Photograph — IEG World Bank

Amid significant global economic turbulence, all eyes last week were on the annual Spring Meetings of the World Bank and International Monetary Fund (IMF) held in Washington, D.C. between 10 and 16 April.

High on the agenda were the deteriorating debt and climate finance crises facing the developing world. New research from ActionAid published alongside the meetings highlights that 93% of the most climate-vulnerable countries in the Global South – including Somalia, Malawi, and Mozambique – are “drowning in debt.” Alarmingly, nearly two-thirds of these nations are drastically slashing public spending to repay loans, hindering progress in funding vital climate resilience and sustainable development efforts.

A silent menace is greatly exacerbating this budgetary disaster: the illicit trade, which robs governments of massive amounts of tax revenue every year while undermining medical, environmental and economic health. Robust action to tackle Africa’s thriving counterfeit markets – namely traceability and authentication systems paired with regional regulatory cooperation – thus has a crucial role to play in easing budgetary pressures and unlocking the continent’s potential.

Diagnosing the problem

As recently outlined in French news magazine Le Point by Malick Diawara, a Franco-Senegalese economic journalist and editorial director of the Le Point Afrique website, Swiss private security firm SICPA has a particularly keen understanding of Africa’s illicit markets, acquired from years of providing its governments with high-tech security ink, traceability and authentication solutions to combat counterfeiting and fraud while boosting tax revenues.

In a recently published report, SICPA West Africa exposes the scale of the illicit trade plaguing the health, energy and food sectors, concluding that anti-fraud traceability systems are essential “in building an economy of trust,” that Africa needs to achieve its inclusive and sustainable development transitions.

Health fraud raising alarm bells

Africa’s health sector has been squarely in the firing line of illicit markets. Less than half of the continent’s population has access to adequate healthcare, while nearly 100 million Africans incur “catastrophic healthcare costs” every year – 15 million of whom are impoverished by out-of-pocket medical expenses that account for an eye-watering 50% of the sub-Saharan region’s health spending.

This situation has created fertile ground for the much cheaper counterfeit pharmaceuticals market, which has reached an estimated annual size of $200 billion according to the SICPA report. The World Health Organisation (WHO) has reported that between 2013 and 2017, 42% of identified fraudulent medical products – which include falsified or mislabeled anti-malarial drugs, antibiotics and vaccines – came from Africa, where they kill nearly half a million people in sub-Saharan Africa annually, including almost 200,000 children.

With national health systems still reeling from the COVID-19 pandemic and SICPA highlighting a concerning 63% spike in zoonotic epidemics in Africa over the past decade, the health and budgetary implications of tackling the illicit market are all too clear.

Illicit food market casts a wide shadow

Beyond its public health impact, COVID-19 has had a much less visible impact in Africa according to a 2022 study: fueling the fraudulent food market, notably through its disruption of global supply chains.

According to the SICPA report, fraudulent goods cost the global agri-food sector a whopping $30 to $40 billion annually, with olive and palm oil, fish, rice, sugar and alcohol among the most diluted, mislabeled or otherwise corrupted products in Africa. Illustrating the economic threat to Africa, SICPA warns that Europe’s €3 billion olive oil sector loses a stunning €1.5 billion to the counterfeit market annually. Moreover, counterfeiting poses a particularly severe public health threat for the continent given its world-leading foodborne illness rate and food fraud’s responsibility for up to one-quarter of all food safety incidents.

Moreover, this impact is disproportionately borne by the most economically-vulnerable households, which are pushed to buy cheaper, illicit goods, often without knowledge of the associated dangers. This problem has hit sharply in countries such as South Africa, where businesses selling legitimate products are left at a competitive disadvantage by illicit traders driving prices down with appalling environmental supply chain standards.

Energy sector’s black hole breeding chaos

Aside from food, the African sector most critical for the continent’s sustainable development, energy, is also gravely impacted by the scourge of illicit trading.

According to the SICPA report, $133 billion worth of fuels is either stolen, illegally refined and imported or otherwise falsified globally, with Africa on the frontlines. Crude oil theft cost Nigeria – the continent’s top producer – $3.5 billion in 2021, burning a massive hole in public coffers. The situation is similarly grim in Libya, where 30% to 40% of hydrocarbons are either stolen or siphoned off to third countries, while Ghana’s government lost nearly $300 million from energy sector tax evasion in 2019, with illicit fossil fuel profits funding military insurgencies and terrorism in Africa’s most insecure regions.

SICPA equally stresses the major threat that counterfeiting poses for renewables, particularly in terms of falsified ‘green’ credentials and hidden environmental impacts across supply chains. And considering the global energy “turning point” for green energy heralded by a new Ember report, Africa could see a sharp rise in renewable energy market fraud, with obvious implications for both the African and European green transitions.

Governmental arsenal to fight back

 Tackling rampant illicit trading in Africa’s health, food and energy sectors is thus an urgent priority. SICPA highlights hi-tech tracing and authentication technology solutions as vital components of the public policy response. In addition to protecting consumer health, effective counter-fraud systems generate significant tax revenue from growth in licit sales, which governments can use to bolster essential services and advance socioeconomic and environmental programmes. The deployment of SICPA’s systems has provided a major fiscal boon to a range of African countries, with reported tax revenue spikes ranging from 44% in Kenya to 262% in Uganda.

Beyond traceability, regional regulatory harmonisation measures are critical in closing cross-border legislative and judiciary gaps that criminal groups exploit. The East African Business Council (EABC) – whose member states lose between $500 million and $1 billion from counterfeit products annually – is developing promising measures to bolster public coffers, including a regional institutional framework and centralised registry for imported goods. Moreover, its regional Anti-Counterfeit Bill has set a strong example for the continent, which can help lay the foundation for thriving licit markets.

With the IMF and World Bank seeking solutions to the Global South’s debt and climate finance crises, the significant impact of illicit markets should not be overlooked. As Africa progresses with its health, energy and food transitions, the revenue and economic trust generated by strong traceability and regulatory interventions will help pave the path to a more inclusive and sustainable future.

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