An investment policy review undertaken by the United Nations Conference on Trade and Development (UNCTAD) found that Bangladesh needs to attract foreign direct investment to sustain its development and suggests that the country loosen its grip on the pharmaceutical sector. Bangladesh said the review will be carefully considered.

UNCTAD is holding the sixth session of its Investment, Enterprise and Development Commission from 28 April to 2 May.

The two main themes of the session are: entrepreneurship and productive capacity-building, and technology and innovation for inclusive development.

UNCTAD publishes investment policy reviews, which aim to help countries improve their investment policy, and “to familiarize governments and the international private sector with an individual country’s investment environment.” Such reviews are considered by the UNCTADCommission on Investment, Enterprise and Development. Recommendations on investment policy are then implemented with UNCTAD’s technical assistance.

The investment policy review of Bangladesh [pdf] was presented to the Commission on 29 April.

Bangladesh Industry Minister Amir Hossain Amu said at the commission meeting thatelements highlighted in the review and the recommendations “have been noted and will be examined carefully.” Bangladesh has yet to attract foreign direct investment (FDI) to its potential, he acknowledged. The country is viewing a target of 2021 to become a middle-income economy.

The UNCTAD policy review, which was requested by Bangladesh and financially supported by Sweden, gives a number of recommendations for reform in support of that path to that growth.

FDI Potential

James Zhan, director of the UNCTAD Investment and Enterprise Division, presenting the policy review, said Bangladesh has “an enormous potential” to attract FDI. Reasons include the country’s strategic location between large emerging markets, competitive labour costs, and a vibrant private sector.

However, he said, Bangladesh is underperforming in FDI attraction. Among the reforms suggested in the UNCTAD review, he said, is to revisit the investment law in order to offer clear conditions for FDI. It should cover all forms of authorised direct investment, spell out restrictions clearly and offer non-discrimination between foreign and national investors.

He also advised that Bangladesh consider a progressive relaxation of its national pharmaceutical policy, which was adopted in 1982 to promote the development of domestic manufacture. This has led to a huge expansion of the sector, and was a great success, but the current model is starting to show its limits, he said.

The policy review includes a case study on Bangladesh’s pharmaceutical industry, which states that Bangladesh “has the most advanced domestic pharmaceutical industry among LDCs [least-developed countries].” But despite this, UNCTAD recommends it to change.

Protectionist Strategy for Pharmaceutical Products?

Bangladesh is manufacturing a wide range of drugs for domestic consumption, and Bangladesh pharmaceutical firms are gradually building their export capacity, the review states. The pharmaceutical products are exported to nearby countries with a limited production capability.

Bangladesh’s policy has favoured domestic industries through the 1982 adoption of the National Drug Policy and a Drugs Control Ordinance [pdf]. Through this ordinance, medicines considered useless by health authorities were pulled off the market, according to the policy report, while a national list of essential medicines was created.

Moreover, following the adoption of the ordinance, stiff restrictions on drugs importations were applied, as well as operational restrictions being imposed on multinational pharmaceutical enterprises with factories in Bangladesh, according to the policy review.

With many of their products de-registered, multinational pharmaceutical companies sold off their factories to local companies, the review notes.

The legislation also restricted alliances between local and multinational pharmaceutical companies and installed a requirement to have full production facilities in Bangladesh in order to serve the domestic market. This created the need for the drug market in Bangladesh to rely on local firms for many medications.

According to the policy review, as a result of the national drug policy, “a handful of local pharmaceutical companies have thrived.” The review states that according to some studies, some 70 percent of the drug local market is controlled by the top-ten domestic companies.

“Bangladesh can be considered as one of the few developing countries in the world that is relatively drug self-sufficient,” according to the policy review, which also remarked that some of the top-tier companies are exporting drugs and “venturing into the manufacture of more complex molecules as well as the production of vaccines and biosimilars.”

