Zambia Pharmaceuticals and Healthcare Report Q2 2012

BMI View: We believe Zambia is rapidly becoming one of the most promising markets in Sub-Saharan Africa. An increased focus on healthcare and preventing corruption has attracted donations and loans from the international community that, alongside a record healthcare budget, will help to revolutionise its provision of healthcare and its focus on human capital. Decentralising healthcare provision should expand access substantially. In the short term, this will not benefit multinational drugmakers a great deal as the majority of the rural population is very poor and generic drugs will continue to dominate prescription patterns. However, in the longer term, it will drive sales of drugs as the country continues to develop.

Headline Expenditure Projections Pharmaceuticals: ZMK950bn (US$196mn) in 2011 to ZMK1,128bn (US$231mn) in 2012; +18.7% in local currency terms and +18.2% in US dollar terms.

Healthcare: ZMK5,169bn (US$1.06bn) in 2011 to ZMK6,190bn (US$1.269bn) in 2012; +19.8% in local currency terms and +19.3% in US dollar terms.

Risk/Reward Rating: In Q212, Zambia remained steady at 21st best market in the MEA region in BMI’s proprietary Risk/Reward Ratings (RRR) matrix with a score of 39.6.

Key Trends & Developments

Zambia has released its proposed budget for 2012. In line with BMI’s view that the election of Sata could have upside risks for public healthcare spending, the incoming government has promised to increase the Ministry of Health’s budget by 45%, from ZMK1,772.9bn (US$367mn) in 2011 to ZMK2579.9bn (US$537mn) in 2012.

From the beginning of December 2011 to mid-January 2012, Zambia has managed to obtain US$200mn in aid and low-interest loans for social infrastructure and anti-poverty measures. Donors, investors and governments are becoming more willing to invest in the country now that doubt over the elections has passed and the government’s anticorruption measures have started to take effect.

The Zambian government announced in December 2011 that it plans to hire and train 2,500 staff and, more importantly, it is looking to raise remuneration for healthcare professionals to encourage members of the diaspora to return to the country and bring back their knowledge and skills.

BMI Economic View: The decision by the government of Zambia to repossess Zamtel from Libya’s LAP Green Network demonstrates newly installed President Michael Sata’s determination to fundamentally change the way the public sector does business. Although operational risk has increased under his presidency, we stress that the original transaction was decried by Sata (and others) in 2010, the question of reversing the sale has been in the works for many months, and, most importantly, we do not believe that there is a significant risk of nationalisation for other firms (such as copper miners) operating in Zambia.

BMI Political View: Despite some uncertainty regarding policy in Zambia following the presidential election of populist candidate Michael Sata, investment commitments into the country were robust throughout 2011. Investments have poured into the globally competitive mining sector, and there has been increased interest in manufacturing, construction and energy.