The pharmaceutical industry in South Africa, like in many other countries, is made up of a mix of local and international owners. Over the years, multinational pharmaceutical companies have established significant presence in South Africa, with some establishing subsidiaries or partnerships with local companies.
This involvement has largely been in the manufacturing, distribution, and marketing of pharmaceutical products. While the local manufacturing of medicines contributes meaningfully to the economy, the pharmaceutical terrain favours financially strong players. COVID-19 vaccines brought this into sharp focus, with developing countries experiencing unexpected market challenges. Looking at the market caps, strategic trajectories, and the high-stakes game of pharmaceutical research, a complex picture emerges in South Africa’s pharmaceutical landscape.
Local and international ownership in South Africa’s pharma sector
Manufacturing medicines locally is positive for the local economy as it creates jobs and stimulates industrial activity. It also does away with the need to spend foreign currency to import, alleviating strain on the country’s trade and payments balance.
“In the South African pharmaceutical manufacturing context, we have observed that generic medications are produced locally more so than original branded pharmaceuticals. The local pharmaceutical manufacturing context faces noticeable challenges when it comes to capacity, cost and ensuring robust regulation, access and quality. While 60-70% of pharmaceutical products are produced locally, almost 98% of active pharmaceutical ingredients (APIs) are imported, and this results in capacity challenges.”
Etienne Dreyer, PwC South Africa healthcare consulting leader
The advances in research and technology to treat difficult and new diseases require deep pockets and long-term investments. A most recent example was the COVID-19 vaccine, where wealthy countries led the way in rapidly developing and producing vaccines. The same countries then bought up and administered those vaccines to their populations and even ordered boosters for already-vaccinated people. Meanwhile, many developing countries struggled to deliver even one dose to most of their populations. The perceived threat was so great that enormous resources were allocated with standard approval processes not followed.
The Biggest companies in the pharmaceutical industry
While the industry favours big players, they are not immune to the intricacies of this industry. Pfizer, as well as its rivals, experienced financial difficulties. The hoped for annual sales of the COVID vaccine did not materialise due to resistance to the new application of mRNA vaccine carriers. This led to about US$150bn loss in market value for Pfizer. In 2023, Bayer was in a similar predicament with an unsuccessful phase 3 trial of a new medicine, resulting in several billion euros of losses in market value, on top of its legal battles in respect of Roundup, a widely used herbicide.
Aspen, the second biggest local pharma, fought hard to get a production licence for the COVID-19 vaccine, only to now experience abysmal sales.
The market caps of the international players all range in the US$70bn (ZAR 1,330bn) to US$250bn (ZAR4,750bn), and if they discover a successful medicine, this value can jump, as is the case with Eli Lilly and its obesity drug, which saw the company’s value outpace Johson and Johnson to over US$500bn (ZAR 9,500bn) in 2023. In comparison, the two biggest South African pharmaceuticals’ current market values are US$8.9bbn (ZARZAR 169bn) (ZAR 89bn) and US$4.7bbn for Adcock Ingram and Aspen respectively.
Partnerships in the pharmaceutical industry
What seems to be driving pharmaceutical industries globally is the shift towards value-based healthcare and medicine, whereby there is coordination among healthcare professionals to ensure patients receive comprehensive and personalised care that meets their specific needs This forces the industry to improve the effectiveness of medicine and therapies to remain competitive.
Local and international players have started forging meaningful partnerships. This was accelerated by the Covid-19 pandemic which brought about triumphs and challenges for the industry. As the global industry evolves towards value-based healthcare, the need for evidence-based practice and decision-making remains. Evidence based medicines have been consistently linked to improved quality of care, patient safety, and many positive clinical outcomes in isolated reports according to the National Centre for Biotechnology Information (NCBI). South Africa can also benefit from the synergies between academic research and local pharmaceuticals to drive impactful research in this dynamic sector.
The contributions of multinational pharmaceutical companies are significant, despite the criticism leveled against them about drug pricing, access to medicines, and the potential influence of these companies on healthcare policies. Balancing the interests of multinational companies with the healthcare needs of the local population is an ongoing consideration for policymakers in South Africa and globally.
I am pleased to report that, thanks to you, WOW comfortably exceeded our budget to the six months ending September 2023 for both turnover and profit. We employed two additional team members in 2023 bringing our permanent employee count to 28 and who are complemented by 15 contract researchers.
