According to a 2007 OECD report, the international trade in counterfeit and pirated products as at 2005 was about USD 200 billion. This figure did not include digital goods pirated over the Internet. Today, the total value of the global counterfeit and pirate economy is several hundred billion dollars, an amount larger than the combined GDP of a number of African countries.
The global market for counterfeit and pirated goods can be divided into two categories. The first sub-market comprises people who unknowingly buy counterfeit goods believing them to be genuine while the second sub-market comprises people who buy such goods knowingly in the belief that they are getting a bargain.
Asia is the largest counterfeit producing region while Africa is the largest counterfeit consuming region in the world due to weak enforcement regimes. In fact, Africa is a hotbed for counterfeit electronics and is increasingly being targeted for fake electronic goods. The scope of counterfeit consumer electronics being dumped in African markets includes: blenders, cameras, CD and DVD players, clocks, computer components (monitors, casing, hard drives), computer equipment, deep fryers, hair dryers, headsets, irons, kettles, lighting appliances, loudspeakers, mixers, mobile phones, pressure cookers, remote control devices, shavers, smoke detectors, TVs, USB adaptors and webcams. Software piracy is also a big problem in Africa. It ranges between 35% in South Africa to over 90% in Zimbabwe, according to the International Data Corporation.
Counterfeit electronics and piracy has a wide range of negative effects, including:
Innovation and growth – in today's knowledge economy, the development and exploitation of new ideas is the main driver of economic growth. Idea innovators must be protected through patents, copyright and trademarks. Inadequate protection acts as a disincentive to innovation. It is disheartening for a young software developer to spend hours developing a software program only to find it being illegally hawked in the streets.
Crime – research has shown that counterfeiting and piracy bestow economic benefits to parties engaged in a range of criminal activity. Proceeds from counterfeiting are used to sustain crime and foster corruption.
Employment – piracy and counterfeiting shifts jobs from right holders to infringing parties. In most cases, infringing parties do not offer the same level of working conditions. Workers cannot earn a fair wage. Coupled with this is the loss of jobs when rights holder companies are forced to scale down operations due to the loss of sales to counterfeiters. For example, eliminating software piracy in Africa can generate hundreds of thousands of new jobs.
Foreign direct investment – Research by OECD has established that FDI from USA, Japan and Germany is relatively higher in African countries that have lower rates of counterfeiting and piracy.
Health and Safety – Counterfeiters and pirates are seldom concerned about the health and safety of their products. The electronic goods that counterfeiters produce are often substandard or even dangerous, posing health and safety risks to consumers. A few examples include mobile phones that emit higher than normal radiation. Some fake phones have been found to emit ten times more than the acceptable level of radiation. There have also been reports of cell phone batteries exploding and severely injuring users. Counterfeit circuit breakers that are wrongly calibrated or manufactured using sub-standard materials have been known to cause fire and electrical shock fatalities.
According to a study by Microsoft, in 78% of cases, tracking cookies and spyware was installed together with pirated software. In 26% of all instances of pirated software, an actual virus was detected in the computer. In 17% of all piracy cases, the hard drive had to be reformatted due to corruption leading to a complete loss of data.
Tax revenues – tax collection is much easier and more effective when dealing with rights holders and their licensees. Counterfeiting and piracy therefore leads to a massive loss of government revenue in the form of import duties, value added tax, corporate income tax, payroll taxes and other government levies.
Combating Counterfeiting and Piracy
One of the most effective ways to combat counterfeiting and piracy is to create awareness about the dangers noted above. Many people in Africa are seldom aware that they are buying counterfeit electronics. Governments also need to strengthen legal frameworks and step up their efforts on enforcement. Improved enforcement combined with a well-publicized awareness campaign will reverse the trend.