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The slow death of the Egyptian pharmaceutical market

15 November 2015 Gustav Ando

Despite the best efforts of governments in totalitarian states to suppress negative news items information will inevitably leak out. In this case Egypt is perhaps no different. Indeed, for all the Egyptian government's rosy statements on health insurance the reality is a healthcare system in crisis, a pharmaceutical industry in decline, and acute shortages of essential medicines.

Healthcare has long remained a low priority for Egyptian governments - health expenditure as a percentage of government expenditure typically hovering around a measly 6% in the fifteen years to 2013. The issue of chronic underfunding, and the resulting poor state of healthcare facilities, was brought into sharp focus earlier this year when the Egyptian Prime Minister Ibrahim Mahlab, accompanied by film crews, made surprise visits to two hospitals. On these visits, widely circulated in the media, he publically berated hospital managers and staff for poor conditions. Whilst at first appearing as something of a comedy, the message of the visits was simple…that the government was not prepared to accept blame for the sorry state of the healthcare system. The response from Egyptian physicians was swift. Egyptian physician trade groups, not known for being shy, quickly launched a social media campaign highlighting the conditions within many public hospitals. Amongst the pictures which appeared on social media were those of feral cats roaming hospitals, surgery being conducted by torchlight, and unsanitary conditions. Of course it is important to note that IHS cannot verify the authenticity of these pictures.

If this is not concerning enough, reports in the media are starting to appear suggesting significant shortages of medicines in the Egyptian market. These shortages have been broadly linked to the devaluation of the local currency. So far this year the Egyptian Central Bank has devalued the Egyptian pound against the US dollar three times. For Egyptian pharmaceutical companies this has pushed up the price of API imports which they rely on for manufacturing. At the same time the government has not eased pricing controls to reflect higher input costs, thereby forcing Egyptian pharma companies into a tight spot from which few can stay in business.

The pinch has not only been felt by local companies. International pharmaceutical companies are beginning to find that government restrictions on currency transactions are making business a whole lot more difficult. It would therefore be unsurprising if many companies reduced their activities in the country. We already know that shortages of currency and concerns over Egyptian pharma companies' ability to repay debts are leading to many API exports thinking twice before exporting to Egypt.

This scenario is of course nothing new, over the last few years we have seen pharmaceutical companies scale back operations in some countries due to concerns over potential non-payment of bills, such as in Greece, and due to concerns about access to foreign currency, as seen in Iran. In both Greece and Iran workarounds were found, potentially due to the size of these markets, and therefore the large amount of international publicity that drug shortages cause.

In the case of Egypt there seem two possible scenarios, one being that the government - paranoid about the public's reaction - attempts to suppress coverage of the drug shortages. Alternatively, the government may seek to hype up the shortages as part of a international media campaign to garner increased international support to shore up the country's currency. In the latter case, however, the Egyptian government may win little sympathy from an international community which sees Egypt as just being another country on a growing list of emerging markets facing similar challenges.

Gustav Ando is the director of life sciences for IHS
Posted 16 November 2015

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