At this year’s Future Investment Initiative in Riyadh, an annual investment forum frequently nick-named “Davos in the Desert,” a nod to the World Economic Forum’s signature event in Switzerland, the Secretariat of the African Continental Free Trade Area (“AfCFTA”) announced a “historic” new effort that aims to crack down on the expansive market for counterfeits in Africa. A collaboration between AfCFTA, Swiss tech company OriginAll S.A., and the FII Institute, the newly-announced initiative has set its sights on the expansive global counterfeit trade, and in particular, the growing market for “counterfeit and illicitly traded products” in AfCFTA nations.
“Counterfeiters and illicit traders have been taking advantage of our continent for centuries, depriving our nations of substantial revenues, fostering corruption, and costing the lives of hundreds of thousands of African citizens every year,” AfCFTA Secretary General Wamkele Mene stated late last month at the multi-day event that focuses on “utilizing investment to drive growth opportunities, enable innovation and disruptive technologies, and address global challenges.” The global counterfeit trade is, of course, one of those enduring challenges.
Richard Attias, who is the CEO of the Future Investment Initiative-affiliated FII Institute, described the new venture as “a concrete, unprecedented and decisive action to bring together experts and innovators with the power to shape a more prosperous and safer future for the African continent” as part of a larger, “global movement to eradicate the world from counterfeit and illicitly traded products, and its deep-rooted consequences,” including the use of generated funds for the purpose of “economic disruption and corruption.”
Fake Drugs & Fake Cosmetics
The new venture’s signatories have not yet spoken to the specific targets of the counterfeit-centric AfCFTA initiative. However, it will almost certainly focus n large part on the rampant issue of counterfeit pharmaceuticals, an industry that is worth up to an estimated $200 billion, and that impacts Africa far more significantly than many other regions, according to the BBC. But the efforts to crackdown on black market goods is not expected to stop there. Cosmetics – which are also subject to notoriously rampant counterfeiting in the AfCFTA region, as the market for fake makeup and beauty products continues to grow across the globe, according to the Organization for Economic Cooperation and Development (“OECD”) – are ripe for increased attention.
Kenya, for example – which boasts the largest volume of consumer spending in the entire East African region, according to the Brookings Institution and which is home to the third greatest number of high net worth individuals all of Africa – is witnessing a marked rise in calls for high-quality, foreign-produced goods, including beauty products. While such growing demand in the cosmetics segment has prompted multi-national giants to expand their offerings by way of high-end retailers in Kenya’s “exponentially increasing number of retail centers” in East Africa and prompted calls for a re-revaluation of import duties in order to ensure the accessibility of authentic goods, it has, nonetheless, come an ugly underbelly: a boom in counterfeits.
As “beauty specialist retailers, chemists/pharmacies and some high-end [stores] are rushing to offer up a larger variety of premium brands” in order to cater to clued-in consumers, Kenya has become awash with fake cosmetics, “placing consumers at risk of purchasing inferior – and unsafe – products,” according to Al Jazeera. And in no small number of cases, even reputable retailers are being duped into stocking fakes, thereby, further perpetuating the problem of products that fail to “conform to international and local quality and health standards.”
Luxury Goods, Too
All the while, African Business notes that “robust economic growth and a booming population” in the region has given rise to “an ever-expanding affluent class that underpins the growing demand for [authentic] luxury goods.” Against that background and in light of a sharply growing tourism industry, a scourge of counterfeit goods has followed in places ranging from South Africa to Morocco. In Morocco, alone, the trade in counterfeit and pirated products is worth $1.27 billion, representing more than 1 percent of the country’s entire annual GDP, according to a 2018 report from the OECD, with free zones – which benefit from lower taxes and less stringent customs controls – acting as a factor that promotes counterfeiting.
As for the products, themselves, they follow a larger trend of increases in quality and sophistication. Few details escape counterfeiters in Morocco, says DLA Piper’s Mehdi Kettani, who contends that in addition to the luxury goods, “the serial number inside designer handbags and authenticity cards” are often replicated “on the same production lines as the major brands – indeed, there are luxury brand subcontracting workshops in Morocco.” At least some portion of those goods are then exported “through the illegal channels of sub-Saharan Africans residing in the country,” Arab Weekly previously reported.
In terms of fakes that are imported into Africa, Kettani, citing “operators who are very familiar with commercial sector practices,” notes that “many items are imported legally (duties and taxes are paid), then displayed and sold not on the street but in stores,” a testament to the rising sophistication of counterfeit sales in cities like Casablanca.
Reflecting on the global trade in counterfeits in a 2019 report, the OECD stated that in addition to certain safety concerns, such as those that come with pharmaceuticals and cosmetics, in particular, counterfeits threaten “one of the key value generators and enablers of success in competitive markets.” As reported by the Financial Times, the OECD asserted that “intellectual property plays a crucial role in promoting innovation and driving sustained economic growth,” a notion that is echoed in connection with the new AfCFTA venture.
Hans Schwab, co-founder and CEO of OriginAll – which will provide the platform for business, government, and consumers to identify and verify the authenticity and conformity of any product traded under the AfCFTA rules – asserted that initiative will “channel critical resources back into the member states’ economies and contribute to investment growth and employment creation, improving the economic wellbeing, health, and safety of AfCFTA citizens, as the market for counterfeiting is projected to cost the global economy up to $4.2 trillion” in 2021.
Simultaneously, AfCFTA secretary Mene noted that the initiative will, in fact, “contribute to the reduction of production and trade in counterfeited products” for the benefit of consumer health and safety, but it will also serve to “increase government revenues and create new investment opportunities” for the advancement of African economies.
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