Rational foreign exchange policy needed to boost pharma export

The pharmaceutical sector in Bangladesh contributes significantly as an import-substitute manufacturing sector. Even a quick glance at the industry statistics points to a positive future outlook for this highly potential sector. Total investment of the pharmaceutical sector roughly stands at BDT 12.4 billion. The sector also witnessed double digit growth over the last decade. Over 256 registered manufacturers operate in the pharmaceutical sector catering to around 97 per cent of the local demand while gradually expanding their exports to about 87 countries around the world. The sector also has emerged as the highest contributor to the national exchequer and is expected to grow by 15 per cent annually to reach the projected turnover of US$ 5.36 billion by FY 2022.
The pharmaceutical companies are now on the verge of entering highly-regulated markets like the US, the EU, Australia and the GCC (Gulf Cooperation Council) countries. They have already obtained accreditation from the USFDA (the United States Food and Drug Administration), UKMHRA (the United Kingdom Medicines and Healthcare Products Regulatory Agency), TGA (Therapeutic Goods Administration) and the GCC.
In 2013, the pharmaceutical exports amounted to US$ 77.38 million, showing a secular growth starting from 2006.  The sector is also termed as one of the most important avenues of the country's export diversification strategy and is expected to grow manifold in terms of export volume from its current share of less than 1 per cent of the country's total export earnings. Industry incumbents believe that the vast potentials of this sector can be unlocked by addressing regulatory constraints through policy reforms and process simplification in the government agencies including the Bangladesh Bank (BB) and the Directorate General of Drug Administration (DGDA).
At the policy level, some of the issues are posed by provisions in the Foreign Exchange Guidelines for the pharmaceutical sector. Throughout the year, pharmaceutical companies seek export opportunities which need to be preceded by payment of product registration fee and other charges mandated by the export destinations. On most occasions, the exports get caught up in a tangle of bureaucratic hurdles. BUILD has picked up some of these issues during a study conducted in December 2013, with specific objective of analysing the foreign exchange policies applicable to the pharmaceutical sector. The study was aimed to address regulatory barriers, solidify export incentives and identify ways to achieve optimal growth by increasing exports and lessening the gap between export earnings and import payments spent on raw materials and finished products.
One of the pressing issues for pharma entrepreneurs is to use foreign currency for registering drugs in the foreign countries, sending samples and for exploring new markets. Companies with Export Retention Quota (ERQ) Account have limited headroom with regards to remittance as they are required to seek prior approval of the BB if the remittance payment amount for drug registration fee exceeds US$10,000. While US$10,000 limit could be sufficient for drug registration in African countries, the fees are usually much higher than US$10,000 for drug registration in developed markets including the USA and Europe.
Moreover, exporters may have additional non-import related payments such as fund for setting up liaison/sales offices abroad or participation fee for foreign trade fairs and exhibitions. All such requests mandate approval from the BB if the maximum threshold of US$10,000 is crossed.
New exporters top the list of sufferers as their limited ERQ account balance is often insufficient, compared to the transactions at hand. To note, none of non-import related payments is allowed to be remitted from the local taka account of exporters.  Companies without ERQ Account or insufficient fund in their ERQ Account need to apply for the BB permission through authorised dealer (AD) banks to remit drug registration fee from their Local Currency Account. In cases where a manufacturer intends to remit advance payment above US$ 5,000 without ensuring a supporting bank guarantee, it needs to seek the BB permission through its AD Bank. Bank guarantee is costly because bank charges 1-3 per cent commission on guaranteed amount.
The BB takes 7-14 working days to provide the approvals if all documents are in order, including 2-3 days for courier delivery. The approval process gets delayed even further if there is any query from the Bangladesh Bank. Depending on individual cases, obtaining BB permission might take even 2-3 months.
Drug companies are largely constrained by these regulations governing payment for  product registration and promotion in foreign countries; delays in getting permission from the BB to remit the product registration fee abroad can be damaging and have far reaching ramifications. Getting products registered in regulated markets is tough and it becomes tougher when such constraints limit their manoeuvrability.
Based on the findings of the study, BUILD devised policy recommendations that were tabled during the meeting of its Financial Sector Development Working Committee on 4th February 2014. The Committee, co-chaired by the Deputy Governor-1 of the Bangladesh Bank and the President of Dhaka Chamber of Commerce and Industry (DCCI), discussed the recommendations in much detail.  A number of stakeholders involved in this sector and concerned government officials were present in the meeting.
BUILD recommended that the BB should  issue a circular to allow payment of drug  registration  and renewal fee from exporters' Local Currency Accounts and ERQ accounts alike,  subject to due diligence by AD Banks and submission of documents required by the BB.  Since product registration and renewal fee are legitimate transactions, backed by documents issued by respective government agencies in the export markets, these two transactions should not be bound by any upper limit (unlike the maximum threshold of USD10,000 imposed on ERQ Accounts for such transactions).   If needed, for regulatory inspection, the BB could introduce a system of post facto approval or bank audits instead of the current system of seeking pre-approval from the central bank. According to BUILD study, this move can lead to time savings of 7-11 working days per transaction for the exporters. It will also reduce regulatory enforcement burden on the BB by rationalising this straight forward transaction through transferring the enforcement authority to AD Banks.
Moreover, the BB also needs to issue a circular to allow payment to be effected from ERQ Account up to US$50,000, revising it from the present level of US$10,000.  the BB can dictate the nature and purpose of transactions which are eligible for this revised threshold .
Lastly, it was recommended that the BB should simplify the approval granting procedure followed by its Foreign Exchange Policy Department (FEPD).  Making it easier to obtain BB approvals will save time and follow-up costs incurred by both Authorized Dealer Banks and pharmaceutical companies.  
Process simplification at the BB will expedite the approval granting procedure of exceptional transactions routed to the central bank such as  advance payment above US$5000, transactions from ERQ Account above the stipulated threshold, payment of royalty fees, etc.  To make the foreign exchange policy simpler, BUILD suggested a Single Point Contact Centre (SPCC) should be established at the FEPD department for receiving application and supporting documents and for liaising with the applicant (or the AD Bank) in case of discrepancy in the application/any query raised by the BB.  At present, these requests are submitted at the central dispatch section of the Bangladesh Bank and take a day or two to reach the FEPD department. To add to the delay, the FEPD department uses postal service to convey its response or query to the applicant, which takes additional time. BUILD recommended that the BB should use emails to communicate discrepancies or additional requirements to the applicant in order to expedite the whole process in favour of the business entrepreneurs.  
On average, the Bangladesh Bank FEPD department receives 50 applications per week for foreign exchange transaction approvals, 10-12 per cent of which comes  from the pharmaceuticals industry. The benefits of having a dedicated Help Desk (in the form of SPCC) at FEPD would surpass the purview of pharmaceutical sector and be advantageous to all other sectors engaged in foreign trade. The recommended changes would have a positive impact on the overall banking system and client satisfaction, while making the central bank more systematic in its regulatory enforcement operations. BUILD's recommendations provide remedy to bolster export growth in the pharmaceutical sector.
While TRIPS offers Bangladesh a short-term window of advantage, long-term international success will be based on price, quality and creation of a conducive investment climate for the pharmaceutical sector in Bangladesh. In the upcoming Industrial Policy, pharmaceutical sector will be identified as one of the 12 thrust sectors. Accordingly, BUILD's recommendations are geared towards facilitating growth in the country's pharmaceutical exports.
The writer is CEO, Business Initiative Leading Development (BUILD).
 ceo@buildbd.org