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INTRODUCTION
  • Illicit trade can be defined as the production and distribution of consumer goods that fail to comply with governing rules, laws and regulations in the relevant industry/sector and in particular jurisdiction.
  • Illicit trade is a threat to global economy: estimated to account for 8% – 15% of global GDP, and reaching US$12 trillion in 2014 (World Economic Forum 2015).
  • It cut across a wide range of consumer goods and brands: including electronics, apparel and alcoholic drinks, vehicles and auto parts, drugs, arms, pharmaceuticals, cigarettes, counterfeit currency as well as humans, impacting virtually every product, industry, and country.
  • Actors of illicit trade can be individuals, industry or governments. E.g. China is a major source of the counterfeit goods. North Korea engage in illicit trades involving drugs, arms, and counterfeit currency.
Key Related Concepts
  • Consumers in search of lower prices and greater product variety drive sales of illicit products.
  • Conditions within local markets influence the attractiveness of trade within a country.
  • Ineffective regulation and weak enforcement allow illicit trade.
  • Economies, through their action and/or inaction create incentives for illicit trade (governance approach)
Aim & Objectives of Presentation
  • To understand what measures can be used to develop policy framework to address the problem of illicit trade.
  • The objectives are to:

Øilluminate minds towards an understanding the key policy issues in illicit trade, the incentives they create, and their implications; and

ØGuide our understanding towards addressing some discussion questions, including;

  • Whether illicit trade can be completely eliminated;
  • Seeking a balance between benefits and costs of illicit trade; and
  • Targeting for policy development and effectiveness
  • Key concepts of illicit trade
  • Overview of the main drivers
  • Dimensions of illicit trade in Nigeria: Illicit trade in tobacco
  • Measures of illicit trade – The Global Illicit Trade Environment Index (GITEI)
  • Using components of GITEI to develop policy framework for Nigeria
  • Outlining discussion point
Main Drivers of Illicit Trade

Illicit trade is driven by a common set of factors across the world, divided into three main interrelated categories:

Consumer preferences Business environment Regulatory framework
§Lower priced goods

§Access to premium brands (aspirational)

§Social acceptance of illicit trade

§Limited knowledge about illicit goods and how to identify them

§Price gap between licit and illicit goods

§High excise taxes

§Availability of ingredients & packaging materials

§Weak rule of law

§Ineffective enforcement

§Corruption

§Inadequate sanctions

Effects of Illicit Trade
  • Illicit manufacturing represents a revenue source for some input suppliers
  • High profit margins attract some manufacturers to illicit activity.
  • Consumers have access to lower prices and greater brand variety.
  • More illicit activity sometimes translates into lower unemployment and less demand on public funds.
  • But:
  • Illicit products pose serious health risks to consumers.
  • Illicit trade reduces tax revenues and increases instability.
  • Reduces market share and capacity of local businesses
  • Damages brand image of licit manufacturers.
  • Underground economy does not reflect in country’s GDP.
Measuring Illicit Trade
  • The Global Illicit Trade Environment Index (GITEI), developed by the Economic Intelligence Unit, UK.
  • Measures the extent to which the environment enables illicit trade that economies create through action and inaction across 4 main areas: Government policy; Supply and demand; Transparency and trade; and Customs environment.
  • GITEI does not score an economy’s performance or effectiveness in combating illicit trade.
  • The index evaluates 84 economies on their structural capability to protect against illicit trade. Nigeria is not yet included.
  • It follows governance approach based on the laws, regulations, systems and their effectiveness in contributing to the regulatory environment.
Components of GITEI
  • Government policy: measures the availability of policy and legal framework for monitoring and preventing illicit trade.
  • Supply and demand: measures the domestic environment that encourages or discourages the supply of and demand for illicit goods.
  • Transparency and trade: assesses economies on their transparency regarding illicit trade and the degree to which they exercise governance over their free-trade zones (FTZs) and transhipments.
  • Customs environment: measures how effective an economy’s customs service manages its dual mandate to facilitate licit trade while also preventing illicit trade.
GITEI 2018
  • Each of the 84 economies receives an aggregate index score (%) in and ranked accordingly.
  • High ranked countries are those that have successfully curbed illicit trade in all its ramifications. Low ranked countries are those are struggling to curb illicit trade.
  • Highest ranked countries are a handful of European countries and 3 other western countries. 10 lowest ranked economies are a group of developing economies from all regions of the world.
  • For highest ranked economies, important contributing categories are customs environment, government policy, and transparency and trade.
  • For lowest ranked economies, only customs environment is important.
GITEI 2018

10 highest ranked economies 10 lowest ranked economies
-Finland 86.5%

-UK 86%

-Sweden

-Austria

-Netherlands

-Denmark

-Germany

-United States

-Australia

-New Zealand

-Libya – the worst (8.6%) ranked 84th

-Iraq in 83rd place,

-Myanmar (82nd),

-Laos (81st),

-Venezuela (80th),

-Cambodia (79th),

-Kyrgyzstan (78th),

-Belize (77th),

-Ukraine (76th)

-Trinidad and Tobago (75th).

  • Economies differ in the factors that contribute to curbing illicit trade within their domain.
  • There appears to be a neighbourhood effect in the extent to which economies can respond illicit trade. E.g. :
  • 10 highest ranked economies are mainly European neighbours. Australia and New Zealand are neighbours.
  • Even though illicit trade is perceived to strive in the Americas, anti-illicit trade policies in the USA also prevent the extent of illicit trade in neighbouring economies such as Mexico and Colombia.
  • Only two economies in the America’s (Venezuela and Trinidad & Tobago) are amongst the 10 lowest ranked economies.
Some Concluding Remarks
  • Illicit trade is unlikely to ever be eliminated, but can be protected against. Both licit and illicit trades are complementary in nature.
  • There can no single policy framework to address the problem of illicit trade. A case-by-case approach targeting specific products will be more effective.
  • A holistic approach is required, which may require strategy beyond the jurisdiction of a country.
  • The nature and complexity of the problem should dictate the nature of the solutions.
  • Illicit trade is global nature, solutions should be global in nature, aimed at international cooperation and harmonisation of laws and regulations beyond borders. E.g. Global fight against money laundering.
Some Discussion Points
  • Is it government action or inaction that create incentives for illicit trade to thrive?
  • How do benefits from illicit trade compare to the costs?
  • What categories of GITEI should Nigeria aim to improve upon?
  • Is the Netherlands approach practicable in Nigeria/Africa?