Disrupting illegal markets for a sustainable economic growth

12 Mar, 2021

The 8th goal set by the United Nations in the Agenda for Sustainable Development is to promote inclusive and sustainable economic growth, employment, and decent work for all. According to the UN, in 2019, 22% of the world’s youth were not engaged in either education, employment or training. (1)

To make matters worse, COVID-19 could cause the equivalent of 400 million job losses with a GDP decrease of 4.2% per capita in the next year. Exacerbated by the pandemic, instability, and the scourge of crime and counterfeiting in all sectors undermine confidence and weaken countries’ credit ratings, which are needed to secure financing, attract investments and create jobs.

CROP PROTECTION

A wide circulation of illegal agricultural products has numerous impacts on a country’s economy, including the government’s loss in taxes. In Kenya for instance, counterfeit crop protection products cover 15-20% of the market and, due to non-authorized agrochemical dealers, the government is reported to be losing more than 1.19 billion USD in revenue. (2) These income gaps aggravate budget deficits and greatly reduce the government’s availability toward spending on health care, infrastructure, and job creation. However, this type of problem is not only related to developing nations. According to the EUIPO, the socio-economic losses of illegal pesticides in the European market account for 11,700 lost jobs and 238 million euros of missed tax revenues. (3)

AGRI-FOOD SECTOR

Illegal food products distort and destabilize food markets and undermine economic growth. This is because legitimate companies must face an illegal competition that reduces sales and employment opportunities. The effect is even more devastating for small producers in developing countries. For example, sugar smuggling in Kenya has jeopardized tens of thousands of jobs and deprives the state of legitimate revenues. (4) What’s more, news of food fraud related to a specific market could also undermine consumer confidence in that market, resulting in further damage to legitimate brands’ reputations and profits.

ILLEGAL ALCOHOL

Illicit trade in alcohol fuels undeclared work and hampers sustainable economic growth. Plus, lost corporate taxes and evaded excise duties deny governments of income intended for public investment. According to Euromonitor International the percentage of illegal alcohol on the total consumed is highest in Africa (40%), followed by Eastern Europe (27%) and Latin America (15%). (5) Therefore, illicit alcohol is widespread in both developed and developing nations, and no country is immune to its devastating effects on its economy. For instance, it is reported that the UK government lost £900 million in excise tax revenue between 2018 and 2019, (6) and Liquor smuggling in New York City alone is estimated to have cost the city 1 billion USD in lost taxes over the past 15 years.(7)

PIRATED GOODS

A global study by Frontier Economics forecasted that by 2022 the value of trade in counterfeit and pirated goods could reach 991 billion USD. This would imply wide social and economic impacts like the subtraction of 4.2 trillion USD from the global economy in terms of missed investments, public fiscal losses, and criminal enforcement costs. On top of this, we should also account for the potential loss of 5.4 million legitimate jobs. (8) Besides, counterfeiting activities also hinders the achievement of SDG Target 8.8 to protect labor rights and promote safe and secure working environments. As a matter of fact, fakes are usually produced under non-regulated and unethical conditions, exploiting underpaid workers, which are often denied legal and medical safeguards.

PHARMACEUTICAL SECTOR

A study by the European Union Intellectual Property Office (EUIPO) estimated that fake medicines cost the EU pharmaceutical sector €10.2 billion each year, resulting in the loss of 90,000 jobs and €1.7 billion in lost public revenue between taxes and social security contributions. (9) These severe losses impair efforts to reduce the burden of disease and result in investments ‘cuts in public health systems. Illicit drugs also compete in the market against authentic products and jeopardize existing drug supplies, driving consumers to buy cheap fakes instead of authentic medicines. The situation is especially aggravated in poor countries, where medicines are one of the largest items of expenditure along with food. Here, in the event of treatment failure due to an illegal drug, the burden of an additional treatment is often unaffordable or can impose significant financial hardship on families.

To help reach the 8th Sustainable Development Goal, through its anticounterfeiting solutions, Authena is supporting brands in promoting sustainable economic growth through all these industries. The proprietary end-to-end technology framework developed by Authena associates to each product a unique digital identifier that certifies origin, integrity, and authenticity. Plus, a synergy between blockchain, Near Field Communication tags and Internet of Things devices can track goods along their entire value chain, allowing real-time monitoring and digital audits. Finally, the data collected by the products along their journey to the end user generate valuable statistics to easily plan production and marketing activities. Thanks to this technology, brands impede illicit sales and can show their customers how they are promoting sustainability in terms of labor rights, resource efficiency and investments in R&D.

Alessandro Tacconelli