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Authorities not using law to curb trade in fake goods

Monday May 28 2018

Kenya Revenue Authority (KRA) staff destroy counterfeit wines and spirits valued at Sh60 million at the Nairobi Water and Sewerage Company dumping point in Ruai on April 16, 2015. PHOTO | FILE | NATION MEDIA GROUP

Kenya Revenue Authority (KRA) staff destroy counterfeit wines and spirits valued at Sh60 million at the Nairobi Water and Sewerage Company dumping point in Ruai on April 16, 2015. PHOTO | FILE | NATION MEDIA GROUP 

MWANGI MUIRURI
By MWANGI MUIRURI
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The proliferation of counterfeit products has created fears within the business community that the illegal products, currently estimated to be controlling 40 per cent of the national economy, could take over in the not-too-distant future.

The trade in counterfeit products is believed to be behind the Kenya Revenue Authority’s (KRA) consistent failure to meet its targets, making it difficult to draw up the national budget, while at the same time denying the government funds to finance its development agenda.

Now experts fear that the country might be headed for a scenario where it will be under the control of counterfeiters by 2030, unless immediate measures are taken to wipe it out, or at least control it. 

Some traders fear that counterfeiters increasing control will spill over to the political domain, and will enable them to dictate who holds certain positions in the government.

But even if that does not happen, it is anticipated that by 2030, counterfeit products will be killing Kenyans and their livestock in their thousands.

Kenya Revenue Authority machine mixes illegal rice with tar before being burned in the incineration machine at Bamburi Cement Factory in this picture taken on May 16, 2018. PHOTO | LABAN WALLOGA

Kenya Revenue Authority machine mixes illegal rice with tar before being burned in the incineration machine at Bamburi Cement Factory in this picture taken on May 16, 2018. PHOTO | LABAN WALLOGA

CHEAP

Those addicted to cheap alcohol are believed to be the most vulnerable, with the liquor industry littered with poisonous substances spiked with acids, metals and gases, says Mr John Mututho, the Kiambu County anti-substance abuse director and former boss of the National Authority for the Campaign Against Alcohol and Drug Abuse (Nacada).

He adds that those who take alcohol, are currently in a sector at best a “culture of death” because of the dangerous brewing procedures used to make the illegal alcoholic products.

But even those who don’t take alcohol are not safe since they still risk dying after taking counterfeit medicines; and their livestock face the same risk.

In addition, the transport system will be affected thanks to fake spare parts, while the quality of buildings and other critical infrastructure will be compromised because of fake construction materials.

Businessmen now warn that it is time the government took decisive action against counterfeit products, currently estimated to earn between Sh150 billion and Sh180 billion annually.

The Secretary-General of the Consumer Federation of Kenya, Mr Stephen Mutoro, says it is unacceptable that this illegal trade will create billionaires who pocket untaxed returns with abnormal profit margins. 

“This means the economy will lose taxes in the competition between  genuine and the fake products, and the government will be denied cash to fund critical areas like education, health and security. Jobs will be lost in the sector dealing with genuine products,” he notes.

Kenya Revenue Authority workers destroy illegal liquor in Nairobi on May 15, 2018. PHOTO | DENNIS ONSONGO

Kenya Revenue Authority workers destroy illegal liquor in Nairobi on May 15, 2018. PHOTO | DENNIS ONSONGO

ILLEGAL TRADE

He adds that these illegal businesses are affecting young people, who would otherwise engage in meaningful productive economic activities.

“For instance, by the end of 2016, more than 14,000 young people were dying annually from complications related to consuming illegal brews, while some of those who survived are suffering permanent defects resulting from second-generation alcoholic drinks,” Mr Mutoro says.

He says that in their quest to make quick money, the manufacturers of the illicit brews spike the concoctions with deadly industrial chemicals such as methanol, food-grade ethanol, sisal juice or jet fuel to make them more potent and desirable to consumers.

Mr Mohan Galot, the Chairman of London Distillers Kenya Ltd, says that going by the current trend, the counterfeiters will be controlling as much as 60 per cent of the market share by 2020.

In a protest to the Kenya Revenue Authority (KRA) under the auspices of the Alcoholic Beverages Association of Kenya (Abak),  the makers of alcoholic drinks companies said that  if the government  does not come up with an urgent solution,  the counterfeit sector will soon be a law unto itself.

