Domestic pharmaceutical manufacturers are scrambling for exemptions from property taxes as factories in the capital are threatened with having their water supply cut off for failing to make payments. While the property tax proclamation has yet to be ratified, the Addis Abeba City administration's amendment to the Wall & Roof tax has resulted in significant challenges for the 14 plants in the capital.

Liquidity issues for operational costs, foreign currency shortages, and poor industry linkages have dragged the sector's productivity down, while the new taxes have created a new layer of complexity.

Daniel Waqtola(PhD), President of the Ethiopian Pharmaceutical and Supply Association(EPSA), penned a series of letters to the Ministers of Health and Industry over the past few months pleading for an exemption from the property tax. He says the imposition of additional taxes on a vital industry capable of significantly contributing to the national economy is contrary to the import substitution strategy.

"The industry is barely surviving as it is," Daniel told Fortune.

Daniel points out that the large space necessary for pharmaceutical manufacturing translates to higher imposition of property taxes, compounding the fledgling industry's troubles. He says the legal framework should support the industry, which is just starting to blossom.

"Foreign investors won't come in under these conditions," Daniel says.

The domestic pharmaceutical industry contributes around 8pc to Ethiopia's annual medical consumption. At the same time, it supplies only 13pc of the 800 medicines purchased by the state-owned Ethiopian Pharmaceutical Supplies Services(EPSS).

The Ministry of Industry, which oversees over 270 manufacturers, has been calling for an exemption from property taxes for all local manufacturers.

Tirist Bimerew, Head of the incentive desk at the Ministry,  says the need to treat manufacturers separately from other sectors is self-evident. She pointed out the contradiction in imposing new taxes on industry while advocating for import substitution.

"It will impact industrial productivity," Tirist told Fortune.

However, local manufacturing has been struggling for quite some time. A United Nations Development Program (UNDP) report revealed that 450 factors ceased operations in 2022. The manufacturing sector's share has dipped by 1.5pc to around 4 over the past two years.

The Health Ministry acquired the services of the American Consulting firm Mckinsey & Company last year to identify some of the policy issues that could help realize its import substitution goals.

Mebratu Massebo, the senior advisor at the Minstry, says they can only advocate for tax exemptions and different policy tools. He indicated that several policy options are being considered to help the manufacturers.

"There is nothing we can do about the tax issues, though," Mebratu told Fortune.

An official from the Finance Ministry who spoke to Fortune on conditions of anonymity says manufacturing will not exempted from property taxes as there is no international experience to justify it. He pointed out the unlikelihood of any exemptions happening as the draft proclamation has already reached parliament.

"There is no such thing as a manufacturer's exemption," the official says