The UK currently ranks third in the world in terms of the size of its pharmaceutical exports, and they will outpace UK pharma imports in the period to 2030, further widening the sector’s trade surplus, says HSBC’s latest Global Connections Trade Forecast report.
Pharmaceutical exports will grow at a broadly similar rate to total UK exports in the period to 2030, and they will account for 8% of the projected growth in UK merchandise exports, it forecasts.
The pharmaceutical sector plays a key role in bolstering the UK as a centre for high value-added manufacturing, accounting for a disproportionate share of R&D spending and generating a sizeable trade surplus, says the study, which is compiled for HSBC by Oxford Economics.
While its main source of demand will continue to be developed economies in Europe and North America, rising incomes in emerging markets will also offer potential for growing exports to new middle-class customers in countries such as India and China. An ageing population, in the UK and globally, will also encourage demand for the sector’s products.
However, to capitalize on these opportunities, the UK’s strong pharmaceutical sector will need to be alive to challenges, including competition from producers of more affordable generic drugs in those same emerging markets, as well as maintaining high levels of R&D spending, the study warns.
Also, the regulatory environment will remain challenging, while the NHS budget squeeze will impact profit margins and may reduce resources to invest in new products.
However, if the sector can maintain its very high level of R&D, the UK should remain a competitive force - reforms to the tax system, including the ‘patent box,’ will help, it says.
“Pharmaceuticals is exactly the kind of high value-added sector in which the UK has a strong competitive advantage. As the share of exports to emerging markets increases, UK companies need to be alive to the opportunities afforded by rising incomes in countries like India in order to translate this advantage into real export growth,” says Mark Emmerson, UK head of global trade and receivables finance at HSBC.
Prospects for UK trade overall include a number of headwinds in the short term, including the concentration of sales on slow-growing Europe. But longer-term prospects should be brighter, particularly if firms can effect a faster reorientation of sales to fast-growing emerging economies. A focus on the UK’s areas of comparative advantage – of which pharmaceuticals is a clear example – will aid in this, the report advises.