Pharmaceuticals: Local Manufacturing. World Bank, HNP Brief #3
(2005; 5 pages)


Pharmaceuticals are essential in every health care system. The objective of pharmaceutical policy is to make sure that there is a reliable supply of good quality medicines at affordable prices. Local manufacturing is sometimes offered as a potential solution to the “access” problem. Supporters of this concept suggest that local production in a developing country should result in a cheaper final product. Skeptics argue that small manufacturing units don’t achieve economies of scale, and that higher unit costs outweigh potential advantages such as lower transportation costs.

Another factor in this discussion is the TRIPS agreement. TRIPS requires all countries (except the least developed) to introduce patents for pharmaceuticals in 2005. There are mechanisms in place, for example compulsory licensing, to balance the interests of patent owners with public interests in countries affected by a health crisis such as HIV/AIDS. So, for example, a country may declare that a health crisis makes it imperative for them to have access to a particular drug, and there is an established process through which the country can issue a license (whether or not the patent holder agrees) to a company to manufacture or import the drug. But it is not yet clear whether these mechanisms work well for countries that rely on imported pharmaceuticals only. Thus, the question of local manufacturing comes up, as a way to bypass the complexities of licensing agreements that cover more than one country.

This paper reflects on aspects of health policy and industrial policy relevant to local manufacturing, which need to be balanced according to development priorities. It advocates for a sound assessment of costs and benefits as the basis for rational decision making on pharmaceutical manufacturing.

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