Azerbaijan's pharmaceutical industry: Reducing import dependence Boosting local production

In recent years, Azerbaijan has made significant strides towards reducing its dependence on foreign pharmaceutical imports by developing its domestic production capabilities. According to the Azerbaijan Agency for Development of Economic Zones (ADEZ), seven companies are currently operating within the Pirallahi Industrial Park, which is dedicated to pharmaceutical manufacturing. These specialized enterprises are now up and running, contributing to the growth of the local pharmaceutical sector.

Additionally, a pharmaceutical cluster is being planned for the Alat Free Economic Zone (FEZ), attracting investment from companies in Israel, Türkiye, and Pakistan. Azerbaijani President Ilham Aliyev recently highlighted the potential for joint pharmaceutical production with Pakistan during the Azerbaijan-Pakistan business forum.

A series of crises, including the COVID-19 pandemic, as well as high inflation in recent years, have highlighted the critical dependence of developing countries on the import of medicines, vaccines, and medical equipment. Azerbaijan also faced the issue of rising prices for imported medicines, other medical, and hygiene products. This problem first became prominent during the energy crisis and the subsequent devaluation of the manat in 2014-2015. Similar processes were observed during the COVID-19 pandemic and in 2022-2023 under the influence of global imported inflation.

Until recently, Azerbaijan had minimal pharmaceutical production, and the challenges of recent years have made the establishment of domestic pharmaceutical manufacturing an inevitable solution. This strategic move is well-founded, as Azerbaijan, with a population of over 10 million, offers significant opportunities for potential investors in the pharmaceutical sector. Furthermore, the annual growth of the domestic pharmaceutical market presents a promising environment for such investments.

Of course, this does not mean that the country is planning to establish chemical factories for the production of pharmaceutical substances, as investments in such plants cost hundreds of millions, or even billions, of dollars, and they are complex, high-tech enterprises with long payback periods. As the experience of many countries in Eastern Europe, the Middle East, and Southeast Asia shows, a competitive and effective pharmaceutical industry has been formed through the construction of relatively small factories where medicines are produced from imported substances and other components.

This is the path Azerbaijan intends to follow. The first step in this direction was the decree of Azerbaijani President Ilham Aliyev on September 14, 2016, for the creation of the Pirallahi Industrial Park, specializing in pharmaceutical production. Subsequently, on a 30-hectare area, all necessary road, energy, and utility infrastructure was created with state funds. According to recent information from the ADEZ Agency, seven companies currently hold resident status in the Pirallahi Industrial Park, with a total investment capital estimated at more than 121 million manats ($71.1 million). To date, more than 43 million manats ($25.2 million) have been invested in the projects, which has allowed for the creation of over 160 new jobs. According to ADEZ, pharmaceutical, hygiene, and other products worth 61 million manats ($35.8 million) have been produced by the park's residents so far.

In particular, a number of enterprises have been established in the industrial park for the production of disposable syringes, baby diapers, and a facility for the production of blood storage containers and testing equipment is under construction. There is also an Azerbaijani-Russian joint venture for the production of anti-diabetic and other pharmaceutical products, which plans to launch insulin production in 2025. In December 2023, the foundation of an Azerbaijani-Turkish joint pharmaceutical plant, Gen Pharma Caucasus Manufacturing Operations LLC, was laid in Pirallahi with the participation of the Azerbaijan Investment Company, which holds a 29% stake. Once operational, the new pharmaceutical plant will produce 42 types of pharmaceutical products, including tablets, capsules, syrups, and suspensions.

A noteworthy development in Azerbaijan's pharmaceutical sector is the emergence of the Alat Free Economic Zone (FEZ) as a prime location for establishing the production of pharmaceutical and other medical products. The zone’s tax and customs preferential regime presents highly attractive opportunities for creating a regional hub for the production and export of about 75% of pharmaceutical products to countries in the Caspian region. Companies from Israel, Türkiye, Pakistan, and other nations are exploring these prospects, with the Israeli pharmaceutical company BioPharmax becoming one of the first foreign residents of the Alat FEZ. Interest has also been expressed by Türkiye's leading pharmaceutical company, GEN, in both the Alat FEZ and the Pirallahi Industrial Park.

In recent years, the Ministry of Economy and the Ministry of Health have been engaged in discussions to establish joint ventures and attract know-how and technologies from international pharmaceutical companies in countries such as India, Thailand, Uzbekistan, Cuba, Hungary, Austria, Qatar, and Pakistan. Among these, the most promising avenue appears to be the collaboration with Pakistani pharmaceutical companies to localize their projects in Azerbaijan. Over the past few years, Pakistan has developed a robust pharmaceutical cluster, with hundreds of small "packaging" factories and large pharmaceutical enterprises producing over 30,000 types of medicines, a significant portion of which are exported.

In 2023-2024, steps were taken to attract Pakistani pharmaceutical manufacturing companies to Azerbaijan. Representatives from leading companies such as IBL Group, Searl, and Mercury ME DMCC held negotiations with the ADEZ, exploring investment opportunities and the transfer of technologies to establish pharmaceutical production in Azerbaijan.

The high potential for cooperation between Baku and Islamabad in the pharmaceutical sector was highlighted by Azerbaijani President Ilham Aliyev during the Azerbaijan-Pakistan business forum held at the end of February this year.

“We know that Pakistan has a very developed pharmaceutical industry. According to the information I was given, more than 90 items of the Pakistani pharmaceutical industry have been registered in Azerbaijan. Our suggestion is also to review the opportunities for joint manufacturing of pharmaceutical products in Azerbaijan,” noted the President.

In general, through the efforts of the Ministries of Economy and Health, significant work has been done in recent years to implement various programs and projects with foreign partners in the pharmaceutical sector. Steps have been planned to develop specialized personnel, expand the local raw materials base, and foster the production of pharmaceutical products and dietary supplements in Azerbaijan. These initiatives also focus on the cultivation and packaging of medicinal plants, including in the Karabakh region, among other areas.