Knock-off products a health threat in Iraqi Kurdistan

Products from Turkey, Iran and China account for 90% of Kurdistan imports.

al-monitor Iraqi Kurdish residents shop ahead of the Muslim fasting month of Ramadan at a market in central Erbil, in Iraq's Kurdistan region, June 28, 2014. Photo by REUTERS/Ahmed Jadallah.

Topics covered

trade, kurdistan region of iraq, kurdistan, iraq, imports, economy

Jul 20, 2014

Young Sardar Ahmad kept trying to convince the store owner that the hair cream that he bought from the store two weeks ago caused him hair loss and that the store owner should sell a genuine global brand to solve the problem.

Kurdish pharmacist Riwaz and her friend Clawiz quietly left a luxurious shop overlooking the historic Citadel of Erbil after they could not verify the quality of a French product that claimed to treat pimples.

Riwaz and Clawiz were looking for a French product that reduces pimples and inflammation, which have covered Clawiz’s face since she used creams that were “imitations” of global brands. They didn’t make a purchase because the store owner showed them two cans of a product having the exact same dates of manufacturing and expiration and claimed that one was “genuine” and priced at $28 and the second was “imitation” and priced at $4.

Genuine or imitation?

“Genuine or imitation?” This is a question asked by most shoppers in the markets of Iraqi Kurdistan when they inquire about a product. For each product, sellers often display two cans, where one is three or four times pricier than the other. This proves, according to civil rights activist Ribwar Saadeddin, that most products in Kurdish markets are of poor quality and unregulated. Making things worse is the lack of consumer protection organizations in the province, which imports 98% of its needs and where trade exceeds $20 billion a year.

Governmental, parliamentary, commercial and UN entities say that in the absence of basic commercial laws that protect consumers, high-quality products have become rare in Kurdistan and the market has become filled with counterfeit and poor-quality products made in China, Turkey and Iran. Experts estimate that this situation is causing several billion dollars in economic losses as well as health problems, including cancer.

Ghaffar Saad, a wholesaler in the Sheikh Allah market in the center of Erbil, says that goods of global origin often enter Kurdistan through smuggling, while fake and poor-quality products enter through official crossings. This is because genuine products often do not have their information written in Arabic, as required by the Kurdistan Regional Government. Importers of fake products make sure to satisfy this government requirement.

Saad said that the Kurdish market had almost no dealers from international companies, while 20,000 companies and 100,000 traders compete to satisfy domestic demand for the Kurdish market, which is growing fast but lacks organization and oversight under the pretext that Kurdish markets are “free markets.”

The problem of shoddy products in Kurdistan goes back to 1991, when the province came out from under the control of the Baghdad government and was no longer subject to strict central controls on imports. Since that time, thousands of counterfeit brands have been entering Kurdistan amid a weak consumer culture that later significantly strengthened as the purchasing power of Kurdish citizens grew.

The two neighbors and the Chinese dragon

Three countries control nearly 90% of the Kurdistan market. The first is its northern neighbor, Turkey, which imposes its economic will on the Kurdistan region by supplying about 35% of its basic needs. The eastern neighbor, Iran, covers about 25% of the Kurdistan market. China’s share is 30% but will be expanding with the opening of hundreds of shops that offer Chinese goods priced at less than $3 an item.

The Turkish consul general in Erbil, Mohammed Akef, said that the trade volume between Iraq and Turkey in 2013 was $12 billion, 70% of which was with the Kurdistan region. Turkey wants to raise this figure to $15 billion for 2014. Iran hopes to achieve the same figure, according to Iranian Economy Minister Ali Tayyip Nia. He asserted that Iraq-Iran trade volume reached $12 billion by the end of last year and that half that amount was with the Kurdistan region.

Those numbers agree with estimates in reports issued by the Economic Forum in Kurdistan. They estimate the volume of imports from Iran and Turkey at about $14 billion. Kurdistan exports mostly oil. Non-oil exports do not exceed $100 million.

