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Kazakhstan: a “bitter pill” for investors in the pharmaceutical market

Special EditionHigh levels of corruption and unpredictable government policies pose serious obstacles to the work of investors in Kazakhstan. The change in the rules of cooperation with foreign investors in the pharmaceutical sector, introduced by the state, calls into question the prospects for their further presence in Kazakhstan.

A state programme, designed to attract investment into the sector  

The pharmaceutical industry in Kazakhstan satisfies merely 15% of domestic consumption,and mainly low-profit, generic (i.e. non-patented) medicines are produced in the country. According to IHS Global Insight, in 2011, the Republic of Kazakhstan imported drugs valued at $142 billion (704 million euros) which constitutes 86% of domestic consumption. 

In order to change the unfavourable proportions, back in 2010, by the order of the President of Kazakhstan, Nursultan Nazarbayev, the State Programme for the Development of Pharmaceutical Industry for 2010-2014 was adopted; its aim is to produce 50% domestically  by 2014.

The programme provides a number of preferences for those domestic pharmaceutical players who implement GMP (Good Manufacturing Practice) and ISO (International Organisation for Standardisation) standards, namely:

• procurement tender procedures do not apply to seven-year agreements on the supply of drugs, concluded with ‘SK-Pharmaciya’;

• the accelerated procedure of state registration of generic drugs, medical devices and medical equipment, produced locally;
• tax incentives. 

These benefits apply to foreign manufacturers, who are prepared to localise their production in Kazakhstan under the same conditions as those for domestic producers. This proposal was followed by a response: huge foreign investors joined Kazakhstan’s pharmaceutical market. The state entered in to seven-year contracts with them for the supply of products, under the terms of which, the ‘SK Pharmaciya’ SK was required under the contract to guarantee them a portion of the market to foreign investors after new plants are constructed. 

Foreign investors in the pharmaceutical market in Kazakhstan

Kazakhstan has 80 enterprises involved in the production of pharmaceuticals. Amongst them, five of the largest plants produce 85% of Kazakh medical products. Foreign investors have pumped  a staggering $180 million into these plants.

In September 2011, ‘Polpharma’, an investor from Poland, became the majority shareholder in Shymkent JSC ‘Khimpharm’ – a plant, which supplies 55% of Kazakhstan’s pharmaceutical products. It now operates under the brand ‘Santo’. In 2013, a new ampoule workshop, built as a part of the investment project, will be put into operation. Tablet preparation plants will be completed in the first half of 2014.

The second largest company in terms of production (7%) in Kazakhstan is the ‘Nobel Almaty Pharmaceutical Factory’; its main investor has been the Turkish company ‘Nobel Ilac’ since 2002.

The third largest firm in terms of production (5%) is the company ‘Abdi Ibrahim Global Pharm LLP’, whose production facilities are located in the Almaty Province. Previously, it used to be a Kazakh company ‘Global Pharm’. In October 2012, 60% of its shares were acquired by an investor from Turkey, ‘Abdi Ibrahim’. Now, a joint Kazakh-Turkish project worth $60 million is underway; including the construction of a new pharmaceutical plant in Kazakhstan by the end of 2014.

In August 2012, a Russian group of companies ’Pharmstandard’ became a shareholder of LLP ‘Karaganda Pharmaceutical Plant’.

In October 2012, a Kazakh-Czech business forum was held. During the course of the event, a contract on the construction of two new pharmaceutical manufacturing facilities in Semipalatinsk and Pavlodar was concluded between the Kazakh company ‘Romat’ and the company ‘Favea Europe’. The new plants should be fully compliant with the international standards (GMP). The funding of the project will be provided by two companies. The total investment amounts to 37 million euro. According to the plans, both companies will become profitable in the first half of 2014. 

Critical situation with the supply of medicines

Since 2010, state purchases have been made through a single distributor of medicaments in the Kazakh market, ‘SK Pharmaciya’, which is a part of the National Welfare Fund ‘Samruk-Kazyna’ (a holding for the management of state assets of Kazakhstan).

The objective of ‘SK Pharmaciya’ is the purchase of medicinal products directly from manufacturers and their delivery to medical care facilities, both public and private. ‘SK Pharmaciya’ is engaged in providing medicaments within the guaranteed volume of free-of-charge medical care. Another aim of the company is to support domestic manufacturers.

In practice, the situation surronding the supply of medical means in the country is critical. The main problems are associated with delayed tenders for the purchase of medicines, which, in turn, frequently defers the delivery of essential drugs. In addition, the volume of medicines supplied is insufficient. Due to the volatility of procurement rules, manufacturers have no assurance that drugs will be sold.

International experts have pointed to the problem of the availability of counterfeit (fake) drugs on the domestic market, the amount of which varies from 2% to 10%. Mostly, these drugs are imported from Russia, Ukraine and China.

In late 2012, the Agency of the Republic of Kazakhstan for the Protection of Competition has analysed the pharmaceutical and medical markets, and based on the findings, a number of problems were highlighted. In particular, incidents of incorrect interaction of the medical community and pharmaceutical companies, a low-level of competitive development in the pharmaceutical market in rural areas, and an excessively large number of wholesalers have been highlighted. In addition, no concepts or clear criteria of interchangeability of medicines are stipulated in the law.

Kazakhstan is changing the rules

At the initiative of ‘SK Pharmaciya’ and the Ministry of Health of the Republic of Kazakhstan, in early February 2013, amendements were introduced to the Decree № 1729 ‘On approval of the organisation and conduct of procurement of medicines, preventive (immunobiological, diagnostic, antiseptic) medicines, medical devices and medical equipment, as well as pharmaceutical services pertaining to the provision of a guaranteed volume of free-of-charge medical care’. According to the document, the state distributor ‘SK Pharmaciya’ shall unilaterally revise the previous agreements with suppliers. According to the document, the national distributor of medicaments ‘SK Pharmaciya’ will expect from pharmaceutical companies to start deliveries of medical means not within 7, but a maximum of 2 years (!) from the date of signing the contract. Should this period be extended by a supplier, ‘SK Pharmaciya’ has the right to terminate the contract.

This decision predominantly affects the interests of foreign investors, who are coming to the pharmaceutical market in Kazakhstan. According to the new wording of the Decree, long-term supply contracts, concluded previously with such companies as ‘Abdi Ibrahim’ (Turkey), ‘Favea Europe’ (Check Republic), ‘Polpharma’ (Poland), ‘Pharmstandard’ (Russia) and ‘Nobel Ilac’ (Turkey), may also be revised.


  • New amendments to the legislation of Kazakhstan violate the international principle of guaranteed full protection and security of investment.  In order to maintain the investment attractiveness of Kazakhstan, authorities are required to comply with the previously signed agreements with investors, as well as introduce changes only upon consent of both parties or by a court order. 
  • Violation of the rights of investors in the pharmaceutical industry is a conspicuous example of the systemic problems and double-standards on the part of the Kazakh government. It is difficult for European investors to conduct their business activity under such conditions. This policy discredits Kazakhstan and may lead to high-profile lawsuits in international courts. In light of a lack of true institutional mechanisms for the protection of foreign investors inside the country, international arbitration remains their only hope.