Consumer Spending is Expected to Cool in Russia’s Pharmaceuticals & Healthcare Sector

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Business Monitor International

Oct 10, 2013, 04:00 ET


(PRWEB UK) 10 October 2013 -- Business Monitor has just released its latest findings on Russia’s risky but attractive pharmaceuticals and healthcare sector in its newly-published Russia Pharmaceuticals and Healthcare Report.

Business Monitor’s newly published report identifies Russia's pharmaceutical market as continuing to be one of the most attractive in the Emerging Europe region, primarily due to its sheer market size, growing economy and increasing government investment in healthcare. Key drivers of growth for pharmaceuticals include programmes to fund medicines for specific segments and disease groups, as well as a pledged universal medicines insurance system due to be put into place later in the decade. Business Monitor predict that Russia's recent World Trade Organization accession should drive improvements in the country's intellectual property (IP) environment, and enforcement in particular, which has been conspicuously lacking. However, in the short term, a deteriorating macroeconomic picture will serve to moderate growth as consumer spending is expected to cool. They predict that over the longer term, the country's ageing population and significant disease burden will accelerate pharmaceutical expenditure.

Headline Expenditure Projections:

  • Pharmaceuticals: RUB689.95bn (US$22.22bn) in 2012 to RUB765.80bn (US$24.29bn) in 2013;

+11.0% in local currency terms and 9.3% in US dollar terms.

  • Healthcare: RUB3669.26bn (US$118.16bn) in 2012 to RUB4, 111.5bn (US$130.40bn) in 2013;

+12.1% in local currency terms and +10.4% in US dollar terms.

Risk/Reward Ratings:

Russia has an RRR score of 60.4 out of 100, making it the second-most attractive pharmaceutical market in Emerging Europe. Although Russia scores the highest in Business Monitor’s ratings for industry rewards, its overall score is moderated by its lower risk score. This highlights the challenging operating environment in the country at present and the impact of the move towards protectionist measures. On the other hand, the upcoming rollout of national drug insurance promises to sustain the rapid growth seen in Russia's pharmaceutical market.

Key Trends and Developments:

  • Currency selloffs across emerging markets threaten to impact revenues and earnings of subsidiaries of foreign companies operating in Russia. Although pharmaceutical sales remain strong, Business Monitor note that there is downside risk to growth over the short term as private consumption cools.
  • Statements by senior officials in the first quarter of 2013 indicated that the government would seek to shift more of the burden of healthcare funding from the central budget to the contribution and insurance based system. From 2014, higher earning Russians, who contribute part of their salary to the compulsory health insurance programme (OMS), will be forced to pay more into the fund. Russians earning more than RUB512,000 (US$16,670) annually will be forced to pay an additional 5.1% on any income above the threshold. According the Ministry of Healthcare, this will raise an additional RUB102bn (US$3.32bn) in 2014, and RUB113bn (US$3.68bn) in 2015. At the same time, the president made effective regulations that have increased contributions from the state to the State Insurance Fund. In 2013, the fund could have revenues of RUB1.06trn (US$31.8bn) and in 2015, the fund is expected to have total revenues of RUB1.44trn (US$43.2bn). Essentially, the move will reduce the amount of funding directed through the Ministry of Healthcare. While the move is logical in terms of setting up a theoretically more means tested and ring-fenced funding mechanism for costly medical programmes, Business Monitor fears that past corruption problems in the healthcare insurance system could reoccur.
  • In a boost for over-the-counter (OTC) drug makers and pharmacy retailers, the government said in March 2013 that it would not support proposed legislation to ban the advertisement of medicines, Remedium reported. As a result, the amendments to Russia's advertising law have been withdrawn. In a statement, the government said the proposed limits would make it difficult for consumers to find out about medicines, even in pharmacies. The withdrawal of the legislation appears to have put an end to two years of efforts to ban all medicines advertising. In other good news for OTC producers, Russia's Minister of Industry and Trade said that a compromise 'will be found' in talks with the Ministry of Healthcare and other parties to create a list of medicines that can be sold for the first time in supermarkets and other nonpharmacy retailers.

BMI Economic View:

Business have revised down their forecast for real GDP growth from 2.6% previously to 2.3% in 2013 and from 3.8% to 3.5%, on the back of a lacklustre investment growth, which has prompted them to revise down their forecast for gross fixed capital formation. At the same time, although private consumption posted a robust growth figure in Q113, they hold to their view that it will slow down over the next two years. Tighter credit conditions will limit the ability of households to spend, a trend which is already visible in the precipitous decline in car sales in Q213.

BMI Political View:

Although they do not see any immediate challenges to Russian President Vladimir Putin's third term in office, Business Monitor anticipate growing public discontent with the lack of political freedoms and the slowing economy over the coming years. Meanwhile, the case of Aleksei Navalny has demonstrated that the potential for grassroots uprisings remains in place, despite the increasingly authoritarian measures taken by the Kremlin in recent years to suppress political opposition.

Business Monitor is a leading, independent provider of proprietary data, analysis, ratings, rankings and forecasts covering 195 countries and 24 industry sectors. It offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities.

Sarah Sutcliffe, Business Monitor International, http://www.businessmonitor.com, +44 2072480468, [email protected]