Espicom View: Having stalled in the first quarter of 2013, Brazilian production of medical devices has made a recovery in recent months, although medical device imports continue to outpace growth in local output, despite government initiatives to reduce reliance on imported products. Both sectors are benefitting from robust market growth which is fuelled by the ageing population, the expanding middle class and the growing number of people with private health insurance plans.
According to IBGE's monthly industrial survey, production by the medical device industry grew by 7.2% in the first eight months of 2013, following growth of just 1.4% in the 12 months to December 2012. There are over 600 companies producing medical devices in Brazil with combined output of BRL6.1bn (US$3.6bn) in 2011, of which 77.0% comprised medical & surgical instruments, 8.5% electromedical & radiology equipment, 12.8% medical supplies and 1.7% wheelchairs. Medical device output grew at a CAGR of 10.0% between 2007 and 2011.
|Production Output, January 2013-August 2013|
|y-on-y, % change|
Government Measures Supporting Local Industry
Espicom notes that government policy is actively encouraging the expansion of the local medical device manufacturing industry. A package of measures signed in April 2013 included several productive development partnerships for the manufacture of medical devices, as well as agreements with the National Institute of Industrial Property (INPI) and the regulatory agency ANVISA to expedite the process of granting patents and registering new products deemed of strategic importance for the Brazilian health service (SUS). Other recent government initiatives to stimulate local production include the use of preference margins for locally-manufactured products and the use of state purchasing power to support the health products industry. In 2012, the government announced that BRL2.0bn (US$1.0bn) would be invested under the Investment Programme for the Health Industrial Complex (PROCIS) to support the manufacture of drugs, vaccines and medical devices through to 2014. Half of the investment will be provided by the federal government and the remaining half by State counterparts. In June 2012, the government released a list of 80 items for which local producers can charge a premium of up to 25% on imported products, ranging from catheters and endoscopes to pacemakers, dialysis machines and linear accelerators.
However, the industry association, ABIMED, has cautioned the government against embarking on a protectionist wave, which risks impeding technological advances in the country with a loss of competitiveness. ABIMED is calling for improvements in infrastructure, education and research, as well as a reduction in the tax burden and support for technology transfer, as longer term solutions to the structural problems in the market.
Multinationals Increasing Manufacturing Presence
A growing number of multinationals have a manufacturing presence in Brazil and multinationals are set to make an important contribution to the expansion of the domestic manufacturing industry. In the consumables sector, B. Braun is investing BRL346mn (US$173mn) in a new industrial park in São Gonçalo to expand production of IV administration sets in its biggest South American investment project to date. In the diagnostic imaging sector, GE Healthcare is investing in production of interventional X-ray equipment having acquired local producer XPRO Sistemas Ltda, whilst both Siemens and Toshiba are expanding production of diagnostic imaging equipment at new production facilities in Joinville and Campinas. Meanwhile Guerbet is doubling production of contrast media to 8.0mn doses by 2013, at its Rio de Janeiro plant, the company's only production unit for finished products outside France.
Widening Trade Balance
Increasing support for the domestic manufacturing industry comes in response to a widening balance of trade deficit, which has increased to US$2.6bn in 2013. Medical device imports continue to outpace growth in both domestic production and exports with a 14.3% rise in the 12 months to September 2013, taking the running annual total to US$3,083.2mn. Due to the weakness of the Brazilian real, growth in local currency terms has been higher at 26.8% versus 14.1% for the January to September 2013 period. In contrast, export performance has been weak in 2013, stagnating in US dollar terms and growing by 10.2% in local currency terms over the first three quarters of the year. Espicom notes that with some notable exceptions, such as the neonatology manufacturer Fanem, Brazilian manufacturers have struggled to maintain exports in the face of rising competition from other low-cost manufacturing bases, although the current weakness of the real is helping to make Brazilian products more price competitive on the global market.
|Import-Export Growth By Product Area, October 2012-September 2013|
|y-on-y, % change|
Major Growth Drivers In Domestic Market
Robust growth for medical products in Brazil reflects pent up demand in the market, which is being fuelled by the ageing population, the expanding middle class and the growing number of people with private health insurance plans. Whilst the private sector represents the larger part of the market, the SUS public health system is seeing increased investment under the federal government's Mais Saúde programme, phase 2 of which is set to run until 2014. The federal government is investing BRL15bn (US$6.9bn) up to 2014 in the development of the SUS. Of this amount BRL7.4bn (US$3.4bn) has already been contracted to build 818 hospitals, 601 emergency care units and 16,000 basic health units. Another BRL5.5bn (US$2.5bn) will be used in the renovation and expansion of health facilities, plus BRL2.0bn (US$0.9bn) in upgrading 14 university hospitals.