A Multifaceted Threat: Economic and Social Impacts of Counterfeiting in Nigeria

By UDUMBA PAMELA

 Introduction

Counterfeiting is the illegal production and distribution of fake or unauthentic goods, ranging from luxury items to medicines, and electronics. This illicit activity has significant economic and social impacts, posing risks to businesses, consumers, and public safety. Counterfeiting is a global issue that is not peculiar to our Nigerian context alone, and it comes with damaging economic and social consequences.

Counterfeiting not only results in financial losses for businesses due to reduced sales and lost market share, but it also leads to job losses and unemployment as legitimate companies struggle to compete with cheaper counterfeit products. Moreover, the production and sale of counterfeit goods often go untaxed, leading to negative effects on tax revenues and potential budget shortfalls for governments.

Additionally, counterfeiting distorts the market by undermining consumer trust and reducing investments in legitimate businesses. As an important topic of study, analyzing the multifaceted implications of counterfeiting is crucial for devising effective strategies to combat this global problem.

Counterfeiting in the Nigerian Context

As the most populated black nation in the world with over 200 million estimated population[1], Nigeria is no doubt a hub of commercial excellence. In Nigeria, counterfeiting has negatively impacted various industries within the country, hindering the value of commerce within these industries. In particular, the prevalence of counterfeit products is particularly detrimental to sectors such as pharmaceuticals, electronics, automobiles, and fashion, leading to substantial economic losses for legitimate businesses operating within these industries.

Counterfeit methods commonly used in Nigeria further exacerbate the problem, as counterfeiters employ techniques ranging from unauthorized production, tampering with genuine products, and smuggling illicit goods.  In 2020 alone, about 70% of the drugs in circulation in Nigeria were deemed as counterfeited drugs[2].

This widespread illegal practice has led to the loss of employment opportunities and tax revenue, as well as a decline in consumer confidence. Perhaps the most intimidating effect of counterfeiting is the significant risks the practice poses to public health, as substandard and potentially harmful products can easily find their way into the market.

Regulatory and Legal Regime of Counterfeiting in Nigeria

For a country like Nigeria with very a volatile market and high counterfeit rates, one would have expected to see a close-knit anti-counterfeiting regulatory framework. Sadly, this is not the case as Nigeria does not have specific legislation dedicated to this course.

Rather, over time, the Nigerian government has implemented various initiatives and policies to combat counterfeiting, often in collaboration with international organizations. Therefore, to combat counterfeiting in Nigeria, a combination of several approaches might be explored. These approaches may involve criminal or civil litigation and regulatory or administrative intervention.

Some of the leading legislative and regulatory attempts of the Nigerian government to fight counterfeiting include:

1. Counterfeit and Fake Drugs and Unwholesome Processed Foods (Miscellaneous Provisions) Act (CAP C34, 2004);
2. Copyright Act (CAP C2, 2004);
3. the Customs and Excise Management Act (CAP 45, 2004);
4. Cybercrime (Prohibit, Prevention, Etc) Act, 2015;
5. Merchandise Marks Act (CAP M10, 2004);
6. National Information Technology Development Agency Act 2007;
7. Nigerian Police Act (CAP P19, 2004);
8. Patent and Industrial Designs Act (CAP P2, 2004); and
9. Trademarks Act (CAP T13, 2004).

The above-highlighted statutes has led to the creation of some key anti-counterfeiting regulatory bodies such as;

1. Consumer Protection Council (CPC) Act (CAP C25);
2. Economic and Financial Crime Commission (EFCC) Act (CAP E7, LFN 2004);
3. National Agency for Food and Drugs Administration and Control (NAFDAC) Act (CAP N1, 2004);
4. Standards Organisation of Nigeria (SON) Act (CAP S9, 2004); and
5. Federal Competition and Consumer Protection Commission (FCCPC).

While some of these regulatory bodies may have specific anti-counterfeiting responsibilities, for instance, NAFDAC’s role in fighting counterfeited drugs and related consumables, their roles often overlap. A classic example of how this might interplay is a close examination of the powers of the Nigerian Police as contained in the Police Act.

The Police Act gives the Nigerian Police to power to prevent crimes committed in Nigeria and to enforce all Laws. These powers extend to the enforcement of the provisions of the Merchandize Marks Act, by virtue of section 4(1)(d) of the Act which succinctly translates to the fact that the Nigerian Police has the power to act on issues of intellectual property under the Merchandize Marks Act.

Another example is the Nigerian Customs Services which, by virtue of their establishment Act, has the mandate to intercept contraband (like illegal drugs as well as weapons); conduct baggage, cargo, and mail inspections to travelers; protect businesses against illegal trade malpractices and enforce import and export restrictions and even prohibitions[3].

Therefore, intense collaboration of these various anti-counterfeiting bodies is essential for a counterfeit-free economy in Nigeria. However, the absence of this much-needed synergy between regulatory bodies and the lack of a centralized anti-counterfeiting mechanism has created a breeding ground for counterfeiting to thrive.

