New strategies needed in fight against fake goods

COUNTERFEIT goods are fraudulent products, which are sold with the false assurance that they belong to powerful brands that are strongly respected in the market.

Examples of such, which are currently troublesome in Zimbabwe, include imitative (fake) Colgate toothpaste, Mazoe cordial drinks, Cascade beverages, Protex soap, Coca-Cola soft drinks, Sunlight washing powder,  whiskies and alcoholic spirits (Jameson whisky, Two Keys, etc), and various imitative clothing brands.

Since there are few exceptions to what criminals can counterfeit, cellphones, pharmaceutical products (including medicines) vehicle parts and even aeroplane parts are also gaining more notoriety for being subject to counterfeiting.

The fraudsters behind counterfeit products may buy generic products at much cheaper prices, and then they repackage them with fake labelling which presents their goods as those of respected international brands.

In other cases, the criminals manufacture the counterfeit products in their own makeshift production facilities, typically under unsafe and unhealthy conditions and without regulatory approval.

Resultantly, counterfeit products usually contain low quality inputs, harmful additives and may even cause disease or death.

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Zimbabwe’s problem with pirated (counterfeit) goods is becoming more glaring, with the rise of the informal sector, which is increasingly growing in influence ahead of the formal sector.

The prominence of retailers known as “kuma (at) tuck-shops” in Harare’s CBD and Mbare, for example, have led to the emergence of several consumer goods of questionable authenticity within the country.

Some of the “fake products” are manufactured domestically (within the country) in people’s backyards and makeshift factories. Examples of such include the now widespread alcoholic beverages known as “tumbwa” or “kranko”.

Reports indicate that these beverages are processed by township residents who hoard (purchase) methanol and ethanol from capitalised (capable) manufacturers.

They then simply mix the ethanol, which has 95% alcohol content, with water. Thereafter, the processors purchase printed stickers, which they can use to label their products with imitative labels of established alcoholic brands (such as Jameson Whisky, Two Keys, etc) or with their own preferred unique brand names.

In February this year (2024), MedTech, a local skin and hair care products manufacturer, ended up discovering a backyard factory, which was making imitations of its own products, in Mbare.

In collaboration with the police, the company then raided and seized the fake goods. Their prominent brands such as Satiskin, Shower-to-Shower, Clere lotions, and Easy Waves hair products were being purchased as “knock-offs” (imitations) by some unsuspecting customers, some of whom had begun to send complaints to MedTech about the decline in the quality of their products.

Those customer complaints are what triggered the investigations into whether there were now fake MedTech products in the market and where they were emanating from.

A considerable number of counterfeit goods are also being imported into Zimbabwe. South Africa, which has a growing number of manufacturers of fake grocery items, is the source of most counterfeit FMCG (grocery store) products, whilst imitative clothes, vehicle parts and other sophisticated counterfeit products, are generally flowing into Zimbabwe, from various Asian and Middle-Eastern nations.

Because they are made using sub-standard processes, counterfeit goods are common for being of poor quality. They are also cheap, and therefore, appeal to consumers, who have low disposable incomes.

In Zimbabwe, counterfeiters do not only use the informal sector (including hawkers) as a means to distribute their products within the market.

They also use formal distributors such as retail shops (supermarkets). This has made identifying such illicit goods more difficult, although it is still possible, with enough effort.

Underweight expired and smuggled goods, which are not subject to import duties, are also growing problems, which need to be addressed urgently, before they get out of hand.

Disadvantages of counterfeit goods

Counterfeit products usually reduce the sales revenues of authentic companies, which make original goods. Local beverages manufacturer, Delta, for example, highlighted in its trading update for the quarter ended June 30, 2024, that its associate companies — Schweppes Zimbabwe and African Distillers — were being weighed down by counterfeit products and illicit imports, including those which are smuggled so that they are not subject to import duty.

Pirated beverages are, therefore, negatively impacting the sales of genuine producers, such as Delta. The same can be said for imitative clothes, grocery products, etc.

If the situation were to continue unchecked, it could result in the scaling down and divestiture (closing) of authentic tax-paying businesses. In fact, counterfeiting is already contributing to de-industrialisation in Zimbabwe.

Unfortunately, there is just not enough data to show exactly how much it is impacting the legitimate economy (genuine businesses), each year. In South Africa, for example, it has already been determined that counterfeit goods are responsible for about 10% of the country’s total economic activity.

Zimbabwe being a close neighbour can reasonably assume that it has just about the same statistics, if not worse.

Since manufacturers of pirated products do not pay personal and corporate income taxes on their earnings, they deprive the government of revenue which is due to it.

That also means that, the proliferation (growth) of counterfeit products in the country, leads to reduced government tax revenues. This is because for every counterfeit product which is sold in the market, there are lost sales in legitimate businesses whose revenue would have supported the government’s purse.

The use of poor quality and unsafe counterfeit products can lead to sickness or death. The alcoholic drinks known as “tumbwa”, for example, are reported to contain anything between 60%-95% alcohol content, which can damage health.