These figures reveal the volume of goods from Turkey and Iran in the markets of Kurdistan and the skewed nature of the trade imbalance. What is more dangerous though, according to businessman Sayar Abdullah, is the quality of those goods, because “no one can say that [their quality] is good. It is certain that more than one-third are classified as very lousy products.”

Alongside Iran and Turkey, which impose their economic and political presence in Kurdistan, China is flooding Kurdistan’s markets with “very poor quality but very cheap goods,” said trader Omar Amin Babiker. He revealed that, in recent years, China had become a main station for Kurdish traders, who import $4 billion worth of fake goods to Kurdistan markets.

Babiker added, “We can find excellent products as well as inferior ones, but most Kurdish traders prefer to import inferior products to make a higher profit, taking advantage of the significant growth in the domestic market.”

Local trader Salar Jamal said that most products in the Kurdistan market are imitation. Sometimes the packaging is made in Turkey or Iran and the goods are packaged in Kurdistan. Most of the time, however, everything about the imitation product is made in those countries before entering Kurdistan.

Jamal gave some examples. There is a German-made shampoo whose price is more than $3. Its imitation costs 60 cents to make and can be sold for $2, or even for $1 if bought from pushcart sellers.

Jamal said that exposing the poor quality of cleaning products and cosmetics was much harder than for food items, which are tested to determine their suitability for human consumption. The companies that manufacture imitation products make sure that the packaging perfectly matches that of the original product.

Al-Hajj Qadir Mohammad, owner of a large shop in the center of Erbil, showed me packets of Fairy detergent obtained in a lucrative deal with a dealer who claimed that he wanted to liquidate his stock. Two days later, the detergent turned out to be fake and of poor quality. It irritates the hands. Hajj Mohammad said that the package design “had all the details of the original brand. Although I am an old-time trader, I was cheated, so how can the average consumer not be?”

Haji Qasem, a trader who stopped working years ago, criticized what he described as the trading chaos in Kurdistan, “I know traders who buy fake skin powder for three or four dollars and sell it at the genuine product’s price, which could be up to $20. They think they are being savvy despite the fact that it is blatant theft for which nobody is being held accountable.”

Production according to demand

Wholesaler Hiwa Rahman told about another aspect of the problem. It was about many companies producing the same product with different specifications. There are medium-quality products made by Saudi or Turkish companies. There are also lower quality products made by Egyptian or UAE franchised companies. The quality of Chinese products is in accordance with what the local merchant wants.

Rahman’s colleague Ghaffar Saad added that Kurdistan consumers wanted the least expensive products even though they know that inferior goods will cause health problems.

Saad indicated that the higher income level in Kurdistan did not change the culture of consumption. Even with annual growth rates exceeding 9% and the accompanying urban development in Kurdistan, the quality of imported products has not improved much.

Sarkut Khalil, who makes ceramics, expressed his frustration with government policies, which made local production noncompetitive. There are nearly 21,000 companies and more than 100,000 Kurdish dealers who are busy importing products from neighboring countries into the Kurdish market, compared with about 2,000 small local factories, many of which are threatened with bankruptcy.

According to Kurdistan Importers and Exporters Union statistics, 70% of the Kurdistan region’s $12 billion yearly revenue ends up in neighboring countries. There are also the imports by state institutions and imports from other Iraqi provinces.

Billions wasted

Hashim Zebari, an international trade specialist, draws a bleak picture of the trade performance in Kurdistan. He believes the commercial chaos is causing a “major bleeding in hard currency.” The issue is not just about the health dangers of poor-quality goods, but also financial losses that may exceed billions of dollars a year.

He said, “All goods that do not achieve the goal for which they were sold constitute waste. This starts from the poor-quality pencil that costs a few cents, to detergents and cosmetics, to electrical and electronic appliances that cost hundreds or thousands of dollars. These unforeseen losses cost the state huge amounts of money that may be enough [to fund] hundreds of production projects a year.”

