Local Protectionism Concerns Overstated
BMI View: Nicaragua's pharmaceutical retail sector will not be distorted by Kielsa's expansion in the country due to the scale of the foreign establishment. Healthy competition introduced by foreign retailers will improve the local drug market and benefit Nicaraguan consumers. We note that Nicaragua's small market size, low per capita spending, underdeveloped economy as well as the protectionist sentiment in the local market have made it less attractive to multinational pharmaceutical companies; however, drugmakers from other Latin America countries can still benefit from market expansion in Honduras as there will be less competition from large foreign pharmaceutical companies and local rivals.
Kielsa Pharmaceutical, a Honduran pharmacy chain, has opened its first pharmacy in Managua, Nicaragua. It offers products at prices up to 50% lower than those from local pharmacies and plans to open ten large pharmacies in Managua in its first year and generate US$80mn sales annually from Nicaragua. The Association of United Pharmacies in Nicaragua fears that Kielsa will eventually establish a monopoly in the regional market. The local pharmacies have expressed concerns over Kielsa's expansion in the country to Nicaragua's Ministry of Health; however, authorities have already permitted the opening of first three Kielsa pharmacies.
We note that the Association of United Pharmacies in Nicaragua represents over 2,600 pharmacies nationwide, of which 500 are big pharmacy chains. The association is worried that the small and medium-sized pharmacies will be threatened by the Honduran pharmacy chain. We believe that Nicaragua' pharmaceutical retail sector will not be distorted by Kielsa's expansion due to the scale of the foreign establishment in the country. Healthy competition introduced by the Honduran pharmacy will improve the local drug market and benefit Nicaraguan consumers.
Nicaragua has the second smallest pharmaceutical market in Central America. At just US$70 in 2012, Nicaragua's annual per capita spending on medicine is among the lowest in Central American region, but still higher than Honduras' per capita spending (US$60 in 2012).We forecast that the pharmaceutical market will experience a period of slow growth in US dollar terms due to a weakening currency. Nicaragua has implemented pharmaceutical pricing mechanisms that make use of therapeutic efficacy assessments, the prices of similar treatments, international drug prices and manufacturing costs. BMI sees only moderate potential for multinationals in the country's pharmaceutical sector.
|Nicaraguan Pharmaceutical Market Forecast|
BMI Economic View: Deteriorating coffee output and prices will put substantial pressure on Nicaragua's goods trade account, such that we have further revised down our current deficit forecasts to 13.2% of GDP in 2013 and 13.4% in 2014. While for now we believe that the country's financial account inflows will offset this sizeable shortfall, we maintain our view that economic uncertainty in Venezuela presents a serious threat to Nicaragua's external account stability.