Industries face bleak future as counterfeits trade hits Sh1tr

The manufacturing sector, already struggling from high production costs, faces even a bleaker future as trade in counterfeit and pirated goods crosses Sh1 trillion mark.

Trade Principal Secretary Juma Mukhwana sounded the alarm on the piling problems in the sector, saying illicit trade has surpassed manufacturing in its share of gross domestic product (GDP).

“If you look at Kenya, a few years ago the share of manufacturing to the GDP was 10 per cent but today it is 7 per cent and declining. The amount of counterfeit goods has overtaken our manufacturing. We have a disaster in our hands,’ he said.

Mukhwana made the remarks during the first international symposium on intellectual property protection and enforcement in Nairobi. The meeting identified and documented the best practices in managing and enforcing intellectual property rights. The PS said the effects of Intellectual Property Infringement and illicit trade on the development agenda cannot be ignored, adding: “Counterfeits and illicit trade is economic terrorism, hitting Sh1 trillion this year.”

Kenya National Bureau of Statistics (KNBS)’s Economic Survey 2023, states that the growth in the manufacturing sector slowed down to 2.7 per cent in 2022 compared to 7.3 per cent in 2021 partly due to increased competition from cheap imports including counterfeits.

“As a country, we manufacture only 20 per cent of goods locally and import 80 per cent,” it adds. According to International Monetary Fund (IMF) and World Bank, the parallel economy of illicit trade represents between 15 per cent and 20 per cent of global GDP. 

Kenya Association of Manufacturers (KAM) explains that in the last five years, a total of 34 local companies have shut down, mostly due to competition from cheap imports including counterfeits.

Joseph Kabeabea, Anti-Counterfeit Authority (ACA) chair said the government is denied over Sh153 billion in taxes from counterfeits and illicit trade.

Most affected sectors

A baseline survey by ACA shows that the size of illicit trade stood at Sh826 billion in 2018, up from Sh726 billion in 2017, in what is a 14 per cent surge which signals that it may be over Sh1 trillion this year.

Kabeabea said the most affected sectors are building and construction, mining which accounts for 23 per cent, energy, electrical and electronics accounts for 15 per cent, textile and apparels 15 per cent, plastic rubber and metal accounts for 9 per cent each. “Further analysis by ACA shows more than 80 per cent of imported goods are counterfeits,” he said.

In the last five years, counterfeit goods worth Sh3.4 billion have been impounded with goods worth Sh1 billion being destroyed.

Flora Mutahi, Kenya Private Sector Alliance (Kepsa) chairperson said until Covid-19 outbreak, Kenya was the fastest growing economy in Africa with an average growth of 5.9 per cent between 2010 and 2018. She added today, Kenya prides itself as being the largest economy in East Africa experiencing continuous growth in the GDP. Mutahi said this is supported by ongoing public infrastructure projects, strong private and public investments and appropriate economic and physical policies reflecting the broad based and diversified nature of Kenya.

“Protection of such an economy is important and robust IP protection and enforcement plays a vital role in stimulating innovation, driving economic growth, protecting investments fostering competition and promoting cultural developments and attracting investments,” she said.