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Chief Executive Officer of May & Baker Nigeria Plc, Patrick Ajah, discusses how local pharmaceutical companies are filling the gap created by the departure of multinationals from the country and the impact of foreign exchange on manufacturers in an interview with FELIX OLOYEDE
How would you describe the last 80 years for May & Baker?
I would say that it has been challenging but also very rewarding because the kind of experience M&B had when it was a subsidiary of a foreign company was essential. That multinational experience is what has helped even the current M&B. There is still the technology they have, which you need as a company to succeed. So, M&B didn’t have to go the way many other local companies had to go by struggling and begging because we already had that technology. Most of the people who work here are trained by foreign partners. So, I think it was very helpful for M&B. Yes, it would have been challenging having to raise funds when the foreign partners left, grooming talents, but I think we have done quite well in the last 80 years.
How have you been coping with the current economic challenge, especially concerning forex?
As I said, it has been difficult, just like many other companies, you find out that for the first time in so many years, we have had to depend on parallel markets because the banks do not have money. The challenge you have as a company is that since you need to continue to import raw materials, you are just going around looking for where you can source funds, and banks cannot help. Even the LCs (Letters of Credit), just made a mess of the LC system, because usually before now, you just opened LCs with banks, products were imported, and they paid when it was due, but these days that doesn’t happen.
And, last year, we lost over a billion naira due to forex. As we speak, sometimes when CBN comes to the market, and you can get some funds, if what is paid is more than what you sourced or the rate you got, you are still going to make losses. But it is quite difficult.
But as a company, we have to survive, and that is why sometimes we have to buy from the parallel markets.
The tax pharmaceutical duty waivers that the Federal Government promised. Have you guys started enjoying it?
Simple, no. Essentially, what they were saying was, that they were going to suspend customs duties on pharmaceutical raw materials. But like I said, we have had discussions. I was invited to be on the panel, at least to give input from the manufacturer’s end on how the government should go about it. But as I said, we are still paying duties. It has not been implemented.
How is that impacting on the prices of drugs?
Yes, it will help. It will help. But it is not going to dramatically change the prices, because the main cause of the price increases is the forex. The forex is the biggest part of it. And I believe, not just for pharmaceuticals, but for almost everything. That is why companies are folding up because most of those foreign companies are making losses.
You people are in the press. You would have seen the losses that Nestle, Nigerian Breweries, and all of them are making. So, with such losses, there is no way you can price those products to overcome such losses.
So FX needs to be dealt with. If the government does not deal with the FX situation, our currency will be messed up. The naira is messed up. It is our legal tender. If we do not do anything about it, this is going to last for long. I know the President is saying people should endure. We will endure for a long time if the FX is not dealt with.
We saw that the manufacturing sector grew at a slower pace in Q2. What role did the pharmaceutical sector play in this?
I can speak about local manufacturing because our growth is usually very high. As a company, for instance, year-on-year we are growing by more than 20 per cent. So it will not be very significant in terms of the slowdown.
Also, despite the difficulty in getting forex, we are still managing to keep our products going. But in the multinational sector and the import-dependent sector, I am sure they would have contributed to the slowdown in growth because all these companies are leaving, and their growth contribution is also being eliminated.
Some other small companies I feel very bad for them. There are many companies, smaller companies, who do importation but cannot access forex. It is difficult for them to access forex. Even when they access forex, the products will be too expensive. Many of them are going down. Some of those companies are closing down. So that also will affect growth.
So, I think pharma would have contributed, but it is usually very insignificant because, in terms of size, we are small when you compare us with other big multinationals. So, sometimes we do not quite move the needle much.
You said that a lot of your inputs are imported. Why is the pharmaceutical sector not engaging in backward integration?
So, we are. You would have heard about some companies that are trying to start API (Active Pharmaceutical Ingredients) manufacturing. In fact, even the herbal line that we set up is significantly backward integration. I know it is still very small, but you can imagine as that grows. That is exactly what we are talking about. Active pharmaceutical ingredients just mean that everything you need to produce that medicine is sourced in-country.
