Belarus Pharmaceuticals and Helathcare Report Q3 2012

BMI View: The short-term outlook for the Belarusian pharmaceutical market is deeply uncertain due to
exchange-rate volatility and the economy’s lack of capacity for progress without fundamental reforms
though Russian financial support, in exchange for market access, may keep it ticking over. However,
aside from some public statements about Chinese and Indian investments, which BMI regards with
scepticism, foreign pharmaceutical players will stay out of Belarus until the economy reaches a new
equilibrium. In addition, despite the existence of a Customs Union with Russia and Kazakhstan, the
country is isolated from international trade flows by Russia’s accession to the World Trade Organisation
(WTO). There is an argument that foreign retail, wholesale or production players could find a bargain
under current circumstances. But potential meddling by the state, in particular by President Alexander
Lukashenko, who plays a personal role in most foreign investment decisions, complicates even this
process.
Headline Expenditure Projections
􀂃 Pharmaceuticals: BRB3,598bn in 2011 (US$692mn) to BRB5,075bn (US$634mn) in 2012;
+41.0% in local currency terms and -8.4%% in US dollar terms. US dollar forecast upgraded
from Q212 on the basis of updated data.
􀂃 Healthcare: BRB12,775bn (US$2.46bn) in 2011 to BRB16,305bn (US$2.04bn) in 2012;
+27.6% in local currency terms and -17.1% in US dollar terms. US dollar forecast virtually
unchanged since Q212.
􀂃 Medical Devices: BRB2,174bn (US$418mn) in 2011 to BRB3,067bn (US$383mn); +41.1% in
local currency terms and -8.4% in US dollar terms. US dollar value substantially upgraded on
the basis of new data.
Risk/Reward Rating: Belarus ranks 18th of 20 Central and Eastern European (CEE) markets again this
quarter. Its ranking is a result of its poor – and still worsening – economic and political prospects. We are
pessimistic that any incremental reforms will take place in the foreseeable future. The most likely
scenario is continued status quo, with the country increasingly mortgaged to the Russian state, or a period
of prolonged unrest, with consequent instability.
Key Trends And Developments
􀂃 Alongside devaluation, another potential blow to primarily foreign companies selling over-thecounter
(OTC) medicines in Belarus was dealt by its parliament considering a ban on all
advertisement of pharmaceuticals. The ban appears to include drugs on the OTC product list.
While a similar move in neighbouring Ukraine has not been successful, BMI suspects this ban
might have greater success, not least because the government has shown little willingness to
promote the sector and advertising benefits primarily imported, branded products. On a more
Belarus Pharmaceuticals & Healthcare Report Q3 2012
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positive note, Remedium.ru reported in June that the Belarusian authorities had approved a new
list of prescription-only and OTC drugs, with a 20% increase in registered OTC medicines,
which now total 3,279.
􀂃 In May, local newswire Belta reported that the Belarusian authorities have invited Chinese firms
to ‘cooperate’ in the production of pharmaceuticals and medical equipment. The country has also
reached out the government of the city of St Petersburg, a Russian drug production hub, to seek
investment and technology transfer. BMI remains sceptical of such calls for cooperation and
memorandums of intent, which are common in many CIS states, but rarely yield concrete, valueadded
projects.
􀂃 Against our expectations that Belarus''s currency crisis would lead to slower pharmaceutical
imports in 2011, full-year trade data released in May has shown imports reached BRB2,908bn
(US$559.5mn) in 2011, up 8.2% in US dollar terms and equal to an 88.7% increase in local
currency terms. Exports for the year were also higher than expected, totalling BRB630.9bn
(US$121.4mn), with growth of 7.7% in US dollar terms and 87.9% in local currency terms. BMI
is sceptical about the data, although it could represent stockpiling by distributors. During 2011,
the consumer price index across the Belarusian economy averaged 59.3% and the Belarusian
ruble lost more than half its value.
BMI Economic View: We continue to forecast real GDP growth of just 3.6% in Belarus this year, down
from 5.3% in 2011 owing to the knock-on effects of the country''s recent financial crisis and our
expectation for the authorities not to resort to expansionary policy prematurely. If the government was to
push for a significant fiscal boost this year, it could serve to reignite inflationary concerns and currency
instability further down the line, in turn sacrificing future growth for near-term gains.
BMI Political View: Belarus''s ongoing isolation from the EU will continue moving the country closer,
both politically and economically, to Russia. While economic support from Moscow is mitigating
immediate financing concerns for Minsk, there are sizeable risks associated with Belarus becoming
overly dependent on its ex-Soviet neighbour in the long term. In the near term, authorities must avoid a
premature return to expansionary policy to boost growth, given that the country''s macroeconomic
stabilisation remains fragile at this stage.