East Africa Pharmaceuticals and Healthcare Report Q2 2012

Business Monitor International
March 20, 2012
56 Pages - SKU: BMI3816764
Countries covered: Africa

Sudan

BMI View: We maintain our view that the outlook for Sudan and South Sudan's pharmaceutical marketswill be more dependent on the economic and political stability of the two countries, rather than their needfor medicines. With the most recent Sudanese civil war ended in 2005 after more than 20 years offighting, tension remains high and violent clashes between forces in South Sudan and its northernneighbour continue. It is clear that the market will not be able to attract significant interest frommultinational companies for at least half a decade. Market pioneers are likely to be non-Western, smallgeneric drugmakers. Larger firms may be able to increase their exposure to market with deals with localdistributors or sell bulk products that can be repackaged and sold on. In the next few years, drugexpenditure is likely to remain erratic. Over the longer term, improved access to medicines and demandfor more advanced pharmaceuticals will remain at an elevated growth rate.

Headline Expenditure Projections

.. Pharmaceuticals: SDG1.49bn (US$563mn) in 2011 to SDG1.68bn (US$571mn) in 2012;+12.9% in local currency terms with a 1.4% in US dollar terms. High in local currency termsdue to elevated inflation but weaker growth in US dollar terms due to the expectation offurther depreciation of the Sudanese pound.

.. Healthcare: SDG13.07bn (US$4.93mn) in 2011 to SDG15.16bn (US$5.14bn) in 2012; +16.0%in local currency terms and 4.2% in US dollar terms.Business Environment Rating: Within the 30-country Middle East and Africa region, Sudan is currentlyone of the least attractive propositions to multinational drugmakers, scoring just 29.3 out of 100 in BMI'sproprietary ranking system. Sudan underperforms in all of our measured indicators but its Risk profileweighs most heavily on its overall performance.

Key Trends & Developments

.. According to BMI's Country Risk team, Sudan's economy will continue to struggle in 2012 andwe forecast a languid pace of recovery following the secession of South Sudan in 2011. Highinflation, ongoing security concerns and major political disagreements domestically andinternationally will hinder a more robust recovery, placing Sudan among the slowest-growingeconomies in Sub-Saharan Africa in 2012.With private consumption subdued, the short-termoutlook for the pharmaceutical market remains poor.

.. An on-the-ground assessment of the drug market is particularly difficult, although thedistribution of medicines is likely to have been disrupted, particularly in the conflict zones on theborder.

.. Inflation has been a particular concern across the economy. According to the most recent releasefrom the Sudan Central Bureau of Statistics, healthcare inflation hit 26.5% in September 2011and it is expected that drug prices have also been in double figures. The continuation of highinflation across the economy is key to our high nominal growth rates in local currency terms.However, growth is considerably less attractive when measured in US dollar terms.

.. In late December 2011, the South Sudan National Legislative Assembly in its Sitting No.42/2011 received a presentation of a proposed motion on the scarcity of lifesaving drugs in themajor cities of the Republic of South Sudan. The presenter of the motion, Hon. Paul YoaneBonju Losukwa, called for the Ministries of Health, and Finance and Economic Planning toinvest in the pharmaceutical sector, producing a list of areas that need to be improved.

BMI Economic View: We expect economic growth to be subdued in 2012, as Sudan continues thepainful process of overhauling its economy in the wake of the secession of South Sudan and the resultantloss of the vast majority of its export revenues. We are forecasting 2.4% growth in 2012, which we expectwill improve in the subsequent years, to above 5% by 2014. The ongoing disagreements with SouthSudan regarding the sharing of oil revenues continues to complicate our assessment of both countries'economic outlook, while the accompanying violence has the potential to deteriorate into full-blownmilitary conflict. This creates substantial risks to the downside for our outlook. Nevertheless, for the timebeing, we believe that, over the longer term, growth will begin to slowly accelerate, surpassing 5% in2014 and 2015.

BMI Political View: A cabinet reshuffle and the killing of an influential rebel leader in an air strike arebeing held up by the government as evidence that it is broadening its base and winning the battle againstinsurgents, but its popular support remains limited and armed opposition is more united than it has beenfor years. However, the positive effect of these developments on al-Bashir's regime should not beoverstated; moreover, they are not without their caveats. Firstly, while the cabinet reshuffle followed afour-month consultation and entailed providing opposition parties with portfolios, there has not been asignificant dilution of the ruling National Congress Party (NCP)'s powerbase. The NCP retained the sixmost crucial ministries – defence, finance, foreign affairs, interior, petroleum and the presidency of theRepublic – and several others besides (agriculture, electricity, higher education, justice, labour, mineralsand science & technology).

Tanzania

BMI View: We are encouraged by the fact that the Tanzanian government has placed a greater emphasison development expenditure, highlighting healthcare as a key area of investment, particularly as thecountry's disease burden is set to increase. However, we are concerned by the continued reliance onforeign grants and concessional loans.

Headline Expenditure Projections

Pharmaceuticals: TZS345.0bn (US$223mn) in 2011 to TZS400.4bn (US$246mn) in 2012; +16.0%growth in local currency terms and +10.7% in US dollar terms.