They say the government has abandoned its mandate of providing an environment conducive to doing legal business in the country.

“The government has a duty to streamline its economy to rid it of this imperfect market,” they say.

The firms complain that the authorities have become tragically complacent in cracking down on the counterfeiting cartels that are spread throughout East Africa and procure fake quality and certification stickers from China.

Government officials acknowledge that the situation is, indeed, serious.

Mr Joseph Kaguthi, the  Nyumba Kumi national security policing initiative director, says illicit trade in the country is costing the national economy an estimated Sh15 billion per month, which comes to  Sh180 billion annually.

An illegal gas-filling business in a residential plot in Juja on March 9, 2016. PHOTO | FILE

An illegal gas-filling business in a residential plot in Juja on March 9, 2016. PHOTO | FILE

CARTELS

He said  Nairobi, Central, Rift Valley , Nyanza and western Kenya have  illegal counterfeiting cartels dealing in almost every good imaginable  in the local market.

Speaking at a security meeting in Murang’a County in January, Mr Kaguthi said the fake  goods are packed, transported and sold without any taxes being paid. 

“The Kenya Revenue Authority (KRA) only taxes  licensed products. The licensed manufacturers and dealers have an imperfect market because of the competition with the illicit traders. In the process, the economy loses at least Sh15 billion per month,” he said.

Mr Kaguthi added that county commissioners, as the chairmen of security committees in their areas of jurisdiction, are best placed to implement structures for taming this menace.

“It is for all county commissioners to map out the dens of this illicit trade in their regions and smash them. Any commissioner who does not know his/her job in safeguarding the social and economic wellness of this country can only be a joyrider in matters governance,” he said.

He said that mainstream traders who pay taxes have been complaining about competition with illicit businesses for a long time. 

“We should conduct an audit of how this is being addressed at the county level. We should not have a business environment that pits illegal trade against legal trade. The virus should be dealt with at the county level,” he said.

meanwhile, Mr Kaguthi pointed out that equally hard hit is the  agricultural sector, where substandard agricultural seeds, fertilisers, pesticides and herbicides are being sold, yet  this has a direct connection with  the country’s food security.

Anti-Counterfeit Agency officials inspect some of the fake smartphones seized during crackdown in Mombasa on July 1, 2016. PHOTO | FILE

Anti-Counterfeit Agency officials inspect some of the fake smartphones seized during crackdown in Mombasa on July 1, 2016. PHOTO | FILE

COUNTERFEITS

Meanwhile, Mr Rajeev Modi, the Finance Manager at London Distillers Kenya Ltd, complains that the Anti-Counterfeit Act, which took effect on December 24, 2008, has not been used to tame the sale of counterfeit products. The Act establishes the Anti-Counterfeit Agency, which is mandated to effect an anti-counterfeiting policy and law in Kenya.

“We, as serious investors in this country, would like it to be known that while the Act is viewed as giving law enforcement agencies teeth in the fight against the proliferation of counterfeit products in Kenya, unfortunately, the local market is littered with illegal products that are imitations of mainstream brands,” he said.

The Act defines counterfeiting as the manufacture, production, packaging, re-packaging, labelling or making, whether in Kenya or elsewhere, of any goods whereby those protected goods are imitated in such manner and to such a degree that those other goods are identical, or substantially similar copies, of the protected goods.”

It further includes faking of intellectual property, or a colourable imitation thereof, so that the other goods are calculated to be confused with, or to be taken as being, the protected goods of the said owner, or any goods manufactured, produced or made under his licence.

Under the  Act, penalties for counterfeiting include a prison term of up to five years and/or  a fine of not less than three times the value of the prevailing retail price of the goods in the case of a first conviction.

In case of a second or subsequent conviction, the prison term is 15 years, and the fine is not less than five times the value of the prevailing retail price of the goods.

In the  event of a court conviction in which a monetary penalty is upheld, 10 per cent of the fine is awarded to the complainant, 40 per cent to the government, and 50 per cent to the Anti-Counterfeit Agency. Ms Sabina Wanjiru Chege, the chairman of the Parliamentary Select Committee on Health, says the government is aware of this dilemma, adding that it will come down hard on the cartels.

