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A year later, has PVOC locked out fake goods?

The Pre-Export Verification of Conformity to Standards (PVOC) was seen as magic bullet to save Ugandans from sub-standard imported goods – especially from Asia. But nearly a year later, Simon Musasizi finds that opinion is divided on whether PVOC has made any meaningful impact.

To fully demonstrate what he sees as the futility of PVOC, Jjemba Mulondo takes me on a stroll in downtown Kampala.

“I want you to see for yourself and tell me if anything has changed,” says Mulondo, a board member and secretary for security, mediation and environment at Kampala City Traders’ Association (Kacita), as we walked down from their offices on Royal Complex.

The car importer and director of Zenji Empire (U) Ltd has, for the last five years, been tasked with coordinating issues to do with imports at the ports of Mombasa and Dar es Salaam. He leads me to two random shops dealing in women’s handbags.

At one, at Pioneer mall, the lowest price for a bag is Shs 70,000. The shop, however, does not seem to have that many customers. Further downtown, a shop in a mall near the bus park is selling its bags at Shs 20,000 each. A boy is shouting out the price, attracting the attention of several customers otherwise pacing by. According to Mulondo, all these cheap bags are substandard.

“Any woman’s bag that costs below Shs 50,000 is substandard,” he says.

“You cannot carry it for more than four months before it starts wearing out.”

And that is the general picture downtown; people are attracted to low-priced products, which in most cases are substandard. It is for this reason that in June last year, the government introduced PVOC as a way of protecting consumers from substandard goods. The idea was that only goods inspected at the source and found to be of good quality would be allowed into the country.

However, according to Kacita, this is not working. The association says fake goods continue to flood the country, with the only change being the new charge importers must pay for PVOC.
Mulondo argues that before government introduced PVOC, it should have found out why traders preferred dealing in substandard goods.

“The reason we have these items is because the cost of doing business in Uganda is still too high,” Mulondo says.

“The cost of ferrying a container from Mombasa to Kampala is almost double the cost between China and Mombasa.”

He says the average cost is $4,500 from Mombasa to Kampala, including transportation and handling costs. Yet the same container costs about $2,800 from China to Mombasa. This high cost is attributed to poor infrastructure like the roads, Uganda having no reliable railway or water transport system.

And once the container arrives, owners have to pay taxes amounting to at least 50 per cent of its value. For cars, it goes as high as 100 per cent.  As a result, these costs push the final retail price. This has forced traders to go for cheaper substandard goods, lest they stock goods that no one can afford if they are to make a profit. According to Mulondo, 70 per cent of the goods on the market are substandard.

“It is not easy to survive in business in Kampala. You must know how to scheme,” Mulondo says.

With the introduction of PVOC, there is a further financial burden passed on to the trader and consumer. Traders pay $220 (about Shs 570,000) as inspection fees per container with goods worth less than $50,000. If the value is higher, the charge may go up to $2,375.

“These are unnecessary charges and taxes, which could otherwise be avoided if we built capacity of our existing institutions such as UNBS [Uganda National Bureau of Standards],” Mulondo says.

“If UNBS can’t do proper inspection of what is produced locally, how do you expect them to [investigate] what is done abroad? We spend about $700,000 per month on foreign companies who have no form of investment in Uganda.”

The companies contracted for this job include SGS, Intertek, Bureau Veritas, JEVIC, East African Automobile and Jabal Kilimanjaro.

“Someone within government is benefitting from this arrangement, and the companies’ obligation is to collect as much as they can to cater for someone’s share,” Mulondo says, adding: “How come we have never had any consignment rejected?”

Mulondo gives the example of car inspection, where all that the contracted companies do is merely look at the car and then charge between $140 and $350 depending on the country of origin of the car.

“There is nothing technical or scientific about their work,” he says.

“Uganda is a signatory to the General Agreement on Tariff and Trade, (GATT) valuation. It is better we advocate the respect of this agreement so that we stop buying vehicles that are more than 10 years old since our invoice values would be respected by URA (Uganda Revenue Authority) as opposed to them claiming we are under-declaring.”

Recently, importers of used car went on strike, protesting against the high inspection fees.

One of the strikers, Amrit Pal Singh, the director Ajit Motors, said they were paying at least $140 in inspection fees in Japan for each vehicle and as much as 15 per cent of the total cost of the car in insurance and freight.

But these costs, Singh says, go to the customers and “the benefits go to foreigners.” He argues that the second inspection should be done within Uganda, and not abroad. However, Uganda Consumers’ Protection Association (UCPA) came out to defend UNBS, calling the car importers’ move an attempt at blackmailing the regulators. UCPA released what they called an ‘authentic report’ from pre-export inspection that demonstrated the extent to which consumers had been fleeced.

The report indicated that in July last year 132 vehicles were inspected, of which 77 failed the test - a 58 per cent failure rate. The average failure rate of the 1,750 vehicles that had been inspected by December last year stood at 45 per cent.

“In the event that vehicles are found to be substandard and costly to rectify, the usual practice for importers is to abandon such units,” the report said.

Traders, however, doubt the credibility of these companies.

“They employ nationals of the exporting countries. So, if the exporter is Chinese and the inspector is Chinese, do you expect them to stop their own goods even if they are substandard?” Mulondo asked.

However, Joram Nyanzi, the managing director of Spedag Interfreight, one of the leading cargo handling companies in the country, defends PVOC.

“They are reputable international companies and where they inspect cargo and it is later found by UNBS to be substandard, there is a penalty,” Nyanzi says.

“It [PVOC] is working well, especially for genuine importers dealing with good suppliers and who care about the standards of their imports. It is an additional cost, but [it’s] worth it.”
However, Jjemba says the country is losing revenue as a result of this additional cost.

Appearing before Parliament’s Finance committee recently, URA’s commissioner general Allen Kagina reported that the tax body had registered a shortfall of Shs 270bn from July 2013 to February 2014. Although she tagged it on other factors like tough times among commercial banks, she said there were other issues they were still examining.

Mulondo thinks he knows where the problem lies: “All these are problems being created by greed. Government should go back to the drawing board and revisit its taxation system.”

smusasizi@observer.ug



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