Counterfeit goods amount to 10% of SA economy

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JEREMY MAGGS: Well, let’s look now at another enforcement issue and illicit trade on the black market in South Africa is seemingly out of control, facing on multiple fronts including alcohol, cigarettes, fishing, mining, counterfeit electronics, pharmaceuticals, food and apparel.

I want to give you an expert view on the situation now as we are joined by Stefano Betti, who is vice president of the organisation, Transnational Alliance to Combat Illicit Trade (Tracit). And the question then is, is it getting worse?

STEFANO BETTI: We don’t know if the situation is getting worse. We can see that it’s pretty serious, as you mentioned before, and this is affecting a number of business areas. Just think about the tobacco sector, for example.

We have estimates, for example, that 58% of cigarettes sold in South Africa are illegal due to under declaration of locally produced cigarettes.

There are some business associations that estimate the counterfeiting phenomenon as accounting for 10% to the national economy. Illicit sale of alcohol products has reached a staggering 22% of the market and so on and so forth.

This is certainly aggravated by the number of macroeconomic figures that are worrying, such as a very high unemployment rate, which is stably around 30%, and for young people aged between 15 to 25 years old, even 60%. The main effect of this is that people cannot afford to buy legal stuff and are inevitably turning to the black market to find cheaper alternatives.

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The problem is they may find cheaper alternatives, but they may also get dangerous products for their own health. Think about adulterated, substandard alcohol or even medicines. So there is also a health issue here.

JEREMY MAGGS: Stefano, you mentioned tobacco and alcohol. Are those the two principal areas of concern, or are there others that are also becoming increasingly worrying?

STEFANO BETTI: I need to say that tobacco and alcohol are two very concerning sectors also because these are the two sectors on which excise taxes are applied. So the more you have illicit trade of these products, the less governmental revenues are lost. With few governmental revenues, of course the government cannot do too much in terms of development programmes, in terms of upholding the welfare state and so on.

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But certainly, you have also other areas that are affected. We have produced a country report on South Africa a couple of months ago and, for example, we have seen an increase in the theft of copper from state-run industries. We know this is worrying because copper is an increasingly important material, mineral for the energy transition and this is worrying because we certainly don’t want the criminal groups becoming involved in the supply chains for these critical minerals that will be needed to implement the energy transition.

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We also have high amounts of wildlife trafficking from national parks. Rhino horn is the most classical example, all these things that get smuggled, especially towards Asian markets. This is also due in part to a reduction in resources available for national parks authorities. As we know, during Covid there were very, very low levels of tourism and these authorities get money through tourism. So with less money available, it was more difficult to patrol these national parks and therefore poaching increased substantively.

JEREMY MAGGS: So as you say, it is a multifaceted problem. Is it simply an issue of poor law enforcement or is that oversimplifying it?



STEFANO BETTI: It is an issue of poor law enforcement. It’s also an issue of lack of expertise, understaffing also in law enforcement agencies, it’s about corruption in law enforcement agencies. It’s not so much a problem of lack of legal frameworks available.

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South Africa has very nice legal frameworks in many respects. For example, when it comes to confiscating criminal assets, there is good legislation in place. The problem in many cases is the way this law is implemented, which is lacking in many respects. So it’s an issue of enforcement, of implementation and also I would say lack of interagency coordination.

JEREMY MAGGS: Let’s talk about that interagency cooperation, if we can. You make the point that if a link is made between the illicit trade that you’ve just outlined to us and organised crime, law enforcement agencies will become more involved. Explain that to me.

STEFANO BETTI: Yeah, there is a problem, certainly not only in South Africa, of collusion between law enforcement and governmental authorities and in criminal organisations in many respects. This is fed by high levels of corruption. We see corruption in illicit schemes and at various junctures of the supply chain, not only to ensure, for example, that illegal goods cross borders illegally, but also to ensure that police raids are not conducted so that counterfeiting, manufacturing factories keep producing and bribing officials so that they can turn a blind eye to this illegal manufacturing taking place and so on and so forth.

So yes, there is an issue of collusion here and there is a connection and a close link between organised criminal groups, illicit trade, and illicit financial flows that need to be laundered.

JEREMY MAGGS: Let me ask you this question then. If the current trajectory continues, what is the impact going to be on the South African economy?

STEFANO BETTI: Well, if this continues, there will be a further reduction in governmental revenues, which will mean that the government will have less of an ability to support the communities it’s supposed to support and to provide public goods for communities. It will mean an increase in organised criminality, which will have various impacts in terms of security, increase in violence, in the circulation of weapons.

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I would say also very clear economic and financial implications because then you may have a situation where international credit rating agencies may downgrade South Africa, which will make it more difficult then for South Africa to attract foreign investment, which will make cross-border transactions involving South Africa more expensive. So it will be a vicious circle that sets in. But hopefully this will not be the case and South Africa still has time to react to improve the situation.

JEREMY MAGGS: Thank you very much indeed, Stefano Betti, vice president of the Transnational Alliance to Combat Illicit Trade, I appreciate it.

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