Fitch projects FX rate to increase to N1,993/$ by 2028

Fitch Solutions, a financial intelligence service provider, has predicted that the naira would slide to as low as N1,993 per dollar in 2028, severely impacting Nigeria’s pharmaceutical industry to import medical devices.

In a new report, the company’s subsidiary, BMI Research, said despite expected rebound in the economy, Nigeria’s medical devices market will continue to face operational and demand headwinds over the near term.

“Nigeria’s medical device market will grow at a 2023-2028 compound annual growth rate (CAGR) of 10.8% in local currency terms and 9.6% in US dollar terms, taking market value to NGN171.1bn (USD344.7mn) by 2028,” the report said.

“We do believe that improving health spending through a focus on universal health coverage coupled with large population size and double burden of chronic and communicable diseases will sustain high demand for all medical devices, particularly diagnostics, consumables and hospital equipment over the near to medium term. 

“For instance, in 2022, the country signed the National Health Insurance Authority Bill into law, making health insurance mandatory for citizens and legal residents.”

Listing Sanofi and GlaxoSmithKline as firms that left the country due to the naira devaluation, the report said the continued weakness of the currency would increase medical device import costs and erode consumer purchasing power.

According to the Fitch’s subsidiary, several challenges remain for local manufacturing of medical devices to take off in Nigeria, despite government incentives.

“Similar to other markets in sub-Sahara Africa, Nigeria heavily relies on medical device imports, with reliance of over 95%. We expect that the naira will end 2028 at NGN1993/USD from NGN306/USD in 2018.

“As the naira weakens, the cost of importing medical devices will continually increase, eroding both the health system and patient purchasing power especially to invest in essential medical technologies given underfunding of the public health sector. 

“This would particularly affect high-cost demand for devices such as diagnostics, orthopaedics and dental products. 

“On the export front, a weaker naira will enhance the competitiveness of locally manufactured medical devices, fostering growth in the sector.

“For instance, in June 2024, President Bola Ahmed Tinubu signed an executive order to reduce medical service costs amid high inflation. 

“This order eliminates tariffs, excise duties as well as VAT on specific machinery, equipment, and raw materials, aiming to cut local production costs and enhance competitiveness. 

“The order targets healthcare products including pharmaceuticals, diagnostics, medical devices, biologicals and medical textiles.”

SKILLED LABOUR SCARCITY, INADEQUATE INFRASTRUCTURE MAJOR HEALTH SECTOR CHALLENGES

The company said the scarcity of skilled labour, limited access to modern technology, and inadequate infrastructure are the major challenges faced in the health sector.

“Moreover, the country faces a substandard regulatory environment and bureaucratic hurdles which often delay the approval and market entry of new medical devices, discouraging investment and innovation,” it added.

Fitch said the operationalisation of the African Medicines Agency (AMA) has the potential to enhance the regulatory landscape for medical products in Africa, “but this is only in the long-term if the AMA is fully implemented”. 

More so, the firm said the lack of a robust supply chain infrastructure, including reliable electricity and transportation networks, further complicates manufacturing and distribution processes. 

Fitch report added that despite the government’s efforts to incentivise local production, structural challenges, in addition to the challenging macroeconomic environment, will limit growth prospects for medical device manufacturers in Nigeria.