Latvian pharmaceutical sales posted growth in line with our forecasts for the first nine months of 2013. With private spending experiencing a slowdown in Q313, we expected pharmacy sales of consumer pharmaceuticals to follow. We reiterate our expectation of +4.0% growth for 2013 on the back of the latest data. Latvia will continue to present a modest opportunity to larger multinational companies on account of its relatively small market size.
Headline Expenditure Projections
- Pharmaceuticals: LVL230mn (US$429mn) in 2013 to LVL239mn (US$430mn) in 2014; +4.1% in local currency terms and +0.2% in US dollar terms.
- Healthcare: LVL1.02bn (US$1.75bn) in 2013 to LVL1.07bn (US$1.90bn) in 2014; +5.1% in local currency terms and +1.1% in US dollar terms.
Risk/Reward Ratings: Latvia is ranked 14th out of the 20 countries surveyed in the Central and Eastern Europe (CEE) region in Q114. Latvia's ranking has improved one place compared with our assessment in the previous quarter. However, Latvia's composite score of 48.8 remains unchanged, indicating that the movement is due to a worsening assessment of the country's peers. Lativa's score remains below the regional average of 51.5, indicating the country's challenging business environment, particularly in terms of potential industry rewards. Consequently, direct multinational operations are limited and domestic companies such as Grindeks have looked abroad for growth opportunities.
Key Trends And Developments
- In November 2013, Grindeks reported that it was investing LVL1.6mn (US$3.1mn) in a local quality control laboratory to strengthen its position and increase its competitiveness. Of the total investment, LVL1.33mn (US$2.57mn) will be used for the construction of the facility, while the remaining will be invested in buying modern analytical equipment for the laboratory. Construction of the new lab, which will be built in accordance with EU good manufacturing practice standards, is scheduled to be completed in May 2014.
- OlainFarm's sales increased 2% year-on-year (y-o-y) to LVL6.11mn (US$11.57mn) in October 2013. The company registered the strongest growth in Georgia, Lithuania and Belarus, where sales increased by 165%, 131% and 81% y-o-y respectively. The majority of the country's exports for the month were to Russia, Latvia, Ukraine and the UK. For the period January to October 2013, OlainFarm's sales rose 8% y-o-y to LVL44.28mn (US$83.84mn). The strongest sales growth during the 10-month period was achieved in the Netherlands, Spain and Belarus.
BMI Economic View: Despite adoption of the euro, risks to Latvia's economic forecast remain to the downside for 2014. Much of what drove growth in the Baltic states of Latvia, Lithuania and Estonia in 2013 - house price appreciation, very strong real wage growth and export demand from Russia and the Nordics - could act as drag on growth in 2014, hampering competitiveness and preventing exporters from fully capitalising on improving eurozone demand.
BMI Political View: Unity party member Laimdota Straujuma appears likely to become the next prime minister of Latvia. The new government is expected to retain a broadly similar composition to the previous coalition, and we do not expect to see any major shifts in policy ahead of the parliamentary election in October 2014. Latvia's President Andris Berzins approved of the nomination of agriculture minister Laimdota Straujuma, following the resignation of Prime Minister Valdis Dombrovskis in November 2013 after the collapse of a supermarket roof in Riga was blamed on poor government oversight of construction projects.