The dangers of product counterfeiting get a lot of attention these days, especially in developing countries, and with good reasons. The health and economic implications of counterfeited products are grave and worsening.
What started small with the imitation of luxurious products in the 1970s and 80s has since morphed into a full blown dark economy which has put the lives of consumers at risk and shattered legitimate businesses through extremely unfair competition.
Here in Kenya, the pain of counterfeits is excruciating. The Kenya Association of Manufacturers (KAM) for example estimates that the country may be losing approximately Sh200 billion to the counterfeits and illicit goods trade every year.
Not only does counterfeiting deprive business of revenue and profits, it also has untold negative effects on human health, food safety, the environment, government tax revenues and jobs. This illegal trade also poses a threat to national security because it often involves highly organised crime groups lured by the high profits and low risk nature of counterfeiting.
Unfortunately, counterfeiters have for many years taken advantage of technological challenges in developing countries to successively grow their illegal distribution networks, especially of highly-taxed products such as cigarettes and alcoholic beverages.
And because these counterfeiters by definition do not play by the rules and are often linked with international criminal networks, legitimate businesses and enforcement authorities have to constantly adapt and update their systems and methods for fighting the menace.
Technology provides toolkits that can help manufacturers and economies to combat counterfeits. The World Intellectual Property Organization (WIPO) opines that the use of standardised and harmonised identification such as security stamps or barcodes could guarantee the integrity of products throughout the supply chain, especially on areas of authentication and traceability.
This is beneficial across the board — to the government, business and the consumer.
For instance, with a specialised secure stamp, authorities and consumers can verify the authenticity and origin of a product. Products that do not bear a valid stamp can be clearly identified as suspicious and likely illicit and unfit for consumer use – providing an opportunity to lock them out.
An effective traceability system makes it easier to single out illicit, defective or unsafe products including foods, pharmaceuticals and cosmetics among others and remove them from the shelves as fast as possible. Expedited removal of harmful products could help save lives in certain cases and also protects brands by strengthening consumer trust in the quality and integrity of goods that are successfully verified through the traceability system. With such myriad and tangible value, businesses should therefore stay at the forefront in ensuring the success of such systems.
Apart from helping to address quality issues, identification and traceability technology systems allow government agencies to monitor and control domestic production, imports, exports, and the distribution of these goods within a country. Data gathered from these processes are vital because it can be used to verify payable taxes due on all excisable products so that there is no room for leaks through evasion.
In Kenya, the KRA’s implementation of a high-tech authentication and traceability solution, the Excisable Goods Management System (EGMS), therefore duly boosts the government’s anti-counterfeit strategy. The EGMS enables the government, businesses and consumers to verify and trace excisable products, which will help single out illicit goods and curb tax evasion.
The EGMS is increasingly being leveraged in Kenya and has now been extended to non-alcoholic beverages including water, which is a sector that has been suffering from extremely high levels of illicit products.
However, the effectiveness of an authentication and traceability system such as EGMS is not limited to excisable products – indeed, other sectors of the market suffer equally or even more from the plague of illicit trade and could benefit from the features of such a system.
Agencies such as the Kenya Bureau of Standards (KEBS), the Anti-Counterfeit Authority (ACA) and the Pharmacy and Poison Board (PPB) can make use of EMGS to fight counterfeits and illicit trade in many other product categories. Such an arrangement would come with merits of a more coordinated purge on illicit goods. With all of these key regulatory agencies operating from a common platform, it would be easier and faster to pool resources for enforcement, unlike the current state where disjointed operations among the state bodies may provide room for the proliferation of illicit trade. It would be some sort of one-stop-shop for government agencies in the fight against illicit trade, which escapes controls on quality and safety and maintains an unfair advantage over legitimate businesses through tax evasion.
And because the fight against illicit trade is not restricted to a particular part of the country, inter-agency teams may consider operating in a decentralised formation to maximise their performance.
The writer is finance and tax consultant.