This year we have been exploring the use of AI on the WOW database. While its use in producing quality research currently still appears limited, it could significantly improve users’ interrogation capabilities on our research.
AI at this point can’t replace the human attributes of creativity, subjectivity and initiative, amongst others. A few years ago, when Maria Ramos was Absa’s CEO, we asked AI who she was. The answer came back that she was the branch manager at the Absa branch in Maputo. This is a good example of AI not distinguishing between corroborated and uncorroborated data. However, when used on corroborated data such as the WOW database, it introduces an entirely new search dimension. As an example, if one uses AI to ask WOW’s research database how many listed company directors’ options are maturing in the next six months, it returns an answer in seconds for a task that could take much longer to complete if performed manually. The working title for this initiative is AI@WOW. Preliminary results are exciting, and we hope to roll out pilot testing early in the new year. Watch this space.
The WOW offices will close on Friday, December 22nd and re-open Wednesday, January 3rd.
Have a safe and restful holiday season and I hope all your expectations for 2024 will be met.
South Africa is well endowed with beautiful landscapes and rich cultural heritage that offer ideal locations for films and digital content. Movies such as Invictus, directed by Clint Eastwood and released in December 2009, which tells the inspiring story of how Nelson Mandela used the 1995 Rugby World Cup to unite a post-apartheid South Africa, was filmed in various locations around Cape Town.
According to the WOW report on the film, gaming and animation industry, film has been an important generator of foreign investment and has earned the country a global reputation as a preferred destination for filming.
As illustrated in the accompanying graph, this is a growing industry with a total of 155 films released in South Africa in 2021 compared to 96 in 2020, with box office revenues of R325m, up from R230m in 2020.
Opportunities in the South African film, gaming, and animation industry
The industry is dynamic and competitive, and several multinational companies have taken an interest. Prominent players include the following.
- Walt Disney Company which has been involved in co-productions and distribution agreements with South African film companies.
- Sony Pictures Entertainment has co-production and collaboration arrangements with South African filmmakers and seems to have a long-term view on investing in the film industry.
- Warner Bros. Entertainment, which is known for extensive licensing and merchandising activities related to its popular franchises including toys, apparel and other consumer products, has been collaborating with South African companies in the film, gaming and animation industry.
- Recently, with streaming technology having become more popular, Netflix has been actively expanding its presence in South Africa both in terms of content creation and distribution. It has invested in original South African productions and has partnered with local filmmakers.
The interest of such global players demonstrates the attraction and viability of the industry. What further contributes to South Africa’s success is the wealth of creative talent and animators who bring diverse perspectives, drawing inspiration from the nation’s rich cultural tapestry.
The rise of digital platforms has resulted in a burgeoning community of gamers. E-sports, in particular, has gained popularity, with South African teams making their mark on the global stage.
There has been an increase in educational programmes focused on game development and design with institutions such as the University of the Witwatersrand offering specialised courses, nurturing the next generation of game developers and animators, and the UCT launching an online teaching platform for high school learners
Hurdles to overcome for the film industry to continue growing
Filming and animation production can be resource-intensive, requiring specialised software and skilled animators. Access to the latest technology and continuous training are essential to compete globally.
The sector, and independent game developers in particular, often faces challenges securing funding, and access to venture capital and funding opportunities are crucial for innovation and growth.
While there are film incentives in place, some industry stakeholders are agitating for more comprehensive and competitive incentive programmes that could attract more foreign investment and stimulate local film production. They also advocate for a less bureaucratic process of obtaining permits for shooting locations.
There isn’t a single industry that is not impacted by the relentless energy supply challenges, and according to the WOW report on the film, gaming and animation industry, the energy crisis and loadshedding resulted in reduced audience viewing hours, which reduces revenues from advertisers. Investments in alternative energy sources like solar and diesel increases operating costs, harming especially SMEs in the value chain. MultiChoice found that when loadshedding consistently reached stages five and six, TV viewing and subscriber activity deteriorated.
What is South Africa’s value proposition in the film industry?
International stakeholders stand to gain access to a growing market with increasing consumer demand, particularly given the country’s position as a strategic gateway to the broader African continent, offering opportunities for market expansion.
