Belarus Pharmaceuticals and Healthcare Report Q2 2010

Belarus has endured the global economic crisis far better than most of its Commonwealth of Independent States (CIS) peers, although a declining exchange rate and flat GDP growth in 2009 saw negative US dollar growth (-6%) in the pharmaceutical market for the first time in a decade in 2009, although the market grew by 11.4% in local currency terms. Whether the market declines again this year, as BMI is currently forecasting, depends mostly on the exchange rate and the pace of the recovery of the overall economy. Nonetheless, the market is expected to see double-digit US dollar growth rates by 2011 – a five-year compound annual growth rate (CAGR) of 10.35% in US dollar terms and 9.77% in ruble terms.
The economic outlook for Belarus is positive, but with GDP growth rates forecast at 4.0% for 2010-2014 by BMI, the market is unlikely to revisit the 8% to 11% rates seen earlier in the decade. Challenges include regular disputes with Russia over issues such as natural gas prices and tariffs over petroleum imported for refining for domestic consumption. The Belarus economy has liberalised markedly in recent years, even if it has politically stultified. Still, the erratic president, Alexander Lukashenko, wavers between taking steps to engage the European Union (EU) – which continues to bar senior Belarusian officials – and provoking damaging political rows, such as the high-profile crackdown on ethnic Polish activists in the country.
The launch of the Customs Union with Russia and Kazakhstan may have an important impact on the development of the local manufacturing sector. Notably, state-owned pharmaceutical holding Belbiopharm, which is responsible for 90% of domestic output, has emphasised growth opportunities in non-CIS markets – ranging from Afghanistan to the Netherlands – perhaps an indicator of limited opportunities, as much of the firm’s output goes head-to-head with private- and, to some extent, publicsector Russian producers. At the same time, while it exports 45% of its production, Belbiopharm also has an import-substitution mandate, a task which will become more difficult with an influx of Russian-made drugs. The company said it announced 36 new medicines in 2009, mostly designed to replace imports. Belbiopharm has five major projects on the drawing board, including a vaccine plant involving finance from a Hungarian investment group. Meanwhile, the government has promoted a total of US$15bn in ‘innovative projects’ from 2011-2015, including unspecified pharmaceutical sector investments. The government has reported talks with a Belgian pharmaceutical group and recently talked up pharmaceutical development projects with a visiting Indian delegation. The reality is, however, that the new Customs Union provides yet another reason for the many international pharmaceutical companies to keep a difficult country at arm’s length and use a manufacturing presence in Russia to target the Belarus market. It is Russia’s import-substitution measures which will encourage multinationals to focus there – Belarus is simply too small to lure in investments from most foreign producers using a balance of regulatory carrots and sticks.