Uzbekistan Pharmaceuticals and Healthcare Report Q2 2012

BMI View: Uzbekistan’s pharmaceutical market remains one of the fastest growing in the Central and Eastern Europe (CEE) region and its population and currently low levels of per capita pharmaceutical spending gives it the greatest long-term growth potential of any Central Asian market. BMI forecasts a local currency compound annual growth rate of 15.73% and a US dollar growth rate of 10.65% for 2011-2016. The country retains outsize levels of political risk as there is no clear succession plan for when the ageing president, Islam Karimov, leaves the scene and the regime has used harsh repression to suppress, but not address, the causes of social and ethnic unrest. For the industry, enormous growth potential is tempered by the sheer difficulty of the operating environment and lack of transparency, both of the marketplace and decisions made by the authorities.
Headline Expenditure Projections
?? Pharmaceuticals: UZS853.25bn (US$498mn) in 2011 to UZS993.59 (US$563mn) in 2012; up 16.4% in local currency terms and 13.1% in US dollar terms. Forecast adjusted due to downward revision in 2011 data.
?? Healthcare: UZS3,627.17 (US$2.12bn) in 2011 to UZS4,332.76 (US$2.46bn) in 2012; up 16.0% in local currency terms and 19.5% in US dollar terms. Forecast up from Q112 due to updated macro data.
?? Medical devices: UZS155.82bn (U$91mn) in 2011 to UZS179.55bn (US$102mn) in 2012. Forecast up due to upward revision in 2011 data and updated macro data.
Risk Reward Ratings: Uzbekistan continues to rank bottom in BMI’s updated Risk Reward Ratings for CEE. Chronic political instability and lack of transparency make the difficult particularly difficult. The country’s huge upside potential remains, but for now only the most risk-taking investors are prepared to invest directly in the marketplace.
Key Trends And Developments
?? Companies from South Asia are re-emerging as joint-venture partners for state production holding Uzpharmsanoat. Generics giant Sharon Biomedicine announced in November 2011 that it had signed a memorandum of understanding to commit technology to a joint venture with the holding and an unnamed local investor. The venture will build a new plant in the Navoi industrial development zone. A month earlier, local media reported that India’s Medicamen Biotech had signed a memorandum of cooperation for the country’s first plant specialised in making oncology drugs. The new plant is due to be built in Tashkent for a budget of US$12mn.
?? Meanwhile, the government announced new tax breaks for Pakistani companies investing in the country after talks focussed on the pharmaceutical and other sectors. The government is in the midst of implementing several pharmaceutical projects with low-profile European companies as investors. Investors from India and Pakistan, due to their generic drugs focus and relatively high risk appetite, represent a critical source of technology and deep experience in developing and marketing generic drugs.
BMI Economic View: We have revised down our real GDP forecast for Uzbekistan in 2012 to 8.1%, from 8.4%, on our view that the external environment will dampen demand for Uzbek exports in particular commodities. However, given the elevated prices for key Uzbek exports, which will keep values high, we do not believe that the Central Asian country will be as impacted by the global economic slowdown as some of its neighbours. Moreover, the government's sustained expansionary fiscal policy will keep government consumption at an elevated level, further bolstering growth.
BMI Political View: We expect the recent decision by the European Parliament on December 16 to vote down a proposal to include trade in textiles in the Partnership and Cooperation Agreement with Uzbekistan, on the grounds of human rights abuses, to have little immediate impact on the Uzbek economy. Indeed, our Commodities team's view is that prices of key Uzbek exports will remain high in 2012, and will boost export receipts to the government in the short term. However, over the longer term we believe that Uzbekistan's continued non-compliance with international human rights standards will have a negative effect on the country's economic development.