E-Commerce and Social Media as Mediums for Counterfeiting in Nigeria

Since the advent of the internet in Nigeria and the possibility of products as well as manufactured goods being offered on the web, counterfeiting has taken a different turn. With the traditional open market trading, i.e. brick and mortar, some of the government’s policies were still adequately implemented. The scrutiny of the Nigerian Customs services at borders, and the constant raid by officials from bodies like NAFDAC and SON are vivid examples to remember. Although allegations of corrupt practices of some officials of these regulatory bodies have limited the full impact of their anti-counterfeiting measures, their influence in controlling counterfeiting in the open market to a limited extent cannot be ignored.

Unlike in the open market where counterfeited products are easier to control, the internet offers a breeding ground for counterfeiting to thrive. The internet cloaks perpetrators of counterfeited products with sufficient anonymity to portray fake products as genuine, especially on e-commerce platforms.

The prevalence of counterfeited products in Nigeria is against the background of the poverty rate in Nigeria. Counterfeiters both in the open market and e-commerce platforms hide under the smokescreen of affordability or cheaper price which unsuspecting consumers are drawn to with the prospect of getting the ‘best deal’[4].

The lack of adequate technology by some of these regulatory bodies has made clamping down on counterfeit on the internet difficult. Globally, technologies are increasingly employed to protect and authenticate products. Although some of Nigeria’s leading agencies have employed some element of technology for authentication and verification of genuine products, the lack of adequate funding, lack of training of the officials, and corruption have made some of these steps counterproductive. For instance, NAFDAC embraced the use of track and trace technologies, which involve the implementation of unique identification codes on products. This enables NAFDAC and consumers to verify the authenticity of a product by scanning the code or sending the code to a tariff-free customer support system for authentication.

Additionally, advanced authentication technologies like holograms, RFID (Radio Frequency Identification), and tamper-evident packaging are being employed to enhance product security. These technologies make it difficult for counterfeiters to replicate genuine products accurately. Furthermore, digital solutions such as online verification systems and mobile applications are being developed to empower consumers to check the authenticity of products in real time.

It goes without saying that for a country like Nigeria with a huge population, low literacy, and extreme poverty rate, using technology as the sole means of fighting counterfeited products is incapable of achieving positive results. Collaboration with international organizations plays a crucial role in combating counterfeiting in Nigeria.

By working together, the Nigerian government and international organizations can share best practices, resources, and expertise to develop effective strategies against counterfeiting. These collaborations facilitate information exchange, intelligence sharing, and capacity-building initiatives. International organizations provide support through funding, technical assistance, and training programs, helping Nigerian authorities strengthen their enforcement capabilities and enhance coordination efforts.

Also, these collaborations enable joint operations and cross-border investigations, leading to the dismantling of counterfeit networks that operate across national boundaries. By leveraging these partnerships, Nigeria can better protect its economy, businesses, consumers, and public health from the negative impacts of counterfeiting.

Factors Contributing to Counterfeiting in Nigeria

1. High levels of poverty

In Nigeria, poverty contributes significantly to counterfeiting. According to the Nigeria Bureau of Statistics, over 82.9 million Nigerians are considered poor by national standards. This amounts to about 40.1 percent of total population, which on the other hand means to four out of ten individuals in Nigeria has real per capita expenditures below 137,430 Naira per year.

The lack of economic opportunities and widespread poverty create fertile ground for counterfeiters to exploit vulnerable individuals who are desperate for income. Poverty drives people to engage in counterfeit activities as a means of survival, leading to the proliferation of counterfeit goods in the market.

This problem is further compounded by the weak legal framework, lack of public awareness, and inadequate border controls, which allow counterfeit products to thrive in the country. Addressing the issue of poverty and providing viable economic alternatives is crucial in combating counterfeiting in Nigeria.

• Limited enforcement of existing laws

Despite having laws in place to address counterfeiting, the enforcement of these laws is lacking. This lack of enforcement allows counterfeiters to operate with impunity, leading to a proliferation of counterfeit goods in the market.

The limited enforcement can be attributed to various reasons such as a lack of resources, corruption within law enforcement agencies, and the inefficiency of the judicial system. Without effective enforcement, counterfeiters face minimal consequences for their actions, which encourages the continuation of their illegal activities.

Addressing this issue requires a concerted effort to strengthen the enforcement of existing laws, allocate adequate resources to law enforcement agencies, and combat corruption within the system. Only through improved enforcement can Nigeria effectively tackle the problem of counterfeiting and protect its economy and consumers.

• Lack of awareness among consumers

Ignorance of consumers contributes to the widespread acceptance and purchase of counterfeit goods. Without proper education, people may not understand the risks and negative impacts associated with counterfeit products. Additionally, they may not be able to differentiate between genuine and counterfeit items, making it easier for counterfeiters to thrive in the market. This lack of education also extends to businesses and government agencies, leading to a lack of effective strategies and initiatives to combat counterfeiting.

Furthermore, the cultural perception of counterfeiting as a victimless crime and the belief that purchasing counterfeit goods is a way to demonstrate social status exacerbate the issue. The absence of strong ethical and moral considerations regarding counterfeiting further reinforces this cultural acceptance.

