Let's tackle illicit trade head on

Counterfeit products usually bear the trademark of a legitimate, known and trusted brand. [iStockphoto]

The recent crackdown on various forms of illicit goods revealed the extent to which criminal networks have proliferated in our nation and posed a threat to the lives and safety of all citizens.

The initiative has unearthed many illicit products, among them pharmaceutical products, cosmetics, and alcoholic products, as reported in the media.

According to the National Baseline Survey on Counterfeit and Other Forms of Illicit Trade in Kenya released in 2020 by the Anti-Counterfeit Authority (ACA), the total value of illicit trade was Sh826 billion in 2018, a 14 per cent increase from Sh726 billion in 2017.

In terms of their GDP share, this represents an increase from 8.9 per cent in 2017 to 9.3 per cent in 2018. Currently, ACA estimates that the numbers have hit more than Sh1 trillion this year.

Illicit trade is a longstanding grave issue, that has grown in scope and magnitude and is derailing economic development.

Citizens and legitimate businesses bear the burden of illicit trade. For instance, entrepreneurs spend more resources to protect their products and services, whereas citizens not only spend money without value from counterfeits but are exposed to potential health risks posed by such products and services.

Illicit trade manifests itself in six major and interrelated ways: smuggling; transit fraud ordumping; trade in prohibited goods or products; illicit cash flows; human and wildlife trafficking; trade in small arms and light weapons; and counterfeiting, piracy and substandard goods.

Risk to life

In Kenya, counterfeiting is the most prevalent form of illicit trade. It not only takes away the citizen's right to quality and genuine products but also puts lives at risk by infiltrating the market with substandard and, in many cases, highly dangerous goods.

There have been reports of illicit food and beverage products causing illnesses, disability, and death. For example, counterfeit alcoholic products.

Additionally, illicit trade, especially counterfeiting, undermines the value of authentic products and the investments that legitimate businesses put into their brands.

Such products are manufactured cheaply for sale at low prices disregarding quality and standards and end up hurting the market share of genuine products.

On the other hand, the reputation of legitimate manufacturers is impacted negatively due to bad consumer experiences. Some manufacturers have had to restructure their operations due to the influx of counterfeit products in the country.

Furthermore, many counterfeit products evade taxation, and in doing so, they appropriate portions of our national revenue. This leads to the loss of billions in government taxes every year, depriving the public sector of significant revenue to direct towards the delivery of public services such as education, health, and infrastructure.

Illicit trade also undermines the concept of a free and open market, which is fundamental to improving competitiveness, increasing investment, creating jobs, and improving the economic situation of not only Kenya but also of the EAC partner states.

In light of this, the Kenya Association of Manufacturers (KAM) continues to work with the government to create awareness among consumers on the presence of counterfeit products in the market.

By working with institutions such as ACA, our goal is to see that members of the public are well informed so that they may purchase genuine goods and, consequently, enjoy value for their hard-earned money.

KAM also advocates for inter-agency collaboration among the national enforcement institutions mandated to combat various forms of illicit trade.

Intellectual property

Businesses rely heavily on intellectual property rights (IPR) as they drive innovation. However, where they do not exist or are not enforced, rouge individuals and businesses can capitalise unfairly on those who invest valuable resources in the research and development of products.

Such actions disincentivise innovation, which is key to developing new products and services that address societal needs.

KAM's analysis indicates that about 30 per cent of counterfeit products in the Kenyan market are produced in the country, while the rest emanate from imports.

ACA's IPR recordation programme seeks to protect consumer health and safety while shielding local manufacturing entities from cheap counterfeit imports. This will spur both domestic and foreign investments and, as a result, lead to economic growth and job creation.

David Luna, the former Chair of the OECD Task Force on Charting Illicit Trade, noted, "As humans, we tend to exaggerate the risks of spectacular events that are extremely rare, but that result in many losses immediately - a factory fire, a terrorist attack, a natural disaster.

Meanwhile, we underestimate the risks of long-term events that affect us every day in small ways, adding up to a major impact. Illicit trade is one of these risks".

- The writer is the CEO of Kenya Association of Manufacturers and can be reached at [email protected].