While the symptoms of counterfeiting are increasingly becoming apparent, the causes are a challenge. So far, the figures quoted in the media about the impact of the vice are nothing more than estimations based on anecdotal evidence of isolated cases.
Therefore, as of matter of urgency we must conduct a national baseline survey on counterfeiting to inform the formulation of public policy. Moreover, the survey will be a benchmark upon which Anti-Counterfeit Agency can measure the effectiveness of its strategies of combating this menace.
Initially, counterfeiting was restricted to Fast Moving Consumer Goods that attracts considerable margins. However the problem has metamorphosed and is now more complex. It has affected sectors like agriculture and medicines, posing serious dangers to food security and health.
Counterfeiting is a complex based on networks and the affected products. There are isolated cases where counterfeiting may generate positive externalities when quality is the same but with price differentials. However, the overall impact is negative because counterfeiters prefer to maintain similar prices to disguise sub-standard products.
An understanding of the counterfeiting problem entails profiling objectives of the main stakeholders. These stakeholders include the consumers, firms, counterfeiters and the government. A consumer’s objective is to maximise satisfaction subject to budget constraint. When a consumer buys a counterfeit, his or her utility decreases. One hopes reduction of utility would be a sufficient incentive for the consumers to report on the sub-standard products. Lack effective reporting channels has caused a hitch.
A firm eyes profits. It suffers under an increased supply of similar competing products of sub-standard nature but deceptively packaged as genuine. In such circumstances, the firm may lose brand value once consumers rightly or wrongly associate its legitimate products with the fake ones. Such loss of brand value may affect profit and market share, which may lead to eventual closure of the firm.
Intuitively, loss of revenue ought to induce the firms who have been perpetual victims of counterfeiting to report the perpetrators. However, most of the victims have been reluctant for fear of further erosion of brand value once the reporting becomes public knowledge. Like legitimate firms, counterfeiters’ objective is to maximise profit. By violating the property rights of legitimate firms at no cost, the counterfeiters profit more. Weak laws and enforcement have given counterfeiters a room to maintain their clandestine activities.
Besides improved tax collection, the government has the important role of protecting property rights to help the public appreciate the cost of fakes. Failure to control counterfeiting denies the government much needed tax revenue to meet its budgetary obligations. Furthermore, the fakes merchants use their might to finance criminal activities in order to sustain their clandestine business. This is a huge cost to the government.
In view of the above, to effectively combat this menace, Kenya must begin with a national baseline survey of the main stakeholders. The government, private sector and consumer organisations should fund the project.
Prof Kieyah is the principal policy analyst at Kippra.