CUTS International - Consumer Unity & Trust Society

From theBottom Up

From the Bottom UpPublished by

CUTS Centre for Competition, Investment & Economic RegulationD-217, Bhaskar Marg, Bani Park, Jaipur 302 016, IndiaPh: +91.141.228 2821, Fax: +91.141.228 2485Email: [email protected],Website: www.cuts-ccier.org, www.cuts-international.org

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Citation: CUTS, 2007, From the Bottom Up

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Botswana Institute for Development Policy AnalysisBotswana

Botswana Council of Non - Governmenatal OrganisationBotswana

Ethiopian Consumer Protection AssociationEthiopia

Centre for Social ResearchUniversity of Malawi, Malawi

Malawi Economic Justice NetworkMalawi

Faculty of Social Studies and HumanitiesUniversity of Mauritius, Mauritius

Institute for Consumer ProtectionMauritius

Associação de defesa do consumidor de moçambiqueMozambique

Namibia Economic Policy Research UnitNamibia

Consumer Education Trust of UgandaUganda

In Partnership With:

Acknowledgements“From the Bottom Up” is the outcome of the cumulative efforts put together by many a individuals. Significantcontributions made by Country Researchers, Partner Organisations, members of National Reference Groupsin the project countries, members of Project Advisory Committee, members of the International Advisory Boardof CUTS CCIER, a young, dynamic and dedicated team of CUTS and many other external experts and resourcepersons have indeed shaped and carved this dissertation. Words alone cannot convey our heartiest gratitudeto them and to each and every individual who have contributed in every small way towards bringing out thisresearch volume. But its only words that this world thrives on. We express our sincere gratefulness to all,without whom the smooth and successful implementation of the project would not have been possible.

Project Advisory CommitteeGeorge LipimileZambia Competition Commission, Zambia

Peter Muchoki NjorgeMonopolies and Prices Commission, Kenya

Trudi HartzenbergTRALAC, South Africa

David LewisCompetition Tribunal, South Africa

David Ong’oloSpellman & Walker Co. Ltd., Kenya

ContributorsBotswanaBotswana Council of Non - Governmenatal OrganisationBarulaganye Mogotsi

Botswana Institute for Development Policy AnalysisMonnane Monnane

EthiopiaEthiopian Consumer Protection AssociationAbebe AsamreAlemu JotieGebremedhine BiregaSeifu Ali

MalawiCentre for Social Research, UoMMaxton Grant Tsoka

Malawi Economic Justice NetworkTemwa Gondwe

MauritiusUniversity of MalawiKheshwar Chandan JankeeReshma PeerunSunil Bundoo

Institute for Consumer ProtectionMosadeq Sahebdin

Reviewers CUTS Staff

Ashutosh SoniJames ChansaMadhuri VasnaniMukesh TyagiRajeev D. MathurSanjay Jain

Cezley Sampson,Advisor Government of Jamaica, Jamaica

David Ong’olo, Economist, Kenya

Eleanor Fox, Professor, New YorkUniversity School of Law, USA

John Preston, DFID, UK

Flora Mndeme MusondaEast African Community (EAC), Tanzania

John GaraCommercial Justice Advisor, Uganda

John PrestonDFID, UK.

Anita Kristin FausaNORAD, Norway

Pradeep S MehtaCUTS International, India

MozambiqueUniversity of Eduardo Mondlane, MaputoAlberto Bila

Associação de defesa do consumidor de moçambiqueMauzinho Nicol’sEconomic Justice CoalitionViriato Tamele

NamibiaNamibia Economic Policy Research UnitDirk HansohmRehabeam Shilimela

UgandaConsumer Education Trust of UgandaHenry Kimera RichardShaban Sserunkuma

India, Kenya & ZambiaCUTS InternationalAlice PhamClement OnyangoNitya NandaRijit SenguptaSajeev Nair

Smita JohnUrmimala ChatterjeeVaibhav R. MathurVictor OgaloVikash BathamVladimir Chilinya

From the Bottom Up6

ContentsPreface ........................................................................................................................................ 15

CHAPTER ICOMPETITION ADMINISTRATION IN EASTERN &SOUTHERN AFRICA – TAKING THE RIGHT STEPS .................................................. 17Introduction ............................................................................................................................................................. 17The Political Economy Context .............................................................................................................................. 19Market And Competition ........................................................................................................................................ 31Sectoral Regulation and Competition ................................................................................................................... 34Anti-competitive Practices ..................................................................................................................................... 40Perspectives on Competition Policy ...................................................................................................................... 44Conclusion ............................................................................................................................................................... 47

CHAPTER IICOMPETITION SCENARIO IN BOTSWANA ................................................................. 51Introduction ............................................................................................................................................................. 51Country Profile ........................................................................................................................................................ 52Policies Affecting Competition in Botswana ....................................................................................................... 52Laws and Regulations Affecting Competition in Botswana .............................................................................. 54Nature of Market Competition ............................................................................................................................... 57Survey Results ......................................................................................................................................................... 60National Competition Policy for Botswana ......................................................................................................... 75Regional Integration ............................................................................................................................................... 78Conclusions ............................................................................................................................................................. 78

CHAPTER IIICOMPETITION SCENARIO IN ETHIOPIA ..................................................................... 85Introduction ............................................................................................................................................................. 85Purpose of the Study ............................................................................................................................................... 85Objective & Methodology ....................................................................................................................................... 85Country Profile ........................................................................................................................................................ 86The Impact of Social and Economic Policies on Competition ............................................................................ 88Nature of Market/Competition ............................................................................................................................. 94Competition Law in Ethiopia ................................................................................................................................ 96Interface between Competition and Regulation in Select Sectors ...................................................................... 98Regional Integration ............................................................................................................................................. 101Consumer Protection Law .................................................................................................................................... 102Summary of the Field Survey ............................................................................................................................... 102Conclusion ............................................................................................................................................................. 104

CHAPTER IVCOMPETITION SCENARIO IN MALAWI ..................................................................... 107Introduction ........................................................................................................................................................... 107Selected Policies Affecting Competition ............................................................................................................. 109Legal and Institutional Frameworks ................................................................................................................... 113Market Structure vis-à-vis Competition in Malawi ............................................................................................ 119Review of ACP Cases in Malawi ......................................................................................................................... 126Regional Trade and Competition Framework ................................................................................................... 127Conclusion ............................................................................................................................................................. 127

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CHAPTER VCOMPETITION SCENARIO IN MAURITIUS ............................................................... 129Introduction ........................................................................................................................................................... 129Country Profile ...................................................................................................................................................... 130Policies Affecting Competition ............................................................................................................................ 131Market Structure in Mauritius ............................................................................................................................. 136Views of Respondents on Competition and Anti-competitive Practices ........................................................ 143Legislations ............................................................................................................................................................ 148Interfaces between the Regulatory Institutions and Competition Regime ......................................................... 152Conclusion ............................................................................................................................................................. 154

CHAPTER VICOMPETITION SCENARIO IN MOZAMBIQUE ......................................................... 157Introduction ........................................................................................................................................................... 157Country Profile ...................................................................................................................................................... 157Overview of the Economy ..................................................................................................................................... 159Social and Economic Policies Affecting Competition ....................................................................................... 161Sector Analysis of the Market .............................................................................................................................. 165Legal and Regulatory Framework ....................................................................................................................... 171Market Structure and Competition ...................................................................................................................... 175Reflections on Anti-competitive Practices .......................................................................................................... 177Perspectives On Competition Policy And Law.................................................................................................. 179Status of Competition Policy and Law ............................................................................................................... 182Conclusions ........................................................................................................................................................... 184

CHAPTER VIICOMPETITION SCENARIO IN NAMIBIA .................................................................... 187Introduction ........................................................................................................................................................... 187Policies Affecting Competition ............................................................................................................................ 187Competition Legislation ....................................................................................................................................... 196Regional Economic Integration ........................................................................................................................... 200Consumer Protection ............................................................................................................................................ 201Perceptions of Respondents to Competition ...................................................................................................... 202Conclusions ........................................................................................................................................................... 205

CHAPTER VIIICOMPETITION SCENARIO IN UGANDA .................................................................... 207Introduction ........................................................................................................................................................... 207Social and Economic Policies Affecting Competition ....................................................................................... 209Nature of Market Competition ............................................................................................................................. 213Competition Law ................................................................................................................................................... 214Sectoral Approaches ............................................................................................................................................. 218Regional Integration ............................................................................................................................................. 223Consumer Protection Law .................................................................................................................................... 225Competition Perception Survey in UGANDA ................................................................................................... 226Recommendations and Conclusions .................................................................................................................. 231

From the Bottom Up8

List of Tables

Table 1.1: Landmark Changes in Economic Policies from 1985 Onwards .................................................. 23Table 1.2: Landmark Changes in Investment Policy from 1985 Onwards ................................................... 25Table 1.3: Landmark Changes in Trade Policy ................................................................................................ 27Table 1.4: Trade Orientation of 7Up3 Countries .............................................................................................. 33Table 1.5: Products with High Market Concentration .................................................................................... 34Table 1.6: Costs of Starting a Business ............................................................................................................. 34Table 1.7: The Evolution of Regulatory Regimes in 7Up3 Project Countries ............................................... 35Table 1.8: Most Common Anticompetitive Practices in 7Up3 Markets ......................................................... 40Table 2.1: Concentration Categories and Market Characteristics ................................................................. 57Table 2.2 : Market Concentration by Industry .................................................................................................. 57Table 2.3: Market Concentration in Agriculture .............................................................................................. 58Table 2.4: Market Concentration in Manufacturing ........................................................................................ 58Table 2.5: Market Concentration in Restaurants ............................................................................................. 59Table 2.6: Market Concentration in Construction ........................................................................................... 59Table 2.7: Market Concentration in Finance .................................................................................................... 59Table 2.8: Market Concentration in Transport ................................................................................................. 59Table 2.9: Market Concentration Wholesale & Retail Trade .......................................................................... 60Table 2.10: Extent to which consumers are affected by Anti- competitive practices ..................................... 60Table 2.11: The Most Prevalent Practices ........................................................................................................... 61Table 2.12: Most Prevalent Practices at the Local Level .................................................................................... 61Table 2.13: Most Prevalent Practices at the National Level .............................................................................. 61Table 2.14: The Most Affected Sectors ................................................................................................................. 62Table 2.15: Powers of the Implementing Agency (in percent) .......................................................................... 66Table 2.16: Knowledge about Prevalence of Anticompetitive Practices by Government Agents ................. 67Table 2.17: Government Agents’ perceptions on Extent to which Consumers are

affected by Anti- competitive Practices ........................................................................................ ... 67Table 2.18: The Most Prevalent Practices (Government) .................................................................................. 68Table 2.19: Most Prevalent Practices at the Local Level (Government) ........................................................... 68Table 2.20: Most Prevalent Practices at the National Level (Government) ..................................................... 68Table 2.21: The Most Affected Sectors (Government) ........................................................................................ 68Table 2.22: Knowledge about Prevalence of Anti-competitive Practices (Civil Society) ............................... 70Table 2.23: Extent to which Consumers are Affected by Anti-competitive Practices (Consumers) ............. 70Table 2.24: The Most Prevalent Practices (Consumers) .................................................................................... 70Table 2.25: Most Prevalent Practices at the Local Level (Consumers) ............................................................. 71Table 2.26: Most Prevalent Practices at the National Level (Consumers) ....................................................... 71Table 2.27: The Most Affected Sectors (Consumers) .......................................................................................... 71Table 2.28: Knowledge about Prevalence of Anti-competitive Practices in the Business Community ....... 73Table 2.29: Extent to which Consumers are Affected by Anti-competitive Practices (business) .................. 73Table 2.30: The Most Prevalent Practices (Business) ........................................................................................ 73Table 2.31: Most prevalent practices at the Local Level (Business) ................................................................. 74Table 2.32: Most Prevalent Practices at the National Level (Business) ........................................................... 74Table 2.33: The Most Affected Sectors (Business) .............................................................................................. 74Table 4.1: Distribution of Respondents by sector .......................................................................................... 108Table 4.2: Socio-economic indicators .............................................................................................................. 109Table 4.3: Composition of the Competition Commission and Consumer Protection Council ................. 116Table 4.4: Views on Whether to Ban ACPs ..................................................................................................... 118Table 4.5: Competition Authority or Sectoral Regulators ............................................................................. 119Table 4.6: Size of the Domestic Market ........................................................................................................... 119Table 4.7: Structure of the Economy 2000-2004 ............................................................................................. 120Table 4.8: ACPs prevalent in the markets ....................................................................................................... 122Table 4.9: Sectors Affected by ACPs ................................................................................................................ 122Table 4.10: ACP Prevalence by Level ................................................................................................................ 123Table 4.11: Commercial Banks Market Shares ................................................................................................. 124Table 5.1: Selected Economic Indicators: 1968-2003 ..................................................................................... 131

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Table 5.2: Summary of Means of Market Shares (1983-2002) ....................................................................... 141Table 5.3: Levels of Market Concentration (1983-2002) ................................................................................ 142Table 5.4: Market Concentration of General Insurance Business (1995-2003) ......................................... 142Table 5.5: Market Concentration of Long-term Insurance Business over the Years (1995-2003) ............. 143Table 5.6: Response to the Question on Whether Action is Taken if

Rules against Anti-Competitive Practices are Violated .............................................................. 145Table 5.7: Response to Adequacy of Existing Laws and Regulations

to check Anti-competitive practices ............................................................................................... 145Table 5.8: Response to Exemption from the Competition Law .................................................................... 146Table 5.9: Views of Respondents on the Desired Kind of Competition Authority .................................... 147Table 5.10: Response to the Interface between Sectoral Regulators and the Competition Authority ........ 147Table 5.11: Response to Desirability of Criminalisation in Case the Law is Violated ................................ 148Table 6.1: Basic Economic Indicators of Mozambique .................................................................................. 158Table 6.2: Major Firms in the Mining/Manufacturing Sector in Mozambique ......................................... 172Table 6.3: Major Services Sector Business Firms in Mozambique ............................................................... 173Table 6.4: Market Structure of Some Manufacturing Industries in Mozambique ...................................... 174Table 6.5: Market Structure of Various Service and Utility Sectors in Mozambique ................................. 176Table 6.6: Do State-owned Monopolies Indulge in Anti-competitive Practices? ....................................... 178Table 6.7: Classifications of Respondents ...................................................................................................... 179Table 6.8: Prevalence of Anti-Competitive Practices ..................................................................................... 180Table 6.9: Type of Anti-Competitive Practices Prevalent in the Market ...................................................... 181Table 6.10: Sectors Most Affected by Anti-Competitive Practices .................................................................. 181Table 6.11: Prevalence of Anti-Competitive Practices by Level ...................................................................... 181Table 6.12: Effectiveness of Existing Regulations and Laws to Check Anti-Competitive Practices? ........ 182Table 6.13: Preference for the Type and Extent of the Competition Law ...................................................... 182Table 7.1: Socio-Economic indicators: Namibia ............................................................................................ 183Table 7.2: Prevalence of ACPs, Percentage Distribution of Responses ....................................................... 201Table 7.3: Most Prevalent ACPs in Namibian Markets – by all respondents, % ....................................... 202Table 7.4: Economic Sectors Most Affected by ACPs, % Distribution ......................................................... 202Table 7.5: Awareness About Rules and Regulations to Check ACPs, % Distribution .............................. 203Table 7.6: Preferences on Involvement of Stakeholders in NaCC Functioning .......................................... 203Table 7.7: Necessary Action Against ACPs, Number and % of Responses ............................................... 204Table 8.1: Vital Socio-Economic Statistics on Uganda .................................................................................. 208Table 8.2: Views of stakeholders on effectiveness of existing framework ..................................................... 229Table 8.3: Views of stakeholders on enactment of general law on competition ......................................... 230Table 8.4: Views of stakeholders on criminal liability .................................................................................. 230Table 8.5: Views of stakeholders on who would be competition ‘police’ under status quo ...................... 231

From the Bottom Up10

List of Boxes

Box 1.1: Mini-case Study: Media Industry in Botswana .................................................................................. 32Box 1.2: Beef Exports Monopoly in Botswana .................................................................................................. 33Box 1.3: Tobacco Buyers Cartel in Malawi ........................................................................................................ 41Box 1.4: Monopoly in Ethiopian Telecom Sector .............................................................................................. 42Box 1.5: Backdoor Commercial Activities Reducing Competition in Mauritius ........................................... 42Box 1.6: Motor Manufacturers are Suspected of Fixing Vehicle Prices .......................................................... 43Box 2.1: Mini Case Study: Media Industry ........................................................................................................ 62Box 2.2: Store Credit Schemes ............................................................................................................................. 65Box 6.1: Cashew and Sugar Concession: A Saga of Mozambique ............................................................... 166Box 8.1: Case Study: Competition Regime under Test ................................................................................... 220Box 8.2: Case study: Failure of Privatisation and Liberalisation? ................................................................ 221Box 8.3: Banking: In Spite of Privatisation, Changes Are Slow .................................................................... 222Box 8.4: Anti-competitive Practices in Bus Services Affecting Consumers ................................................. 224

11

List of Figures

Figure 1.1: GNI2 Per Capita of 7Up3 Countries ...............................................................................................20Figure 1.2: GDP Growth Rate 2002-2006 (in %) ...............................................................................................20Figure 1.3 Percentage Share in GDP (2004) .....................................................................................................21Figure 1.4: PPP GNI 2003 (US$mn) ...................................................................................................................31Figure 1.5: Level of Awareness ...........................................................................................................................44Figure 1.6: Prevalence of Anti-competitive Practices .......................................................................................45Figure 1.7: Need for Competition Law ..............................................................................................................45Figure 1.8: Objective of Competition Law .........................................................................................................46Figure 1.9: Status of Competition Authority .....................................................................................................46Figure 2.1: Knowledge about the Prevalence of

Anti-competitive Practices ...............................................................................................................60Figure 3.1: Profile of Respondants by Region ................................................................................................ 102Figure 3.2: Profile of Respondents .................................................................................................................. 103Figure 3.3: The Level of Awareness on Prevalence of

Anti-competitive Practices in Ethiopia ....................................................................................... 103Figure 3.4: Responses for the question regarding how

consumers are affected by anti-competitive practices ............................................................... 104Figure 3.5: The Most Prevalent Anti-competitive

Practices in Ethiopia ..................................................................................................................... 104Figure 4.1: GDP Sectoral Shares 2000-2004 ................................................................................................... 109Figure 5.1: Prevalence of Price-fixing according to Respondent Groups ................................................... 144Figure 5.2: Prevalence of Market Sharing

according to Respondent Groups ................................................................................................ 144Figure 6.1: Stakeholder-wise Break up of Responses Indicating ................................................................ 180Figure 6.2: Stakeholder-wise Break up of Responses

to ‘Need for a Competition Law’ .................................................................................................. 182Figure 6.3: Stakeholder-Wise Break up of Responses to

‘Objectives of a Competition Law’ of Mozambique ................................................................... 183Figure 6.4: Stakeholder Wise Perception on Status

of a Competition Agency in Mozambique .................................................................................. 183Figure 7.1: Prevalence of Anti-competitive Practices in the Namibian Markets ....................................... 201Figure 7.2: Stakeholders’ Awareness of Rules and Regulations

Related to Competition Issues in Namibia ................................................................................. 204Figure 8.1: Survey Sample Size ........................................................................................................................ 226Figure 8.2: Level of Awareness of Anti-competitive Practices (ACPs) ........................................................... 227Figure 8.3: Respondents Significantly Affected ................................................................................................. 227Figure 8.4: Most Prevalent ACPs by Category .................................................................................................... 228Figure 8.5: Perceived Scope of ACPs 9.8 Extent of ACPs.................................................................................. 228Figure 8.6: Do Rules to Check Competition Exist? ............................................................................................ 229


Currency & Exchange RateCountry Currency Currency Code Exchange Rate

Botswana Pulas BWP 1US$=6.169BWP

Ethiopia Birr ETB 1US$=8.871ETB

Malawi Kwacha MWK 1US$=139.095MWK

Mauritius Rupee MUR 1US$=32.56MUR

Mozambique Metical MZN 1US$=25.193MZN

Namibia Dollar NAD 1US$=7.066NAD

Uganda New Shilling UGX 1US$=1,743.00UGX

Source: http://www.xe.com/Exchange Rates as of February 27, 2007

13

Acronyms

7Up3 Project Capacity Building on Competition Policy in Select Countries

of Eastern and Southern Africa

ACP Anti-competitive Practices

AhaECoPA AHa Ethiopian Consumer Protection Association

BCM Banco Comercial de Moçambique

BMC Botswana Meat Commission

BPC Botswana Power Corporation

BPoA Brussels Program of Action

BoB Bank of Botswana

BoI Board of Investment

BOBS Botswana Bureau of Standards

CA Competition Authority

CAMA Consumer Association of Malawi

CLP Competition Law and Policy

COMESA Common Market for Eastern and Southern Africa

CSOs Civil Society Organisations

CUTS C-CIER CUTS Centre for Competition, Investment & Economic Regulation

DFID The Department for International Development, UK

EAC The East African Community

EPZs Export Processing Zones

EU European Union

FDI Foreign Direct Investment

FTA Free Trade Agreement

GATS General Agreement on Trade in Services

GATT General Agreement on Tariffs & Trade

GDP Gross Domestic Product

GNP Gross National Product

IFC International Finance Corporation

IMF International Monetary Fund

IPRs Intellectual Property Rights

LDCs Least Developed Countries

M&As Mergers and Acquisitions


MDG Millennium Development Goal

MFIs Micro-finance Institutions

MoUs Memorandum of Understandings

NGOs Non-governmental Organisations

NORAD Norwegian Agency for Development Cooperation, Norway

NRG National Reference Group

NTBs Non-tariff Barriers

OFT Office of Fair Trading

PPP Purchasing Power Parity

QRs Quantitative Restrictions

RBPs Restrictive Business Practices

R&D Research and Development

SADC Southern African Development Community

SACU The Southern African Customs Union

SAP Structural Adjustment Programme

SEZ Special Economic Zone

SIDS Small Island Development States

SoEs State-Owned Enterprises

SMEs Small and Medium-sized Enterprises

SMMEs Small, Medium and Micro Enterprises

UCC Uganda Communications Commission

UNCTAD United Nations Conference on Trade and Development

USAID United States Agency for International Development

UTPs Unfair Trade Practices

WB World Bank

WTO World Trade Organisation

15

Preface

Experiences from across the world reveal there are primarily two types of motivationsbehind the adoption of competition legislations – one, which is internally triggered and isin response to growing market inequalities; and two, which is imposed upon a beneficiarycountry by international lending institutions.

For most of the countries in eastern and southern Africa, it has been observed thatcompetition legislations were embraced by host governments in fulfilment of conditionsimposed under multilateral/bilateral agreements.

As a result of this, many a times the competition law developed is found to be toothless, andappear like a tokenism, or is far removed from the socio-economic-political realities of thehost country. Further, officials of the competition authorities lack the ‘know-how’ and ‘do-how’ of implementation, and thus the process is procrastinated, or sometimesinappropriately sequenced. Governments are not able to garner support to enable effectiveimplementation of competition laws, due to problems that stem from the lack of coordinationbetween the competition authority (or, the department of the line Ministry responsible forcompetition policy implementation) and other government agencies/departments. As aresult, anti-competitive practices continue unabated in various levels of the market andharm consumers and the economy equally.

The problem is compounded by a lack of awareness among people, and thus there is nopressure on the government either. On the other hand rent-seeking businesses act as acounter lobby to thwart implementation.

This understanding about competition regimes of eastern and southern African countriesis an outcome of the research that CUTS has undertaken in partnership with civil societyorganisations in seven countries of the region during a two-year research and advocacyproject. It was supported by the Norwegian Agency for Development Cooperation (NORAD),Norway and Department for International Development (DFID) UK.

This is the third project in a series of similar projects undertaken in the developing world ofAfrica and Asia. The first one: 7Up Project was implemented in India, Kenya, Pakistan,South Africa, Sri Lanka, Tanzania and Zambia, while the second one: 7Up2 Project wasundertaken in Bangladesh, Cambodia, India, Lao PDR, Nepal and Vietnam.

CUTS International initiated this project entitled, ‘Capacity Building on Competition Policyin Select Countries of Eastern and Southern Africa’ (also referred to as the 7Up3 project)with the dual objectives of assessing the bottlenecks that prevent effective implementationof competition regimes in the project countries; and enhancing the capacity of multiplestakeholders to comprehend the benefits of competition policy and law, as a means toeffectively implement national competition regimes.

The project countries: Botswana, Ethiopia, Malawi, Mauritius, Mozambique, Namibia andUganda are at various stages of development and implementation of their competitionregimes. While Ethiopia, Malawi and Namibia have competition laws and have recentlyestablished authorities to implement them, Mauritius is in the process of developing a newlaw. Botswana has embraced a competition policy, did an assessment of policy-inducedhurdles, and is now in the process of drafting a law. The draft Competition Bill of Ugandais doing the rounds of the policy circle and the Ministry in-charge is expected to table theCompetition Bill in the Parliament soon. Mozambique is quite keen to adopt a competition


policy, and has established a working group on competition policy to assist the Ministryof Trade in this endeavour.

Project activities were initiated in partnership with select civil society organisations ineach of the seven countries. Civil society organisations pioneered competition research atthe national level and engaged various stakeholders in the process of discussing the bestway forward for operationalising a competition regime for consumer welfare and economicdevelopment. Gradually, the partners were able to get the government agencies and policy-makers interested in discussing competition issues by sensitising them of the groundrealities of competition and consumer protection and familiarising them of the benefitsthat would accrue from developing an effective competition regime at the national level.Over the period of implementation of the project, ministries and competition authorities inthe project countries have realised that they lack the capacity and experience necessary forimplementing competition laws and have voiced their need for skills training on thesubject.

It has been observed, that the need to develop and implement a healthy competition regimehas been felt at the micro-level as an outcome of the research and advocacy work undertakenby the civil society in each project country, and has gradually permeated to the policycircuit in these countries – with a greater energy in some countries as compared to theothers. Hence the report bears the name - ‘From the Bottom Up’, indicating that the needfor competition reform in the project countries has been inspired by an understanding thatwas transferred from the bottom up.

One approach that the project has followed for making civil society better comprehend thebenefit of a healthy competition regime has been to trace the linkages between competitionpolicy with the wider policy context of private sector development, economic growth andpoverty reduction. This has been a hallmark of the project activities, both while undertakingresearch and also during the time of the national dialogues. The need for an effectivecompetition policy and law has been linked to promoting consumer welfare and industrialdemocracy.

This report charts out the competition scenario in the seven countries and highlights theweaknesses that require to be addressed for operationalising competition regimes in them.Information contained in the report should form the backbone for subsequent nationallevel interventions as far as competition and regulatory policy reform is concerned. Itstrongly recommends national governments to prioritise competition administration inthe framework of their national development strategies to promote economic developmentand as a means to reducing poverty and inequality.

Pradeep S MehtaSecretary General

CUTS International

17

IntroductionOver 1980s and 1990s, most developing economies inthe world, including those once committed to centraleconomic planning, made great efforts in theirprogression towards evolving market-orientedeconomic policy regimes. In this agenda for reform ofmost of these countries, however, development of acomprehensive legal and regulatory framework didnot receive adequate attention. This has often beenconsidered to be one of the reasons that these reformscould not generate the desired outcomes. The situationhas changed now, and an appropriate legal andregulatory framework, with competition policy andlaw as its integral part, is considered an essentialrequirement for proper functioning of a market-oriented economy.

It is well-recognised, nonetheless, that in order toachieve targeted policy objectives and to make thereforms succeed, competition laws and policies indeveloping countries must be well-adapted to theirnational development circumstances, taking intoaccount all the local economic, social, and culturaldimensions, etc. and by no means be a copy orderivative fashioned on developed-country style.Nevertheless, the basic principles underlying acompetition law remains more or less the same.Competition Laws are to be supported and promotedby efficient institutions, which are well-equipped withsufficient capacity and skills. Perhaps, the countryspecific differences can be reflected more in the realmof enforcement priorities rather than on the law itself.

Toward such policies and concomitant institutions,it is necessary, at the first instance, for developingcountries to foster public acceptance as well aswidespread participation and contribution of variousnational stakeholders into the policy-making process,and build up the capacities and skills of the [future]competition authority and complementaryinstitutions. In the whole process, it is important forthem to learn from their own experiences. Externally,sharing and comparing the learnings with otherdeveloping countries’ experience will also help themto overcome the impediments for having an effectivecompetition regime.

Strongly aware of the severe resource and capacityconstraints that developing countries are facing inthe path towards such a regime, CUTS Centre forCompetition, Investment & Economic Regulation(CUTS C-CIER) has taken up the initiative, codenamed‘7Up3 Project’. The current project is in the sequel to asimilar project entitled ‘7Up Project’ and ‘7Up2Project’. The Project endeavours to accelerate theprocess towards a well-suited competition law andpolicy, in select developing countries in Eastern andSouthern Africa, viz. Botswana, Ethiopia, Malawi,Mauritius, Mozambique, Namibia and Uganda; andadvance the environment in which the law and policycan be better enforced through various research-basedadvocacy and capacity-building activities.

The 7Up Project – a research and advocacy project oncompetition regimes in seven developing countriesthat concluded in 2003, had been very successful inraising awareness and stimulating debate on theseissues and help reforms in the project countries andbeyond. The success of the 7Up Projects motivatedCUTS to take up similar activities in other countriesas well. The 7Up2 Project and the 7Up3 Project ofCUTS are in response to this.

The 7Up3 project is jointly supported by theNorwegian Agency for Development Cooperation(NORAD), Norway; and the Department forInternational Development (DFID), UK.

All 7Up3 project countries are pursuing market-oriented reforms, which entail an explicit need for aneffective competition policy and law. Given the localcapacity and resource constraints, technicalassistance is needed. The integration and co-operationprocess of these countries into regional andmultilateral economic systems has underscored theneed. Moreover, given the strong similarity andcomparability between these countries as regards thelevel of economic development, the local socio-politicalcontexts, etc., a comparative study and integratedadvocacy-cum-capacity-building programme amongthem will be a practical approach to cross-fertilise andconsolidate expertise and resources from theperspectives of developing countries, helping to

Synthesis Report

Chapter 1Competition Administration in Eastern &Southern Africa: Taking the Right Steps


achieve synergies and contribute to policy andperformance developments in the area of competitionthem. CUTS, as a developing country-based research-cum-advocacy group with rich experience oncompetition law and policy and a vast network ofcontacts in the developing world, can stand out asthe optimal deliverer of the needed technicalassistance to the project countries.

Taking up the mission of Promoting effective marketsthrough competition policy & law, the project envisionsa long-term cause towards a competition culture foreconomic development. The main objective of thisproject is to bring about development in competitionlaw and policy and implementation performance inproject countries viz. building up capacities ofpolicymakers, law enforcers, civil societyorganisations (CSOs), consumer movements, andother stakeholders concerned. The Project advocatesfor the enactment of competition legislation whereabsent and the effective implementation of those inplace. The Project is being implemented with thefollowing immediate goals:• build capacity on competition issues for the

purposes of national, regional and internationallevel policymaking; and

• raise awareness and stimulate discussion anddebate on domestic competition issues amongdifferent national stakeholders.

and the following specific objectives:• conduct an evaluation of the competition concerns,

including their regional dimensions, facing thesecountries and the existing architecture for dealingwith those concerns by identifying key constraints;

• develop the capacity of all the stakeholdersincluding the policy makers, regulators, CSOs,particularly consumer groups, academics andmedia persons to understand and appreciatecompetition concerns from national as well asregional and international perspectives;

• provide inputs for drafting new legislation orreforming existing legislation, drawing on bestpractice from other countries;

• prepare and distribute materials on competitionpolicy and law widely to raise national awareness;

• identify key stakeholders to form andinstitutionalise a national reference group (NRG)in each project country to organise meetings/trainings; and

• help build constituencies for promoting competitionand consumer awareness by actively involving andbuilding capacity of policy makers, CSOs,academics and media persons.

Implementation and management is structurallymodelled after the 7Up1 Project, which has been

recognised among relevant circles for its uniquenessas well as effectiveness in promoting similarobjectives*. This involves partnering with renownedresearch and advocacy institutions in the projectcountries and undertaking project activities bydrawing from expertise of a Project AdvisoryCommittee comprised of prominent experts oncompetition to provide guidance and consultations.CUTS, in addition to the pivotal role of co-ordinatingand monitoring the project, is also providing theneeded expertise to the beneficiaries for realising thetargeted results. The Africa offices of CUTS based inLusaka and Nairobi have been especially effective inthis regard.

MethodologyResearch and advocacy are two pillars of the Project.Research has been carried out in each country toidentify the macro-economic and institutional contextof competition and particular concerns and issuesthat arise. Every country has different competitionconcerns. For example, a land-locked mid-sizeddeveloping country like Ethiopia with apredominantly agrarian and poverty-strickeneconomy would have competition concerns, whichcannot be the same of that of a small island countrylike Mauritius, which has a service-oriented andrelatively more developed economy with agricultureplaying a minor role. Thus, research is essential toformulate the advocacy agenda as well as the capacitybuilding/training requirements.

Country research partners have conducted researchactivities in Project countries, based primarily uponsecondary information, empirical/case study andsome field surveys. Some interviews scanning of mediareports, and regular interactions with governmentofficials have also been carried out in this regard.

The objective of the research was to collectinformation on market players and sources ofcompetition failures in several markets (e.g. rivalryand pricing policies, innovation, and structural andbehavioural impediments to competition). Effortswere also made to identify indicators that aretraditionally used in the literature from which onecan infer on market power such as levels of marketconcentration, price, mark-ups etc. This output hasbeen complemented by a review of the existing legaland institutional framework to foster competition,including regulatory measures, consumer protectionmeasures, etc. For countries where a competition lawor a draft competition law has been formulated, it hasbeen analysed against the wider current context,concern,s and needs.

*OECD DAC prescribes donor agencies t prmote the 7Up approach while engaging oncompetition policy an law initiatives in the developing world.

19

The most important concrete outputs are the countryreports for the selected countries and the synthesisreport. The country reports deal with various aspectsof competition issues, specific to the countries andthus, will become an important guide for designingand/or implementation of the competition policyand/or law in those countries. They would also provehelpful to other groups of stakeholders not involvedin the policy-making and its implementation, butinvolved in the process of facilitation.

The synthesis report will take a broader approachfocusing on specific aspects rather than incidents,which will be used to understand the issues inperspective. It will also deal with issues of regionalpolicy-making wherever appropriate, but will behelpful to national level policymakers not only in theproject countries, but also in other developingcountries.. In addition, some occasional publicationswill also be made, depending on the felt needs duringthe implementation of the project.

The Project is now in its second stage, comprising oftwo components: advocacy and training. The activitiesto be implemented in the Stage-II of the Project woulddeal with disseminating the findings of the researchphase-I (Stage-I) of the Project by undertaking specificadvocacy activities.

The Stage-II of the Project would also conduct specific‘training and capacity building’ in the projectcountries based on the findings from the researchphase; discussions in the NRG meetings; discussionswith the key stakeholders (partners, NRG members,Project Advisory Committee members andgovernment representatives) in the project countries;and inputs received from the research and advocacypartners in the project countries. Third and fourthround of NRG meetings would be organised onspecific topics that accord attention in each of theproject countries (as revealed from the countryresearch, discussions in NRG meetings and withconversation with key stakeholders; also to bediscussed with partner organisations beforefinalisation). There will be several trainingworkshops: one at the regional level and one in eachof the project countries. In addition, there is a plan todevelop a ‘Competition Law Tool-kit’ in collaborationwith the national government departments/agenciesas a reference document for implementation of thecompetition legislation, or developing it in countrieslike Botswana, Mozambique, and Uganda.

This Report: A SynthesisThis report contains an analysis and synthesis of theinformation gathered and research done during theimplementation of the project. The main sources of

information for this report are the individual countryreports, and the deliberations in the NRG meetings,and the review meeting. However, other secondarysources have also been widely consulted. Wheneverfelt appropriate, references have been made toexperiences of other countries as well.

The rest of this report is divided into seven chapters.Chapter Two provides a socio-economic overview ofthe project countries and points out the differencesand commonalities within the group. Chapter Threefocuses on the similarities and differences amongproject countries in terms of market structure andnature of competition therein. Chapter Four presentsan overview of regulatory mechanisms of projectcountries and provides a comparative analysis acrosscountries, focusing on critical issues like privatisation,power and autonomy of regulators etc. Chapter Fiveprovides a comparative view across project countrieson the prevalence of most common anticompetitivepractices and the way they have been dealt with.Chapter Six gives a brief account of the perspectivesand perceptions of project countries’ nationalstakeholders on competition policy and law, theprevalence of anti-competitive practices, the desiredcontent of the law and policy, as well as desiredstructure and power of the competition authority, etc.Finally, chapter Seven examines the current status ofdevelopment as regards competition policy and lawat national and regional levels and on that basisprovides some recommendations to take care ofexisting and potential competition concerns.

The Political Economy ContextSince competition policy and law (CPL) aims to createand protect a competitive environment in the market,they have to necessarily work in conjunction with thepolitical, economic and social background of aparticular country, because their combinationconstitute the competitive structure of the market.Therefore, it is argued that harmonisation andlinkages between competition law and othergovernment policies are essential for meeting theobjectives of CPL. The manner in which an optimalinterface between competition law and other policiescan be achieved remains a debatable issue.1

Nevertheless, it would be useful to look into thepolitical economy and public policy context of the7Up3 countries.

The 7Up3 countries have a number of commonfeatures as well as dissimilarities. Among the sevencountries, four are designated as least developedcountries (LDCs), while three are developing. Itincludes the third largest (populated) country ofAfrica, as well as one of the smallest countries,Mauritius. Moreover, while Ethiopia with a per capita

1 See World Bank and OECD, A Framework for the design and Implementation of Competition Law and Policy, 1998.

Synthesis Report


2 The term Gross National Income (GNI) is frequently used for the term Gross National Product (GNP).

gross domestic product (GDP) ofabout US$100 is one of the poorestcountries of the world, Mauritius,with a per capita GDP in excess ofUS$4000 is the richest country inAfrica.

