Pakistan Pharmaceuticals and Healthcare Report Q4 2011

BMI View: There are significant hurdles on multinational's road towards fully exploiting Pakistan's untapped potential, not least the country's weak distribution infrastructure, endemic corruption and existing low incomes. Despite these challenges, we believe multinationals should continue to reap considerable returns from its investments.

Headline Expenditure Projections

Pharmaceuticals: PKR152.97bn (US$1.79bn) in 2010 to PRK169.90bn (US$1.98bn) in 2011; +11.1% in local currency terms and +10.6% in US dollar terms. Forecast up moderately from Q311 due to macroeconomic factors.

Healthcare: PKR398.59bn (US$4.67bn) in 2010 to PKR454.63bn (US$5.31bn) in 2011; +14.1% in local currency terms and +13.5% in US dollar terms. Forecast up moderately from Q311 due to macroeconomic factors.

Medical devices: PKR29.91bn (US$351mn) in 2010 to PKR34.87bn (US$407mn) in 2011; +16.6% in local currency terms and +16.1% in US dollar terms. Forecast up moderately from Q311 due to macroeconomic factors.

Business Environment Rating: In BMI's Asia Pacific BERs for Q411, Pakistan falls by one place to 15 out of the 18 markets in the Asia Pacific matrix as a result of the addition of New Zealand to the rating system. Despite its drop in ranking, we note that Pakistan maintains its position ahead of both Sri Lanka and Cambodia, scoring a total pharmaceutical business environment score of 41 out of a possible 100.

The country's greatest asset in the context of the BERs is arguably its high birth rate: a growing population is feeding increased demand for pharmaceuticals. Counterfeit medicines, a lack of transparency in the government's pricing mechanisms and an approval process that is biased towards domestic manufacturers are all factors depressing the market's attractiveness.

Key Trends & Developments

In May 2011, GlaxoSmithKline Pakistan announced that it is to invest PKR2bn (US$24mn) in expanding the company's consumer healthcare division in Pakistan.

In June 2011, Saghir Ahmad, the Health Minister of the Sindh province in Pakistan, promised assistance to the pharmaceutical industry in establishing FDA-approved drug manufacturing plants in Pakistan. He added that the government remained committed to helping the industry generate employment opportunities and earning foreign exchange for the country.

BMI Economic View: Despite showing signs of a solid rebound, we remain cautious regarding the shortterm outlook of Pakistan's manufacturing sector. We identify three shortterm headwinds that could hold manufacturing growth back high inflation, high interest rates, and energy shortages. However, over the longterm the sector looks promising given Pakistan's strategic location, favourable demographics, and sustained push for better international market access.

BMI Political View: The ruling Pakistan People's Party (PPP) looks set to face further difficulties in the months to come. Rising anxiety arising from inflation and last-minute austere fiscal measures, the release of CIA contractor Raymond Davis to the US, and the resurgence of violence in Karachi could put the country's social stability under immense stress. Having said that, we expect the PPP to muddle through, politically surviving these challenges, thus preventing any major change from occurring.