The cost of counterfeits and substandard goods to Ugandan businesses

by Mmeeme Leticia Luweze
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Last year, in April, the Anti-Counterfeit Authority of Kenya (ACA) and Uganda’s Anti-Counterfeit Network (ACN Africa) teamed up to combat counterfeits in the East African region. They signed a Memorandum of Understanding (MoU) on April 20, 2023, in Nairobi, Kenya’s capital, aiming to strengthen cooperation in eliminating fake goods from East Africa.

According to the World Economic Forum, illicit trade currently strips the global economy of $2.2 trillion annually, accounting for almost 3% of the world’s gross domestic product (GDP).

Uganda’s Anti-Counterfeit Network (ACN) disclosed that Uganda loses up to Ugandan Shs6 trillion to counterfeits and substandard products every year. While discussing the issue of counterfeits, Speaker Anita Among stated, “We want to understand how a consumer is protected. What do we do with these counterfeit products and when we can have a law to deal with all this,”

The Global Entrepreneurship Monitor report in 2015 ranked Uganda as the most entrepreneurial country in the world. It notes that more than a quarter of the Ugandan population (28 percent) have started a business of their own in the last 3.5 years. However, whilst an ever-increasing number of Ugandans are turning to entrepreneurship as a way to advance their economic prospects, the odds remain heavily stacked against them.

Many businesses today have to deal with, among others, unfair competition from substandard and counterfeit alternatives.  Counterfeiting and the proliferation of cheap substandard products on the market is a major constraint to business growth and competitiveness. Data from the Business Climate Surveys at the Economic Policy Research Centre indicate that substandard products have overtaken transport infrastructure and access to finance as the leading challenges that Ugandan businesses have had to deal with over the last two years. In 2014, for example, close to 40% of Ugandan businesses felt that they suffered – albeit with varying degrees – due to unfair competition from counterfeiting and cheap substandard products.

“Counterfeiting and the proliferation of substandard goods should concern everybody – not just genuine business-minded people. To the entrepreneurs, substandard and counterfeit products in particular stifle the growth of genuine businesses because of the unfair competition. Substandard and counterfeit products are usually cheaper and therefore can easily drive genuine business out of the market. To the consumers counterfeits and substandard goods have big adverse welfare and health implications.  Virtually all sectors have to deal with counterfeit and substandard products. Let me highlight two for brevity: one in health and the other in agriculture.” the Economic Policy Research Centre notes

The UNBS Act, (2013 amendment) and 2018 regulations emphasize the use of the UNBS distinctive mark, all products covered by compulsory standards must be certified and issued with a distinctive mark before they are allowed on the market.  This certification is not a formality; it is an assurance to the consumer that a product is safe and reliable. To the manufacturer, it is a testament that your product is of good quality.  With the increased risk and compliance guidelines organizations are accountable to, they must work to minimize and eliminate risk.

The Uganda National Bureau of Standards notes that more than half of manufactured goods on the Ugandan market are substandard. In its Annual Report 2022/23, UNBS revealed that the percentage of substandard goods increased by 7 percent, rising from 49 percent in the 2020/21 financial year to 58 percent by June 2023.

During this period, UNBS conducted 4,537 inspections of businesses, supermarkets, warehouses, wholesale stores, and retail outlets across the country. These inspections led to the seizure of 653 products, weighing an estimated 5,707 metric tonnes, which failed to meet minimum safety and quality standards. However, this fell short of the targeted 9,000 inspections, achieving only 50.4 percent of the routine inspections.

The majority of seizures occurred in the central region (341 seizures), followed by the western region (209 seizures), with the eastern and northern regions registering the lowest seizures at 59 and 54 respectively. UNBS is mandated to conduct routine market surveillance to remove substandard products, protect consumers, and level the playing field for both domestic and imported goods.

Uganda continues to suffer from an increase in the volume of substandard products, a situation exacerbated by the underfunding of critical agencies such as UNBS. During a visit from the Minister of State for Trade, Wilson Mbasu Mbadi, acting executive director Daniel Richard Makayi Nangalama highlighted that UNBS is currently grappling with inadequate budget and manpower, operating at less than 50% capacity. This low funding hampers market surveillance efforts, which are crucial for ensuring socio-economic transformation and the development of the local manufacturing industry.

“There is a need for the government to review the UNBS funding model and level to ensure that the money paid by the business community is immediately available to provide timely services to enterprises and ease the cost of doing business in Uganda,” said Mr. Nangalama. Despite the seizures, which resulted in 30 criminal cases, weak regulations continue to impede the fight against counterfeits and substandard goods.

Currently, a proposed Anti-counterfeit Goods and Services Bill is under consideration in Parliament. This bill seeks to impose stricter regulations on the sale, manufacture, and importation of substandard and counterfeit goods and services. It aims to enforce severe consequences for offenders, including up to 10 years in prison and a fine of Shs50m for disobeying enforcement orders.

The bill proposes additional sanctions, such as revoking the offender’s trade license, destroying or seizing all tools used in the manufacture of counterfeit goods, and imposing a maximum 10-year ban from participating in any commercial activity. Once enacted, the law will be jointly enforced by several government ministries, departments, and agencies, including the Uganda National Bureau of Standards, Uganda Investment Authority, and Uganda Revenue Authority.

“The prevalence of counterfeit and the proliferation of substandard competitors might be just one of the reasons why, despite the impressive entrepreneurial ranking, Ugandan businesses struggle to flourish. Yet, counterfeits and substandard goods persist because they are profitable in the short term – synonymous with the get-rich-quick model of development that many Ugandans adopt. Pushing out counterfeits and substandard products and encouraging genuine and honest business will require tremendous effort in regulation and consumer education” the Economic Policy Research Centre further explains

The genuine organizations in Uganda stand to lose significantly due to the proliferation of counterfeit and substandard goods. These illicit products not only tarnish the reputation of legitimate businesses but also endanger consumer safety and undermine economic growth.

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