Among the second-tier markets in Latin America (Chile, Colombia and Peru), the Peruvian pharmaceutical market is the least attractive to multinationals in the short to medium term. It is the smallest market by absolute size, with the lowest growth rate in local currency terms. However, we believe that despite its medium-term weakness, the longer-term strengthening of the nuevo sol means the value of Peru's pharmaceutical market will expand more quickly in US dollar terms over our 10-year forecast periods, and this will be of interest to foreign multinationals.
Headline Expenditure Projections
- Pharmaceuticals: PEN4.11bn (US$1.56bn) in 2012 to PEN4.39bn (US$1.62bn) in 2013; +6.8% in local currency terms and +6.3% in US dollar terms. Forecasts broadly in line with Q313 projections.
- Healthcare: PEN25.78bn (US$9.77bn) in 2012 to PEN27.74bn (US$10.47bn) in 2013; +7.6% in local currency terms and +7.1% in US dollar terms. Forecasts broadly in line with Q313's projections.
Risk/Reward Rating: In BMI's Risk/Reward Ratings (RRRs) for Q413, Peru slipped from ninth to tenth of the 17 markets surveyed in the Americas matrix. Peru's Reward and Risk scores are viewed as being less favourable than the regional averages, on account of the modest population size and also due to the deficient regulatory enviornement. Indeed, Peru is listed on both United States Trade Representative (USTR) and Phramceutical Research and Manufacturers of America (PhRMA) 'watch lists' for 2013.
Key Trends And Developments
- Peruvian pharmaceutical manufacuter Hersil has publicly stated that it plans to become one of the top six companies in the country's private pharmaceutical and nutritional sector by market value in the coming five to six years. In order to achieve this target, the company will have to double its expected turnover in the pharmaceutical and nutritional division at year-end 2013 of PEN115mn (US$41.03mn) to PEN230mn (US$82.07mn) by end-2018. Hersil will introduce up to four new products in its nutritional and gynaecological segments in H213.
BMI Economic View: Peruvian consumer price inflation ticked up to 2.5% year-on-year (y-o-y) in May 2013, from 2.3% y-o-y in April. While this reading remains well within the central bank's inflation tolerance band, given the significant sell-off of the nuevo sol in recent weeks, we do not rule out a further increase in the price level in the coming months.Moreover, we note that in Q113, Peru's economy posted the slowest expansion since 2009 due in part to a weak performance by the external sector and moderating fixed investment, bolstering our long-held view for a notable moderation in real GDP growth in the next few years.
BMI Political View: Peruvian President Ollanta Humala's approval ratings have declined significantly in recent months on the back of continued concerns over high levels of crime and rising social unrest. With no short-term solutions to high crime rates or tensions over education and public service reforms on the horizon, we believe Humala will face a more challenging political landscape in the coming months, increasing the likelihood of policy U-turns and further downgrades to our Short-Term Political Risk Rating in the coming months.