis Choguya (DC), to
understand how Varichem has navigated the terrain for the past 30 years.
DN: I think I have to start by asking about Varichem’s health. That’s a tricky conversation but it’s like a “how are you?” question to a friend.
DC: The company has been in existence for just over 30 years. Investment in product development has had a significant contribution to our performance and survival under harsh operating economic conditions. We are a growing company experiencing a marginal revenue growth of about five percent per annum against the many odds stacked against the industry especially manufacturing industry locally. In the pharmaceutical industry, the “health” of an organisation from our view is determined by the ability to meet the standards of the medicines control authorities who licence manufacturers which allows one to remain in the industry, the ability to register new products so that the future is guaranteed with some level of certainty and the building of strong brands to compete in the already congested competitive landscape. Varichem is doing relatively well in all these areas. For example we have been certified as meeting the regulatory requirements of regulatory authorities in Zimbabwe and our export destinations which are inter alia, South Africa, Botswana, Namibia, Zambia, Swaziland and Mozambique. We have also been churning out new products consistently. We have invested in both personnel and state-of-the art equipment to ensure we continue to meet these expectations. The continued operation and growth has been made possible by borrowings from regional financing institutions like the PTA bank and our local bankers availing credit lines. Just like all other companies, we are experiencing delays in foreign payments of our materials, but they get eventually paid and we manage to manufacture. Market and other stakeholders place us as the leading manufacturer at the moment. Above all, as a company built on Christian ethos, we believe that the grace of God is guiding us along these turbulent economic seas.
DN: A number of pharmaceutical firms have struggled to survive in the past decade or so. How has Varichem managed?
DC: Varichem has managed to forge ahead because of its robust strategies. The company has continually sought to grow its export market base and this creates new revenue streams. Also the company has invested in a fully fledged research and development department which is tasked with development and registration of new products. New products have added to fresh revenues and an improvement in capacity utilisation with its attendant benefits. Listening to market expectations has also helped the company to develop products that the market is then willing to accept.
DN: I understand you are part of a group together with Prochem. Is this a local or foreign-owned entity? How has being part of a group helped your business?
DC: Yes, Varichem Pharmaceuticals is part of a group of companies called Varichem Limited. The group comprises Varichem Pharmaceuticals, Prochem which manufacturers bodycare products, Greenwood wholesalers, a medical and pharmaceutical distributor and Greenwood pharmacies. Varichem is a wholly Zimbabwean entity, with 100 percent local shareholding. This group has been doing business in Zimbabwe for the past 30 years and we believe it has contributed substantially to the health delivery system of the country and beyond. The business units in the group are run autonomously but whenever synergies can be found, these business units seek to exploit such synergies.
DN: Recent reports have suggested that it’s not well in the pharmaceutical industry due to foreign currency shortages which have affected the import of raw materials for manufacturers and drugs for retailers and other dispensaries. Has Varichem been affected by these problems?
DC: Foreign currency shortages are not perculiar to the pharmaceutical manufacturers. It is a national problem and manufacturers have not been spared. The delays in processing of payments lead to delays in receiving raw materials and ultimately this affects production schedules and product availability. Given the perceived country risk of Zimbabwe, it is almost impossible to get inputs on credit, most times payments are demanded upfront. We however would like to thank the RBZ and our bankers for doing all they can to ensure that foreign payments for inputs are processed and it is because of their efforts that the company is still surviving against the backdrop of these currency shortages. The 94 percent average stocking level in the past six months is also a good indicator of the efforts being exerted and we hope to improve.
DN: As a manufacturing entity, have you benefitted from the priority list put in place by the central bank for foreign currency allocations? Have you been getting as much foreign currency as you want through this window?
DC: Foreign payments get eventually paid although not as fast as we would want. This is reflected in our fairly satisfactory stocking level of 94 percent in the past six months. We however have been getting allocations as and when the bankers have foreign currency. Foreign currency by its nature is a scarce resource which may not be as ubiquitously available as we may want but we have been receiving allocations allowing us to keep operations afloat.
DN: I understand you also export your products. Where are the products that you mainly produce for the export market?
DC: We produce predominantly for the local market. However, due to our quality standards and product range, we are also able to export into predominantly SADC countries. We have however exported as far afield as West Africa and the Vietnam working with international donor agencies. Currently exports account for 10 percent by revenue of what we produce and the remainder is channelled into local market segments including the National Pharmaceutical company (NatPharm), government hospitals and the private sector.
DN: I understand it has been very difficult for local drugs producers to penetrate the South African market because of the import regime in that country. For example, I hear some drugs have to pass through the airport rather than border posts like Beitbridge. Is that the situation?
DC: It is a requirement of the South African government that pharmaceutical products be flown into RSA via OR Tambo or Cape Town International airports. This no doubt increases the cost of transportation and will ultimately make the products more expensive. The South African market is the biggest in Sub-Saharan Africa at about US$4 billion and expected to grow to $5.1 billion in 2018. So despite the challenges, it makes business sense to find ways to penetrate this market despite the barriers. It is unfortunate that our authorities have failed to level the playing field as all exports from Zimbabwe to RSA have to go by air whilst medicines from RSA can actually come into Zimbabwe via donkey drawn carts if they so wish through Messina and Beitbridge! Our Zimbabwean authorities have not sought to reciprocate the barriers and have therefore enabled South African companies to bring products by road and thereby retaining price competitiveness against local manufacturers. The impact is significant on bulky products.
