The prolonged foreign exchange illiquidity, high-interest rates and cost of raw materials have continued to push up the operating cost of firms under the healthcare subsectors, impacting their profitability negatively.

Exposure to fluctuations in foreign exchange rates, which has resulted in high finance costs, aggravated by inflationary pressures and regulatory bottlenecks on imported raw materials has been severely impacted by huge losses on firms listed on the exchange.

Also, the industry is grappling with rising production costs mainly due to inadequate or in some places non-existent power supply. The spiralling cost of diesel, coupled with the low level of power supply contribute to the financial burden of firms in the sector.

About 70 per cent of inputs of pharmaceutical manufacturers in Nigeria are imported, buttressing the need for the government to put in place robust arrangements to ensure the availability of foreign exchange for the importation of essential items for production.

Otherwise, operators will continue to grapple with serious challenges. Neimeth recorded a 36 per cent plunge in revenue from N3.5 billion in 2022 to N2.2 billion in 2023 with finance costs rising by 198 per cent from N187.9 billion recorded in 2022 to N560.9 billion by the end of 2023. The company also declared a pre-tax loss of N1.1 billion within the period.

The firm suffered a foreign exchange loss of N1.4 billion, which was induced by FX reform that led to a sharp fall of naira. In 2023, Neimeth declared a loss after tax of N2.58 billion which is 13,581 per cent down from the N19.1 million recorded in 2022.

Another firm under the sector, Fidson Healthcare Plc posted a pre-tax profit of N5.9 billion in its 2023 operations, representing a marginal 2.4 per cent increase from the N5.8 billion posted in 2022.

According to the company’s audited financial statement for 2023, it recorded N53.1 billion in revenue, representing a 30.6 per cent increase from the N40.6 billion revenue posted in 2022.

However, profit for the year stood at N3.6 billion, representing -13.8 per cent when compared to the 2022 figure. Its cost of sales rose to N32 billion, representing 36.3 per cent rise when compared to the 2022 figure while selling and distribution expenses also increased by 13.1 per cent to N5.5 billion within the period.

Managing Director/CEO of May & Baker Nigeria Plc, Patrick Ajah, said the performance of the sector has been severely impacted by huge losses due to the floating of the naira. He pointed out that the harsh economic conditions orchestrated by this policy and others, have not only crippled the operations of many small and medium pharmaceutical companies but have also forced some multinational pharmaceutical companies to shut down operations.

“Recall that barely a month after the removal of fuel subsidy, the government, in an attempt to switch to a unified, market-reflective foreign exchange (FX) rate, decided to float the naira. Instantly the exchange rate moved from the official rate of N460/$ to ranges of N800 to N1099 and the parallel market went above N1300/$ at some point. Inflation has risen to 29.9 per cent at the end of November which is the highest since August 2005.

“The harsh economic conditions orchestrated by this policy and others, have not only crippled the operations of many small and medium pharmaceutical companies but have also forced some multinational pharmaceutical companies to shut down operations,” Ajah lamented.

The liberalisation of the FX market weakened the naira from 463.38/$ to 889.86/$ as of December 15, 2023. At the parallel market, the naira depreciated to 1,186/$ from 762/$.

A second round of devaluation in January further depreciated the naira to N1,595.1/$ at the official market on February 29. At the parallel market, it weakened to N1,900/$ before the recent appreciation of the local currency.

Vice President of Highcap Securities, David Adonri, said the collateral damage the sector suffered due to the sudden floating of the naira may have severely eroded the profits of firms under the sector. He added that the pharmaceutical industry in Nigeria is excessively exposed to currency risk as it is import-dependent.