Since western sanctions intensified against Tehran, Iran’s pharmaceutical industry has been among hardest hit sectors, as the country is heavily reliant on pharmaceutical imports to meet its needs.
In its latest report, Business Monitor International predicts that Iran will become even more dependent on pharmaceutical imports over the next decade. However, should the sanctions be lifted, the industry can flourish especially with the government urging the private sector to get involved.
Due to ongoing sanctions, increasing import reliance puts Iran at significant risk of long-term medicine shortage, the November report underlines. Uptake of medicines in the short-term is further at stake by currency depreciation and rising medicine prices, it adds.
Hospitals in Iran are facing severe drug shortages due to a series of unilateral financial and trade sanctions imposed by the US and its European allies. These sanctions are indirectly affecting Iran’s supply of medicines.
Although countries, including the US, have not banned export of medicines to Iran, they now require exporters to apply for a special license. Other sanctions have made it impossible to transfer money through banks, indirectly affecting the healthcare sector.
The sanctions were imposed after the EU, US and other allies alleged that Iran was pursuing non-civilian objectives in its nuclear energy program – a claim Tehran has strongly rejected. Iran has been negotiating with the six world powers known as the P5+1 since last year over its nuclear program. The two sides have reached an interim deal under which Iran has agreed to limit parts of its program in exchange for the West to ease sanctions and release some parts of the country’s frozen overseas assets.
Barter Trade
The sanctions are severely inhibiting Iran’s ability to pay for essential humanitarian goods, including medicines. They have barred multinational banks from any interaction with the central bank and 23 ‘designated’ (i.e. blacklisted) financial institutions. Any institution found to be cooperating with a blacklisted bank will be cut out of the US financial system – a penalty so serious that no large bank will be willing to take the risk of interacting with the Iranian financial sector.
Financial sanctions have led the country to become a barter economy for foreign transactions, with people first looking for smaller banks to handle their payments, but also trading in gold, cattle, hard currency and any other valuable objects in lieu of electronic transactions to pay for medicines. This presents enormous problems for companies looking to trade with the country.
To make matters worse, in March 2012 the Society for Worldwide Interbank Financial Telecommunication (SWIFT) expelled Iranian banks from its system to help enforce the sanctions. SWIFT’s decision came amid EU sanctions against Iran. The ban on SWIFT services makes it almost impossible for Iran to make international transactions via legitimate banking channels.
Sanctions on transport links and the increased price of supply chain activities due to the weakened rial will continue to severely hinder access to medicines in Iran.
BMI, nevertheless, believes that essential medicines will continue to reach patients due to unmet demands, opportunity-seeking by companies from lower-cost manufacturing locations and loopholes in the financial transfer system.
It also believes that the uptake of locally produced cheaper generic drugs and over-the-counter drugs (OTCs) has gone up, despite inflation.
Healthcare Spending
Iran’s government involvement in healthcare is below the level seen in developed countries, the report says, “although we expect fiscal spending to increase over the medium term, providing some upsides for pharmaceutical companies operating in Iran.”
The government currently pays for less than half of the total healthcare spending in the country, with a third of pharmaceuticals’ costs under health insurance continuing to be met out of pocket. This is despite substantial increases in the government healthcare budget in recent years on the back of oil revenues.
BMI estimates that healthcare expenditure reached 548.6 trillion rials ($16.6 billion) in 2013. Over the longer term, healthcare spending is forecast to grow broadly in line with GDP growth, although the report’s forecasts will remain at risk for as long as the political and economic uncertainty lasts.
Following a sharp contraction of the market in US dollar value-terms in 2013, BMI expects the rate of growth of healthcare spending to stabilize over the forecast period as inflationary pressures are subdued. At the same time, healthcare’s share of GDP will fall, partly due to the growing importance of the oil sector in the country’s output, the report predicted.
In the shorter term, however, the removal of energy and food subsidies by the government has reportedly resulted in a 20-40 percent spike in healthcare costs. According to Shahabeddin Sadr, the head of the Medical Council of Iran, the move has impacted hospitals, as well as manufacturers of pharmaceuticals and medical supplies.
Health minister Marzieh Vahid Dastjerdi in November 2011 urged the government to increase its budget for the MOHME (Ministry of Health and Medical Education), which has reportedly stagnated for the past five years. While the authorities stipulate that co-payment for medical services should stand at 30 percent, in reality this figure is reportedly as high as 54 percent.
Western sanctions have indirectly driven up the cost of drugs and treatment in Iran. The sanctions have limited regular supplies to hospitals and pharmacies. This in turn has helped black market pharmaceutical peddlers to flourish across the country.
State Divestments
In Iran’s slumping economy, the cost of certain imported medicines and supplies has almost doubled.
Although the sanctions do not block medicine and humanitarian supplies, damage from the sanctions will continue to be felt in almost every level of Iranian healthcare.
Policy changes and other issues of national interest are rarely discussed with any degree of transparency and decision making is protracted and bureaucratic, the report says. However, on a cultural level, most patients are likely to seek a physician’s advice rather than self-medicate. Being able to afford medicines is a separate matter, which may be part of the reason why OTCs and prescription drugs overlap in sales.
The government has increasingly encouraged private sector investment in the pharmaceutical industry, which will continue to witness state divestments in drug importation, manufacturing and retail entities.
The privatization of the industry is likely to reduce the financial burden of healthcare and pharmaceutical provisions from state funds, although much will depend on the wider economic and political situation.
At the same time, it is possible that the growth of the industry will be boosted by improved universal access to basic health services, combined with institutional innovation and the broader involvement of communities and local governments in decisions regarding the rural health system.
