Madras Security Systems, a Chennai-based company specialized in security printing, is in the running to secure a big tender to provide tax stamps in Morocco, local reports indicate. The multimillion-dollar contract covers the printing of excise stamps for use on a number of products such as soft drinks and cigarettes. The scheme aims to track the sale of products across the entire supply chain, from factory door to consumers, discouraging tax evasion in the process.
Landing the contract would be a coup for Madras, and would confirm its status as one of the world’s leading providers of security solutions. But the tender is by no means a done deal, as one of Madras’ main competitors, British company De La Rue, is fighting hard to secure this contract.
So hard that De La Rue’s bid is between 40 and 50% lower than the competition, despite having little to no experience providing the type of service the Moroccans are after. In fact, up until recently, the British company’s expertise was in printing banknotes and passports, its tax stamp technology accounting for less than 10% of its operating profit last year. Some have suggested that the pricing strategy seems to be based on the fact that De La Rue seeks to delegate some activities to the very industries the tax stamp program is supposed to control, which would be a worrisome development.
According to Le Desk, a leading Moroccan news outfit who broke the story, De La Rue offer’s amounts to nothing short of “dumping”, and seems unmoored from the company’s fundamentals. And there seems to be some shred of truth to those allegations: the British company has recently become a lightning rod for controversies. The UK’s Serious Fraud Office has opened a criminal investigation into its practices in South Sudan, in what amounts to the company’s third run in with the SFO in the past 12 years.
Making matters worse, De La Rue’s finances have been in free fall for the past couple of years: it lost last year a £490 million contract to print the UK’s post-Brexit passport, which led to the CEO’s ouster. Annual profits have declined by 77% and debt more than doubled, hitting a high of £107.5 million this year.
Against this worrisome backdrop, it’s no wonder that the storied British company is desperately trying to catch a break with its Morocco bid and please investors. Executives rightfully see the North African country as the gateway into Africa, which has been an elusive market for De La Rue. However, De La Rue’s most recent foray in Kenya ended in failure, after the High Court suspended the award of the country’s currency printing contract over accusations that the central bank offered the company too favorable terms. Staging a comeback in the region would be a masterstroke.
Indeed, multiple governments across Africa are interested in the opportunities offered by tax stamps as a way to crack down on counterfeit goods and increase tax revenues. As the OECD points out, more than $50 billion are lost each year to tax evasion, of which the illicit trade forms a significant chunk. The promise of turning off that spigot is naturally a very enticing one for cash strapped African treasuries.
Madras has set its sights on Africa as well, and is engaged in a bitter rivalry with De La Rue. As far back as 2008, the British used a technicality to quash a contract that the Kenyan Revenue Authority awarded Madras for adhesive stamps. Worse, Madras went on to lose a different contract with the Kenyan state last year following a major scandal. The Moroccan tender would be a boon for the Indian company, which is looking to patch up its reputation after the Kenya setbacks.
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