Pharmaceutical manufacturers are seeking greater loan access to ease financial strain caused by high operational costs and delayed payments.
They have requested a seven-billion-Birr loan from the Commercial Bank of Ethiopia (CBE) to open deferred letters of credit, ensuring a steady supply of raw materials. Manufacturers and suppliers have formally proposed a tripartite agreement to establish and manage a fund that would improve access to pharmaceutical inputs and strengthen local production.
The agreement outlines clear responsibilities: the Ethiopian Pharmaceuticals Supply Service (EPSS) would procure medicines, manufacturers would produce them, and the bank would manage the fund and facilitate letters of credit.
Macroeconomic reforms introduced last year have made it harder for manufacturers to access foreign exchange. Banks now require 100pc capital deposits for letters of credit, severely restricting working capital for local producers.
Daniel Waktole (MD), president of the Ethiopian Pharmaceuticals & Medical Supplies Manufacturers Association (EPMSMA), acknowledged that while reforms have benefits, they have also strained cash flow, making it difficult to secure raw materials.
"Manufacturers' working capital is being ripped apart," he said.
However, the Ethiopian Bankers Association (EBA) defends the new banking policies. Demissew Kassa, the association’s secretary general, said banks stopped providing suppliers' credit after previous failures in payments put depositors’ money at risk.
"This was not a profitable undertaking for banks," he said. "It needed an overhaul."
Pharmaceutical producers have requested an agreement that would grant them short-term loans to import inputs and fulfil their supply commitments. The EPSS has already signed a 10-billion-Birr agreement with local manufacturers to deliver 738 types of medicines within six months. However, assessments show that current production capacity stands at just 36pc.
Solomon Nigussie, deputy director general of EPSS, confirmed ongoing discussions with state-owned banks, including CBE and the Development Bank of Ethiopia (DBE), to secure short-term loans.
"We're on the manufacturers' side," he said.
EPSS has already facilitated 780 million Br advance payments, but manufacturers need access to the remaining 70pc from commercial banks.
Discussions with CBE are progressing, with board chairman Ahmed Shide expressing optimism. The bank is considering opening loan windows for letter-of-credit access.
"We are moving closer to the agreement," Solomon said.
Solomon says that long-standing delivery delays in the industry have worsened due to working capital shortages and the slow, exhausting process of importing raw materials, issues that remain unresolved.
"The import process is long and tedious," he said.
He called for support from banks and the Ethiopian Customs Commission (ECC) officials. Last year, manufacturers supplied only 44pc of the 4.5 billion Br worth of medicines agreed upon with the EPSS, despite receiving deadline extensions.
EPSS plans to procure 782 types of medicines. Solomon says key measures were taken to support local manufacturers, including increasing their market share from eight percent to 37pc, providing 30pc advance payments, and offering a 25pc price preference.
A recent EPSS assessment revealed gaps in supply. Medical supplies have the strongest base, with 60pc adequacy and a large pool of registered suppliers. Medical devices follow at 45pc. However, vaccines are critically scarce at zero percent, while leprosy and anti-cancer medicines remain alarmingly low at 2.22pc and 5.56pc, respectively.
To address these gaps, EPSS introduced a new tender requiring local manufacturers to price their bids in foreign currency and independently source raw materials. To facilitate this, EPSS offered a 30pc advance payment, totaling three billion Birr, against unconditional bank guarantees. However, financial arrangements are still under negotiation.
Manufacturers say they face serious problems in securing these unconditional bank guarantees, citing complex and time-consuming procedures. Daniel, also general manager of Kiltich Estro Biotech Plc, stated that manufacturers have formally requested EPSS to accept conditional guarantees as an alternative to unlock advance payments.
However, Solomon dismissed this request.
"They are asking for something unrealistic," he said. "There must be a permanent guarantee that the funds are secure."
Ethiopian Pharmaceutical SC, the country’s oldest pharmaceutical manufacturer with 60 years in operation, has been vocal in its demands through the industry association.
Shimelis Mamuye, its general manager, stated the need for easier access to foreign currency for raw material imports. He also acknowledges recent policy measures that have helped stabilise the struggling sector. However, he warned that exchange rate fluctuations could lead to additional payments during letter-of-credit (LC) clearance.
He also says depositing 100pc of import costs upfront is a major hurdle that could cripple operations by making raw material imports financially unsustainable.
Shimelis recalls a tripartite agreement a decade ago between the DBE, EPSS, and several factories. The arrangement used procurement contracts as collateral to ease working capital shortages, enabling manufacturers to operate more effectively.
His company recently won a 300-million-Birr tender from EPSS to import two types of medicines. It primarily produces tablets, syrups, ointments, and creams, with an annual capacity of 500 million tablets, 300 million capsules, and 10 million ointments. Currently, it operates at only 50pc capacity. He attributes this underperformance to foreign exchange shortages and limited working capital.
The Ministry of Health (MoH) enlisted McKinsey & Company, an American consulting firm, last year to conduct a four-month study funded by the UK. The study aims to establish a sustainable domestic supply chain capable of covering 60pc of medical products and technology needs within five years.
Officials say that the import substitution is critical for long-term stability, calling for affordable, locally available medicines to transform the sector. Birhanu Wolde, the Ministry’s finance manager, stated that there are ongoing policy reforms designed to strengthen domestic manufacturing.
"We have provided support at every stage," he said.
Despite enjoying a 25pc price preference over international suppliers, local manufacturers have repeatedly failed to meet contractual obligations. Officials cite low production capacity, supply chain disruptions, and insufficient investment in research and development as key factors.
Worku Lemma, a financial expert, argues that banks are navigating a dual problem, liquidity shortages and a volatile foreign exchange market.
A recent National Bank of Ethiopia report reveals that liquidity is increasingly fragile. If the top 10 depositors at each bank withdrew their funds simultaneously, 20 out of 29 commercial banks would fall below the minimum liquidity threshold. This shows a worsening trend, with three more banks vulnerable compared to last year.
"Banks are facing severe liquidity problems," Worku said.
He argued that banks’ current measures to address liquidity shortages are harming local businesses. Instead, he urged them to explore alternative financing solutions, improve the business climate, offer deferred payment options, and expand lending capacity.
PUBLISHED ON
Feb 23, 2025 [ VOL
25 , NO
1295]
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