Fake liquors edge local beer from shelves

By Kenneth Kwama

Just when they were beginning to recover from a massive tax increase that nearly crippled the industry, beer and spirit manufacturers in the country have to contend with another nightmarish reality – the resurgence of contraband products that are slowly eating away significant market shares.
Both the Kenya Wine Agency Ltd (Kwal) and East African Breweries Ltd (EABL) are staring at massive loss of business, estimated at Sh9 billion annually, due to the fresh influx of cheap contraband and counterfeit alcohol products.
"Sale of counterfeits and contraband products spiralled after tax in last year’s budget went up by up to 600 per cent. Locally, some people have been manufacturing without paying for requisite stamps, while others are importing without paying tax," says EABL’s Group Corporate Affairs Manager Sam Matano.

"It is a problem that has seen some of our brands losing significant market share." The company is reportedly struggling to ward off a serious onslaught from a local manufacturer who has been manufacturing and selling counterfeits of its famous whisky, Johny Walker for a song.

"It’s a serious problem because the fake Johny Walkers are really selling," said a company official who requested not to be named.

A 750ml red label counterfeit is reportedly selling at Sh1,500, while a genuine one goes for Sh2,500. Ordinarily, a black label version retails at Sh4500, but the counterfeited one goes for only Sh2,000.

Genuine beer brand from Kenya Breweries Ltd in a production line at the EABL plant at Ruaraka. The local beer industry has seen its market share squeezed by entry of counterfeit brands.

Matano says that it’s increasingly becoming difficult to contain the problem as unscrupulous manufacturers become more streetwise. "It’s now easy for these people to buy containers abroad for packaging. But the biggest problem is in the manner in which surveillance is carried out," says Matano.

"Responsibility is scattered across different government agencies including Kenya Revenue Authority (KRA), Kenya Bureau of Standards (Kebs), Ministry of Public Health and the police and it’s difficult to pin failure on any one body," he says.

To illustrate his point, Matano says that about one year ago, he got a tip from his counterpart at Kwal that someone had leased a go-down in industrial area and was storing massive quantities of counterfeit spirits.

Deep rooted problem

"We informed the police who carried out a raid. The spirits were impounded and the owner taken to court. Unfortunately, he was fined only Sh500,000 and released and is now back in business," he says.

The problem is so deep rooted that international beers like Carlsberg, which is officially manufactured by Carlsberg Group of Companies, located in Denmark is being counterfeited and sold to unsuspecting customers.

Betty Maina, CEO of the Kenya Association of Manufacturers (KAM) says the counterfeit problem has seriously affected manufacturers and consumers in the country.

"It’s not only in alcohol. There are a number of fake things, including appliances and drugs in circulation and they are stealing away money from both manufacturers and consumers," says Maina.

Surveillance system

"The problem is that they are cheaper, but people should learn to desist from them because they are expensive in the long run."

Maina attributes the upsurge of counterfeits in the market to a lax surveillance system, but is hopeful that a Bill on Counterfeits – a proposal to check the spread of counterfeit products that is before Parliament will be passed soon to help curb the menace.

Maina says the Government could also lose billions of shillings in unfulfilled tax expectations. Currently, the disparity in taxation of spirits in the regional market is a big incentive for smuggling products into the country either as bulk spirit or finished products.

It has also encouraged cross border smuggling since spirits are now much cheaper across the borders.

According to Matano, the Sh9 billion worth of counterfeited alcohol if taxed could make a big difference because the Government could channel such money to building of important infrastructure like roads.

Toxic material

Manufacturers are also worried that people could be consuming toxic material, which could be detrimental to their health in the long run.

"People don’t know what they are consuming and it will be difficult to locate distributors of these counterfeits in case there is a problem," posed a manager at Kwal who requested not to be named.

The manager says the problem is partly due to high taxation of alcohol and spirits, which has skewed business in favour of illicit brewers and imports, at the expense of the local industry.

During last year’s Budget, excise tax on non-malt beers was increased by 33 per cent from Sh27 to Sh36 a litre, an equivalent to an increase of Sh5 per 500 ml bottle.

Tax regime

This forced Kwal and EABL to hike consumer prices of their products.

The resurgence of counterfeits could also be informed by the prevailing tax regime, which makes it cheaper to import wines and spirits than to manufacture locally. Financial Journal has obtained documentation showing that Nabak had started getting apprehensive about the then planned tax increases, and the effects on the low-end market, as early as last October.

low-end market

In a letter addressed to Mr John Njiraini, Commissioner of Domestic Taxes, Large Taxpayers Office at the Kenya Revenue Authority (KRA) and dated October 6, 2008, the association told the commissioner that the cheap brews were already taking over the low-end market.

"Majority of these manufacturers are not registered with KRA and they should not be dealing with alcohol products.

Since these products are cheap, they enjoy a greater market share to the disadvantage of the formal players not to mention the loss of Government revenue in unpaid taxes," said Nabak.

—[email protected]