South Africa’s pharmaceutical manufacturing industry is “in crisis” because of the health department’s procurement policy, which makes nonsense of the government’s commitment to localisation. That’s according to Stavros Nicolaou, who chairs industry body Pharmaceuticals Made in South Africa.
“Their procurement policy doesn’t make sense and undermines the very policy that the cabinet are pushing, which is localisation,” he says.
As he tells it, the department is procuring from entities pretending to be local manufacturers but are often fronts, while genuine manufacturers are being squeezed out, costing thousands of jobs.
“We are seeing significant job losses in the suspension of manufacture or closure of CMOs, small contract manufacturing organisations.”
Nine CMOs have had to shut their doors or suspend manufacturing because they can’t afford to comply with stricter regulatory requirements to upgrade their facilities.
The top reasons cited are a loss of domestic volumes and the industry being granted a below-inflation 1.4% price increase for private sector sales when costs have gone up between 15% and 40%, mainly due to the Middle East crisis.
According to an independent study, input costs for antiretrovirals, of which South Africa is the biggest consumer in the world, go up 3% for every 10% increase in the oil price. A price increase of about 40% means there’s a 12% knock-on effect before you get to logistics and other costs, he says.
“So why the pricing committee of the department is sticking to 1.4% is inexplicable to us. They’re being intransigent on this but it’s costing jobs, it’s costing facilities."
Might not hard-pressed consumers cheer the department for capping price increases at 1.4%?
“They’re not going to cheer the department if they can’t get their medicines in the first place,” says Nicolaou. “We have seen as a consequence the country run out of folic acid, which is necessary for pregnant mothers, and oral contraceptives.
“Inflation was 3.3% when the committee made their assessment, and wage settlements in the central bargaining chamber were at 6%. So I don’t think it’s unreasonable for the industry to ask for an inflationary increase so they can keep the doors open and keep supplying medicine. What’s even worse than high prices is if you can’t get the drug at all, and we’re starting to experience drug shortages in the country.”
It’s important to juxtapose the 1.4% against the increase medical schemes took of between 8% and 12% after budgeting an inflationary increase in medicines of 3.3% in 2026, he says.
“So how a health department committee decides on less than half of that is perplexing to say the least. And even more perplexing when they cannot read the global situation, oil prices and costs going up and shortages increasing.”
Pandemic preparedness
Nicolaou says it’s worrying that the department hasn’t learnt from Covid, when South Africa was at the back of the queue for vaccines.
“During and post-Covid, we said we have to strengthen local manufacturing capability and capacity, we shouldn’t be reliant on anybody else in case there’s another pandemic and the world shuts its borders as it did in 2020–2021.
“Localisation is an apex priority for pandemic preparedness, of which our own president is the AU preparedness champion of the continent. The procurement patterns of the health department indicate the exact opposite.”
It’s important to juxtapose the 1.4% against the increase medical schemes took of between 8% and 12% after budgeting an inflationary increase in medicines of 3.3% in 2026, he says.
“So how a health department committee decides on less than half of that is perplexing to say the least. And even more perplexing when they cannot read the global situation, oil prices and costs going up and shortages increasing.”
Pandemic preparedness
Nicolaou says it’s worrying that the department hasn’t learnt from Covid, when South Africa was at the back of the queue for vaccines.
“During and post-Covid, we said we have to strengthen local manufacturing capability and capacity, we shouldn’t be reliant on anybody else in case there’s another pandemic and the world shuts its borders as it did in 2020–2021.
“Localisation is an apex priority for pandemic preparedness, of which our own president is the AU preparedness champion of the continent. The procurement patterns of the health department indicate the exact opposite.”
They can’t dispute that 2,500 jobs have been lost. Or that the country’s only oral contraceptive facility has shut down. Or that we don’t produce penicillin any longer
He cites antiretrovirals by way of example. The biggest product consumed in the country, and the largest product in South Africa’s R15.5bn ARV tender, is a fixed-dose triple combination tablet known as DLT.
