FRESH from launching a state-owned mining company, the ANC is now pushing for a pharmaceutical company. The business case for a state-owned mining company, according to the government, is that of ensuring security of coal supplies to Eskom and PetroSA – in Eskom’s case for power generation and in PetroSA’s for converting coal into liquid fuels.
The case for a state-owned pharmaceutical company has not been made clear, but presumably that is what the cabinet has been asked to come up with, as well as what form that entity will take.
Ha-Joon Chang, a University of Cambridge economist, outlines three reasons that can justify the creation of a state-owned company.
One is in cases where the private sector will not invest in a project, or an industry, because it perceives it to be high risk. The second relates to industries that lend themselves to natural monopoly such as electricity, water, gas and the railways.
“The third reason for the government to set up state-owned enterprises is equity among citizens. For example, if left to the private sector firms, people living in remote areas may be denied access to vital services such as post, water or transport,” writes Chang in Bad Samaritans, The Guilty Secrets of Rich Nations & The Threat to Global Prosperity.
Based on the evidence ANC secretary-general Gwede Mantashe has given to back the case for a state-owned company, it appears that the ANC is being motivated by Chang’s third reason.
Mantashe told the media on Tuesday that there was “a compelling case” for state-owned pharma, adding that with 0.7 percent of the world’s population, South Africa had 17 percent of the globe’s HIV-positive population and used 25 percent of its antiretrovirals (ARVs).
Citing studies by British medical journal Lancet, Health Minister Aaron Motsoaledi told Parliament in May that South Africa was going through four pandemics, of which the most severe and most expensive were HIV/Aids and TB.
To deal with this burden, South Africa is already spending almost a third of the Department of Health’s budget on HIV/Aids and TB. Expenditure on these items has jumped from R2.3 billion in 2006/07 to just over R8 billion this year, and is projected to rise to over R11bn by 2013/14.
Financial resources are not unlimited, yet many fellow citizens have yet to gain access to these life-saving drugs. So to increase access to drugs, the government will have to look at doing more with the limited funds. One of the areas where cuts can be made is in the prices that the state pays for drugs, an area where it has already scored some success.
It seems ANC thinking is that a state-owned company might help in this regard. It is not clear why the ANC thinks so since the 53 percent cut in drug prices was achieved without a state-owned entity, but through tough negotiation with the private sector suppliers. In addition, the Department of Health has set up a Central Procurement Authority, a unit which will be responsible for buying of ARVs, TB drugs, vaccines and drugs related to maternal and child health.
The same can be said about the state-owned mining company. Not so long ago, Eskom used to be able to secure its own coal supplies.
The ANC may be looking to secure access to active pharmaceutical ingredients (bulk drugs), one of the factors quoted by both the government and the private sector as the reason for high ARV prices. Active pharmaceutical ingredients (APIs) often account for more than 50 percent of the cost of drugs.
If that is the intention, the state-owned company will complement the private sector as it will invest (assuming it does so efficiently) in the production of basic inputs that locally based manufacturers, with the exception of Aspen, have stayed clear of. Whatever case the cabinet comes up with for state pharma, the evidence thus far points to an ideological motivation for creating more state-owned companies. That, in my book, is as bad a crime as some in the ANC and its alliance partners have accused the Washington Consensus of.