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Import Substitution of Medicines in CIS Countries is Gaining Momentum

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The crisis in the CIS zone in 2014-2015 inspired its members to start searching for new ways of obtaining products at affordable prices. After local currency devaluations in Russia, Belarus, Kazakhstan and other CIS countries, goods imported in US dollars or euros became too expensive, as incomes remained unchanged in the local currencies. Although consumers could reduce consumption of or totally stop purchasing some consumer goods, this did not apply to more essential consumer health products.

For many CIS countries, from 2015, an era of increasing importance of local brands was, therefore, being seen, with a growing focus on local production, supported in various different ways.

How it all started

Economic collapse started with the decline in oil prices and was followed by the introduction of sanctions and devaluation of the Russian rouble in 2014, with this quickly spreading to its neighbours: Belarus, Kazakhstan and others. The local currencies of many neighbouring countries were devalued, being closely dependent on Russian welfare as well as oil prices. As a result, falling disposable incomes forced many consumers to search for cheaper alternatives to imported brands. Therefore, with governments concerned about the health of their citizens they were left with no other choice but to impose price regulation to ensure more affordable prices and, as a result, support local production.

Diagram 1: Consumer Disposable Incomes, US$ Year-on-Year Growth


Source: Euromonitor International

Note:     Forecast data for 2016 and 2017


The most effective country in pushing up the share of local consumer health producers by mid-2016 was Belarus. It had set a government target for import substitution some time ago, namely back in 2010, and has been quite persistent in this area. Since then a number of facilities have been renovated, helping to increase the volume and quality of locally produced remedies. Targeted at cutting costs, Belarusian companies produce a lot of generics and use the most basic packaging. Everything is quite simple, without any innovations, while prices are more than competitive – making them very appealing in the current state of crisis. That is why Belarusian producers have held leading positions since 2011 in the consumer health industry in the country, as well as successfully exporting their products to neighbouring countries. By 2015, five out of the top 10 companies in the consumer health industry in Belarus were local.

However, to reach this level of success, the government also had to impose some level of protectionism in terms of the procedure of the registration of medicines. According to this rule, all newly registered remedies should get a maximum ceiling of its unit price in the local currency for the registration period (usually five years). Considering the weakness of the Belarusian rouble, after a while it became unprofitable to sell imported brands, as their prices can’t be indexed using the most recent exchange rates. Consequently, many imported brands were withdrawn from the market, and even those consumers who were prepared to pay more for multinational brands were forced to switch to Belarusian goods.


Although the Russian government has had a programme since 2011 targeted at increasing the share of locally produced consumer health brands, which pre-dates the crisis, progress on it was quite slow until 2015. The crisis forced the state to speed up this approach and return consumer health safety to its list of priorities. As part of the government programme of import substitution – Pharma-2020 – the state is investing in the building of new and the renovation of existing consumer health facilities, as well as in the development of new remedies, as analogues to existing imported brands.

On the part of consumers, the tendency to lean towards local brands was quite natural during a crisis, as unit prices for “made in Russia” remedies were, in some cases, 10 times lower than those of imported products. Russia’s biggest consumer health producer OTCPharm OAO had already moved from fourth to third position in the value sales ranking for the overall industry back in 2014. Evalar ZAO is leading the ranking of vitamins and dietary supplements, offering a good combination of quality, innovation and reasonable pricing.


As in Belarus and Russia, the Kazakhstani government had set a target long before the crisis of having half of all consumer health sales accounted for by local companies. Although the government helped local players by placing government orders for medical remedies with them in 2015, retail value sales of Kazakhstani brands had been growing at quite a modest pace. However, in 2015, after the second wave of devaluation in the country, the state issued a memorandum for limiting consumer health prices, mainly related to local producers. This prevented Kazakhstani brands from recording higher value growth, but their volume growth was supported by implementing lists of local brands that pharmacists should recommend to consumers.

Recently, a positive tendency towards attracting foreign investment in local production has been observed. Together with significant foreign budgets and new facilities, Kazakhstani factories acquired production quality (GMP) certification and know-how technology. This approach proved to be beneficial for all sides so that the government set the goal of further modernisation for the 2015-2019 period in its Industrialisation Map.

Table 1: Forecast of Top Five Value Sales Ranking for Consumer Health in 2016

Belarus Russia Kazakhstan
1 Belmedpreparaty RUP GlaxoSmithKline Plc GlaxoSmithKline Plc
2 Borisovskiy Zavod Meditsinkikh Preparatov OAO Bayer AG Sanofi
3 GlaxoSmithKline Plc OTCPharm OAO Procter & Gamble Co, The
4 Lekpharm SOOO Johnson & Johnson Inc Bayer AG
5 Bayer AG Sanofi Menarini Group

Source: Euromonitor International

Note:     The ranking is calculated based on global brand owner (GBO) level

Structural changes happening across the whole region

Other countries in the region were also more active in gaining more control over the consumer health industry, which they had previously allowed to develop on its own. In Azerbaijan, for example, it was impossible to substitute imports, as they make up more than 95% of consumer health products. That is why the government introduced a maximum unit price ceiling in the local currency in 2015 for both local and imported products. This had the result of excluding many multinational brands from the market. The state is planning to attract foreign investment and build up local production in the long term. However, at the moment, the main substitute products are made up of more affordable Turkish, Russian, Belarusian and Ukrainian brands.

In Ukraine, local producers enriched their portfolios with new brands and are very successful in selling various types of generics, helped by consumers trading down. For example, Ukrainian company Farmak PAT enriched its assortment with 24 new brands in 2015. However, the official government concept for import substitution in consumer health is still in the planning stage, with the announcement of such plans only having been made in 2016.

The future of local companies is bright in light of the continuing economic contraction

It is already clear that there will be no rapid recovery from the current crisis in the CIS region. Consumer disposable incomes are likely to stay low after more than two years of recession and the very slow pace of the forecast recovery. Affordable local remedies will, therefore, continue to gain market share in the immediate future. In addition, as they become used to cheaper options, it will be hard for consumers to switch back to imported products. Multinationals will need to search for alternatives in this case. Either to make even greater investments than previously in promotional campaigns or to continue investments into relocating production, entering into joint stock agreements with local players and, in this way, obtaining preferential treatment from national governments.

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