UGANDA FACES UPHILL BATTLE IN FIGHT AGAINST CHINESE-MADE COUNTERFEITS

Although a lot of media attention has been centered on Joseph Kony, the leader of the Lord’s Resistance Army (LRA), a Ugandan guerrilla group which has been blamed for kidnapping children and forcing them to become soldiers, another problem has been brewing in Uganda which has the potential to severely damage its economy: the bombardment of often unsafe, mostly Chinese-made counterfeits. Of course, it is by no means as controversial or as sensationalist as the Kony saga, nevertheless, the onset of counterfeit products not only undermines the economic advances made by Ugandans, it also threatens the health and safety of locals who buy substandard goods.

In response to this issue, and echoing similar moves undertaken by governments across Africa, Uganda in recent years has stepped up its efforts to combat the counterfeit goods trade as the country has become one of the largest importers of fake goods. According to the Uganda National Bureau of Standards (UNBS), the country has seen an influx of faux goods, including raw materials, food products such as edible salt and sugar, as well as cement, steel iron bars, electric cables, cosmetics, and solar energy products. Dr. Ben Manyind, UNBS executive director, stated that there are at least “twenty-five” categories of fake imported goods, most of which arrive from China and India. “We have identified these factories and we are going to take action,” Manyind announced at a recent press conference in the capital, Kampala. Manyind also indicated that such counterfeit products are dangerous as they fail to meet accepted regulations and have a short life-span, unlike standardised, locally produced goods. Despite the stricter laws and regulations put in place by the Ugandan Government which aim to improve the quality of manufactured items, according to Manyind, the makers of counterfeit goods often circumvent regulations as well as “prolong the life time of the products by putting wrong dates”. To alleviate this problem, Manyind said that UNBS was now in the process of coordinating anti-counterfeit measures with the help of the Uganda Revenue Authority (URA), and that both organisations would produce further findings on the critical issue by 02 April 2012. However, despite the best intentions of the Ugandan Government, stopping the influx of counterfeit items is a tough battle, particularly as a lot of damage has already been done to local businesses which have suffered greatly due to the lack of ability to compete against cheaper goods. Additionally, any efforts to stop further counterfeit goods importation is likely to be met with resistance, particularly from China, the biggest exporter of such goods, and even from many local Ugandans, who are will remain reluctant to stop purchasing lower-priced products in favour of higher-priced, albeit safer, merchandise.

Faux Goods Stifle Local Businesses

Despite the Ugandan Government’s efforts to combat the counterfeit goods trade in recent years, there are indications that any such responses are expected to be too little too late. For one, the trade itself is enormous: most reports indicate that the faux merchandise business accounts for as much as 10% of international trade. Secondly, the damage may be irrevocable as many local businesses have already been stifled or completely suffocated due to the unfair competition of cheaper imported fakes. Underscoring this very problem, Nice House of Plastics, a locally-based manufacturing company which produced toothbrushes, teetered on the brink of collapse after recording a loss “equivalent to 2 million toothbrushes in 2004,” all as a result of its inability to compete with imported, largely Chinese-made toothbrushes, according to a report released by the Private Sector Foundation Uganda.

And Uganda is not alone. As a result of damages to its own economy, Tanzania is also seeking to put a dent into the counterfeit goods trade, having announced that it will conduct a nationwide analysis by the end of 2012 which will study the impact of counterfeits on the profits of local manufacturers. The study, overseen by Tanzania’s Fair Competition Commission (FCC), aims to include the impact of imported counterfeits to businesses, as well as the cost of domestically produced and digitally retrieved products to manufacturers, lost government tax revenue correlating to the rise in counterfeits, as well as any and all potential health effects suffered as a result of counterfeit goods. Tanzanian officials have every reason be alarmed over the counterfeit goods market, a business which has plagued most of Africa, as cheaper mostly Chinese-made goods have spread throughout the continent to the detriment of local manufacturing companies which produce goods at higher prices. In fairness to China, many fake goods also arrive from India, the United Arab Emirates, Indonesia, Taiwan and Thailand. The Confederation of Tanzania Industries has said that fake goods cost the government “15-25% of total domestic revenue annually”, as well as between 540 – 900 billion in Tanzanian shillings (TZS) (US$343 million – $566 million) per year in tax evasion related to counterfeit products.

The Chinese Response

For their part, China has indicated an interest in combating the counterfeits trade, after having told Uganda and other East African nations that it has imposed “punitive measures” on its counterfeit exporters into the African market, adding that such measures include “death”. However, arguably the Chinese threats to its counterfeits exporters are overplayed. As the country has financially benefited from such illicit trade,it is not expected to go above and beyond with regards to stifling the counterfeit goods market. This is underscored by the fact that although Chinese products have a bad reputation in Uganda, as well as elsewhere in East Africa, locals still continue to buy fake goods as a result of their low prices, as well as due to a lack of awareness regarding counterfeit products and the dangers which may arise from them. Additionally, the Chinese-Ugandan economic relationship has only grown with each passing year. According to the Chinese Embassy in Uganda, in 2010 the trade between the East African Community (EAC) stood at US$3.89 billion, a 40% increase from 2009. Nevertheless, the counterfeit goods trade has had a significant and negative impact in terms of regional security, and in particular, it has boosted the prowess of local gangs as profits from such goods are often used to supplement the income of drug cartels and even terror networks. Furthermore, counterfeit goods pose a problem for local and international firms seeking to enter markets, as businesses may find it harder to compete against lower-priced faux products, many of which are made in China, and are thus likely to suffer economically.

The Way Ahead:

Uganda, Tanzania and other African nations are likely to continue to be plagued by economic-related crime, including counterfeit goods, despite efforts made on behalf of national governments to address such key issues. This is due to poor policing at a national level, particularly in Uganda, which lacks sufficient resources to charge those who violate patent laws or health and safety regulations.

For more information on the world-wide counterfeit goods trade and other economic crime related-issues, The Inkerman Group have created the ‘Inkerman Fraud Weekly’ a new FREE e-mail which offers subscribers a timely snapshot of the week’s most interesting and important developments. Additionally, The Inkerman Group recognises that companies operating in a modern business environment face an array of ever more sophisticated traditional and contemporary threats including fraud, corruption, bribery, extortion, IP theft, counterfeit goods, cybercrime and scams. With this in mind, the Inkerman Economic Crime Review will give companies access to cutting-edge trend and incident analysis, which will enable them to ensure that prior prevention measures are in place, or if the worst should happen, contingency plans have been made. For further information about this new monthly publication and to claim your FREE two issue trial please contact: investigations@inkerman.com.

(Image: The Investment Climate Facility for Africa)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s