Three of the countries, Ethiopia,Malawi, and Uganda, have ahistory of command and controltype one-party rule; while onecountry, Mozambique has a historyof protracted civil war and large-scale destruction. Two of them,Botswana and Mauritius haveshown vibrant democracy, politicalstability and are among the best-governed countries in Africa, sincetheir Independence in the 1960s.They also happen to be the richest countries in thecontinent. Namibia is a young nation, having acquiredfreedom as late as in 1980. Since then, however, thecountry has been governed with functionaldemocracy, political stability and respect for civilrights. It is also the third richest country in the 7Up3group, though much behind Mauritius and Botswana.

Four countries, Botswana, Ethiopia, Malawi andUganda are landlocked, while one is an island nation.Two of them, Ethiopia and Malawi are largely hilly,while deserts cover Botswana and Namibia. Ethiopiaalso has its share of desert. Uganda is possibly thegreenest of the lot, while Malawi and Mauritius arealso relatively green, not due to forest cover, but dueto cultivation. Malawi and Uganda are also well-endowed with rivers and water bodies.

Area wise, all countries are rather small in size thoughthere is enormous variation. Population wise too, thereis large variation with Ethiopia having a population

of more than 70 million, while Mauritians total justmore than a million. Botswana and Namibia are alsoquite closer to Mauritius with population being nearto two million. Malawi, Mozambique and Ugandacome in between in an ascending order, andinterestingly close to 10, 20 and 30 million,respectively. By the African Standard, Mauritius andEthiopia are quite densely populated, though;population wise, Mauritius is the smallest country,while Ethiopia is the largest among the groups.Ethiopia adds about two million people to itspopulation every year, which is equivalent to theNamibian population and almost double theMauritian population.

Though all are developing countries, there are widevariations in terms of per capita income. WhileBotswana, Namibia and Mauritius have per capitaincome of more than US$2000, the remaining othershave less than US$300. However, one positive thingabout the economic situation concerns their growth

rates. The poorer countries are growingfaster than the richer countries, except inthe case of Malawi. Mauritius is the richestcountry, but is experiencing the lowestgrowth rate in the group along withMalawi. Mozambique has the highestgrowth rate in the group, which is morethan seven percent. Even Ethiopia andUganda are growing faster than Botswana,which has the highest growth rate amongthe richer three.

Economic StructureAs regards economic structure, thedivergence is quite stark. The richercountries in the group, particularlyBotswana and Mauritius, have an

0

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Botswana Ethiopia Malawi Mauritius Mozambique Namibia Uganda

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Figure 1.1: GNI 2 Per Capita of 7Up3 Countries

0

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Figure 1.2: GDP Growth Rate 2002-2006 (in %)

GDP Growth Rate (%) 4.639939653 5.090701963 3.651026424 3.622916261 7.652312185 3.508289504 5.877289846


21

economic structure similarto most in the developedworld, as their share ofagriculture in GDP is onlytwo and six percent,respectively. In Mauritius,the service sector accountsfor as high as 64 percent ofthe GDP, while in Botswanait is 54 percent. Namibianstructure is also quitesimilar with an agriculturalshare of 11 percent. At theother extreme is Ethiopiawhere agriculture accountsfor 46 percent of the GDPand the share of industry is merely 10 percent, whichis the lowest in the group. Botswana has the highestshare of industry in the GDP, while Mauritius andMozambique are the only other countries that have ashare of industry exceeding 30 percent levels.

All of these countries have a history of significant stateparticipation and intervention in economic affairs. Fora brief period though, the state had absolute controlin Ethiopia, Mozambique and Uganda. However,some of the other countries in Africa, who did notofficially embrace socialism or communism, were notvery different from the socialist/communist countriesas they also imposed tremendous state control, one-party rule, or even a President for life, and repressionof political freedom – Malawi being an example. Thereflection of this past can be seen in the economicstructure of these countries even today, though all ofthem have adopted a market-oriented economic policyregime.

Industrial PolicyIn terms of industrial policy, most of these countrieshave undergone drastic changes over the last coupleof decades or so. The winds of change started blowingfrom the mid-eighties, though visible changes tookplace much later in some of these countries. The overallindustrial environment became much more liberalisedand setting-up a business much easier, thoughsometimes retarded by procedural delays.

In most of these countries there are, generally, nolicensing requirements as such except in Botswanaand Mozambique. However, Botswana has anindustrial licensing policy, which is too outdated. Thelicensing authority can refuse licence on grounds ofa lack of technical skills or inadequate availability ofraw materials. The country also has the practice ofgranting an exclusive licence. Licence can be refusedon the ground of potential adverse impact on publicinterest as well. More strangely, in an industry wherefour or more manufacturing enterprises are alreadyoperating, licence can be given only after the writtenapproval of the relevant minister. Though the

government is considering some changes in thisregard, the nature and extent of such changes are notyet clear.

In Mozambique also, licensing requirements are toomany and the process is also quite lengthy, involvingsignificant discretion and arbitrariness. In Mauritius,though, there is no licensing requirement as such;many of the industries are still reserved or highlyregulated including being subject to price control.

It is, however, interesting to note that Botswana hasone of the stricter licensing regimes for industriesamong the 7Up3 countries. It is well-known that afterindependence while most African countries adoptedauthoritarian command and control regimes,Botswana followed a different path with democracyand a relatively more market-oriented economic policyregime. Today, most of the countries have more or lessreversed their economic policy be it under the pressureof international financial institutions or their ownvolition, while Botswana changed little and hencebecome a country with a relatively more regulatedeconomic policy regime. It is also well known thatBotswana is one of the best performers in Africa. Stablepolitical and economic policy environment mighthave contributed to that.

Trade PolicyExcept Ethiopia, all 7Up3 countries are foundingmembers of the World Trade Organisation (WTO).Three of them, Botswana, Malawi and Mauritius hadbeen members of its predecessor General Agreementon Tariffs & Trade (GATT) for decades, while the otherthree joined either in the late eighties or early nineties.Ethiopia is an observer of the WTO, and requested foran accession to the WTO circulated in January 2003,and the WTO General Council established a WorkingParty on 10 February 2003. But, Ethiopia has not yetsubmitted a Memorandum on the Foreign TradeRegime. The Working Party has not yet met. Ethiopia,is however, a member of the Common Market forEastern and Southern Africa (COMESA).

Synthesis Report

Figure 1.3: Percentage share in GDP(2004)

2

46 39

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32

44

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Botswana Ethiopia Malawi Mauritius Mozambique Namibia UgandaCountry

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3 At present its 14 member states are Angola, Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mauritius,Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe.

All countries are, nonetheless, party to the EuropeanUnion (EU)-African, Caribbean and the Pacific (ACP)arrangement. It is an ambitious co-operationprogramme between members of the EU and 71countries of the ACP. It is based mainly on a systemof tariff preferences, which give these countries accessto the European market and special funds, whichmaintain price stability in agricultural and miningproducts. It started in 1975, when the first LoméConvention was signed in Lomé, Togo. The CotonouAgreement (signed in Benin, June 2000) succeededthe Lomé Agreement. One of the major differenceswith the Lomé Convention is that partnership isextended to new actors like civil society, private sector,trade unions, local authorities, etc. These actors willbe involved in consultations and planning of nationaldevelopment strategies, provided with access tofinancial resources, and involved in theimplementation of programmes. Countries are,however, engaged in negotiations for deeperintegration within the Cotonou Agreement framework.Four countries of the group, Ethiopia, Malawi,Mauritius, and Uganda, are members of the COMESA.It, however, has two levels trade integration. Somecountries of the COMESA have adopted a Free TradeAgreement (FTA)with deeper integration. Among thefour countries, Malawi and Mauritius are party to theFTA, while Ethiopia and Uganda are not.

Five countries in the group are members of anotherregional group of the region, the Southern AfricanDevelopment Community (SADC). These areBotswana, Malawi, Mauritius, Mozambique, andNamibia. SADC is a regional organisation of 14Southern African countries.3 Two of these countries,Botswana and Namibia are also members of theSouthern African Customs Union (SACU), which havethree other countries as members – all of which arealso members of SADC. They are thus pretty closelyintegrated with South Africa, the largest market ofthe continent. Only one project country, Uganda, is aparty to another regional grouping, the East AfricanCommunity (EAC). The group is, however, relativelysmall as only two other countries, Kenya andTanzania, are its members. Botswana is the onlycountry in the project that has a bilateral FTA withanother country of the region – Zimbabwe. Thus,Botswana seems to be the most open country in theproject and Ethiopia, arguably, is the least open ofthe lot.

Competition Policy and LawNational ScenarioThough the importance of competition in the marketis recognised by all countries in the 7Up3 project, it isonly Botswana that has adopted a structured

competition policy. But, it is yet to adopt a competitionlaw. Elsewhere, all the other countries save forMozambique and Uganda have already adopted acompetition law, though only recently. Botswana,Uganda and Mozambique, are in the process ofadopting a competition law. Uganda has alreadydrafted a law and the same is being debated in thecountry. The exact status of Botswana andMozambique is not yet clear, though they are believedto be in the process of adopting a competition lawsoon. However, with the adoption of a competitionpolicy, Botswana has already indicated the broadcontours of the forthcoming law.

Botswana: Botswana does not have a competition law.However, the need for a competition policy and lawhas long been recognised. The country has alreadyadopted a competition policy. This will be followedby the development of the competition law.

The Economic Mapping Study, which informed thedevelopment of Botswana’s competition policy,identified some laws that regulate entry into generalbusiness or entry into particular business sectors inBotswana. Obviously, these laws have a direct impacton the limits to competition in the market.

The Botswana government has identified severallegislations (54, to be precise) which would requirerevision to facilitate the adoption and effectiveimplementation of the competition policy.

Ethiopia: The Ethiopian government issued a TradePractice Proclamation (No. 329/2002), in April 2002,which was proclaimed on April 17, 2003, underproclamation No. 329/2003, to promote competitionin the domestic markets, is the competition law of thecountry. Its major objective was to secure a faircompetitive process through the prevention andelimination of anti-competitive and unfair tradepractices (UTPs), and safeguarding the interests ofconsumers, through the prevention and eliminationof any restraints on the efficient supply anddistribution of goods and services.

The salient features of the proclamation are generallymeant for the prevention and elimination of anti-competitive practices in the market and protection ofconsumer interests. They include:

• any agreement that restricts, limits, impedes orharms free competition, in the process ofproduction or distribution, is regarded as anti-competitive. It includes jointly fixing prices,collusive tendering as to determine market prices,market or consumer segmentation, allocation of

23

Table 1.1: Landmark Changes in Economic Policies from 1985 Onwards

Country

Botswana

Ethiopia

Malawi

Mauritius

Major Changes

The Industrial Development

Act 1998

The Companies Act 1995

The Trade and Liquor Act

1993

Change in Regime 1991

Industrial DevelopmentStrategy (Adopted since 2001)

The Integrated Trade andIndustry Policy (ITIP) 1998

MPRS 2002

Industrial Expansion Act, 1993

Comments

Botswana’s industrial development policy is broadlyconcerned with diversification of the economy. Theprovisions relating to exclusive manufacturing licensesunder the Act are not seen to be compatible with thecurrent international trading environment and,particularly, with Botswana’s commitments under theWTO.

The Act is the key statute regulating market entry or theestablishment of a business in Botswana. A review ofthe Act commissioned has been completed and a newlaw is in the offing, proposing drastic changes in therules, regulations and procedures of incorporation andregistration, management and administration of somecompanies, and shareholding and dealings in shares.

Regulated entry into businesses for the supply of goodsand services, mostly to end-users. In order to promote avibrant, competitive trading environment, provision forsetting up a tribunal or a competition regulator is verymuch felt.

As a result of the change in regime Ethiopia abandonedsocialist economic system and made transition to amarket-oriented economic system

Recognised private sector as an engine of growth andindustrial development. Among the fundamentalprinciples, emphasised on the coordination betweengovernment and the private sector and government’scommitment towards creating enabling an environmentfor the private sector. Identified priority sub-sectors todrive the industrialisation process.

To increase competition in the utilities sector, policyencourages private sector participation intelecommunications and in the provision of electricity.However, provides for companies belonging to the sameowners to collude rather than compete with each other.

Malawi Poverty Reduction Strategy (MPRS) recognisedthe private sector as the driving force for growth, withGovernment, NGOs and donors as facilitators of growthby helping establish an enabling environment.

Schemes were set up under the Development Bank ofMauritius to finance projects that would not meet thelending criteria required by commercial banks atsubsidised interest rates. Abolished custom duties onraw materials

Synthesis Report


Table 1.1 (Contd): Landmark Changes in Economic Policies from 1985 Onwards

Country

Mozambique

Namibia

Uganda

Major Changes

SMIDO 1994

Economic RehabilitationProgramme 1987

Mozambican Industrial Policy,1997

White Paper on IndustrialDevelopment of August 1992.

EPZ Act 1995

National Policy andProgramme on Small BusinessDevelopment 1997

SAP 1981

End of Civil War 1986

ERP 1987

Comments

The objective of Small and Medium IndustriesDevelopment Organisation is to provide direct supportto small and medium enterprises in upgradingmanagerial, technical and marketing skills.

It was essentially structural adjustment programme(SAP) of the International Monetary Fund (IMF) andthe World Bank (WB). Later in 1989, it was renamed asEconomic and Social Rehabilitation Programme (ESRP).The objective was to create a market-oriented economyand included stabilisation measures such as fiscaladjustments, monetary restraints and devaluation ofthe currency as well as price and trade liberalisation.

Provides no instruments that would allow thegovernment to implement its policies and mobilisecooperation of the private sector.

Prevented further creation of monopolies by exposingindustry to import competition. Limited Governmentintervention in the market to situations where it ismeant to control monopolies, based on non-economicfactors and unfair competition, such as dumping. Anew industrial development policy is being workedupon.

The Act provided for setting up Export ProcessingZones (EPZs) for encouraging export of manufacturedproducts. But due to regional restrictions onimportation of products produced under the EPZsregime, the realities on the ground have beendisappointing.

The main objectives were promoting employment,reducing poverty and inequality, increasing growthand economic diversity. Another important objectivewas to help historically disadvantaged persons.

The SAP failed to revive the economy amidst civil warleading to collapse of the programme and military coup.

New government established over a platform ofnational unity and broad-based economic reform.

Economic Recovery Programme (ERP), a standard IMF/WB SAP with financial assistance from the IMF, theWB and bilateral donors.

Source: 7Up3 Country Reports (www.cuts-international.org/7up3.htm).

25

Table 1.2: Landmark Changes in Investment Policy from 1985 Onwards

Country

Botswana

Ethiopia

Malawi

Mauritius

Mozambique

Namibia

Uganda

Major Reforms

National Competition Policyfor Botswana, 2005

The Companies Act 1995

Reservation Policy 1999

Investment Proclamation, 2003(Amended several times)

Investment Promotion Policesand Legislations, developedand adopted in early 1990s

Investment Promotion Act2002

Legislations AllowingEstablishment of Free Zonesfor Exports OrientedInvestments

The Foreign Investment Act1990

Investment Code of 1991

Uganda Investment Authority(UIA), 1991

Comments

Provided a transparent, predictable and internationallyacceptable regulatory mechanism, encouraging foreigndirect investment (FDI).

A review of the Act provided a regulatory frameworkencouraging a competitive or less restrictive commercialenvironment facilitating domestic flow of foreigninvestment

The policy restricts competition from foreign companiesin some areas of commercial manufacturing,construction and services activities and also serves toreserve a few industrial activities for citizens.

Encouraged private sector investing in areas formerlyreserved for the government – defence industries,hydropower generation, and telecommunicationsservices. In reality, investment in telecommunicationsand defence must be in partnership with the EthiopianGovernment besides nearly 200 state-owned enterprises(SoEs) have yet to be privatised.

Attracted foreign and domestic investment by offeringfiscal and administrative incentives.

Net FDI flows were quite erratic past decade due to therising labour cost hence, the Board of Investment (BoI)was set up in March 2001, to act as a one-stop-shop forall investments.

Administrative, legal and systemic barriers contributedin attracting investments that capitalise on abundantlabour resources. Hence, generous investmentincentives are being offered to attract foreigninvestments in the country.

Incentives given to entrepreneurs investing inmanufacturing activities helped create environmenttowards attracting FDI. Act established the NamibianInvestment Centre which together with the OffshoreDevelopment Company promoted EPZ regime and thegeneral export-based industrialisation strategy ofNamibia.

Harmonised all tax benefits under new incentivesregime so that eligible investors enjoy the benefitsdirectly without need for a certificate of incentives aslong as they make investments of a capital nature.

Among core functions of UIA is attracting FDI into thecountry and promoting investments by Ugandans. Therole, however, changed to a one-stop centre forprospective investors.


Synthesis Report


quota of production and sales, refusal to deal, selland render services, etc;

• in the course of commercial activities, any practicethat aims at eliminating competitors throughdifferent methods is considered an unfair practice;and

• unfair imposition of excessively high or low sellingprice or service fee, or withholding supply or anypre-emptive behaviour to impede entry intomarkets; misleading commercial statements ornotices; hoarding, diverting or withholding goodsfrom normal trade channels; selling at a price thatdoes not cover production cost to eliminate faircompetition, etc, are regarded as abuse ofdominance.

The proclamation also deals with other aspectsrelated to competition, such as indication of prices ofgoods, labels on goods, distribution of basic goods,issuing and keeping receipts, etc.

Malawi: In the 1990s, the Malawi government adopteda policy of economic liberalisation and formulated acompetition policy. The competition policy for Malawiwas approved in 1997 with a broad policy objectivein promoting economic efficiency and protectingconsumer interests, comprising of three broadstrategies namely lowering barriers to entry, reducingrestrictive business practices (RBPs), and protectingthe consumer.

The policy called for the enactment of a law that wouldmake unfair business behaviour an offence and alsoprotect the consumer by making a manufacturer orimporter punishable for defective or sub-standardproducts or services. It also called for the establishmentof a trade remedial system where civil and criminalsuits for the purpose of recovery of damages sufferedas a result of an uncompetitive or RBP could be dealtwith. The government’s effort is evident from theresultant enactment of a Competition and Fair TradingAct (1998), which was brought into legal force onJanuary 28, 2000, and the Consumer Protection Act(2003).

The Competition and Fair Trading Act (1988) aims atencouraging competition in the economy byprohibiting anti-competitive trade practices;providing for the establishment of the CompetitionCommission; regulating and monitoring monopoliesand dominant firms; protecting consumer welfare;strengthening the efficiency of production anddistribution of goods and services; securing the bestpossible conditions for the freedom of trade; andfacilitating the expansion of the base ofentrepreneurship, among others. A competitionauthority (Malawi Competition and Fair TradeCommission) has been established under the Act.

The commission is primarily concerned with theestablishment of conditions that enhance free andeffective competition in the economy, to ensure thatthe anti-competitive practices do not create newbarriers to trade or other forms pf protectionism. Thecompetition rules set down minimum standards andallow enterprises to penetrate markets and establishthemselves without barriers or restrictions therebyfacilitating intra-market trade and cooperation. Thecompetition law operates to protect the competitiveprocess in the market rather than competitors.

The Commission is headed by 10 Board ofCommissioners from the private sector, governmentagencies and ministries, labor unions, consumerassociations and professional institutes. The Chairof the Board is elected from among the Board ofCommissioners. The Minister of Trade and PrivateSector Development appoints the Commissioners fora period of three years.

The Board of Commissioners is the decision-makingcouncil of the Commission. The secretariatinvestigates transactions and presents to the Boardfor decision-making.

The Board of Commissioners appoints the ExecutiveDirector, who is the Chief Executive Officer of theCommission. Four Directorates of Mergers andAcquisitions, Consumer Welfare and Education,Enforcement and Compliance and Finance andCorporate Services support him.

The Malawi Competition and Fair Trade CommissionSecretariat has been operational for a little over a yearand has been engaged in developing internal capacityon technical issues related to competitionadministration. Simultaneously, some investigationshave also been undertaken by the MCFTC, viz. in thepertoleum market.

Mauritius: The Competition Act was passed in theNational Assembly, on April 1, 2003. The objective ofthe Act is to establish the legal framework for thecontrol of RBPs, with a view to enhance competitionin Mauritius, through measures designed to promoteefficiency, adaptability and competitiveness in theeconomy. The purpose is to widen the range ofcustomer choice in obtaining goods and services atfairer, more competitive prices. The Act covers fourtypes of RBPs, namely abuse of monopoly power,collusive agreements, anticompetitive agreements,and bid-rigging.

The Act also establishes an Office of Fair Trading(OFT), a Competition Tribunal, and CompetitionAdvisory Council. The main objectives of theCompetition Advisory Council are to:• advise the Minister on matters relating to RBPs, with

emphasis upon consumer protection;

27

Table 1.3: Landmark Changes in Trade Policy

Country

Botswana

Ethiopia

Malawi

Mauritius

Major Reforms

WTO 1995

SADC 1992

SACU agreement 1970

Botswana-Zimbabwe TradeAgreement 1988

Comprehensive Trade ReformProgram, 1993

COMESA 1993

WTO

Key Trade Reforms1988 - 1998

WTO 1995

The Integrated Trade andIndustry Policy (ITIP) 1998

COMESA 1993

SADC 1992

Import Liberalisation 1986-88

Import Liberalisation 1991

Comments

Member of GATT Since 1987.

Botswana has been a member of SADC since 1980. Itstrade policy as regards SADC has been such whichaims at progressive elimination of barriers to enablefree movement of capital, labour, goods and services,which essentially encourages competition within theBotswana market.

Governs Botswana’s tariff policy, allows it to impose aSACU duty on all goods coming from non-SACUmembers.

Considered stringent, and is seen as restricting traderather than facilitating trade and hence not encouragingcompetition as expected of a trade agreement.

Dismantled quantitative restrictions (QRs), reduced thelevel and dispersion of tariff rates. Currently,quantitative import restrictions are applied only to usedclothes, harmful drugs and armaments for securityreasons.

Not a party to COMESA FTA.

Requested for an accession to the WTO which wascirculated in January 2003, and the WTO GeneralCouncil established a Working Party on February 10,2003.

Key reforms, which substantially liberalised trade,included eliminating non-tariff barriers (NTBs),consolidating the tariff structure, reducing tariffprotection, liberalising the export regime.

Member of GATT since 1964.

Supported use of import procurement via multilateraltrade agreements, preferential trade agreements andregional as well as bilateral trade arrangements.Advocated use of countervailing duties and anti-dumping measures and safeguards to protect domesticmanufacturers, producers and traders.

A party to COMESA FTA 2000.

Trade Protocol calls for removal of intra-regional tariffsby 2008 except in ‘sensitive products’.

Phased reduction in external tariffs caused domesticproducers to face more competition from imports.

Import liberalisation and reduction of protection forlocal firms started with the progressive dismantling ofquantitative import restrictions. Import licensing waseliminated for all except a limited range of productssubject to health, sanitary or strategic controls.

Synthesis Report


Table 1.3 (Contd): Landmark Changes in Trade Policy

Country

Mozambique

Namibia

Uganda

Major Reforms

WTO 1995

COMESA 1993

SADC 1992

ERP 1987

WTO 1995

SADC 1992

WTO

SADC 1999

SACU 1970

WTO 1995

EAC 1999

COMESA 1993

Comments


Party to COMESA FTA 2000.


Included substantial trade liberalisation.



WTO membership led to progressive reductions in allkinds of trade-restricting practices. GATT member since1992

Trade Protocol calls for the removal of intra-regionaltariffs by 2008 except in ‘sensitive products’.

Agreement helped Namibia to secure its major marketi.e. South African market, thereby allowing Namibianindustrial planners and business to plan for the widerregional market.


Customs Union with Kenya and Tanzania withcommon external tariff by 2009.

Not a party to COMESA FTA. Plans to join soon.


• promote activities to raise the awareness of thebusiness community and consumers on competitionand related matters;

• maintain effective communication with the businesscommunity and consumers’ associations; and

• promote research in emerging trends in the field offair competition and best business practices.

However, no regulations have been formulated yet, toset up the new institutions foreseen by the Act. Actionwas initiated to fill the post of Director of the OFT(Ministry of Commerce and Consumer Protection,December 2004). However, since then, the governmenthas changed after General Elections in the country.The new government has decided to review the lawand formulate a new law for the country. Two draftlaws have been prepared quite interestingly, and it isobserved that the choice of the la would depend onwhether the Department of Consumer Protection isretained in the Ministry of Women's Rights, ChildDevelopment, Family Welfare and Consumer

Protection, or shifted under the Ministry of Industryand Commerce. It is expected that Parliament wouldadopt the law in the first quarter of 2007.

Mozambique: A recent (March 2004) study supportedby the United States Agency for InternationalDevelopment (USAID) recommended the adoption ofa staged approach for developing a competition lawin Mozambique. It further prescribed the law to focusexclusively on the prohibition of price-fixingbehaviour, and suggested the newly establishedcompetition agency to take up competition advocacyas a priority activity.

Further, a ‘working group’ within the Ministry ofTrade and Industry was required to be established toserve as focal point for garnering support, funding,assistance, training, education, and constituencybuilding. The following tasks were recommended forthis ‘working group’:

29

• develop a competition law proscribing nakedcartels, prohibiting price-fixing, and empoweringa competition agency to review a proposed bill orstatute within the government.

• begin developing a competition policy for thecountry.

• examine alternatives to competition lawenforcement.

• plan for a Competition Agency (Authority), whichis independent; gradually extends its scope ofenforcement; embrace competition advocacyfunctions.

The Ministry of Trade and Industry (MTI) inMozambique has started preparing the ground for acompetition policy to become a reality by 2006, andhas plans to subsequently draft the competition lawfor the country. The Ministry has appointed twoofficials of the designation of Directors to oversee allactivities pertaining to competition policy and law inthe country. A 20 odd members ‘working group’,comprising of various stakeholders including civilsociety organisations (CSOs) with basic orientationof competition policy and law has also beenconstituted. This working group has been meetingregularly and discussing plans of action.

Namibia: Competition policy was introduced in 2003through the Competition Act of 2003 (Act No. 2 of2003). In the past, the Regulation of MonopolisticConditions Amendment Act, 1958 (Act 14 of 1958)have regulated competition issues in Namibia..However, this is a South African Act, which was notapplied in Namibia after independence.

Over time, the government recognised the urgentnecessity for a competition policy and, with theassistance of the EU, commissioned a study, whichdrafted the Competition Bill in 1996. The governmentthen established the Steering Advisory Committee onCompetition, which widely discussed the Bill withall stakeholders. The Competition Act (Act No.2 of2003) was passed on April 24, 2003.

The rationale behind competition policy is marketfailure resulting from market power and externalities.However, the emphasis of competition policy is onmarket failure arising from the abuse of market power.Apart from enhancing efficient allocation of resourcesand protecting the public interest, the objectives of theAct include:• to promote efficiency, adaptability and development

of the Namibian economy;• to provide consumers with competitive prices and

product choices;• to promote employment, and advance the social

and economic welfare of Namibians;• to expand opportunities for Namibian

participation in world markets whilst recognisingthe role of foreign competition in Namibia;

• to ensure that small undertakings have an equitable

opportunity to participate in the Namibianeconomy; and

• to promote greater spread of ownership, inparticular to increase ownership stakes ofhistorically disadvantaged persons.

The Namibia Competition Commission (NaCC) hasbeen established under the provisions of the country'scompetition act. The Commission comprises of aChairperson and 4 members elected from variousstakeholder groups (viz., private sector and academia).

Presently, the Rules and Regulations of theCommission is at an advanced stage of finalisation.Members of the Commission have also been providedthe opportunity to participate in internationalconferences and training workshops on competitionpolicy to develop thier understanding and knowledgeon competition issues, and also for the purpose ofgetting them in touch with the larger competitioncommunity for acquiring development support.Finanial resources have been allocated for the NaCCby the Ministry to help the Commission carry out itsplanned activities.

Uganda: There is currently no competition law inUganda. The good news in the gloom is that Ugandahas drafted the Competition Bill 2004. Stakeholdersat a one-day workshop deliberated upon this Bill onOctober 19, 2004, with support from the COMESA.The draft Competition Bill 2004, when finally enactedand enforced is expected to:• foster competition in the Ugandan market;• protect consumer interests, whilst safeguarding the

freedom of economic action of various marketparticipants;

• prevent practices which limit access to markets orotherwise unduly restrain competition, affectingdomestic or international trade or economicdevelopment; and

• establish a Competition Commission in Uganda.

The draft Bill is composed of ten parts and 56 sectionsentailing: interpretation; establishment of theCommission; formation; functions; procedures andjurisdiction of the Commission; anti-competitivepractices; offences; obligations; competition advocacy;and funds, amongst others.

The draft Bill was developed with the adoption ofand alignment with other national, regional andglobal competition policy, legal and institutionalframeworks. For instance, issues of cross-bordermergers were left to the (EAC) framework. Theprocedure was adopted from the EU CompetitionDirective. However, there has been no movementforward with respect to the Competition Bill whichwas scheduled to be tabled in the Parliament, in 2005.A Cabinet Committe has been reported to havereviewed the Bill and has send it back to the Ministryfor fine tuning.

Synthesis Report


Regional Initiatives

COMESAAs part of the regional integration effort mandated inits treaty, the COMESA Secretariat has developed aregional competition policy. The aim of the policy isto ensure transparency and fairness among economicactors in the region. It is claimed that the policy isconsistent with the provisions and intent of theCOMESA Treaty and with internationally acceptedpractices and principles of competition, especially theprinciples and rules of competition elaborated byUNCTAD under the United Nations Set ofMultilaterally Agreed Equitable Principles and Rulesfor the Control of Restrictive Business Practices.Existing national competition policies shall beharmonised and brought in line with regional policyto ensure consistency, avoid contradictions, andprovide a predictable economic environment.

The treaty establishing COMESA was signed by 19African states, at Kampala, Uganda on November 05,1993. Currently, there are 20 members.4 Its aim is toincrease social and economic co-operation betweenthe countries of eastern and southern Africa bycreating an economic community. Its immediatepriority is to promote ‘outward-oriented’ regionalintegration through trade and investment. Thisincludes the establishment of a FTA, leading to thecreation of a customs union. Not all COMESAcountries are part of the FTA. Currently, the FTAparticipants are Djibouti, Egypt, Kenya, Madagascar,Malawi, Mauritius, Swaziland, Zambia, andZimbabwe and COMESA Competition Commission.

Groundwork for implementing the COMESACompetition Policy by establishing the COMESACompetitition Commission has also been undertakenand the functional and strucutual aspects of theCOMESA Commission were discussed in a meetingheld in mid October 2006 in Manzini, Swaziland.

EACAnother regional body, the East African Community(EAC), of which Uganda is a member was mandatedto develop a regional competition policy as well asharmonise national competition rules. EAC adoptedthe EAC Competition Bill, in September 2006. TheCommunity Act would pro-actively promote andprotect fair competition among traders within theregion. It will provide necessary procedures for theenforcement of the competition policy and streamlinetrading patterns among the member countries. It is,however, yet to discuss the modalities ofimplementing the same.

SADCThere is sufficient grounds for SADC to go for aregional competition policy and/or harmonisednational competition rules. It is, however, not clear ifit has made any progress in this regard in recent times.Though it has been reported that the SADC Secretariatis intent on developing a framework for CapapcityBuilding of Members on Competition Policy and Law.

SACUSACU also has the mandate to have a competitionarrangement within its framework. Presently, SACUis developing a Cooperation Mechanism onCompetition Policy with assistance from theUNCTAD.

AU CommissionThe African Union Commission has recenlty initiateda consultative process on 'Harmonisation of BusinessLaws in Africa' through a brainstorming workshopheld in mid December 2006 in Tshwane, South Africa.Competition Law was identified as a priority area forinitiation under this harmonisation exercise.

Consumer ProtectionIt is also well recognised now that a competition lawdelivers desired outcomes only if it is complementedby appropriate consumer protection and sectoralregulatory laws. A brief discussion on the status ofconsumer protection is presented here, while moredetailed discussions on regulatory issues have beenprovided in a separate chapter.

Botswana adopted a consumer protection law in 1998,while Malawi adopted it in 2003. However,implementation of these laws has not yet been takenon a serious note. Mauritius also has the ConsumerProtection (Price & Supplies Control) Act 12 of 1998.However, it is not a comprehensive one and is verydifferent from similar laws adopted in other countries.Other countries deal with consumer protection withsome other laws in a very haphazard manner.

Uganda is considering a consumer protection lawand a draft is ready since 2000. Unfortunately, it isstill unable to see the light of the day. In Ethiopia, thecompetition law has some provisions to deal withsome of the consumer protection issues. But the issueis not treated in a comprehensive manner.Mozambique has no consumer protection law. It isneither known if the government is considering onein near future, nor it is known if the competition lawbeing considered would have consumer protectionprovisions as well. However, it is following anapproach of adopting a competition policy first andthen adopting a competition policy an approached

4 The following are the COMESA countries: Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt,Eritrea, Ethiopia, Libya, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Swaziland, Uganda, Zambia, Zimbabwe.

31

followed in Malawi as well. It may be noted here thatthe competition policy in Malawi gave birth to aconsumer protection law along with a competitionlaw.

In sum, all the countries involved in the 7Up3 projecthave made major leaps forward in liberalising theireconomic regimes, brought down the role of the state,and provided commanding heights to the markets.However, such a transition is not an easy process,especially in countries that followed a centrallyplanned economic management. Moreover, efficientmarkets are not automatically created, they need to benurtured and developed by appropriate legal andinstitutional framework. The taskis particularly challenging forformer centrally plannedeconomies, as the institutionalframework created there was tosupport a totally different kind ofeconomic policy regime.

The task has been made even morecomplicated due to the fastchanging global economic andlegal environment in an era ofrapid globalisation. The policy andinstitutional frameworks at thenational level not only take intoconsideration the opportunitiesand challenges created byglobalisation, but also take note ofthe commitments made by nationsin different global and regionalforums as well as bilateral agreements. increasinglysuch agreements are touching upon the issues thathad hitherto been left to the national governmentsonly.

Competition policy and law has been generally adifficult area in these countries. As it is, adopting anew law is a time-consuming process in thesecountries. However, competition law takes even moretime as government takes extreme caution, particularlyin view of business lobbies that often think this couldact as another regulatory barrier affecting theirbusiness adversely. A classic example is theexperience in Mauritius, where the new governmentis reviewing a duly adopted law.

Market And CompetitionMarkets in all the seven countries are relatively smallin size. Even in the biggest of them, i.e. Ethiopia, thepurchasing power parity (PPP) adjusted GDP5 , is lessthan US$50bn , which is less than one fifth of that ofBangladesh and one-sixtieth of India. The smallestmarket in the group is that of Malawi, which is almost

one-eighth of the market size of Ethiopia. This makesintroducing and maintaining competition a difficultproposition, as the small size of the markets cannotsustain too many firms, particularly in industrieswhere economies of scale is an important factor.

Moreover, even today, a large part of the GDPinvolving a large section of the population comes fromthe subsistence sector. This is more so in leastdeveloped courtiers (LDCs) like Ethiopia, Malawi,Mozambique and Uganda where the share ofagriculture in GDP is quite high. This means the sizeof the markets in these countries are even smaller thantheir size of GDP or population would indicate. To

make matter worse, the entire economy of thesecountries does not function as an integrated marketdue to poor transportation and communicationinfrastructure, especially in Ethiopia, Mozambique,and Uganda.

The traditional State direct ownership of many firmsand industries, notwithstanding the massprivatisation wave recently, has resulted in theexistence of a huge State sector, comprising of manydominant enterprises in several key sectors, in theseeconomies. One would understand that SoEs mightcontinue to hold monopoly position in sectors withnatural monopoly characters. However, that is notnecessarily the case. They are given such privilegeswhere competition can be and should be promoted.

The share of the entire public sector is about 24 percentof GDP in Mauritius. Several state-owned bodiespurchase, import and store the so-called strategicproducts and services. The State Trading Corporationis the sole importer of petroleum products, flour, non-premium quality rice and half of total cementrequirements.

5 GDP in PPP Dollar is a better proxy of market size as it is likely to have a closer correspondencewith the volume of market transactions rather than the value of it.

Synthesis Report

Figure 1.4: PPP GNI 2003 (US$mn)

0

10000

20000

30000

40000

50000

60000


Country

GN

I

GNI


Moreover, there are also instances where privatecompanies operate side by side with SoEs, but thelatter draws undue advantages from their ownershipstatus. The fact that the government bears part of thecosts of a state-owned newspaper while leaving theprivate ones in the lurch is an example of such apractice. (refer Box 1)

While problems may not lie with the size of thesedominant enterprises (which might be either state-owned, private-owned, or foreign-owned), or theoverall structure of any particular industry, incumbentfirms have always been known as having the tendencyto use their considerable power to ensure thatcompetition never succeeds, to retain their marketposition or increase rents. This, unfortunately, isexactly the case in some 7Up3 countries.

Among the various dominant SoEs, several arereported to have engaged in anti-competitive practices. For instance, theBotswana Meat Commission (refer Box2), which holds monopoly overexportation of beef and beef products,is reported to be underpaying thefarmers. Similar allegations also existin Mauritius against the AgriculturalMarketing Board, Tobacco Board,Mauritius Meat Authority, etc.

In none of these countries, except, tosome extent in Botswana, can one getdata on market shares and structures.Some information is available onlyabout the number of firms in anindustry and at an aggregated level,in some cases. For some industries,however, data is available for marketshares of individual firms. Based uponsuch information, one can get a broadidea about the prevalent marketstructures in these countries. However,the number of firms in an industry canoften be misleading, as in someindustries, the prevailing marketconcentration is found to be very high,despite the fact that the number of firmsis reasonably large with most beingfringe players.

Arguably, in small economies,competition can be enhanced andmaintained by allowing freeimports.This may not always bepossible or desirable due to severalreasons. Moreover, in small economies,even high import duty can becompetition-neutral, particularly inindustries where there is not enoughdomestic manufacturing capacity and

demand is met largely through imports. Thus, it canbe seen that trade orientation is pretty high in thesecountries compared to India (30 percent) and US (20percent). A very high level of trade orientation inMauritius has also to be understood in context of thecountry increasing its export of manufactured goodssubstantially with high import content and low value-addition in recent years.

However, in some industries, competition concernsmay arise where there is significant domestic capacityor industry and where goods and services are noteasily tradable. Botswana, Ethiopia, Malawi, andUganda are particularly vulnerable in this regard, asall are landlocked. Such is often observed in bulkygoods like cement where high transportation costsmake import uncompetitive. This, of course, does notmean that all products where domestic demand ismet largely through import will have high degree of

Box 1.1: Mini-case Study: Media Industry in Botswana

While conducting interviews, it occurred to the researcher inBotswana that the private media companies (newspapers) were alot more vocal about anticompetitive practices than companies fromother sectors. It further occurred to the researcher that the companies’complaints emanated from their discomfort with competition fromthe government newspaper, the Daily News. This prompted a quickcomparison of two key newspapers’ advertisement rates with thatof the Daily News. Without the cost structure of the newspapers, theconclusion drawn from this comparison should be interpreted withcaution.

