Counterfeits and substandard products are putting businesses, lives and livelihoods on the line





The 2015 report by the Global Entrepreneurship Monitor has ranked Uganda as the most entrepreneurial country in the world.  More than a quarter of the Ugandan population (28 percent) have started out a business of their own in the last 3.5 years. The surge in entrepreneurship activity among Ugandans has been supported by improved reliability of electricity supply, investments in roads, regional integration efforts, and the ICT and mobile phone revolution that have made connectivity and payments easier even in hitherto hard to reach remote areas. However, whilst an ever increasing number Ugandans are turning to entrepreneurship as a way to advance their economic prospects, the odds still remain heavily stacked against them.
Many businesses 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 forty percent 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 the 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.
In the health sector malaria remains a leading cause of deaths. A recent survey by a consortium of researchers at the Stockholm School of Economics, Stockholm University, and Harvard University showed that 36.8 percent of sampled drug outlets in Uganda sell fake artemisinin-based combination therapy (ACT) for the treatment of malaria. 19.4 percent of all anti-malarial drugs failed the authenticity test.
In the agricultural sector many years of global research have shown that agricultural development has probably the biggest effect for poverty reduction across many developing countries. One of the challenges facing agriculture in Uganda has been the low adoption of technology including improved seeds and modern fertilizers. A group of researchers at the Economic Policy Research Centre and the International Growth Center separately investigated whether the low quality of agricultural inputs can help explain low adoption. The results were startling: 30% of nutrient is missing in fertilizer on the Ugandan market, and hybrid maize seed contains less than 50% authentic seeds.
The prevalence of counterfeit and 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 adapt. Pushing out counterfeits and substandard products and encouraging genuine and honest business will require tremendous effort in regulation and consumer education.

The writer is a Research Analyst at the Economic Policy Research Centre

Comments

Post a Comment

Popular posts from this blog

On Uganda's current inflaton situation

The recent developments have seen a surge in inflation from 3.4 percent in April to 7.3 percent in August 2013. The surge in inflation has come on the backdrop of a prolonged drought that affected food production and resulted in poor harvests across the country. This food supply shock has been exacerbated by the seasonal demand for seeds as the planting season starts. Thus food and cereal prices have started to increase and this has fed into higher inflation. For example the average price for a kilogram of beans is now Ushs 2,500 compared to Ushs 1,500 two months ago.   However, food inflation can feed into core inflation (that excludes food, energy and utilities prices) directly through its effect on the prices of processed food, cost push effects and inflation expectations for example through hoarding and speculative tendencies. Indeed increases in food inflation from -7.5 (minus 7.5) percent in April 2013 to 13 percent in August 2013 have been followed by increases in core inflatio
Read more

On employment, attitudes and skills

Uganda, with one of the biggest youthful population also has one of the highest levels of youth unemployment.  This means that unemployment is extremely high and that the most affected are the youth. Now, we all know that the youthful years are the most productive. This implies that Uganda's unemployed youth are a hindrance to national development. The unemployment problem seems to be getting worse despite the impressive economic growth. In short, Uganda has experienced jobless economic growth! Ofcourse some people will be quick to point to the high population growth. May be they have a point. May be not. One only has to look at China to read my mind. What is surprising is that whereas as we have a lot of "qualified youth" waiting for their first job, the private sector is struggling to find suitable employable talent. Or better, the business managers are struggling to match the available skills and attitudes to their jobs!  So where is the problem? Could it be that the
Read more

Improve business climate to ensure tax compliance

Uganda has recorded impressive economic growth rates over the last two decades. However, over the same time periods, the tax effort measured by the tax-to-GDP ratio has stagnated at between 10-13 percent. One of the factors that could explain the stagnated revenue performance is tax evasion.   Other factors are related to corruption and inefficient service delivery. As a result, Uganda has continued to struggle with inadequate funds to finance its budget. Recently donors, who contributed as much as 25% of the budget, unanimously decided to withhold their support due to allegations of corruption in various government departments. This has affected the performance of the Ugandan economy, with major implications on service delivery and business growth. In response, the Uganda Revenue Authority (URA) has had its tax collection targets elevated to close the financing deficit. However, the biggest challenge remains ensuring tax compliance, especially considering the size of the
Read more