Only vain people care about the difference

Kenya war on counterfeit is bad for small businesses

A big business opportunity in Kenya right now is cosmetics. The reasons are known. For one, women in Kenya are earning more (despite their​ complaints over the economic situation) and this is evidenced by how they are spending more on cosmetic products.

Men and children are also becoming greater consumers of the products. But there’s a big problem in the cosmetics industry in Kenya. It’s not counterfeit, we’ll get to that don’t jump the gun.

We wrote a small guide on the opportunities that exist in the cosmetics business. One of the things that stood out is that much of the input in the sector is imported. So, even though we have to congratulate you for buying your perfumes and lotions from Kenyan entrepreneurs, the industry is not as local as it can be.

Whose fault is this? Moi, obviously. Seriously though, the wise people who had the once-in-a-lifetime opportunity to set the groundwork on how Kenya would turn out faltered badly. They chose to establish an import-substitution economy even though we didn’t really have the market to consume stuff.

The result was that you had these few elites who were protected from competition. Yes, they could dominate Uganda and the likes (no disrespect) but today China and India have brought the fight to their turf. They enjoyed their monopoly. Since their markets were small, there was no spillover in skill or wealth distribution. They also had no incentive to rectify the issue of poor linkage that saw as much as half of input, on simpler consumer goods, being imported. In a developed country, you may have a seat manufacturer contracted by a car manufacturer and so on. We do not quite have that.

With that half a century of errors behind us, we have another once-in-a-lifetime chance to build a better future for everyone. The Kenyan Government wants entrepreneurs to be export-oriented eventually. Baby steps appear to be taken but the problem is always mixing all the policies in the right doses.

Poor policy choice, again

One complication that keeps making the news is the Kenyan war against counterfeit products. When you read, it can sound like a war on imports so there’s that lack of clarity at times (we have a clear summary of interesting news stories every Friday actually, you should never miss it). Now, the Government intends to establish the Anti-Counterfeit Authority that will require double-registration of trademarks. The Kenya Industrial Property Institute (KIPI) is where you go if you want to register to protect your innovations.

Proponents for the anti-counterfeit fight argue that the Government loses up to sh.15 billion a month, that fake goods disincentive innovation, foreign investments and that these products put your health at risk. They also wish for enforcement of laws to be strong. They want to see more “illicit liquor” dens raided. But there’s another angle to this issue. Kenyans have decent information on genuine and fake goods, as they’re called. The reason Kenyans buy counterfeits is because they are cheaper.

An executive of the Movement Against Substance Abuse in Africa adds, “Most of the counterfeiters carry out their activities in ordinary households, small cottage industries or in backyards.” Surely, this must mean that the fight is a war against rapid spread of technical skills. Poor countries need this to develop. On the other hand, trademark adds little value to the production process. It’s the Government giving other people monopoly so that competition shifts from quality, price and such. It’s pretty much proven that people cannot differentiate taste between Coca-Cola and Pepsi. So why are we doing this?

It’s because status quo always favors what keeps them ahead. Author, Stephan Kinsella has a good analogy. Once you have many Twitter followers you want that blue verification tick that influences the weight people place on your tweets (opinions) – over others.

This is also witnessed among countries. The richer a country becomes the more it will push for stronger Intellectual Property Rights. This way it can place standards and the cost of innovation above many more countries. Kenya understands this well. We’re one of the countries against patent rights for seeds. A foreign company comes and says it engineered a variety of a seed so it owns the seed. You therefore can’t distribute seed anymore​ you have to buy from them.

‘Fake goods’ worked out for China

China would not accomplish what it did by blindly adhering to the Trade-related Aspects of Intellectual Property Rights (TRIPS) as we proudly do. Instead they have a Shanzhai culture where competition happens without the Government imposed monopoly called trademark. Entrepreneurs over there compete on tangible aspects like quality and delivery time. If the seller falls short on this then the consumer never returns. This is the fair competition that small businesses in Kenya need. How many young people with expertise to brew alcohol are cut off from the economy because Government is serving special interests fighting “illicit liquor” for example? Not only are their abilities lost but so are the potential jobs they could have created.

It’s not worth the money for your small business to incur the licensing and legal cost of protecting your trademark in any case. Legal fees for a Utility model filling go up as much as sh.200,000. Small businesses don’t have the headstart to gain from this kind of protection. 

Even so, it’s not as if the suggested anti-counterfeit laws will protect a Kenyan semi-conductors industry. The barriers are being put on simple processes that many Kenyans should be able to work out. Nobody who wishes to run a legitimate business will spend time playing second fiddle copying what another does. This is something that the anti-counterfeit movement fails to acknowledge.

You don’t want Kenyans to make soft drinks, lotions, tea bags, etc. What is wrong with you? At our stage of only tinkering with what has already been developed, we need this knowledge to spread as easily and as quickly as possible. We are not going to formalize the informal sector by adding more regulatory barriers. A war against counterfeits is a war against this.