Illicit Trade Accounts For $6.48B Loss To The Economy

As the crackdown on illicit goods in Kenya continues, recent statistics from the Government show that illicit trade accounts for $6.48b loss to the economy and the Government also loses over Kshs 200 billion annually as potential income.

The Government has declared loss of billions of Kenya shillings to this racket which, in addition to inflating the cost of sales and aiding in the under-declaration of imports, it catalyses the smuggling of uncustomed goods. The nature of counterfeiting and illicit trade is such that it tends to thrive where graft and corruption is entrenched. Not only does it take away the citizen’s right to quality and genuine products, it also puts their lives at great risk by infiltrating their markets with substandard and, in many cases, highly dangerous goods.

Additionally, many counterfeit products evade taxation, and in doing so they appropriate huge portions of our national revenues. This explains the recent upsurge of fictitious invoicing which has been flagged by the Kenya Revenue Authority facilitate tax evasion.

Currently, there exists a disconnect between the seriousness with which enforcement agencies have taken up this initiative, and the ruling and sentencing of culprits found guilty of these offences. The laws, presently do not sufficiently take into account the severe effects that supply of counterfeit goods does to our population’s health, quality of lives and the economy.

Other countries in the world have done this in order to counter the economic sabotage brought on by counterfeits and illicit trade. For instance, in America, the 18 U.S. Code Section 2320, states that whoever intentionally “traffics in goods or services and knowingly uses a counterfeit mark on or in connection with such goods or services” shall face a penalty of a fine of not more than $2,000,000 and a prison sentence of not more than 10 years, or both. For a subsequent violation, the penalty is increased to up to a $5,000,000 fine and up to 20 years in prison.

In Singapore, the sale of counterfeit goods is an offence punishable by a fine of up to S$10,000.00 per counterfeit good, or up to five (5) years’ imprisonment, or both. A counterfeiter is liable to a fine of up to S$100,000.00, or up to five (5) years’ imprisonment, or both.

This shows an understanding that counterfeits is not just a social problem in terms of misleading the public and swindling consumers of their money; it is a poses a danger to our health and safety, it poses a security risk for the entire country and threatens to derail our efforts towards economic progress.

Recent investigative activities and seizures by Government agencies and state departments such as, the seizure of Brown sugar in Eastleigh – clearly labelled ‘Not fit for human consumption and the capture of Chinese nationals openly selling counterfeit electric cables, are an indication that the taskforce intervention is bearing fruit for industry and consumers.

The keenness, to embolden these initiatives, assures investors of the full support of Government in terms of resources, intelligence and security apparatus.
Kenya Association of Manufacturers has worked closely with the Judiciary to publish an enforcement guide to combat illicit trade in the country. However, as it becomes increasingly complex we need to move a step further.

East African Cables also released a statement where they say they have in the recent encountered a threatening menace of counterfeited products branded as East African Cables that have been finding their way into the market at an alarming rate.

These products pose a huge risk to the consumers who unknowingly install them. In addition, counterfeit products pause a risk to the industry as they take the space of original products threatening the very market share of the brand owners.

To safe guard their consumers and brand, in 2013, EAC invested in a costly verification mechanism code named “zinduka”, which allows the customer to scratch the label and verify the cable’s genuineness.

While they have had some success, they believe that the fight against counterfeit should be a sustained multi-agency approach in collaboration with source countries such as China ensuring tighter surveillance at ports of entry and punitive sentencing for the perpetrators.