Socio-Economic Impacts of Counterfeiting for Nigeria

The social and economic implications of counterfeiting in Nigeria are quite significant. From the economic angle, legitimate businesses suffer substantial losses as a result, impacting the overall economy. Additionally, employment opportunities are affected, leading to a decline in tax revenue for the government. The prevalence of counterfeit goods also erodes consumer confidence, discouraging spending and hindering economic growth. Beyond the financial impact, counterfeit products pose serious public health concerns as they may not meet safety standards. We have highlighted some of the most critical socio-economic impacts below:

1. Foreign Investment

A country with a significant illicit trade rate is discouraging to foreign investors. This is because foreign producers of reputable products become reluctant to manufacture their products in countries where counterfeiting is rife as they cannot rely on the enforcement of their intellectual property rights[5]. Aside from losing out on foreign direct investment, the affected country also risks missing technical interactions that may inspire invention within its populace.

• Health Hazards

As earlier noted, counterfeiting within the Nigerian health sector poses a serious risk to public health. It endangers consumer safety as counterfeit products are often of inferior quality and may pose serious health risks. This includes fake pharmaceutical drugs, which can have life-threatening consequences for individuals who rely on them. Furthermore, counterfeiting creates total lack of confidence in the Nigerian health sector and increases the mortality rate within the country thereby delimiting Nigeria from meeting its sustainable development goals.

• Fiscal Implications

Without an effective working population, local participation, and locally driven economy, and adequate foreign investment, government revenue would suffer a major loss. Unfortunately, the presence of a counterfeit market deters these revenue-generating factors. The underground economy created by counterfeiting bypasses formal financial systems, leading to a decrease in tax compliance and an increase in the overall size of the informal economy. This further results in loss of government revenue hampers economic growth and development in Nigeria.

• Unemployment

The proliferation of counterfeit products in the market leads to the displacement of legitimate businesses and the loss of jobs. Counterfeit goods are often sold at lower prices, undermining the competitiveness of genuine products, and forcing legitimate businesses to downsize or close completely.

While it can be argued that the counterfeit markets sometimes provide little employment, this employment comes with little or no regard for best labour practices, safe working conditions, and environments.

• Organized Crime and Terrorism

Aside from counterfeiting being a crime, it equally has substantial implications for organized crime and terrorism. The illicit trade may contribute to the funding of criminal activities, creating fertile ground for organized crime networks to thrive. The profits generated from counterfeit goods may be used to finance terrorist organizations and other illegal activities. Additionally, counterfeit products can be used as a means for money laundering, further facilitating the illicit operations of criminal networks.

Thus, the economic and social consequences of counterfeiting extend beyond financial losses and consumer safety concerns, posing a significant threat to the stability and security of Nigeria and the wider region. Efforts to combat counterfeiting should address these links to organized crime and terrorism to effectively tackle this multifaceted issue.

Recommendation/Conclusion

While the eradication of counterfeiting from Nigeria is a collective effort that entails the joint participation of international stakeholders, consumers as well as manufacturers, the role of government cannot be overemphasized. By implementing stronger legal frameworks and regulations, the Nigerian government can enhance its ability to combat counterfeiting effectively. This includes establishing stricter penalties for offenders, increasing the resources allocated to regulatory bodies, and streamlining the legal processes for prosecuting counterfeiters.

In strengthening anti-counterfeiting laws, special attention must be paid to incorporating technology into anti-counterfeiting mechanisms to keep up with trends. This will ensure that the mechanisms being put in place are deterrent and anticipatory enough to discourage individuals and organizations from engaging in counterfeiting activities. Moreover, it will provide a more conducive environment for legitimate businesses to thrive, attracting foreign direct investment, boosting government revenue, promoting innovation, fostering economic growth, and safeguarding consumer safety.

[1] ‘Nigeria – Country Commercial Guide’ (International Trade Administration, 14 September 2021)

https://www.trade.gov/country-commercial-guides/nigeria-market-overview accessed 31 July 2021

[2] The Cable News ( Justification of Counterfeits- A Microscopic View from Trademark Perspective) 1 November 2023) https://www.thecable.ng/justification-of-counterfeits-a-microscopic-view-from-a-trademark-perspective accessed 28 November 2023

[3] MONDAQ ( Fighting Counterfeiting In Nigeria: Where We Stand On This Issue) 4 June 2019) https://www.mondaq.com/nigeria/trademark/811694/fighting-counterfeiting-in-nigeria-where-we-stand-on-this-issue accessed 28 November 2023

[4] ‘How E-Commerce platforms facilitate online counterfeiting’ (Incopro, 2020) https://incorpip.com/how-ecommerceplatforms-facilitate-online-counterfeiting/ accessed 30 November 2023.

[5] Organisation for Economic Co-operation and Development (The Economic Impact of Counterfeiting) 1998 https://www.oecd.org/sti/ind/2090589.pdf  accessed 20 November 2023