- 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.
- 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)
- 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
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
- 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.
- 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.
- 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.
- 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.
- 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.
|10 highest ranked economies||10 lowest ranked economies|
|-Libya – the worst (8.6%) ranked 84th
-Iraq in 83rd place,
-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.
- 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.
- 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?