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Kenya among EAC economies disadvantaged from illicit trade

By Steve Umidha

Illicit trade is burning billion-dollar holes in the East African bloc, fueled by weak border controls and systemic political corruption by private interests, new report reveals.

The report, An Unholy Alliance: Links Between Extremism and Illicit Trade in East Africa further found that terror groups such as ISIS and Al-Shabaab are increasingly targeting the region as a destination market for illicit trade.

Terror groups also use East Africa as a transport hub for mass import and export of illegal goods including counterfeit pharmaceuticals, alcohol and tobacco.

“As it struggles to recover from the ravages of the COVID-19 pandemic, the region finds itself engaged in a struggle against extremism, crime and corruption,” reads in part the report released last week.

Criminal and extremist groups operating illicit trade rackets in the region and notoriously Kenya and Uganda, according to the report, rely on the complicity of corrupt officials to facilitate illegal trafficking and evade detection.

“This report demonstrably reveals that illicit trade has also become the principal financier of extremism, criminal enterprises and breeder of corruption in both East Africa and its surrounding regions,” it said.

Figures by the World Economic Forum estimates that illicit trade presently deprives the global economy of USD 2.2 trillion annually, accounting for nearly 3 percent of global GDP, while every year, Kenya alone loses USD 900 million to counterfeit products.

While data by United Nations Conference on Trade and Development (UNCTAD) estimates that African countries lose $88.6 billion—around 3.7 per cent of the continent’s GDP—to illicit capital flight annually through a variety of methods, from tax evasion and deliberate mis-invoicing of trade shipments to criminal acts like corruption and theft.

Uganda and Tanzania governments are estimated to lose $1.8 billion and $1.6 billion in revenue leakages on such vices, a worrying trend that despite the large estimated losses, observers say the stark reality is that the scale of the problem is likely still under-reported given existing limitations to accessing vital information.

Locally, a study by the Anti-Counterfeit Authority (ACA) undertaken between October 2019 and February 2020 put that figure at Sh103 billion in revenue in 2018, an increase from Sh101.23 billion in 2017 – this figure economists say could be more.

The National Baseline Survey explores the extent of counterfeit and other forms of illicit trade in Kenya, including but not limited to counterfeit, piracy, substandard goods, uncustomed goods, restricted goods, and unexercised goods.

Illicit trade consists of the exchange of a good or service between individuals or organizations where either the commodity or the unregulated manner of the exchange is deemed illegal in a given jurisdiction. The Kenya Revenue Authority (KRA) says that 40 per cent of consumer products, including cigarettes, alcohol and water are illicit.

The trade includes exchange of prohibited goods or services, irregular sale of regulated commodities such as intellectual property rights, the sale of excise goods outside of their legally designated destination market for the purpose of avoiding local duties.

The World Health Organisation (WHO) for instance estimates that nearly half, about 44 per cent of the alcohol consumed in Kenya is illicit, costing the exchequer an estimated Sh 78 billion.

A significant proportion of this is smuggled into the country from Uganda, where as much as 70 per cent of alcohol consumed is believed to be counterfeit, with border towns such as Busia and Malaba representing major entry points.

Kenya Police Service are believed to work closely with urban gangs, such as the Gaza group operating in Nairobi’s slums, to corner important parts of the illicit trade market, as well as other illegal activities such as extortion.

According to the Corruption Barometer Index for 2019, Kenyans perceive the police to be the most corrupt institution in the country

The report has however called on cooperation among all regional governments if the vice is to be eliminated.

“There is increasing awareness of the deep connections between illicit trade, extremism, crime and corruption, leading national governments and, to a lesser extent, regional bodies, to take more concerted action to clamp down on illegal trafficking in all its forms,” it concluded.

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