Speaking in Kangema Sub-County of Murang’a a while back, she said the cartels, especially those in the human and livestock medicine sector, are a major threat to the country’s plan of universal goals on healthcare.

Health officials on November 24, 2015 destroy counterfeit, expired, illegal and poor quality medicine seized from pharmacies during a crackdown. PHOTO | FILE

Health officials on November 24, 2015 destroy counterfeit, expired, illegal and poor quality medicine seized from pharmacies during a crackdown. PHOTO | FILE

EASY TO MAKE

Dr Peter Gaku, the chief executive of the Movement Against Substance Abuse in Africa (Masaa), says producing counterfeits is easy since you do not need a factory to make them.  

“Most  of the counterfeiters carry out their activities in ordinary households, small cottage industries, or in backyards. But it is a hugely lucrative business due to the continued high demand for low-priced products. The absence of strict law enforcement in the country encourages counterfeiters since there is no fear of being apprehended and prosecuted,” he says.

He says that when the official supply chain fails to reach many communities, especially in rural areas due to poverty and  lack of an official supply chain, the  result is the  emergence of a thriving market for counterfeit products.

Mr John Kahuthu, an advocate of the High Court, says the cartels can only be fought effectively  by strengthening the legal systems.

“As things stand, we are not equipped to deal with the extremely serious consequences of counterfeit products, and penalties against counterfeiters are too light to serve  as deterrents.  Stronger legislation will help empower those who have to deal with counterfeits and counterfeiters in the administration of justice,” he says.

He recommends a fully fledged police unit complete with investigators and prosecutors to fight the menace.

“It is only such a unit that will help to identify and coordinate action between the Customs Department, the  police and the Judiciary to monitor borders, track counterfeit goods and apprehend counterfeiters,” he says.

***

A test card that  is used to test quality of drugs. It helps fight counterfeit drugs in the market and protects the public by ensuring manufacturers follow the laid-down standards. PHOTO | FILE | NATION MEDIA GROUP

A test card that is used to test quality of drugs. It helps fight counterfeit drugs in the market and protects the public by ensuring manufacturers follow the laid-down standards. PHOTO | FILE | NATION MEDIA GROUP

CLIENTS CAN CHECK WHETHER A DRUG IS GENUINE VIA SMS

A 2016 survey by the National Quality Control Laboratories and the Pharmacy and Poisons Control Board concluded that 30 per cent of all drugs on the market are counterfeit.

“Kenya being one of the most vulnerable countries to the illicit trade, it is our duty to join other regional actors to ensure that that our local pharmaceutical manufacturing capacity for both human and veterinary medicines and medical supplies are free from the illicit infiltration,” Ms Sabina Wanjiru Chege, the chairperson of the Parliamentary Select Committee on health say.

To battle the menace, Kenya’s e-Health Department has begun piloting a system known as M-Pedigree, which enables consumers to use text messages to find out whether a particular pack of medicine is genuine or counterfeit.

The M-Pedigree platform combines cloud computing with basic cell phone technology, and thus allows manufacturers to tag each pharmaceutical unit with a unique code to which consumers can send a text message toll-free.

The feedback for the legitimacy of the queried product is instant. The system is billed to go a long way in fighting fake medicines circulating in East Africa.

Ms Chege said her committee will work with all stakeholders to root out the cartels, which she said have found a new frontier in county governments.

“We are cognisant of the fact that there are cartels whose activities are concentrated in the counties. They collude in stealing drugs procured for our hospitals while others supply counterfeits,” she said.

She added that the government is aware that the cartels operate in partnership with allies in neighbouring countries, who the porous borders points to conduct the illicit trade.

For instance, the Kenyan wing of the cartel is said to smuggle expired and counterfeit medicines into the country, and after dumping some locally, they export others to neighbouring countries.

Locally, the centres of trade in these illicit drugs are unregulated chemists, some private hospitals as well as some government health service providers, from which some county governments procure supplies.

Poverty, which drives some consumers to procure the cheapest goods and services on offer, is said to be a major contributory factor to this trade since counterfeit drugs are relatively cheap.

It is suspected that the cartels are helped by some policy-makers and lawmakers who whom they basically make their puppets by giving hefty bribes.

They are said to be pushing for bare minimum regulation to allow the counterfeits to thrive.

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