There are reasons to believe that there is international quality leadership in the pharmaceutical sector of Bangladesh which can realise the opportunities created by a reconfiguration of US-China trade relations.
The trade war between the US and China has escalated further. Amid the Covid-19 pandemic, the Trump administration has blamed China for poor handling of the outbreak, and an anti-China sentiment has been spawned around the world. This has led many governments around the world to reconsider economic ties with China.
The depth of the US-China trade relationship is brought out by the fact that products imported from China accounted for 19 percent of overall US imports in 2019. This has alerted the US government of its dependence on China and its possible implication in the current context of the coronavirus pandemic.
While the US has cemented itself as a forerunner in drug discovery, much of manufacturing has moved offshore, many to mainland China. The last American manufacturer to make key ingredients for penicillin shut down in 2004.
Given the scenario, the US government did not try to hide its realisation of the need to relocate American multinationals operating in China. This has opened a new vista of opportunities for developing countries. Indonesia has cleared 4,000 hectares of land to accommodate US companies planning to relocate from China. India has already reached out to 1,000 American multinationals proposing to relocate their Chinese manufacturing units to Indian land.
The global backlash that China is currently facing is likely to create a new regime of partnerships and lead to a dynamic realignment of supply-chains around the world.
Both Republicans and Democrats have become wary of the US's reliance on China for its food and medical supply chain.
The pandemic has served as a 'wake-up call', and the government is even considering passing a bipartisan bill called 'Protecting Our Pharmaceutical Supply Chain from China Act'. This would stop the purchase of Active Pharmaceutical Ingredients (APIs) and finished drugs from China by 2023.
This is in a bid to mitigate the economic and socio-political ramifications of its over-dependence on China. In addition, the Trump administration is considering incentivising US multinationals using subsidies and more attractive tax breaks to move manufacturing from China as well.
Given the context of the geopolitical shifts that is making the US reconsider its trading relationships with the rest of the world, Bangladesh's pharmaceutical industry could emerge as a powerhouse in the world economy in near future. In recent decades, Bangladesh has proved that it possess competitive advantages over its competitors in the global market for medicines. It is high time to utilise this competitive advantage and make a dent in the US market.
The pharmaceutical industry in Bangladesh is a burgeoning industry which has the capacity to become a major hub for high-quality low-cost generic medicine and drugs. It is heartening to underscore that domestic manufacturers currently satisfy 98 percent of total demand in the country.
According to the Export Promotion Bureau, Bangladesh's overall export of pharmaceutical products increased from $103 million to $130 million in FY19 from FY18, registering a significant 26 percent increase. By 2019, Bangladesh also increased the number of export destinations to 120.
A key strength of the industry is the quality of products that are produced with state-of-the-art technology, with full compliance with international requirements. The competitive advantage of Bangladesh lies in its cheap labour (which is three to four times cheaper than that of India or China), availability of skilled manpower and the Trade-Related Aspects of Intellectual Property (TRIPs) agreement.
TRIPs allows Bangladesh to produce a generic version of a patented drug without taking permission from the innovator, allowing the country to manufacture and export patent-free drugs without any restriction. Just recently, industry giant Beximco Pharmaceutical announced the production of a generic version of the drug Remdisivir, which has understood to be effective in several clinical trials in Covid-19 patients. Beximco group has also exported 6.5 million internationally certified PPEs to the US.
However, despite the many merits of Bangladesh's pharmaceutical industry, India remains a key exporter to the US for generic drugs. An April 2020 study by the Confederation of Indian Industry and KPMG finds that 90 percent of America's prescriptions are filled by generic drugs and one in three pills are produced by Indian manufacturers.
According to the US International Trade Commission, the country imported $127 billion pharmaceutical products, of which India and China accounted for $7.5 billion and $1.5 billion, respectively. In comparison, Bangladesh's export of pharmaceutical products to the US is merely $13 million for FY19.
Although India may account for approximately six percent of total pharmaceutical product imports by the US, the supply chain is indirectly controlled by China. It is estimated that Chinese manufacturers produce 40 percent of the key raw materials needed for the production of drugs (APIs) worldwide. India imports 68 percent of its APIs from China. 95 percent of Bangladesh's APIs are imported and most of these are from China.
According to the Bangladesh Chamber of Commerce, total imports of APIs accounted for Tk5,000 core in 2018-19. In addition to high import costs, fluctuations in the price of APIs and/ or the exchange rate is a detriment to local pharmaceutical companies which affects the competitiveness of our prices in the global market.
In order to tackle the issues surrounding the imports of APIs, Bangladesh had announced in 2008 that a 200 acre 'API Park' in Munshiganj would be established, which is reported to reduce the cost of import of raw materials by 70 percent. There has been little progress in the project since its announcement and only recently started construction in December 2019.
The completion of the Tk3,640 million project is of utmost importance to ensure that Bangladesh can attract potential buyers from the US while, at the same time, ensuring backward linkages to promote self-sufficiency. The completion of the API Park would make Bangladesh a serious prospect for the US, and a prospective contender to India.
Moreover, the API Park will also give the opportunity for US pharmaceuticals to import APIs from Bangladesh, which opens many possible revenue streams.
The dependencies and inter-dependencies of globalisation have been exposed by the Covid-19 pandemic – and nowhere more so than in the pharmaceutical industry. The pharmaceutical sector of Bangladesh is no longer in infancy. Starting in the late 1980s, it has established itself on a strong footing with strategic production and marketing policies.
However, it has to further strengthen its footing by expanding backward linkage. Investing in API is the first thing to do in this vein. The current rift between the US and China shows that there was no better time to invest in building up API production capacity. For Bangladesh to succeed in the long run, self-sufficiency and cost-effectiveness are vital in the manufacturing process of drugs.
There are reasons to believe that there is international quality leadership in the pharmaceutical sector of Bangladesh which can realise the opportunities created by a reconfiguration of US-China trade relations. The manufacturers in pharmaceuticals need to show effective, collective leadership in this regard.
The author is an economist in training, pursuing a master's in Economics at the University of Warwick, United Kingdom.