There are a number of reasons why private competitors’ acrimonymay be justified:(i) The Daily News charges lower prices despite the fact that it

does not charge readers for its paper. This may be seen asundercutting its competitors.

(ii) The Daily News does not have direct overheads. Its employees,office space etc are paid from government treasury. Since itscompetitors do not have this luxury, it can afford to chargelower prices at the expense of its competitors.

(iii) Government is known to be a bad collector of debt, a sizeableproportion of which may end up as bad debt. If the daily newsis a poor debt collector, there is an additional incentive toplace an advert with them, as the probability of paying themis lower than that of paying its competitors, thus defeatingcompetition.

However, the possibility of the Daily News being simply more efficientcannot be ruled out without evidence from a detailed assessment ofcompetition issues within this sector, which is beyond the scope ofthis study.

Advertisement rates of selected newspapers

Space Daily News Newspaper A Newspaper B

F/Page(f.c.) P4,500 P7,090 P6,765

pcm P17.0 P18.7 P17.5

33

competition. As has been observed in Mauritius,several productshave just one or two importers.

As seen in Table 5, there are some products wheremarket tends to be concentrated in almost all countries.Cement is an example, not only in these countries butalso in several other countries or regions of the world.The same is true for products like tobacco, soft drinks,and beer. Financial services are another market thatis quite concentrated in many of these countries. Inproducts like soft drinks, market is globally

concentrated. Hence, it is expected that they are likelyto be concentrated in individual countries in the 7Up3project as well, though this has not come out explicitlyin all the country reports.

Barriers to CompetitionIt has often been argued that a market need not have alow concentration or a large number of players,provided there is high market contestability. Thismeans that market entry by a new player is quite easyand if existing players earn more than normal profitthen it will attract new players, reducing profitability.Because of this fear of new entry, existing playerswould keep prices at a lower level. Thus, it is importantto assess if market contestability is high enough or ifentry barrier is insignificant. Due to low level ofawareness and reportage on competition issues inthese countries, it is indeed difficult to get a fair pictureof existing entry barriers, especially those erected byexisting market players.

Nevertheless, several policy or practice-inducedbarriers can be observed in these countries. In Ethiopia,for example, there are several industries that arereserved for the SoEs. Despite significant progressmade in terms of liberalising the businessenvironment, several approvals are required to start anew business, which often takes substantial time andcosts, acting as major obstacles for a new businessoperator to enter into the market. In Malawi andUganda, for example, business registration itself costsmore than the per capita income of the country, whilein Mozambique it takes 153 days to get a businessregistered. In all these countries, except Ethiopia, thecost involved is more than that in the US even inabsolute dollar terms.

Botswana has anindustrial licensingpolicy that is quiterestrictive as thelicensing authority canrefuse licence ongrounds of lack oftechnical skills orinadequate availabilityof raw materials orperceived impact onpublic interest, whichcan mean anything. Inthis regard, thegovernment is believedto be considering somechanges, but the natureand extent of suchchanges are not yetclear. In Mozambiquealso, the licensingrequirements are too

Box 1.2: Beef Exports Monopoly in Botswana

The Botswana Meat Commission Act of 1966 solelyreserves the exportation of live animals or theiredible products by the Botswana MeatCommission (BMC). BMC is the only export entityin Botswana and regulated by the VeterinaryDepartment in the Ministry of Agriculture. One ofthe purposes of enacting the law was to restrictlivestock movement and control diseases.

Department of Animal Health and Production,Deputy Director Phillemon Motsu observed that apermit on control of export of cattle and thelicensing of export slaughterhouses, therefore,could only be issued by the BMC. Excepting, onoccasions under exceptional circumstances, theMinister could give a waiver if he believed it wasin public interest to issue such a permit withoutthe concurrence of the BMC.

Some farmers have raised concern on the BMCmonopoly of the beef export market and appealedto the government to liberalise the sale of liveanimals and their products outside the countryfor better prices. (Daily News, 10.03.05)

Table 1.4: Trade Orientation of 7Up3 Countries

US$bn

Countries Exports Imports Trade GDP Openness =

(Exp+Imp) 2004 (Trade/GDP)

US$ X 100

Botswana 3550 3117 6667 8660 77

Ethiopia 1373 2908 4281 8077 53

Malawi 489 689 1178 1813 65

Mauritius 3270 3270 6540 6056 108

Mozambique* 994 1685 2679 4320 62

Namibia 2128 2510 4638 5456 85

Uganda 957 1845 2802 6833 41

* Data for 2003. GDP for 2004 = 5548

Source: World Development Indicators

* Source: CIA Fact file <http://www.cia.gov/cia/publications/factbook/index.html>

** UNDP

Synthesis Report


Table 1.5: Products with High Market Concentration*

Country Sectors

Botswana Long distance transport, hotel & restaurant, agriculture; a little

less in manufacturing, finance

Ethiopia Cement, sugar, mineral water, plastic products, soaps, soft drinks

Malawi Manufacturing (agro-based – tobacco, cotton), finance

Mauritius Utilities, beer, tobacco, pharma products, cement & petro

products (import and distribution), banking, insurance

Mozambique Sugar, tobacco, soft drinks, beer, cement, banking, insurance

Namibia Banking,

Uganda Utilities, finance, manufacturing (food processing)

*Based on available information only. There may be several other products with high

market concentration

Table 1.6: Costs of Starting a Business

Countries No of Duration Cost As percentageprocedures (days) (US$) of PCI

Botswana 11 108 475 10.9

Ethiopia 7 32 77 65.1

Malawi 10 35 237 139.6

Mauritius 6 46 406 8.8

Mozambique 14 153 238 95

Namibia 10 95 444 18.8

Uganda 17 36 318 117.8

US 5 5 210.00 0.528

Source: Doing Business in 2006, World Bank

many and the process is also quite lengthy andinvolves significant discretion and arbitrariness. Thelabour policy, particularly the tripartite wagenegotiation mechanism followed in Mauritius isconsidered to be investor unfriendly and working asa significant entry barrier.

Policy ConsiderationsPromoting and maintaining competition is not an easytask in developing countries, particularly those ofsmaller size. Market structure, though often capableof giving a reflection as to the degree of competition,may not be the best indicator while formulating orimplementing competition policy in small developingcountries. Smaller developing countries, thus, may relymore on the notion of contestability rather thancompetition within the market per se in the structuralsense. Contestability theory is associated with Baumolwho argues that the mere threat of new firms enteringa market means existing firms act competitively, i.e.lowest costs, prices and profits. The theory ofcontestable markets argues that what is important isnot actual but potential competition. A market isperfectly contestable when the costs of entry and exit

are zero where anyentry costs can berecovered on exit, i.e.there are no sunk costs.

In a contestable market,the threat of entry bypotential rivals willensure that the firm orfirms in the industrywill earn normal profitsand deliver allocativeand productivee f f i c i e n c y :Unfortunately, as can beseen above, the policy-induced entry barriersare quite high in the

7Up3 countries, which are hardly good to promotemarket contestability. This may also require bringingdown the trade barriers as well. However, this, again,might not be always easy. Firstly, for many countries,custom duty is a major source of revenue. Secondly,developing countries might want to give protectionto infant and emerging industries.

Sectoral Regulation andCompetitionDuring the 1980s and early 1990s, developingcountries underwent far-reaching market orientedeconomic reforms, leading to considerable decline inthe role of the state in economic activities. This hasresulted in widespread privatisation, deregulation,and internal and external liberalisation. Thesepolicies have opened up these countries’ domesticmarkets and exposed them to internationalcompetition. There are, however, several sectors inan economy where natural monopoly exist or aregenerally prone to market failures due to somepeculiarities. Hence regulation cannot be totally doneaway with.

In a rapidly growingeconomy, regulationprovides a stableenvironment for firms. Itstimulates investment,enhances certainty,promotes research anddevelopment (R&D) andinnovation, providesefficient product and factormarket, and above all,facilitates orderly exit andrestructuring. Regulatoryregimes that encouragecompetition andinnovation are particularlynecessary in promoting

35

Table 1.7: The Evolution of Regulatory Regimes in 7Up3 Project Countries

Botswana

Ethiopia

Malawi

Mauritius

Mozambique

Namibia

Uganda

Electricity

1993 (Ministry ofMinerals, Energy andWater Affairs – EnergyAffairs Division)

1997 (EthiopianElectric Agency)

(National ElectricityCouncil)

1970 (UtilityRegulatory Authority)

1997 (NationalDirectorate of Energy –DNE)

2000 (ElectricityControl Board)

1999 (ElectricityRegulatory Authority)

Telecommunications

1996 (BotswanaTelecommunicationsAuthority)

1996 (EthiopianTelecommunications Agency)

1998 (MalawiCommunications RegulatoryAuthority – MACRA)

1988, 1998 &2001(Information andTelecommunicationsAuthority)

1992 (Instituto Nacional dasComunicacoes de Mocambique –INCM)

1992 (NamibiaCommunicationCommission)

1997 (UgandaCommunicationsCommission – UCC)

Banking and FinancialServices

(Bank of Botswana)

1964 (National Bank ofEthiopia)

(Reserve Bank of Malawi)

(Bank of Mauritius &Financial ServicesCommission)

(Banco de Mocambique)

1997 (Bank of Namibia) &2001 (Namibia FinancialInstitutions SupervisoryAuthority)

(Bank of Uganda)

industrial competitiveness, job creation and economicgrowth. More importantly, it helps to address marketfailures, which may prevail instead, when marketforces are left to themselves, especially in certainsectors, where competitive markets may not be theoptimal structure or yield desired results, such as:telecommunications, energy (electricity, oil and gas),transport (seaports, civil aviation, roads andhighways, railways), water, and financial sector(banking, capital market, insurance), etc.

Competition is an unambiguously good thing in thefirst-best world of economists. That world assumeslarge numbers of participants in all markets, no publicgoods, no externalities, no information asymmetries,no natural monopolies, complete markets, fullyrational economic agents, an efficient court system toencourage contracts, and a benevolent governmentproviding lump sum transfers to achieve any desirableredistribution6 . It is also further argued that if anyone of the assumptions necessary for the validity ofthe fundamental theorems of welfare economics

cannot be met, restricted rather than unrestrictedcompetition may be a better strategy.

On the basis of the above argument, ‘unfettered’competition may not be appropriate for the sectorsthat are characterised by incomplete and missingmarkets. In such sectors, unfettered competition maylead to price wars and unhealthy rivalry, which mayhave repercussions on future investment. In thisregard, too much competition can be as harmful astoo little. Hence, it is appropriate to ensure optimaldegree of competition that would involve some degreeof rivalry to reduce inefficiency in the use of resourcesat the micro level but not so much competition thatwould reduce the propensity to invest. In other words,regulation is required.

Deregulation, Privatisation and theEvolution of Regulatory RegimesDuring the 1980s, public enterprises accounted forapproximately 14 percent of GDP in African nations

6 Laffont (1998), Competition, Information and Development, presented in the Annual World Bank Conference on DevelopmentEconomics, World Bank, Washington

Synthesis Report


and approximately 11 percent in developing countriesas a whole7 . The 1990s, however, saw governmentsthere traded the commanding heights of theireconomies for more nearly free marketplaces,recognising that they might have taken on a role thatthey could not adequately fill and that a greaterreliance on markets would be beneficial.

Regulatory reforms in 7Up3 countries happened asan indispensable part of this overall market reformsand liberalisation process. These reforms happenedrather late, at various points in time, and did not followany specific pattern, strategy or programme. This isdue to a multitude of reasons: the slow and unstablepace of general reforms, government changes, politicalunrest or civil wars, as well as the low level ofdevelopment of the economies and the dearth ofexpertise (See Table 7). In many cases, the reforms werepushed by the SAP of the IMF and the WB.

However, it is also due to the same set of reasons thatthe reforms undertaken are not of very far-reachingnature. Even until present, the regulatory systems inthose countries remain to be fully developed. In manycases, the dominant SoEs, monopolies still exertconsiderable power over the operations of marketforces in the whole sector.

Botswana – At the time of independence in 1966,Botswana was one of the poorest countries in theworld. The dominant economic activity in the countrywas cattle-rearing. However, the discovery ofdiamonds in 1967 brought rapid and sustainedgrowth, allowing remarkable advances in both socialand physical infrastructure. This ensured thatBotswana could avoid the pressure of internationalfinancial institutions to go for liberalisation andderegulation. Though unclear, but compliance withWTO agreements as well as changes in economicthinking in general might have been the leading causesof Botswana’s regulatory reforms. In 1996, soon afteradoption of the Telecommunications Act 1996, theBotswana Telecommunications Authority was set up.The electricity sector continues to be under thejurisdiction of the Energy Affairs Division of theMinistry of Minerals, Energy and Water Affairs since1993, while the Bank of Botswana oversees thebanking and financial services industries.

Ethiopia – When the Ethiopian People’sRevolutionary Democratic Front (EPRDF) came topower in 1991, economic and political strains pushedthe government to embark on a programme ofeconomic stabilisation and structural adjustment.Supported by the IMF and the WB, Ethiopia’sadjustment policies ran for more than four years, under

a Structural Adjustment Facility (1993-1996) andEnhanced Structural Adjustment Facility (1996-1999).

Due to this, drastic measures were taken in Ethiopiato liberalise on business licensing, import-exportregulations, and foreign exchange regulations. Otherregulations have been relatively simplified, broughtdown to one-stop-shop approaches and as a result,some improvements are registered in 2003/04. It isalso during these years that the regulated sectors, suchas telecommunications and energy, were liberalisedand regulatory institutions were established.

Malawi - Malawi is another case in which SAP hasplayed a considerable role in promoting economic andregulatory reforms. The accelerated privatisation ofMalawi’s publicly owned enterprises was keyobjective of the IMF’s economic reform programme.Malawi’s privatisation programme started with thepassing of the Public Enterprises (Privatisation) Actin 1996. Since then the programme has been plaguedby controversy, and the government was forced tosuspend it for four months in 2001, after controversyover the privatisation of Malawi Telecom. The publicoutcry has been fuelled by exponential price increasesby the newly privatised or partly privatised utilities,such as the 44.4 percent tariff increase by the ElectricitySupply Corporation of Malawi (ESCOM) in 2001.

Mauritius – It is said that Mauritius is one of the rarecountries in Africa where reforms have been relativelysuccessful and one country, which has been able tobenefits from the globalisation process; while mostother southern and sub-Saharan countries have‘missed the boat’. The country started its tradeliberalisation process in mid 1990s, but regulatoryreforms have started much earlier. However, state-owned monopolies and parastatals still assume greatsignificance over supply and control of ‘strategic’goods and services in the markets. Until now, SoEsstill contribute almost 100 percent of the water output,around 60 percent of electricity production, about halfof the total production in transport andcommunications and about a fifth in finance andrelated activities.

Economic activities in the telecommunication sectorare under the regulation of Emtel, a regulatory body(the Information, Communications and TechnologyAuthority). The Utility Regulatory Authority is thesupervisory body for the electricity and waterindustries, while the Bank of Mauritius and theFinancial Services Commission oversee banking andother financial services, in accordance with theBanking Act 2004.

7 World Bank, Bureaucrats in Business: The Economics and Politics of Government Ownership (Oxford: Oxford University Press,1995), p.30, as quoted in “Competing with the Government:Anticompetitive Behaviour and Public Enterprises”, Eds. R. Richard Geddes, Hoover Institution, March 2004

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Mozambique – The Republic of Mozambique becameindependent from Portugal in June 1975, after 10 yearsof freedom fighting. Initially, Mozambique adopted acommunism-oriented government with a centralisedeconomy. The country suffered badly from 16 years ofcivil war, which caused severe damage to human lifeas well as economic and social structures. TheMozambican government initiated the SAP in 1987,aimed at reducing state control over the economy et al,and expanding the responsibility of the private sectorin economic activities. The SAP was transformed intoa comprehensive market-oriented ‘EconomicRehabilitation Programme’ (ERP) in 1987, which wassubsequently renamed as ‘Economic and SocialRehabilitation Programme’ (ESRP) in 1989, to putfocus on the social dimension of the adjustment effort.In the process, most of the industries owned by thegovernment were privatised.

Reforms and transition to a market economy, however,only started formally around 7 or 10 years ago, togetherwith the arrival of a democratically electedgovernment (after 16 years of civil war). Thisdetermined the late development of a regulatoryframework in Mozambique: In 1992, as part of theSAP, the commercial and the central bank functionsof the Banco Comercial de Moçambique (BCM) wereseparated. In the same year, a TelecommunicationsLaw was adopted and the Instituto Nacional dasComunicacoes de Mocambique (INCM) was establishedas an independent regulatory body under the umbrellaof the Ministry of Transport and Communication(MTC). In 1997, a new Electricity Act was approvedby the Parliament and the National Directorate ofEnergy (DNE) was formally recognised as thestatutory organ supervising the sector.

Namibia – Namibia achieved its independence in1990, rather late as compared to other countries in theregion. However, since political stability was gained,the country has been striving to catch up with itsneighbours, taking advantage of the reforms wavewhich was sweeping through the continent then. Aspart of the transition from the pre-independenceinstitutions, the Department of Posts andTelecommunications was dissolved in 1992, andreplaced by Telecom Namibia. Telecom Namibia,which is a SoE, was granted full monopoly over allbasic telecommunications services. The NamibiaCommunication Commission (NCC) created in 1992,as a quasi-independent regulatory body, regulates thetelecommunication industry, which has long beenscheduled to be fully liberalised by the year 2004.

In the electricity sector, the Electricity Act, 2000 (Actno. 2 of 2000), which came into effect in July 2000,made provision for the establishment of the ElectricityControl Board (ECB) to regulate Electricity SupplyIndustry (ESI) in Namibia. The Bank of Namibia Act,1997 (Act 15 of 1997) established the Bank of Namibia,

the central bank that oversees economic activities inthe banking sector. The non-banking financial sectoris regulated by and are registered with the NamibiaFinancial Institution Supervisory Authority(NAMFISA), which was established in terms ofNAMFISA Act, 2001 (Act no. 3 of 2001).

Uganda – The privatisation and deregulation policyin Uganda is an integral part of the SAP currentlybeing implemented in the country. The SAP has fourmain elements, one of which is the privatisation ofpublic enterprises, so as to (i) relieve the nationaltreasury of the burden of the public enterprisesfinancial and capital losses, (ii) generate revenue forthe treasury, (iii) promote and develop an efficientprivate sector, and (iv) improve the performance ofpublic enterprises retained by government with partialor whole ownership. Deregulation was instituted insectors considered crucial to the economy to checkanticompetitive activities and take charge of firms andpersons whose actions could be injurious to theeconomy and to individual consumers. It was alsodue to the need to put in place a rigorous regulatoryregime following withdrawal of government frombusiness.

Through bodies like the Uganda CommunicationsCommission (UCC), which were set up in 1997 by theCommunications Act adopted earlier the same year,or the Electricity Regulatory Authority, which has setup (in 2001) by the Electricity Act 1999, safeguardshave been thoroughly prescribed. The regulatoryframework covers licensing, supervision, regulation,and surveillance. The agencies have investigativepowers as well as powers to discipline, handleconsumer complaints, and to arbitrate in disputesinvolving firms. The bodies enjoy a large measure ofoperational and financial autonomy, although theyare still under the oversight of a Minister responsibleto Cabinet and have ultimately to account toParliament through the relevant Minister.

Organisational Autonomy of RegulatorsThe adoption of sectoral regulations, as well as theestablishment of sectoral regulatory agencies,however, is not an end on its own. More important isthe effectiveness of regulation, which entails theeffectiveness of the operational performance of theregulators.

To be effective, regulators must have clear legalauthority and the capacity to carry out their mandate.They should have competent, non-political andprofessional staff. They should operate within astatutory framework with substantive and proceduralrequirements that ensure integrity, independence,transparency and accountability.

Some attributes, which are essential for theindependence of regulators, include:

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Mandate – An effective regulator will typically haveits mandate clearly defined by law and will not besubject to ministerial control and discretion or theagency’s status outside the executive and legislativebranches of government.

Institutions – This is comprised of three criticalelements. First, senior personnel should enjoy securityof tenure: clear rules, ideally involving twogovernment bodies, must govern their appointmentand, especially, dismissal. Second, the agency’sgovernance structure should consist of multimembercommissions composed of experts. And, third,decision-making should be open and transparent tothe extent consistent with commercial confidentiality,enabling both the public and the industry to scrutiniseregulatory decisions.

Budget – Regulators should be given access toindependent sources of funds, such as user fees orlevies on the regulated industry. In order to preventlevies from growing too burdensome, the lawestablishing the agency may set a cap on levies,usually defined by reference to industry turnover.Government support, if necessary, should come fromthe general budget and without strings attached.

In many developing and transition economies,however, regulators usually do not enjoy functionalautonomy. Many of these agencies report to lineministries and are mainly staffed by governmentrepresentatives. Governments are usually reluctantto consign important regulatory functions such astariff-setting to these sectoral watchdogs. Besides, itis also because regulatory agencies often havepotential problems of their own. As agencies tend torespond to the wishes of the best-organised interestgroups, when regulators are free from political control,the risk of “regulatory capture” by other groups – inparticular, the industry they regulate – grows.Agencies that suffer from such capture come to identifyindustry interests (or even the interests of individualfirms) with the public interest. And industry capturecan undermine the effectiveness of regulation just aspolitical pressure can. Regulators may, for example,formulate rules so as to minimise industry costs ratherthan strike an appropriate balance between those costsand public benefits. Other causes of the lack ofautonomous powers by sectoral regulators indeveloping economies are of course the weakness ofthe overall administration system and the lowsophistication level of policy-making skills. Thesituation in 7Up3 project countries demonstrates mostof the above-mentioned characteristics.

Of the few regulators that have been recentlyestablished in these countries, none of them possessany high degree of autonomy. Take the case of thetelecom regulators. All the seven project countrieshave already set up a regulator for this sector.

However, these agencies’ independence is highlysusceptible to the negative effects of corruptive powersin the governments, as well as to the hostile lobbyingof big businesses, both foreign (transnationalcorporations) and domestic. Besides, all theseregulators are still very young, whose establishmentis carved out of the traditional regulators in thesecountries– the line ministries. Their institutionalcapacities are still underdeveloped and the legacy ofthe old mechanisms is still very strong.

Interface ProblemsIt is rather well-recognised that regulated industriesin developing economies are often either under-regulated or over-regulated, never with the right dose.More often than not, these industries are overseen bya multitude of institutions, which tends to increaseregulatory complexity, confusion and risk. In additionto the strong legacy of the old administrative system,the low degree of autonomy of the regulators and thelack of delineation in power and authority are themain causes leading to this situation.

The most major interface in many cases is the interfacebetween sector-specific regulators and a country’scompetition regulator (i.e. competition authority). Thereform process mentioned earlier, in addition tobringing about the regulatory evolution in manycountries, also raises important questions about thescope of regulation needed in sectors being openedup to greater competition, and on the other hand, theoptimal level of competition and the behaviouralaspects of firms operating in regulated industries. Theissues of interface arises, in many developingeconomies, when a competition policy and law isadopted to respond to the emerging issues of marketregulation, and firms and industries, whichtraditionally were subject to only sectoral regulation,now find that they have to face regulation from boththe competition authority and the sectoral regulatorsat the same time. The problem is that, historically, inmost countries, these two types of regulatoryinstitutions evolved as distinct agencies withrelatively limited formal relationships. Therefore,when the interaction among sectoral regulators andcompetition authorities is ill- defined, theopportunities for turf-disputes and legal wranglingare multiplied.

Most of the 7Up3 countries have already adopted acompetition law, and as mentioned above, severalregulatory provisions as well. However, in most cases,no clear delineation has been made between theauthority and responsibility of the sectoral regulatorsand the competition authorities.

Botswana – The Botswana Parliament passed theNational Competition Policy for Botswana in August2005. In order to ensure that the Competition Policy isproperly implemented, the Botswana government

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plans to formulate a Competition Act, through whichcompetition in the market place will be regulated.

Regarding the interface problem, the Botswanagovernment recognises the important role andadvantages of having sector regulators such as theBank of Botswana (BoB) and the BotswanaTelecommunications Authority (BTA). However, it isplanned that all these will fall under the ambit of thefuture Competition Law. The Government alsointends to harmonise all legislation related to theCompetition Policy in order to ensure consistencybetween them. In sectors characterised by economic/commercial activities, complex science, engineeringand technology or having natural monopoly or otherspecial elements, the future Competition Authority andSector Specific Regulators will collaborate andcomplement each other.

Ethiopia – Ethiopia's Trade Practices ProclamationNo. 239/2003 was legislated with the purpose ofregulating trade practices in the country. However,the proclamation is silent about whether unfair orrestrictive trade practices in regulated sectors liketelecommunications and energy will come under itsjurisdiction. It is said that the sectoral regulatoryagencies already established are to protect the marketfrom anti-competitive practices in these specificsectors.

Malawi – The Competition and Fair Trading Act(CFTA), which was assented to by the President onDecember 30, 1998, and gazetted on December 31,1998, started being developed immediately after theCabinet approval of the Malawi Competition Policyin 1997. The policy direction in the preceding statutewas thereby reflected, so the Act has overriding powerover all other sectoral regulations if the latter happensto restrict economic freedom in the market.

Mauritius – The Competition Act 2003 of Mauritiusaims at providing the legal framework necessary tocontrol RBPs and to regulate competition in thecountry. Looking at the first schedule of thisCompetition Act, it seems that such interface problemsmight not arise in Mauritius as it is stated that the lawwill not apply to “any practice or agreement expresslyrequired or authorised by an enactment or by somescheme or instrument made under an enactment”.This will imply that regulatory regimes establishedby statute and administered by regulatory bodies areoutside the scope of the competition law. Besides, thesecond schedule of the Act excludes certain goodsand services excluded from provisions relating tomonopoly situations including aviation and harbourservices, broadcasting services, electricity services,financial services, freeport services, information andcommunication technologies, postal services otherthan courier, goods and services supplied by stateenterprises and water other than for retail trade.

Mozambique – Mozambique does not have acompetition law at the moment, though the Ministryof Trade and Industry in Mozambique has startedpreparing the ground for a competition policy to beadopted very soon, and has plans to subsequentlydraft a competition law for the country. In such acontext, competition issues in regulated sectors arenaturally being taken care of by the sectoral regulators.For example, the Telecommunications Law 1992 ofMozambique has “promotion of fair competition andconsumer protection” as one of the objectives and hassome substantive provisions, as well. Hence, the issueof interface is likely to arise once a competition lawcomes into force. The nature of interface problem willdepend the way the forthcoming competition law isdrafted.

Namibia – The Competition Act made provisions forthe establishment of the Namibian CompetitionCommission (NaCC) to implement the Act. The Actapplies to all economic activity in Namibia, or havingan effect on Namibia, except the following:• Collective bargaining activities or collective

agreements negotiated or concluded in terms of theLabour Act, 1992 (Act no. 6 of 1992);

• Concerted conduct designed to achieve a non-commercial socio-economic objective; and

• In relation to goods or services, which the Ministerof Trade and Industry, with the concurrence of theNaCC, declares by notice in the Government Gazette,to be exempt from the provisions of this Act.

With regard to the interface problem between the futurecompetition authority and the existing sectoralregulators, the Act has binding effects on the State,when the State engages in trade or business forproduction, supply or distribution of goods orprovision of any service, though the State is not subjectto any provision relating to criminal liability. The Actalso applies to activities of statutory bodies, except incases when such activities are authorised by any otherlaw.

Uganda – In Uganda, regulatory reform as well asprocess of establishment of a framework oncompetition regulation, has induced importantdebates about the degree to which sectors being openedup to greater competition should also be subject togeneral competition laws enforced by the samecompetition agency responsible for protectingcompetition in other sectors of the economy.

In practice, regulatory reform has rarely consistedsimply of abolishing regulations and leavingeverything up to market forces that would later beoperating within general framework competition law.It is expected, like in a number of situations elsewhere,policymakers would adopt the view that competitionmust be fostered by a new kind of regulation, whichmay or may not be intended to be strictly transitory.

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Table 1.8: Most Common Anticompetitive Practices in 7Up3 Markets


Collective Price-fixing +++ +++ +++ +++ +++ +++ +++

Market sharing +++ ++ +++ ++ +++

Bid-rigging ++ +++ +++ ++ ++ + +++

Tied selling + ++

Resale Price Maintenance + ++ + +++ ++

Exclusive dealing +++ ++ ++ ++

Price Discrimination ++ +++ +++ +++

Predatory pricing ++ + + ++

Unreasonably high price

Refusal to deal + +

Unfair Trade Practices ++ +++ ++ +++

Source: Compiled from 7Up3 Country Reports (For more details, refer www.cuts-international.org/7up3.htm)

Note: (+++) Significant

(++) Moderate

(+) Existing but insignificant

There are some examples of new regulators beinggiven mandates to promote competition and evenbeing charged with the formulation of competitionrules. The status quo, with regard to division of labour,is that regulatory agencies by default are supposed toensure that competition takes place in the sectorsunder their respective jurisdiction. However, the draftcompetition law in Uganda gives the competitionagency the ultimate authority with regard tocompetition regulation. It provides that: “where in thecourse of a proceeding before any statutory authorityentrusted with the responsibility of regulating anyutility or service, an issue is raised by any party thatany decision that the statutory authority has taken orproposes to take, is or would be, as the case may be,contrary to the provisions of this Act, then the statutoryauthority shall make a reference to the Commission”.

Policy ConsiderationsIt follows from the above facts that in the absence of acompetition policy and Law, an effective regulatoryframework i.e. a regulator with functional autonomyis very essential, particularly in the developingcountries to regulate specific sectors, in the utilitysectors. In order to facilitate the development ofmarkets, a right regulatory and political environmentis a pre-requisite. This includes tax policies, tradepolicies, competition and regulatory policy. Careshould be taken to ensure that the respective sector/economy is not over-regulated. It is essential to strikethe right balance.

The role of the regulator is to advise the line ministryon policy, solve disputes among service providers andensure that rules and regulations governing thebusiness are followed. The line ministry should not

have superseding power powers in matters of appealagainst the decisions of the regulators, as thisundermines its power and independence. As in somesectors private companies and SoEs compete, careshould be taken to ensure conflict of interest situationsand to ensure that the SoEs do not get undueadvantage.

Competent, non-political and professional staffsshould man a regulator, which operates within astatutory framework with substantive and proceduralrequirements in order to ensure integrity,independence, transparency and accountability. Aregulator should comprise of experts, and be free frombureaucratic control. It may be noted in this contextthat some of the issues highlighted here are equallyimportant in implementing a competition law as well.

Anti-competitive PracticesWith the legacy of the old command and controleconomic mechanism in most of the 7Up3 projectcountries, notwithstanding recent reform efforts, theystill continue to maintain inefficient administrativesystem, which, among other externalities, hampersentrepreneurship and competition in the market.However, removal of such policy barriers tocompetition would not be enough to promotecompetition in the market in these countries, and itcan still be distorted or limited by severalanticompetitive practices of firms, such as colludingto fix prices and discourage new entries, or abusingmarket power or monopolies to prevent entries bycompetitors in order to keep prices and profit high,etc.

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Box 1.3: Tobacco Buyers Cartel in Malawi

The current anticompetitive structure of the tobacco market compounded by the level of transparencycreated by the auction system as it is currently operated enables the big buyers to minutely monitor all newentrants and sanction them as and when they see an opportunity to do so. This is a according to a Reporton ‘Tobacco Sales in Malawi’, compiled by Clive Stanbrook, a renowned British lawyer.

“One of the reasons that the contract sales for flue cured tobacco were at better prices than on the auctionfloor in the year 2006 may have been because they were carried out in less transparent circumstances”,claims the report.

Responding to the Stanbrook Report, Managing Director of one of the big buyers of the Malawi leaf, LimbeLeaf Tobacco Company C A M.Graham in an advert said “such transparency does not lend itself toconfidentiality for anyone participating on the Auction Floors and this ‘open auction system’ may notsuffer sufficient confidentiality for buyers and their customers. Whether this way of doing things limitscompetition or not is subject to debate”. Graham in the statement added that the fact that Dimon andStandard Commercial for example have merged their worldwide operations thus leaving few buyers inMalawi is not something that is attributable to Limbe Leaf Tobacco Company” .

Graham adds that the tobacco industry generally and the Malawi industry in particular is at an importantphase in its history in that the structure of producer marketing arrangements needs to be carefully andresponsibly addressed by all stakeholders in Malawi. The report says the existing two main buyers havebeen able to exclude other buyers from their market both by their strong market shares and making marketaccess almost impossible for new entrants.

Stanbrook recommends that the Tobacco Control Commission [TCC] and the Minister have the power tobring about some immediate changes that would be beneficial to the growers in a very short time. “Thesewould be aimed at reducing the transparency of the auction system and establishing clear competitionbased conditions, breach of which would endanger the buyers licence”, says Stanbrook. The report furtherrecommended that government to initiate a criminal investigation into the buyers’ cartel.

The TCC is established as a watchdog under the Control of Tobacco Auction Floors Act. Its duties are,among others, to promote and expand the sale of tobacco and most importantly, to control and regulate thesale of tobacco on the auction floors in Malawi.

(The Chronicle Newspaper, 18.08.05)

Many believe that markets in general are lesscompetitive in developing countries. With a fewexceptions, domestic markets in developing countriestend to be small, with low human capital, poorinfrastructure, volatile economies, and fewmanufactured inputs produced domestically8 .Evidence from the 7Up1, 7Up2 and 7Up3 projects alsosuggests that developing country markets are proneto anti-competitive practices and unfair tradepractices; and these are not only taxing consumersheavily, but also negatively affecting the businessenvironment, thereby. Since the 7Up3 project countriesdo not have enough experience of implementing acompetition law, the anti-competitive practicesdiscussed here are suspect in nature and cannot beconsidered as clear cases of such practices as therewere definitive investigation or adjudication into thecases, and they are based primarily on media reports.

Prevalent Anti-competitive PracticesAs found in the survey, collusive behaviour or price-fixing is quite common in all project countries. Severalcases of price-fixing have also been reported in themedia. The cartels very often worked under the shamcovers of business or trade association. The individualenterprises, in these cases, did not seem to have anychoice other than doing likewise with the whole‘family’, otherwise they would face serious troubleincluding danger to their lives. The Sugar Syndicatein Mauritius is a classic example. The Syndicate is aprivate association that controls sugar marketing,including export from the country. One often hearsthe argument that such trade association should beallowed to engage in such practices in the interest ofsmall and medium enterprises. However, when suchassociation includes even the large players and whoeffectively control the association’s policies andpractices, one would wonder if such practices shouldbe ignored.

8 World Bank (2003), Global Economic Prospects 2003: Investing to Unlock Global Opportunities, Washington D.C.

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Box 1.5: Backdoor Commercial Activities Reducing Competition in Mauritius

During the last ten years or so, Mauritius has witnessed major changes in the retail market of food and non-food products. Giants from France (Score, Continent, Jumbo, Super U) and South Africa (Spar, Shoprite)have invested in huge departmental stores, where everything is available. This is a cause of great concernto local traditional shops, mainly family businesses. These companies have brought with themanticompetitive practices, in particular backdoor commercial practices that allow them to sell some products,fast movers, below cost price.

These backdoor practices consist mainly of activities not pertaining to commerce as such. It involves thesale of specific places on the shelves, the sale of advertising space on trolleys, the sale of advertising spaceon brochures, the printing of coloured brochures on a monthly basis. Such activities bring in a lot of money,which allow the departmental store to offer some fast moving products below cost price. These practicesare considered to be anti-competitive and illegal in several countries, but not in Mauritius. It is a marketstrategy to attract buyers into the stores, in the expectation that they would be incited to buy the otherproducts. Impulsive buyers are their targets.

Low price sales, presented as promotional events almost every month, are a threat to traditional shops. Theaim is to eliminate these shops and, hence, impose their writ on the retail market. In a large village in theNorth, Triole, some twelve shops had to close down following the opening of Winners self-servicesupermarket. Winners, is one of eleven stores operating under the same name. Their huge turnover allowsthem to offer promotional sales every month. The country has some fifty such stores over the island, againstsome 3,000 retail shops battling for their survival.

One of the backdoor practices of department stores consists of imposing charges on distributors to occupya prominent spot on the gondola. This may amount to as much as Rs 25,000 per month in order to keep aproduct at a strategic point where consumers move from counter to counter. These charges may be damagingto some products.

One importer, Dabydoyal Brothers tried to launch a new brand of table oil, Meizan. They sought to be presentin one of the major stores, Jumbo, at that time known as Continent. They succeeded to occupy the strategicspot on the gondola for less than two months, after which they found out that it was too costly. Afterwards,they made efforts to occupy the shelf of the counter that is at consumer’s eye level. They were surprised tolearn that they had to pay other charges for this. They did so for one or two weeks. As time went by, Meizangradually descended to the last shelf until it disappeared completely. This is one of the anti-competitivepractices that have caused the loss of one operator, and reduced consumer’s choice.

Source: Institute for Consumer Protection, Mauritius

Box 1.4: Monopoly in Ethiopian Telecom Sector

The government-owned Ethiopian Telecommunications Corporation (ETC) is the country’s monopolytelecom company, which provides a national landline and mobile phone network. EthioMobile, the mobiledivision of ETC, remains the country’s only mobile operator.ETC has been repeatedly criticised for its poor performance in delivering telecom services. The companystill has less than one percent coverage among Ethiopia’s potential fixed line customers. Mobile coveragehas mostly been limited to the Addis Ababa region and the customer base is low, compared to other Africannations.

The Ethiopian authorities started a slow and partial privatisation of ETC two years ago. A few months ago,ETC entered into a •40mn deal with Nokia, to upgrade its poor GSM network. Under the deal, Nokia wouldprovide a full range of GSM and GPRS network infrastructure, including base stations and assist in networkplanning and implementation, and project management.

Source: Afrol News, 24.08.04 (www.afrol.com/articles/13806)

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Box 1.6: Motor Manufacturers are Suspected of Fixing Vehicle Prices

The South African Competition Commission has initiated a formal investigation into the high prices ofvehicles. The Competition Commission started with a formal investigation this Wednesday into allegedresale price maintenance, collusion and price coordination. Speaking to the Economist from South Africa,Zondwa Ntuli, the manager of compliance division, said the main focus of the investigation, however, “isthe setting of a minimum resale price by manufacturers which we think might be the standard practice in theindustry”.

