EAC firms lose Sh180b to traders in fake goods

The ongoing knock-down of administrative barriers along the national borders of East African Community member states has sparked a fresh rally of trade in illegal goods that is costing manufacturers billions of shillings in marketshare and heavy revenue losses to governments.

The East African Business Council (EABC), a regional traders’ lobby, says the sale of illegal goods, mainly involving the shipment of contraband and counterfeit goods, has risen significantly since last year’s phase-out of cross border tariffs under the EAC customs union.

The council’s claims are backed by preliminary findings of a study by the Kenya Institute of Public Policy Research and Analysis (KIPPRA), which estimates the annual cost of trade in counterfeits and contraband goods in the region at Sh180 billion ($2 billion).

This means that trade in illegal goods has risen by 350 per cent from the Sh40 billion ($500 million) estimate the Organisation for Economic Cooperation and Development (OECD) gave in 2008.

Counterfeit goods are imitations of products offered for sale as if they were authentic, disregarding trademarks.

Contraband goods, on the other hand, may be authentic but have not fully complied with the import and export regulations such as payment of taxes.

That is enough money to finance the free primary and secondary education subsidy for two years.

Besides causing massive revenue leakages for national governments in the region, the booming trade in illegal goods is also raising concern that its proceeds may be used to finance international crimes such as terrorism.

The sharp rise in illicit trade is partly attributed to the easing of administrative restrictions on circulation of goods and services with last year’s final phase out of cross-border tariffs on Kenyan goods entering other EAC states.

EABC says growth in illegal commerce is being driven by foreign and local entrepreneurs who are using the relaxed trade regime to replicate well known brand names and designs for sale at cheaper prices.

Dry cell batteries, alcoholic beverages, fruit juices, shoe polish, toothpastes, soaps and detergents, ball point pens, books, electrical and electronic items are some of the most counterfeited products.

Others are perfumes, clothing, footwear, cosmetics, pharmaceuticals, automotive spare parts, computer software and hardware, audio and video tapes and CDs.

Cigarettes top the list of counterfeit products sold in the Kenyan market threatening the marketshare of established players such as British American Tobacco (BAT).

BAT estimates that cigarette counterfeiters pocket close to Sh100 billion annually from sales in East Africa.