DN: Some three or four years ago, the Pharmaceuticals Manufacturers’ Association (PMA) produced a document which suggested that imported drugs were exempted from duty and VAT through Statutory Instrument (SI) 220 of 2000. However, raw materials and packaging materials imported by local manufacturing companies attract duties of up to 40 percent and VAT of 15 percent. The high import tariffs on pharmaceutical raw materials and packaging materials, the association alleged, increased the cost of drugs thus making it cheaper to import than to produce locally. Has the position changed and if it has not, how much has it affected you?
DC: Yes, the position has changed. In 2016, the government promulgated Statutory Instrument 134 of 2016 also known as the Customs and Excise (Pharmaceutical Manufacturers)(Rebate)Regulations. Amendment no. 3 lists approximately 85 percent of the imported raw materials as now exempted from paying duties and VAT. This of course helps to level the playing field against imported products.
DN: What has been the major source of drugs imports in Zimbabwe and is the country well-placed to compete with manufacturers from these countries?
DC: The main source countries are India, South Africa and a few from European countries like France, Britain. Yes, we are able to compete especially against RSA where we are already exporting product to. India enjoys economies of scale and export subsidies which we do not have locally but we still compete with drugs from that country. In either case, we still remain competitive. Zimbabwe is a country devoid of market statistics in general. It may therefore be difficult to point to a particular country as the major source of pharmaceutical imports. However it is clear from research conducted by UNIDO that the bulk of pharmaceutical medicines in the country are either donations or imports. Varichem is able to compete with imported medicines. This can be seen by analysing products that we have introduced and we have
offered the most competitive prices, even lower than imported competing brands. We do not just compete well on price only but on quality including packaging. We have introduced brands such as Corilief and Flumed which are cold and flu remedies that have competed well on price against imported brands introduced earlier.
DN: I would suppose the current foreign currency challenges may be a tonic to pharmaceutical manufacturers in that it may now be a problem to import drugs, therefore giving producers a chance to push their products on the local market. Is my assumption correct?
DC: Theoretically it would appear so but practically we are actually seeing products which have been restricted from importation under SI 18 of 2016 coming into the country through some form of authorisation unknown to us despite the products being readily available from local manufacturers. These products include Ibuprofen tablets, paracetamol tablets and penicillins. Foreign currency shortages will also affect manufacturers alike. Some raw materials used in pharmaceutical manufacturing are imported. Therefore foreign currency shortages may not really work in favour of local manufacturers unless manufacturers are specifically prioritised above imported finished medicines.
DN: Thanks. What may you want to say to stakeholders?
DC: Varichem Pharmaceuticals is here for the long haul. We are investing in contemporary technology to allow us to compete both locally and in export markets. We also would like to urge the market to support our brands because by supporting us we are able to play a bigger role in delivering cost effective healthcare to the nation. Our strategy to increase export business within the region is unfortunately not an easily realisable goal due to the fact that medicinal products are regulated and take a long time before they are registered in foreign markets and get acceptance. We also desire support in the following ways: Ministry of Industry through strict implementation of statutory instruments promulgated to help the industry; RBZ and bankers through availing foreign currency for raw material purchase; MCAZ’s continued prioritisation of registration for newly developed products seeking registration; NatPharm through support of local manufacturers; Ministry of Health as the parent ministry, by ensuring that the
policy environment is conducive for continued manufacturing and development of the local manufacturing industry. To the universities in Zimbabwe, we are expecting development of a bio-equivalence studies centre for new products. The pharmaceutical manufacturers association needs support in terms of capacitation by way of lines of credit for re-tooling and improvement of GMP standards. Zimbabwe is a country devoid of market statistics in general. It may therefore be difficult to point to a particular country as the major source of pharmaceutical imports. However it is clear from research conducted by UNIDO that the bulk of pharmaceutical medicines in the country are either
donations or imports. Varichem is able to compete with imported medicines. This can be seen by analysing products that we have introduced and we have offered the most competitive prices, even lower than imported competing brands. We do not just compete well on price only but on quality including packaging. We have introduced brands such as Corilief and Flumed which are cold and flu remedies that have competed well on price against imported brands introduced earlier.
DN: I would suppose the current foreign currency challenges may be a tonic to pharmaceutical manufacturers in that it may now be a problem to import drugs, therefore giving producers a chance to push their products on the local market. Is my assumption correct?
DC: Theoretically it would appear so but practically we are actually seeing products which have been restricted from importation under SI 18 of 2016 coming into the country through some form of authorisation unknown to us despite the products being readily available from local manufacturers. These products include Ibuprofen tablets, paracetamol tablets and penicillins. Foreign currency shortages will also affect manufacturers alike. Some raw materials used in pharmaceutical manufacturing are imported. Therefore foreign currency shortages may not really work in favour of local manufacturers unless manufacturers are specifically prioritised above imported finished medicines.
DN: Thanks. What may you want to say to stakeholders?
DC: Varichem Pharmaceuticals is here for the long haul. We are investing in contemporary technology to allow us to compete both locally and in export markets. We also would like to urge the market to support our brands because by supporting us we are able to play a bigger role in delivering cost effective healthcare to the nation. Our strategy to increase export business within the region is unfortunately not an easily realisable goal due to the fact that medicinal products are regulated and take a long time before they are registered in foreign markets and get acceptance. We also desire support in the following ways: Ministry of Industry through strict implementation of statutory instruments promulgated to help the industry; RBZ and bankers through availing foreign currency for raw material purchase; MCAZ’s continued prioritisation of registration for newly developed products seeking registration; NatPharm through support of local manufacturers; Ministry of Health as the parent ministry, by ensuring that the policy environment is conducive for continued manufacturing and development of the local manufacturing
industry. To the universities in Zimbabwe, we are expecting development of a bio-equivalence studies centre for new products. The pharmaceutical manufacturers association needs support in terms of capacitation by way of lines of credit for re-tooling and improvement of GMP standards.