For herbal products, the API is local. We talked about the bitter leaf capsule. It is the same bitter leaf that we have. That is where we get all the active ingredients for that. So, the only thing that is imported is the capsule shell. So, there is backward integration, but it is not happening at a fast pace. And it is also very capital-intensive. So, you need the funds, but more importantly, you need technology transfer.
We are not yet fully developed in terms of research and development. And most of these molecules are already developed. So they are already being produced by companies. Those companies will need to transfer technology to you. We are working on it, but it is a bit slow because of what I have mentioned.
In the last two years, we have seen many multinationals leave the country. How are those of you who are Indigenous filling that gap?
We have seen some of the drugs they were producing that can be produced in our facility. Actually, some of them were produced here, for instance, Flagyl, which belonged to Sanofi, was being produced in my factory. So now that Sanofi left, we have Loxaprim, which is our product, the same product. So, now that they have left, we have just increased our capacity. So, the capacity we are using for them, we are adding it to our own. So, for such products, you will not see so much gap. For instance, Panadol was being made by GSK, but we have M&B Paracetamol. So those, we can easily fill the gap. Some other local companies are now investing in factories to produce beta-lactam. So, those are going to help fill the gap. It may not be immediately, it might take 18 months or 24 months before some of those things occur because factories are not things that you just do. And they also have financial challenges.
I know the Federal Government talked about supporting this sector with machinery, with some facilities to produce machinery. The Bank of Industry also helps. I think this is the time that companies like us need such help. The other side of it is that investment is also difficult now. You know what the exchange rate is. The CBN trying to control inflation has been raising the interest rate, but it is going to be counterproductive. Now, if I go to any bank to borrow money, they are telling me to pay 33 per cent. If I pay 33 per cent to collect money, where am I going to get the money to pay back? Because now, some of us are not even making 33 per cent. So, those are challenges. But I must say that companies are still pushing. Some of the products we have mentioned are part of filling that gap. The ones we can produce locally, and some that we cannot produce locally, we import from our recognised partners abroad. So, it is just like doing contract manufacturing and importing. So that way, we are trying to fill the gap. For instance, the prices of Augmentin are coming down because local companies are trying to fill the gap.
Can we say that the leaving of the multinational was a blessing in disguise for local manufacturers?
I know many people like to say that, but I do not like to say that, because I want us to address the issue of why they left. If we do not address the issue or the reason why they left, it will also affect those of us who are here. For instance, we have talked about forex. If forex was one of the reasons they left, it is also going to affect us. So, we cannot just close our eyes and say, “Let them leave, and there will be some problems.” It will be a blessing in disguise if the government looks into why they left and addresses it to encourage us to fill that gap. But if we do not address those problems, well, it will not be a blessing in disguise because the country will suffer. Chances are that we might cover the gap with some medications, but for the ones who cannot cover the gap, the cost will be very counterproductive. So, the patients will benefit from some, but they will suffer from others. So the government needs to look into the issues that made them leave and address them so that we potentially might be able to fill that gap.
On the other side, if it is addressed, it might become positive for the country, because we will be developing local capacity. But if we are not developing local capacity and we just let them go, then it will be a loss.
So what is M&B doing to improve research and development?
It is capital intensive and it is not something that you return from easily. I worked at Pfizer for many years. In those days, Pfizer was investing $7bn annually in research and development. Yes, we might not need to invest that much, but the money you invest in research and development does not yield a return immediately. You are still going to need to pay dividends at the end of every year and all of that. You are still going to problem-solve with power and all of that. Do all those things affect your investment? So much of what we are doing now is partnering with research institutes, pharmaceutical institutions and all of those, professors doing some work.
Sometimes some of them get grants. It is easier for a professor in a public university to get a grant. If we see such people and they get a grant, we support them. For instance, some of them can come and use our lab. Some of them can use our facilities. A number of them, some of these professors who are doing projects and research, and we support them in making sure that the thing they need to do that research is provided.
Now and again, they write to me about some active ingredients that they need for the research. Those ones, we give to them free. If they need machines and they don’t have them, we can allow them to come into our factory, use our machines and do some of the research. So that way, when such people come up with something very good, that is why they reach back to us to help in commercialising it.
On the issue of electricity, how are you coping?