As a result of that announcement, Internet chat rooms and discussion sites on motor websites are filled withcar enthusiasts crying for the blood of vehicle manufacturers in South Africa. They feel that they have beencheated and betrayed and claim to have suspected as much for a long time.

Namibians that keep up-to-date with South African news are wondering how the results of the investigationwill affect Namibian motorists. More to the point, Namibians are asking whether Toyota, recently finedN$12 million for fixing prices, will refrain from such practices in Namibia. They feel that vehiclemanufacturers influence local motor dealers in the same way.

According to Ntuli, the investigation is expected to reveal whether anti-competitive pricing exists in theindustry and if that might be contributing to high prices for consumer. Information gathered by theCommission, according to the media release from the commission last Thursday, “suggest that it is almosta standard practice amongst manufacturers and importers of new motor vehicles to maintain minimumprices”. In other words, the manufacturer imposes a minimum resale price on a dealer and by so doinglimits a dealer’s ability to offer discount. “We will not hesitate to recommend that the highest fine beimposed on the perpetrators, which can be up to 10% of the firms’ annual turnover”, said Ntuli.

The findings by a Tribunal of Investigation, appointed by the Commission, will not relate to the companies’activities outside South Africa, as that would be in violation of the South African Competition Act. “However,seeing that the Namibian Competition legislation is in place the findings should serve as a basis for guidancein dealing with practices of this nature in Namibia”, said Ntuli. She added that the commission could alsoassist Namibia with advice regarding anti-competitive practices. “The Namibian authorities should makesure that companies that operate there know that anti-competitive behaviour is also not tolerated in Namibiaand the necessary provision of your Act must be invoked to deal with such practices”, she said.

The Namibia Economist, May 14.05.04 (http://www.economist.com.na/2004/14may/05-07-19.htm)

Similarly, in Uganda, transport operators, underassociations, which are normally contracted by localgovernment authorities to run bus and taxi terminalscollude to fix bus and taxi fares. In Uganda, there isalso compelling circumstantial evidence that pricefixing is prevalent in the local petroleum industry. InMalawi, the tobacco farmers suffer from the collusivepractices of the buyers who exert monopsonisticpressures (refer Box 3).

Another anticompetitive practice, which is also quiteprevalent and troubling in the 7Up3 countries, iscollusive tendering. Almost all cases of collusivetendering have happened in the market forgovernment contracts for infrastructure construction.The main reasons behind this high incidence of bid-rigging, besides the firms’ own incentives to seek extrarents, are believed to be the generally low economicmanagement capacity of governments and poorgovernance practices in project countries, in particular,the prevalence of corruption, bribery, and nepotism.

Abuse of dominance is another anticompetitivepractice. As mentioned earlier, SoEs are monopolist

or dominant in several sectors, some of themcharacterised by natural monopoly conditions.Dominance of SoEs need not be avoided in naturalmonopoly situations and in fact can be better thandominance of private companies. However, it neednot be the best situation and can be improved throughan appropriate regulatory framework. However, dueto absence of this, abuse of dominance by SoEs isprevalence in several countries. The example oftelecom in Ethiopia can be quoted in this regard. It is,however, not only the dominant SoEs in thesecountries that abused their dominance. Similar caseswere mentioned as having been carried out by foreignand domestic private companies as well.

Vertical restraints between manufacturers or suppliersand downstream distributors in the form of exclusivedealing and geographic market restrictions can alsoraise significant entry barriers. In addition, firms thatwould be price-takers individually – and unable aloneto control any significant part of the market – canwork together to control the market, thus increasingprices and discouraging entry. Even the retailers by

Synthesis Report


virtue of their market power or through collusivepractices try to extract maximum benefits from bothmanufacturers as well as consumers. Often, suchpractice leads to the exit of some manufacturers. Acase from Mauritius (refer Box 5) is illustrative in thisregard.

As with many other small countries, most of the 7Up3countries have a very low manufacturing base. As aresult, they depend on other countries for most of theirrequirements of manufactured goods. Hence, manyof the anticompetitive practices that may be prevalentin these countries may originate in the countries fromwhere such goods are sourced. Such practices thoughmay have significant impact in these countries maynot be so apparent. Obviously, it is often difficult totrace such practices and take appropriate action. Oneadvantage for some of the project countries,particularly Botswana, Namibia, Malawi andMozambique, and to some extent for Mauritius is thata huge share of their imports either originates orpasses through South Africa. This makes it easier forthem to trace the anti-competitive practices with cross-border dimensions, as they need not look at too manycountries. Fortunately, South Africa has quite aneffective competition regime. It is recognised thatmany of such anti-competitive practices that occur inSouth Africa, also occur in the neighbouring andclosely integrated countries as well. However, thoughsuch practices may be stopped in South Africa, theymay continue unabated in other countries. SouthAfrica is believed to be willing to help its neighboursin this regard, however, the same has not yet beentested, as the neighbouring countries have not beenable to create an effective competition regime.

By way of suggestion, in the absence of acomprehensive legislation on competition, all theseanti-competitive practices generally escaped scrutinyof the law, or were addressedin an ad hoc manner, throughadministrative decisions,under sectoral regulations orother piecemeal rules andregulations. Of all the types ofanticompetitive practicesreported above, hardly any ofthem have been properly dealtwith, judged in a court of lawfor instance, to set precedentfor any future violators whichpossibly be done even in theabsence of a competition lawas some other existing lawcould be used. However, suchpractices are generallyaccepted as ‘normal’ business

practices, as awareness level is low. The absence of astrong consumer movement and government apathyensured that such a state of affairs remained the orderof the day.

Perspectives on Competition PolicyThe effectiveness of any law in a country depends onthe extent to which the law has actually evolved inthe country in tandem with socio-economic andhistorical developments. It is necessary that there besome amount of acceptability and ownership of thelaw among stakeholders.9 This is possible only if theirexpectations are taken into consideration, whiledrafting the law. This was one of the most importantfindings of the 7Up projects that came out with thesuggestion of a bottom-up approach to the formulationand enforcement of a competition regime.

The broad groups of stakeholders whose behaviourand interests are important for the competition culturein a country are:• the consumers;• the business;• the government; and• the political class.

It may be noted here that we are talking about notonly their attitude towards and the role in regulatorymeasures, but also their attitude towards the processof competition in general. The effectiveness of aregulatory regime in a jurisdiction, thus, depends onthe extent to which it succeeds in bringing a balanceamong objectives that these three groups pursue. Thisis not an easy task, as many of them may be in conflictwith one another.

Consumers, as a group are possibly the largestbeneficiary of an appropriate competition policy and

9 See Pistor, K (2000), The Standardisation of Law and its Effect on Developing Economies, G-24 Discussion Paper No. 4, UnitedNations, New York & Geneva.

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law regime and hence have a very high stake.Consumption is the sole end and the purpose of allproduction and the interest of the producer ought tobe attended to, only in so far as it may be necessaryfor promoting the interest of the consumer (AdamSmith, Wealth of Nations, 1776). The protection of theinterest of the consumer is, thus, as important as, ifnot more, than, the protection of the interest of theproducer.

The business community is at the other end of thespectrum and its perception on competition policymay not always coincide with that of the consumer.While admitting that market power can sometimesbe abused, businesses often maintain that the effectsof market dominance and size are not necessarilyundesirable and any adjustments necessary shouldbe left to the markets to correct.

Given that there can often be conflicts between thebusiness and consumer interests, government policyand institutions need to play the role of arbiter.Broadly speaking, competition law and policy (CLP)has to deal with many tradeoffs in its objectives andi n s t r u m e n t s .However, it isessential to ensurethat the establishedbusiness units donot impede theentry of new andfuture players whor e m a i nunrepresented inany debate onpolicy orenforcement. Thesurvey conductedunder the projectmade an attempt to

gauge the level of awarenessamong differentstakeholders to understandtheir mood on some widelydebated issues related tocompetition legislation. Dueto resource constraints andother reasons, the surveywas not based on arepresentative sample but asmall sample comprisingrelatively more aware peopleamong different stakeholdergroups. To be specific, thesurvey was conducted in thecapital cities of the projectcountries except in Ethiopiawhere it covered someprovincial towns as well.Hence, the findings of the

survey should not be considered as evidence, but mereindicative of the perceptions of the stakeholders.Survey outcomes have been discussed under fiveareas/issues:• level of awareness;• prevalence of anticompetitive practices;• need for a competition law;• objectives of competition law; and• status of competition authority.

Stakeholders’ Perspective with Regard toLevel of AwarenessIt is extremely difficult to test the awareness on thelaws and regulations to check anticompetitive prac-tices. However, it was not so difficult and ratherstraight forward as a large percentage of the respon-dents said that they cannot say or do not know aboutsuch laws. Such people were 49 percent in Botswana,44 percent in Malawi and 53 percent in Namibia. Itshould be noted in this context that the survey wasconducted not only in urban areas, but among themore educated and in capaital cities, except in Ethio-pia.

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Figure 1.6: Prevalence of Anti-competitive Practices

Synthesis Report


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Figure 1.9: Status of Competition Authority

In Uganda, about 60 percent of the respondents statedthat they were aware of various rules and regulationsin place to tackle anticompetitive practices. However,the fact is that they are quite inadequate, as there is nocompetition law. In Mozambique, another countrywhere there is no competition law, about 51 percentsaid that there are laws and rules to checkanticompetitive practices. Upon a cursory look we findthat in Mauritius, about 50 percent of the consumerrespondents were aware of such laws and regulations.As regards the private sector and government, the sur-vey revealed that 77 and 65 percent (respectively) ofrespondents were aware of such laws and regulations.As Mauritius does have a competition law, it may besaid that people there are reasonably aware/possessreasonable awareness. In Botswana, only 16 percentsaid that there are laws while the fact is that there isno competition law in the country, till today. Hence, itmay be the case that the people there are relativelyaware. Overall, however, the level of awareness seemsto be extremely low.

Stakeholders’ Perspective with Regard toPrevalence of Anticompetitive PracticesThe majority of respondents felt that prevalence ofanticompetitive practices was moderate to significantin their respective countries.About 45 percent of therespondents in Mauritiusstated that the extent towhich anticompetitivepractices are prevalent inthe markets is quitesignificant. Around 93percent of firms and 90percent of governmentinstitutions, whichparticipated in the survey,agreed that such practicesare widespread inMauritius markets. InEthiopia, 42 percent of

respondents are of theview that practicesthwarting competitionin Ethiopian marketsare quite significant.Similarly, 44 percent ofthe respondents inMalawi opined thata n t i c o m p e t i t i v epractices in Malawianmarket are quitesignificant. About 69percent of therespondents rated theextent of anticompetitive practises inBotswana as moderate.

Survey results suggest that 75 percent of Governmentagents and consumers and 56 percent of businessesperceive the existence of anticompetitive practices inBotswana as moderate. See figure 6.2 below

Stakeholders’ Perspective with Regard toNeed for Competition LawWith regard to the need for a competition law, anoverwhelming majority endorsed the need to enact acomprehensive law on competition regulation.Majority called for enactment of a specific policy andlaw to address competition regulation. About 80percent of the respondents in Mozambique, Malawi,and Botswana, through responses, expressed the needto formulate an effective competition law, which couldtackle and deal with issues thwarting the spirit ofcompetition in these countries. In Ethiopia, the surveyoutcome reflected that about 50 percent of therespondents do not know or cannot say if they need acompetition law to deal with activities against thespirit of competition in an effective manner or not.The results clearly indicate the lack of awarenessamong people about laws specifically dealing andtackling such issues. In Mauritius, about 77 percentof respondents confirmed the need for acomprehensive competition law to check anti-

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Figure 1.8: Objective of Competition Law

47

10 Singh (1993), Regulation of Mergers: A New Agenda. In Industrial Economic Regulation: A framework and an Exploration,Sugden Roger ed. Routledge

competitive practices where above 85 percent ofprivate and public sector and above 70 percent of theconsumers responded in favour of introducing a morecomprehensive law.

It seems that the majority of the stakeholders very wellunderstand that in order to strengthen the functioningof market forces in an appropriate manner and toachieve the maximum benefits from the process ofliberalisation, the need of the hour is for an effectivecompetition policy and law. The responses obtainedconcur with the view of the stakeholders of this needand is indicative of their perception in this regard.See Figure 6.3 below

Stakeholders’ Perspective with Regard toObjective of Competition LawAs regards the objective of competition law, majorityof respondents expressed that it should focus oneconomic efficiency and consumer welfare. This viewwas shared by about 80 percent respondents inMauritius and 75 percent in Botswana. Similarly, 63percent of the respondents in Ethiopia, 69 percent ofthe respondents in Mozambique and about 60 percentof the respondents in Botswana expressed similarviews. Very few respondents felt that the competitionlaw should consider other socio economic issues. InUganda, the majority of respondents were of the viewthat the law should not only cover competition as anavenue to ensure economic efficiency but consumerwelfare as well. See Figure 6.4 below

Stakeholders’ Perspective with Regard toStatus of Competition AuthorityThe most common forms of competition agency arean autonomous agency or the agency under therelevant government department or ministry.Sometimes, the agency may take whatever shape thegovernment may deem appropriate. An attempt wasmade to establish the respondent’s views on the natureof the implementing agency. The survey reflected thatoverwhelming majority of respondents were of theview that the proposed competition authority shouldbe autonomous and independent, except inMozambique where the majority wanted it to be underthe relevant ministry. About 77 percent of therespondents from Botswana reflected that the statusof the competition authority should be independentand autonomous for it to be effective. Similar viewswere shared by more than 58 percent of therespondents in Malawi and 51 percent of therespondents in Mauritius.

In Ethiopia, 47 percent of the responses favoured anautonomous competition authority while 26 percentexpressed that such an authority should be under

relevant government, department or ministry. InUganda, majority of respondents were of the view thatthe proposed authority should be at the centre ofcompetition regulation in the country. The apparentlyhomogeneous response was linked to the practice inregulatory reform in the country. Reform has normallytaken the form of setting up specific sector regulatory(SSR) bodies to oversee all aspects of regulation.Endorsement of the competition authority shouldtherefore be seen in this light. See Figure 6.5.

ConclusionHistorically, and across countries, markets have notdeveloped on their own. They had to be nurtured anddeveloped. 7Up3 countries are no exception. Hence,despite pursuing market-oriented economic policyreforms, for almost a couple of decades, markets andthe private sector for that matter, are far fromdeveloped in these countries. Problems exist not onlyin areas with natural monopolies with classic casesof market failures, but also in other areas wherepromoting and maintaining competition is relativelyeasier. The recent global trends and the wave of newmergers have led to collusive pricing by largeindustrial corporations which is sometimes difficultto prove, let alone punish10 . This, therefore, calls for acritical review of regulation, deregulation andcompetition policies in those countries and athorough assessment of their impact oncompetitiveness, growth, and development. Adoptionof a comprehensive competition policy and law aswell as a regulatory framework is thus essential.Fortunately, this is now well recognised in all thecountries in the project.

Emerging TrendsIt is also quite heartening that Botswana has alreadyadopted a structured competition policy ahead ofadopting a competition law. Malawi also adopted acompetition policy based on a detailed study of theeconomy before adopting its competition law.Mozambique is also following a similar approach. Itmay also be noted that all the countries have eitheradopted a competition law or likely to adopt it verysoon. However, realities on the ground are not soencouraging. The countries that adopted a law havenot yet shown any great enthusiasm in implementingit. The countries that are in the process of adopting alaw is also not showing any urgency and it seemsthat it does not occupy a top position in governments’list of priorities.

The selected countries are party to some regional bodyor other, with some countries being a member of morethan one such body. All of them, namely, COMESA,EAC, SADC and SACU are mandated to developregional competition frameworks.

Synthesis Report


While COMESA and EAC have made substantialprogress with development of regional competitionlegislations, SADC and SACU have also deployedresources to achieve similar targets. While SADC istrying to develop a framework on capacity buildingfor members on competition, SACU is engaged inevoloving a Cooperation Mechanism on CompetitionPolicies with UNCTAD's assistance. The AfricanUnion Commission has also identified CompetitionPolicy as a priority area for undertakingharmonisation of business laws in Africa. One hopesthat there are synergies between all these regionalinitiatives so that their ultimate goal of developingwell-functioning, competitive markets in the regionis achieved.

Recent body of research has shown that differencesin physical capital and educational attainment canonly partially explain the differences in productivitythat exist between developed and developing world.The differences in capital accumulation andproductivity are to a great extent driven by differencesin institutions and government policies that are calledsocial infrastructure. Undoubtedly, regulatory bodiesincluding the competition agency are importantcomponents of social infrastructure. An appropriateregulatory framework is thus important not just forthe sake of markets but as a development requirement.

But, the state of the regulatory framework that existstoday in most of these countries is not veryencouraging. It is not only about competition law orpolicy, but even the development of sectoral regulationis also quite inadequate, even in some sectors where aclear and predictable regulatory framework isessential. Many sectors that require regulationurgently remain unregulated or under-regulated orinappropriately regulated. It is extremely importantto identify the sectors that need regulation and put anappropriate regulatory framework in place. In manycases, regulation is still in the hands of line ministriesthemselves or some agency under them. This lack ofsufficient autonomy not only affects properfunctioning, it also creates problems of conflicts ofinterests. In many sectors, state owned enterprises areoperating simultaneously with private enterprises. Asa result, the regulating ministry or department is alsothe owner of some of the market players. It is difficultto expect regulatory impartiality in such a situation.If at all it becomes difficult to create an independentregulator due to political economy reasons, care mustbe taken to avoid conflict of interest situations. Forexample, if the Ministry of Telecom continues to holdsufficient influence on the telecom regulator, the stateowned enterprise under the same ministry must notbe responsible for telecom service provision. Theymay be shifted to some other ministry such as Ministryof Industry or say, Ministry of State Enterprises.Nevertheless, the regulators should be given sufficientfunctional autonomy. This is not to say that the

Government or the Ministry should not have anybusiness in this regard, but that that should happenonly in extreme situations.

Governments in many developing countries arereluctant to adopt and implement a competition lawwith the pretext that the business is not yet ready forit. However, our survey in the 7Up3 countriesindicates that, this may not be the case. It comes outfrom the survey that majority of all stakeholder groupsincluding businesses people in these countries seemto be willing to accept competition law. Hence, ifgovernments adopt and implement competition lawtaking them, along with other stakeholders, intoconfidence, there should not be any major problem.

It is also well recognised now that a competition lawdelivers desired outcomes only if it is complementedby appropriate consumer protection and sectoralregulatory laws. So much so that many countries havenow adopted a hybrid law that addresses bothcompetition and consumer protection issues.However, consumer protection law does not exist insome of the countries, and some of them are not evenconsidering it. Even in countries, where it exists, theimplementation of the same is not considered to beimportant by the government.

In sum, all these countries need action in areas ofcompetition law, consumer protection law and otherregulatory laws. They need to look at the issues in acomprehensive manner and should try to plug all thegaps in this regard.

In smaller countries like Botswana, Namibia, Malawi,and Mauritius, it might be useful to includecompetition and consumer protection in a hybrid law.Or they might have different laws to be implementedby one agency. A similar approach can be taken interms of sectoral regulation as well. Differentregulatory laws for different sectors can beimplemented by a single agency. This would help inbetter allocation of resources both financial andhuman. Such an approach can also help in inter-sectoral learning as well as resolving interfaceproblems to a great extent. One must of course becareful to see that one agency does not becomeoverloaded.

As indicated earlier, when it comes to settingenforcement priorities, socio-economic characteristicsof the country should play a major role. In apredominantly agricultural country with widespreadpoverty, the abusive practices of the monopsonisticbuyers imposed on the farmers need to be addressed,as against in a developed country where this sector ismore or less ignored in this regard as agriculturecontributes just about five percent to GDP and thegovernments tend to address the problems of thesector through subsidies rather than competition

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policy. In fact, such practices may simply be ignoredas they often benefit the consumers at the cost of theproducers. Indeed in developing countries often it isdifficult to distinguish between producer andconsumer interests as many of the producers or sellersare not big corporations but self-employed sellers. Itmay, however, be noted in this context that in the USthe antitrust policy originated precisely to tackle thesekinds of problems.

Another related issue is the types of practices that areconsidered anti-competitive practices. As per theprevailing paradigm in the US, only price-fixing andbid-rigging are taken seriously. However, thestakeholders in the 7Up countries were asked tocomment on several types of practices that could beconsidered anti-competitive. Apart from these twopractices, the stakeholders also expressed concernsover exclusive dealing, price discrimination and resaleprice maintenance. This has implications forenforcement priorities as well.

Regulatory reforms policies in these countries seemto have been an amalgam of regulation, administrativeintervention and political decision with the businesslobby working as a strong pressure group. Consumerlobby is almost non-existent or has by and large beenbypassed in the process, except in relatively fewercases where consumer concerns have beenhighlighted by the media. The problem is exacerbatedby the fact that the capacity of other stakeholdergroups is also limited. As we have seen in our survey,consumer and other civil society groups are generallyless aware in these countries compared to policymakers and businesses. Such asymmetric powerequations may lead to political capture of regulationor capture by producers group.

The challenge, therefore, lies in making the marketsmore competitive and in creating independenteffective regulatory institutions that address marketfailures, fairness and distributional objectives. Theresponse to such challenges lies, to a great extent, inadequate capacity building of the regulators, policymakers and other stakeholders.

To sum up the following key issues can be highlightedthat the national governments, regional authoritiesand development partners need to address in order toensure the evolution and implementation of a healthycompetition culture in Eastern and Southern Africa.

• Need for hybrid agencies administering competitionand consumer protection legislations, instead ofhaving separate agencies for the purpose in smallcountries – a case in mind is Malawi. In Malawi,the administration of the competition legislation(of 1998) begun only recently (year 2005) from anInterim Secretariat of the competition authority,

however, there has been no movement forwardwith regards the consumer protection act (enactedin 2003). There is a certain lack of synergy betweenthe above two acts, which raises the issue whetherhaving an integrated competition and consumerprotection act (and an agency to administer thesame) would be a more efficient arrangement in thecountry.

• Political economy issues play a vital role in mattersrelated to competition policy and lawadministration:

• Uganda Competition Bill remains standstill, as therehas been no movement forward with respect to theBill that was scheduled to be tabled before theParliament in 2005. However, the term of thecountry’s 7th Parliament ended before this and thedraft has been sent back to the Ministry of Tourism,Trade & Industry;

• Case of Mauritius Competition Bill: The newgovernment of the country ushered in a new draftof the Competition Bill in 2006. However, the draftwas subsequently rejected and the country hasembarked on a process of preparing a fresh draft.

• Botswana presents a good example of evolving theright regulatory environment for competitionadministration. The country drafted a CompetitionPolicy, and then embarked on the process ofdeveloping a competition law. However, one checkneeds to be done to ensure that the CompetitionLegislation is constructed with the inputs ofnational stakeholders, and does not merely dependupon the perception of an external/internationalexpert who prepares the legislation without therequisite due diligence and extensive in-countryconsultations.

• Building greater public awareness is necessary –especially by demonstrating to various stakeholdersthe benefits from an effective competitionlegislation, which helps protect the interest ofconsumers as well. The government has to take abig share of the responsibility to achieve this targetfor promoting a competition culture, and ensureparticipation of other stakeholder groups in theprocess.

• Need to explore the possibility to establish a‘Competition Fund’ under a Competition Law tosupport consumer awareness building activities oncompetition issues.

• It is imperative to develop the capacity of the civilsociety to complement the efforts of the competitionauthority in a country, given the constraints ofresources (human and financial), which seems tobe an innate weakness of competition authoritiesof eastern and southern Africa (like most othercountries of the developing world).

• Competition Authorities should have an elaborate‘Public Relations/Communications Strategy’ togarner public support for implementing thecompetition law.

Synthesis Report


• A process of dialogue between ‘government – civilsociety – businesses’ is crucial for developing ahealthy competition regime. Civil Society(especially Consumer Organisations) should beencouraged to facilitate this dialogue. This, inaddition to catalysing a useful discussion oncompetition policy and law, would also strengthenthe consumer movement in Eastern and SouthernAfrica.

Note: This chapter has been researched and written by Nitya Nanda, with inputs from Rijit Sengupta. The author isgrateful to Eleanor Fox (Professor, New York University, USA) for her valuable comments. Inputs have alsobeen received from the members of the Internatinal Advisory Board of CUTS CCIER, the Project AdvisoryCommittee members and country partners. Any remaining mistakes are the author's own.

• Independent regulators need to be promoted, wherethe regulators could function independent of theirrespective line Ministries. The regulators need notbe totally independent of the government. However,putting a regulator and the relevant sate ownedenterprises under the same line ministry must beavoided.

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IntroductionWhile Botswana does not have a Competition Law, aCompetition Policy was passed in Parliament inAugust 2005 and is expected to pave way for thedevelopment of a Competition Law. This report,therefore, attempts to profile competition policy andlaw related issues in Botswana. The report isorganised as follows:l Background of Studyl Objectivesl Methodology & Scope of Studyl Country Profilel Policies Affecting Competition in Botswanal Laws & Regulations Affecting Competition in

Botswanal Nature of Market Competitionl Survey Resultsl National Competition Policy for Botswanal Regional Integrationl Conclusions

Background of StudyGlobalisation has led to integration of markets. InAfrica, national markets have been integratingthrough three regional bodies, viz., the CommonMarket for Eastern and Southern Africa (COMESA),the Southern African Development Community(SADC), and the East African Community (EAC), withconsiderable geographical overlap. As a response toforces of globalisation many countries of the worldhave adopted new policies of trade liberalisation,deregulation, and privatisation. While developingcountries like Botswana continue to remodel theirstate-dominated economies into market economies,new challenges are emerging from these processes.One of them is to strengthen the functioning of marketforces in an appropriate manner. In this context, theneed for an effective competition policy and law toachieve the maximum benefits from the process ofliberalisation has been emphasised in severalquarters.

However, it is apparent that not much is known aboutcompetition issues in many African countries.Responding to this need, CUTS initiated this study

under the auspices of a regional project entitled‘Capacity Building on Competition Policy in SelectCountries of Eastern and Southern Africa’. The projectcovers seven countries of the region: Botswana,Ethiopia, Malawi, Mauritius, Mozambique, Namibia,and Uganda. The study is expected to help differentstakeholders understand competition concerns inBotswana.

ObjectivesAs per the terms of reference, the key objectives of thisstudy are to:• conduct an evaluation of the competition concerns,

including their regional dimensions, faced inBotswana and the existing architecture for dealingwith those concerns.

• develop the capacity of national stakeholdersincluding the policy makers, regulators, CSOs,especially consumer associations and groups,academicians and the media through aparticipatory process to understand and appreciatethe country’s prevailing competition concerns.

Methodology & Scope of StudyThe following is a description of the approachemployed to assess competition concerns in Botswana.The methodology employed included two mainactivities, namely, data collection and review of severaldocuments that may shed light on competition issuesin Botswana.

The study targeted three main categories ofrespondents: business, government, and civil society/consumers. The requirement was that 50-75respondents be interviewed but the study managedto benefit from 48 respondents (16 from thegovernment, 16 from the private sector and 16 fromcivil society), which by any standard is a goodresponse rate. The respondents were randomlysampled from government ministries, the privatesector (the Botswana Confederation of CommerceIndustry and Manpower members), and civil society(the Botswana Coalition of Non-governmentalOrganisations’ members and the general public). Thestudy focused itself in Gaborone and surroundingareas.

Chapter 2Competition Scenario in Botswana

Botswana


The study used a combination of both self-administered questionnaires and interviewee-administered questionnaires with occasionalfollowups. Extensive literature review wasundertaken,among others, policies, regulations, andlaws affecting competition in Botswana as well asprevious related studies in Botswana.

The study was undertaken on the background ofserious limitations. These included;

1. Financial Constraints: The study had seriousfinancial constraints, which limited thegeographical coverage of the study to Gaboroneand surrounding areas.

2. Representativeness: The fact that the study focusedmainly in Gaborone makes it less representative ofthe entire country, although there is no immediatereason why perceptions about anti-competitivepractices should vary greatly between urban andrural areas.

3. Comparative Study: As a comparative studybetween different countries, the study design hadto be the same for all the countries to allow forcomparisons. While this is a welcome innovationas it allows for benchmarking and comparisons, itdid not allow for adequate flexibility to take intoaccount differences between countries.

4. Questionnaire Design: Coupled with financialconstraints, the questionnaire design did not allowone to adequately measure competition within themarket, but was only suited to capture perceptionsabout the state of competition in the market.Measuring competition in a given market requiresdata that would allow the calculation ofconcentration indices (to be explained further inSection 7.3). The questionnaire design did not allowfor that.

5. The study was very broad, requiring respondentsto think in broad terms and the sample was verysmall. It is difficult to make generalisations from asmall sample. This means that while results fromthis study are indicative of the Botswana scenario,caution is required in their interpretation. It isunlikely that respondents would know what ishappening within the entire economy. Instead, itis more likely that respondents would be a lot moreconversant with what is happening within anindustry in which they operate, than the broadeconomy. It is expected that a more focused studyin the future would address the above limitations.

Country ProfileBotswana is a landlocked state bordered by SouthAfrica to the South and South-east, Zambia and

Zimbabwe to the North-east and Namibia to the Northand West. The country covers an area of 582,00 km2.The climate is sub-tropical, ranging from continentalto semi-arid.

The country has a population of about 1.7 millionpeople (2001 estimate), with the eastern part wheremajor towns are located being the most concentratedin the country. Between 1971 and 1981, the rate ofpopulation growth was 3.5 percent per annum, whileit was 2.7 percent and 1.7 percent per annum between1981 and 1991, and 1991 and 2001, respectively.

At Independence (in 1966), Botswana was one of thepoorest countries in the world. The dominant economicactivity in the country was cattle rearing. However,the discovery of diamonds in 1967 brought rapid andsustained growth, allowing remarkable advances inboth social and physical infrastructure. The economyhas experienced continuous growth since then.

From 2001 onwards, Botswana has maintainedInvestment Grade A Sovereign Credit Ratings, with astable outlook by both Moody’s and Standard andPoor’s, which reflect the country’s strong public sectorbalance sheet and political and macroeconomicstability. These ratings have been the highest in Africaever since Botswana enlisted for such ratings from2001. In addition, Botswana has been rated by theHeritage Foundation, in collaboration with the WallStreet Journal as among the top 30 countries in theworld (ahead of countries such as Spain and Norway)and number one in Africa with respect to economicfreedom.

However, these positive attributes of the Botswanaeconomy continue to be undermined by the challengesposed by HIV/AIDS and related diseases such astuberculosis, with about infection rates of 17.3 percentof the entire population and about 37.4 percent ofpregnant women between 15 and 49 years.

Policies Affecting Competitionin BotswanaThere are some policies that may encourage oradversely affect competition in the market. Below is adiscussion of such policies.

Trade PolicySouthern African Customs Union (SACU), 2002The main legislation affecting foreign trade inBotswana is the Southern African Customs Union(SACU) agreement. Alongside South Africa, Namibia,Swaziland, and Lesotho, Botswana is a member ofthe SACU. Thus, Botswana’s tariff policy is governedby SACU.

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Common External TariffSACU imposes a common tariff (customs and exciseduties) on goods imported from third countries, whilegoods circulate duty-free within SACU members.Thus, by virtue of being a member of SACU, Botswanaimposes a SACU duty on all goods coming from non-SACU members, which may be seen asdisadvantaging or rendering such goodsuncompetitive within the Botswana market, relativeto goods coming from within SACU.

Protection of Infant IndustriesOn account of protection of infant industries, the SACUagreement allows Botswana, as a temporary measure,to levy additional duties on goods imported into thecountry from SACU members provided that suchduties are levied equally on goods grown, producedor manufactured in other parts of SACU and goodsthat were imported into other SACU members fromnon-SACU members, and later imported intoBotswana. Such additional duties may also be leviedon goods imported from non-SACU members. Such aprovision, though temporary, gives local infantindustries an unfair competitive edge over imports.However, it must be emphasised that the protection istemporary (eight years) and it is meant to help infantindustries gain ground before exposing them tocompetition. Operational and well-establishedcompanies that have benefited from this clauseinclude Kgalagadi Soap Industries, a companyspecialising in soap production, a beer-producingcompanyby the name of Kgalagadi Breweries, andBolux Botswana, a company specialising in breadproducts.

There are however, other aspects of Botswana tradepolicy that may be seen as encouraging Competition.These include;

The World Trade Organisation (WTO)Agreement, 1994Botswana has been a member of the WTO since itsinception in December 1994. Thus, in acceding to theWTO agreement, Botswana acceded to the GeneralAgreement on Trade in Services (GATS). Under GATS,Botswana has already made commitments on thetreatment of foreign providers in a number of sectors.A commitment in a services schedule is anundertaking to provide market access and nationaltreatment for the service activity in question on theterms and conditions specified in the schedule. Thus,Botswana has opened up its market equally to allmembers of the WTO within the following sectors:(a) business services;(b) professional services including architectural

services, engineering services, integratedengineering services, medical and dental services,veterinary services, services provided bymidwives, nurses, physiotherapists, paramedicalpersonnel, and other medical services;

(c) computer related services, particularlyconsultancy services, installation of computerhardware, software implementation services,data-processing services, and database servicesand maintenance, and repair of office machineryand equipment;

(d) research and development services relating tosocial sciences and humanities (including lawand economics);

(e) real estate services involving own or leasedproperty, or on a free or contract basis;

(f) other business services, particularly maintenanceand repair of equipment (excluding maritimevessels, aircraft or other transport equipment) andtranslation and interpretation services;

(g) communication Services inclusive of commercialcourier services; and

(h) tourism and related services inclusive of hotel andrestaurant catering, and travel agencies, and touroperators.

Southern African DevelopmentCommunity (SADC)Botswana has been a member of SADC since 1980.While the objectives of SADC were to reducedependence on apartheid-driven South Africa, theobjectives of post-apartheid SADC are geared towardspromoting regional cooperation and integrationtowards a single regional market. To achieve this,SADC seeks to develop policies aimed at theprogressive elimination of barriers to free movementof capital, labour, goods and services (trade) and tomobilise support for national and regional projects.

SADC has, therefore, developed a Trade Protocol in2000, which aims to establish a Free Trade Area (FTA)in the SADC region and provides for intra-SADC tradeliberalisation, with the removal of non-tariff barriers(NTBs) within eight years. Thus, Botswana’s tradepolicy in the context of SADC has opened up theBotswana market for goods from other SADC memberstates, which has essentially encouraged competitionwithin the Botswana market.

Botswana-Zimbabwe TradeAgreement of the 1950sWhile this agreement has its origin in the 1950s, thecurrent Botswana-Zimbabwe Trade Agreement wassigned in October 1988. The agreement provides thattrade is generally to be free of custom duties andquantitative export and import restrictions. Theagreement states that in order to qualify for suchtreatment, goods must meet some qualifications, suchas rules of origin (RoO) and related documentationprocedures. For manufactured goods to meet therequirement for RoO, they must have 25 percent ormore of local content. Calculations for the local contentinclude the cost of materials grown, produced, ormanufactured in Botswana or Zimbabwe that, are inturn used in the manufacture of goods. The definition

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excludes managerial salaries and locally-ownedprofit. It is, therefore, generally considered stringentand may be seen as restricting trade rather thanfacilitating trade, and hence not encouragingcompetition as one would expect of a trade agreement.

Reservation PolicyBotswana reserves some economic activities forcitizens to create economic opportunities andencourage their participation in the economy.Competition from foreign companies is restricted insome areas of commercial manufacturing, constructionand services activities. New licenses are reserved forcitizens in the following commercial activities; taxiservices, butcheries and sale of fresh products, securityguard services, hawkers and vendors, dairy, smallgeneral trading, petrol filling stations and bottle storesand bars (other than those in hotels), general trading(except for chain stores and franchises),non-specialised and unsophisticated clothing andfootwear shops. Existing firms owned by non-citizensare allowed to continue their business not involvingtechnologies or high technical skills.

Some industrial activities reserved for citizens include;uniforms, baked bricks, ordinary cement andsorghum milling, ordinary bread baking, schoolfurniture, and burglar bars.

Certain aspects of road contract and railwaymaintenance are also reserved for citizens. Theseinclude maintenance of roads, fencing, drainage andculverts, maintenance of road reserves, transport andplant hire, carting gravel, bush clearing, road marking,resurfacing bitumen roads and bridge painting.

In addition, under the Local Procurement Programme,30 percent or less of government purchases arereserved for resident manufacturers falling within thesmall and medium scale category. To qualify, firmsmust have 25 percent local content and meet at leasttwo of the following criteria:i. annual turnover between P0.2 million and P5.0

million;ii. less than 200 employees, and investment in plant

of between P0.5 million and P5.0 million. Theremust also be at least one other firm producingthe same products, with different directors andshareholders. While all the above have othergood intentions, they restrict competition.

(P=Botswana Pula; 1P=0.16 US Dollar)

Laws and Regulations AffectingCompetition in Botswana

Both this study and the Economic Mapping Study,which informed the development of Botswana’scompetition policy have identified a number of laws(56 Laws) and regulations that have an impact oncompetition in the country. The Economic MappingStudy was undertaken to inform the development ofBotswana’s competition policy.

The Companies Act, 1942The Companies Act11 is the first key statute regulatingmarket entry or the establishment of a business inBotswana. The Companies Act provides rules andregulations on the formation, registration,management and administration and dissolution ofvarious types of companies.

A review of the Act was commissioned with a briefthat underlined the need for a legal and regulatoryframework that would encourage a competitive or lessrestrictive commercial environment and wouldfacilitate domestic commercial activity and the flowof foreign investment. Also, required was a regulatoryframework ‘more friendly’ to small businesses thatwould complement objectives of the policy onpromotion of the role of Small, Medium and MicroEnterprises (SMMEs) in the economy (SMME Policy,1999).

The review of the Act has been completed. A new lawis in the offing, proposing drastic changes of the rules,regulations and procedures on incorporation andregistration, management and administration of somecompanies, and shareholding and dealings in shares.

The Industrial Development Act, 1998This Act regulates entry into manufacturingbusinesses that are not otherwise regulated by specificpieces of legislation. The Act establishes an IndustrialLicensing Authority responsible for, amongst others,the supervision of industrial development, and forthe issue of licences for the manufacture of productsoffered for sale in Botswana.

