Pharmaceutical sales in Belarus are poised to recover as the fallout from the breaking of the potash joint venture Uralkai-Belaruskali subsides, and the risk of currency devaluation temporarily relents. However, Belarus must now contend with the consequences of Ukrainian instability and the impact of this on the region's economies. There are significant downside risks to our forecast for 2014, due to the threat of further currency depreciation, a collapse in exports and absolute erosion of consumer purchasing power.
Headline Expenditure Projections
Pharmaceuticals: BYR8,927bn in 2013 (US$1.00bn) to BYR10,783bn (US$1.08mn) in 2014; +20.8% in local currency terms and +7.9% in US dollar terms.
Healthcare: BYR24,909bn (US$2.80bn) in 2013 to BYR28,874bn (US$2.90bn) in 2014; +15.9% in local currency terms and +3.5% in US dollar terms.
In our latest Pharmaceutical Risk/Reward Rating (RRR) matrix, Belarus is 17th out of the 20 countries surveyed in the Central and Easter Europe (CEE) region, having considerably improved since the start of the year. However, although its Rewards variables (and in particular its Industry Rewards) are favourable, Belarus will continue to represent a very risky market on account of unresolved issues, such as the lack of patent protection, corruption and political tensions.
Key Trends And Developments
- Russia's preferential treatment rules in government procurement have been expanded to include Belarusian exports. Two unnamed Indian companies have reportedly begun preparations to localise production of generics in Belarus, according the Belarusian ambassador to India.
- In September 2013, the Belarusian government was reported to be planning to open an anti-cancer drug plant in Skidel, with the cooperation of an Indian company, reported Belarusian Telegraph Agency (BelTA), citing Viktor Zalessky, the director general of Belmedpreparaty. Zalessky made the statement during Belarusian Prime Minister Mikhail Myasnikovich's visit to Belmedpreparaty's production site in Skidel.
BMI Economic View: The Belarusian current account deficit is set to remain elevated in 2014, on the back of the fallout from the potash dispute. This, combined with very low FX reserve levels at the central bank that cover just 1.4 months of imports, could escalate towards a balance of payments crisis, and the need for another currency devaluation. This would likely spark a period of hyperinflation, not only crippling the Belarusian economy, but potentially leading to popular demonstrations against the government of Lukashenko. While the risk of this is remote, with the government possessing effective security services that could suppress any protests, it would undoubtedly lead to a severe deterioration in the country's political risk profile, as well as our short and long-term political risk ratings (currently standing at 56.9 and 50.3 out of out of 100 respectively).
BMI Political View: While the potash dispute that stretched Russo-Belarusian relations to breaking point in 2013 has been partially resolved, we remain cautious towards the prospects of an all out rapprochement. The erratic nature of policy making by the Belarusian government could result in a further escalation in tensions, leaving Belarus politically and economically isolated.