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The National Baseline Survey on the Extent of Illicit Trade in Kenya

Counterfeits, Enforcement, Illicit trade

INTRODUCTION

The primary objective of this survey was to determine the magnitude, level, and prevalence of illicit trade in Kenya.

International trade data measurement and comparative analysis of the world’s declared exports to Kenya and Kenya’s declared imports from the world should ideally balance out. However, this is not the case due to varied possible means of importing illicitly traded products into the country such as counterfeits.

Firm sales losses. This study observed that sales losses occur when illicit trade occurs, and specifically counterfeit goods and pirated products crowd the genuine products in the market. This leads to lowering the market share of rights holders and downward pressure on prices as the products fight to remain in the market due to unfair competition from counterfeits.

The Kenya Manufacturers Association (KAM) study on illicit trade in 2012 estimated that Kenyan manufacturers are losing close to 40% of their market share to counterfeiters.

The Kenya Publishers Association is estimated to have lost close to KES 2 billion annually in 2019.

Some of the firm sales loss data was obtained from the following sectors: Agricultural inputs and agrochemicals, Automotive, Building, mining, and construction, Chemical and allied, Energy, Electrical and electronics, Food, Beverages and non-alcoholic Drinks, Alcoholic Drinks, Leather and Footwear, Metal & Allied, Paper & Board, Pharmaceutical & Medical Equipment, Plastics & Rubber, Textiles & Apparel, Timber, Wood & Furniture, Tobacco products and Cosmetics.

The population for Copyright companies/individuals was based on the Kenya Copyright Board (KECOBO) total registered copyright holders, which stood at 2,397 at the time of this survey.

A SNAPSHOT OF THE FINDINGS

1.      Legal framework of combating illicit trade

The following forms of illicit trade have specific laws and enforcement agencies to combat them: Counterfeits, Piracy, Substandard goods, uncustomed goods, restricted goods, and unexcised goods.

2.      Institutional framework for enforcing laws on illicit trade

Institutions that have been established to enforce various laws against illicit trade include: The Anti-Counterfeit Authority, Kenya Industrial Property Institute, Pests Control Products Board, The National Police Service, Kenya Copyright Board, Pharmacy and Poisons Board, Kenya Bureau of Standards, Kenya Plant Health Inspectorate Service, Department of Weights and Measures, Kenya Revenue Authority, and Kenya Film Commission.

3.      Size of illicit, level and prevalence of illicit trade

The total value of illicit trade was KES 726 billion in 2017 and KES 826 billion in 2018, an increase of 14%. In GDP share, this is 8.9% and 9.3% respectively.

4.      Enforcement of Illicit Trade Laws by Government Agencies

a)     Seizure of illicitly traded products

The total value of reported seizures from illicit trade was KES 1.1 billion in 2018. Seven out of ten institutions mandated to enforce illicitly traded goods accounted for the following percentages of the KES 1.1 billion: ACA 84%, KECOBO 8.1%, KEBS 5.5%, PPB 1.3%, KRA 0.9%, and weights and measures 0.2%.

b)     Complaints received by Government Agencies

Government agencies reported having received complaints on illicit trade from the private sector and consumers on counterfeit goods, piracy, uncustomed goods, and substandard goods. 386 complaints were received in 2016 and 546 in 2018, an increase of 41%. ACA received 72% of complaints under counterfeit goods of the complaints between 2016 and 2018.

The complaints prompted a number of actions, which ranged from awareness raising and education, continuous market surveillance, investigations and prosecutions and seizure of goods among other actions.

5.      Firm-level awareness and impact of illicit trade on firms

The level of awareness of the firms on whether their products were either being counterfeited, pirated, or competed by other forms of illicitly traded products was quite low. On counterfeit, 30% of the firms indicated awareness of their products being counterfeited while 56% indicated not being aware.

On piracy, 38% indicated that they were aware, while 61.70% indicated that they were not aware.

6.      Impact of illicit trade on firms

a)     Sales Losses

Total reported sales losses recorded declined from KES 174 billion in 2016 to KES 72 billion in 2018.

Counterfeits accounted for 77% of the total firm’s sales losses in 2018, pirated goods accounted for 19% and uncustomed goods accounted for 2%.

Imports cited as a source of counterfeit goods accounted for 52% and substandard goods accounted for 60%.

This implies that imports are a major source of illicitly traded products. The main possible source countries of these products include UAE, Netherlands, Germany, USA, Italy, UK, Turkey, South Africa, France, India, China, Tanzania, Egypt and Uganda.

The top five counterfeit hotspots include Nairobi (88%), Mombasa (45%), Nyeri (45%), Meru (34%) and Nakuru (34%).

b)     Investment opportunity lost

As a result of illicit trade, KES 44 billion worth of investment opportunities were lost in 2016 and KES 123 billion in 2018, an increase of 178%.

The leading forms of illicit trade behind investment opportunity loss were counterfeits and piracy which accounted for 41% and 21% of total investment opportunity lost, respectively. All other forms of illicit trade (substandard, uncustomed, restricted, and unexcised goods) accounted for 39%.

c)      Employment loss

Illicit trade triggers job losses in the adversely affected firms. This is evidenced by the loss of employment in the respondent firms as a result of unfair competition from illicitly traded products. Job losses in these firms increased by 484% from 7,565 jobs lost in 2016 to 44,198 jobs in 2018.

d)     Government revenue loss

Illicit trade triggered Government Revenue losses at two levels. The first level is the revenue loss as a result of import-based illicitly traded products and the second level is as a result of revenue loss at the firm level due to sales losses associated with unfair competition from illicitly traded products.

The total Government revenue losses from the two levels stood at KES153.1 billion in 2018 having increased by 18% from KES 129.72 billion in 2017. Import-based Government Revenue loss accounted for 97% and 95% of the total Government revenue loss in 2017 and 2018, respectively. The difference, 3% and 5% in the years 2017 and 2018 was accounted for by Government Revenue loss reported by the respondent firms during the survey.

Source: ACA Survey

Summarized by:

Caleb Mayoyo

Chief Investigations Officer

Probequest Consult

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ACA, Anti-Counterfeit, Brand Protection, Counterfeit, Investigations, IP, IPR, Private Investigations

About Us

Probequest Consult is a private investigation firm based in Nairobi, Kenya with over a decade’s worth of collective experience in Sub-Saharan Africa.