[Column] Bob Koigi: Taming the rising contraband business in Africa
The East African Legislative Council and the East African Business Council have over the years pushed and even instituted policies and legislation meant to punish and arrest the runaway counterfeiting and illicit business that has taken a toll on numerous businesses across the region and hampered governments’ tax collection resolve.
Sale of contraband goods has hit unprecedented highs across Africa costing governments and companies, with numerous businesses unable to stay afloat as cheap and substandard products infiltrate the markets.
Kenya for example loses on average $300 million each year in revenue as illicit dealers evade tax. The story is similar across the continent. The flourishing trade has been blamed on porous border controls which contributes to smuggling, inadequate sanctions, which if implemented act as deterrent to the trade, and corruption which weakens enforcement of existing regulations and undermines any controls put in place.
The channels of distribution for counterfeits have mutated from the traditional informal markets, to legitimate supply chains with fake products now appearing on the shelves of established shops.
Of increased concern are the internationally, free trade zones, which are areas where international traders can store, assemble and manufacture products that are moving across borders with minimal regulation, are of increasing concern.
The internet is emerging as a smuggling point that is proving hard to address. Counterfeiters and pirates sell their products through auction sites, standalone e commerce sites and email solicitations, and this is proving a lucrative conduit to counterfeiters due to the relative ease of deceiving consumers and the internet’s unrivaled potential to provide a wide market reach.
Numerous reports have cited SMEs in Africa as soft targets of this illicit trade due to lack of stringent measures and authentication procedures. Counterfeiters will approach the small companies and in the shortest time manage to convince the companies of the authenticity of their products or claims. The SMEs appetite for risk drives them into trying these products which have cost have them an arm.
Many SMEs have claimed receiving fake bills and products. SMEs are largely into innovation that propel the growth of these companies. This innovation has been recognized as the main driver of economic growth through development and exploitation of ideas for new products and processes. Innovators protect these ideas through patents, copyrights, design rights and trademarks.
Without adequate protection of these intellectual property rights, the incentive to develop new ideas and products would be reduced, thereby weakening the innovation process. The risks have been high especially for SME in which the research and development costs associated with the development of new products are high compared to the cost of producing the resulting products.
What has emerged in this frontier is that the more valuable the intellectual property assets of an SME are, the higher the possibility that others would want to make use of them, if possible, without having to pay for them. The dilemna has been that most SMEs have been caught off guard since they lack the strategies to prevent an eventuality of that kind. SMEs therefore continue losing to counterfeiters even as the weak legislation exacerbates the situation.
SMEs themselves cannot claim sainthood in the counterfeits battle; they are equally to blame for the booming contraband business. Local manufacturers and researchers have been apportioning blame to the small and medium enterprises arguing that majority of SMES in Africa are the main reason for the increasing flow of contraband goods into the local market and that most of those SMEs are running illegally as they are not registered.
A sizeable number of the SMEs specialize in the production of smaller packaged products which target low income earners, a group that rushes to purchase cheaply priced and readily available contraband goods.
The ripple effect of the illicit trade is chocking regional economies equally hard. A survey commissioned by the East African Community indicated that majority of companies in the East African region loses up to 90 percent of their businesses to counterfeits annually even as the East African Council grapples with the herculean task of setting up a common anti-counterfeits law a applicable in the regional trading bloc.
While the trade hasn’t shown any signs of ending, owing to the intricate and advanced modus operandi, the continent equally needs multi-faceted, and high level counter measures if any efforts to curb the illicit business are to bear fruits. Information sharing among countries and revising both domestic and regional laws to respond to evolving issues in this area would be a good starting point.
Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor of East Africa at Africa Business Communities