Healthcare: TZS1,807.87bn (US$1.17bn) in 2011 to TZS2,051.17bn (US$1.26bn) in 2012; 13.5%growth in local currency terms and 8.2% in US dollar terms.Healthcare: Business Environment Rating: In BMI's Q212 BERs, Tanzania is ranked 20th in theMiddle East and Africa (MEA) region. Investment risks include a sizeable counterfeiting industry, poorhealthcare funding and regulatory environment deficiencies. Nevertheless, we believe the Tanzanianpharmaceuticals and healthcare market presents significant revenue earning opportunities for drugcompanies. Growth in the sector will be boosted by strong demographics, increased healthcare needs,longer life expectancy, increased healthcare spending in the public and private sectors and improvedaccess to health facilities. In addition to an increase in the healthcare services provided by thegovernment, we note that there is also a growing demand for health services by the population due to agrowing awareness of preventative healthcare.

Key Trends And Developments

In January 2012 it was reported that Tanzania's two public health insurance funds, the NationalHealth Insurance Fund (NHIF) and the Community Health Fund (CHF), cover only 15% of thetotal population. The NHIF has 2.5mn beneficiaries and the CHF has approximately 3.4mnbeneficiaries, while the country's total population is about 40mn. The public funds are affectedby low enrolment, with people in rural areas the most affected. Some of the reasons for the lowmembership for the CHF include poor quality of accessible services and inability to makemembership contributions. However, the low membership for the NHIF is primarily due to alack of competition and low public awareness.

In January 2012, Tanzania's National Institute for Medical Research (NIMR) stated that it islikely to start the initial production of its newly developed remedies in six months. The institute,which is set to submit its drugs for approval, has already contacted the Tanzania Food and DrugsAuthority about the registration and patenting of the drugs. The NIMR will manufacturehepacure, persican and nimrex, which are designed for the treatment of patients with liverdiseases, diabetes and cholesterol, and cold and flu respectively.

BMI Economic View: Critical electricity shortages and the possibility that tariffs will be hiked massivelyin early 2012 have clouded an otherwise positive economic picture for Tanzania. As a result, we havedowngraded our 2012 real GDP growth forecasts to 5.9%, from 6.5% previously. Based on theassumption that ambitious government plans to deal with the problem will come to fruition, we have, forthe time being, retained our 7.0% forecast for 2013. This will be subject to downward revision however,if tangible progress is not made over the course of 2012.

BMI Political View: Tanzania's constitution making process is set to be a volatile affair and could wellbe impetus for demonstrations over the coming months. Furthermore, we have argued in the past thatopposition party Chadema's star could be on the rise while there are signs that ruling Chama ChaMapinduzi is slowly losing favour with the electorate. The early signs are that the constitution-makingprocess could hasten this shift.

Uganda

BMI View: Uganda's pharmaceutical market is typical of developing markets: defined by an absence of aclear regulatory framework, a dependence upon drug imports and low healthcare expenditure per capita.Economic growth will aid the development of Uganda's pharmaceutical and healthcare sectors asaffordability levels increase and fiscal contributions towards healthcare service provision rise –providing revenue earning opportunities for companies investing in the sector.

Headline Expenditure Projections

Pharmaceuticals: UGX676bn (US$266mn) in 2011 to UGX750bn (US$296mn) in 2012; +11.0%growth in local currency terms and +11.1%.

Healthcare: UGX2,845bn (US$1.12bn) in 2011 to UGX3,278bn (US$1.29bn) in 2012; 15.2% growth inlocal currency terms.

Risk/Reward Ratings: In BMI's Q212 BERs, Uganda is ranked 26th in the Middle East and Africa(MEA) region. A sizeable counterfeiting industry, poor healthcare funding, corruption, regulatoryenvironment deficiencies and a number of other issues will conspire to keep Uganda in a similarly lowposition in the MEA matrix over the coming months. Nevertheless, we believe the Ugandanpharmaceuticals and healthcare market presents significant revenue earning opportunities for drugcompanies. Growth in the sector will be boosted by strong demographics, increased healthcare needs,longer life expectancy, greater healthcare spending in the public and private sectors and improved accessto health facilities. Furthermore, in addition to an increase in the healthcare services provided by thegovernment, we note that there is also a growing demand for health services by the population due to agrowing awareness of preventative healthcare.

Key Trends And Developments

.. BMI's Burden of Disease Database (BoDD) records the number of disability-adjusted life years(DALYs) lost as a result of having or having had a disease. Therefore, our measure of DALYs isa measure of lost productivity. According to the BoDD, the number of DALYs lost to alldiseases in Uganda will increase from 13.99mn in 2010 to 18.64mn in 2030. The BoDD alsoforecasts the number of DALYs lost to communicable diseases to increase from 10.24mn in2010 to 12.13mn by 2030. While Uganda's disease burden is dominated by infectious diseases,economic growth will boost lifestyle diseases, increasing the demand for medicines for chronicdiseases. The number of DALYs lost to non-communicable diseases is forecast to rise from2.18mn in 2010 to 3.74mn by 2030.

.. In January 2012, Rwandan President Kagame announced that his government is to purchaseantiretroviral and anti-malarial drugs from Ugandan pharmaceutical company QualityChemicals.

BMI Economic View: We have revised down our 2012 Uganda economic growth forecasts, to 6.2%from 7.1% previously, on the back of evidence that high inflation and tight monetary policy will keepboth investment and consumption subdued. We continue to expect robust real GDP growth once oilrevenues come into play, in 2014-2015.

BMI Political View: The ongoing accusations of fraud and corruption among prominent politicians andother leaders threaten to blight Uganda's image as an investment destination, and have already had directnegative impacts on the nascent oil sector. Furthermore, the ongoing rise in the cost of living has causedpublic unrest, last seen in full force earlier in 2011, to resurface.



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