The recent repeal of a 55pc foreign currency allowance for raw material imports has disrupted the pharmaceutical sector, leading to operational issues and heightened uncertainty. The move aligns with the government’s ongoing macroeconomic reforms and foreign exchange market liberalisation but has sparked an immediate backlash from industry leaders who cite forex shortages and an uneven playing field in the supply chain.

Last week, the Ethiopian Pharmaceutical Supply Service (EPSS) issued a new tender requiring local manufacturers to quote prices in Birr, while foreign suppliers may continue quoting in convertible currencies. Local manufacturers argue this requirement puts them at a disadvantage, especially as delays and complications in foreign exchange availability strain their operations.

Daniel Woktole, head of the Association, stated that while reform has generally been beneficial, recent adjustments are straining cash flows. He said the current scheme requires commercial banks to hold equivalent reserves when issuing letters of credit, delaying foreign exchange availability and tightening manufacturers' working capital.

"This will rip through manufacturers' working capital," he said.

Delays in foreign exchange availability have also been disrupting delivery timelines.

Ethiopian Bankers Association (EBA) executives note that banks have used a prudent strategy in their negotiation with importers. Demissew Kassa, secretary general, stated that banks have stopped entertaining suppliers’ credit due to previous glitches where importers delay payments, putting depositors' money at risk.

"This was not a profitable undertaking for banks," he said.

The 13-year-old pharmaceutical company, Julphar plc, echoes a different side of fear. It operates on a manufacturing plant spread over 3,000Sqm plot in the capital, around Jakros, with expansion plans of 11,000Sqm.

Kedir Sherif, country director at Julphar, stresses the need for foreign currency to import raw materials, acknowledging the policy measure that had revived the beleaguered sector. He expressed concern that the exchange rate volatility could lead to additional payments to commercial banks during the LC clearance process.

Last year, the company won a 15-million-Br bid with a dollar-denominated procurement allotment of 700,000 dollars for the procurement of raw materials to supply three kinds of medicines, syrup, ointment and tablets. He argues that reinstating the 55pc foreign exchange settlement or implementing a hedging policy is crucial for the survival of pharmaceutical manufacturers. Unless so, participation in upcoming bids is diminished.

Pharmaceutical manufacturers gained relief from their foreign exchange woes last year. Eyob Tekalign (PhD), state minister for Finance, set up the scheme which allotted pharma manufacturers up to 55pc forex allocation when bidding on EPSS tenders. It was an attempt to ease the operational difficulties they faced due to the prevailing foreign currency crunch, which was severely impacting their production and the broader health sector.

The measure eased the process for manufacturers as they could propose up to 55pc of their cost in foreign currency when they enter into an agreement to supply the state-owned Service. The scheme was implemented through the network of the Ministry of Health (MoH), EPSS, the manufacturers’ association, and the Public Procurement & Property Authority.