Government has demonstrated its commitment to fostering a thriving creative industry. In addition to financial incentives, policies and initiatives aimed at supporting local content creation engender a conducive environment for foreign investors.
South Africa can become an even more attractive destination for global players looking to contribute to and benefit from the growth of its creative sector. The collaborative spirit and creative energy that define the industry make it an exciting space for foreign investors seeking new horizons and untapped potential. This can only be achieved if licensing processes can be smoothed and applications for funding, especially for upcoming filmmakers and disbursements for the Department of Trade, Industry and Competition (DTIC) can be fast-tracked.
South Africa’s youth unemployment remains very high by any standard. According to the latest WOW report on youth employment trends in South Africa, South African youth (aged 15 to 34) accounted for 34.8% of the population or over 21.6 million of the 62 million South Africans, with the median age of the entire population being 28 years, according to Stats SA’s Census 2022. Of the 21.6 million youth, 51.52% are unemployed. These are disturbing statistics.
What is the cause of continued unemployment?
The accompanying table, which compares South Africa to its neighbours, illustrates what normal unemployment figures look like. The youth are the largest contributors to the labour force every year, and will obviously account for the highest unemployment rate. BRICS countries show relatively high rates in a wide range between 12% and 28.5%, while unemployment levels in low-income countries neighbouring South Africa are mixed, with low rates being of 10% to 12% and high rates of 37% to 40%. Zimbabwe and Mozambique statistics may look different if the definitions and measurements were standardised.
While there are several causes of unemployment in South Africa, the most glaring are:
- Disparities in the education system contributing to a mismatch between the skills young people possess and those demanded by employers;
- Delays in the implementation of policies aimed at addressing the scourge due to bureaucratic processes; and
- Neglect of infrastructure development and maintenance.
The ongoing question is why it takes so long for government to review progress and adjust initiatives to address this economic issue that leads to social apathy and possible unrest.
Unemployment initiatives implemented in South Africa
The WOW report describes various initiatives and proposals, some of which have been implemented with some success such as the Youth Employment Service (YES) and the Presidential Youth Employment Intervention (PYEI).
For the initiatives to be effective, the economy must function competitively and allow for value-added job creation. Well-meaning initiatives based on a sense of social responsibility and providing temporary jobs, do not, by themselves, grow the economy. Creating jobs like adding non-essential assistants to teachers for the sake of creating employment, does not positively contribute to the growth of an economy. The contribution to the growth per capita as representing economic value add needs positive and sustained growth. For instance, car idling in traffic congestion consumes petrol and adds to GDP, but not in a positive way.
A longer-term approach to youth unemployment
A comprehensive approach is required involving education reform, targeted skills development programmes, support for entrepreneurship and small business creation that will in themselves generate value and create jobs in an enabling environment for economic growth.
The single biggest driver would be growth, and any policy that contributes to sustained economic growth.
If South Africa could grow at 4% (about the average of emerging markets), it would produce additional value add of R227bn. The realisation of this amount of value add would require a corresponding input of human resources.
This graph shows South Africa’s extremely poor performance and the forever optimistic prognosis. As in the past, execution will be lacking, and recent economic news is all doom and gloom including low economic growth, continued loadshedding for the next five years, a bloated overpaid and inefficient public service, the dismal performance of all important SOEs, and public debt running away.
The WOW report does mention some measures that might set the employment train in motion. We all want minimal suffering, but we should not resist short term pain for long term gain. A dramatic situation as we have in South Africa needs drastic measures that cut across bureaucracy, slow and/or non-effective implementation.
There are no miracle cures to eliminate the high youth unemployment rate in the short term. Unpopular measures that will pay off in the long run need to be implemented pronto, before things get worse. Relaxing regulation and making it easy and efficient for entrepreneurs and the private sector to access initiatives will go a long way to create sustainable jobs. The education sector and companies need to collaborate to ensure that appropriate skills are developed to drive industries.
Suggestions are proffered regularly. Former Goldman-Sachs sub-Saharan Africa CEO Colin Coleman, proposes tax incentivised internships with a minimum single placement in the 2.5 million small and medium enterprises, solving half the problem of creating 5 million jobs. Thinking out of the box may help the country make headway to help solve this almost intractable problem.
