In a world where government intervention in the economy often ends up making things far more complicated than leaving them alone, it is rare anyone interested in a free market environment and business dealings to wish for more state attention.

But this is precisely the situation that has arisen with the current trend of private pharmaceutical companies being closed by banks for failure to repay loans. Last week, Bethlehem Pharmaceuticals was the fourth local medical supply company to have its door closed by bank and police officers. The shock of the closure was heard in conversations all over town.

A businesses folding is just business. Entrepreneurship is often a gamble, a prediction of the future that often falls short and leaves the investor feeling sour. That is the nature of the game. But, on the other hand, if you time your idea and investment correctly, you could be the next Google, or more locally, Nas Foods, who just announced a 50 million Br factory expansion.

If you have less luck or business savvy, your storyline could be far less fortunate, as it was the case with BIOSOL, Lifeline, ETAB and now Bethelehem pharmaceutical factories.

In 1991, when the current regime came to power, the local pharmaceutical manufacturing business consisted of two state run companies, each with its specific role. The Ethiopian Pharmaceuticals Manufacturing (EPHARM) was the state manufacturer (still is) and had a total monopoly on medical goods produced within Ethiopia for 34 years. The other company was the Pharmaceuticals and Medical Supplies Service and Wholesale Share Company (PHARMID), in charge of distributing EPHARM products, and the 10 million dollars in imported pharmaceutical goods annually.

This quickly changed with the introduction of about 12 private pharmaceutical companies with an aggregate investment of close to half a billion Birr; a huge, almost bubble-like, market creation, to be sure.

But who could blame all these investors for choosing pharmaceuticals as their new Ethiopian industry of choice?

Indeed, Ethiopia can hardly go wrong with creating its own pharmaceutical manufacturing industry. In the past year alone, there have been cholera outbreaks, malaria campaigns, measles, typhoid, and several other medical crises breaking out within the national frontiers. Add to this the age old tuberculosis and HIV/Aids pandemics that plague the country.

And with the population due to double in the next two decades, as cynical as it may sound, pharmaceuticals and medical supplies is a growth business to say the least.

As it is, medicines imported and manufactured locally only cover 20pc of the national demand. The country needs to spend 90 million dollars more if it were to satisfy the drug needs of its people, according to a new 45-page study by a working group comprising members from both the industry and experts from the various ministries.

But, the issue is not only about increasing budget for drug procurement. There is a pressing need to increase the number of manufacturers operating on the ground for the ones that are active are limited to producing 20 million dollars worth of drugs. It is clear that the Ethiopian pharmaceutical industry is open for more investment: a neighbouring Sudan has 22 manufacturing plants that cover 45pc of its total demand.

Thusly, no one could possibly accuse investors behind the 12 private companies - many of whom are prominent local figures - “we’ve told you so” for jumping into the business blindly.

In a way, Ethiopia could be described as a country that defies rationality, whether in business or otherwise. The fledging pharmaceutical industry is a  demonstration of this cynical statement.

Today, it certainly seems that the pharmaceutical industry came into this with something clearly missing from the business plans. Almost without exception, each of these companies has struggled over the years. Even Sheik Al Amhoudi’s Pharmacure limped on for years. A business proposition that seemed so right somehow has come out to be all wrong.

How has this come to be?

A lack of level playing field is perhaps the most prominent. By this, those in the industry claim that their industry is specifically discriminated against by poor tariff policy that allows imported finished goods to come in at one rate of tariff, and the ingredients to make the same supplies locally entering at a hefty multiplication of the same rate.

A syringe, say, can be imported at five per cent duty of its value, while any of the components to produce a locally made syringe have to be imported at almost five times that amount. The cost is simply prohibitive creating a situation where an imported product (and not one necessarily coming from cut rate producers in countries like China and India), costs less in an Addis Abeba pharmacy than its locally produced equivalent. There are 51 tariff items in connection with drug manufacturing that need to be reviewed.

If this policy makes no sense and creates an impossible situation for the investors trying to make their new business work, they have a legitimate argument. And of all the industries in the world, the pharmaceutical industry is the last one you would want investors to be effectively dissuaded from. This fact is well recognized by the ministries in the government; the Council of Ministers could easily take a policy measure to right the wrongs and as quickly as possible.

It seems the council is too snail paced to rescue some of the factories that are subjected to serial foreclosures currently carried out by banks, especially the state owned Development Bank of Ethiopia (DBE). It is a sorry and silly state of affairs as best exemplified by the very fact that all the factories closed for financial purposes have so far failed to find buyers to come in and take the property at fire sale prices. No one, for now, wants to take over a pharmaceutical business; that much is for sure.

And here is an industry that definitely needs all the help it can get. High ranking politicians should have lost their jobs for their inability to manage the country’s thriving pharmaceutical sector. Major aid organisations like UNICEF work deeply within government trying to make sure that the system can work better. Having 12 companies willing to get involved and eager to manufacture products that can be sold locally and widely is nothing to sniff at; it is an embarrassment that their enthusiasm is being so thoughtlessly broken down.

You can hardly blame the banks on this one, either. For once, local banks are operating with a little foresight and diligence regarding their own balance sheets. The DBE, which closed down ETAB and Bethlehem factories in the past few weeks, is carrying out an aggressive campaign to erase its staggering pile of non-performing loans. Efficiency is the new name of the game, according to DBE leaders, and unsentimentally closing out loans that default insistently is part of what they must do, understandably.

But, it will not solve the country’s deficit in drug provision. A pharmaceutical factory is not a cookie factory; the very fact that the rule of thumb in business circles is that pharmaceuticals simply cannot work in Ethiopia is a serious blow to prospective investors who would like to get there in the future. Investors should, therefore, be encouraged – not bailed out - to restart these factories, not scared away.

And the best way to do this would simply be for the government to noticeably realize that there is a systemic crisis on their hands; it goes far and beyond the incompetence and inefficiency of one particular owner or manager. One pharmaceutical factory closing is a news note; four of them closing (with the others clearly scared) is a structural breakdown that needs to be addressed.

Does addressing the issue mean government intervention?

Of course not. What the government can achieve is a better sense of the big picture, a keen understanding of the processes that inhibit these companies from making money and remain profitable.

First and foremost, of course, is the tariff policy.

If the government is indeed serious about promoting private enterprise and enjoying the fruits of a real market, then it is imperative that it shows intelligence in its application of this belief. Simply letting investors open companies in crucial sectors like medicine without having a sense of the larger market mechanisms is a quick way of unfairly giving free enterprise a bad name.

And the situation is dire. The pharmaceutical companies feel like they are being snuffed out by government policy and, these days, suspicions behind government motives are already complicated enough for no one will dare to foreclose the heavily indebted Addis Pharmaceutical Factory because it is owned by the EFFORT, the ruling party affiliated trust.

A free market in a sector as important as pharmaceuticals does not necessarily mean a nihilistic free-for-all. It requires foresight, conscientiousness and above-all, a level playing field.

The other solution requires a change of attitude by the drug procurement agency; its officials have a clear bias against locally produced medicines. Government should rather invest in strengthening its drug administration and controlling mechanism; and this needs more investment than the 2.6 million Br earmarked for it this year.