Africa Matters Limited talks anti counterfeiting in Kenya
7th May 2009
Global meltdown threatens war against bogus goods
Business Daily (Nairobi). By Dominique Patton and Jim Onyango.
Kenya is at risk of losing the war against imported counterfeit goods as experts warn that the global slowdown has provided opportunities for the illicit trade to thrive in Africa the preferred sales destination for the copy cats. A combination of weak purchasing power among consumers is projected to fuel demand for fake goods but Kenya, like most African countries, is more exposed because of porous borders, weak or inexistent intellectual property laws and low consumer awareness. “Any time there is stress in the market the issues around counterfeits, duty evasion, sub-standard products and business ethics increase in the market. As we move forward I would expect to see more problems with counterfeit, duty evasion and sub-standard products,” said Mr Steve Smith, the managing director of Eveready East Africa.
The dry cell’s maker is one of the firms that have been pushed to the brink of collapse by counterfeit batteries from Asia. The economic losses are substantial. Kenya is estimated to have missed out on Sh19 billion in unpaid taxes last year as smugglers used alternative routes to distribute fake merchandise. Increasing trade in counterfeit goods also puts off new investors entering the market. The National Quality Control Laboratories recently estimated that counterfeit medicines —sometimes mere chalk pills or bottles filled with water — accounted for $130 million in annual sales. According to Mr Ronald Noble, the secretary general of Interpol, fake drugs cause a fifth of the one million malaria deaths each year. “And that is only the figure for malaria — We may never really know the untold lives that could be saved if all counterfeit drugs were eliminated,” he told a conference in Nairobi in November.
Heightened scrutiny of counterfeit goods in Europe and the US makes the situation worse for the region and the continent. “Western markets are tightening up their own legislation and policing methods. If the West is running at a different speed from Africa, it leaves the continent more exposed,” says Mr Tim Rump, the business director at Africa Matters, a London-based consultancy. Mr Rump, a former Unilever Marketing director who has worked in several African markets, believes Africa’s growing trade with China, the world’s single largest producer of fakes has already triggered a surge in counterfeit goods across the continent. Trade between China and Africa hit $106.8 billion in 2008, reflecting a 30 per cent growth since the turn of the millennium, according to Chinese government data. Beijing has also upped its sourcing of raw materials in countries such as Nigeria, Angola and Sudan but also given soft loans to Chinese companies involved in infrastructure projects in Kenya.
Strong government support for such projects has encouraged a stream of smaller traders to set up shop in Africa, keenly tapping markets less competitive than back home. When counterfeit versions of brands made specifically for African consumers appeared a few years ago, it became clear that some Chinese producers were increasingly targeting the continent, Mr Rump says. Despite mounting pressure from the West, China’s huge counterfeiting industry has barely lost any momentum in recent years. Lawyers for international firms in China cite some headway on the issue: police have stepped up raids and customs are increasingly blocking fake goods at the ports. Those small steps, the result of heavy lobbying in Beijing, are applauded by the industry. At an elaborate awards ceremony in the capital last month, the Quality Brands Protection Committee (QBPC), a group of 180 leading global brands, handed out engraved plaques to China’s economic crimes police for good work done over the past year.
But Mr Fan Liming, the general manager of a private investigation company in Beijing, says the central government’s growing attention to the issue has made counterfeiters more sophisticated. “They manufacture in remote areas at night and are more cunning. They are harder to find. My job is harder than before,” said Mr Liming. Why counterfeiters may be heading for boom times is a no-brainer, says Mr Christopher Zimmermann, the co-ordinator of the World Customs Organisation’s anti-counterfeiting campaign. Weaker purchasing power among consumers will fuel demand for cheap fakes just as empty order books at China’s factories free up plenty of spare capacity for production. “They play to the consumer. There is a pride issue. People may go for the counterfeit products to be seen like they are the “right brand,” Mr Smith said.
Mr Zhen Feng, the intellectual property specialist at Lovells law firm in Shanghai, is worried. “Some manufacturers are not making enough for a living so they will take orders no matter what to keep the factory going.” In Kenya, Mr Smith said counterfeits would thrive because normal sales avenues have become restricted by higher food or petrol cost and also a decline in income. “Dealers in counterfeits will use this time to increase their opportunities to gain access to either a market or a trade channel which was closed before,” Mr Smith said. This in itself does not mean African countries are at greater risk than others. The global trade in fake goods has grown 10,000 per cent in the last two decades to an estimated $600 billion each year, according to the Washington-based International Anti-counterfeiting Coalition (IACC). But the penalties in Africa offer little, if any, deterrent to sophisticated criminal networks with fines in some markets less than $10. African enforcement needs to move up a gear, sooner rather than later, as governments in source nations ease off the issue on economic considerations like jobs. “Because of economic or possible job loss, enforcement of government controls become weak; as this does possibly help to improve income through allowing fake products into the country,” said Mr Smith.
Kenya’s new legislation on anti-counterfeiting, signed into law in December, may have come just in time. An agency to co-ordinate seizures of counterfeit goods will be crucial to the law’s success, says Mr Rump. “It’s critical that the government appoints someone who is knowledgeable and that the agency is set up quickly with right level of funding and training,” he said. That may require assistance from international organisations, he believes. “It’s in everyone’s interest to tackle counterfeiting. Otherwise it will just move somewhere else.” But much more still needs to be done, say the experts. Chinese customs seized 330 million counterfeit goods in 2007, an increase of 87 per cent on 2006, according to Mr Zimmermann. Yet containers leave the country’s ports every two seconds and checking more than a tiny percentage of exports is impossible, even during times of reduced global trade. “To facilitate trade we can’t control everything. We have to control less but better,” said Mr Zimmerman. A WCO seminar in Mombasa last month aimed at teaching customs officials new techniques for detecting suspicious packages based on the transport documentation. While that may enable them to set up controls before ships have even docked at the port, greater regional co-operation, through organisations like the EAC, will also help to stem the flow of counterfeit goods around the continent.
But perhaps the biggest obstacle will be tackling awareness and demand for counterfeit goods. “A lot of people don’t even consider that counterfeit goods can be dangerous. The awareness is so low,” said Teri Dunphy, a consultant working on an EU-funded project to halt counterfeiting in Ghana. For Mr Chang, when it comes to the cross-border trade of counterfeit goods, it is clear who has the biggest job to do. “It is not really a Chinese problem. It’s a destination market issue.” Mr Smith views the conflict from a moral perspective: “Is it about survival for some and not about ethics? The whole area of business ethics will be under stress during such times.”