For $50 (U.S.), you can get yourself a brand new BlackBerry in one of a row of little shops selling cellphones near Jamia Mosque in central Nairobi.
It does not come with a warranty and the shop assistant – briefly lowering his eyes – signals that it is a “Chinese BlackBerry,” exquisitely possessed of all the external brand features of the phone, but none of its applications.
Similar counterfeit brands exist for other phones in similar markets across east Africa’s towns and cities. They sell in the thousands to lower income consumers, unable to afford the real thing, but seduced by big-brand names.
From pharmaceuticals, to cigarettes, foodstuffs, phones, CDs and DVDs, the trade in counterfeits is increasingly biting into the profits of east African manufacturers and traders.
Shipped in mostly from Asia and smuggled through the region’s porous borders or through legitimate ports staffed by corrupt officials, they affect virtually all areas of trade.
It does not help that Somalia’s southern port of Kismayu, controlled by the militant group al-Shabaab, has become an entry point for illicit goods.
The trade is increasingly linked to organized crime syndicates, and attempts to fight it are hampered by an unhappy combination of underfunded agencies, uneven regional tax regimes and endemic corruption.
In Kenya, the tobacco industry is the worst affected, with counterfeits representing up to $19-million or 5 per cent of product sales.
“Part of it has to do with the lack of a harmonized tax regime in the [East Africa]Community, the rise of Dubai and China as export outlets and the conflict in Somalia,” says Selena Olende of British American Tobacco in Nairobi. “It’s a regional problem. If there’s a peak in imports, we normally see a corresponding spike in illicit trade.”
While BAT has lobbied governments to address the problem, its efforts are ironically hampered by the stringent Tobacco Control Act, which, owing to its ban on advertising, limits what the company can do to educate consumers about the presence of counterfeit cigarettes.
While east African governments readily acknowledge the problem, they find themselves hamstrung by overworked quality inspectors at the ports and the ingenuity of smugglers. More than 2,000 containers arrive at the ports of Dar es Salaam and Mombasa each day, posing a Herculean task to the small inspection unit.
“Motorbikes have become a great means of transport for counterfeiters and their distributors. They bribe security officers staffing the crossing or use panya [illegal]routes to smuggle a whole container in minutes,” said one inspector quoted in a local daily.
Just as problematic is the lack of a harmonized tax regime. Although the East Africa Community has a common external tariff in place, it is observed more in the breach than in practice. There are still many parallel taxes, with various regimes, some of which are punitive.
To make the EAC common market an enabling platform for accelerated business investment and growth, there is a need to harmonize taxes – excise taxes, VAT and even corporation taxes.
Excise tax on soft drinks, the biggest element of the retail price, is administered differently in all five countries, for instance.
While Tanzania and Burundi charge a fixed rate per litre of beverage, Kenya, Uganda and Rwanda charge rates of 7, 13 and 39 per cent respectively.
“We are engaging with the countries under the umbrella of the East Africa Business Council to lobby for some level of harmonization of these taxes," says Nathan Kalumbu, business unit president for Coca-Cola in central, east and west Africa.
The presence of transporters willing to export illicit goods for small margins has also undermined the operations of legitimate haulers, making legal business almost unsustainable.
“Somalis are killing the transport rates. Because of their competition, nobody can now make money out of it. If somebody makes a little commission from piracy, the only place they can invest and run a decent business is Nairobi,” says Hassan Guleid, a transporter and chairman of the Eastleigh Business District Association.
“So a lot of them now go for trucks, second-hand trucks from Europe. There are hundreds, everywhere. Fuel trucks alone will be in thousands.”
For manufacturers such as Jayesh Shah, head of the Sumaria Group of companies, the results have been little short of disastrous.
“We were the No. 1 detergent company in Tanzania, but we found that, legitimately, we would not be able to compete,” says Mr. Shah. The company had no choice but to sell off its detergent company as a result.
“In Tanzania, there is a lot of business taking place without the payment taxes, and for us as taxpayers it was not making economic sense,” he says.
His company’s turnover has thus fallen from $200-million three years ago to $120-million today.