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Illicit alcohol big headache for manufacturers as state mounts fight

EABL estimates illicit alcohol now constitutes over 50 per cent of the market.

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by The Star

Kenya08 March 2024 - 08:55
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In Summary


• Kenya loses an average of Sh71 billion in taxes annually as a result of the proliferation of the sale of illicit alcohol in the country.

• In the current Financial Year 2023-24, KRA has implemented 976 interventions on illicit trade resulting into seizure of varying products with a market value of Sh897.2 million.

Empty alcohol bottles and alcohol bottle tops recovered by police in Kiambu County on May 27, 2023.

A walk through the notorious “pewa street” in Nairobi’s Umoja Estate is a tell-it-all of a highly selfish section of the business community that is making a kill from poor Kenyans.

By 7 am, groups of young men have already lined up outside the dirty and stuffy wines and spirits shops and pubs located on the street, as they seek to “unlock” or rather pick from where they left their tumblers the previous night.

It gets busier by day as the young men and women drown down their sorrows in cheap and dangerous liquor, on empty stomachs, with each day being a step closer to their graves.

Here, you can get a glass of hard liquor with as little as Sh50, with the licensed wines and spirits making a kill from the individuals, whom majority spend every little coin they make on alcohol.

This is not your ordinary Muratina, Chang’aa or tin of busaa, but packaged alcoholic drinks sold over the counter.

The scenario is however not exclusive to Umoja but across different parts of the country, where illicit alcohol has continued to command a sizable share of the alcoholic drinks market.

Illicit alcohol is produced illegally, outside of the approved and regulated production processes of registered and legitimate manufacturers.

It is largely unbranded and doesn't comply with standards that ensure the quality and safety of products.

To find their way into the shelves and the legit market, rogue players have mastered the art of counterfeiting which they use to deceive unsuspecting customers not only in the low end of the market but to the top brands. 

In Nairobi, Kariobangi Light Industries, Kenya's most prominent informal manufacturing hub, has been identified as a hot spot for the manufacturing of fake products, most of which are counterfeit genuine local and international brands.

“You can’t tell the difference and I can guarantee you almost half of what is sold in these wines and spirits, bars and clubs is counterfeit liquor,” a quality assurance officer at one of the leading alcohol manufacturers in Kenya told the Star.

“The only alcoholic drinks that have not been counterfeited are pure beers.”

According to East African Breweries Limited (EABL), the recent tough economic times have led to an increase in the consumption of illicit alcohol, as mainstream players lose their market share.

This has hit earnings in the industry with the government missing out on potential revenue from the alcoholic and beverages industry, one of the main sources in the manufacturing sector.

The regional operator estimates that illicit alcohol constitutes up to 56 per cent of consumption in the market.

“The consumer's income has become more depressed leading to a rise in consumption of illicit alcohol which now constitutes over 50 per cent of the market. The government needs to get tougher to protect the consumers,” EABL Group CEO Jane Karuku said.

EABL reported a 22 per cent decline in half-year net profit for the period ended December 2023, on the back of what management termed a “tough operating environment.”

Profit after tax went down to Sh6.8 billion compared to the same period the previous year, primarily driven by macroeconomic-driven cost inflation and rising finance costs.

This wiped out gains made in net sales for the period which increased 16 per cent to Sh66.5 billion compared to the prior year.

EABL contributed more than 60 per cent of domestic excise duty collections in financial years 2021-22 and 2022-23.

Kenya loses an average of Sh71 billion in taxes annually as a result of the proliferation of the sale of illicit alcohol in the country, a study by Euromonitor Consulting indicates.

The study from a survey commissioned by the Alcoholic Beverages Association of Kenya (ABAK), on the impact of illicit alcohol on the economy, notes that the volume of illicit alcohol sales has recorded strong growth in value since 2020 to stand at about Sh67 billion.

This reflects its wider distribution and increased preference, especially in low-income settlements.

