Report Summary

BMI has updated its forecast for Colombia in line with its improved forecasting methodology and in line with the broader strength of the Colombian economy and growing foreign direct investment (FDI). Colombia’s pharmaceutical market reached a value of US$2.36bn in 2007 and is now forecast by BMI to reach a value of US$6.14bn by 2012. This represents a 10.7% underlying average annual growth rate for 2008- 2012 in US dollar terms, after accounting for forecast inflation. Colombia’s President Álvaro Uribe scored a series of major successes against the Revolutionary Armed Forces of Colombia (FARC) rebels, culminating in the rescue of Ingrid Betancourt and other high-profile hostages, following the deaths of several members of the group’s leadership and a leading field commander.

BMI remains cautious for now about security – FARC will seek to reassert itself through violent and high-profile actions – but if Uribe can solidify these security gains, the already attractive environment for FDI will improve. Other question marks include whether Uribe will seek to change the law to seek a third term in 2010. Political stability has some way to go, but the upside potential for the wider business environment is immense. Colombia’s public-private healthcare insurance system remains under considerable strain despite the reform and semi-privatisation of the Institute for Social Security (ISS) in 2006. In May, the Colombian government reportedly bailed out 15 health insurers with a COP226bn (US$120mn) payout, as research showed that costs had outstripped revenues for the insurers between 2005 and 2007. Reports also indicate that the private sector insurers continue to seek to recruit healthier ISS members – namely those under 40 – to improve their balance sheets. US pharmaceutical giant Pfizer has reportedly been among large US companies lobbying for the ratification of the Free Trade Agreement (FTA) with Colombia, which the US Congress has yet to vote on after nearly two years since its signing in 2006.

With the both the presidency and control of Congress up for grabs in November, it seems increasingly unlikely that US domestic political considerations will allow ratification this year. The Colombian government had undertaken a number of commitments to improving intellectual property (IP) and other rules under the FTA. But the next US president and Congress could re-shape the deal – including watering down tougher IP provisions for the pharmaceutical industry. A less watched but also important pact, between the Andean Community and the EU, also remains stalled. Slow progress on the FTA should at least benefit local producers, giving them more time to solidify local market positions and enter new regional markets. In early July 2008, it was announced that local pharmaceutical producer Tecnoquímicas would sell 10% of its shares to the International Finance Corporation (IFC) in exchange for around US$25mn to help the company expand regionally in Central and South America. Local media also reported that Brazilian investment group GP Investments was negotiating a deal to invest up to US$150mn in local producer Lafrancol, although no deal was finalised.