EghtesadOnline: A total of $7.5 million worth of pharmaceuticals were exported from Iran during the first half of the current Iranian year (March 21-Sept. 22), a member of the Iranian Pharmaceutical Industries Syndicate said.
Mehrdad Alimian added that the figure could rise to $15 million by the end of the current Iranian year (March 19, 2020).
He noted that in the absence of sanctions, pharmaceutical exports stood at $80 million in the year ending March 2018 and $50 million in the year ending March 2019, according to Financial Tribune.
“There’s demand for Iranian drugs in international markets, but unfortunately our products are not being exported to countries like Afghanistan through legal channels. As a result, the government, the Islamic Republic of Iran Customs Administration and producers don’t make any profit on the back of Iranian pharmaceuticals sold in Afghanistan. Here the winners are smugglers," the Persian-language Etemad quoted him as saying.
Alimian noted that Iran exports pharmaceuticals to Iraq, Syria, Afghanistan, Russia and some countries of the Commonwealth of Independent States and South America.
Growing Concerns Over Smuggling
Over the past few months, outbound smuggling of pharmaceuticals through unofficial channels to the neighboring countries has provoked ongoing debates.
Morteza Khatami, deputy chairman of Majlis Health Commission, said low prices of medicines in Iran, which are at times eight times cheaper than what it is in the neighboring countries, have paved the way for outbound smuggling.
According to Mahmoud Najafi-Arab, the head of Health Economy Commission of Tehran Chamber of Commerce Industries, Mines and Agriculture, Iran registers an average of 12% increase in pharmaceutical manufacturing every year.
"However, production has risen by 40% this year,” he said.
Haleh Hamedifar, the deputy head of TCCIM’s Health Economy Commission, told Otaghiranonline.ir that the good quality of Iranian drugs, besides their cheap prices, is the cause behind outbound smuggling to neighboring countries.
“Although it is not possible to provide a precise figure on the amount of pharmaceuticals smuggled out of Iran, it is being conducted at levels higher than before, as evidenced by the growing sales of drug firms and consumption. I personally believe that medicine prices in Iran are remarkably underpriced; they are even cheaper than consumer goods sold in supermarkets,” she said.
Hamedifar further said pricing of medication is carried out by the government, such that even if prices of other products increase, pharmaceutical prices remain unchanged for unknown reasons.
Subsidy Begets Corruption
Noting that subsidy is the root of corruption, Hamedifar said subsidized foreign currency at the rate of 42,000 rials per dollar allocated to pharmaceutical production and import benefit the patients of neighboring countries.
Senior members of Health Economy Commission of Tehran Chamber of Commerce, Industries, Mines and Agriculture are unanimous in that the government policy of granting subsidized foreign currency at the rate of 42,000 rials per US dollar to import pharmaceuticals and medical equipment is helping corrupt the economic process and its furtherance will prove counterproductive and hamper the development of the industry.
“The private sector has continually voiced strong opposition to the subsidy scheme and on solid grounds. First and foremost, not all components and drug product containers are subject to subsidized currency,” Najafi-Arab said.
“To import machinery or packaging materials, producers need to spend dollars at exchange rates other than 42,000 rials. As a result, the end price of the drug is higher than the price set by the government using the subsidized currency as a benchmark. The subsidized dollars only cover less than 30% of the costs of drug production.”
The TCCIM official noted that the subsidized currency policy has given way to rent-seeking practices in Iran’s business environment, which has in turn led to the broadening mandate of oversight bodies and consequently a more labored economic system.
“Outbound smuggling of pharmaceuticals and medical equipment is another corollary of cheap dollar. For example, subsidized imports of insulin pen, in its entirety, is economically more profitable than producing it domestically. That’s why the private sector believes the Plan and Budget Organization should allocate subsidies to strengthen healthcare insurance rather than spending it on imports,” he added.
Nasser Riahi, a member of the presiding board of TCCIM, believes that problems associated with the transfer of subsidized currency due to sanctions should be added to the list of government’s controversial policy.
“The private sector wants to get rid of the government’s oil money from its system to provide the foreign currency it needs via other channels, including non-oil export earnings. On top of that, there’s a lot of competition between importers for subsidized dollars, as pharmaceuticals and medical equipment are not on the list of US sanctions and that has intensified supervision and control of oversight bodies and prolonged the process of receiving government money,” Riahi said.
“Misguided behaviors and policies and constant changes of guidelines have undermined the trust of our foreign providers; our orders have to be paid in advance and completely. The current policy is in effect granting subsidies to imports as against production. Except for the import of a fraction of raw materials subject to subsidized currency, the pharmaceutical and medical equipment production sector has to provide the foreign currency it needs at the open market exchange rate but for importers of readymade drugs, all costs are subsidized.”
Knowledge-based industries are the least likely producer of pharmaceuticals to receive the government’s subsidies since they produce all the ingredients, including their raw materials,” said Hamedifar, who is also the chief executive of CinnaGen Pharmaceutical Group.
“The more an industry moves toward indigenization of technology and self-sufficiency, the least it is likely to receive subsidized currency. Also, it seems that goods imported via customs terminals cannot obtain clearance permits due to missing or incomplete banking documents related to the transfer of currency. The pile-up of commodities at customs has in effect reached a significant level ever since the introduction of currency subsidies.”