It is crazy. That is why I said if we do not address the reasons multinationals are leaving, we are also going to face the same thing. My factory runs on gas. And I know the government is talking about gas as being beneficial. It is not as beneficial as they are making it sound. It was beneficial before this new forex regime. Gas is denominated in dollars. Shell Gas that I buy from uses the current exchange rate. So, the price has increased by about 300 per cent. So what it means is, if I was spending N60m every month before, I would be spending more than N150m every month, just on power. I’ve not talked about maintaining the generator and maybe buying a new generator because, as you expand, you need to add. So that is the problem. And all of this has to be factored into the cost of the drugs. So, the thing is, the facility we run is 24 hours. We run 24 hours because there are some of those machines that you cannot shut down. If you shut them down, it will take you 12 to 18 hours for them to rev up again. So you find out that we run morning sessions, we run night shift. You will be constantly on. You’re consuming gas that is denominated in dollars.
You’re buying equipment at very high prices. For instance, any generator that you bought, maybe about N50m before, is now over N80m.
So where do you see May and Baker in the next 10 years?
I believe that in the next 10 years, especially with the changes in the dynamics of the country, May & Baker is seriously working on expanding beyond Nigeria. That is one critical thing that we are working seriously on because we have seen the foreign situation and if you can export, it is beneficial. So we are currently having discussions with the French and English West African countries for partnership to export our products.
I started with May and Baker effective December 2020 as a director of the company and became the CEO in January 2021. In my first three years, we have doubled our revenue. I am hoping that in the next three years, we will double the revenue again. So, I am thinking that in the next 10 years, the size of the current May and Baker is going to be probably four or five times what it is now.
We are launching new products. So, I see a much bigger company in the next 10 years. Not just bigger in the sense of the revenue that we deliver, we would have launched many new products, we would have expanded our capacity, our factory. As I said, we just started producing water now. We are thinking of other new products that we are going to have, other new factories that we can build. We are also planning possibly to expand beyond just Lagos. We have opened a facility in Abuja for warehousing. We are looking at a situation where some products are also going to be made outside Nigeria. We have a place in Onitsha that we are trying to develop. We are developing Abuja. So, I’m also thinking that we should be able to open some small modular factories in the north and the east. Then being able to expand outside of Nigeria.
I am also believing, God, that in the next three years, we should be able to start to build a biovaccine facility. That is one significant improvement that May and Baker would want to make in the health sector, which is being able to supply the vaccine needs of Nigeria. I believe this will happen in the next 10 years.
I’m also believing that in the next 10 years, as part of the consortium for producing APIs, May and Baker should be able to start producing API locally. When we have done this, I think the company we would leave behind after 80 years would be much better than the one we are seeing right now.
How has the Japa syndrome affected your business?
It brings me back to the multinationals leaving. We must address why the multinationals are leaving. Much of my life I have spent in multinationals. I am not just celebrating and rejoicing like some other people tend to be doing because I know it is not good for the country. Let’s face it, these multinational companies took risks to come to Nigeria. The President has been talking about encouraging foreign direct investment. How would they come and invest when the ones that invested are running away? He is sending the wrong signals. As you are going out to go and talk to them, I just came back from India. I have partners all over the world. Many of them that were pursuing me to do business have held back because they are going to ask GSK, “Why did you leave?” They are going to ask Sanofi Aventis, “Why did you leave?” They are going to ask. So it is becoming difficult to have partnerships with some of these people.
On the other side, the boys that we groomed in those companies that I have worked for, I have been searching for some of them. Anyone I call is either in the UK or in Canada. Now, we have been trying to recruit some managers for more than one year. We have not found a good candidate. So these boys, as they lose their jobs in these companies, are looking for what to do. For many of them, the jobs available cannot pay them, so many of them are running outside.
And when people are running, they will pick the best and leave the rest for you. So human capital is number one in the development of any country. If we are losing many of them to these countries, what we are trying to build may not work.
If we go back to a time when we were paying expatriates to come to Nigeria, and even the expatriates were cautious about coming to Nigeria. So, the truth is, the Japa syndrome is not positive for Nigeria. I know one of the leaders said, “Let them go.” We should not be saying such things. It is not a good sign that people are running away from your country. It’s not a good sign.
Most of the time, the people running away are the good ones. We need these good ones to build a productive Nigeria.
