African economies must reflect our problems, says Ugandan pharma firm CEO

Emmanuel Katongole is the founder and CEO of Quality Chemical Industries Limited (QCIL), an Ugandan-based pharmaceutical company, which manufactures and sells combination therapy antiretroviral and antimalarial drugs. QCIL recently received the World Health Organisation’s Good Manufacturing Practices certification, being the first sub-Saharan Africa company outside South Africa to receive this.

Emmanuel Katongole

Katongole, who is no stranger to prestigious awards in business, is the recent winner of the 2012 Africa Awards for Entrepreneurship in the transformational business category. How we made it in Africa talks to Katongole about the pharmaceutical industry in Africa.

What inspired you to start Quality Chemicals?

The promoters of QCIL were inspired to start the company as a direct response to the Government of Uganda’s liberalisation and privatisation policies of the Ugandan economy. This saw government divesting from the direct provision of goods and services and calling upon the private sector to come in and fill the gap.

Tell us about your decision to move from importing generic drugs to manufacturing them locally

First and foremost we believed that Africa needed to solve those problems that predominantly and disproportionately afflict it by using local solutions. For example, Africa is home to 63% of all HIV/AIDS sufferers and to 80% of all malaria sufferers and yet only less than 2% of the remedies are locally manufactured. So, Africa produces the diseases and others benefit by producing the medicine for us. If Africa is going to get out of backwardness and poverty, our economies must reflect our problems. Our factory will help to bridge this huge margin of exclusion that Africa suffers from in pharmaceutical manufacturing.

The real opportunity to help QCIL to secure the crucial technology transfer came in the way of the World Trade Organisation’s (WTO) Trade Related Aspects of Intellectual Property Rights (TRIPS) law. Africa’s access to affordable medicines is under threat after India and China, the major sources of the affordable generic medicines for Africa, ratified the TRIPS law and will therefore cease to be a reliable source for the newer but still patented molecules of these life saving remedies. Concerned about the adverse consequences of TRIPS on access to essential medicines by the world’s poor, the international community put flexibilities within the TRIPS law that allowed Least Developed Countries (LDCs) to locally manufacture patented medicines if they could secure the necessary technology and know-how transfer.

QCIL was the first company in the whole world to take full advantage of the flexibilities within the WTO-TRIPS law and set up a state of the art WHO/GMP compliant pharmaceutical manufacturing plant in Africa with the view of trying to mitigate the effects of TRIPS in access to affordable medicines by the poor.

What are some of the key challenges for pharmaceutical businesses in Africa?

Behind on the experience curve: High tech manufacturing is very new to Africa. So, while our staff are well educated, they still lack the requisite experience to be able to match the proficiency of their counterparts in India and China.

Poor infrastructure: Infrastructure, especially power and roads, are still inadequate and a source of competitive disadvantage.

Economies of scale: Indian and Chinese manufacturers enjoy huge economies of scale because they have a huge local captive market of over a billion people each and have the whole world as their market place. QCIL to date has three customers – the Government of Uganda, the Government of Kenya and The Global Fund.

Dumping from overseas: There is a practice of certain countries in the world to subsidise their exports in a bid to buy markets or export their unemployment. Indian and Chinese companies are effectively subsidised by their governments by up to 40%. This means that such products are artificially cheap by world market standards, which are tantamount to dumping. Further, some powerful multinationals mainly from the West often dump their excess capacity into Africa disguised as corporate social responsibility (CSR). They also manipulate prices by cross-subsidising sales to Africa at low margins with more profitable sales in the West at high margins.

What is the number one reason for your company’s success?

The number one reason for our success is our partnerships with Cipla Ltd of India. This has given us access to their superior and first class technology and know-how, it has given us access to their diverse product range, the biggest in the world, and has given us access to a unique combination of producing first world quality products at third world prices. This is our greatest source of competitive advantage.

Drawing from your experience, what should African businesses be aware of before partnering with a foreign company?

It depends on the motivation of forming this partnership. In our case, we partnered with Cipla long before we entered a joint venture to put up the pharmaceutical manufacturing plant. We were Cipla’s local technical and commercial partner in Uganda, working together to avail quality, efficacious and affordable medicines to the Ugandan population. So, the motivation was that Cipla had first world quality products at third world prices that could be afforded by our people. When it came to setting up the manufacturing plant, again Cipla had the requisite technology and know-how.

As for the partnering with the two equity partners, Capital Works of South Africa and TLG Capital of UK, the motivation was not money alone but most importantly what value they were going to add to the company. We have seen these partnerships help us to improve our operational excellence, improve our governance and help us to become a faster, better and leaner outfit all of which have positively impacted our profitability. They are greatly contributing to taking our company from the current level of development to the next.

Therefore before you partner, the major consideration must be what value addition you expect, have clear roles for all the partners and draw up a shareholder’s agreement to guide implementation and define roles and responsibilities.