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Ukraine Pharmaceuticals and Healthcare Report Q1 2012
Business Monitor International, Dec 2011, Pages: 88
Ukraine Pharmaceuticals and Healthcare Report provides industry professionals and strategists, corporate analysts, pharmaceutical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's pharmaceuticals and healthcare industry.
We continue to see strong short and medium-term growth potential for the Ukrainian pharmaceutical market, with the caveat that the market faces severe and ever-present economic risks strongly linked to the country’s perennial political instability. Our keen short-term worry is a devaluation of the hyrvnia, which would have severe short-term impact on medicines imports. We see encouraging moves to establish some minimal forms of medicines coverage and implementation of the long delayed statutory insurance system for paying for medical care. These steps are long overdue but fraught with major risks, including poor implementation and corruption. For those willing to shoulder the risks, however, the market retains huge upside potential and is well situated to access both European Union (EU) and Commonwealth of Independent States (CIS) markets.
Headline Expenditure Projections
- Pharmaceuticals: UAH23.24bn (US$2.92bn) in 2010 to UAH26.70 (US$3.35bn) in 2011; up 14.9% in local currency terms and 14.5% in US dollar terms. Forecast virtually unchanged from Q411.
- Healthcare: UAH72.74bn (US$9.15bn) in 2010 to UAH82.70 (US$10.36bn) in 2011; up 13.7% in local currency terms and 13.3% in US Dollar terms. Forecast virtually unchanged from Q411.
- Medical devices: UAH5.69bn (US$716mn) in 2010 to UAH6.61bn (US$828mn) in 2011; up 16.2% in local currency terms and 15.7% in US dollar terms. Forecast virtually unchanged from Q411.
Business Environment Rating:
Ukraine ranks 12th this quarter in BMIs Business Environment Ranking, down from 11th in Q411, its score down slightly to 50.5. Ukraine leads other CIS states, except for Russia, but continues to present major risks as well as real opportunities for investors. Ukraine’s primary attraction is its sheer population and geographical location, while its political and economic risks remain outsized.
Key Trends & Developments
- In October 2011, the Ukrainian government continues its battle to restrain the growth in the prices for pharmaceuticals, with the Antimonopoly Committee of Ukraine (AMU) warning the country’s 10 largest pharmaceutical producers and distributors not to make ‘groundless’ increases in pharmaceutical prices. Local media also continued to report enforcement efforts related to retail and wholesale margin caps.
- Medicines imports remain under pressure in Ukraine. Beyond macroeconomic concerns, especially inflation and the potential for currency devaluation, the State Customs Service is seeking the abolition of value-added tax (VAT) exemptions for imported medicines, which would see an additional price rise on imports. On the plus side, the Ukrainian parliament rejected a bill that would have banned the advertising of OTC products, a move that would have hit the brand-building efforts of all players in the sector.
- The draft 2012 budget provides for an 18% increase in healthcare spending to UAH9.7bn (US$1.22bn), according to a deputy minister of health quoted by an official news service in late September. The government will also supply roughly UAH2.8bn (US$352mn) in healthcare transfer payments to regional budgets. As the Kyiv Post noted in October, however, more than a quarter of the healthcare budget will go to civil servants, while poorer Ukrainians continue to lack consistent access to healthcare. The increase in healthcare spending comes amid wider budget cuts as the government seeks to narrow its budget deficit. hryvnia.
BMI Economic View: Despite a strong Q311 real GDP growth reading of 6.6%, we believe that declining expectations of a devaluation are premature, and expect outright forward rates to head back towards UAH12.000/US$ as we head into 2012. Indeed, we note that the country's balance of payments dynamics and sovereign debt profile continue to deteriorate at an alarming pace.
BMI Political View: Yulia Tymoshenko's imprisonment marks the culmination of President Viktor Yanukovych's power grab ahead of parliamentary elections in 2012. With relations with both the EU and Russia deteriorating fast, we believe Yanukovych is likely to moderate the severity of the sentence in order to appease the EU while continuing to eschew Russia's offers to join its customs union.
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