With emerging market focus shifting from the once vaunted Brazil, Russia, India and China (BRIC), The Middle East and Africa is gaining clout as a potential growth engine for the future. Within the region, North Africa – namely Algeria, Egypt, Morocco and Tunisia – offers an exciting, and challenging, opportunity. While the area’s political instability has spooked some producers, its relatively sizeable markets and generally rosy growth outlook will continue to draw interest from the consumer health industry.
Demographic Opportunities Face Political Headwinds
North Africa is an intriguing region, in that it offers a number of advantageous socio-economic characteristics. Algeria, Egypt, Morocco and Tunisia all feature higher per household annual disposable incomes than the average of the Middle East and Africa region and have populations that are expected to grow faster than much of the rest of the developing world in the next two decades. These factors have helped drive consumer health sales and will be important contributors to the expected 4% retail value sales CAGR those four markets will combine for through 2018.
However, the region also presents a number of roadblocks. The instability in the region, most notably the recent revolutions in Tunisia and Egypt, caused significant political and economic upheaval. While the consumer health industry remained largely stable, further macro-instability could negatively affect overall consumer spending. Additionally, the region’s adult literacy rates remain fairly low. In 2013, between 20% and 30% of Algeria, Egypt, Morocco and Tunisia’s adults aged fifteen and older were illiterate. This presents a major challenge in communicating with consumers, and an obstacle to the eventual deregulation of distribution and advertising in the industry. Currently, advertising of over-the-counter (OTC) drugs is banned in Tunisia, highly restricted in Egypt (since 2010, companies have been allowed to advertise basic remedies, but all advertisements must be preapproved by the Ministry of Health), banned in Morocco (except for medicated confectionery), and banned in Algeria (though, adverts can be seen on French satellite channels and some point of sale advertising exists).
Sales Growth Expected to Push On
Despite those issues, the region is expected to experience generally strong growth. In 2013, combined consumer health sales in Algeria, Egypt, Morocco and Tunisia grew by just under 4% to US$1.9 billion. While Egyptian sales stalled in the face reignited political strife caused by the mid-2013 coup by the nation’s military, Tunisia posted a strong 4% growth on the back of greater stability, a 10% jump in the nation’s annual disposable income (in local currency terms) and increased promotion to the medical professional and pharmacist community by major producers like Sanofi and Laboratoires Unimed. Sales have also been boosted by medical tourists from neighbouring Libya, a trend that is expected to continue in the near future. Though still just one-third the size of regional heavyweight Algeria, Tunisia’s consumer health market is expected to be the growth leader among the four North African nations, posting a 6% CAGR through 2018. That growth could even prove conservative if ongoing lobbying efforts by the nation’s pharmaceutical producers to increase OTC drug prices and expand distribution of some OTC products into grocery retailers are successful.
With 2013 sales of US$900 million, Algeria is by far the largest North African consumer health market. Algeria largely avoided the political turmoil that engulfed the region in the last few years, in large part by pumping its significant oil and gas wealth back into the economy in the form of fuel, food and housing subsidies. The resulting increases in disposable income were one factor in Algeria’s strong consumer health growth in the 2008-2013 period, when sales increased by nearly one-quarter making it the second-fastest-growing of Euromonitor International’s researched African markets (after Cameroon). This came as a bit of a surprise, as consumption was expected by many to decline in the early 2010s after the expansion of drug reimbursement in 2011. However, long waits at hospitals and the generally underdeveloped private medical sector have discouraged many consumers from getting reimbursable prescriptions for commonly available remedies. In terms of category growth, vitamins and dietary supplements (VDS), though still accounting for less than one-fifth of total consumer health sales, have experienced strong growth. As familiarity with the category grew, resulting from increases in internet access and the popularity of French and other European satellite television channels, Algerian VDS sales grew by 5% annually from 2008 to US$159 million in 2013. While basic products remedies, such as single and multivitamins, account for most of Algerian VDS spending, combination products – which feature more advanced formulations and target multiple health concerns – are gaining steam. In the 2008-2013 period, combination dietary supplements category grew by 8% annually to US$26 million and are actually expected to grow slightly faster (10%) in the forecast period.
Consumer Health Sales (US$, RSP) in Key North African Markets, 2008-2018
Source: Euromonitor International
The third-largest country in the region, Morocco’s consumer health market grew by 3% to US$419 million in 2013. Self-care is fairly common in Morocco, particularly for minor ailments, including colds and body pain. While there is a growing health and wellness movement in Morocco and the VDS category grew a robust 7% annually, OTC drugs are still the most commonly consumed products. In 2013, the OTC category accounted for over 80% of the industry. Within OTC, analgesics are the most commonly consumed products, accounting for nearly 30% of all OTC spending. Moroccans are particularly fond of acetaminophen. In 2013, the average Moroccan household spent US$4.3 on acetaminophen – the highest per household spend among Euromonitor International’s researched African markets. Acetaminophen has a long tradition of use, is commonly believed to be a safe analgesic (in large part due to the appeal of foreign brands like Sanofi’s Doliprane) is commonly used for both pain and fever relief, and, as such, is expected to slightly outperform the overall analgesics and OTC categories in the forecast period. Though the overall OTC category is expected to grow by a healthy 3% annually through 2018, breaking into the market remains quite difficult. Brand building in particular is hindered by Morocco’s restrictive regulatory regime, which bans direct-to-consumer advertising. Additionally, producers must rely heavily on distributors and local sales forces to promote their brands to pharmacists in the countries more than 10,000 pharmacies, which by law cannot belong to chains.
Though Egypt is the largest country among these North African markets, both in terms of population and GDP, it represents one of the most difficult-to-operate-in and undersized consumer health markets in the world. In 2013, Egypt’s consumer health industry actually declined slightly to US$310 million. The country’s US$14 per household spending level is a fraction of Algeria and Tunisia, and just 61% of the Middle East and Africa Average. The cause of the low – and declining – consumption is a mixture of widespread poverty and extremely restrictive OTC regulations. The country has the lowest per household disposable income (US$7,347 in 2013) of the major North African markets, and much of the nation’s wealth is centred in Cairo, which in 2013 accounted for over one-quarter of the nation’s annual disposable income, but less than one-tenth of the country’s population. The industry also suffers from strict regulations regarding what can be sold OTC in the market. Basic categories like analgesics and decongestants are available only with a prescription. While a substantial under-the-counter trade exists, it is unlikely the Egyptian government will switch these categories in the near future, especially given the recent negative press over skyrocketing illegal tramadol usage. While sales are expected to gain pace on the back of a more stable political landscape, Egypt is still expected to post the lowest growth (less than 3% CAGR) of the major North African markets through 2018.