CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Every business organization is primarily
focused on extracting the highest amount of profit from their business
activities. When investments are made in a business venture, whether by owners
or shareholders, it is because they expect profit out of their investments. The
measure of a successful enterprise is frequently based on how much and how
consistently it can turn a profit. However, profit and profitability are two
different concepts, albeit related. Raval (2006) reduced profitability to its
simplest terms by defining it as the ability of a given instrument to earn a
profit. Whether the firm is generating enough profit from its resources,
whether it is utilizing resources properly, whether it is performing better or
worse than its competitors in terms of making profit etc. cannot be adequately
judged simply by looking at the firm's net profit. Instead, profitability has
to be taken into account considering both the internal and external factors
that can affect it either positively or negatively. In technical terms,
profitability is the ratio of profit to revenue, which gives a clearer picture
of the performance of a company rather than just the profit. In the same vein,
profit is the main motive of every business organization which pharmaceutical
companies are not exempted. Shareholder desire for wealth maximization cannot
be achieved without profit. Profit ensures that the business continues as a
going concern. The existence and survival of any business is dependent on the
level of profit.Thus, it is the driving force for the business enterprises. The
perpetual existence of the firms depends on the profit earning capacity of the
firm, which is considered to be the foremost factor in influencing the
reputation of the firm. Profit is an absolute term, whereas, the profitability
is a relative concept. Profit refers to the total 2 income earned by the
enterprise during the specified period of time, while profitability refers to
the operating efficiency of the enterprise and delivers the evidence about the
company‘s ability to spawn earnings. An enhancement in profitability sparks to
an increase in stock price, thereby registering capital gains. Profitability of
firms is of vital importance to investors, stakeholders and economy at large.
For investors, the return on their investments is highly valuable, and a well
performing business can bring high and long-term returns for their investors.
Furthermore, profitability of firm will boost the income of an organization,
bring better quality products for its customers, and have better environment
friendly production units. Also, more profits will mean more future investments,
which will generate employment opportunities and enhance the income of people.
Many studies have been conducted to determine various financial and
non-financial factors that can boost or have an adverse effect on the
performance of firm. The performance of any enterprise is influenced by the
environment in which it is located. The last two decades has witnessed the pre
and post democratic governance in Nigeria as well as a number of government
initiatives aimed at addressing some challenges facing the health delivery
system of the country. The pharmaceutical sector is a complex one, involving
many different stakeholders such as the manufacturers themselves, national
regulators, government ministries, wholesalers and others. Developing the
industry requires concerted action across these stakeholders to create the
environment in which that industry can flourish and realize its full potential
as an asset to economic and social development. Since 2006, United Nation
Development Organisation(UNIDO), with funding from the Government of Germany,
has been conducting a project on strengthening the local production of
essential generic drugs in developing and Least Developed Countries. The
objective is to help the pharmaceutical sectors 3 in developing countries such
as Nigeria realize their potential role of acting as a pillar of public health
and contributing to economic and social development. The key challenges
confronting Nigeria‘s pharmaceutical market include counterfeit medicines, poor
healthcare infrastructure and the limited spending power of citizens. These
challenges is as a result of high cost of production by pharmaceutical
companies.According to the survey conducted by UNIDO in 2011, there are about
120 local drug manufacturers in Nigeria. Capacity utilization within the sector
is about 40 per cent, meaning that there is a large volume of under-utilized
manufacturing capacity which could be applied to produce new products upon
demand. According to the Pharmaceutical Manufacturers Group of the Manufacturers
Association of Nigeria (PMG-MAN), about 60 per cent of pharmaceutical
production in ECOWAS countries is located in Nigeria. The survey further
indicated that poor infrastructure (power, water, and transportation) increases
the cost of medicine manufacture and distribution whilst also hampering growth.
Currently, no Nigerian pharmaceutical manufacturer has attained WHO cGMP
(current Good Manufacturing Practice) requirements and WHO pre-qualification
although some companies are inter alia upgrading their facilities and hope to
attain this status in the near future. However, for the time being, they cannot
participate in international tenders for pharmaceutical supplies and their
scope for exporting is also limited. Attainment of WHO GMP and prequalification
status will enable local pharmaceutical producers to participate in
international tenders for supplies of antiretrovirals, anti-malarials and
anti-TB medicines. A further obstacle faced by local manufacturers is access to
finance for working capital and upgrading facilities, which is constrained by
high bank interest rates.
1.2 Statement of the Problem
Nigeria is a relatively large country
with an estimated population of 169 million and it is endowed with natural
resources, high levels of human and social capital (Ogaji et al, 2014).
However, it is plagued with a very high incidence of disease, poverty and
malnutrition and has lower life expectancy than some other African countries of
comparable economy (WHO, 2013). In the last five decades, the Nigerian health
sector has remained grossly underdeveloped, despite seeming better off than
other African peers(AFRINVEST, 2014). Healthcare delivery in Nigeria is
characterized by inefficient budget execution, inadequate funding, poor service
quality and a shortage of qualified personnel essential to the delivery of
public health services. Despite modest increases in healthcare budgetary
allocation, improvements to key health indicators have been rather limited
(AFRINVEST, 2014). The pharmaceutical industry in Nigeria has a solid history
which can be traced to the colonial period where pharmaceutical business
primarily involved the distribution of drugs by representatives of different
multinational drug manufacturing companies present in Nigeria such as Beecham,
May & Baker, Pfizer, Glaxo, among others. In general, the activities of
this 6 pharmaceutical sector isimpacting on economic growth positively and
presenting many individuals with investment opportunities. The role of the
pharmaceutical industry in a country such as Nigeria in the provision of safe,
pure, quality and efficacious products to meet the healthcare need of the
populace cannot be overemphasized. Provision of essential medicines by this
sector will curb infiltration of the market with spurious and sub-standard
products and will also enhance the economy, (Ogaji, Alawode, and Iranloye,
2014). In realization of key role of the availability of essential drug by
Pharmaceuticals firms and their significant impact on health system, the
government of Nigeria has made more efforts in empowering the pharmaceutical
industry in the last two decades than before (Ogaji et al, 2014).
The authors went further to explained
that revised National Drug Policy (NDP, 2005), anticipated that by 2008, the
local pharmaceutical industry will have realized a production capacity of 70%
to satisfy at least 60% of national drug requirements of essential drugs while
the balance was to be exported (NDP,2005). Consequently, a number of essential
drugs that the local manufacturing industry has the capacity to produce have
been put on import prohibition list to encourage the local manufacture and
improve on the capacity utilization of sector (NCS, 2014). Kaplan and Liang
(2005) opined that pharmaceutical sector ensures that there is no great
disparity between the demand for medicines to treat endemic diseases and the
lack of purchasing power. The authors proceeded that investments in local
medicine production will be efficient when the pharmaceuticals can be produced
more cheaply locally and optimizing profits and growth. Though the Federal
government has made various policy to make sure that this sector performed to
expectation through the banning of certain drugs into the country.
Format: MS Word
Chapters: 1 - 5, Preliminary Pages, Abstract, References, Questionnaire.
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No. of Pages: 120
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