Tackling Illicit Trade

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    Illicit trade is one of the social problems facing many countries across the world. It cuts across a wide range of consumer goods and brands such as electronics, apparel, alcoholic drinks, vehicles and auto parts, drugs. Ugo Aliogo in this report seeks an end to this menace

    Illicit trade has remained a social problem among countries around the world. In the GTEI Index, the high ranked countries are those that have successfully curbed illicit trade in all its ramifications.
    Also, countries ranked low are those struggling to curb illicit trade.
    According to statistics, illicit trade is a threat to global economy. It is estimated to account for eight to 15 per cent of global Gross Domestic Product (GDP) and reaching US$12 trillion in 2014 (World Economic Forum 2015).
    According to the Institute for Public Policy Analysis (IPPA), illicit trade has been described as a growing problem across the world.

    IPPA posited that it has an extensive destabilising impact on national and global security architecture because it facilitates transnational organised crime and illegal flow of money.
    The research also argued that it had been proven that illicit trade, especially products counterfeiting, smuggling of narcotics, weapons and tobacco are sources of revenue for organised criminal groups in Africa and beyond.
    Furthermore, it stated that there are indications that in some instances that it is also linked to financing terrorism.

    That was why at a recent policy roundtable organised by IPPA with the theme, ‘Business Environment and Illicit Trade: Linkage and Evidence,’ the issue was brought to the fore, this time with a focus to proffer solutions to the menace.

    Experts at the event proffered solution to the challenge.
    The United Nations’ estimated that more than $1 billion was illicitly traded in small arms in Africa, which it noted was fuelling the increasing conflict and criminal activities in the region.

    The research also stated that illicit trade exposes the public to the dangers of sub-standard and low-quality products, as usage of such illicit products have been known to cause health hazards.

    It argued that the practice was largely policy induced, adding that tax and tariff for example often create perverse incentives for illicit trade.

    Therefore, it stated that the increase in excise could potentially embolden criminals and smugglers to conceal imports and abuse certain customs and excise procedures if unchecked, “this would completely negate the benefit to the government in terms of revenue loss.”

    It further stated that as an emerging economy laden with socio-economic obstacles, the challenges of doing business in Nigeria are several, noting that these issues affect the growth of the economy and makes it difficult to attract investors and successful investment.

    The research argued that the challenges range from multiple infrastructural inadequacy, policy inconsistencies, corruption, insecurity, bureaucratic bottlenecks, infringements on rule of law and sometimes a lack of political will to implement business friendly policies.
    It added that in such an adverse environment, companies operating legally as net economic contributors deserve government encouragement and protection of their goods and services from losing commercial viability to illicit perpetrators.

    According to the research, “Recently there was a duty hike for excisable goods in Nigeria. Agreed that taxation is the primary means of generating government revenue, this has become more critical as we seek to evolve from a mono to diversified economy to enhance government revenue which is used to provide social infrastructure for the citizenry.

    “However, it is conventional wisdom that taxation should be stable, predictable and progressive when appropriate to serve as catalyst for achieving government’s socio-economic objectives.

    “However we have instances where aggressive taxation without adequate enforcement of fundamentals create business uncertainty, inadvertently providing incentive for illicit trade to flourish thereby eroding the very economic objective government set to achieve by rendering legal businesses and tax payers comatose due to the unrestrained activities of illicit trade purveyors.

    “Consequently, it has been established beyond any doubt with empirical evidence that unreasonable taxation is the biggest factor driving illicit trade.

    “The case of Belgium of where a 40 per cent alcohol excise increase resulted in a 20 million Euros revenue decline in 2015 and Greece where 125 per cent excise hike for alcohol failed to deliver projected revenue increase, but rather a 17 million Euros loss in 2015 are instructive.
    “Both brash tax policies performed abysmally serving as stimulus for cross border smuggling and illicit trade which aggravated because of poor enforcement.”

    Continuing, the report stated, “The recent case of South-Africa where the legal industry is under threat of being wiped out in a couple of years due to the impact of illicit tobacco trade buoyed by an ad-hoc tobacco tax increase by government is a clear indicator of the combined effect of unreasonable taxation and weak enforcement action against illicit trade, It is estimated that government has been losing 6 billion Rands ($451 mn) in revenue Year on Year from 2011.

    “It is a proven fact that illicit trade especially products counterfeiting, smuggling of narcotics, weapons and tobacco is a source of revenue for organised criminal groups in Africa and beyond, there are indications that in some instances it is also linked to financing terrorism. Fighting illicit trade is therefore key to protecting national security.

