Prior to putting pen to paper for this article I called up my mother. Shortly after exchanging Christmas holiday pleasantries, I quickly got down to business (she said she was playing Monopoly with the family and so needed to get back to Euston road), and asked her point blank:
“Is pharmacy business profitable?”
You see at one point of her entrepreneurial career she run a pharmacy and supported 7 children at the time. Drug names like Magnesium Tricilicate and Penicillin V therefore easily rolled off my tongue from early childhood. I therefore believed she would help me.
Her simple response (in my mother tongue):
“Yes, but the pharmacies are always playing cat and mouse with the authorities and you need to watch for theft of the drugs.”
In her simple lay person terms, and without a pharmacy degree or formal training, she had laid out the key risk factors to look out for if you are to invest in this business.
Why invest in the pharmacy business in Uganda?
The title of the article highlights the double jeopardy of this sector.
Cat and mouse: Government vs hospitals, where are the drugs?
You cry (or weep) for our beloved country because it would seem that many reports indicate that whereas the Government is constantly allocating money to hospitals for buying medication, when you get to the hospital the doctors tell you there are no drugs in stock and you will have to buy them from somewhere else.
Ugandan hospitals appear to have therefore been transitioned into diagnosis clinics identifying underlying health issues of patients and then sending them out to look for medication. The doctors claim there are no drugs in stock. It’s therefore common for patients in Uganda to go to government hospitals, receive diagnosis for their diseases and leave without even the basic medication of pain killers. The government claims they send the medicine to the hospitals but the hospitals claim they never receive the drugs so the big question is where do the drugs go?
The pharmacy sector: More weeping.
According to the Pharmaceutical society of Uganda, the body responsible for the sector, there are currently 465 qualified pharmacists, of whom 70 are abroad, leaving about 395 practicing within the country.
With a population of approximately 34 million people, this represents a pharmacist to population ratio of 1: 88,000 which is way below the recommended World Health Organisation (WHO) 1: 2,000 ratio.
The chronic shortage is being addressed by the pharmaceutical society in conjunction with Universities to among others increase the number of pharmacists being trained but in the meantime, illegal pharmacies continue coming up, the cat and mouse games with National Drug Authority (NDA), the regulator, continue and meanwhile the population suffers as a result of the imbalance.
This therefore presents an opportunity to invest, and hence reap (whilst weeping for the sad state of affairs).
When I further analysed the state of the pharmacy sector in Uganda, I noted a number of key aspects to consider:
1. Whilst many press report place the number of clinics in the country to over 10,000 there are only 414 registered pharmacies in Uganda (registered with the regulating body).
2. Of these 414 registered pharmacies, over 292 are located in Kampala, the capital and in the Central region. This is a huge imbalance considering Uganda’s population is almost equally distributed at 25% in all the four regions (Northern, Eastern, Western and Central).
3. The opportunity is therefore to invest in a franchise or network of pharmacies that target the up country towns.
Prior to investing, there are however a few key considerations:
1. Drug licence. You must have a licence and your approved pharmacist must be regulated by the pharmaceutical society.
2. Retail business considerations. As any retail outlet, you must consider retail business risks such as location and stock controls (as my mother alluded to). Many drugs come in tablet or pill form and as such the quantities can be hard to monitor. It is therefore important to first understand the drug classes (in Uganda, this is mostly class B and C) and then understand how to ensure proper controls are put in place.
3. Return on investment. From my estimates, the profitability from investing in this sector is a revenue of Shs. 187m and a Return on Investment (ROI) of only 0.87 months.
In a country characterized with limited availability of medicine in the government hospitals, more and more pharmacists and businessmen have seen an opportunity to open independent pharmacies. They do this because of the unsatisfied demand for medication by the patients who don’t get it in the hospitals.
It is a business where we all weep for the state of our country, and then those who see the opportunity to help create change (while making money) reap (perhaps with little gnashing of teeth).
For over 10 years I have worked with several clients providing audit, accounts, tax and advisory in sectors ranging from agriculture, mining, entertainment, financial services and technology.
My client portfolio in Uganda, The Bahamas and The Channel Islands, United Kingdom has equally been diverse and this experience has given me a “well rounded” view of business including several clients in this sector.