Among the grounds listed in Section Five that theAuthority can invoke for refusing to grant amanufacturing licence are the following:

11 Indications are there of a new Act. Attempts to have a look at the Act have been fruitless. However, it is inconceivable that areasdiscussed above may have changed drastically.

55

l that the capital, technical skills or raw materialsavailable are, in the opinion of the Authority,inadequate to secure the successful establishmentand operation of the enterprise, and failure of theapplicant’s enterprise might prejudice thesuccessful development of the industry concerned;

l that a licence for the manufacture of the proposedproduct ‘has already been granted to some otherperson in respect of the same part of Botswanaand such licence is an exclusive licence’;

l that the granting of the licence, in the opinion ofthe Authority, would not be ‘in the best interests ofthe economy or public will of Botswana or of theparticular industry concerned’; and

l that the applicant has already been issued with orapplied for licences in respect to four or moremanufacturing enterprises under this Act andcould only be considered for a further licence withthe written approval of the minister.

These grounds reflect an attempt to affect an industrialdevelopment policy that has since undergoneimportant revisions and reorientation.12 Botswana’sIndustrial Development Policy still is broadlyconcerned with diversification of the economy. Therevised policy takes into account changes to domesticand international trading environments broughtabout by globalisation and regional and multilateraltrading arrangements. It advocates reorientation ofindustrial development towards the opportunities andchallenges presented by these developments.Exclusive manufacturing licences are not compatiblewith the new, highly competitive international tradingenvironment and, particularly, with Botswana’scommitments under the World Trade Organisation(WTO). The revised policy recommends amendmentsto the Act to remove provisions relating to the grant ofsuch licences.13

There are other aspects of the Industrial DevelopmentAct that should be revisited together with provisionson exclusive licences and some of the groundsenumerated in Section Five are the duration of licencesissued under the Act, and the policy of reserving somemanufacturing businesses for citizens of Botswana.Licences are granted for a period of one year,renewable from year to year. This is probably too short

a period and a strain on the administration of thelicensing system. The reservations policy may serveother goals articulated in the policy on SMMEs, suchas: development of citizens’ entrepreneurial skills,empowering citizens to control increasing proportionsof economic activity in the country, encouragingeconomic diversification and creation of sustainableemployment opportunities. But it so far has had thedistasteful effect of allocating mostly menial activitiesto citizens.

As the SMMEs policy also acknowledges, it has thepotential of inhibiting the flow of foreign capital,technical and managerial skills into the reservedsectors, and of encouraging fronting, and otherillegalities. The SMMEs policy recommends relaxationof the reservation policy, so that joint ventures betweencitizens and non-citizens may be allowed in somemedium scale enterprises, as long as citizen partnerswill have not less than 45 percent of the beneficialshareholding. It is better to pursue policies like citizenempowerment through measures other thanregulation or restriction of entry into certain lines ofbusinesses.

The Trade and Liquor Act of 1993This Act has been under review for some time.14 TheAct regulates entry into businesses for the supply ofgoods and services, mostly to end-users. It establishesa national authority and local licensing authoritiesfor the issue of licences in respect of trades orbusinesses such as import and export, agency,auctioneers, pharmacy, general dealing, wholesaleand retail, supermarket, motor dealers, garage andworkshop, petrol stations, dry cleaning andlaundromats, hairdressers, and restaurants.15 Adistinct part of the Act also regulates the sale or supplyof intoxicating liquor in specified places.16

The grounds for rejecting an application for a tradelicence include: (a) that the applicant is a minor; or (b)that the issue of a licence would conflict with townplanning or zoning schemes or health or otherregulations.17 (c) that licenses have to be renewedwithin 12 months, that the person is fully conversantwith the business and (d) certain types of licences orbusinesses are reserved for citizens of Botswana.

12 Republic of Botswana, Industrial Development Policy for Botswana, Ministry of Commerce and Industry, Government Paper No. 1of 1998, Government Printer, Gaborone.

13 Republic of Botswana, Industrial Development Policy, para. 3.18. p. 12.

14 As this report is written a motion aiming at deferring some aspects of this Act is being discussed in parliament. Details of the Actare not yet available to the public.

15 Sections 3, 4, 5 and 7.

16 Part IV, Sections 28 to 46.

17 Section 14 as replaced by section 11 of the Trade and Liquor (Amendment) Act, No. 11 of 1993.

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Another issue of concern relates to the sweepingpowers of the Minister to suspend, cancel, orwithdraw a licence at any time if, in his/her opinion,this is in the interest of the inhabitants of a particulararea or of Botswana generally. It is asserted that theMinister “shall not be obliged to furnish reasons forany decision taken by him in terms of this section,and such decision shall be final and shall not bequestioned in any court”. In order to promote a vibrant,competitive trading environment, this provision couldbe replaced by one suggesting that a tribunal or acompetition regulator shall consider appeals againstdecisions of the Minister or any other licensingauthority.

Public Procurement and Asset DisposalAct of 2001This Act is mainly concerned with procurement ofworks, supplies and services for the governmentand disposal of public assets. It provides for aboard, whose functions and powers includeensuring that some of the following principles areobserved by procuring entities:(a) an open, competitive economy and changing

external obligations in relation, generally to trade,and specifically to procurement, whichdynamically impacts on a continuous basis ondomestic procurement policy and practice;

(b) competition among contractors by using the mostefficient and competitive methods of procurementor disposal to achieve the best value for money;

(c) fair and equitable treatment of all contractors inthe interests of efficiency and maintenance of alevel playing field.

However, Section 66(1) of the Act, which states that“Pursuant to its economic and social objectives, thegovernment may from time to time introduce reservedand preferential procurement and asset disposalschemes, which shall be consistent with its externalobligations and its stable, market oriented,macroeconomic framework”. A disturbingobservation is that while such schemes are expectedto be time bound and non-discriminatory withintargeted groups, they will exclude participation ofsome players. This may be construed by some asuncompetitive, and may be deemed to contradict theenvisaged Competition Policy and Law, as well asthe principles of competition outlined above.

Telecommunications Act of 1996The Telecommunications Act regulates the provisionof telecommunication services. Unlike, the PublicProcurement and Asset Disposal Act discussed above,the Telecommunications Act has no profound citizenpreference. The Act is also more explicit on thepromotion of competition in the sector. Section 17(2)(c) states that, the regulator, the BotswanaTelecommunications Authority shall

“promote and maintain competition among personsengaged in commercial activities for, or in connectionwith the provision of telecommunication services, andpromote efficiency and economy on the part of personsso engaged”.

Section 20(1) states that the Authority “shall beresponsible for monitoring competition in thetelecommunications sector”. Section 20(2) gives theauthority the power to report any contravention tothe Attorney General who shall then deal with anysuch contravention, as he considers appropriate.

In addition, Section 48(1) states thattelecommunication services shall, as far aspracticable, and within the framework of the licensingsystem established by the Act, be provided on acompetitive and non-discriminatory basis.

While this Act is pro-competition, it has seriousoverlaps with a model competition law. For example,like a competition law, in addition to the above, theAct prohibits, among others, forming cartels, use ofdominant position in a market for the purposepreventing entry into the market, collusion betweenoperators etc. This means that the passing of thecompetition law and the establishment of aCompetition Authority will necessitate the revisionof this Act. The Act may require surgery to transfer thecompetition functions of the BTA to the CompetitionAuthority.

Consumer Protection Act of 1998Botswana’s Consumer Protection Act is fairly new(1998). The Act establishes a Consumer ProtectionOffice, under a relevant government ministry. Themain functions of the office include, among others,investigating ‘unfair business practices’, and wouldpreside over the settlement of disputes relating to‘unfair business practices’ . A business practice isdescribed as such. It includes:(a) any business agreement, accord or undertaking

of a business nature;(b) any scheme, practice or method of trading,

including any method of marketing ordistribution; or

(c) any advertising, type of advertising, or any othermanner soliciting business.

It follows, therefore, that undertaking any of the abovein an ‘unfair’ manner constitutes violation of theConsumer Protection Act. It is anticipated that thesame would be in violation of the Competition Lawonce in place. This Act may, therefore, requiresubstantial re-writing in light of the provisions of theCompetition Law, once in place. Like in the case ofthe Telecommunication Policy, the Act may requiresurgery to transfer the competition functions of theConsumer Protection Office to the CompetitionAuthority.

57

Botswana MeatCommission Act of1965The Act gives the BotswanaMeat Commission statutorymonopoly over the export ofmeat, canned meat, and livecattle. This is clearly anti-competitive as it completelydenies any interested partywilling to enter the meat exportmarket to do so.

Road Transport Permits,CAP 69:03 (17)(3)The Transport Secretary mayattach to a public service permit such conditions ashe may think fit for securing that:(a) Fares are not unreasonable. Market forces thus do

not control fares. A transport operator maytherefore not reduce prices if he deems it fit to doso.

(b) Where desirable in the public interest the faresshall be fixed as to prevent wasteful competition withalternative forms of transport, if any, along theroutes specified in the permit. It is against thisbackground that an aspiring operator may bedenied the opportunity to enter the market even ifhe is convinced that it would be profitable to do so.

Banking Act, 1995 Section 9(5)No Bank shall open (or keep open) or close (or keepclosed) an existing place of business, or change itslocation, without the prior written approval of theCentral Bank. Thus, it can be argued thatthis has a potential of preventing a bank todo business in an area that best suits it, if itwants to compete with its rival.

Nature of MarketCompetition

Market ConcentrationMarket power is a central concept in theeconomic assessment of competition; butdetermining whether a firm has marketpower is not straightforward. While thereare many measures of market power, one needs to becautious about drawing direct inferences aboutmarket power from such measures. This section drawsheavily from the Economic Mapping Study, wheremarket power was measured by the turnover of thethree largest firms in an industry relative to the totalturnover in the industry; a measure known as the 3-Firm Concentration Ratio (CR3). It is assumed thatnot much change has happened to the rations, thusthe results are treated as current. Based on this

measure, market characteristics are classified into fivecategories in table 2.1 below.

The results (Table 2.2) indicate high levels ofconcentration in the long distance transport sector(CR3 of 65.7 percent in 2000) followed by Hotels andRestaurants (CR3 of 64.8 percent) and Agriculture(CR3 of 63.6 percent). The Manufacturing and Financesectors had concentration ratios of between 50 and 55percent. The least concentrated industries andprobably the most competitive industries wereWholesale and Retail Trade (26.8 percent) andConstruction (40 percent). It is important to note,however, that low concentration ratio does not inanyway guarantee lack of anti-competitive practicesin the market. Instead, it simply shows lack ofdominance in the market, which by extension reducesthe chances of practices such as price fixing and pricediscrimination.

As we assess individual sub-sectors’ concentrationratios, we will realise that they are relatively higherthan the sectors’ ratios. This is not surprising as thesectors’ ratios are essentially calculated from adenominator that combines all sub-sectors and thedenominator only includes the top three firms.

Table 2.1: Concentration Categories and Market Characteristics

Concentration Category Market Characteristic

based on CR3

0 – 20 Highly competitive without significant market share

20 – 40 Competitive with significant market share for threelargest firms, but no dominant market share

40 – 60 Generally competitive, but three largest firms mayhave dominant market share and are likely to abuse

market power

60 – 80 Concentrated - possibility of abuse of market power

80 – 100 Highly Concentrated - extremely high possibility ofabuse of market power

Table 2.2 : Market Concentration by IndustryIndustry CR3

1995 1997 2000Agriculture 96.0 55.1 63.3Manufacturing 33.1 43.8 50.2Hotels and Restaurants 66.2 63.5 64.8Construction 59.2 37.7 40.0Finance 51.4 56.2 55.0Transport 69.2 65.4 65.7Wholesale and Retail Trade 34.6 29.5 26.8

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AgricultureThe Agriculture sector is the smallest sector in

terms of number of firms.18 It has 91 registered firms(2.2 percent of all registered firms in the Botswanamarket), making it least an intense industry. Out ofthe 91 firms, 29 are commercial crop farming, 46 arecommercial livestock farming, 14 are commercialpoultry farming and two are commercial wildlifefarming. However, we were only able to collect salesfigures for six firms.

Based on available data, the agriculture sector is highlyconcentrated. All the four sub-sectors haveconcentration levels of at least 70 percent (Table 2.3).However, this does not necessarily reflect the actuallevel of market concentration in these sectors; it ismainly due to the extremely small sample size andthe lack of data on most of the firms included in thesample. Only one firm in each sub-sector had its sales

figures available with the Tax Department. Inmost economies, the agriculture sector is the mostdifficult industry to fully capture quantitativelyin terms of its domestic competitiveness. Theindustry is characterised by about 500commercial farmers who are given special taxtreatment; hence, they may not file their taxreturns, thereby making it difficult to fullycapture the competitiveness of the industry. Thesituation is made difficult also because of the

way in which tax returns are compiled: tax returnsare currently compiled manually; and in a number ofcases, the files are missing.

ManufacturingThe manufacturing sector is the second largest

sector in terms of number of registered firms (with25.2 percent of the registered firms in the Botswanamarket). It has 1,042 registered firms. The sector iscomposed of 20 sub-sectors. Sales figures werecollected for only 76 firms, which is small comparedto the number of registered firms. Like agriculture, theindustry is traditionally composed of a few large firmsand a large number of small and medium size firmsthat usually do not correctly file their tax returns ordo not file their tax returns. This makes the informationobtained from tax returns on turnover less accurate.

Based on the sampleinformation, themanufacturing sectoris highlyconcentrated (Table2.4). This appears tobe a result of thestructure of theindustry. Them a n u f a c t u r i n gindustry has 20 sub-sectors and 76 firms,which gives it anaverage of 3.8 firmsper sub-sector.Therefore, it notsurprising that mostsub-sectors havet h r e e - f i r mconcentration ratiosof at least 70 percent.

Hotels andRestaurantsThe Hotels andRestaurants Industryis the fourth largest interms of number ofregistered firms. Theindustry has 275

Table 2.3: Market Concentration in AgricultureSub-sectors CR3

1995 1997 2000Commercial Crop Farming 76 80 82Commercial Livestock Farming 83 81 82Commercial Livestock Farming 76 80 87Commercial Wildlife Farming 100 100 100

Table 2.4: Market Concentration in ManufacturingIndustry Sub-sectors CR3

1995 1997 2000Meat and meat products 100.0 100.0 100.0Dairy products 100.0 100.0 100.0Grain mill products 98.0 98.5 99.1Bakery products 63.1 65.2 77.8Other food products 99.8 98.6 45.8Beverages 100.0 100.0 100.0Textiles 94.3 95.6 92.2Clothing and other wear apparel 83.6 88.2 92.0Tanning and leather products 100.0 100.0 100.0Wood and wood products 99.0 98.5 92.4Paper and paper products 100.0 100.0 100.0Printing and publishing 69.0 67.4 67.0Chemical and chemical products 76.7 72.1 69.9Rubber and plastic products 86.3 83.0 72.0Non metallic mineral products 75.7 54.3 69.9Basic metals 99.0 99.0 98.0Fabricated metal Products 84.7 75.7 76.8Office accounting and computing machinery 100.0 100.0 100.0Furniture (all items excluding wood and mattresses) 81.5 71.8 68.9Manufacturing of jewellery 100.0 100.0 100.0

18 Throughout the report, size is determined by the number of registered firms in a particular industry.

59

registered firms (6.6 percent of all registered firms inthe Botswana market). The industry is dividedinto three sub-sectors: Hotels and Restaurants(with 44 registered firms); Restaurants, Cafes andCanteens (214); and Bars and Shebeens (17). Theindustry depicts a picture (Table 2.5) of highlyconcentrated sectors in Hotels and Restaurants(92.5 percent) and Bars and Shebeens (89.8percent). Restaurants, cafes and canteens arebecoming more competitive. The concentrationratios have been decreasing from 73.6 percent in 1995to 62.1 percent in 1997 and down to 59.6 percent in2000 (Table 2.5).

ConstructionThe Construction Industry is the third largest industrywith 569 registered firms (representing 13.7 percentof all registered firms in the market). The industry isdivided into four sub-sectors: Construction of Buildingand Houses; Construction/Civil Engineering;Building Installation Work; and Renting ofConstruction or DemolitionEquipment. The Construction ofBuildings and Houses is thelargest sub-sector with 341registered firms. Not surprisingly,the smallest sub-sector is theRenting of Construction orDemolition Equipment.Construction and demolitionequipment is expensive.The sample data indicate that the constructionindustry shows high levels of concentration (Table2.6). As might be expected, the construction of building

and houses and construction/civil engineering arethe most competitive within the industry, even thoughthe levels of concentration are still very high (around70 percent).

FinanceThe Finance Industry is composed of 107registered firms (2.6 percent of all registeredfirms in the market). The industry is dividedinto three sub-sectors: Banking Sector (with75 firms), Insurance and Pension Funds Sector(with 21 firms) and the Securities Sector

(see Table 2.7).

The Insurance and Pension Funds has the highestconcentration in the Finance Industry. However, thelevels of concentration declined from 93 percent in1997 to 86 percent in 2000. The Banking sector alsoindicates a high level of concentration. Unlike in theInsurance and Pension Funds, the concentration inBanking has been on the increase since 1995. Thelevels have increased from 71.5 percent in 1995 to 77.3percent in 1997 and to 79.9 percent in 2000.

Transport

The Transport Industry is the fifth largest sectorwith 136 registered firms (3.3 percent of all registeredfirms). The industry is divided into four main sub-sectors: Road Transport (Freight and Passenger), Air

Transport (Freight and Passenger), RailTransport, and Travel Agents and TourOperators (see table 2.8).

From the data collected, the Transportsector shows high levels of concentration.Actually, the evidence indicates no change inthe concentration of Freight Transport by Road,but there in increasing concentration inPassenger Transport by road and Travel Agentsand Tour Operators.

Wholesale and Retail TradeThe Wholesale and Retail Trade Industry is the

largest industry in the economy. It has 1,918 registeredfirms (46.3 percent of all registered firms). The industryis also the most competitive in the economy.Concentration levels have been steadily decliningfrom 34.6 percent in 1995 to 29.5 percent in 1997 and

Table 2.5: Market Concentration in Restaurants

Sub Sectors CR3

1995 1997 2000

Hotels and restaurants 84.1 86.1 92.5

Restaurants, cafes and canteens 73.6 62.1 59.6

Table 2.6: Market Concentration in Construction

Sub-sectors CR31995 1997 2000

Construction of houses 86.0 70.7 70.1Construction/civil engineering 79.0 77.4 69.1Building installation work 98.2 95.4 93.0

Renting of construction ordemolition equipment 90.3 92.7 88.7

Table 2.7: Market Concentration in FinanceSub-sectors CR3

1995 1997 2000Banking 71.5 77.3 79.9Insurance and pension funds 92.9 94.0 86.0

Table 2.8: Market Concentration in TransportIndustry CR3

1995 1997 2000Freight transport by road 77.2 74.5 76.2Travel agents, tour operators 79.9 81.2 81.4Passenger transport by road (excluding taxis) 81.0 86.0 89.0

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26.8 percent in 2000 (see table 2.9). The industry isdivided into four sub-sectors: Sale of Motor Vehicles(with 45 registered firms); Maintenance and Repair ofMotor Vehicles (the second largest sub-sector with 161registered firms); Sale of Motor Vehicle Parts andAccessories (with 85 registered firms); and Wholesaleand Commission Trade (the largest sub-sector with304 registered firms).

Table 2.9 indicates that the Wholesale andCommission Trade sub-sector is the leastconcentrated within the industry. The concentrationlevels have decreased between 1995 and 2000, from52.6 percent to 40.7 percent. The other sectors havenot shown any notable changes. They remainhighly concentrated with Sale of Motor Vehicle Partsand Accessories having the highest level ofconcentration (around 90 percent).

Survey ResultsThis section analyses the results from the field survey.The section is structured as follows. Overall picture;Government, Consumers and Business perspectivesrespectively on the competition regime in the country.

Overall PictureExistence of Anti-competitive PracticesRespondents were asked to rate the extent to whichthey thought anti-competitive practises existed inBotswana. 68.8 percent of the respondents said thatthe existence of such practises was moderate, 20.8percent said the existence was significant, while only8.3 percent said the existence was huge(Figure 2.1).

This is in line with theEconomic Mapping Study,which observed that there areanti-competitive businesspractices in the Botswanamarket. The question of howthese practices affectconsumers therefore arises.

Effect of AnticompetitivePractices on ConsumersGenerally, respondents were of the view thatconsumers are affected by anti-competitive practices.A majority of the respondents (45.8 percent) said that

consumers are significantly affected byanticompetitive practices, while 33.3 percent said thatconsumers are moderately affected by the practices.Only 10.4 percent of the respondents said consumerswere hugely affected by the anticompetitive practices(Table 2.10).

Most Prevalent Practices39.6 percent of the respondents identified price fixingas the most prevalent anti-competitive practice. Thesecond most prevalent practice was said to beexclusive dealing, identified by 39.6 percent ofrespondents, the third most prevalent practice wassaid to be exclusive dealing, identified by another 39.6percent of respondents, while 22.9 percent ofrespondents identified predatory pricing as the thirdmost prevalent practice (Table 2.11).

Most Prevalent Practices by RegionLocal LevelA total 29.2 percent of the respondents saidthat the most prevalent practice at the localregion was price fixing. The second mostprevalent practice at the local level is said tobe market sharing (18.8 percent). The thirdmost prevalent practice at this level has beenidentified as unfair trade practices (16.7percent).

Table 2.9: Market Concentration Wholesale & Retail TradeSub sectors CR3

1995 1997 2000Sale of motor vehicles 61.6 63.1 62.3Maintenance and repair of motor vehicles 62.0 60.0 63.0Sale of motor vehicle parts and accessories 93.3 88.1 88.4Wholesale and commission Trade 52.6 44.8 40.7

Table 2.10: Extent to which consumers are affectedby Anti- competitive practices

Extent of impact No. PercentInsignificantly 2 4.2Moderately 16 33.3Significantly 22 45.8Hugely 5 10.4Non Response 3 6.3Total 48 100

0

68.8

20.8

8.3

0

10

20

30

40

50

60

70

Insignificantly Moderately Significantly Hugely

Figure 2.1: Knowledge about the Prevalence ofAnti-competitive Practices

61

National LevelThe analysis of anti-competitive practices at theNational Level (Table 2.13) reveals that the mostprevalent practice is price fixing, identified by 27.1percent of the respondents. This is in line withrespondents’ perceptions about prevalence at the locallevel.

Bid-rigging is said to be the second most prevalentpractice at the National Level as identified by 14.6percent of respondents.

Identified by 29.2 percent and 12.5 percent ofrespondents respectively, UTPs and price fixing aresaid to be the third most prevalent at the Nationallevel.

What emerges from the analysis on the prevalence ofanti-competitive practices is that price fixing andunfair trade practices are the key concerns at both thelocal and national level. However, bid-rigging is alsoa major concern at the national level. This is notsurprising as bid-rigging is likely to happen at thenational level because the stakes are higher ascontracts are much larger, which is an incentive forbid-rigging.

This is not surprising as, in recent times, the Botswanamedia has been awash with allegations of corruptpractices with results similar to bid-rigging, in thatthe tenders are alleged to have been awarded to non-deserving parties. While corruption is not theoreticallydefined as an anticompetitive practice and does notfall under the purview of a Competition Law, someacts of corruption can have similar implications asanti-competitive as they restrict competition in themarket. An example of a case where it was allegedthat the tender award defeated the spirit of competitionin the same way bid-rigging would do is discussedbelow. The case was reported in the Botswana Gazette,November 30, 2005.

In this case, The Public Procurement and AssetDisposal Board (PPADB) is said to be consideringappealing a High Court Judgment in which the Judgedescribed the Board as attempting to “concealimportant information from… the Court and to pervertthe interests of justice”. The Judge made the remarksin his ruling to overturn the awarding of a tender tocomputerise Botswana’s passports and border poststo IBS-IT and instead awarded the multi-milliontender to Research Solutions Integrators (Pty) Ltd(formerly known as AST Botswana).

Table 2.11: The Most Prevalent PracticesRank Most % of Second % of Third Most % of

prevalent respondents Most respondents prevalent respondentsPractice prevalent Practice

Practice1 Price 39.6 Exclusive 39.6 Predatory 22.9

Fixing Dealing Pricing

Table 2.13: Most Prevalent Practices at the National Level

Rank Most % of Second % of Third Most % ofprevalent respondents Most respondents prevalent respondentsPractice prevalent Practice

Practice

1 Price Fixing 27.1 Bid 14.6 Unfair 29.2Rigging Trade

practices

Table 2.12: Most Prevalent Practices at the Local LevelRank Most % of Second % of Third Most % of


Practice1 Price fixing 29.2 Market 18.8 Unfair 16.7

sharing Tradepractices

Botswana


The case is said to have aroseout of an award by the PPADBto IBS-IT in 2003 when PPADBover-ruled a Ministry of Labourand Home Affairs evaluationcommittee that recommendedthat the tender be awarded toAST Botswana because, in theopinion of the committee, theproposal from IBS-IT was“inferior” and did not meet thespecifications required. TheBotswana Gazette also notesthat the Judge also found thatthe attitude of the Board “on thewhole has been astonishinglyrisqué and veritably reticent”.The PPADB’s answeringaffidavits are said to have beenridded with inscrutable andevasive responses, and theirattitude is said to have beendescribed as bearing all thehallmarks of a calculatedstrategy geared towardsstymieing all efforts towardsthe ascertainment of the truthsurrounding the award of thistender. “On three occasionswhen it had the opportunity todo otherwise, the (Board)produced versions of the recordwhich excluded relevantinformation material…I canonly conclude in the absence ofsuch explanation, that thesewere calculated movesintended to conceal importantinformation from the Applicant and the Court and topervert the interests of justice…”.

It is said that eight companies had responded to thetender and two were subsequently short-listed. Thesewere AST Botswana, which had tendered for P75, 8million and IBS-IT at P36, 9 million. In evidence

presented to the Court, the Botswana Gazette reportsthat the system proposed by IBS-IT was adjudged bythe evaluation committee to be inferior to that proposedby AST Botswana. This was primarily on account ofits failure to demonstrate its passport bookletproduction sites, security at such booklet productionsites, booklet security features and adequate forgery

Box 2.1: Mini Case Study: Media Industry

This study had no intentions of undertaking in-depth sector specificanalysis of competition issues. However, when conducting interviews, itoccurred to the researcher that the private media companies (newspapers)were a lot more vocal about anti-competitive practices than companiesfrom other sectors. It further occurred to the researcher that the companies’complaints emanated from their discomfort with competition from thegovernment newspaper, the Daily news. This prompted a quickcomparison of the advertisement rates of two key newspapers with thatof the Daily news. Without the cost structure of the newspapers, theconclusions from this comparison should be interpreted with caution.

There are a number of reasons why private competitors’ acrimony maybe justified. (i) The daily news charges lower prices despite the fact that itdoes not charge readers for its paper. This may be seen as undercuttingits competitors. (ii) The daily news does not have direct overheads. Itsemployees, office space, etc., are paid from the government treasury. Sinceits competitors do not have this luxury, it can afford to charge lowerprices at the expense of its competitors. (iii) The Government is known tobe a bad collector of debt, a sizeable proportion of which may end up asbad debt. If the daily news is a poor debt collector, there is an additionalincentive to place an advert with them, as the probability of paying themis lower than that of paying its competitors, thus defeating competition.

However, the possibility of the daily news being simply more efficientcannot be ruled out without evidence from a detailed assessment ofcompetition issues within this sector, which is beyond the scope of thisstudy.

Advertisement rates of selected newspapers

Space Daily News Newspaper A Newspaper B

F/Page (f.c.) P4, 500s P7, 090 P6, 765

pcm P17.0 P18.7 P17.5

Table 2.14: The Most Affected SectorsRank Most No. of Second No. of Third Most No. of

Affected respondents Most respondents affected respondentsSector (In percent) Affected (In percent) sector (In percent)

Sector

1 Retail 25 Retail 14.6 Construction 14.6Sector Sector

(excludingmotorsector)

2 Private Sector 18 Motor 10.4 Banking 14.63 Construction 16 Construction 8.3 Private Sector 8.3

63

detection features. The system proposed by ASTBotswana on the other hand addressed these matters.The evaluation committee, it is alleged, by a majorityof three to one, came to the conclusion that the ASTproposal was the best bid and recommended that itbe awarded the tender, even though it was higher thanthe Department of Immigration’s budget of P52million. It was hoped that the price could then be re-negotiated to bring it within the Department’s budget.However, it is reported that when the recommendationgot to PPADB, it was rejected and a hand written noteon PPADB’s record of its decision entitled “RejectAward to AST Botswana and award to IBS-IT in theamount of P36 982 875-20” was recorded. Accordingto the Judge, however, it was not clear who had signedthe record, but the tender was subsequently awardedto IBS-IT. The case went to Court because ASTBotswana appealed the decision to give the tender toIBS-IT. In the company’s evidence to the Court, ASTBotswana claimed that the IBS-IT bid did not meet thetender requirements. Ruling in favour of ASTBotswana, the Judge found that IBS-IT has bid as partof a joint venture with two other companies, eventhough the tender documents specifically stated thatthe tender must come from a single entity. The Judgealso found that IBS-IT’s proposal had left out the costof training, development testing and implementation,which would have cost an estimated additional P22million. If this was taken into consideration, IBS-IT’sbid would also have been outside the Department’sbudget. According to the Judge, leaving out the costsof part of the tender requirements in excess of P22million gave IBS-IT an unfair advantage and had been“deliberately left out.” “By accepting IBS-IT’s non-compliant bid”, ruled the Judge, “PPADB conferredan unfair advantage on it. The reality of the matter isthat both sides were beyond the Department’s budget.IBS-IT gained an unfair price advantage over itscompetitors at the selection stage whilstsimultaneously reserving the right to increase its priceto cover the un-costed items after the award of thetender”. The Judge also found that IBS-IT had failedto deposit a P75 000 security guarantee. Nor had itsubmitted audited financial statements, anotherrequirement of the tender specifications. In over-rulingthe decision of the Board, Judge said that PPADB “isa public body funded from public resources. Itperforms public functions. Its officers are servants ofthe public. It cannot be excused from performing itsduties with the transparency and openness demandedof it by both the Act and the principles of goodgovernance, simply because it is convenient for it todo so…”. The judge is said to have noted that, “Thereis ample evidence, of PPADB bias against ASTBotswana. This initially manifested itself in PPADBfacilitating a situation where IBS-IT was given asignificant unfair advantage over other bidders, bybeing allowed to submit a bid, which did not chargefor services. “Thereafter PPADB sought to conceal thisfact”.

Sectors Most Affected byAnticompetitive PracticesAttempt was made at identifying sectors in whichanticompetitive practices occur. Asking respondentswhich sectors they thought were mostly affected bythe practices helped achieve this (Table 2.14).

The prevalence of anti-competitive practices seems tobe high within the Wholesale and Retail Trade Sector.25 percent of respondents said that this sector is themost affected by such practices. A further 18 percentsaid that the sector mostly affected is the private sector(without necessarily breaking down the sector) andanother 16 percent felt that the most affected is theConstruction Sector. The Retail Sector is seen by 14.6percent of the respondents as the second most affectedsector. The Motor Retail and the Construction sectorsare also viewed as the second most affected sectors by10.4 percent and 8.3 percent of respondents,respectively. The Construction Sector, Banking andthe broad private sectors have been identified as thethird most affected sectors by 14.6 percent ofrespondents for the former two sectors and by 8.3percent for the latter.

State Owned Monopolies andAnticompetitive PracticesIn simple terms, a monopoly is an agent thatundertakes a business activity without any competitor.It is a sole provider of a given service or product. InBotswana, there are quite a number of monopolyservice providers. These include the Botswana PowerCorporation (BPC), which is the sole provider ofelectricity in the country, and the BotswanaTelecommunications Corporation (BTC), which is thesole provider of fixed telecommunications services.Respondents were well aware of the existence of stateowned monopolies in Botswana. 77.8 percent of therespondents reported knowledge of the existence ofsuch monopolies, and 8.9 percent were not aware ofstate owned monopoly existence in Botswana. Therest were indifferent.

65.9 percent alleged that these state owned monopoliesengage in anti-competitive practices, althoughrespondents could not readily identify which anti-competitive practices the monopolies engage in.

Origin of Anticompetitive PracticesMajority of respondents (70 percent) felt that mostanticompetitive practices originate from outside thecountry. This is not very surprising. For example,Botswana has two mobile phone companies, Mascomand Orange. Mascom handsets are open, meaning acustomer can buy a handset from Mascom and insertan Orange simcard. On the other hand, Orangehandsets are not open, meaning that one cannot buya handset from Orange and insert a Mascom simcard.An Orange handset goes along with only an Orange

Botswana


simcard. Essentially, Orange practices ‘Tied-selling’,in that buying an Orange handset forces the customerto buy the Orange simcard even if they have a Mascomsimcard. This is an anti-competitive practice that camealong with a multinational.

Furthermore, in June 2005, the South AfricanCompetition Commission published a report in whichit revealed that DaimlerCrysler South Africa (Pty) Ltd,BMW South Africa (Pty) Ltd and Nissan Africa (Pty)Ltd and their dealers entered into franchise and dealeragreements, which contained a number of restrictionsthat impact negatively on competition in the marketwithin which they operate. The restrictions that werereportedly placed on dealers relate to, inter alia, theselling of new motor vehicles to unauthorised agentsand the selling of new motor vehicles to exporters,imposition of minimum resale prices and price fixing.

Since the South African Competition Commission isterritory bound, its investigationswere limited toSouth Africa. However, the findings have a potentialeffect on all SACU members in which the SouthAfrican car manufacturers have dealers, includingBotswana. The key question then is, is the Botswanacar dealership industry free from such anticompetitivepractices? Without detailed investigations into thissector, which can adequately be undertaken by theBotswana Competition Authority, empowered by lawto do so, it cannot be ruled out that similar anti-competitive practices do not occur within theBotswana market.

This is more so that the Economic Mapping Study(2002) reported that collusion by foreign firms wasfound to be the major anti-competitive businesspractice in Botswana. The study reports that mostBotswana companies felt that South African firmsposed unfair competition to them, especially duringtenders. Foreign companies (particularly SouthAfrican firms supplying Botswana firms) quote highprices for local firms intending to participate intenders, and they collude with other South Africanfirms on submission of quotations (with pricesrelatively lower than local firms can quote), in the eventdeliberately causing local companies to lose tendersbecause they have relatively higher prices. Collusionby foreign companies is not only anticompetitive, italso inhibits progress of local companies. The studyfurther reports complaints of Chinese companiesimposing unfair competition on local companies.

Existence of Rules and Regulations toCheck on Anticompetitive PracticesAsked whether there were rules, regulations or lawsto check such practices, majority of the respondents(48.8 percent) said that they did not know whethersuch regulations and laws existed. Another 34.9percent were of the view that there are no such laws

and regulations. The remaining 16.3 percent wereaware of the existence of laws and regulations aimedat checking on anti-competitive practices. This isindeed in line with reality as competition issues arenew in Botswana. As noted elsewhere in this report,Parliament passed the competition policy law only inAugust 2005, and a significant number of stakeholdersdo not have a feel of what is on the ground in relationto competition issues.

Those who said they were aware of the existence ofsuch laws cited among others, operators’ licences inthe Telecommunications Sector, which prohibit,among others, price discrimination. Others includecommercial bank licences issued by the Central Bank,the Public Procurement and Asset Disposal Act, whichaim at ensuring competition within tenderingcompanies and the local authorities tenderingprocess.

Implementation of Anticompetitive RulesTo establish the extent to which the anti-competitiverules were implemented, respondents were askedwhether any action was taken when the rules andregulations were violated. In response, 53.1 percentof those who are aware of the existence of such rulessaid that sometimes action is taken while 6.3 percentsaid action is always taken. The other 15.6 percentsaid that no action is normally taken, while only 25.0percent of the respondents noted that they did notknow whether action is normally taken againstviolators of anti-competitive rules, regulations andlaws.

Agencies that Provide Justice to ConsumersAmong others, we attempted to establish respondents’knowledge and perceptions about agencies thatprovide justice to consumers. Some of the agenciesidentified include the;

(a) Consumer Protection Division of the Departmentof Trade and Consumer Affairs, whose mandate isto protect consumers against unfair businesspractices, including; providing consumers withadequate information on products, services andafter sale services; aking care of, promoting andprotecting the interests of consumers against anyform of exploitation or ignorance, especiallyagainst malpractice in the market place. Thedivision was singled out as providing justice toconsumers by 43.8 percent of respondents.

(b) The Public Procurement and Asset Disposal Board,whose mandate is, among others, to promotecompetition as the mechanism through whichvalue for money can be achieved was alsoidentified by 14.6 percent of respondents asproviding justice to consumers.

(c) Others that have been acknowledged as providingjustice to consumers, albeit by insignificant number

65

of respondents include the BotswanaTelecommunications Authority (BTA), theBotswana Bureau of Standards (BOBS) and theBank of Botswana.

(d) Though not mentioned by a significant number ofrespondents, some respondents acknowledged thenewly formed independent ‘Consumer Watchdog’as representing the interests of consumers. TheWatchdog prides itself with a number of initiativesthat brought smiles to consumers of differentcommodities in Botswana. Below is an abstractfrom the Watchdog’s website, http://www.bes.bw;

Are the Existing Rules, Regulations andLaws sufficient to Check AnticompetitivePractices?An overwhelming 85 percent of the respondents saidthat the existing rules, regulations and laws are notsufficient to check anti-competitive practices, while10 percent can’t tell whether the regulations aresufficient to check anticompetitive practices and onlyfive percent feel the regulations and rules sufficientlycheck anti-competitive practices. It, therefore, turnedout to be an obvious reason why the majority ofrespondents (95.3 percent) felt that a comprehensivelaw should be enacted to check anti-competitive

Basic price P6, 999.95

Discount P999.95

True Price P6, 000.00

It’s gone too farStore credit schemes are getting out of control. Everyweek we hear from people who, for whatever reason,and however they’ve done it, are stuck with storecredit schemes that are abusive, deceptive andvicious.

Whose fault is it?Ours. Yours. Oh yes, and the stores as well. Butremember, a credit agreement is between two parties– you and the store. Both parties agree, in writing,to pay lots of money in return for a product. Surelythen, if we sign up for a wicked scheme we have totake some of the blame?

However!What if the stores are not quite as open and honestas we would hope? What if they went out of theirway to hide their charges? But surely they wouldn’tdo such a thing? No?