“By our assessment, the department is importing 70% of that product. The department claims they are buying 70% domestically. But of the eight companies awarded contracts for this DLT product, six are out-and-out importers. So you can work out that it’s impossible to get to 70% local [manufacture]. So we fundamentally dispute the data of the department.”
After his recent damning presentation to parliament showing that local manufacturers’ share of the HIV/Aids drug tender had fallen in value from 72% in 2008 to 28% in 2025, and of pills and capsules from 58% in 2014 to 18% this year, the department accused him of selective use of procurement data.
“What they can’t dispute is the 2,500 jobs that have been lost. They can’t dispute that the only oral contraceptive facility in the country has shut down. Or that we don’t produce penicillin any longer in the country. That’s a bread-and-butter product. And I’d like them to dispute that nine CMOs have either suspended manufacture or shut down. And I’d like them to disclose all the batch records of how 70% of these DLT products were produced in the country. The job losses don’t support their 70%.”
A need for transparency
Nicolaou, who is also Aspen Pharmacare’s group senior executive for strategic trade, told parliament’s portfolio committee on trade, industry & competition there is a disconnect between the government’s industrialisation ambitions and the procurement decisions of the department of health, which are undermining South Africa’s pharmaceutical manufacturing industry by prioritising cheaper imports over locally produced medicines.
The department says it has to balance industrial development with the constitutional obligation to maximise access to affordable medicines.
“So why is it that with the same DLT product, the biggest product in the country, there’s been an award to importers who are more expensive than local producers?” asks Nicolaou. “Why were Cipla, Adcock Ingram and Sun Pharma, all local producers, shut out of the tender, when Cipla contends they were as competitive?”
The health department needs to answer that, he says, because the bottom line for the industry is that there is no transparency about how these tenders work.
“There are products that are produced locally that are cheaper than those that have been awarded to importers. How does that work? That’s not balancing industrial policy with access to cheaper medicines.
“They need to be clear and transparent in their procurement policies, which they’re not being at the moment. That is why two firms have approached the Gauteng high court for clarity on this, because they’ve lost contracts.
“Until and unless you can clarify how you arrive at these decisions, it’s going to continue undermining localisation, which is an apex priority of the seventh administration.”
Losing competitiveness
President Cyril Ramaphosa has convened the departments of trade, industry & competition; health; science, technology & innovation; and the National Treasury, to compile a localisation roadmap for the country.
Meanwhile, says Nicolaou, the health department has awarded at least five contracts, including for ARVs, tablets/capsules, vaccines and oncology.
“So five tenders, each of which only adds to the problem. It will be great for us to have a roadmap and clarity, but [in the] meantime, tenders get awarded and there are more job losses and closures. We need to sort this out once and for all, whether [through] a roadmap or some other intervention.
“Egypt, Morocco, Kenya and others are not going to sit back and wait for our roadmap. We need to move with urgency. We need to be leveraging domestic volumes for regional, continental and global competitiveness. If we’re importing most of our ARVs and so on, we’re not going to be globally competitive.
“While we sit and debate the issue of local preference and roadmaps, Africa is moving forward. We’re not keeping pace with the continent even though we’ve got the most industrialised pharmaceutical sector on the continent.”
If the country wants to attract badly needed investment in the sector, it needs to be clear about what constitutes local manufacturing, he says.
“Local manufacturing is when you import the ingredients and fully convert the product in South Africa. Simply slapping a label on what you import doesn’t mean you’re producing locally. A lot of what’s going on here under the guise of local production is de facto fronting.
“If you look at how much South Africa imports of the finished product, not the active ingredients, it doesn’t correlate with the 70% the [health department] is talking about. Which tells me people are telling the department they’re producing locally, but they’re importing.”
The department accuses him of sensationalism when he says the local industry is in crisis.
But, he says: “If you lose 2,500 jobs, shut down oral contraceptives and suspend manufacturing operations at nine facilities then, given the size of the industry, I would think that’s a crisis. Otherwise what constitutes a crisis? Two thousand five hundred jobs is approaching 20% of the pharmaceutical manufacturing workforce in the country.”
