The 2015 report by the Global Entrepreneurship Monitor has ranked Uganda as the most entrepreneurial country in the world. More than a quarter of the Ugandan population (28 percent) have started out a business of their own in the last 3.5 years. The surge in entrepreneurship activity among Ugandans has been supported by improved reliability of electricity supply, investments in roads, regional integration efforts, and the ICT and mobile phone revolution that have made connectivity and payments easier even in hitherto hard to reach remote areas. However, whilst an ever increasing number Ugandans are turning to entrepreneurship as a way to advance their economic prospects, the odds still remain heavily stacked against them.
Many businesses have to deal with, among others, unfair competition from substandard and counterfeit alternatives. Counterfeiting and the proliferation of cheap substandard products on the market is a major constraint to business growth and competitiveness. Data from the Business Climate Surveys at the Economic Policy Research Centre indicate that substandard products have overtaken transport infrastructure and access to finance as the leading challenges that Ugandan businesses have had to deal with over the last two years. In 2014, for example, close to forty percent of Ugandan businesses felt that they suffered – albeit with varying degrees – due to unfair competition from counterfeiting and cheap substandard products.
Counterfeiting and the proliferation of substandard goods should concern everybody – not just the genuine business minded people. To the entrepreneurs substandard and counterfeit products in particular stifle the growth of genuine businesses because of the unfair competition. Substandard and counterfeit products are usually cheaper and therefore can easily drive genuine business out of the market. To the consumers counterfeits and substandard goods have big adverse welfare and health implications. Virtually all sectors have to deal with counterfeit and substandard products. Let me highlight two for brevity: one in health and the other in agriculture.
In the health sector malaria remains a leading cause of deaths. A recent survey by a consortium of researchers at the Stockholm School of Economics, Stockholm University, and Harvard University showed that 36.8 percent of sampled drug outlets in Uganda sell fake artemisinin-based combination therapy (ACT) for the treatment of malaria. 19.4 percent of all anti-malarial drugs failed the authenticity test.
In the agricultural sector many years of global research have shown that agricultural development has probably the biggest effect for poverty reduction across many developing countries. One of the challenges facing agriculture in Uganda has been the low adoption of technology including improved seeds and modern fertilizers. A group of researchers at the Economic Policy Research Centre and the International Growth Center separately investigated whether the low quality of agricultural inputs can help explain low adoption. The results were startling: 30% of nutrient is missing in fertilizer on the Ugandan market, and hybrid maize seed contains less than 50% authentic seeds.
The prevalence of counterfeit and proliferation of substandard competitors might be just one of the reasons why, despite the impressive entrepreneurial ranking, Ugandan businesses struggle to flourish. Yet, counterfeits and substandard goods persist because they are profitable in the short term – synonymous with the get rich quick model of development that many Ugandans adapt. Pushing out counterfeits and substandard products and encouraging genuine and honest business will require tremendous effort in regulation and consumer education.
But the writing is on the wall and one thing is clear: counterfeits and substandard products are putting businesses, lives and livelihoods on the line.