Sri Lanka’s pharmaceutical manufacturing industry is pushing to evolve from an import-substitution model into a multi-billion dollar export engine, eyeing a slice of the US$ 1.8 trillion global market.

Speaking at the Annual General Meeting of the Sri Lanka Pharmaceutical Manufacturers’ Association (SLPMA) held in Colombo this week, industry leaders outlined a bold vision to transform the sector into the country’s next thrust industry. By capitalising on an abundant pool of high-quality science graduates and strategic regional proximity, manufacturers believe Sri Lanka can carve out a highly specialized, globally competitive export niche.

A central pillar of this ambition relies on harnessing the talent generated by the state’s free education system. Newly elected SLPMA President Dinesh Athapaththu emphasised that the sector could effectively absorb thousands of science graduates who currently migrate or remain underemployed in roles below their capacity. Pointing to the massive scale of the global pharmaceutical arena, he noted that capturing even a fraction of it would secure a sustainable economic future.

Addressing concerns regarding regional competition, he stated, “It is not a comparative advantage that we are going to have with India. We should not consider a comparative advantage with India, and it’s all about how we can create a competitive advantage”.

The industry has already undergone a massive transformation over the past decade. Outgoing SLPMA President Nalin Kannangara noted the sector now operates 25 manufacturing facilities compliant with World Health Organization Good Manufacturing Practice standards, producing over 300 local products. These manufacturers currently meet 45 percent of the Medical Supplies Division’s requirements, a significant increase from just 10 percent a decade ago. This growth in the state sector was largely driven by crucial government buyback agreements. However, despite this strong public sector footprint, local manufacturers currently hold a mere 5 percent market share in the highly competitive private sector.

This robust domestic foundation is increasingly prompting successful manufacturers to target international expansion. A prime example is Morison Limited, the pharmaceutical manufacturing arm of Hemas Holdings PLC, which is aggressively laying the groundwork for a major export drive after reaching a critical mass in the domestic healthcare sector. Having invested Rs. 4 billion into a state-of-the-art manufacturing and research facility in Homagama, the company is currently undergoing the rigorous European Union Good Manufacturing Practice (EU-GMP) certification process. This strategic outward pivot is designed to open access to highly regulated international markets and position the homegrown manufacturer as a competitive player in global supply chains, helping to mitigate local macroeconomic vulnerabilities.

To replicate this success on a national scale, manufacturers are urging the government to clear severe policy and regulatory roadblocks. A primary grievance is the uneven playing field that heavily taxes research and development. While imported finished pharmaceuticals enter Sri Lanka tax-free, local manufacturers importing raw materials for trials, formulation, and validation batches are subjected to an 18 percent Value Added Tax, a 5 percent Ports and Airports Development Levy, and a 2.5 percent Social Security Contribution Levy.

Warning that “our product development cost will go overboard,” Kannangara explained that these taxes effectively stifle innovation and make locally manufactured products uncompetitive against foreign imports.

Expressing his frustration over the failure to resolve the taxation issues on packaging materials despite repeated requests, Kannangara quipped, “I ended up with a nickname called VAT Mac,” and added, “I have no option but to pass down this challenge to the new president”.

Furthermore, the local market is currently facing an influx of cheap pharmaceutical imports triggered by Maximum Retail Price caps. The local industry has raised concerns over the lack of adequate testing facilities to ensure the quality of these cheap imports flooding the country, putting both patients and local competitiveness at risk.

Bureaucratic red tape further compounds these financial strains, severely delaying the crucial product development cycle. Every raw material consignment currently requires a tedious debited letter process routed through the Health Ministry, the National Medicines Regulatory Authority (NMRA), and Customs. Achieving export readiness requires policymakers to understand the industry’s complex and highly capital-intensive investment cycle. Outlining the grueling timelines, Athapaththu explained that building a pharmaceutical facility takes four to five years, followed by a year of qualification and validation. After the plant is ready, complex product development takes another 18 months, followed by at least a year for registration. Because the return on investment is a long-haul game, he noted that “your export process starts just after getting into the Sri Lankan market,” demanding immense investor patience and a highly supportive local ecosystem.

To survive the long road to profitability, the industry is demanding a dedicated, fast-tracked registration channel at the NMRA and the immediate rationalisation of taxes on research materials. Furthermore, manufacturers are calling for a strategic extension of the government buyback guarantee until 2030, providing the financial stability needed to anchor local investments before launching into the global export arena.

Emphasising the need for support, Athapaththu argued, “We should consider buybacks as a transitional arrangement”.

Sourse