Square Pharmaceuticals' new manufacturing facility in Kenya will significantly boost local production. It was reported in December 2021 that Square Pharmaceuticals, which is the largest pharmaceutical company in Bangladesh, will start building a factory in Kenya in early 2022. The factory will be worth about USD74.4mn and will produce essential medicines including malaria and diabetes drugs. The site will reportedly manufacture more than 2bn tablets and capsules a year, and Square Pharmaceuticals will offer the relevant technology and training needed for Kenya to make these drugs. The new production facility will therefore significantly boost local production, while the local industry will also benefit from the transfer of technology and knowledge which could lead to production of more medicine in the country over the long term.

Therapeutic focus will be malaria and diabetes. We note that Square Pharmaceuticals has decided to focus on malaria and diabetes given the high burden on society from these diseases. Malaria remains one of the leading causes of morbidity and mortality in Kenya (25mn people, out of a population of 34mn people, are at risk of malaria according to the Kenya Medical Research Institute). Furthermore, the prevalence of diabetes in Kenya has more than doubled in the last three decades, according to WHO's first Global Report On Diabetes published in 2016.

Looking at Square Pharmaceuticals' product portfolio, we note that the company manufactures a number of essential medicines including basic pain killers like paracetamol, as well as antibiotics. Given that these drugs are not so sophisticated to manufacture, we believe that the Kenyan plant will also likely manufacture these. All these medicines indeed have a market in Kenya as highlighted by the top 10 causes of deaths in the country.

Malaria, Diabetes Among The Top Diseases In Kenya

Kenya - Top 10 Causes Of Deaths, per 100,000 (2019)

 

Source: WHO, Fitch Solutions

Kenya's Square Pharmaceuticals manufacturing plant will boost exports. According to Square Pharmaceuticals, its plant in Kenya will be the largest pharmaceutical manufacturing plant in East and Central Africa. We therefore believe that the new plant will provide a boost to exports once it is established. We have revised slightly upwards our forecasts and now project that Kenya's pharmaceutical exports will grow at a five-year local currency CAGR of 8.4% (6.6% in US dollars), to reach KES20.8bn (USD180.0mn) by 2025. This is an upward revision from our previous five-year local currency CAGR of 7.0% and 5.2% in US dollar terms.

New Manufacturing Capacity To Boost Exports

Kenya - Pharmaceutical Exports Forecast, KESmn (2019-2025)

 

f= Fitch Solutions forecast. Source: ITC, Fitch Solutions

Kenya's medicine imports will continue to grow at a medium pace. We currently estimate that around 80% of local medicine demand in Kenya is met through imports and we expect this to remain largely stable. We note that top multinational companies such as Pfizer, Sanofi, Novartis and Merck & Co are all active in the Kenyan market, but since these companies have no local manufacturing facilities, they only export to the country. We therefore forecast that Kenya's pharmaceutical imports will grow at a five-year local currency CAGR of 8.6% (6.8% in US dollars) to reach KES98.0bn (USD848.0mn) by 2025, but the increase in local production will limit growth potential.

Lastly, Kenya will maintain its trade deficit for pharmaceuticals over the coming years. Although exports are expected to increase following this development, we still believe that Kenya's pharmaceutical industry will maintain its high trade deficit. This means that imports of foreign-made medicines will continue to dominate the market and foreign manufacturers will continue to have commercial opportunities in Kenya. This is because Kenya still has no capabilities to manufacture most innovative drugs due to a number of challenges in its pharmaceutical industry. Kenya’s pharmaceutical regulatory environment is considered complicated due to the overlapping work of government organisations. For example, the Pharmacy and Poisons Board (PPB) is in charge of the registration of factories and products, but the Kenya Bureau of Standards is responsible for quality standards of locally produced and imported goods. Multinational companies will therefore continue to prefer exporting to Kenya rather than having a direct manufacturing presence in the country. We therefore forecast that Kenya’s pharmaceutical trade deficit will increase from KES42.6bn (USD418mn) in 2019 to KES77.2bn (USD668mn) in 2025.

Trade Deficit To Increase

Kenya - Pharmaceutical Imports vs Exports, KESmn

 

f= Fitch Solutions forecast. Source: ITC, Fitch Solution