There are many factors that contribute to the pricing of pharmaceuticals and related commodities in Kenya. Examples are: The cost of importation, electricity costs in local production, transport costs, warehouse costs, administrative costs and competition in the market.

1.      Currently, most pharmaceuticals are imported.  The cost of importation and registration are added to the value of the medicine and affect the end users buying price.  Local manufactured medicines do not have these added costs. This means that drugs manufactured locally should ideally be less expensive than those imported, but it is not always the case. 

2.      The cost of production is so high, that this cost carries through all the way down to the end user inevitably.  Electricity is so costly due to inflation of petrol, and local rates on generation of electricity cannot match those of foreign countries. 

3.      Kenya’s manufacturing plants do not run around the clock, so production capacity is also not being met.

4.      In the local market, wholesalers/distributors are often times also practicing in the retail sector; this translates to selling medicines at wholesale price but in the retail sector.  This results in huge variations in pricing.  Normal retailers who do not wholesale cannot compete; they cannot afford to sell at wholesale rates to customers.

5.      Also, you may find manufacturers by-passing the wholesaler/distributor and selling directly to the retailer.  Those retailers who have a large capital, can afford to buy in bulk.  They can even act as ‘mini-wholesalers,’ and often times do.  These mini-wholesalers do not hold wholesaler licenses, but due to discounts and accessibility, retailers purchase from them.

6.      Pricing is also determined by illegal parallel imports. Some are ‘briefcase’ imports and evade scrutiny by PPB.  Some illegal parallel imports come in disguised as other products and reach the market. 

7.      While illegal routes are being used, substandard drugs infiltrate the market.  Substandard drugs not only risk a patient’s health outcome, but creates an unnatural and unfair competitive market.  These substandard drugs are relatively cheaper, and where the income levels are low, this option becomes attractive.  Unfortunately, these patients purchasing the drug are unaware of the background of these drugs. 

8.      Infrastructure also plays an important role in pricing, as the cost of warehousing and distribution must be factored in.  Kenya has a major dry port (Nairobi) and wet port (Mombasa).  Large scale warehousing is by KEMSA, which supplies to the public sector.  Distribution involves having temperature controlled transportation vehicles which increases cost once again.  The distribution of suppliers mainly lies in urban areas.  So, areas that are rural spend more to procure their drugs.

9.      Undercutting has recently created unfair competition whereby one retailer sells much below the other.  This has created animosity amongst colleagues in the field, and confused the consumer who doesn’t understand why there is such great variations in price.  The client often wonders if expensive is better or original, likewise wonder if cheaper is a better deal or just a placebo.  The same medicine purchased in different parts of the country vary in cost.

10.   In the Kenyan market, you will find that there are few distributors in the country, and many retailers.  Although KEMSA supplies the public sector, MEDS has entered and brought lower prices to address the issue of sustainability in terms of supply of medicines and reducing prices to be affordable for the poor.  MEDS supplies to faith-based organizations and non-for profit, but KEMSA livelihood could be considered threatened by the same if they can provide better rates.  Currently, since counties have devolved systems, this allows them to procure from anyone. There is some concern that MEDS also supplies to the Private sector. 

11.   On the other hand, if you look at another point of view, supplies can influence pricing by influencing buyers.  Strong suppliers can increase their prices and at the same time restrict availability.  Stronger suppliers indeed makes the competition higher, but this only occurs when there are large numbers of suppliers existing.

12.   When you look at purchasing power, it is relatively high in the Kenyan market although it is purely based on pricing.