A real-life exampleA customer was told that the furniture in question,on sale for P6, 999.95, could be purchased on a 3-month interest free credit scheme. However, theagreement that she actually signed turned out to bea 12-month, interest-bearing scheme, as follows:

The extra, hidden charges were:Insurance P3, 036.00 = 51 percent of the true

priceFinance charges P1, 998.28 = 33 percent of the

true priceOther charges P185.00 =3 percent of the

true priceTotal extras P5, 219.28 = 87 percent of the

true price

A statement from the supplier states that the“EFFECTIVE INTEREST RATE” is 27 percent.

Unfortunately we can’t find any way of making thenumbers above, come to an interest rate of exactly 27percent. Can you?

The simple truth is that an item costing P6, 000 infact costs this customerP11, 219.28, 87 percent morethan she believed. Ironically, having paid a total ofP4, 000 so far, she still owes P7, 219.28, more thanthe price of the item!

So what should be done?

We’ve been thinking a lot about how store creditschemes could be better.

Suggestion no.1 - Don’t buy on credit

Yes, it sounds simple and it’s not always possiblebut some of schemes are designed to deceive you, getyou hooked and then take huge amounts of moneyaway from you.

Suggestion no.2 - Don’t sign anything

At least not until you’ve had a chance to really readthe agreement, think through the implications,calculate what it’s really going to cost you and, mostimportantly, spoken to a friend or relative andlistened to their advice.

Suggestion no.3 - Voluntary Store Credit Charter

We want stores that offer customers credit schemesto talk to us about setting up a Voluntary Store CreditCharter. We invite stores to sit down with us andhelp us construct a set of rules that will show us thatthey care about their customers and that will committhem to certain basic standards.

Box 2.2: Store Credit Schemes

Botswana


practices. The objectives of that law should, amongothers, be to;(a) improve economic efficiency and consumer

welfare, observed 75 percent respondents.(b) consider socio economic issues, said 10 percent

of the respondents. Other objectives given byinsignificant number of respondents included;

(c) Facilitating fair trade practices within the market;and

(d) Restoring investor confidence in the economy.

Coverage of the Law87.8 percent of the respondents felt that the law mustcover all types of enterprises and the remaining 12.2percent are of the view that Small and Medium-sizedEnterprises (SMEs) should be exempted from theapplication of the Competition Law, although somewithin this group are for partial exemption. Forexample, one of the respondents noted that practicessuch as concerted refusal to deal, price discriminationand bid-rigging should not be tolerated regardless offirm size.

Implementation of the LawAny Competition Law will have to be implementedby some agency. The most common forms are wherethe agency is an autonomous agency or the agency isunder the relevant government department orministry. Sometimes the agency may take whatevershape the government may deem appropriate. Anattempt was made to establish the respondent’s viewson the nature of the implementing agency. 76.7 percentof the respondents preferred an autonomous entity,while the remaining 23.3 percent preferred an agencyunder a government department/ministry.

Powers of the Implementing AgencyInvestigation and Adjudication: A large proportion ofrespondents (46.3 percent) advocated to haveconferred on the implementing agency, only theinvestigative powers, and that the adjudicative powersbe left with the courts. On the other hand, 34.1 percentof the respondents were of the view that theimplementing authority be vested with bothinvestigative and adjudicative powers, while only 19.5percent said that the implementing authority shouldbe tasked with both investigative and adjudicativeroles (Table 2.15).

An insignificant number of respondents argued thatin sectors with existing regulators (e.g.telecommunications), anticompetitive practicesshould initially be investigated and adjudicated uponby these regulators, and passed on to the CompetitionLaw implementing agency only when the regulatorsfail to reach a resolution.

Consumer Protection: 82.2 percent of respondents saidthat the implementing authority should also deal withconsumer protection issues. Some of the reasons givenfor this are that the Division of Consumer Affairs underthe Department of Trade and Consumer Affairs is notwell resourced to adequately deal with consumerissues. Their views may be vindicated by theemergence of a private Consumer Watchdog, whosepopularity among consumers seem to be increasingvery fast. On the other hand, 13.3 percent ofrespondents feel that the implementing agency shouldnot be tasked with consumer protection issues. Theyargue, among others, that sector regulators such asthe BTA and the Division of Consumer Affairs shouldcontinue to deal with the consumer protection office.Criminalisation of Violations of Law: According to 79.1percent of the respondents, violations of the lawshould be criminalised sometimes, depending on thecircumstances and the weight of the violation. 16.3percent were of the view that violations of the lawshould be criminalised at all times. Only 4.7 percentdid not have a position as to whether violations of thelaw should be criminalised or not.

Exemptions: It is normal to have exemptions from theapplication of the Competition Law on public interestgrounds. These include technological advancement,protection of SMMEs and/or socially advancedgroups and even employment creation grounds. Onsuch exemptions, 55.8 percent of the respondents werefor a Competition Law with such exemptions, while30.2 percent were against having such exemptions inthe law. The remaining 14.0 percent did not have aposition on the matter. Those supporting theexemptions argued, among others, that SMEs arefragile and may need some special treatment. Forexample, they may be allowed to co-operate in areassuch as sourcing materials to exploit economies ofscale, and even discuss and collaborate on theirpricing policies to avoid unnecessarily squeezing

each other out of the market.Clearly, the latter would besome form of collusion, butproponents of the exemptionfelt it would go a long wayin ensuring the success ofSMEs.

Exemptions, by their natureare prone to abuse. Forexample, SMMEs mayunlawfully extend the

Table 2.15: Powers of the Implementing Agency (in percent)Both Investigative Investigative Other: Initialinvestigative only with only with investigationand adjudicative powers by sector regulators,adjudicative power adjudicative and the implementing

vested with powers vested agency if nothe courts with courts resolution.

34.1 19.5 46.3 Insignificant

67

benefits of leverages given under the law to larger firms.It is therefore important that proper mechanisms beput in place to protect exemptions from abuse. Thus,respondents were generally in support of putting inplace mechanisms to protect exemptions from abuse.55.3 percent of the sample felt that there must be well-defined regulations, which ensure that the exemptionsare not abused. 36.8 percent argued that the judiciaryshould ensure that the exemptions are not abused.Thus, their view is that abuse of the exemption rulesshould be a criminal offence punishable by law. Therest of the respondents did not have a position on thematter.

Stakeholder Involvement: The key to success ofdemocratic and civil institutions is continuousstakeholder consultation. Competition Law has abearing on different stakeholders, including thegovernment, businesses, civil society and consumers.It is against this background that each stakeholdermust understand the functioning of the competitionauthority. Such understanding would helpstakeholders appreciate the decisions of thecompetition authority. Because of this, respondentswere asked to express their opinion on stakeholderinvolvement in the functioning of the competitionauthority. An overwhelming majority (90.7 percent)said that stakeholders must be involved in thefunctioning of the competition authority.

There is a feeling that the competition authorityshould involve stakeholders in a number of ways.These include structured consultative committees(cited by 74.4 percent of respondents) and occasionalpublic hearings (20.5 percent).

Stakeholder Specific PictureHaving established the overall picture, which aimedat looking at competition issues in aggregative form,we are now going to tease out important perceptionsat the stakeholder level. To recap, these stakeholdersare the government, businesses, and the civil society/consumers.

Government’s PerspectiveThis subsection (Refer Table 2.16) discusses thegovernment sector’s perceptions about competitionissues in Botswana.

Existence of Anti-competitive Practices75 percent of government agents were of the view thatthe existence of anti-competitive practices wasmoderate, which is in line with the overall picture of68 percent. In addition, 18.7 percent said that theexistence was significant, again in line with theoverall picture of 20.8 percent.

Effect of Anticompetitive Practices onConsumers31.3 percent of government agents felt that consumersare moderately affected by anticompetitive practices.This corresponds with the overall picture of 33.3percent. 50.0 percent said that consumers weresignificantly affected by the practices, which is alsonot far away from the overall picture of 45.8 percent.However, at 18.7 percent, those who feel consumersare hugely affected by these practices are slightly abovethe overall figure of 10.4 percent (Table 2.17).

Most Prevalent PracticesThe views of government agents continue to be in linewith overall picture (Refer Table 2.18). Representedby 37.5 percent of the respondents, government agentsrate price fixing as the most prevalent practice, whichcorresponds with the national average which putsprice fixing as the most prevalent with 39.6 percent ofthe responses. The second most prevalent practice isexclusive dealing (43.8 percent), which is also in linewith the overall average of 39.6 percent for the samepractice. The third most prevalent practice isconsidered to be UTPs, which represents a diversionfrom the overall picture where predatory pricing holdsthe position.

Most Prevalent Practices by Region

Local LevelAs with the overall picture, the most prevalent practiceat the local level is price fixing (25.0 percent), whichagain is not far from (29.2 percent) for the nationallevel. The trend follows for market sharing, which, asis the case with the overall picture takes the secondspot. Others that take the second spot at the local levelinclude bid-rigging and tied selling. The third mostprevalent practice is said to be predatory pricing (18.8percent) (Table 2.19).

Table 2.16: Knowledge about Prevalence ofAnticompetitive Practices by GovernmentAgentsExtent of PercentexistenceModerately 75.0Significantly 18.7Non Response 6.3

Table 2.17: Government Agents’ perceptions onExtent to which Consumers are affected by Anti-competitive PracticesExtent of PercentimpactModerately 31.3Significantly 50.0Hugely 18.7Total 100

Botswana


National LevelThe analysis of anticompetitive practices at theNational Level reveals that the most prevalent practiceis once again price fixing, identified by 25 percent ofthe respondents, which corresponds with the overallpicture of 27.0 percent. Tied selling is also identifiedalongside price fixing. A further 25 percent (which ishigher than the overall picture of 14.6 percent) ofrespondents picked bid-rigging as the second mostprevalent practice at the national level.

Unfair trade practices come third (25 percent), whichis also in line with overall picture of (29.2 percent)(Table 2.20).

Sectors Most Affected by Anti-competitivePracticesAttempt was made at identifying sectors in whichanti-competitive practices occur. Asking respondentswhich sectors they thought were mostly affected bythe practices did the same (Table 2.21).

Table 2.18: The Most Prevalent Practices (Government)Rank Most % of Second % of Third Most % of

prevalent respondents Most respondents prevalent respondentsPractice (In percent) prevalent (In percent) Practice (In percent)

Practice

1 Price Fixing 37.5 Exclusive 43.8 Unfair 25.0Dealing Trade

practices

Table 2.19: Most Prevalent Practices at the Local Level (Government)Rank Most % of Second % of Third Most % of


Practice

1 Price Fixing 25.0 Market 43.8 Predatory 18.8Sharing 12.5 PricingBid rigging 12.5Tied selling 12.5

Table 2.20: Most Prevalent Practices at the National Level (Government)Rank Most % of Second % of Third Most % of


Practice

1 Price Fixing 25 Bid 25 Unfair 25Tied selling 25 Rigging Trade

Practices

Table 2.21: The Most Affected Sectors (Government)Rank Most % of Second % of Third Most % of

affected respondents Most respondemts affected respondentssector affected sector

sector

1 Construction 18.8 Wholesale 18.8 Government 12.5

Parastatal 18.8 Trade Motor Sector 12.5

(excluding Media 12.5

vehicle

trade)

69

Government agents believe the prevalence of anti-competitive practices is the highest within theconstruction and parastatal sectors (18.8 percent). Thewholesale trade sector, which is perceived to havehighest prevalence of anticompetitive practicesoverall, is relegated to the second spot in governmentsector analysis. The motor retail and constructionsectors, viewed as the second most affected sectors atthe overall picture are placed third by governmentagents.

State-owned Monopolies andAnti-competitive PracticesA good 75 percent of government agents were awareof the existence of state-owned monopolies inBotswana. However, only 43.7 percent said thatgovernment monopolies engage in anti-competitivepractices, which is lower than the 65.5 percentrecorded on the overall picture. 12.5 percent of therespondents said they do not.

Origin of Anticompetitive PracticesAccording to the majority (75 percent) of governmentrespondents, some anti-competitive practices areimported. This is slightly higher, albeit in line withthe overall picture of 70 percent.

Existence of Rules and Regulations to checkon Anti-competitive PracticesAsked whether there are rules and regulations tocheck anticompetitive practices, 43.7 percent of therespondents said they did not know, while 31.3percent were of the view that there are no such rulesand regulations. 6.3 percent alleged awareness aboutthe rules, while the remaining lot was non-committal.This scenario mirrors the overall picture, where 48.8percent of the respondents said that they did not knowwhether such regulations and laws existed and 34.9percent were of the view that there are no such lawsand regulations.

Implementation of Anticompetitive Rules31.2 percent of the respondents said that the rules aresometimes implemented when violations ofcompetition are committed, while 6.3 percent said therules are always implemented. The rest did not haveany opinion on the matter.

Agencies that Provide Justice to ConsumersA number of agents were identified as providingjustice to the consumers. The PPADB seems popularwith government agents in relation to the provisionof justice to the consumers than it is at the nationallevel. For example, 25.3 percent of the respondentspicked it for the role as opposed to 14.6 percent itrecorded at the national level.

The Consumer Protection Division of the Departmentof Trade and Consumer Affairs was the most popular

with 37.5 percent of respondents picking it. 12.5percent of the respondents picked the BotswanaTelecommunications Authority (BTA). Generally,these are governmental agencies.

Are the Existing Rules, Regulations and LawsSufficient to Check AnticompetitivePractices?The existing rules, regulations and laws weregenerally viewed as not sufficient to check anti-competitive practices, as 68 percent of the respondentswere doubtful about the effectiveness of the rules andregulations. 12.5 percent can’t tell whether theregulations are sufficient to check anti-competitivepractices, which is in line with the overall picture of10 percent. As a result, the majority of respondents(81.2 percent) felt that a comprehensive law shouldbe enacted to check anti-competitive practices.According to respondents, the law should, amongothers, improve economic efficiency and consumerwelfare (62.5 percent of respondents) and considersocio- economic issues (22.7 percent).

Coverage of the Law50 percent of the respondents felt that the law mustcover all types of enterprises, while 18.8 percent saidit should not, arguing that it should exempt, amongothers, SMEs. The same argument was raised at overallstakeholder analysis.

Implementation of the Law68.8 percent of government agents believe that theimplementing agency should be an autonomousentity. While this is below the overall picture figure of76.7 percent, indicating government agents’confidence in the system, it still points out to the needto have an independent implementing agency. Only12.5 percent were of the view that the agency shouldbe under a government department or ministry. Therest could not take a stand.

Powers of Implementing AgencyInvestigation and Adjudication: 31.3 percent of therespondents (which compared unfavourably with the(46.3 percent) for the overall picture) were of the viewthat the implementing agency should be vested withinvestigative powers with the adjudicative powers leftwith the courts. On the other hand, 25 percent of therespondents were of the view that the implementingauthority be vested with both investigative andadjudicative powers and another 25 percent were ofthe view that the implementing authority should betasked with both investigative and adjudicative roles.Consumer Protection: A significant 68.8 percent of therespondents said that the implementing authorityshould also deal with consumer protection issues. Aninsignificant number of respondents (12.5 percent)were against such an arrangement, arguing that sectorspecific regulatory bodies should handle such issues.

Botswana


Criminalisation of violations of Law: 81.2 percent of therespondents support a situation where violations ofthe law are sometimes criminalised. Otherwise therest did not have any opinion on the matter.

Exemptions: Government sector (56.3 percent) isgenerally for exemptions of certain industries andsectors from the ambit of the Competition Law, while12.5 percent is against such exemptions. The figuresupporting exemptions is in line with the overallpicture figure of 55.8 percent. In order to prevent abuseof exemptions, the government sector suggested thatsuch abuse should be controlled through well-definedguidelines (37.5 percent), and through judicialscrutiny (43.7 percent).

Stakeholder InvolvementA significant number (68.8 percent) of governmentsector respondents were of the view that thecompetition authority should involve stakeholders ina number of ways. These include structuredconsultative committees (cited by 43.8 percent ofrespondents) and occasional public hearings (18.8percent).

Civil Society/Consumer's PerspectiveThis sub-section discusses civil society/consumers(herein referred to as consumers) sector’s perceptionsabout competition issues in Botswana.

Existence of Anti-competitive PracticesAccording to 75 percent of consumers, existence ofanti-competitive practices in Botswana is moderate,lower than the overall picture figure of 68.8 percent.In addition, 12.5 percent said that the existence wassignificant, again below the overall picture figure of20.8 percent (Table 2.22).

Effect of Anti-competitive Practices onConsumersAs shown in Table 2.23, 50.0 percent of consumersfelt that consumers are moderately affected by anti-competitive practices, which is higher than overallpicture figure of 33.3 percent. 31.5 percent said theeffect was significant. The figure is surprisingly lowerthan the overall picture figure of 45.8 percent. Thismay be because consumers in Botswana are generallynot aware of both the benefits of competition and the

dangers of lack of a competitive market. In addition,18.7 percent of the respondents felt the impact washuge, which is slightly above the overall figure of 10.4percent.

Most Prevalent PracticesRepresented by 43.7 percent of the respondents,consumers rate price fixing as the most prevalent thatcorresponds with the overall picture, which alsoviews price fixing as the most prevalent with 39.6percent of the responses. The second most prevalentpractice is exclusive dealing (31.5 percent), which isslightly below the overall average of 39.6 percent and

the government figure of (43.8 percent) for the samepractice. The third most prevalent practice isconsidered to be UTPs (18.8), which represents adiversion from the overall picture whether the positiongoes to predatory pricing (Table 2.24)


Local Level (Table 2.25)As with the overall picture, the most prevalent practiceat the local level is price fixing (31.3 percent). However,whereas the second most prevalent practice under theoverall picture is market sharing, for consumers, the

Table 2.22: Knowledge about Prevalence of

Anti-competitive Practices (Civil Society)

Extent of Percent existence

Moderately 75.0

Significantly 12.5

Hugely 12.5

Table 2.23: Extent to which Consumers are

Affected by Anti-competitive Practices

(Consumers)

Extent of impact Percent

Moderately 50.0

Significantly 31.5

Hugely 18.7

Total 100

Table 2.24: The Most Prevalent Practices (Consumers)Rank Most % of Second % of Third Most % of


Practice

1 Price Fixing 43.8 Exclusive 31.5 Unfair 18.8Dealing Trade

Practices

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second spot is taken by bidrigging, which is somewhatabnormal, as in most cases one would not expectconsumers to keep track of bid activities. 25 percent ofconsumers felt the third most prevalent practice isunfair business practices. This is in line with theoverall picture, where unfair business practices werealso considered third.

National Level (Table 2.26)At the National Level, the most prevalent practice isprice fixing, identified by 31.5 percent of therespondents, which corresponds with the overallpicture, although the latter has lower percentagepoints of 27. Bid-rigging takes the second spot (25percent), as is with the overall picture, while unfairtrade practices goes third, again as is the case withthe overall picture. Thus, price fixing comes out as themost prevalent practice at both the national and locallevels, which makes an obvious contender for theoverall first spot.

Sectors Most Affected by Anti-competitivePractices (Table 2.27)

Consumers’ view is that the prevalence of anti-competitive practices is the highest within theconstruction sector (25 percent). The wholesale tradesector, which is perceived to have highest overallprevalence of anti-competitive practices is in theoverall picture, like with government, is relegated tothe second spot (18.8). The financial sector (banking)and commercial agriculture sectors are placed third(12.5 percent).

State- owned Monopolies and Anti-competitive Practices81.3 percent of consumers are aware of the existenceof state-owned monopolies in Botswana; this isslightly higher than then overall picture of 77.8percent. A further 62.5 percent of consumers reportedknowledge of cases when government monopolieshave engaged in anti-competitive practices. This isslightly lower than the 65.5 percent recorded on theoverall picture.

Table 2.27: The Most Affected Sectors (Consumers)Rank Most % of Second % of Third Most % of

affected respondents Most respondents affected respondentssector affected sector

sector

1 Construction 25 Wholesale 18.8 Financial 12.5Trade sector(excluding (Banking)vehicle commercial 12.5Trade) agric

Table 2.25: Most Prevalent Practices at the Local Level (Consumers)Rank Most % of Second % of Third Most % of


Practice

1 Price Fixing 31.3 Bid 18.8 Unfair 25.5Rigging Trade

Practices

Table 2.26: Most Prevalent Practices at the National Level (Consumers)Rank Most % of Second % of Third Most % of


Practice

1 Price Fixing 31.5 Bid 25 Unfair 31.5Rigging Trade

Practices

Botswana


The Origin of Anticompetitive Practices68.8 practices of consumers allege that some anti-competitive practices originate from outsideBotswana. This is slightly lower than the overallpicture of 70 percent.

Existence of Rules and Regulations to checkon Anti-competitive Practices31.3 percent of consumers noted that there were norules and regulations meant to check anti-competitivepractices. This is in line with overall picture of 34.9percent. Another 43.7 percent said that they did notknow whether such regulations and laws existed ornot. The figure is in line with the overall figure of 48.8percent. Only 6.3 percent of the consumers noted thatthere were rules and regulations meant to check anti-competitive practices. This picture is not at allsurprising, given that consumers in Botswana haverelatively been newly exposed to issues of competitionin Botswana.

There is also a general view within consumers thatwhen rules are violated, sometimes action is taken toredress the situation. This view is shared by 50 percentof consumers.

Agencies Provide Justice to ConsumersConsumers identified a few organisations thatprovide justice to the consumers. These include, thePPADB, identified by 18.8 percent of respondents,which is slightly higher than the overall figure of 14.6percent.

56.3 percent of the consumers identified the ConsumerProtection Division of the Department of Trade andConsumer Affairs. Other agencies received just 6.3percent of the votes.

Are Existing Rules, Regulations and LawsSufficient to Check AnticompetitivePractices?The existing rules, regulations and laws weregenerally viewed as not sufficient to check anti-competitive practices, as 68.8 percent of therespondents were doubtful about the effectiveness ofthe rules and regulations. This is lower than theoverall picture figure of 85.0 percent, but still high.12.5 percent cannot tell whether the regulations aresufficient to check anti-competitive practices, whichis in line with the overall picture of 10 percent. Thus,the majority of respondents (75 percent) felt that acomprehensive law should be enacted to check anti-competitive practices. According to respondents, thelaw should focus on, among others, improvingeconomic efficiency and consumer welfare and alsoconsider socio-economic issues.

Coverage of the LawAs for coverage of such a law, 50 percent of therespondents felt that the law must cover all types ofenterprises and, while 25 percent were of the viewthat it should not, arguing that it should exempt,among others SMEs. The same argument was raisedat overall stakeholder and government analysis.

Implementation of the LawAs to who should implement the law, 62.5 percent ofconsumers felt that it is best when the implementingagency is an autonomous entity. 25 percent, whichrepresents a slight increase from the 23.3 percentobserved at the overall level were of the view that theagency should be under a government department orministry.

Powers of the Implementing AgencyInvestigation and Adjudication: A quarter (25 percent)of the respondents were of the view that theimplementing agency should be vested withinvestigative powers with the adjudicative powers leftwith the courts. 12.5 percent felt that the implementingauthority be vested with both investigative andadjudicative powers and a 50 percent were of the viewthat the implementing authority should be tasked withboth investigative and adjudicative roles, whichindicates the substantial confidence consumers putin the independence of the implementing agency.Consumer Protection: 75.0 percent of respondents saidthat the implementing authority should also deal withconsumer protection issues, while another 12.5percent were against such an arrangement, primarilybecause their preference is to have consumer protectionissues handled by sector specific regulatory bodies.

Criminalisation of Violations of Law: On thecriminalisation of violations of such a law, 56.3percent of the consumers prefer that violations of thelaw be sometimes criminalised. 31.3 percent were ofthe view that violations should be criminalised at alltimes.

Exemptions: The majority (81.3 percent) of consumersprefer to have a law with exemptions, includingexemptions of SMMEs. This figure is way above theoverall picture figure of 55.8 percent, suggesting thaton average, consumers prefer exemptions than otherstakeholders. In order to prevent abuse of exemptions,50 percent of consumers suggested that such abuseshould be controlled through well-defined guidelinesand 31.3 percent suggested the use of judicial system.

Stakeholder Involvement: The involvement ofstakeholders is well supported by consumers. Forexample, 75 percent said that the competitionauthority should involve itself through occasionalpublic hearings and 12.5 percent said that theauthorityshould do so through structured consultativecommittees.

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Business PerspectiveExistence of Anticompetitive practices56.2 percent of business perceives the existence of anti-competitive practices as moderate, which is lowerthan the overall picture of 68 percent, the government’sview of 75 percent, and the consumers’ view of 75percent. However, it is interesting to find that while20.8 percent, 18.7 percent, and 13.3 percent of therespondents on the overall picture, government sectorand civil society respectively rated the existence ofanti-competitive practices as significant, a higherproportion of business (31.3 percent) rate the problemas significant This is not surprising, given thatbusiness is essentially the perpetrator ofanticompetitive practices, and is in a better positionto know about the problem than other stakeholders(Table 2.28).

Effect of Anticompetitive Practices onConsumersAs depicted in Table 2.29, 18.8 percent of business feltthat consumers are moderately affected by anti-competitive practices. This is much lower than theoverall picture of 33.3 percent, government (31.3percent) and consumers (50.0 percent). Furthermore,only 12.5 percent of business said consumers weresignificantly affected by anti-competitive practices.

This is again much lower than the correspondingoverall figure of 45.8 percent, government’s figure of50 percent, and consumers’ figure of 31.5 percent.

This is expected, since business is normally theperpetrator of anti-competitive practices, it is less likelyto care about consumer welfare than otherstakeholders. This calls on business to balance theirbusiness interests with consumer welfare, failingwhich the law should ensure that business does notmake profits at the expense of consumer welfare.

Most Prevalent PracticesWhereas all other stakeholders have price fixing asthe most prevalent anti-competitive practice, businesshas a divergent view. Instead, they have resale pricemaintenance as their most prevalent practice (Table2.30). Business is essentially saying that they do notfix prices, although they admit to a somewhat lesseroffence of dictating the resale price to the retailer. Thismay be seen as a lesser offence in that unless themanufacturers have agreed to fix the resale price, atleast it may still give consumers option on the retailprice. Like government, the overall picture andconsumers, the second most prevalent practice isexclusive dealing. The third most prevalent practiceis predatory pricing, which has short-term benefit tothe consumer but long-term consumer misery.


Local Level (Table 2.31)As with the overall picture, government andconsumers, the most prevalent practice at the locallevel is price fixing (31.5 percent). Unfair businesspractices take second spot, replacing market sharingin the case of the overall picture and relegating it tothe third spot (18.8 percent).

National Level (Table 2.32)However, at the national level, the most prevalentpractice is bid-rigging, identified by 44.0 percent ofthe respondents, a diversion from the overall picture,the local level, government and consumers’perspective, where price fixing takes the lead.Exclusive dealing is the second most prevalentpractice at the national level. Predatory pricing,identified by 31.5 percent of businesses is the thirdmost prevalent practice. This may indicate increasedbusiness concern with the practice, more so thatbusiness as a key stakeholder in the bids ‘insides–outs’ is better placed to provide a better picture aboutbids.

Table 2.29: Extent to which Consumers areAffected by Anti-competitive Practices (business)Extent of impact PercentModerately 18.8Significantly 12.5Hugely 0Total 100

Table 2.28: Knowledge about Prevalence of

Anti-competitive Practices in the Business

Community

Extent of existence Percent

Moderately 56.2

Significantly 31.3

Hugely 12.5

Table 2.30: The Most Prevalent Practices (Business)Rank Most % of Second % of Third Most % of

prevalent respondents Most respondents prevalent respondentsPractice (in percent) prevalent (in percent) Practice (in percent)

Practice

1 Resale price 43.7 Eclusive 50 Preadatory 18.8maintenance Dealing pricing

Botswana


Sectors most Affected by Anti-competitivePractices (Table 2.33)Attempt was made at identifying sectors in whichanti-competitive practices occur. Asking respondentswhich sectors they thought were mostly affected bythe practices achieved this.

Business believes the prevalence of anti-competitivepractices is the highest within the Wholesale andRetail Sector (43.7 percent), as is the case with theoverall picture. The Motor Trade Sector has the secondhighest (25 percent) followed by Construction.

State-owned Monopolies andAnticompetitive PracticesBusiness is aware of state-owned monopolies inBotswana. A sizeable 62.5 percent (slightly lower thanthe overall picture of 65.5 percent) of businesses wereaware of the existence of state-owned monopolies inBotswana, and all were of the opinion that statemonopolies engage in anti-competitive practices.

Origin of Anti-competitive Practices75 percent of business believes that some anti-competitive practices originate from outside thecountry. This is slightly higher than the overall pictureof 70 percent.

Existence of Rules and Regulations to checkon Anti-competitive PracticesThe majority of businesses (43.7 percent) cannot tellwhether there are rules and regulations to check anti-competitive practices, which is slightly lower thanthe overall picture figure of 48.8 percent. 31.3 percentwere of the view that there are no such rules andregulations, and 25 percent said that the rules existed.These include the PPADB regulations, district counciltendering processes, the BTA regulations etc.

Violations of Anti-competitive RulesAs to whether action is normally taken in case therules are violated, 25 percent of the respondents saidthat the rules are sometimes implemented, while 31.3percent said that the rules are always implemented.

Agencies that Provide Justice to ConsumersThe Consumer Protection Division of the Departmentof Trade and Consumer Affairs was singled out asthe agency that provides justice to consumers by 38.0percent of businesses.

Are the Existing Rules, Regulations and LawsSufficient to check Anti-competitivePractices?The existing rules, regulations and laws weregenerally viewed as not sufficient to check anti-

Table 2.31:Most prevalent practices at the Local Level (Business)Rank Most % of Second % of Third Most % of


Practice

1 Price fixing 31.5 UTPs 18.8 Market 18.8Sharing

Table 2.32: Most Prevalent Practices at the National Level (Business)Rank Most % of Second % of Third Most % of


Practice

1 Bid-rigging 44.0 Exclusive 31.5 Predatory 31.5Dealing pricing

Table 2.33: The Most Affected Sectors (Business)Rank Most % of Second % of Third Most % of

affected respondents Most respondents affected respondentssector affected sector

sector

1 Wholesale 43.7 Motor 25 Construction 25and retail retailsector sector

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competitive practices, as 69 percent of the respondentsdid not have confidence in the effectiveness of the rulesand regulations. Thus, the majority of respondents(87.5 percent) felt that a comprehensive law shouldbe enacted to check anti-competitive practices. Theyfelt that the law should, among others, improveeconomic efficiency and consumer welfare.

Coverage of the Law75 percent of the respondents felt that the law mustcover all types of enterprises. This represents adeparture from other stakeholders’ well-pronouncedsupport for a law that exempts SMMEs.

Implementation of the LawAs is the trend with all other stakeholders, the majorityof businesses (75 percent) are of the opinion that theimplementing agency should be an autonomousentity. Only 25 percent said that the agency should beunder a government department or ministry.

Powers of Implementing AgencyInvestigation and Adjudication: 43.8 percent ofrespondents, which is a slight drop from the 46.3percent for the overall picture, were of the view thatthe implementing agency should be vested withinvestigative powers with the adjudicative powers leftwith the courts. On the other hand, 31.3 percent of therespondents were of the view that the implementingauthority be vested with both investigative andadjudicative powers left any other authority, while31.3 percent were of the view that the implementingauthority should be tasked with both investigativeand adjudicative roles.

Consumer Protection: An overwhelming 87.5 percentof respondents said that the implementing authorityshould also deal with consumer protection issues.This is in line with other stakeholders’ views. Only12.5 percent of businesses were against such anarrangement. Their view is that sector specificregulators should handle such issues.

Criminalisation of Violations of Law: 75 percent ofthe respondents support a situation where violationsof the law are sometimes criminalised, while 12.5percent were of the opinion that criminalisationshould be at all times.

Exemptions: Only 12.5 percent of businessrespondents argued that the law should provide forexemptions. This is in contrast with the overall view,where 55.8 percent of respondents supportedexemptions. However, the business sector suggestedthat in order to prevent abuse of exemptions,government must put in place well-defined guidelines(43.8 percent) and through judicial scrutiny (12.5percent).

Stakeholder Involvement: 100 percent of businesseswere of the view that the competition authority shouldinvolve stakeholders in its functioning, especiallyadvocacy. Like with other stakeholders, suggestedways include structured consultative committees andoccasional public hearings (18.8 percent).

National CompetitionPolicy for BotswanaIntroductionBotswana’s National Competition Policy was adoptedin August 2005. The decision by the government toformulate the Competition Policy came out of, amongothers, governmental concerns about the likelihoodof private anti-competitive practices emerging thusundermining the government’s reform objectives. TheCompetition Policy aims to provide a coherentframework that integrates privatisation, deregulation,and liberalisation of trade and investment into astrategy for promoting a dynamic market-led economy.

The Competition Policy, therefore, is a strategy forenhancing Botswana’s ability to promote free entryinto the market place by investors and all firms,irrespective of their size; attraction of both domesticand foreign investment inflows, innovation andtransfer of technology from intellectual propertyrights-holders, unfettered competition, acceptablebusiness behaviour and conduct, fair businesspractices, efficiency, competitiveness, and consumerwelfare.

Main Objectives of Competition PolicyThe main objectives of the Competition Policy are to:l enhance economic efficiency, promote consumer

welfare and support economic growth anddiversification objectives;

l prevent and redress anti-competitive practices inthe Botswana economy and remove unnecessaryconstraints on the free play of competition in themarket;

l prevent and redress unfair practices adopted byfirms against consumers and small businesses inBotswana;

l complement other government policies and laws;l enhance the attractiveness of the Botswana

economy for foreign direct investment by providinga transparent, predictable and internationallyacceptable regulatory mechanism for firms inpursuit of the overall efficiency andcompetitiveness of the economy;

l support other policy initiatives such as citizen’seconomic empowerment and access to essentialservices without prejudice to the pursuit of theoverall efficiency and competitiveness of theeconomy; and

Botswana


• achieve deregulation where regulation is nolonger needed.

In essence, the main objectives of the CompetitionPolicy are to maintain andpromote competition inorder to achieve efficient use of resources, protectthefreedom of economic action of firms and, as theultimate goal, promote consumer welfare.

Strategic Policy ConsiderationsThe government recognises that there are certainstrategic considerations critical for the success of theCompetition Policy. These are:(a) Establishment of the Competition Authority:• The authority will be established to implement

the Competition Policy and its related legislation.

(b) Development of the Competition Act• In order to ensure that Competition Policy is

properly implemented, the government willformulate a Competition Act, through which,competition in the market place will be regulated.

(c) Ensuring Consistency of the Competition Policywith Other Government Policies:

• In order to support the government’s otherongoing efforts to create and maintain a moreconducive environment for stimulating andenabling the growth and diversification of theeconomy, the Competition Policy will beconsistent with other policies such as the Policyon SMEs, Industrial Development Policy, and thePrivatisation Policy.

• The government will maintain a non-interferenceand competitive environment whilst ensuringconsistency between this policy and other socio-economic development policy initiatives.

• The government will work in collaboration andharmony with other countries and organisationsat the bilateral and multi-lateral levels to respondto existing and potential cross-borderanticompetitive practices, including but notrestricted to, various types of anticompetitivebehaviour, abuse of dominant position in themarket, and various types of anticompetitivecombinations.

• The principles of competition should beembedded in the process of policy-making,legislation and enforcement, and applied at bothlocal and central government levels.

(d) Development of Public Awareness and Supportfor Competition Enforcement:

• Implementation of Competition Policy will beaccompanied by the development andimplementation of a strategy for educating thepublic and other stakeholders on the relevanceand necessity of the Policy to the nation.

(e) Interface between the Competition Authoritywith other Sector Specific Regulatory Bodies

• The government recognises the important roleand advantages of having sector regulators suchas the Bank of Botswana (BoB) and the BotswanaTelecom Authority (BTA). However, all these willfall under the ambit of the Competition Law.

• There will be harmonisation of all legislationrelated to the Competition Policy in order toensure consistency between them.

• In sectors characterised by economic/commercialactivities, complex science, engineering andtechnology or having natural monopoly or otherspecial elements, the competition authority andaector apecific regulators will collaborate andcompliment each other.

(f) Structural Reforms of Public Monopolies• The development of the Competition Policy does

not in any way compromise the government’scommitment to restructuring public enterpriseswithin the framework for increasing the role ofthe private sector in the economy. Thegovernment’s sector reform programme will,therefore, continue alongside the implementationof the Competition Policy.

• The government, will however, retain monopolypowers, where necessary, to provide majorinfrastructure facilities whilst at the same timeopening up activities like connection anddistribution services to competition.

Comment: Notwithstanding the qualification ‘wherenecessary’ this seems to contradict governmentpronouncement and subsequent initiatives on thePublic Private Partnerships (PPPs) arrangement,through which the private sector can compete toprovide such facilities through a PPP arrangement.Under the PPP arrangement, government would letthe private sector, through a competitive bid providethe infrastructure, and the government pays theprivate party some monthly payment.

This would help in a number of ways. (a) It wouldopen competition within the infrastructure servicesector. (b) It would reduce government’s developmentexpenditure; thereby release funds for other purposes.(c) It would transfer, among others, construction riskfrom government to the private sector, as thegovernment will only pay for the service rendered bythe project at completion stage. As it stands now,government carries the risk of maintaining not a well-designed and structurally faulty infrastructure, whichwould change under a PPP arrangement.

• In line with the Privatisation Policy and theCompetition Policy, the government will, priorto introducing competition in a market

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traditionally supplied by public enterprise ormonopoly, undertake a review of the entity orentities concerned to determine theappropriateness of introducing competition.

(g) Mergers & Acquisitions• In order to safeguard competition in the market

place, government will, if and when necessary,review mergers and acquisitions (M&As),including joint ventures and other forms ofbusiness alliances. This will ensure that they donot compromise competition within the market.

(h) Professional Services• All professional associations will be put under

the ambit of the Competition Policy. This is meantto ensure that their activities and laws controllingthem do not inhibit competition within themarket.

(i) Consumer Protection• The Competition Policy and its related legislation

will protect consumers from any deceptive andfraudulent behaviour by sellers. Thus theformulation of the Competition Act will take intoaccount the provisions of the ConsumerProtection Act.

Comment: This is a welcome development, as is inline with survey results.

(j) Small-scale Firms• The Policy seeks to promote the efficiency and

competitiveness of small-scale firms, which forma large proportion of the industrial base inBotswana. In this regard, small-scale firms willbe included within the ambit of the CompetitionPolicy in order to challenge and encourage themto think and act strategically in building andsharpening their competitive edge.