Limits and Future of the System

The strategy adopted by Bangladesh is partly linked to the current intellectual property conditions benefitting the country. Under the 1994 World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), LDCs are exempted from enforcing IP rights on pharmaceutical products until 2016. A parallel exemption for other products ended in 2013 and an additional extension was granted to LDCs until 2021 (IPW, WTO/TRIPS, 7 June 2013).

According to the policy review, however, it is unclear “whether domestic patent legislation has fully incorporated all relevant public health flexibilities available under TRIPS to maximise the attractiveness of the country as a destination where companies can make medicines that are patented elsewhere.”

In any case, the exemption, whether it is extended beyond 2016 specifically for pharmaceutical products, would not be applicable, should Bangladesh not be considered as an LDC in future years.

In either scenario, according to the policy review, the Bangladesh pharmaceutical sector sits at a crossroads and the applied model for its development, based on protectionism, might have run its course. This model does not encourage competition with generic producers elsewhere and have led the top-tier companies charging high prices, making them profitable but not competitive globally.

The protected space offered by the domestic policy has also allowed those companies to prosper, even without World Health Organization drug prequalification, says the policy review. That lack of WHO prequalification is hindering their capacity to export the review said, underlining the lack of capacity of Bangladesh’s drug regulatory authority.

Amb. Abdul Hannan, said the review mentions production for essential drugs and generic medicines for the domestic market in Bangladesh, but he said, the country is not only self-sufficient but also exports to more than 75 countries.

Changes in the Pharmaceutical World Offers Opportunity

Major changes are underway in the global pharmaceutical sector, according to the report, with large multinational multinational research-and-development-based pharmaceutical firms shifting their business model. This shift is brought about by factors such as the “patent cliff” where major blockbuster drugs will be falling into the public domain within a few years. One of the new strategy is to acquire branded generic firms, mostly in developing countries, such as India, says the review.

This context, the review notes, could open “significant export opportunities for Bangladesh and facilitate the long-term growth and viability of the sector.” However, that would require for example that Bangladesh firms be exposed to foreign competition, and upgrading the drug regulatory authority.

Recommendations

The review recommended that Bangladesh, in order to increase competitive pressure, consider a progressive loosening of its National Drug Policy so that foreign firms that manufacture their pharmaceutical products can sell on the Bangladesh market. That would decrease the cost of medicines and increase their quality, according to the review.

On the suggestion made by the review for a progressive relaxation of the national drug policy, Hannan said it needs to be carefully studied whether the Bangladesh pharmaceutical sector should be opened for joint venture, technology transfer through licensing and other collaborative projects with foreign firms.

In order to attract investment into the pharmaceutical sector through its TRIPS exemption, Bangladesh should also incorporate into its national legislation “relevant public health flexibilities under the TRIPS Agreement … in clear and unambiguous terms,” said the review.

Hannan added that Bangladesh could not open all sectors for FDI, and that openness should be considered in relative terms on the basis on realities on the ground. As an LDC, Bangladesh “has a responsibility to protect the interest of its growing private sector,” he said.

Intellectual Property Regime

The policy review remarks that Bangladesh has intellectual property laws covering patent, copyright and trademark protection, “although these are weakly enforced.”

Hannan said “the enforcement of IP laws in Bangladesh is definitely not very strong,” but IP laws are in place, with the addition of a geographical indications act “adopted very recently.”

He added that Bangladesh was fully engaged with the World Intellectual Property Organization to develop an intellectual property strategy for innovation, and that WIPO has almost completed its work on the matter. The country is preparing itself to be subjected to TRIPS obligations, whether because it no longer meets the LDC definition, or because the TRIPS waiver for LDC is no longer extended.

The UNCTADCommission on Investment, Enterprise and Development was established in 2008. According to UNCTAD’s website, the annual meeting of the commission gathers investment and technology stakeholders worldwide. Member states, investment promotion and technology agencies, the private sector, academia and civil society participate in the commission’s sessions, it says.