Curbing the menace of illicit trade and counterfeiting

Over the years the Nigerian economy has witnessed many developments. Many manufacturers and product owners have reaped the benefits of Nigeria’s large population as it presents a viable market for their goods and services. However, one thing which poses a significant threat to successful business activities is the trading in illegally or unethically procured goods, otherwise known as illicit trade. Illicit trade covers a range of different activities, from illegal trade in natural resources, the supply of counterfeit goods, smuggling of contraband goods, trade in illegal drugs and weapons, and people trafficking.

The negative effects of illicit trade are numerous ranging from economic, environmental and social. Firstly, illicit trade and financial flows divert money from the legitimate economy. Environmentally, some of these trades deplete natural resources or have other negative effects. Socially, the impacts can be enormous, some of which can be the direct effects of human trafficking and the harm caused by counterfeit drugs and medicines.

Across many industries, illicit activities undermine sustainability, and support a range of illegitimate activities, since money from illegal trade is often reinvested in other criminal undertakings. Illicit fishing in Brazil is an excellent example. First, it is crippling the country’s already depleted marine resources. Although the government has made agreements that govern the high seas, and these look good on paper, they are difficult to enforce. Illegal fishing places an illegal supply of fish on the market and depletes available stocks. The economic loss to legal fisheries amounts to millions of dollars. The environmental costs are also considerable.

The World Health Organisation estimates that the prevalence of counterfeit pharmaceuticals ranges from less than 1 percent in developed countries to over 30 percent in developing countries and over 50 percent from illicit Websites.

In Nigeria, the effects of illicit trade result in the market being saturated with counterfeit products which are sub-standard to the consumer and in cases of products like drugs, food and other consumable items, the repercussions could be more harmful to the consumer. For the manufacturers and product owners, the effects are losses for the company in terms of profits, while the government loses a lot in terms of taxes on products in the industry. In 2009 alone, Nokia lost nearly $20 billion to illicit trade of counterfeit devices and, according to the Federal Internal Revenue Service (FIRS), the Federal Government loses close to N140 billion annually to the scourge of illicit trade.

The issue of counterfeiting does not leave out the pharmaceutical industry either, as nothing can be more detrimental to a person’s health as a fake drug. Counterfeit medicines have been documented in every therapeutic category, in both generic and branded medicines, and in every region of the world. WHO reports showed that the sale of counterfeit drugs in Peru rose from an estimated $40 million in the year 2002 to $66 million in 2006. In 2006 also, Russia’s Federal Service for Health Sphere Supervision (FSHSS) reported that 10 percent of all drugs on the Russian market were counterfeit. However, other sources estimate that the real figure could be much higher.

Recently, the Anti-Counterfeiting Collaboration (ACC) in Nigeria saw the Association of Nigerian Representatives of Overseas Pharmaceutical Manufacturers (NIROPHARM) in conjunction with the National Agency for Food and Drugs Administration and Control (NAFDAC) and other stakeholders in the pharmaceutical industry come together to call public attention to the dangers of counterfeit drugs and the effects of counterfeiting on the nation’s economy. Industry analysts particularly lament that the food beverage and tobacco sector of the economy is a major focus point for smugglers and illicit traders. The sector, like pharmaceuticals, is delicate because it affects the well-being of the consumers of the products. Of all the consumables, the tobacco industry is particularly affected due to the strict regulation and suppression. This creates a new source of demand which smuggled goods appear to fill.

Some analysts are of the opinion that the more government and regulation make it difficult for the sale of tobacco products, the more some may find it easy to smuggle in products as opposed to getting them legally. Stiff regulation makes the price of legally available products higher than that of the smuggled goods and also makes them less accessible to the consumers. Therefore, when consumers find the smuggled goods more accessible, they may tend to purchase these.

Furthermore, the smuggled tobacco products lack the warning messages and may also not be produced to standards and as such might pose a major risk to those who consume them. Industry analysts believe that a legal tobacco industry has the potential to undermine the illicit trade and smuggling of tobacco products while encouraging appropriate taxation and generating revenue for the economy.

Illicit trade is a menace in Nigeria and the world at large. This affects all industries as well as intellectual property owners. It harms brands, damages businesses, promotes criminality, misleads consumers into buying products of dubious quality, and ultimately could harm consumers. It also deprives the Federal Government of revenue and undermines the regulatory regimes of the government agencies.

For an organisation like British American Tobacco Nigeria, its scorecard reveals that before its introduction into Nigeria, 80 percent of cigarettes in the Nigerian market were smuggled. Over the years with consistent workings with regulatory bodies, the level of illicit trade has reduced to 20 percent. This implies that revenue and excise duty payments are not avoided.

The Federal Government has made great strides in illicit trade reduction. By ensuring consistent availability of tax-paid products, the proportion of illicit trade has dropped from over 80 percent in 2001 to around 20 percent of the total market in 2009.

Corporate organisations also have strategic partnerships with the Nigerian Customs Service which contributes to the reduction of illicit trade in counterfeit or smuggled products. Companies like Nokia and Samsung hold seminars for dealers in mobile devices and educate them on the menace and effects of illicit trade. GlaxoSmithKline, one of the leading pharmaceutical companies in Nigeria, recently introduced an initiative in partnership with Sproxil where consumers can identify whether a drug is original or counterfeit by sending an SMS and receiving confirmation within a few seconds. With initiatives like these, the public is gradually being sensitised about the dangers of illicit trade.

At an Anti-Counterfeiting Collaboration rally recently, Mosunmola Samuel, Lagos desk officer, Standards Organisation of Nigeria (SON), described the activities of pirates and others involved in illegal trade as inimical to the nation’s economic growth, stating that regulators in the industry should partner with initiatives from the private sector to combat the menace of illicit trade in the country. She noted that it was a good development that many private sector stakeholders were taking the initiative to assist in curbing the menace of illicit trade in Nigeria.

Studies have shown that countries that have recorded steady reduction in illicit trade, smuggling and counterfeiting have a well-structured taxation system, policy on regulation, and an enforcement approach to blocking loopholes along porous borders. Samuel urged the Federal Government to redouble its efforts in curbing the menace and to empower both public and private sector stakeholders in the fight against illicit trade. 

 

Babatunde writes from Lagos.

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