Comment: Apart from the business sector, thegovernment and consumer sectors have advocated forexemption of SMMEs. The policy does not providesuch exemptions. It is therefore important that beforethe Law is developed, there be public debate on themerits and demerits of exempting SMMEs, so that thepublic has a clear understanding of why the SMMEswere not exempted. In addition, the Policy on SMMEsin Botswana state identifies “Excessive GovernmentLaws and Regulations” as one of the problems andconstraints facing SMMEs. Care should be taken thatthe Competition Policy does not come as yet anotherlayer of regulation that has so many years burdenedthe SMMEs.

(k) Exclusions and ExemptionsThere will be exemptions in the policy. These will takeinto account the following:• the economic activity’s strategic importance and

national interest to the country;

• the extent to which social benefits gained fromexclusions outweigh the costs;

• the extent to which efficiency and externalcompetitiveness will be enhanced as a result ofexclusions and exemptions;

• convincing proof or evidence that a sector’sregulatory body acting within its powersexpressly approves the firm or the organisation’saction in question.

• convincing proof or evidence that the applicationand/or related legislation is displaced by sector-specific regulatory regimes or othermanifestations of state ownership or directive.

Taking these into consideration, the policy willexempt and exclude the following;(L) Public Utilities

Infrastructural public utilities such as landlinetelecommunications, water and electricity requirehuge capital outlays, which take long to recoupgiven the paucity of Botswana’s population.Since this situation may constrain private sectorinvestment in these sub-sectors, the governmentmay exclude and exempt the provision of someof the infrastructural facilities from this policy.But public utility connections and distributionmay be put under the ambit of the CompetitionPolicy.

Comment: As long as government is prepared to paythe private sector to ‘compete’ through a tenderingprocess to provide the infrastructure, there is no reasonwhy the government has to exempt infrastructuralprojects. For example, at the moment, the governmentundertakes rural electrification and ruraltelecommunications through engaging ‘commerciallyrun’ government entities. The same concept can beused with private companies, where a privatecompany is asked to provide a service even when it isnot commercially viable, and government pays theprivate company market rates for the service.

(M) Collective BargainingIn order to prevent employers from exploitingworkers under the pretext of free competition, thegovernment will exempt and exclude collectivebargaining by unionised workers from the ambitof this policy.

Comment: It is not clear how this will work. First,labour laws safeguard the existence of unions in thework place. Second, there is normally only one unionat the work place. Thus, no one can expect any form ofcompetition between unions at the work place. Third,business is not competing with its employees.

(N) Intellectual Property RightsThe Competition Policy recognises the important roleof Intellectual Property Rights (IPRs) in Botswana.Thus, as a way of protecting IPRs from infringement

Botswana


and in order to promote the development of creationsand innovations, IPRs will be exempted and excludedfrom the ambit of this policy.

Regulatory and Institutional FrameworkThe effective implementation of the CompetitionPolicy will require the establishment of a soundinstitutional infrastructure. While the MTI will havethe overall responsibility of formulation andmonitoring of the Competition Policy, a CompetitionAuthority will be established to implement the Policyand enforce the Competition Act.

Thus, the Competition Authority will be independentfrom government and will have the powers to

i. Conduct investigations into claims of anti-competitive behaviour and determine whetherthere has been an infringement of thelaw. Thepowers of investigation are a key requirement fordeterring anti-competitive behaviour, as thesepowers will enable the authority to obtain theinformation it needs in the process of applyingthe Competition Law.

ii. Prosecute transgressions of the Competition Act.iii. Preside over disputes.

Parties aggrieved by the decision of the CompetitionAuthority will have the right to appeal to the highcourt.

Comment: This is a welcome provision. It is also inline with views and aspirations of stakeholders.

Interface between Competitionand Economic RegulationBotswana has only one regulator, although some arelikely to be established in the future, following therecent completion of an infrastructure study by thePublic Enterprises Evaluation and PrivatisationAgency (PEEPA), which have been recommended assuch. The existing regulator is the BTA, whichregulates the telecommunication service providers.Hence the question of how the regulators will relateand work with the envisaged CompetitionCommission is an important one. The question,however, should not be viewed as a major concernbecause the Competition Policy recognises theimportant role and advantages of having sectorregulators. The policy therefore ensures the continuedexistence and functioning of the regulators such asthe BTA, but places them under the ambit of theCompetition Law. The policy notes that:

• There will be harmonisation of all legislationrelated to the Competition Policy in order to ensureconsistency between them.

• In sectors characterised by economic/commercialactivities, complex science, engineering and

technology or having natural monopoly or otherspecial elements, the competition authority andsector specific regulators will collaborate andcompliment each other.

It is expected that the details of the interface betweenthe competition authority and the independentregulators be spelt out in the Competition Law, whichare yet to be developed.

Regional IntegrationNot much has been done at the regional level in termsof fostering regional competition through mechanismssuch as the competition policy. For example, there isno SADC Competition Policy or SACU CompetitionPolicy, the two regional blocks to which Botswanabelongs. However, the importance of the competitionpolicy is well recognized and there seems to be lightat the end of the tunnel as far as a regional competitionpolicy framework is concerned. The new SACUrequires that members have a competition policy(Article 40). It states, “member states shall co-operatewith each other with respect to the enforcement ofcompetition laws and regulations. Article 41 alsostates that “the Council shall develop policies andinstruments to address UTPs between Member States”.As for SADC, a number of SADC countries includingMalawi, South Africa, Zambia, Namibia, Tanzania,and Zimbabwe have competition legislation andBotswana has a competition policy and the legislationis being drafted. This shows that there is an increasinginterest in competition issues within the SADC region,although a lot still has to be done. SADC as a regionalbody also recognises the importance of a regionalCompetition Policy, but is yet to develop one. Article25 of the SADC Trade Protocol states that “MemberStates shall implement measures within theCommunity that prohibit unfair business practicesand promote competition”.

As a result, the Competition Policy commits thegovernment to working in collaboration and harmonywith other countries and organisations at the bilateraland multilateral levels to respond to existing andpotential cross-border anti-competitive practices,including but not restricted to, various types of anti-competitive behaviours, abuse of dominant positionin the market, and various types of anti-competitivecombinations.

ConclusionsBotswana Parliament passed the country’sCompetition Policy in August 2005. The CompetitionLaw is still to be developed. The country’sCompetition Policy’s main objective is to promotecompetition in order to achieve efficient use ofresources, protect the freedom of economic action offirms and, as the ultimate goal, promote consumerwelfare.

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It is against this background that the study hasattempted to capture the competition concerns inBotswana. The following conclusions can thereforesuffice:

(a) There remain some policies that, while developedfor a just cause, may be seen to be anti-competitive.These include the reservation policy and thepolicy on protection of infant industries.

(b) However, there are policies that may be termedpro-competition. These include WTO Agreement,which has opened a number of sectors forinternational competition. These includel Business Services,l Professional services,l Computer-related services,l Research and Development services,.l Real estate services, andl Tourism and Related services: hotel and

restaurant catering, travel agencies, and touroperators.

(c) There are laws that contain clauses that may beseen to be anti-competitive. These include:(i) The Industrial Development Act(ii) The Trade and Liquor Act(iii)Botswana Meat Commission Act

(d) There are other laws that seem very pro-competition. These include;(i) The Telecommunications Act(ii) The Public Procurement and Asset Disposal

Act

(e) There are indications of high levels ofconcentration in the long distance TransportSector (CR3 of 65.7 percent in 2000) followed byHotels and Restaurants (CR3 of 64.8 percent) andAgriculture (CR3 of 63.6 percent). TheManufacturing and Finance sectors hadconcentration ratios between 50 and 55 percent.The least concentrated industries, and probablythe most competitive industries, were Wholesaleand Retail Trade (26.8 percent) and Construction(40 percent).

(f) There is evidence of the existence of anti-competitive practices in Botswana, and the mostprevalent practice is price fixing. Other notablepractices are bid-rigging, unfair trade practicesand market sharing.

(g) Sectors with high prevalence of such practicesinclude the retail sector, the Motor Retail Sector,and the Construction Sector.

(h) In line with the Competition Policy, anindependent authority should implement theCompetition Law.

(i) While the development of Competition Policy iswelcome, there seem no compelling reasons toexempt infrastructure at the expense of SMMEs.

Botswana

Note: This chapter has been researched and written by Monnane M Monnane, of Botswana Institute for DevelopmentPolicy Analysis (BIDPA), Botswana. The author acknowledges the comments received from the members of theProject Advisory Committee. Comments and suggestions on the structure and content of this paper werereceived from Nitya Nanda of CUTS CCIER and incorporated appropriately.


John Preston and Karen Euis, DFID, UK withJawara Gaya, PROPAG, The Gambia

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Kimera Hemry Richard,CONSENT, Ugandawelcomes alll to theLaunch Meeting atEntbbe, Uganda

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Panelists discuss,‘Promoting Heathycompetition culture -How to move ahead inAfrica, during theRegional Conference,27-28 March 2006, AddisAbaba, Ethiopa

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H.E. Tore Gjos,Ambassador of Norway,Uganda, PradeepMehta, SecretaryGeneral, CUTS, KarenEuis, DFID, UK, andGeorge K Lipimile,Zambia CometitionCommission, Zambia atthe Launch Meeting, 22-23 March, 2005 Entebe,Uganda

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Participants during theRegional Conference inAddis Ababa, Ethiopia

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Taking note of theproceedings at theregional Conference,Addis Ababa, Ethiopia.

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Stage II InceptionMeeting held at Nairobi

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Project Partners inDiscussion at theStage II InceptionMeeting

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85

Chapter 3Competition Scenario in Ethiopia

IntroductionFrom the historical inception of Adam Smith’s moderneconomic theory, free competition is a fundamentalprinciple in any market economy and has been seenas one of the foundations for democratic societies.Smith and other writers such as Alfred Marshalemphasised the benefit of the entry and exit to andfrom the market. The dynamic nature of competitionbolsters the existence of a relatively easy procedurefor new and more efficient firms to enter or leave themarket.

Modern economics has also rediscovered the idea thatcompetition is not always perfect. (Lucian Cernat andPeter Holmes, United Nation Conference on Trade andDevelopment in 2004/1). In most developingcountries, the conditions for perfect competition arefar from being met and the possible benefit ofcompetition does not necessarily always translate intoadditional growth. Efforts to deregulate markets thatare intended to benefit consumers don’t alwaysachieve the desirable objectives. For instance, from theempirical evidence of developing countries’experience, consumer welfare and developmentbenefits resulting from trade and investmentliberalisation and privatisation, in the absence ofappropriate competition rules and supportinginstitutional infrastructure, has been questioned.

Many developing countries, during the past twodecades, tried to formulate a competition law, in thepolitical economic environment, which relied heavilyon the markets and less on government interventions.The removal of import restrictions, the reduction ofsubsidies, the privatisation of public owned(government) business enterprises as well as utilities,the easing of foreign exchange controls and theencouragement of foreign direct investment (FDI) wereplanned to benefit citizens and enhance their positionin the market place.

It has now been realised through experience gatheredfrom various parts of the world that potential benefitsof a shift towards a market-oriented economy will notbe realised unless business firms are prevented orprotected from imposing restrictions on competition.

Deregulation of previously regulated sectors,including state-controlled monopolies such as utilitiesfor a long time considered for the most part’naturalmonopolies’, need to be subject to review by thecompetition authority to ensure that these firms donot abuse their dominant position in the market.

Purpose of the StudyThe purpose of this research is to survey and addressthe problems that consumers face due to the presentstate of the competition regime in the country, andrecommend ways to better the situation throughparticipatory process of engaging multiplestakeholders performing specific roles to makecompetition effective.

Objective & MethodologyThe major objective of this report is to come up withthe findings that would help the Ethiopiangovernment towards effective implementation ofcompetition legislation in the country

Research MethodologyWorking on the issue of competition draws on a varietyof methods and techniques that involve political,economic and social interactions, particularlybetween the three major actors - government, producersand consumers. The research is based on competitionapproach in the context of economic theory. The riseof demand for competition policy and law forproducers and consumers is becoming one of theessential concerns of the 21st century. Based on this,the proposed plan of the researchers was to registerthe perception of the above-mentioned stakeholdergroups towards benefit from a functional competitionregime in Ethiopia. The information was collectedfrom six national regional states and two charteredcities, namely Addis Ababa and Diredawa. Inaddition, the research also comprised analysis ofvarious government policies to assess the extent towhich those policies affected (positively or negatively)competition in the marketplace.

The information collected for the purpose of the studywas based on literature reviews, field survey and

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informal interactions with various key personalitiesboth within the country and outside.

Literature ReviewFor background discussion and theoreticalexplanation, the researchers relied on secondary data.Variety of books, published and/or unpublishedgovernment documents, websites, reports andnewsletters were reviewed to make the study fruitful.

Fieldwork200 questionnaires were distributed in six nationalregional states towns (Adama, Awassa, Gambela,Gondar, Harar and Mekele; and two chartered citiesnamely, Addis Ababa and Diredawa) in Ethiopia tomake the research nationwide. The output of thesurvey is discussed in this report.

InterviewsAlthough, the researchers launched their interviewand discussion regarding competition policy and lawinformally, the theme was to acquire sufficient dataabout the problems consumers faced, due to the slowprogress of the investigation commission (TradePractice Investigation Commission, Ethiopia) towardsimplementation of the competition legislation in thecountry.

Country ProfileEthiopia is an ancient polity with a long independenthistory. As archaeological findings attest , it is thecradle of human civilisation. The country has a longhistory, with a mosaic of people and diverse cultures.The descendants of King Solomon and Queen Shebafounded the empire of Ethiopia. The country is land–locked, located in the Horn of Africa and ofparadoxical situations. While rich in natural, material,and human resources, , Ethiopia is also is known asthe motherland of drought and famine, since timeimmemorial.

Ethiopia’s Geographical LocationEthiopia is situated between 3° 14’ N Latitude and33° 48’ E Longitude in the Horn of Africa and sharesits borders with: Eritrea, Djibouti, Kenya, Somalia, andSudan. A prominent feature of the country is its ruggedtopography, comprising alpine mountains, flat-topped tablelands, deep canyons, and rolling plains.Even though, Ethiopia is twice the size of France withan area of 1.13 million square kilometers only half ofit is potentially arable, including over three millionhectares of potentially irrigable land.

Despite Ethiopia’s location within 150 of the Equator,the Ethiopian highlands, inhabited by the majority ofthe population, enjoy temperate climate with sufficientrainfall to grow at least one crop a year. The sparselypopulated lowlands of the east, southeast andnorthwest, on the other hand, typically have sub-

tropical and tropical climates with rainfalls rangingfrom less than 200 to 800 mm. Despite an adequateaverage national rainfall of about 930mm, Ethiopiahas been facing frequent droughts.

PopulationEthiopia is the second populous nation in Africa, nextto Nigeria. The January 2006 Ministry of Finance andEconomic Development (MoFED) status report on theBrussels Program of Action (BPoA) for the LeastDeveloped Countries (LDCs) figured out thepopulation size to be 74.2 million (World Fact Book,2006) out of which the total urban population sizewas estimated to be 11.97 million, while the total ruralpopulation size was 62.24 million. The size of thepopulation has been increasing at an alarming ratewith the annual population growth rate of 2.75% (CSA,2004:20; MoFED, 2006:1).According to a researchsurvey launched by MoFED in October 2005, morethan two million people are added to the country’spopulation every year.

Gross Domestic Product (GDP)In 2004, the Central Statistics Authority (CSA)estimated the country’s GDP at 50.74 million. Thegrowth rate of gross domestic product has been seento hover around five percent (MoFED, 2006:1). TheGDP per capita income is estimated at 817.8 Birr,roughly less than $100.00 (one hundred US dollars).The government revenue from domestic and abroadis estimated to be ETB 17.19 million, while theexpenditure of the government for capital goods andothers is estimated to be ETB 20.10 million during thebudget year 2003/04 that recorded a deficit of 2.90million Birr (ibid).

(Ethiopian Birr; 1USD=8.8 ETB)

Literacy RateThe survey of the second round of the CSA of April2004 advocated about educational attainmentsunderlining that 58.5 percent is illiterate people outof which 66.2 percent is male and 33.8 percent isfemale. The same survey estimated the ratio of literacyat 41.5 percent (MoFED, 2005:82).

Unemployment RateAccording to the CSA survey of April 2004, theemployment ratio of urban population was estimatedat 2,854,321 (42.6 percent) of the total population; ofwhich1 625,558 (56.9 percent) were male and1,228,763 (43.1 percent) female.

Analysis of Socio-Politico-EconomicHistoryFrom the economic perspective, the country hasreasonably good resources for potential developmentwith the availability of agricultural land, bio-diversity,water resources, minerals and so forth. Agricultural

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sector constitutes the largest economic activity of thecountry.

More than 85 percent of the total population isengaged in agricultural work and depends on thissector for survival with about 90 percent of them livingbelow the poverty level (Alemayehu and Befekadu,2002:2, MoFED, 2005:4), and practicing subsistenceagriculture. Agriculture contributes 40.1 percent tothe country’s GDP and 60 percent to its export.

The services sector stood second in economicimportance to agriculture and this makes the share ofindustry to GDP only 12.7 percent (World Book Fact,2006, Rahel Kassahun, 2003:1, CSA, 2004: 140). Dueto various reasons, both agriculture and industrialsectors depend on the external environment, whichmeans that both require imported inputs like fertilisersand pesticide chemicals for the agricultural sector andraw materials and spare parts for the industrial sectorthat exacerbate the scarcity of foreign exchange in thecountry. Researchers like Alemayehu and Befekadu(2002) categorised the Ethiopian economic policyregime into three distinctive periods.

Pre-Dergue RegimeThe political economy of this period was dominatedby feudalism. The political culture of the country wasfractured, its society was fragmented, and the economywas severely dependent on agriculture. Service andindustry were at infancy level. A little before thecollapse of the ruling power, the regime strived for theemerging of market led economy in Ethiopia.

The Dergue RegimeThe period was a radical departure in ideology tochange the feudal economic perspectives into socialist,command economy. The emerging socialist economicpolicy began to bitterly bite the promising effort of theindustry sector. The economic policy of the Dergueregime hampered the development of private sectorthat forced the economy to retard at 2.3 percent withnegative per capita growth.

The colonial legacy and the cold war influencecontributed a lot for the under-development of thecountry as external variables and the politicalcommitment of the period added to the decline ofeconomy at home. The civil unrest, the struggle forpolitical power, the practice of command economythat alienated the private sectors from the economicactivities, limitation of finance and poor infrastructurewere among the internal factors that contributedtowards retardation of economic growth until 1991.

Post-Dergue (1991)Following the change of government in Ethiopia in1991, on the demise of socialist oriented economicpolicy, a marked departure from the planned

economic policy towards a market oriented economicpolicy (Alemayehu and Befekadu, 2002:4) waswitnessed. Ethiopia oriented a market-led strategy andbegan to apply the privatisation policy into practice.The government of Ethiopia also embarked on acontinuous programme of economic reform includingtrade liberalisation, privatisation and deregulation.In this regard, the reform programme had achievedthe success of stabilising the economy – aiding thetransition to a free market system.

The economic growth averaged about five percent perannum between the periods 1999/2000 to 2004/05,while population growth average per capita incomerose only by about 2.1 percent per annum. Althoughthe government adopted a strategy of ADLI, with anemphasis on agriculture as the generator of primarysurplus taking advantage of backward and forwardlinkages to fuel the transition of a more moderneconomy, more than 31 million people still remainedin the grasp of severe poverty with an income of lessthan 45 US cents per day. According to presentestimates between six and 13 million people are at arisk of starvation each year (DTIS, 2004:12, MoFED,2005). Whereas, for the fiscal year 2004/05 Ethiopiarecorded a 15.1percent increase in agricultural foodproduction as addressed by Prime Minister MelesZenawi in his press conference to private and publicpress, (Capital volume 8 No. 372 published on Sunday,January 29, 2006).

It is possible to deduce that the development plan ofthe government has focused on agriculturaldevelopment to provide all resources to the industrialsectors as a catalyst for economic growth. This policyattempted to eliminate and/or minimise barriers totrade and tried to simplify bureaucratic regulationsand procedures to attract domestic and foreigninvestors. However, due to cumbersome bureaucraticpractice, rampant corruption, unappealing landpolicy and other social factors the effort of thegovernment remained unimplemented and thecountry’s cumulative economic growth has not mettargets as anticipated.

The growth trend analysis from 2000/01 to 2004/05reveals the following pattern (Getachew Adem, 2005).l Agriculture: 11.5 percent to 15.1 percentl Industry: 5 percent to 3.6 percentl Distributive Services: 5.2 percent to 6.9 percentl Other services: 4.5 percent to 5.9 percent

As stated by the Prime Minister, Meles Zenawi, theagricultural output had recovered during the 2004/05 crop year due to adequate rainfall in the country.

In a nutshell, the government acknowledges theflourishing of private sector into market-orientedeconomic movement and encourages widening theinvolvement of private sector. However, there are

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many complaints from the private sector that thepolitical party (state)-owned enterprises aredominating the market and negatively affectingcompetition.0/0Trade BalanceThe limitation of industrial products and the natureof global trade forced the country to import largequantity of foodstuffs, capital goods, spare parts, rawmaterials for the infant industries and fertilizers,pesticides, chemicals and other agricultural inputs tosatisfy the needs of the society at large and theconsumers particularly. On the other hand, due tolack of high value exports such as minerals, petroleumand other natural resources the volume of importexceeds the volume of export, which in turn leads thecountry into deficit in trade balance.

According to the 2002/2003 (CSA) data, the country’sexport volume shows an amount of Birr 3,846.6million, while the import value was Birr 13,566.5million with the deficit balance of Birr 9,719.9 millionfor the year 2002. For the year 2003, the country earnedfrom its export volume Birr 4,470.9 million, while thepayment for its import volume was 23,069.2 millionwith the deficit trade balance of 18,598.3 million. Insummary, during the fiscal period of 2003, both theexport and import trade balance was increased at therate of 16.1 percent and 70.0percent against that ofthe year 2002 respectively (CSA, 2004: vi). The CSA(ibid) data shared that the deficit for the year 2002and 2003 estimated at 9.7 million and 18.6 millionrespectively. The overall balance of payments deficitwidened to USD113.8 million in the first quarter of2005/2006, where as the deficit between import andexport accounts USD985.04 million = export - import(i.e., USD182.96 million –USD 1068 million).

The Impact of Social and EconomicPolicies on CompetitionIn an ideal world, fair competition between businesseshas been argued to benefit both producers andconsumers. Taking the demand side of the benefit, ithas been said that economic efficiency, innovationand better quality product at affordable prices is amajor manifestation of how the consumers benefit fromcompetition. It is believed that not only the consumers,but also the economy of a country as a whole becomesmore prosperous (CI, 2001:5).

Such outcomes are dependent on good governanceand related issues. Governance when taken inassociation with the policy formulation activities ofgovernment refers to “the process by which diverseelements in a society wield power and authority and,thereby, influence and enact policies and decisionsconcerning public life and economic and socialdevelopment” (Corkery J et al, 1997:2).

Responsibility for deciding on national policies andsecuring their implementation rests with thegovernment. Policy formulation requires effectiveaction by the head of the state, the executive or cabinetof ministers, and by the administrative services. Inparliamentary democracies, it requires capacity forindependent scrutiny by the legislature or parliamentand subsequent impartial enforcement by thejudiciary. All these parts of government need adequatecapacity for the work to be done well, but there arecapacity needs also among the other stakeholders inthe policy formulation process.

The initiative for a policy change may come frompoliticians, for example, resulting from an electionmanifesto from officials in response to newinformation about changing situations or difficultiesin implementing present policies or from organs ofcivil society (Ibid: 3). If these initiatives do notaccommodate interests of the different groups in thesociety, they can distort competition throughregulation, intervention and lack of effectiveinfrastructure (CI, ibid: 14).

In a democracy, the government takes decisions onpolicy, which in turn is accountable to the electorate.The electorate is generally not satisfied with beingconsulted once every four or five years (or whateverthe agreed period between elections is). People in allcountries are becoming more educated and muchbetter informed. Increasingly, they are becoming betterable to articulate their needs and having the confidenceto put them forward. In this environment, thegovernment needs to consult the people at large aswell as relevant interest groups if they are to producethe most effective policies. Consultation does not meanonly that government will ask people their views onthe government’s proposals but also that thegovernment will listen to proposals that come fromtheir citizens. This is what this report aims to achieve– i.e., to record perceptions of three main stakeholdersof a competition regime (consumers, government andbusiness community), on ways of operationalisingcompetition legislation in Ethiopia.

This does not reduce the responsibility of thegovernment to govern but it does mean that indetermining policies to be pursued, the governmenttakes into account the views of those who may affector are affected by any of these policies. Trade andeconomic policies, for example, need to take intoaccount the views of trade unions, employers,investors and consumers (Corkery J et al, ibid: 2).

In principle, setting up a competition regime mightsound a straightforward process. However, in practicethere are tensions between government’s variousdevelopment policies, particularly in economiesmoving from state to private control of industries.Under such a situation promoting an effective

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competition regime might not appear a priority of thegovernment.

It has been said that the absence of competition law insome countries has been partly due to government’sfear that competition could exacerbate economicinequality and political instability between thedifferent business and ethnic communities. In suchcircumstances, choices are made to emphasise onsocial harmony over competitive business practices.Governments in some countries have also opted tobalance the need for competitive business practiceswith the belief that many people in their countries arepoor not because of badly distributed incomes, butbecause total income is too low to be adequate for all,no matter how it is distributed.

Thus, a government may wish to increase itsindustries’ overall competitiveness in order to increasethe total income to be distributed but the two goals ofmore competition and greater overall income – canconflict. In trying to enhance national champions themost important national industries for the governmentmay subsidise and protect certain firms at the expenseof their taxpayers and consumers.

This tension between trade and competition policieshas grown during the past three decades, as nationaleconomy has become more inter-dependent and inter-related. In addition, the consensus emerging from theWorld Trade Organisation (WTO), InternationalMonetary Fund (IMF) and World Bank (WB) has beento promote liberalisation, privatisation and theremoval of national barriers to trade- as an engine forbetter economic growth.

Consequently, social and/or economic policies of acountry either positively or negatively affect thecompetition regime in that country. To see this inEthiopia, some eight policy orientations namely:industrial policy, trade policy, regulatory policy,investment policy, government procurement policy,labor policy, development policy, and policy for SMEsare briefly analysed as follows.

Social and Economic PoliciesIndustrial PolicySince 2001, the country has adopted an IndustrialDevelopment Strategy, which clearly recognises theprivate sector as the engine of growth and industrialdevelopment with a focus on, inter alia, export-ledindustrialisation and competitiveness. This strategyalso follows the line of ADLI by incorporating theparticipation of the rural areas/peasant communities;labour-intensive industrialisation/technology as apreferred option for employment creation;coordinated foreign and domestic investment; strongleadership role of the government; and co-ordinationbetween government and the private sector (MoTI,2001: 5-89).

To strengthen the principles, it has been elaborated inthe document that there is a government commitmentto work towards creating an enabling environmentfor the private sector; achieving macro-economicstability; creating and facilitating modern and easilyaccessible financial system; construct and providereliable development infrastructure; establishingmodern, accountable, transparent and satisfactorygovernance system; and establishing modern,independent and reliable justice system (Ibid).

Regarding competition in the industrial sector, thepolicy document provides for the significance of astrong competition to realise effective resourceallocation in the country and also the importance ofattaining competitiveness to be a part of theinternational economic system. Moreover, thedocument also recognises that formulation andimplementation of strong sectoral policy is essentialto make the private sector to accept and put intopractice the principles of competition. It has beenelaborated in the document that any support from thegovernment to the private sector should be to buildthe capacity required to be competitive in the market,provided that the latter is committed and ready tosacrifice its resources in order to make use of thesupport expected from the government (Ibid).

Sub-sectors such as textile and clothing, leather andleather products, food processing, in particular, meat,cereals, edible oil and fruits, have been identified todrive the industrial process (Ibid). The facilitating roleof the government, in terms of creating an enablingenvironment for private sector development andindustrialisation and when appropriate, itsintervention to correct market failures are reiteratedin the strategy. Also recognised is the importance andeffectiveness of public - private partnership (PPP)(Ibid). Hence, for the time being, no appreciableadverse impact is observed or otherwise expected fromthe industrial policy against competition andcompetitiveness. It has been claimed from thegovernment’s side that the good policy orientation inthe sector has resulted in an increase of productivityand GDP share (NBE, 2004).

The opinion of the private sector, calls for radicaltransformation of existing laws, regulations, policies,institutions, social attitudes and motivations.Furthermore, it has been said, “Such a structuralchange leads to increasing employment opportunities,higher labour productivity, increased capital stock,etc.” (The Reporter, January 28, 2005).

Trade PolicyThe trade regime is a part of the overall incentivestructure. Trade reforms are important for themodernisation of the economy and are an aspect ofthe transformation from an inward oriented to anoutward oriented economy. Trade policies are also of

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vital importance for the transfer of technology,management know-how and for increasing theefficiency of the economy including the non-tradablesector through competition for resources (MoTI,2004b: 21).

For a country like Ethiopia, with little market power,open trade policies are an instrument available forthe transformation to a modern economy. However,for a variety of reasons, Ethiopia has not fully realisedthe benefits from its trade reforms that began in earnestin the early 1990s. It has been argued, “the country iscertainly better off under the liberalised trade regimecompared to the highly restricted trade regime of theDergue period” (Ibid). To make trade one aspect of thetransformation of the economy, it needs support fromother policies, institutions and infrastructure to realisefull benefits from increased integration with the worldeconomy.

During the Dergue era, import trade of Ethiopiaremained severely restricted due to a combination ofhigh tariffs and a plethora of quantitative restrictions.Tariffs were as high as 230 percent on certain luxuryconsumer goods and many of the intermediate andinvestment goods, imports to public sector enterpriseswere allowed at zero or low duties. The quantitativeimport restrictions on imports by the private sectorincluded direct import prohibition (a long ‘negativelist’), quotas, strict licensing and foreign exchangerationing (Ibid).

In August 1993, the new government embarked on acomprehensive trade reform program aimed atdismantling quantitative restrictions and graduallyreducing the level and dispersion of tariff rates. Thenegative list used to determine eligibility for importsthrough the foreign exchange access was reducedsignificantly. Currently, quantitative importrestrictions are applied only to contraband items,harmful drugs and armaments for security reasons(Ibid). Both, tariff levels and dispersion have beenreduced significantly under tariff reforms. Specifictariffs have been converted into ad valorem rates. Theaverage (un-weighted) tariff rate declined from 28.9percent in 1995 to 17.5 percent in 2002. The degree ofdispersion of tariff rates, measured by the coefficientof variation declined from 82.4 percent to 69.7percent.

It has been argued by the government, “there has beensubstantial private sector growth in recent years, inpart as a result of a more open and liberalisedeconomy, and in part due to the rebound from yearsof unsettled domestic and external conditions”(MoFED, 2005:54). Moreover, it has been said, “withthe return of peace and economic stability there hasbeen renewed confidence and a surge in businessactivity”. Examples cited in this regard include: valueadded in services grew by about 6.2 percent in the lasttwo years, in industrial output by 7 percent and in

construction by 8.2 percent. Similarly, there has beena major take-off in firms that produce cut flowers forthe export market in Europe” (Ibid).

The principles underlying the PASDEP strategyinclude a commitment to ease the environment forprivate investment and business activity, to replacethe hitherto significant role of the state with greaterdomestic and foreign private participation and tostrongly support the growth of export industries. Theoverall strategic framework is comprised of thegovernment’s Industrial Development Strategy,implementation of the findings of the Diagnostic TradeIntegration Study, the ongoing privatisationprogramme and the National Micro and SmallEnterprises Development Strategy.

Last year, an Investment Climate Assessment Studywas undertaken which analyses the conditions forprivate investment and enterprise growth in Ethiopiadrawing on the experience of local firms to pinpointthe areas where reform is most needed to improve theprivate sector’s productivity and competitiveness. Thestudy confirmed that improved conditions prevail inbusiness registration and licensing, customsclearance, telecommunication services and labourregulations. The update also signaled concerns inareas such as access to land, the firms’ perceptions ofthe overall tax regime, access to credit, and utilities(electricity and water).

As a way to build on the progress, the governmentsays that it is planning to work hard towards moreparticipation of private sector development in thefuture. To this end, it has been proposed that:l increased competition would be seen through

progressive number of cases ruled by theInvestigation Commission, five to nine cases perannum in the next five years;

l to privatise 30 enterprises per annum to meet thetarget of seven percent, 16percent, 27 percent, 40percent, and 55 percent in the next five years until2010; and

l advance the simplified and faster businessregistration and licensing processes with targetsincluding: a) reduce the time spent by individualbusiness persons, companies and associationsfrom 47 minutes in 2004/05 to 35 minutes in 2009/2010; b) reduce time required to register a foreigninvestor to start a business from three hours in2004/05 to half an hour in 2009/2010; and c)reduce time required to get permit for foreigninvestors from 60 minutes in 2004/05 15 minutesin 2009/2010.

On the other hand, observers argue that efforts beingmade to realise economic freedom in Ethiopia are notsufficient. One group argues from the policyimportance point of view and says that the importancegiven to trade sector has been too small. Elaboratingthis (Ladd, 2003: 2) they submit that:

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“Given the importance of trade, one would expect theeffects of different trade policies to be thoroughlydissected and analysed in Poverty Reduction StrategyPapers (PRSPs) – the flagship developmentframework of donors and national governments. Butevidence suggests otherwise. This suggests that,despite the rhetoric of PRSPs, trade policy is notdetermined in a participatory way that draws on theperspectives and aspirations of different groups ofpeople in each country. In the absence of ex-anteimpact studies, there is also no reason to believe thattrade policy has been designed to maximise itscontribution to poverty reduction”.

The other groups says, “a least efficient country suchas Ethiopia, where custom clearance requires anaverage of 30 days, would ceteris paribus nearlyeliminate trade” (WTO, 2005: 124). In addition to this,the 2006 Index of Economic Freedom puts Ethiopia atthe 133rd rank, out of the 161 countries analysed with3.7 average score. The summarised report on Ethiopiareads as follows:

“The government continues to promise economicreform, but progress has been slow: Nearly 200 state-owned enterprises have yet to be privatised, corruptionis widespread, bureaucracy is burdensome, and mucheconomic activity occurs in the informal sector. Inaddition, taxation is unevenly enforced, the judiciaryis overwhelmed, and the key sectors of the economyremain closed to foreign investment. The governmenthas taken some steps toward reforming the civilservice, improving infrastructure, and removingregulatory impediments to investment and businessestablishment. Land-locked Ethiopia depends heavilyon Djibouti for access to foreign goods. Ethiopia’sgovernment intervention score is 0.5 point worse thisyear (2006); however, its trade policy score is 0.5 pointbetter, and its fiscal burden of government score is 0.3point better. As a result, Ethiopia’s overall score is0.03 point better this year. Therefore, one can easilyanalyse that much is to be done to make Ethiopia’strade regime free and competitive as well”.

Regulatory PolicyPreviously, government procedures and paperworkwas usually complicated and time-consuming;regulation has been too bureaucratic, impartial andinflexible. However, following the 1996comprehensive civil service reform programme,measures are being taken especially since 2003, onbusiness licensing, import-export regulation, foreignexchange regulation, and others have been relativelysimplified. Provision of the service brought down toone-stop-shop approaches and as a result, someimprovements are registered in 2003/04 that resultedin easy entry and exit of commercial activities.

However, Miles et al. (2006: 180) in 2006 Index ofEconomic Freedom argues that:

Ethiopia’s cumbersome bureaucracy detersinvestment. According to the Economist IntelligenceUnit, “Corruption in Ethiopia poses various problemsfor [the] business environment, as patronage networksare firmly entrenched and political clout is often usedto gain economic prowess”. The US Department ofCommerce reports, “Ethiopia’s regulatory system isgenerally considered fair and honest, but not alwaystransparent. There are instances in which burdensomeregulatory or licensing requirements have preventedthe local sale of…exports, particularly personalhygiene and healthcare products”. The EU reportsthat corruption imposes a serious burden on theeconomic activity.

Investment PolicyInvestment is, without doubt, one of the primaryengines of growth in all economies. However, itseffectiveness rests on strong complementarities withother elements in the growth process, most notablytechnological progress, skill acquisition and thedevelopment of innovative capabilities. Theseelements make investment a natural point of departurefor the government seeking to formulate a robustdevelopment strategy.

The link between investment and these otherdeterminants of growth requires among other thingsa favourable macro-policy environment and specificpolicies and institutions aimed at encouragingsavings and attracting and directing investment tokey sectors in the economy thereby enhancing thecontributions of investment to skill formation,technological change, competitiveness and economicgrowth. A clear understanding of the link betweeninvestment and technological progress is an essentialprerequisite for designing an effective nationalinvestment policy and an investment promotionstrategy (UNCTAD, 2002:1)

It has been argued that Ethiopia’s market-orientedeconomic development strategy embraces widereforms with inducements to both domestic andforeign private investments. Moreover, it has beenargued that the private sector is encouraged to investin almost all areas of economy. The areas includethose sectors formerly reserved for the government,hydropower generation, and telecommunicationservices. Likewise, Ethiopia does not impose localcontent, technology transfer or export performancerequirements on foreign investments. There are norestrictions on repatriation of earnings, capital, feesor royalties.

It has been argued that Ethiopia’s record in attractingFDI has been poor. More than four-fifths of the projectsthat have received licences have not beenimplemented. This lackluster record reflects severalconstraints including the same constraints thatoperate on the domestic private sector and that arise

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from a negative perception of FDI in the countryincluding in some parts of the government. Equally,foreign investors have perceptions conditioned by thepast poor record of the Dergue regime policies, faminesand poor infrastructure compared to other sub-Saharan countries.

Government Procurement PoliciesGovernment procurement is by competitive bidding.There are no burdensome administrative proceduresor special documents regarding governmentprocurement. However, currently, there are effortsbeing made to make the procedures of publicprocurement more economic, efficient, fairer,transparent and non-discriminatory. This has beenseen since the introduction of proclamation No. 430/2005 on January 12, 2005, which provides for non-discrimination of candidates on the basis ofnationality, race or any other criterion not having todo with their qualification (Art.18).