Despite the lack of accurate figures about the size of the losses, as Zebari sees it, a simple calculation shows the Kurdistan market — 33% of whose imports are shoddy and inferior — loses about $3 billion a year, according to Kurdish experts.

“Any talk about global brands and good products is a lie,” said A.J., an employee at the Ibrahim Khalil border crossing with Turkey. A.J. doubts that it is possible to keep poor products out given their “limited capabilities.” On some days, more than 1,000 industrial materials enter. It is impossible to examine and verify their quality without a laboratory and trained personnel.

While food passing through the crossings is inspected by departments belonging to health and agriculture institutions, cosmetics are only checked for their expiration date, certificate of origin and testing company. “Rarely is the material tested, despite the fact that this the core function of a quality control system,” he said, while doubting the effectiveness of the two foreign companies contracted to test goods entering the Kurdistan region.

His colleague, S.G., believes that inspections at the Khalil crossing are mere formalities, as evidenced by the increasing phenomenon of fake goods in the Kurdish market. This was confirmed by a number of wholesalers who spoke with the author of this investigation, including Rizgar Ahmad. All admitted that most imported cosmetics were not subject to real testing. The testing company only requests a certificate of origin and the bills showing the quality and quantity of the goods. The testing company then grants a certificate that the product is sound.

In the same vein, quality control only examines products that do not need a certificate from the testing company, such as household cleaners, clothing and soap. S.G. revealed, however, that the inspection only looks for the expiration date and for certain ingredients that might pose a health risk, without checking whether the product composition matches what is on the label.

Unofficial border crossings and smuggling

Former director of quality control in the Kurdistan region Moid Abdul Rahman attributed the spread of shoddy goods in Kurdistan markets to growing smuggling at border crossings or from the rest of Iraq. He revealed the existence of “unofficial crossings,” where goods entered without inspection.

Abdul Rahman confirmed that materials that go into Kurdistan from official border crossings might be subject to regular examinations, but that it was not possible to examine materials that come from Iran through six unofficial crossings where there is no quality control whatsoever. Those crossings handle hundreds of import trucks every day.

The new president of the Standardization and Quality Control Commission, Sabah Toma al-Maleh, disagrees with the commission’s former president and with most traders involved. He said that the committee had good tools and personnel to test the products and that “there is no problem in the budget allocated for the commission’s work.”

Maleh believes that the presence of shoddy goods in the Kurdistan markets is “not the commission’s responsibility,” and that the program under which the two testing companies were working was a global program for product inspection and certification by a neutral third party.

Most traders and customs officials whom the author of this investigation has met said that there was no serious inspection of cosmetics. Maleh said that this “is not true. There is a strict program to examine samples that the commission receives from the border crossing points.”

Maleh neither confirmed nor denied the existence of unofficial crossings with Iran that are not subject to quality control, saying that all border crossings “are the prerogative of the customs department, not quality control.”

Nothing changes

Near a small cart parked on the sidewalk of a popular market in Dahuk, some passersby gathered to buy some perfumes of “French origin” priced at only $4 per bottle. Government employee Kamran Saadi was torn between responding to his wife’s request to buy several bottles before they run out and his awareness that the products are fake and have been imported by greedy traders from a neighboring country.

Against the background of this daily scene in Kurdistan markets, Khalil Ahmad, a border crossing employee, rules out finding a solution “to this disaster” soon — a solution that would spare the Kurdistan region’s population health risks and save billions of dollars in imports annually — in light of the ineffective quality control department, old laws and the continued existence of unofficial crossings and smuggling across the border.

This investigation was completed with the support of the Iraqi Investigative Journalism Network (Nirij) and supervised by Saman Nouh and Mohammed al-Rubaie.

Continue reading this article by registering at no cost and get unlimited access to:
  • Al-Monitor Archives
  • The Week in Review
  • Exclusive Events
  • Invitation-only Briefings

More from  Mowaffak Mohammad