    “From precedence, the increase in excise could potentially embolden criminals and smugglers to conceal imports as well as abuse certain customs and excise procedures if unchecked; this would completely negate the accruable benefit to the government.

    “Illicit trade also exposes the general public to the dangers of sub-standard and low quality products, as usage of such illicit products have been known to cause grievous health issues or compromised infrastructural integrity.
    “To maximise revenue opportunity from the increased excise tax, an improved enforcement framework is required for successful policy actions to rein in illicit trade that must be complemented by robust and coordinated law enforcement activities. “The strengthening of relevant law enforcement authorities (for example customs) is pertinent and greater inter-agency cooperation nationally and trans-nationally is necessary for effective enforcement that would stifle illicit trade.

    “Enhanced bilateral cooperation with major source and transit countries inclusive of cross-border coordination and cooperation is necessary with appropriate sanctions and guarantees. The overarching aim of these measures is to secure the legal supply chain, strengthen enforcement and address the incentives underpinning illicit trade. “Ultimately, effective enforcement initiatives against illicit trade will enable government realise revenue objectives to grow the economy and provide social infrastructure.”

    Speaking at the event, a Senior Research Fellow at the University of Aberdeen, Dr. Olajide Damilola, called for multi-faceted approach to tackle the issue of illicit trade in the country.

    He stated that it cut across many industries, saying it implied that a single regulatory framework may not be applicable.

    Damilola, said a research body has to be commissioned at the national level which would look into every sector where there are cases of illicit trade.

    He also suggested that there should be a case by case approach which would ensure that the needs of the industries are tackled one after the other, adding that each industry has its peculiarities and the challenges.
    Damilola further said there was need for government to make policies based on evidence, just as he bemoaned lack of sufficient evidence to record the activities of illicit trade in the country.

    He explained that this is a global phenomenon which is not peculiar to Nigeria, stating all countries have one experience or the other of illicit trade.

    Therefore, he noted that for countries that have been able to curb the practice, “it there are things they have done, relatively to countries have not curbed it.”

    According to him, “We need to make policies based on evidence. We cannot get evidence if we don’t have data it is largely because there is no sufficient evidence to record the activities of illicit trade. This is a global phenomenon, it is not peculiar to Nigeria alone, and all countries have one experience or the other. But the point is that for countries that have been able to minimise it there are things they have done, relatively to countries have not minimised it.

    “Government policy is very important. Policy cannot be made in a vacuum it needs to be evidence based, then secondly, signing of trade agreement is also important, especially if your board is porous, you can sign an agreement with your neighbouring country to address the level of illicit trade across the board.

    “Another thing that is so difficult about tackling the issue is the demand and supply for illicit trade. The demand for illicit trade increases when government increases exercise duty tax on goods and services. Then this will drive down operators of the underground economy and they would now need to balance the demand and supply.
    “When policies are made in advanced countries, when it is negative it would dive down to the underground economy and drive illicit trade. But the rational approach is to free the economy and let market forces take precedent.
    “You don’t need to task so much before you can control the economy. Nigeria needs an overarching policy framework to tackle the issue of illicit trade.

    “But it should not be limited to a sector, because it cuts across several sectors. There could be policy framework to cut illicit trade in Tobacco, alcoholic and others.

    “We should also look at the facet and the different sectors and with the policy framework will be able to regulate it. We also negotiate with our neighbouring countries in addressing the practice which is what is done in Europe.”
    Despite the challenges and losses associated with the practice, experts are of the view the country can benefit a lot in the fight against illicit trade taking a cue from other countries such as Togo.

    A policy expert from the Centre for Promotion of Enterprise and Business Best Practices, Akeem Ogunlade, was one those who shared this view.

    He noted that a historical analysis of proactive measures by the Togolese government to combat illicit trade in tobacco showed that they had signed the WHO Framework Convention on Tobacco Control (FCTC) on May 12, 2004 and this was later ratified on November 15, 2005.

    He said the framework was signed with the realisation that illicit trade in tobacco was an even greater problem given the security, economic and health consequences that have arisen as a result of its growth, therefore noted that the government took a major step to adopt a directive to specifically regulate the transit of tobacco products through Togo in March 2016.

    He explained that Article 2 of the directive is very clear on the fact that any cigarette products declared as being in transit must imperatively carry the health warning clauses and other packaging and labelling requirements of the country declared as country of destination.