This quarter has seen a number of developments that indicate an increasingly difficult operating environment for local and foreign drugmakers in Egypt. These include suspension of some local drug production, ongoing strikes by doctors and calls for improvements to the registration and pricing regime for pharmaceuticals. Despite its favourable demographic and epidemiological profile, the Egyptian pharmaceutical market has a relatively weak outlook for growth, as economic factors, political uncertainty and lack of regulatory reform obstruct approval and uptake of medicines.
Headline Expenditure Projections
- Pharmaceuticals: EGP14.34bn (US$2.09bn) in 2013 to EGP16.02bn (US$2.28bn) in 2014; +11.7% in local currency terms and 9.2% in US dollar terms. Forecast broadly in line with the previous quarter.
- Healthcare: EGP84.61bn (US$12.31bn) in 2013 to EGP94.73bn (US$13.48bn) in 2014; +12.0% in local currency terms and 9.5% in US dollar terms. Forecast broadly in line with the previous quarter.
In Q214, Egypt receives a lower Pharmaceutical Risk/Reward Rating (RRR) score of 43.1 out of 100, making it the 12th most attractive pharmaceutical market in the Middle East and Africa region. While its demographic and epidemiological factors are seen as favourable, the country's operating environment continues to be challenging, both from an industry and country point of view.
Key Trends And Developments
Since the beginning of 2014, Egypt's Doctors' Syndicate, a local medical trade union, has ramped up strike action, demanding legislation to improve working conditions and introduce healthcare sector reforms. The doctors' main demands are reforms to the healthcare system by the passing of the draft Staff Law, which they have been pushing for since 2012. The draft law organises financial and administrative affairs, such as training, promotions and working hours for all medical professionals in the public healthcare sector. On February 6, Interim President Adly Mansour ratified the Law for Organising Affairs of Medical Professionals. However, this was rejected by the syndicate, with the organisation standing by the draft Staff Law.
The production of approximately 700 medicines was suspended in the country according to Awad Gabr, chairman of the Export Council of Medical Industries. Gabr added that around 30% of drug prices in Egypt must change so that local drugmakers continue to produce them. Of the 126 medicine factories operating in the country, 80 have incurred losses due to the government's refusal to increase the prices of drugs, while construction of 60 other factories has been suspended.
Ongoing depreciation of the Egyptian pound against the US dollar has meant the local currency price of imported raw materials has continually increased, leading to a reduction in import volumes and potentially fewer finished products. Additionally, fixed mark-ups along the supply chain and alleged government refusal to increase drug prices means local drugmakers are not able to share the higher costs through increased retail prices, forcing them to fully shoulder the rise in production costs and negatively impacting their profits.
At a pharmaceutical conference held in Mumbai, India, on December 4 2013, the Egyptian Ministry of Health called for Indian pharmaceutical companies to invest in Egypt's local pharmaceutical manufacturing industry, according to the Economic Times. A spokesperson at the conference stressed that this kind of mutual cooperation and investment is highly beneficial to both sides.
The Vice Chairman of Novartis Egypt, Salah El Sharkawy, called for new regulations to the registration and pricing of pharmaceuticals in Egypt, according to The Daily News Egypt. He stated that the Egyptian pharmaceutical industry suffers from three major problems, which are obstructing growth and further investment in the sector. The biggest of these was low pharmaceutical prices, which, according to El Sharkawy, have not been raised in over 10 years. This was followed by a slow registration process (of at least three years) and the absence of intellectual property protection for innovative medicines.
Local news source Al Ahram Weekly reported that the country is facing an acute shortage of medicines, with local medical workers and healthcare activists beginning to express concern at the situation. Egypt is currently facing a scarcity of close to 600 medications. Egyptians doctors are now unable to prescribe the correct medicine to patients after surgery, which often means that they must prescribe expensive alternatives, according to a surgeon at Egypt's 6 October Public Hospital. The surgeon added that the situation has worsened in the last six months.
BMI Economic View: We are forecasting a slight acceleration in Egyptian real GDP growth over the coming quarters, given the improved political situation in the country. Our baseline scenario sees the economy expand by 2.5% in FY2013/14 and 4.2% in FY2014/15 (fiscal year running from July-June), up from an estimated 1.9% in FY2012/13. We expect real household consumption to be weighed down by elevated inflation and a decline in tourism revenues, while fixed investment will pick up as a result of greater clarity on the economic policy front as well as low base effects.
BMI Political View: Political risks in Egypt have peaked, and we expect a slight moderation over the rest of the year. The interim government has brought a semblance of stability to Egypt's political scene and a degree of policy continuity, which has not been present in Egypt for much of 2013. That said, there are significant challenges ahead regarding the new constitution and engagement with the Muslim Brotherhood.