Drug Market Set For Inflated Growth
BMI View: High inflation, currency devaluation, import and foreign currency controls, as well as other structurally distorting policies, in Venezuela have made the country's pharmaceutical market increasingly unattractive to multinationals. We expect the market to grow at below nominal GDP levels between 2011 and 2015, and experience a contraction in real growth terms.
Compared with our previous forecast, Venezuela's pharmaceutical market is expected to grow at a faster rate between 2011 and 2016, experiencing a compound annual growth rate (CAGR) of 22.2% in local currency terms, instead of the previously forecast 19.3%. This accelerating growth is largely due to the longer period of high inflation that BMI's Country Risk team is forecasting. Inflation averaging more than 20% over the past decade has been forecast to increase to 22.0% by end-2012, as some of the government-led disinflationary policies are no longer in place, and it will be extended to the end of 2016 due to a combination of political and economic factors.
|Extended High Inflation Period|
|Venezuela - Consumer Price Index, % y-o-y, ave|
BMI notes that despite the strict currency controls, Venezuelan authorities has also tightened regulations governing the import of pharmaceutical products, and consolidated its hold on the country's pharmaceutical sector, which includes stripping the sector of its priority status and cutting the amount of money allocated to drug production and sales companies. We expect that those key developments in Venezuela's drug market, combined with the government's cost-containment policies, will result in the country's real pharmaceutical sales contracting between 2011 and 2015.
Meanwhile, the pharmaceutical market CAGR, calculated in local currency terms, will be below the country's nominal GDP levels between 2011 and 2016. The main reasons for this is that Venezuela still heavily relies on imported medicines to meet its local demand despite the government initiatives to encourage the domestic production; however, currency controls and devaluation have restricted the volume of drugs the country can import, and could lead some companies to withdraw products that are no longer financially viable from the Venezuelan market. In addition, the lack of foreign currency is also affecting local drug producers and rendering them unable to import raw materials which could result severe shortages of generic drugs as well.
|Below GDP Growth Level, Contraction In Real Terms|
|Venezuela -Pharmaceutical Market & GDP Growth Outlook, VEFbn|
In 2011, pharmaceutical expenditure in Venezuela reached a value of VEB36.3bn (US$8.45bn), and by 2016, we calculate the market will be worth VEB98.8bn (US$8.07bn), experiencing a 22.2% CAGR in local currency terms (-0.9% in US dollar terms). Over the extended 2011-2021 forecast period, we calculate drug expenditure will experience a CAGR of 20.7% in local currency terms (7.6% in US dollar terms), reaching a value of VEB237.5bn (US$17.6bn). We note that Venezuela is very similar to Argentina in terms of economic conditions and limited drug purchasing power. The drug market in Argentina is also forecasted to deliver an over 20% CAGR in local currency terms, which is mainly driven by high inflation rate.
|High Inflation Rate Driven High Growth|
|Venezuela & Argentina - Pharmaceutical Markets & Inflation Rates|