Fighting illicit trade – a do or die for Kenya’s economy

BY ANTONY MUTUNGA

Over the years, Kenya has emerged as one of the fastest growing economies in Africa. One of the major sectors that have been contributing to this growth has been the manufacturing sector which has seen the country become one of the most industrialized countries in the East African region. The manufacturing sector has helped Kenya not only become a hub for business but it has also brought multinational companies such as Volkswagen to the shores of the country thus showing other organizations that the sector is a safe and worthy investment.

However, in 2015, the contribution of Kenya’s manufacturing sector to the GDP started to decline as the percentage contributed decreased from an average of 10% in the previous 10 years to 9.2% in 2016. As a result of drought, predictability and naturing regulatory environment as well as the political climate that the country faced in 2017, the contribution ended up declining once more to 8.4% in 2017 from 9.2% in 2016, according to the Kenya Association of Manufacturers (KAM).

Besides, illicit trade brought about by cheap imports and counterfeit/fake goods has also proved a hard nut to crack. KAM refers to cheap imported goods, as those of a lower price than the market value while counterfeit goods are those that have no value or standard. The most affected commodities have been the fast moving consumer goods (FMCG) or consumer packed goods (CPG). These counterfeit goods and cheap imports usually cause losses, low production and poor consumer satisfaction.

There are still opportunities for success in Kenyan owned retail. However, the entry of international competition has made the industry less tolerant of poor governance and a poorly executed strateg.

According to Joseph Wairiuko, anti counterfeit and illicit trade officer at KAM, these commodities lower the value of our products by creating unhealthy competition that eventually leads to a decline in the growth of the economy, closing up of local industries and job losses.

Recently, Kenya has been flooding with such commodities. In addition to increased taxation, multiple levies and charges as well as other non-tariff barriers, many local manufacturers have ended up making major losses and in worse case scenarios others have even been forced to shut down. East African Portland Cement Company, for instance, has been planning to retrench as a result of losses.

Corruption, which has been on the rise in Kenya, has facilitated the thriving of illicit trade that has spread out to other critical sectors of the economy including pharmaceuticals, electronics, textiles, foods and beverages as well as motor vehicle assembly and accessories.

This year alone, goods worth Sh100 million (sugar worth Sh30 million, shoes worth Sh40 million and tobacco worth Sh20 million) were impounded at the port of Mombasa. Most of the goods impounded seemed to come from China and India. This has resulted in massive revenues and job loses

“According to a 2012 study on the vice of counterfeiting in Kenya, it is estimated that an approximate Sh30 billion is lost by Kenyan manufacturers every year, while the Government loses over Sh6 billion annually as potential tax revenue,” said Mr Wairiuko.

Apart from this, illicit trade also affects the health and safety of the people as it places them at harm’s way. As a result of these substandard goods infiltrating the market, people have access to dangerous goods, which highly affect them causing a decline in the growth of the economy as productivity is affected as well. Last year for instance, counterfeit drugs worth Sh6 billion were found at the port of Mombasa.

Joseph Wairiuko, anti-counterfeit and illicit trade officer at Kenya Association of Manufacturers.

Illicit trade is affecting the economy in a huge way and despite many ways of tackling it; corruption and graft are holding back the efforts by the government to handle the criminal activities. As a result, illicit trade is slowly by slowly becoming common in the country. According to KAM, currently illicit trade accounts for about 40% of the goods in the country. In addition, the association also states that the government losses over Sh200 billion in revenue to illicit trade.

This is despite the government having brought up laws, regulations and partnerships such as the Anti-Counterfeit Act No.13, which led to the formation of the Anti-Counterfeit Agency and the partnership between KAM and the National Council on the Administration of Justice that led to the development of the enforcement manual to combat illicit Trade in Kenya. Besides, KAM also launched the report on Intellectual Property Rights (IPR’s) Regime within the East African Community that is focused on ​identifying the gaps, and recommending the best practices to eliminate illicit trade and counterfeiting in the region.

While recently holding talks with the manufacturing sector, President Kenyatta agreed to the fact illicit trade is not only a threat to his Big Four agenda but is also bringing the economy to its knees and demanded for results from the mitigating agencies in the sector. The President has since appointed the Deputy Head of Civil Service, Wanyama Musiambo, to spearhead the campaign against counterfeits and illicit trade.

The move by the President seems to be bearing fruits as recent investigations by the government agencies and state departments are already yielding results such as the confiscation of fake contraceptives led by CS Adan Mohammed, the destruction of 15 million worth of illicit alcohol in Kisumu by KRA and the dumping of 400 tonnes of contraband sugar by PS, State Department of trade.

KAM agrees with the President. Counterfeits and illicit trade, they say, diminishes the efforts to achieve the Big Four Plan because every pillar of the agenda is gravely affected and inundated with counterfeits and criminal networks. Counterfeits and illicit trade, they aver, imperil our economic development, governance structures, national security and supply chain integrity. According to the association, manufacturing has the potential to play a particularly important role by putting Kenya on a sustainable growth path through its direct contribution to creating quality employment, strong linkages with other sectors, ability to raise capital accumulation and smooth volatility in the economy.

To reach this goal, the association says, the government needs to improve the sector by ensuring that the regulations put in place are followed in order to abolish illicit trade. That way the government will increase the contribution of the sector to the GDP to 15% by the year 2022. In addition, the country will also see the Big Four Agenda fulfilled thus leading to an increase in economic growth.

“If local manufactures have the capacity to produce these imported goods locally, the government should encourage this through imposition of import duty on the imported goods to promote the Buy Kenya Build Kenya initiative and enhance the ability of the sector to create jobs,” said Mr. Wairiuko in an interview with the Nairobi Business Monthly.

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