Iran: Outbound Medicinal Smuggling Raising Concerns, Debates

EghtesadOnline :Outbound smuggling of pharmaceuticals to neighboring countries has provoked ongoing debates over the past few months.

News ID: ۷۴۸۸۴۱

02 November 2019

Professionals in the fields of food and medicines believe outbound smuggling has resulted in the shortage of medication in border towns.

Government Spokesman Ali Rabiei recently said pharmaceuticals’ outbound smuggling accounts for less than 8% of the total drug market, according to Financial Tribune.

“Smuggling medication inside suitcase by passengers is highly unlikely. Passengers are only allowed to travel with reasonable quantities of medication and need to declare the amount they need to customs bureaus,” he was quoted as saying by Iran Chamber of Commerce, Industries, Mines and Agriculture's news outlet.

Morteza Khatami, deputy chairman of Majlis Health Commission, said low prices of medication in the country, which are at times eight times cheaper than those in the neighboring countries have paved the way for outbound smuggling.

Mahmoud Najafi Arab, who is the head of Health Economy Commission of Tehran Chamber of Commerce Industries, Mines and Agriculture, said the country registers an average increase of 12% in pharmaceutical manufacturing every year, but this year production has risen by 40%.

The good quality of Iranian drugs, besides their cheap prices, is the cause behind their smuggling to neighboring countries, Haleh Hamedifar, deputy head of TCCIMA’s Health Economy Commission, told Otaghiranonline.ir.

“Although it is not possible to provide a precise figure on the amount of pharmaceutical smuggling out of Iran, it exists at higher levels than before, as evidenced by growing sales of drug firms and consumption. I personally believe that medicine prices in Iran are remarkably underpriced; they are even cheaper than consumer goods sold in supermarkets,” she said.

“The pricing of medication is carried out by the government; even if prices of other products increase, pharmaceutical prices remain unchanged for unknown reasons.”

Subsidy Begets Corruption

Noting that subsidy is the root of corruption, Hamedifar said the subsidized foreign currency rate of 42,000 rials per dollar allocated to pharmaceutical production and import is in fact to the benefit of patients in neighboring countries.

Senior members of Health Economy Commission are unanimous in that the government policy of granting subsidized foreign currency to import pharmaceuticals and medical equipment is helping corrupt the economic process and its furtherance will prove counterproductive, as it inhibits the development of the industry.

“The private sector has continually voiced strong opposition to the subsidy scheme and on solid grounds. First and foremost, not all components and drug product containers are subject to subsidized currency. To import machinery or packaging materials, producers need to spend dollars at other [open market] exchange rates. As a result, the end price of the drug is higher than the price set by the government using the subsidized currency as a benchmark. Subsidized dollars only cover less than 30% of the costs of drug production,” the chairman of Health Economy Commission of Tehran Chamber of Commerce, Industries, mines and Agriculture, Mahmoud Najafi-Arab, has been quoted as saying.

Najafi-Arab added that the subsidized currency policy has given way to rent-seeking practices in Iran’s business environment, which have led to the broadening mandate of oversight bodies and consequently a more labored economic system.

“Outbound smuggling of pharmaceuticals and medical equipment is another corollary of cheap dollar. For example, subsidized imports of insulin pen, in its entirety, is economically more profitable than producing it domestically. That’s why the private sector believes the Plan and Budget Organization should allocate subsidies to strengthen healthcare insurance rather than spending it on imports,” he added.

Nasser Riahi, a member of the presiding board of TCCIM, who also heads Iranian Pharmaceutical Importers Association, believes that problems associated with the transfer of subsidized currency due to sanctions should be added to the list of the government’s controversial policy.

“The private sector wants it to be rid of the government’s oil money from its system in order to provide the foreign currency it needs via other channels, including earnings of non-oil exporters. On top of that, there’s a lot of competition between importers for subsidized dollars as pharmaceuticals and medical equipment are not on the list of US sanctions and that has intensified the supervision and control of oversight bodies and prolonged the process of receiving government funds,” he said.

Riahi noted that misguided policies and constant changes of guidelines have undermined the trust of foreign providers, who demand orders be fully paid in advance.

“The current policy is in effect granting subsidies to imports versus production. Except for the import of a fraction of raw materials subject to subsidized currency, the pharmaceutical and medical equipment production sector has to procure the foreign currency it needs at open market exchange rate but for importers of complete drugs, all costs are subsidized,” he said.

Hamedifar, who is also the chief executive of high-tech company, CinnaGen Pharmaceutical Group, said knowledge-based industries are the least likely pharmaceutical production sector to receive government subsidies since they produce all the ingredients, including their needed raw materials, themselves.

“The more an industry moves toward indigenization of technology and self-sufficiency, the least it is likely to receive subsidized currency. Also, it seems goods imported via customs terminals cannot obtain clearance permits due to missing or incomplete banking documents related to the transfer of currency. The pile-up of commodities at customs offices has reached a significant level ever since the introduction of currency subsidies,” she said.

Hamedifar further said that under the circumstances, all importers who receive subsidized currency are presumed guilty of corruption until proven innocent.

“Producers of pharmaceuticals, high-tech industries in particular, have to spend a great deal of time proving their integrity,” she said.

In 2018, the National Medical Device Directorate reported that the Iranian medical equipment market was worth $2.5 billion, of which 30% belonged to over 1,000 domestic firms.

On a global scale, 56% of 500,000 medical equipments available in the world market have Iranian-made versions. In pharmaceuticals, around 70% of Iran’s $4.5 billion market are domestically produced and, in 2018, 97% of pharmaceuticals consumed in the country were manufactured locally.

In 2018, 67% of active pharmaceutical ingredients used to produce drugs in Iran were made locally, according to the “Global Innovation Index 2019” report published by Cornell University, INSEAD and the World Intellectual Property Organization, in partnership with other organizations and institutions.