Low pricing, new features and prospects for business ventures have led to the growth of the gray handset market in Africa, with the phones coming mainly from China and Taiwan.Original handset manufacturers such as Nokia and Samsung are responding to the growing market in Africa with campaigns to educate consumers about the disadvantages of gray handsets. Based on iSuppli research, the handset makers have their work cut out for them -- by 2013, the gray handset market is expected to grow to 176 million units, expanding at a compound annual growth rate of 11.7 percent from 2008. In contrast, the legitimate cell-phone market will achieve a CAGR of only 4.4 percent, according to iSuppli.

Gray-market handsets are defined by iSuppli as cell phones manufactured in China that are not recognized or licensed by government regulators. Makers of these products generally do not pay China's value-added taxes and, therefore, profit illegally from their participation in the market. The phones employ fake International Mobile Equipment Identity (IMEI) numbers.

"Because of its under-the-table status, China's gray market has been difficult to size up. With its vast size, growing competitive presence and increasing influence on the global supply chain, this market now must be reckoned with, " said Kevin Wang, director, China Research, for iSuppli.

Handsets imported from China and Taiwan are usually cheap compared to legitimate handsets and the vast growth of mobile connectivity has allowed penetration to all levels of economic earnings. The gray handsets also contain features that most other legitimate phones do not have, such as dual SIM functionality, yet the price is cheap compared to original phones.

"The handsets are good because they have dual SIM, television, radio and look shiny and fancy, but after two months the touchscreen fails to function and the sound becomes distorted," said Ann Mbugua, an accountant who bought a gray handset and had to stop using it after three months.

Most gray phones are either imitations that bear a brand name such as Nokia or Samsung or have a different Chinese brand but look like a known brand, which can easily mislead consumers.

"Counterfeit Chinese phones are not good quality handsets -- they look very flashy but the specifications or features are not up to standard. For example, if they advertise a 5 megapixel camera, the quality of the camera is not even VGA, the touchscreen gets spoiled very fast," said Amit N. Patel, head of sales and marketing for the Mobile Division of Samsung East Africa.

The iSuppli report projects that international consumers in both developed and developing economies are being lured away from established brands by the low cost of gray-market handsets.

"The removal of VAT has made low-end and high-end phones affordable to Kenyans, which has led to a mobile penetration rate increase from 38 percent to 49 percent in less than a year," said Dorothy Ooko, Nokia communications manager in Eastern and Southern Africa.

Most markets in Africa have weak laws or no laws that govern counterfeit products, which has allowed the fake handset business to thrive. Enforcement is a challenge especially when consumers complain of getting poor quality handsets.

For instance, the Kenya Bureau of Standards has a rule that all imported handsets must have stickers showing that they have been inspected and deemed to be quality, however, original equipment manufacturers are still unhappy with the enforcement process.

"There seems to be many loopholes in the system as thousands of cheap quality and counterfeits are still being imported in country and openly sold at every dealer shops. Kenya Bureau of Standards stickers are also easily forged and these phones are sold every day," Patel said.

Cost has always been cited as a major factor why people opt for gray handsets and iSuppli's Wang projects that Africa will continue looking to China for cheaper handsets.

South Africa is one of the few countries that has managed to escape counterfeit products because of its market structure. While countries like Kenya have distributors of certain handsets, South African mobile network operators deal with manufacturers.

"The South African market is more dominated by network operators rather than distributors. Network operators make deals with handset manufacturers directly and sell handsets on contract at subsidized prices," Patel said.

With the distributor model, business people in the region are guaranteed business if they can sell more units and become the representatives for the gray handset manufacturers.

"Gray handset suppliers are becoming brands in Africa. In the future, gray handset suppliers will cooperate with local operators to compete with international original handset manufacturers like Nokia and Chinese brands like Huawei and ZTE," Wang said.

Companies like Nokia and Samsung emphasize the superiority of materials and the warranty period. Most handsets give a warranty of a month, compared to a year given by original manufacturers.

While most gray handsets sold in Africa cater to the low-end segment, iSuppli projects that manufacturers will venture into smartphone models likely to retail for less than $150.

Whether the importation of gray handsets satisfies the needs of a particular segment is society or not, consumer education and legislation will be vital in Africa.