The popularity of illicit alcoholic beverages which are often sold at a lower price than legal drinks, has been fuelled by the non-compliance with tax and excise regulations, experts note.

The low price of illicit drinks, high taxes, costly raw materials to produce safe alcohol, as well as easy accessibility through street vendors, licensed liquor shops, grocery retailers, bars, and other hospitality outlets, has been cited as one of the reasons why illicit alcohol has become more affordable.

The main target for counterfeiting is the mass-market, high-volume brands that comprise a mix of mid-market and premium spirit brands, the study revealed. 

Illegal traders are also interested in ethanol, driven by increasing demand from illicit commercial alcohol manufacturers.

Quinton Walker, a Senior Consultant at Euromonitor International noted the presence of weak border patrols, widespread corruption, and unmanned entry points along Kenya’s borders continue to provide a safe passage for illegal traders to conduct their business.

“Illicit ethanol traders have resorted to smuggling ethanol into the country taking advantage of rising local ethanol demand, price differences and higher ethanol availability in Tanzania and Uganda," Walker noted.

The most preferred border routes are Isibania and Shimoni (Kenya-Tanzania), Mbale and Busia (Kenya-Uganda) and Moyale (Kenya-Ethiopia).

While Kenyans are aware of the high rate of illicit drinks and other products in the market, including counterfeits, four out of 10 consumers see no point in reporting, with a third of consumers continuing to buy counterfeit goods knowingly.

This is even as the country continues to lose more than Sh153 billion in tax revenue annually to overall illicit trade, according to the Anti-Counterfeits Authority (ACA), with alcoholic products and tobacco the most traded.

A survey by Stop Crime Kenya (StoCK), which has its secretariat at the Consumers Federation of Kenya (Cofek), revealed that though there are agencies to which one can report illicit trade, there are significant barriers with one in four people saying they fear retaliation if they report illicit trade.

The survey was conducted by researchers from Cofek through telephone interviews with 100 consumers in 24 counties.

Other challenges include failure to understand reporting mechanisms and low follow-up by authorities after cases are reported.

StoCK chairman Stephen Mutoro said: “Government must prioritise the fight against illicit trade. The perpetrators growing rich at the expense of the economy and the lives of innocent people must be brought to justice.

Kenya has one of the largest markets for fake goods and contraband in East Africa according to ACA, ranging from alcohol, electronics and pharmaceuticals to food, clothing and tobacco.

This costs the country losses in potential tax revenue, robbing citizens of off-employment opportunities and depriving the state of funds for vital services such as healthcare.

“A third of consumers buy counterfeit goods knowingly. We must change their mindset. Awareness of the negative impact of counterfeit goods needs to be enhanced and we need a national action plan to combat illicit trade,” ACA told the Star.

Players in the legitimate alcoholic drinks industry are hoping the renewed efforts by the government to fight illicit alcohol will bear fruits.

In the latest move, the government has extended its effort to curb illicit brew and drug and substance abuse menace in estates.

Interior Cabinet Secretary Kithure Kindiki on Wednesday ordered the immediate closure of bars and clubs within the residential estates and learning institution.

"Any licenses currently issued to bars and other outlets and premises by County Governments that are contrary to the provisions of the Alcoholic Drinks Control Act, especially as relates to licensing of premises within residential areas and around basic educational institutions are null and void,” he said.

Meanwhile, Kenya Revenue Authority has enhanced its surveillance in a move to eradicate the production and sale of illicit liquor, Commissioner General Humphrey Wattanga said when he appeared before a Senate committee last Thursday.

The taxman has stationed its officers at all excisable goods manufacturing plants to enhance compliance with the law, complementing other monitoring measures such as CCTV cameras inside factories wired to KRA systems.

In the current Financial Year 2023-24, KRA has implemented 976 interventions on illicit trade resulting in the seizure of varying products with a market value of Sh897.244 million.


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