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The knock-on effect of knock-off goods

The Minister of Economic Development, Ebrahim Patel, is shown around the 22 on Sloane campus in Johannesburg by the co-chairperson of Global Entrepreneurship Network, Kizito Okechukwu. I SuppliedJOHANNESBURG – Most of us are probably aware of the recent, somewhat violent clashes that took place between the police and traders of counterfeit goods in the Johannesburg CBD.

While I will never condone the production or selling of counterfeit goods in any way, for me this environment is riddled with catch-22s, especially for the sellers who are just trying to put food on their tables.

Today, every major brand is being knocked-off and there’s always a market for the goods.

Take fake replica football jerseys, which look identical to the real expensive ones, yet low-to-middle income supporters would gladly pay a tenth of the price for a knock-off just to show support for their team.

Surprisingly, DVD’s are still massive, considering Netflix, which is cheaper. Yet we must remember that this consumer base is not as privileged as others with super-fast fibre networks at home.

Also, many of our youth idolise celebrities and are quick and eager to snap up a fake pair of Nike sneakers or a Gucci bag that costs next to nothing on the streets. Many even follow these celebrities on Instagram and ensure they match their various wears with knock-off goods.

The International Chamber of Commerce (ICC), Business Action to Stop Counterfeiting and Piracy and Frontier Economics have conducted studies on the burgeoning counterfeit goods economy.

Their analysis shows that the scale of global counterfeiting and piracy shows no signs of slowing down any time soon.

They estimate that the value of international and domestic trade in counterfeit and pirated goods in 2013 was $710billion (R10.82trillion) to $917bn. They estimate that, in addition to this, the global value of digital piracy in movies, music and software in 2013 was $213bn.

The ICC report finds significant effects of fake goods on the job market through the displacement of legitimate economic activity by counterfeiting and piracy.

They estimate net job losses in 2013 to be globally between 2 and 2.6million, and they project net job losses of 4.2 to 5.4million by 2022.

They also estimated the effects of changes in the incidence of counterfeiting and piracy on economic growth.

Their econometric model, estimating the impact of changes in the intensity of counterfeiting and piracy on economic growth, suggests that a percentage point reduction in the intensity of counterfeiting and piracy could be worth between $30bn to $54bn for the 35 OECD countries.

A friend of mine enjoys shopping at local markets and streets when he travels. On one occasion, the seller asked him if he wanted the authentic or the fake. He chose the original.

One of our start-ups at 22 on Sloane commented that it’s like asking whether you want business or economy class.

Personally, I do not think it’s as simple as that, I believe it’s all about value. The subjective theory of value advances the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labour necessary to produce the good, but instead value is determined by the importance an acting individual places on a good for the achievement of his.

Just last month, one of the most brazen knock-off operations was discovered in Santa Catarina, Brazil.

The father and son business, labelled as a “clandestine luxury car factory” by investigators, was manufacturing fake Ferraris and Lamborghinis and offering the cars on social media for less than $70000 – a fraction of the price of the real things. But while exteriors and logos looked convincing – at least to an untrained eye – the engines came from other vehicles, including a Mitsubishi Eclipse, an Alfa Romeo and a Chevrolet Omega.

At some point in time, we’ve all been exposed to knock-offs.

In 2010/2011, the movie The Mechanic featuring Jason Statham (one of my favourite actors) was on circuit, yet to be released in South Africa. I remember a hawker brandishing the DVD for just R10 at a traffic light, which I ended up buying. Yet once I started viewing the movie at home, my heart sank.

Everything looked fake and I barely got through the first 10 minutes of the movie. The next day I went back to the “vendor” and demanded my money back. I am glad I got my 10 bucks back.

Bull is an American TV series about the Trial Analysis Corporation, which employs psychology, human intuition and high-tech data to understand jurors, lawyers, witnesses and defendants to construct effective narratives to help their clients win.

In one episode, Dr Bull defended a boy who was selling counterfeit goods. He won that case, yet the how and the why the boy started doing so were critical to help acquit him.

In closing, there is no doubt this clandestine market will continue to grow globally. Once there is a demand for a product, the market will be there.

Governments across the world need to locate the points of entry for illegal goods and focus specifically on the supply chains and most importantly, the hidden kingpins responsible for the operations, which can compromise any country’s economy.

As Jason Statham said in The Mechanic: “What I do requires a certain mindset. Best jobs are the ones no one ever knew you were there.”

Some of the people that run this economy do not show their faces, and I bet some of the countries that these goods come from are the global economic powerhouses.

Kizito Okechukwu is the co-chairperson of the Global Entrepreneurship Network (GEN) Africa; 22 on Sloane is Africa’s largest start-up campus.

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