Fake medicines, which are also common in Africa (including Zimbabwe), can have little or no active ingredients (medical potency), which may lead to the worsening of the user's illness or death.

Pirated vehicle parts and cellphones can cause accidents and cell phone explosions, for example. Bootleg (counterfeit) food products may also cause illness or death, since they are usually processed under unregulated and unhealthy conditions.

Moreover, unsuspecting customers who use counterfeit products are usually inconvenienced by the poor performance of their purchases. This can also lead to confusion in the market; as such swindled consumers can end up ignorantly attacking authentic businesses for problems, which they are not responsible for.

This also ultimately damages the positive influence (brand equity) which the authentic companies had invested in their companies and products, for several years.

Solutions and preventative measures

The current prevalence of counterfeit products in the country requires that the government re-strategise the manner in which the menace is addressed.

Firstly, there is a need for the government’s plan against piracy and counterfeits to include the support of the private sector, the Consumer Council of Zimbabwe (CCZ), the Consumer Protection Commission (CPC), Standards Association of Zimbabwe (SAZ), Zimbabwe Revenue Authority (Zimra), the police (ZRP), municipalities, rural district councils, the general public, etc.

This is because fighting counterfeiting, which is now so widespread, is too much for the central government to handle it on its own. In that regard, businesses, for example, should be encouraged to report any of their competitors who sell counterfeit products, so that their own sales are not illegally undercut (reduced).

When reports against piracy are made, the police, municipal officials and the public should be given the power to apprehend (arrest) the perpetrators, who are the manufacturers or sellers of the fake products.

Inspections should also be regularly carried out in local counterfeiting hotspots, such as Mbare and “Gazaland” in Highfield, whilst the monitoring of imports at the national borders should be enhanced.

The government can also impose a tax of between 0,1%-0,2% (one fifth of a percentage), on the sales of all manufactured goods, imports and all services.

The proceeds from this tax can then be used to establish a national “anti-counterfeiting fund”. This fund can be used to capacitate the police, SAZ, Zimra, CCZ, CPC and municipal officials, so that they can increase their countermeasures (responses) against counterfeit goods. The capacitation may be effected through supporting salaries for additional staff. Vocational education institutions should also be encouraged to produce graduates who can address these (counterfeit goods) and other such issues.

The public should also be encouraged to report counterfeit and other illicit products to the authorities. People may be given financial incentives for each report which they make against a dealer in counterfeit goods, especially if it leads to the conviction (jailing) of the perpetrator.

Financial incentives may be worth 0,1%-0,2% of the value of the counterfeit goods seized. Money for this endeavour can be sourced from the anti-counterfeiting fund as well.

This would encourage more reports and the source of counterfeit goods would become easier to unearth. Also, officials who arrest counterfeiters that are successfully convicted may be given financial bonuses (rewards), which are financed from the fund.

Where possible, the government can re-sell seized goods, with the proceeds used to replenish the anti-counterfeiting fund. Examples of where such cases would apply, may include the seizure by the state, of; cigarettes being exported illegally, illicit trade in minerals, wildlife and other such pertinent products, etc.

However, this would not be possible to carry out with counterfeit clothes, imitative foodstuffs, expired consumer goods, etc.

The anti-counterfeiting fund should also support intelligence services (investigations), which will monitor those with arresting powers and judicial authority.

This will involve regularly monitoring arresting officers and the judiciary to ensure that convictions and stiff sentencing are dispensed against counterfeiters.

The stiff judgements may include jail term, restitution to brand owner whose goods were pirated, a fine payable to the government, a revocation of business license, etc.

Any corruption, which may be detected in the justice system, should therefore be punished greatly. In that regard, informants who report corrupt officials should be rewarded by the government, for any reports which lead to successful convictions.

Laws, which address counterfeiting, may need to be toughened so that they are reflective of the urgency of the problem.

The anti-counterfeiting fund can also be used to support educational and awareness campaigns, which are aimed at informing the citizens of the disadvantages and dangers of using counterfeit products.

Ultimately, the government will need to create an environment, which supports the growth of authentic businesses, so that the higher levels of economic activity, which will arise, can enable more citizens to afford authentic and high-quality goods within the market.

As a precautionary measure, households and informal businesses should be prohibited from importing commercial (saleable) quantities of any goods from other countries. This regulation would reduce crowding at the borders, limit the smuggling of goods, etc.

In all this, local authorities should not lose sight of the fight against underweight and expired products, as well.

Conclusion

The proliferation of fake products poses a great threat to authentic tax-paying businesses and the economy at large.

Zimbabwe finds itself at a defining moment, where, if it manages to curtail counterfeit products, its formal sector will thrive. However, if the country fails to respond adequately to this threat, it can be expected to de-industrialise further, as more prominent businesses will eventually close down.

The economic contraction, which will follow, thereafter, would not be in the best interests of both the citizens and the country’s political leadership.

Tutani is a political economy analyst. — tutanikevin@gmail.com