BMI View: The fragmented nature of the Asia Pacific region will continue to provide unequal commercial opportunities for pharmaceutical firms looking to invest in the region. Sri Lanka's pharmaceutical sector managed to attract investments from both domestic and foreign investors in recent years, as economic growth has picked up and the government remains focused on improving the domestic pharmaceutical sector. We expect that pharmaceutical and healthcare sector growth will outpace economic growth over the five-year forecast period.
Headline Expenditure Projections
Pharmaceuticals: LKR75.1bn (USD575mn) in 2014 to LKR82.6bn (USD618mn) in 2015; +10.0% growth in local currency terms and 7.4% in US dollar terms. Forecasts remain flat compared with the previous quarter.
Healthcare: LKR284.3bn (USD2.2bn) in 2014 to LKR310.5bn (USD2.3bn) in 2015; +9.2% growth in local currency terms and 6.6% in US dollar terms. Forecasts are slightly up compared with the previous quarter.
Sri Lanka's Pharmaceutical Risk/Reward Index (RRI) score for Q4 2015 stands at 38.2 out of a total of 100, making it the 17th-most attractive pharmaceutical market in the Asia Pacific region. The main reason for the country's low score is the relatively small population size, which presents modest opportunities.
Key Trends And Developments
In August, Hemas Holdings reported first quarter results of the financial year 2015/16. Revenues came in at LRK8.8bn posting a growth of 22.9%. Group net profit landed at LRK415mn with a growth of 68.2% compared with the corresponding period last year. The three main sectors - FMCG, pharmaceutical distribution and JL Morison - posted double digit top line growth of 33.2%, 13.3% and 57.3%, respectively.
Hemas Holdings has established its second public-private partnership - Innovation Initiative - focused on supporting talented entrepreneurs. The company has signed a memorandum of understanding with Sri Lanka Inventors Commission. According to this initiative, Slingshot a startup incubator programme was developed by Hemas with the objective to provide entrepreneurs the opportunity to pitch inventions and business concepts to the company.
During a recent visit to the National Chamber of Commerce, Bangladesh High Commissioner Tarik Ahsan highlighted potential investment and trade opportunities between Sri Lanka and Bangladesh. He particularly mentioned possibility to import pharmaceuticals, home appliances, plastics, steels, construction materials and vegetables from Bangladesh. As a next step a delegation of Bangladesh Export Processing Zones Authority (BEPZA) should visit Sri Lanka in August.
BMI Economic View
As electoral politics once again take centre stage in Sri Lanka, fiscal consolidation efforts by the government will likely take a hiatus as politicians are likely to present populist manifestos in order to muster public support. As such, we maintain our expectation for the country's budget deficit as a share of GDP to come in at 5.3% in 2015, versus the government's forecast of 4.4%.
BMI Political View
The forthcoming general election in Sri Lanka will have a significant impact on policymaking following the handover of executive power to parliament via the 19th Constitutional Amendment in April 2015.The outcome, which will likely depend on the level of collaboration between President Sirisena and former President Rajapaksa, will have considerable bearing upon business sentiment over the medium term.