KPMG - BPG commissioned study reveals automobiles most affected by counterfeit

The study which was commissioned by the BPG included product categories covering FMCGs (tobacco, F&B, household products), automobile spare parts, cosmetics and pharmaceuticals.

According to the study, the total value of counterfeits in the UAE and resultant loss in revenues for the four sectors examined in 2006 is estimated to be in the range of $670-696m. Among the studied sectors, automobile spare parts seem most affected by counterfeits at 12.5%, while pharmaceuticals is the least affected by 0.15% of the total market size of $3,814.7 (million) and US$ 1,300 (million) respectively.

While the highest percentage of counterfeits as products went to Automobile spare parts at 68.5%, FMCG - Tobacco at 22.2%, Cosmetics at 5.9%, FMCG - Food and Beverage at 2.5%, FMCG - Household Products at 0.6% and Pharmaceuticals at 0.2%, the study reveals.

The impact of counterfeiting on these industries lies mainly in reduced sales and profits as a result in the loss of market share. While, the impact on the economy is represented in the loss of trade revenues through hurting the industries, loss of custom duties through smuggling, and reduction of non-oil GDP, and employment levels. Consumers on the other hand, are deceived into buying lower quality and inferior products which might pose serious health and safety risks.

The report also finds that if more efforts had been done towards curbing trade in counterfeits the selected sectors as a whole, during the years 1996-2005, would have resulted in non-oil GDP rise by $1,726.9m, tax collection by over $110m, and employment would have rose by around 31,000.

The Chairman of the BPG and the Regional Intellectual Property Advisor for Nestlé Middle East, Mr. Omar Shteiwi, said: 'This report shows where we stand in our fight against counterfeit products, our quest to fight illegal trade continues and we need the support of all bodies. We are looking forward to seeing a real partnership and joint effort with the public sectors which includes all law enforcement agencies and authorities through the execution of governmental legislations, full implementation of the maximum penalties in the Intellectual Property laws and regulations. Private sector support is also required in addition to strong consumer awareness.'

According to the report, counterfeiting does have a negative impact on the U.A.E's overall economy, industry and consumer, however counterfeits in the U.A.E are lower than in other international markets, yet the presence of such activities could deter the entry of new players in the local market. As a result the 'shopping capital' image of the country can be affected. The U.A.E has been active in the investigation and curbing of IP violations but brand owners consider penalties in the country to be light. Improving enforcement, raising public awareness, and the close engagement of all stakeholders to combat counterfeiting are recommended, as per the study.

Also as a result of counterfeiting, the study indicates that legitimate producers may cut down on product R&D due to reduced profits, thus depriving the consumer of advanced product ranges.

Highlighting the continuous efforts to combat counterfeiting, the study refers to ongoing work carried out by the UAE government through legislation and law enforcement in addition to various initiatives undertaken by NGOs via company led investigations, training of customs officials, as well as lobbying by industry groups. Furthermore, raising public awareness and close engagement of all stakeholders remain key pivots to combat counterfeiting.

The BPG is a not-for-profit organization set up to fight illegal replication of genuine goods and other forms of illicit trade and strengthen the enforcement of intellectual property rights. BPG members involved in the study were BAT, Beiersdorf, BMW, Daimler, Estee lauder, GM, GSK, Johnson & Johnson, Kao Brands, Kraft, Nestle, Philip Morris, P&G, and Unilever, in addition to a large number of local economists and industry experts who have all worked very closely with KPMG in terms of providing insights and gathering of information and statistics.