To resuscitate the manufacturing sector, the government must urgently address the avalanche of counterfeit products that has choked genuine products across various sub-sectors.
According to the Kenya Association of Manufacturers (KAM), 40 per cent of manufacturing firms cite counterfeit products as a major threat to their market share.
The influx of counterfeit products is a disincentive for investments in innovation, reduces government revenues through tax evasion and is a threat to consumer health and safety.
The influx of counterfeits has dealt a major blow to the sector, with contribution to GDP in perpetual stagnation at 10 per cent for over a decade.
The Vision 2030 development plan envisages increasing the manufacturing sector’s contribution to GDP by at least 10 per cent annually and propelling Kenya towards becoming Africa’s industrial hub.
Such aspiration calls for formulation of a winning strategy to combat counterfeits that have, together with other factors, relegated the growth rate of the manufacturing sector to a mere average of 3.2 per cent.
The government enacted the Anti-Counterfeit Act of 2008 which provides for substantive and procedural rules to combat the vice through legal consequences. It also established an anti-counterfeit agency to spearhead the fight against the menace, not only through prosecution of offenders but also through public awareness.
Substantively, counterfeiting attracts criminal sanctions of up to five years imprisonment or a fine of at least three times the prevailing price of the good, or both upon first conviction.
Moreover, a second or any subsequent conviction carries a maximum of 15 years imprisonment or a fine of at least five times the prevailing price of the good. Other offences in the Act include a person’s willful failure to cooperate with an inspector, including unauthorised tampering with confiscated counterfeit goods.
Upon conviction, such offences carry at most a three-year jail term or a Sh2 million fine, or both. Enforcement of the anti-counterfeit law administratively and procedurally rests on the Anti-Counterfeit Agency.
The ACA board appoints inspectors with statutory powers to investigate any premises harbouring suspected counterfeiting activities, including suspending such activities and seizing counterfeited goods as well as the tools.
Such powers incorporate interrogation of suspected counterfeiters, including arrest without a warrant. To lay a claim over an alleged counterfeiting, the holder or licensee of the intellectual property right files a complaint to the Executive Director of the agency.
The complaint filing procedures comprises of a fee, a sworn affidavit and an indemnity for the agency from risk of wrongful seizure, removal or detention of alleged counterfeit goods.
The fight against counterfeit faces a multiplicity of challenges. First, lack of an anti-counterfeit policy entails formulation of legislation in a policy vacuum.
Secondly, the existence of multiple agencies to combat the scourge and lack of effective legislation for data sharing and co-ordination has continued to hamper both research and appraisal of policy initiatives.
Third, fines are tied to the prevailing prices of seizures, thus aiding piecemeal smugglers of counterfeit products. Fourth, procedurally, the ACA prosecution is predicted on the reporting of the infringement by the property rights holder whose right has purportedly been violated.
However, low reporting by intellectual property rights holders remains a major obstacle.
The filing of any claim is at the discretion of property rights holder and is based on the cost and the benefit of the filing. The direct cost includes Sh10,000 application fees and insurance of the agency against wrongful claim.
Additionally, reporting of any violation may unintentionally signal the counterfeiting susceptibility of the brand name, which may lead to the loss of brand value. Evidently, such considerations have been cited by the ACA as deterrents to reporting of violations.
Fifth, ACA is expected to draw incentives from an indemnification process to prosecute reported cases. However, such incentives are countered by the inadequate budgetary allocation to the agency.
An effective strategy to halt the onslaught of counterfeiting on the manufacturing sector must begin with formulation of a policy that will streamline all the multiple laws on counterfeiting.
Such a policy would address a number of existing challenges. First, it would collate the counterfeiting intelligence of other enforcement agencies through obligation of data compilation and sharing. Data is critical for the ACA’s efficiency in combating the vice.
Secondly, the policy should also include innovative initiatives that will reduce the cost of filing claim for any manufacturing firm whose property rights have been violated.
By doing so, it would allow the firm in question to generate positive externalities of fighting counterfeit products that the society will enjoy. To make penalties more deterrent, it would be necessary to also confiscate all proceeds of counterfeiting activity.
Given the multiplicity of agencies, co-ordination is critical to ensure that all the accrued benefits of the criminal activity of the convict are considered.
As the end-users of counterfeit products, consumers bear the burden of such products, including health and safety concerns. Consumer role in the fight against counterfeit products is crucial.
Fortunately, consumer protection is now enshrined in the Constitution, including the rights to goods of reasonable quality, protection of their health and economic interests, and compensation for loss or injury arising from defects in goods or services.
Therefore, educating consumers on their fundamental rights can be a major deterrence against counterfeiting and must be provided for in the policy.
The writers re policy analysts at Kenya Institute for Public Policy Research and Analysis (Kippra). The views expressed are their own.