Chronicle Pharmabiz Special
Most preferred destination for pharma investment in TRIPS regime
C H Unnikrishnan, Colombo
Pharmaceutical manufacturing, hitherto an unconventional industrial sector in the Island nation, is likely to become the focus of a strategic entrepreneurial thought now as the country offers the most friendly business climate in South Asia.
Moreover, at a time when two of the South Asian pharma giants, India and China, are on the threshold of the TRIPS regime, the branded as well as generic makers in these two countries have already picked up this currently export destination to make their manufacturing base as well targeting the local market as well as other non TRIPS markets.
According to the Economic Intelligence Unit (EIU) Forecast 1998, Sri Lanka's business environment ranks 11th in the region, and 42nd in the world. Sri Lanka is strategically located at the cross roads of both east and west sea routes and serves as the point of entry to South Asia.
On the same account, the Lloyds Register has recently rated the Colombo Port as No. 01 port of South Asia and the 26th in the World as its throughput has grown at a compound annual rate of 20.3 per cent over the last seven years and the transshipment cargo accounts for 72 per cent of the same. At present, 23 major shipping lines and 7 feeder services operate out of Colombo Port, which is of late computerized and linked to all major freight stations. The Island has also been rated as an ideal geographical location with minimum deviation from shipping lines.
According to sour-ces in the Board of Investment of Sri Lanka, the work is in progress to develop and upgrade the port of Galle located in the south and the port of Trincomalee on the north east coast of Sri Lanka with EDI facilities with two modern container terminals, with state of the art technology and control systems.
The domestic pharmaceutical market in Sri Lanka, which is estimated at SL Rs.9,980 million (US$ 111 million) at present, currently catered by more than 200 foreign suppliers mainly from India and China. According to IMS Health audit, the retail pharmacy market in Sri Lanka is growing at 23 per cent in SL Rs terms and 6 per cent in $US terms. Looking at this attractive market and also the geographical and socio- economical advantages for exports, the investment decision would prove wise for the pharmaceutical companies from these countries. Though the 3000 retail pharmacies (including the state owned Osu Salas and the public and private hospitals) and a population of just 20 million may not show right volume for pharmaceutical companies to put in their investments for a green field project in Sri Lanka, the export markets, which can be economically catered from the country offers attractive returns.
If the business predictions are to be taken seriously, Sri Lanka will be soon developed as a major global logistics hub in the South Asian region for trade, investment, communications, and financial services. Known as the Colombo Freeport, it will provide integrated air, sea and road services linked to state of the art distribution parks.
The Sri Lankan work force accounts for 35 per cent of the total population and the country boasts high levels of education too. We have the highest literacy rate in South Asia (92%) and approximately 50% of the students who have completed their higher education are trained in technical and business disciplines. Since English is widely spoken in the country and is the main language used by the business community there is no language barrier for a country like India in Sri Lanka. In addition, according to the World Bank Development Indicators 2000, Sri Lanka has the lowest labour cost per worker in manufacturing. The Indo Lanka Free Trade Agreement clearly demonstrates the political goodwill and commitment between India and Sri Lanka. The agreement creates multiple investment opportunities for local and multinational firms based in Sri Lanka seeking to enter the Indian market. The underlying premise of the agreement is to create a free trade area through the complete or phased elimination of tariffs, which will occur over defined phases.
Today, Sri Lanka is ranked as the most liberalized economy in South Asia. Investors are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100 per cent repatriation of profits. Total foreign ownership is welcome in almost all areas of the economy, with only a few areas limited or restricted to foreigners. Sri Lanka is positioned as the Gateway to Asia, with its open economy, superior logistics for serving as a regional trade hub, a resilient work force and ground breaking market access with the Indo-Lanka Free Trade Agreement (FTA) to the world's largest market.
According to BOI, the incentive packages on investments are offered for industries like manufacture of non-traditional goods for export including deemed exports, export oriented services, manufacture of industrial tools and /or machinery, small -scale infrastructure projects information technology (IT) , IT enabled services & IT related training institutes, regional operating head quarters, any industrial, agriculture, construction or service or any other business activity approved by the Board, research and development, agriculture and /or agro-processing other than processing of black tea, export trading house, large -scale Infrastructure, power generation, transmission & distribution, development of highways, sea ports, air ports, railways & water services, establishment of industrial estates, any other Infrastructure, large-scale (new /existing) projects. In addition to the above target sectors, the existing enterprises undertaking an expansion are also being considered for incentives.
A comparative study among other Asian countries shows that Sri Lanka's list of restricted activities is relatively small. The government is committed to reducing this list further to broaden opportunities for foreign investors in this section. 100 per cent foreign ownership is allowed on all sectors including export industries, agriculture and livestock, infrastructure, IT, tourism, manufacturing industries including drugs and pharmaceuticals, large scale retail trade projects.