Trade disruptions in the Red Sea will negatively impact the chemical and pharmaceutical raw material sector. Since December 2023, persistent attacks by Houthi militants on commercial ships traversing the Red Sea have compelled major shipping companies to reroute their fleets, opting to navigate around Africa via the Cape of Good Hope. According to our Operational Risk team, the rerouting of ships away from the Suez Canal has left Asia-to-Mediterranean trade routes particularly vulnerable, causing significant delays and higher shipping costs. On this note, our Country Risk team anticipates that, due to its significant dependence on consumer goods imported from Asia, Egypt’s consumer market (including pharmaceutical products) will be among the most vulnerable across the Middle East and North Africa (MENA). While the consumer market remains one of the most impacted, supply chain disruptions have also extended into the chemical industry, which is integral for the provision of pharmaceutical raw materials. With China and India being the primary suppliers of these materials to Egypt and the wider MENA region, we predict that Egypt-based drugmakers will face adverse effects due to supply disruptions, potentially hindering their production capabilities and ultimately impacting the stability of Egypt’s pharmaceutical sector.
Dwindling pharmaceutical raw material supplies will force Egypt-based drugmakers to operate at lower capacity. Egypt is one of the largest producers of pharmaceuticals in the MENA region, with an estimated pharmaceutical market valued at EGP134.1bn (USD4.5bn). However, despite its extensive domestic manufacturing capacity, Egypt’s pharmaceutical industry remains heavily import-dominated, with around 90% of raw materials sourced from abroad. In 2022, unfinished pharmaceutical products and organic chemicals (including pharmaceutical raw materials) were among the most imported goods from China and India, representing 4.3% and 2.9% of Egypt’s total imports respectively. While the government has initiated preliminary discussions with the private sector to establish domestic factories for pharmaceutical raw materials, these initiatives are still in their early stages and are unlikely to materialise in the near term. As such, we expect Egypt-based drugmakers to remain vulnerable to the trade disruption in the Suez Canal, which would impact access of imported raw materials and the overall availability of pharmaceutical products in Egypt. Posaconazole
The current supply disruption of raw pharmaceutical material is further exacerbated by a weak Egyptian pound and a lack of USD reserves to clear imports of pharmaceutical materials. In H2 2023, over 150 shipments of finished and unfinished pharmaceuticals, worth an estimated USD100 million, have been detained in ports and airports due to the inability to clear these imports, underscoring the severe supply chain challenges facing Egypt's pharmaceutical sector. Domestic drugmakers are struggling to maintain a profit margin, grappling with the high costs of clearing raw material imports and the inability to offset the increased operational costs by raising medicine prices, given the caps enforced by government regulations. As a consequence, companies have been forced to reduce their manufacturing outputs to maintain financial viability. On this note, Jamal El-Leithy, the head of the Pharmaceutical Chamber of the Federation of Egyptian Industries, has noted that domestic factories are operating at only 70% capacity, leading to severe shortages of essential pharmaceutical products, including antibiotics and diabetes medications.
In the near term, Egypt’s pharmaceutical market size will contract in USD terms, before restabilising in the medium term. Supply disruptions, coupled with challenges in clearing imports, have caused the Egyptian pharmaceutical market to currently experience an estimated 30% shortfall in medicine supplies. Ali Auf, head of the Pharmaceutical Division at the Federation of Egyptian Chambers of Commerce, noted that Egypt currently has a strategic stock of medicines equating to to three to 12 months for medicines for which there are alternatives, and three to six months for medicines without substitutes. This has prompted us to revise our pharmaceutical sales forecast.
In 2023, we estimate Egypt's pharmaceutical market to stand at EGP134.4bn (USD4.4bn), experiencing a y-o-y growth of 8.4% in local currency terms but a decrease of 32.4% in USD terms, partly due to unfavorable exchange rates. Throughout 2024, our Country Risk team foresee continued devaluation of the official exchange rate to narrow the gap with the parallel market, positively impacting Egypt’s import-depended pharmaceutical market. As such, we anticipate 2024 to reflect a milder decline in growth in USD terms of -19.3%, as the sector readjusts to the new exchange rates and stabilises in the medium term. By 2028, we forecast pharmaceutical sales to reach EGP212.4bn (USD4.9bn), posting a CAGR of 9.5% in local currency terms and 2.2% in USD terms.
This commentary is published by BMI, a Fitch Solutions company, and is not a comment on Fitch Ratings Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent sources. Fitch Ratings analysts do not share data or information with BMI. Copyright © 2023 Fitch Solutions Group Limited. All rights reserved. 30 North Colonnade, London E14 5GN, UK.
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