BMI View: Improvements to South Africa's pharmaceutical supply chain will result in fewer drug shortages, making the country a more attractive destination for local manufacturing. Inequalities will still persist between states, with further drug shortages more likely in rural areas given the underdeveloped health systems in these parts of the country.
Headline Expenditure Projections
Pharmaceuticals: ZAR39.79bn (USD3.67bn) in 2014 to ZAR44.12bn (USD3.62bn) in 2015; +10.9% in local currency terms and -1.4% in US dollar terms.
Healthcare: ZAR330.74bn (USD30.49bn) in 2014 to ZAR360.78bn (USD29.57bn) in 2015; +9.1% in local currency terms and -3.0% in US dollar terms.
South Africa has strong longer term commercial potential because of its sizeable population and economic development. However, the impact of currency depreciation and a worsening economic outlook have hurt its short-term growth prospects. In Q315, South Africa's place advanced from eighth to seventh position in the matrix, with a score of 51.4 out of 100.
Key Trends And Developments
South African Health Minister Aaron Motsoaledi has met the leaders of several pharmaceutical companies and suppliers in an effort to deal with the pressing issue of drug shortages in the country. The ministry stated that there has been a shortage of some medical supplies because of a general lack of active pharmaceutical ingredients globally, which in turn is affecting both public and private health facilities. Allegations have been made that it is government incompetency which has led to the scarcity situation, but Motsoaledi refutes these claims noting that it is rather the result of profit-run pharmaceutical companies as they are the ones that supply medicines. Doctors Without Borders, however, have alleged that management and logistical challenges between the pharmaceutical companies and clinics are the primary reason for the shortage.
The Medicines Control Council (MCC) of South Africa will accelerate the sourcing of active pharmaceutical ingredients (APIs) for applicable medicines that have been pre-qualified by the World Health Organization (WHO). The move is expected to expedite the availability of some drugs after an application for an API variation is submitted, as the MCC will use WHO information to facilitate the approvals procedure. The Department of Health, with the help of the MCC, will establish an alternative measure to address the issue of supplying various drugs to both the private and public sectors. The drug supply shortage in the industry has been attributed to the non-availability of APIs, which form the basis of any medicine (Pharma Africa).
South Africa-based Bidvest Group's offer to acquire the remaining stake in pharmaceutical company Adcock Ingram was rejected by a vast majority. Bidvest only managed to raise its interest in Adcock by 2.5% to 37%, despite the deadline for its ZAR52 (USD4.3) a share offer, around USD515mn in total, being extended by a week to May 15. The company went directly to Adcock shareholders in December 2013 with a ZAR4bn (USD371mn) cash offer for the 34.5% interest, outbidding Chile's CFR Pharmaceuticals offer (pharmaafrica.com).
BMI Economic View
With potential growth falling and now in line with actual growth, higher growth in South Africa is dependent on structural reforms. We have seen minimal progress in such reforms, hence we see little scope for a decent recovery. While we maintain our forecast for 2015 growth at 1.9%, we have lowered our 2016 growth forecast to 1.9% from 2.0%, as we are now expecting the South Africa Reserve Bank (SARB) to hike interest rates this year by 50 basis points (bps) relative to our previous forecast of 25bps. Our core scenario is that medium-term growth will remain depressed.
BMI Political View
Violence directed towards economic migrants in South Africa will exacerbate negative perceptions of the country's social stability. The attacks will not expand in size, but an increase in social stigma towards immigrants could spark an exodus of foreigners. As such we could see labour costs for miners and manufacturers increase as firms are forced to use more expensive unionised native workers.