However, actions being taken following theproclamation like, establishment of independentPublic Procurement Agency; and introduction ofprocurement directives to smoothen theimplementation of the proclamation seem to beevidences that the government is serious to improvethe structural predicaments related to publicprocurement in the past. Previous public procurementsystems have been complained to be discriminatory,unfair, and anti-competitive and based on discretionalpower of the government officials. In the newlyintroduced directive, it has been reiterated, “Nocandidate shall be discriminated because ofnationality or other reasons which are not related tothe evaluation criteria except in accordance with therule of preference provided for, in the proclamation”1

(MoFED, 2005c: 2).

The provision regarding open international bidding,which necessitates only when there is a determinationof threshold and an issuance of directives by theMinister of Finance and Economic Development,seems to be one of the limitations of the proclamationregarding competition.

Labour PolicyThe country’s current labour policy has been basedon Labour Proclamation No. 377/2003, which is ineffect since February 26, 2004. Maintaining industrialpeace and work by enabling both the workers andemployers to be based on basic principles of rightsand obligations, through harmony and co-operativeefforts have been the major objectives of the policy. Ithas been argued that the proclamation is compatiblewith international conventions and other legalcommitments to which Ethiopia is a party.

The new statute represents an important tool forlabour unions and employers to participate in all

labour matters (Sommer, 2004: 5-6). The innovationconcerns the right of workers without distinctionwhatsoever, to form organisations of their ownchoosing and the right of these organisations toorganise their activities without interference by thepublic authorities and not to be dissolved byadministrative authority (Article 114(1), (2) and (7)).Labour Proclamation 377/2003 amends the previousLabour Proclamation by adding some crucial andimportant issues to benefit employees, employers andworking environment.

The policy also intends to address unemploymentrelated problems in Ethiopia, especially in urbanareas, which is one of the serious challenges. Workingage population (labour force) stood at 54 percent in2003/04. It has been argued that it is important tonote the fact that pressure on the labour market comesdirectly from the supply of labour, which in turn isinduced by the growth rate of the population.Moreover, it has been said that the challenges beingfaced by the government in fulfilling the demand forincreased employment in a progressive way aretwofold: a) managing the dynamics of populationgrowth; and b) expansion of labour-intensiveproductive activities (MoFED, 2005: 16).

Development PolicyThe country’s overall economic development strategyhas been agriculturecentred development as a meansof promoting industrial development and market-oriented economy. ADLI policy, therefore, came in thewake of a series of trails to promote agriculturaldevelopment. A major push on growth has beenidentified as essential in order to have a lasting impacton poverty, as well as to finance the necessary socialinvestments for human development (MoFED, 2005:5).However, as has been said in the PASDEP document,there is little hope of significantly reducing humanpoverty in Ethiopia. For instance, as projection showsa growth rate of four percent p.a., there would beabout 22 million absolutely poor people by 2015,living at or below the food poverty line. Conversely,calculations show that a growth rate of about eightpercent p.a. would have to be sustained to reach theMDG (Millennium Development Goal) of halvingincome poverty by 2015. This compares to an averagerate of about five percent over the 10 years 1993-2003,and of about five percent during the SustainableDevelopment and Poverty Reduction Programme(SDPRP) I period (2003-2005).

Moreover, it has been said that alleviating povertyand transforming the structure of the economy hasbeen the major objective of Ethiopia’s economicdevelopment policy and/or programmes. The ADLIStrategy adopted in 1993, has been designed to servethis end. This strategy aims at improving agriculturalproduction and productivity as a basis for improvedincome and living conditions for the small holder

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farming population on the one hand, and as a sourceof improved export earnings to finance investmentelsewhere in the economy. Improved farm incomewould also generate sufficient demand for theindustrial sector instigating dynamism and inter-sectoral linkages. Thus, ADLI is a strategy that isexpected to generate development processes, whichdirectly addresses poverty eradication (MEDaC,2001:5). However, quite a lot of debate emerged whenthe government ADLI policy couldn’t meet theanticipated goal of self-sufficient food production andpoverty reduction.

Policy for Small and Medium SizeEnterprises (SMEs)SMEs are widely acknowledged to contribute towardspromotion and development of inventions, minorinventions and industrial designs and therebygenerate employment opportunities in the country.SMEs are particularly important in the context ofEthiopia’s poverty-reduction strategy because they areseedbed for the development of medium and largerenterprises, and because they absorb agriculturallyunder-employed labour, and diversify the sources ofincome for farming families. Areas of high potentialfor SMEs include animal husbandry, poultry, silkharvesting, honey production, small-scale garmentmanufacturing and metal work, construction, andincreasingly urban-based services (for example - solidwaste collection, parking lots, small shops and repairservices). It is estimated that as a result of support todate about 96,000 SMEs were strengthened and some280,000 jobs created.

In order to improve the performance of SMEs, it hasbeen stated in PASDEP that strategic emphasis is tobe given to growth (rural, industry and export),particularly to the promotion of micro and small-scaleenterprise development, construction etc. The recentexperience of the Addis Ababa City Administrationin SMEs development linked with Technical andVocational Education Training (TVET) and low-costhousing programme is going to be scaled up and rolledout to other towns in the country (MoFED, Ibid). Withthe growing urban and small-town economy, andincreased domestic demand, there are substantialopportunities for SME growth.

The government’s support is mostly channelledthrough the Federal Micro and EnterpriseDevelopment Agency (MSEDA), and increasinglythrough Regional MSEDAs. Activities include basictraining in technologies and business skills,development of low-level service working premises,the provision of micro-credit and information onmarkets and techniques, and working with producersto identify constraints and bottlenecks. Plans for theimmediate future include providing more basictraining in textile skills, upgrading businessdevelopment services by strengthening the capacity

and providing staff training to Regional MSEDAs;creating market linkages with foreign importers witha special emphasis on handicrafts, especiallyhandloom ‘shemma’ products, leather, bamboo, andbasketry.

However, as the sector is limited to small enterpriseslike handicrafts, cottage industries, wood, metal worksand the like, only local citizens are mostly handlingthem. And when seen from domestic point of view,the policy of this sector needs to be seen to give somerooms for foreign investors and facilitate level-playingground.

Need for Consumer Protection PolicyConsumers have been protected by different laws thatspecify consumer protection as their primary concern;numerous other provisions have the effect of protectingthe consumer, for example by streamlining theprosecution of fraud, protecting property or facilitatinglitigation. As a result, the boundaries of consumerprotection law are not easily drawn (Cartwright,2001:1). However, malpractices of trading businessand unethical service provisions have been affectingconsumers in Ethiopia. Lack of complementaryconsumer policy, together with encouraging betterimplementation, monitoring and enforcement forcompetition regimes has contributed a lot for suchillegal trade practices.

Using the language of efficiency and equity ratherthan market and social goals, Ramsay (1984: 12)observes “an efficient policy is ultimately justified byequity since consumers are able to obtain goods andservices of a quality, on terms, and at the price thatthey are willing to pay”. Although helpful for thepurpose of structure, the market/social distinction isimperfect in practice. Moreover, it has been arguedthat the market, underpinned by private law, is animportant technique for ensuring that consumers areable to purchase the goods and services that they want,and that intervention which helps the market tofunction is valuable. However, social goals are beingrecognised as increasingly important and it isimportant for any effective consumer protection policyto address both (Cartwright, Ibid: 2).

The main characteristics of consumer protectionpolicy has been argued to be that the supplier acts inthe course of a trade or business, the recipient is aprivate individual, and the recipient acts in a privatecapacity. It should be remembered that it is importantnot to limit the term ‘consumer’ to contracting parties,as that might exclude the ultimate user of goods andservices. Indeed, it is possible to develop a much widerconcept of the consumer than has traditionally beenenvisaged.

A private individual who receives services from a non-commercial state authority, such as the user of

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National Health Service facilities or even the recipientof state benefit, might be aptly described as a consumer.As Kennedy stated, “consumerism is just asconcerned with the supply of services as with goods.The consumer merely becomes the client, or patient,or whatever rather than the shopper”. We could evengo as far as to equate the word ‘consumer’ with‘citizen’. Moreover, it has been also pointed out thatthe consumer interest is involved whenever citizensenter relationships with bodies, such as hospitals andlibraries (Ibid: 2-3).

The combination of a strong consumer policy thatempowers and informs consumers, and competitionregimes that are effective and enforceable, actuallypromotes the development of firms that are moreefficient and competitive. Implementing consumerpolicy as a complement to a competition regime willreinforce the benefits of competition for bothconsumers and markets, and have a positive effect oneconomic development.

It has been well-acknowledged that domesticcompetition creates the pressure for companies toinnovate. At the same time, anti-monopoly policiesremain vital, particularly in relation to horizontalmergers, cartels and other strategic alliances. Thereare, therefore, both persuasive economic and welfarearguments to support the development of consumerpolicy alongside competition policy, in bothdeveloped and developing countries. Such a move willhelp to ensure that the development of marketeconomies – and the promotion of liberalisation andderegulation are measured and balanced against thewider social goals of the community. And yet,researches show that effective consumer policies havenot emerged, particularly in developing countries thatlack both competitive markets and strong consumerwelfare lobbies (Ibid). Different Laws in Ethiopia havebeen used to protect consumers for years. Ethiopiadoes not have a comprehensive Consumer ProtectionPolicy and Law. Consumer issues are being addressedin different regulatory regimes like the penal code,civil code and other specific regulations. Much moreis to be done to see effective Consumer Protection Policyand Law in the country.

Any Other Policy Affecting Level ofCompetition in MarketMany sectors, particularly in services and trade, areoff-limits to foreign investors. The government retainscontrol over the utilities sector and did not allowforeign participation in banking and insurance. Thecommercial code is antiquated, not amended since1960s, and the under-staffed judicial system isinadequate. In the 2006 Economic Freedom Index, ithas been said that:

“Ethiopia’s judicial system remains underdeveloped,poorly staffed and inexperienced, although efforts are

underway to strengthen its capacity. While propertyand contractual rights are recognised and there arewritten commercial and bankruptcy laws, judges lackunderstanding of commercial matters. There is noguarantee that the decision of an internationalarbitration body will be fully accepted andimplemented by Ethiopian authorities”.

In summary, it has been argued that in the short-to-medium term, Ethiopia’s economic performance willdepend on its ability to continuously improve thebusiness environment for the private sector, furtherliberalise the economy particularly in the financialand telecommunication sectors, attract FDI, speed-up the privatisation process, streamline thebureaucracy and maintain political stability. Otherfactors, such as favourable weather conditions,external market situations and consumer satisfactionwill also play an important role over the coming years.

Nature of Market/CompetitionThe theme of this chapter is focused on nature ofmarket in Ethiopia. In principle, the market foragricultural commodities is found under competitiveconditions with a large number of widely distributedsmall producers/farmers, who generally have to selltheir entire output, irrespective of the price level. It ispossible to agree that the market for grain is the largestof all markets in Ethiopia in terms of volume handled.As personal observation of the writers, millions offarmers and consumers as well as a number ofmarketing agents are engaged in the production andconsumption of grains.

Nature of Competition in MarketThe main features of the Ethiopian marketing systemare marketed volumes through alternative channels,although it is difficult to determine the volume of grainmarketed annually, due to its fluctuation from year toyear, depending on the weather and rainfallconditions (Gebremeskel et al, 1998:10).

With regard to the industrial sector, the total numberof large and medium scale manufacturingestablishments for the country as a whole stood at1,074 according to the 2003 and 2004 CSA and WorldFact Book of 2006, data in which contributes anapproximated rate of 12.7 percent to GDP. Clothingand food processing industriesh located indifferentareas of the country and compete with each other playa dominant role in satisfying the need of consumers.Besides, domestic and international competitivenessfor a firm is influenced by internal and external factorsin which these factors influence the competitivenessof the industries (Berhanu & Kibre, 2002)

Ethiopia is in fact, one of the world’s leastindustrialised countries. As witnessed in the latestUNIDO indicators, ranking 93 countries for 2000,

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Ethiopia is the last in terms of manufacturing valueadded per capita, with US$12, well below Kenya(US$34), Madagascar (US$25), and Zimbabwe(US$130). Furthermore, the share of complex products(i.e. medium and high technology products) inmanufacturing value added and exports is extremelylow, even by African standards.

For the country as a whole, the establishments areclassified under the manufacturing of food productsand beverages industrial group constituting thelargest share accounting for 30 perccent of the totaloutput (which includes: flour, bread, edible oil, softdrinks, beer and alcoholic drinks). Manufacturers offurniture and non-metallic mineral products follow,which constitute s 16.0 percent and 11.5 percent ofthe total.

Market ConcentrationProducers have options to sell their grain products toretailers or consumers bypassing the grainwholesalers in Ethiopia. Gebremeskel et al (1998)argued, “unlike the size distribution of traders at thenational level, the extent of inequality in market shareat the local market level differs from market to market,and from crop to crop. After disaggregating thenumber of local traders operating in individualmarkets, no markets in the sample had a level ofconcentration for all grains collectively, this wouldbe considered anti-competitive”. However, this doesnot mean denying of market concentration in someareas of the country on specific types of crops like inGondar and Baherdar for Teff (staple) and Sorghum;Maize in Diredawa and Bahirdar; Barley in Assassaand Shashemenie and Wheat in Nazerath andShashemene in which the market concentration wasfound to be over 40 percent.

Generally, as stated by Gebremeskel et al with thesepossible exceptions, the structure of the grain marketsgenerally does not indicate that few traders in the localmarkets control a sufficiently large share of themarketed volume at the wholesale level, which theycould use to influence grain prices to their advantage.

In terms of industries, the manufacturing sectorconcentrates in the production of domestic use ofconstruction materials, metal and chemical products,and basic consumer goods such as food, beverages,clothing and textiles. The sector is dominated by about110 public enterprises, which account for more than75 percent of the total value. Production by state-ownedenterprises is concentrated in food and beverages,textiles, clothing, leather products, tobacco, chemical,rubber, plastic and cement sectors.

The share of the three industrial groups (foodprocessing, beverage and edible oil industries)combination exceeds 57.4 percent of the total number

of manufacturing industries, which indicates that theEthiopian large and medium scale manufacturingindustry is characterised by a high concentration(CSA, 2004:6).

Besides, the soft drink industry is totally occupied bythe largest two companies: MOHA and East AfricanBottling that indicates the existence of marketconcentration in the industrial sector, which meansmarket concentration addresses a function of thenumber of firms in a market and their respectivemarket shares or the extent to which the top firms inan industry take up a large portion of the market share.

Private sector manufacturing activity follows a similarpattern. Production is concentrated in bakeryproducts, meatpacking, textiles, footwear,construction, metal works and furniture.

As is observed, the grain market structure flows withinthe streamlines of producers, rural assemblers, inter-regional traders, wholesalers, and brokers in terminalmarkets, processors, retailers and finally consumers.Market structure is the term used to describe the wayin which industry competitors interact. Economistsview the nature of market as perfect competition,imperfect competition, monopolistic competition andmonopoly as well as of oligopoly nature (Samuelsonand William, 1988). In this regard, let us check themarket structure in Ethiopia with respect to industrialsectors accordingly:

• Cement industry, Sugar industry, Ambo MineralWater industry, Ethiopian Telecommunication,Ethiopian Postal Service, and Ethiopian ElectricCorporation could be cited as monopoly marketsespecially owned and run by the government.

• Soft drinks industries, owned by two firms: MOHAand East African Bottling could be good examplesof oligopoly markets. This has resulted in denial ofone of the basic rights of consumers, the right tochoose among different products and services. Forinstance, in the five star international hotel‘Sheraton Addis’, one cannot get soft drinksmanufactured by the East African Bottling Ltd, (CocaCola and Sprite), only because the hotel does notserve soft drinks not produced by its sister enterprise,MOHA that produces Pepsi and Mirinda.

• Plastic industries and soap industries could betaken as monopolistically competitive.

• If we look at the leather & leather products sector,the market is not concentrated. There we have about20 industries in the market with approximately afew variations in the market share. Further study isneeded to know the market concentration in leatherindustry.

• The mining sector especially, the gold mining foundto be under the monopolistic competition of anindividual private firm.

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Existing or Potential Barriers to EntryThanks to the market liberalisation of 1991, most ofthe institutional barriers to grain trade such as: theenforcement of the quota system, price control,preferential treatment given to state enterprises andco-operatives, limitations imposed on capital ceilingsfor wholesale and retail trade, restrictions on thenumber of merchants in a particular market is notobserved (DTIS, 2004: 18). Even though, such obstaclesare no longer obstacles to private grain traders,limitation of finance, infrastructure like road and othermeans of communication may remain barriers to entry.

It has been well acknowledged by internationalfinancial institutions and other concerned bodies thatthe country has no significant quantitative restrictionson imports. As a result of the tariff reform, the range oftariff rates narrowed from 0 percent - 240percent atthe beginning of the 1990s to 0 percent - 80 percent in1995. The current tariff structure, introduced in 2003,consists of six rates: 0 percent, five percent, ten percent,15 percent, 20 percent and the highest 35 percent.During the same period, the tariff bands (the numberof official tariff rates) were reduced from 23 to six. It isimportant to note that the current rates are very closeto those that will be used for the common externaltariff of COMESA’s Customs Union (CU), where themaximum rate will be 30 percent (DTIS, 2004: 22).

Existing constraints to trade in Ethiopia are moreidentified with those related to the private sectordevelopment than the trade regime. However, privatesector development issues go well beyond the issuesof trade in general and are more related to theIntegrated Framework in particular. For instance, fewenterprises owned by the government and/or affiliatedparty, have been alleged by the private sector forcontrolling the supply of certain goods and servicesin the market. Ethiopian Telecommunication Co-operation (ETC), Ethiopian Electric PowerCorporation (EEPCO), and Ethiopian Postal Servicecould be cited as examples of government monopolies.These are the only producers and/or suppliers of theproducts and/or services in the respective sector (s).Although power generation and transmission up to20 KMW in the energy sector has been allowed forlocal private investment very recently, not yet realised.

Limitation of quality raw materials, non-availabilityof infrastructure, which affects transaction costs, tradeand overall industrialisation policy, exchange ratepolicy and the like are affecting competition in themarket. With respect to tariffs, nowadays, these do notconstitute a meaningful trade barrier to access theEthiopian market and all Ethiopian trade partners’benefit at least from the Most Favoured Nation (MFN)regime. The principle of MFN is aimed at trading ofequal rate with the exclusion of barrier to trade. The

principle also enforces states to offer another state intrade treaty that may lose its option of discriminatorytariffs (Henderson, 1998: 271, 279 & 356). However,there are apparently some implementation difficulties.For example, within the 2003 tariff schedule, thereremain some products with an import duty of 40percent. For some other products, the applied dutyrate could be dissimilar between trading partners.

Introduction of a market-oriented economy instead ofthe earlier command regime is considered to havefacilitated an appreciable GDP growth in the economy.

Focus of the Ethiopian economy on agriculture hasresulted in the growth of this sector and has made itcompetitive. However, for Ethiopia to progress furtherin the future would require substantial industrial/manufacturing sector growth - something whichcould be catalysed by evolving an enablingenvironment for industrial growth and ensuring alevel-playing field by implementing effectively thecountry's competition regime.

Competition Law in EthiopiaEthiopia as a long polity underwent different typesof economic transformations, which have beencharacterised by its unique kind of traditionalagrarian economy. Within this dominant type ofeconomy the principal economic actors and the formof ownership of the economic resources has beenchanging depending on the economic policyorientation of the governments.

The pre-1974 imperial regime claimed to have a freemarket economic policy orientation. However, it failedto promote market competition. Of course, thegovernment has been merited for its introduction ofmodern legal system in the country including thecodification and promulgation of the commercialcode, which primarily regulates the types, formationand dissolution of commercial partnershipstrademark and trade name registration and the legalprotection that should be given for such commercialrights.

Post–1974, Ethiopia’s economic history wascharacterised by its socialist form of economic systemin which competition in the market cannot beenvisaged as a matter of ideological principle. Themain economic actor in the economic system was thegovernment. The economy was highly centralised andthere was neither real nor nominal kind of economiccompetition in the market. In this period, let alonehaving a competition law as such, even the existingcommercial law was in practice quite rarely. Thisperiod came to an end in 1991, wherein Ethiopiaexperienced another historic breakthrough both in itstype of political system and economic policyorientation.

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Then the transitional government of Ethiopia and thesubsequent successions officially proclaimed that theeconomic policy of the country is a free marketeconomy. Though this has been the policy direction,competition law as a consolidated form of law is notyet in place except for the coming into force of TradePractice Proclamation of 2003. In this period tradepractice proclamation No. 329/2003 was legislatedwith a purpose of regulating trade practices.

As of the coming into force of this proclamation, 35cases were registered for investigation in the tradepractice investigation commission office out of which13 cases got decision. Four cases did not fall underthe jurisdiction of proclamation 329/2003, whereastwo cases required additional information. The restof the cases were found to be under investigation forhearing.

The weakness of the trade practice proclamation (TPP)is that it does not address all the issues, which shouldactually be addressed in the competition law. As theproclamation does not incorporate all competitionrelated issues, it is not possible to discuss in detailissues of approaches to horizontal restraints, verticalrestraints, dominant market position, mergers andacquisitions cross-border abuses, checks andbalances, and other further details.

Objectives, Scope and Coverageof the Competition LawTPP, promulgated with the general objectives ofmaking the trade practice in consonance with the freemarket economic policy aims: to establish a systemthat is conducive for the promotion of competitiveenvironment, regulating anti-competitive practices inorder to maximise economic efficiency and socialwelfare; and to safeguard the public from price hikeand for equitable distribution of goods and servicesin times of regular and short supply.

With this general objective, the proclamation coverscertain areas of material jurisdiction to be exercisedby the investigation commission. The commissionlooks into issues of anti-competitive practices: suchas agreements on joint pricefixing, collusive tenderingas to determine market price; market or consumersegmentation, allocation by quota of production andsales, concerted refusal to deal, sell and render servicesas detailed within Articles 6 and 11 of theproclamation.

Institutional and Procedural Aspects

Structure of the Trade PracticeInvestigation CommissionConventionally, structure refers to how a giveninstitution is organised. It is concerned with howvertical and horizontal accountabilities are set.

Accordingly, the commission is structured toundertake its power within the Ministry of Trade andIndustry (Art. 12). The commission is hierarchicallyaccountable to the Minister of Trade and Industry.The commission has also a secretariat with the generalpower and duties of implementing the directivesissued by the commission to execute administrativemeasures, keep minutes, reports and so on (Art. 18).The accountability of the secretariat, however, seemsto be both towards the commission and the Ministry,because the secretariat is a department under theorganisational structure of the Ministry (Art. 2(8)).

Number and the Procedure for Selectionof the Members of the CommissionThe proclamation states that the commission shallhave members selected from government, privateorganisations and consumer associations (Art. 13(a)).The law, however, doesn’t specifically state the actualnumber of members that the commission should becomposed of. This may be specified in the rule ofprocedure, which is not available at our hand for thetime being.

As a matter of fact, currently, the Commission has fivemembers chaired by the minister of justice, withmembers including economic advisors to the head ofGovernment (the Prime Minister), National Bank ofEthiopia, and Director General of Quality andStandards Authority of Ethiopia and Director Generalof Federal Co-operative Commission. The consumerassociation and the private sector are not representedin the commission as per the stipulation of the law.Concerning the selection, members of the commissionincluding the chairman are appointed by the PrimeMinister upon the recommendation of the Minister ofTrade and Industry (Art. 13(2)).

Powers of the CommissionThe commission has been empowered by theproclamation to exercise investigative, prosecutorialand adjudicative powers such as:• Investigation of complaints submitted to the

commission by any aggrieved party in violationof the provisions of this proclamation;

• Compelling any person to submit information anddocuments necessary for the carrying out ofcommission’s duties;

• Compelling witnesses to appear and testify athearings;

• Taking oaths or affirmations of persons appearingbefore it, and examine any such persons;

• Entering by showing the commission’s ID cardand search the premises of any undertakingduring working hours, in order to obtaininformation or documents necessary for itsinvestigation;

• Appointing or employing, upon the approval ofthe Minister, experts to undertake professionalstudies as may be necessary;

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• Taking administrative measures or/and givepenalty decisions on any complaints submittedto it.

Though the Commission is empowered to exercisesuch powers, its decisions may not be final. In thecase of administrative measures and penaltydecisions, approval of the Minister is a must. Thusthe Minister can amend, or remand, approve, reversethe decisions of the commission (Art. 15 (2) and (3).

Concerning executioner power, it is the Ministry,which is authorized to execute and it may order thepolice in order to execute any administrative measuresor/and penalty decisions of the commission (Art. 16).

Procedure under which theCommission takes DecisionsRules of Procedure of the Commission are unavailable,as of the Present: Regarding the meeting of thecommission, quorum shall be constituted when morethan half of the members are present at meetings ofthe commission. Decisions of the commission shallpass by majority vote and the chairman shall have acasting vote in case of a tie.

Interface between Competitionand Regulation in Select SectorsAlong with the development of variety of economicpolicies, infrastructure development like, electricityto power industries, telecommunications to supportcommerce, roads, railways, airways etc. to transportpeople and goods, have been recognised as majorfactor for the nation’s economic growth. As argued bywriters, Cecilia Briceno-Garmendia et. al. (2004),“promoting growth, reliable and affordableinfrastructure can reduce poverty and contribute tothe achievement of the MDGs”.

The writers of this paper analyse how regulationworks on some utility services such as: electricity,telecommunication, pharmaceutical, and financialservices in which two of them (Electricity andTelecommunications) are under governmentmonopoly.

Pharmaceutical ServiceIt is believed that in Ethiopia, more than 50 percent ofthe population and 90 percent of livestock rely upontraditional medicine for cure.. The traditional medicineof the country is based mainly upon the use ofmedicinal plants the history of which goes back toantiquity. Such plants are more easily accessible thanthe modern pharmaceuticals and are affordable to themajority, especially in rural areas.

In pre-1974, the healthcare system was designed in away that involves private sectors to play crucial role

in the supply and distribution of drugs. Laws andregulation were stipulated for the administration ofhealthcare system. However, laws and regulationhave not been revised with the change of politicaleconomy of the Imperial Regime.

In 1974, socialist-oriented political economy replacedthe imperial government by the help of revolutionarypolitical upheaval and with the strategy of plannedeconomy, primary healthcare, education, trade,investments and so on. New strategies and policieswere developed to empower the politico-economy ofthe socialist system. Surprisingly, drug relatedstrategy, regulation or policy had never beenaddressed to assist the control of manufacturing andsupply of drugs.

The change of political order of 1991 in Ethiopiaresulted in the shift of socialist system into marketoriented policies and strategies. The newly emergedpolitical forces proclaimed the policy of free marketeconomy as an appropriate solution for economicgrowth of the country.

Among the declared policies of the TransitionalGovernment of Ethiopia (TGE), the adoption ofNational Drug Policy is the most and considered tobe as one of the major socio-economic developmentprocess to safeguard the society. The stipulated policyfocuses on the manufacturing and distribution of justand equitable pharmaceutical services and drugs toall, with the hope to maximise the level of welfaregradually (TGE, 1993). Major objectives of the policyinclude: Developing the capacity to ensure drugsupply efficacy and quality; meet the countriesdemand side and supply side satisfaction of drug;Create enabling situation to make the price of the drugsaffordable and compatible to the purchasing powerof the society; control the illegal transmission,manufacturing, importing, distribution, selling andconsumption of narcotics and psychotropic drugs inthe country.

Drug promotion is one of the activities carried out bypharmaceutical companies to compute for a biggersale of their products through disseminatinginformation to consumers and health professionals.Information and promotion of drugs may greatlyinfluence its supply and use. Provision of adequateand correct drug information to the consumers andprescriber are essential for rational and safe use ofpharmaceutical products.

It has been observed that drugs are being promoted asordinary commodities. Furthermore, the ever-increasing brand oriented promotion is being observedto have misled physicians not to select the right drugfor their patients. On the other hand, the frequentprescription and supply of costly, branded drugsarising from promotion of such types is creating a

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non-conducive environment in which the majority ofthe people can’t afford to pay for the drugs they areprescribed with.

Strong regulation of promotional activities and theprovision of accurate information to prescriber andconsumers are among the indispensable steps thatthe government should take to improve the rationaluse of drugs. The 41st World Health Assemblyendorsed the ethical criteria for medical drugpromotion, which constitute general principles thatcould be adapted to the situation in member statesand urges them to take their own appropriatemeasures to ensure that medical drug promotionsupports the aim of improving healthcare throughrational use of drugs.

Establishment of Drug Administrationand Control AuthorityBeing one of the member states, the government ofEthiopia accepted the resolution WHA41.17 by theWorld Health Assembly on the ethical criteria formedical drug promotion and delegated the DrugAdministration and Control Authority with the mainobjectives: to control dissemination of druginformation and promotion, which is stated underArticle 22 of the Drug Administration and ControlProclamation No. 176/99.

Powers and Duties of the AuthorityArticle 6(2) of the proclamation gave the followingpower, duties and responsibilities to the DrugAdministration and Control Authority: settingstandards of competence for organisations to beinvolved/participating in drug trade; issuance ofcertificate of competence; control the compliance withthe set standards; renew, suspend, and revoke thecertificate of competence; and providing informationto the concerned authority.

Article 6 (9) of the same proclamation urges theauthority to: serve as a drug information centre;distribute drug information to the professionals andthe public; disseminate current and unbiasedinformation; raise public awareness on the use ofdrug; and control the quality of raw materials,produced or imported drugs and packing materialused for production of drugs.

Electricity ServicesElectricity is one of the resources that help a nationalleviate poverty. People in poverty afflicted ruralareas have no access to energy to operate machines,as a result of which productivity is negatively affected.According to the PASDEP of 2005, Ethiopia generatesonly 791 MW out of the potentially estimated available30,000GW. The responsibility of generating,transmission, distribution and selling of electric powervested in the state owned Ethiopian Electric PowerCorporation (EEPCO).

The current electricity coverage in Ethiopia is about15 percent of the total population. The per capitaelectricity consumption is about 22.1KWh/year,which is significantly small as compared to theAfrican average 431.3KWh/year (NBE QuarterlyBulletin, Volume 21 No. 1, 2005/2006:5). Although,the coverage of electricity in Ethiopia currently foundto be very low, the corporation set a strategic plan toincrease the national electrification by 50 percentwithin the plan period 2006-2010, through the supplyof adequate, affordable and reliable electricity on asustainable basis. According the set strategy, about24.9 million people are expected to have access forthis power.

To meet the set goals, expansion in electricitygeneration, transmission, distribution and selling atan affordable price is indispensable. It is obvious thatsustainability in the electricity sector requires hugeinvestments in which EEPCO engaged in theconstruction of big hydropower plants and a highvoltage transmission line based on a least costdevelopment plan. In this regard, EEPCO works toincrease electricity coverage and to maintainsustainability.

The government has to encourage private investors.In this regard, it has been realised that the governmentis embarking to encourage domestic private sectors toparticipate and play significant role in the generationand supply of electric power as stated in theProclamation 37/1997. On top of this, the governmentis also expected gradually liberalise the sector.

Accordingly, Proclamation No. 37/1997 particularlyallows the participation of domestic private investorsin the production and supply of electrical energy withan installed capacity of up to 25 MW. On the otherhand, production and supply of electrical energy withan installed capacity of above 25 MW is open to foreigninvestors.

The provision embraces the development of small andmedium scale capacity plants from diesel, coal, gas,hydro and other sources. Council of MinistersRegulation No. 7/1996 and as a mended in No. 36/1998 extends attractive package of encouragement inthe form of duty and profit tax exemptions. Theinvestment law coupled with the new regulatoryframework is believed to provide enablingenvironment for private investment in the sector.

The investment programme, based on the power sectordevelopment, is a public priority that includesbuilding new hydroelectric plants and extending thegrid to different areas of the country to promote criticalsocio-economic benefits of industrial development,agricultural productivity, and enhancement ofeducational opportunities and general betterment ofthe population.

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The Ministry of Mines and Energy, issued electricityservices quality standards directive- No. 2/2006, witha main objective to determine the quality standards ofelectricity services that are provided by a licensee. Inits second part the directive came up with the focus ofcustomer compliant handling, record of complaintsand its application.

Telecommunication ServiceUpgrading, expanding and empowering telecomnetwork and services are essential to support nationalgrowth and rural economy. Having basic telephoneaccess in villages helps farmers to acquire adequateand sufficient information of prices for their crops andlivestock products. It also improves the efficiency oflocal administration and encourages the developmentof trade and small business; facilitates the provisionof social services like health, education andagricultural extension.

Despite the fact that population is high,telecommunication coverage is lowest in the world.According to PASDEP of 2005, about 45 percent of thetotal households need to travel for 15 kilometres toreach the nearest telephone services unit. About 44percent of households can get telephone service withinless than 10 kilometres and about 29 percent of thehousehold are at least 20 kilometres far away fromthis service. About 94 percent of urban householdshave telephone access within the range of fivekilometres distance.

The government in collaboration with telecom agency,Telecommunication Corporation set an action planfor wider coverage of fixed and mobile telephone lines.The action plan opts to cover 2,463 and 4,926 millionof fixed and mobile lines within the plan period of2006-2010.

In recent years, Ethiopia has made a huge investmentin basic multi-media infrastructure, which includesthe laying of fibre optic cables and installation ofsatellite and radio communication technologies.Moreover, the government of Ethiopia proposed forthe downstream telecom liberalisation, which createsconducive situation for competition, wider servicecoverage options, potentially affordable rates. Thedownstream liberalisation expected to encourageprivate sector motivation and participation on theprovision of the service.

Financial ServiceThe history of financial service in Ethiopia begins withthe establishment of the then known as “Bank ofAbyssinia” in 1905. The first central bank was ownedand run by the Egyptian National Bank. At that time,the bank was rendering dual service both as a centraland commercial bank.

The Bank of Ethiopia replaced the Bank of Abyssiniain 1931. This bank unlike, the Bank of Abyssinia, wasserving as a fully Ethiopian monetary institution. Yet,like the Bank of Abyssinia, the Bank of Ethiopia wasrendering dual central and commercial bank services.

During the Italian occupation, Italian Banks such asBanko De Roma, and Banko De Napoli replaced theBank of Ethiopia. Between 1942 and 1943, there hadbeen another foreignerowned bank known as BerkleyBank in service in Ethiopia.

After victory over the Italian occupation, theEthiopian government established Government Bankof Ethiopia in 1943. This government bank wasrendering service by integrating the services of theformer central and commercial banks of Ethiopia. TheEthiopian Monetary and Banking Law that came intoforce in 1963 separated the function of commercialand central banking by creating National Bank ofEthiopia and Commercial Bank of Ethiopia. Moreoverit allowed foreign banks to operate in Ethiopia. Hence,in July 1964, a proclamation known as “Monetaryand Banking Proclamation” was promulgated toestablish two separate banks i.e. the National Bank ofEthiopia and the Commercial Bank of Ethiopia.

The National Bank of Ethiopia, established in 1964with the authority and responsibility vested in it bythe Ethiopian government to: design and print thecountry’s legal tender; supervises all banking servicebanks in the country; serves as the main national bankof the country in administering and guiding theinternational, the supply of circulation and monetaryreserve.

Commercial Bank of Ethiopia took over the commercialbanking activities of the former State Bank of Ethiopia.Banking during the socialist regime following thedeclaration of socialism in Ethiopia in 1974, thegovernment issued a new monetary and bankingproclamation number 99/1975, which replaced the1964 banking and monetary system. Thisproclamation issued in March 1975 was based on therule of command economic system, which promotescentralised banking system. The proclamation alsoaffected in nationalisation of all private banks inEthiopia. The financial sector under the socialistoriented government left behind constituted only threebanks and each enjoying monopoly in its respectivemarket. The following was the structure of the sectorat the end of the era: The National Bank of Ethiopia(NBE); the Commercial Bank of Ethiopia (CBE);Agricultural and Industrial Development Bank(AIDB). Basically the function of the Commercial Bankis divided into four major areas.1. Holding in deposit public money with guaranteed

security;2. Giving loans for all sorts of commercial and

personal needs;

101

3. Offering assistance in matter of foreign exchangeto business sector;

4. Providing safekeeping for an individual’s mostvaluable possession.

The first private bank, the Addis Ababa Bank ShareCompany was established in the first half of 1960s.This bank was also engaged in commercial banking.The bank was active in crop financing providingadvice and facilities of newly established Ethiopianenterprises encouraging and sponsoring theaccelerated growth of the activities of the private sectorin all economic fields. There were two other banks inoperation namely Banco di Roma and Banko diNapoli S.C.

The collapse of the military rule in Ethiopia in 1991brought major changes in the banking and relatedservice sector. Following the change in the economicpolicy, financial sector reform also took place.Monetary and Banking proclamation of 1994established the National Bank of Ethiopia as a judicialentity, separated from the government and outlinedits main functions.

Monetary and Banking Proclamation No 83/1994 andthe licensing and supervision of banking BusinessNo 84/1994 laid down the legal basis for investmentin the banking sector:• With the coming into effect of the licensing and

supervising banking business proclamation No.88/1994 a couple of private banks have also emergedand joined the market since 1994.

• The June 1996 proclamation number 40/1996,offered provision for the establishment of microfinance institutions in Ethiopia.

All measures undertaken after the economic reformhave that aim of promoting a competitive environmentand efficient banking service to the public.Accordingly, at present the number of banks inEthiopia reached nine and that of insurancecompanies increased from one to nine. The numberof micro-finance institutions reached 27.

At present banking business in Ethiopia is governedby two proclamations. The first monetary and bankingproclamation No. 83/1994, defines the powers andresponsibilities of the National Bank of Ethiopia,which is the central bank of the country. ProclamationNo. 84/1994 sets out the conditions under whichcommercial banks can provide license and supervisethe banking business, which sets out the conditionsunder witch commercial banks can be licensed. Theproclamation No. 86/96 offered the provision for theprivate investors in insurance service and forestablishment of micro financial institutions,respectively.

All proclamations have the aim of promotingcompetitive environment in the sector. In general

components of the current financial sector are theCentral Bank (National Bank of Ethiopia (NBE),commercial and specialised banks, insurancecompanies, pension and social security authority andcredit and saving cooperatives. Currently there is onecommercial and one specialised government bankoperating compressively with seven privatecommercial banks.

Regional IntegrationIn order to ensure the existence of transparency andfairness among economic operators within the region,COMESA has formulated a regional competitionpolicy. The objective of this regional arrangement isto enhance co-operation in the creation of an enablingenvironment for fair competition in the marketplace,maximising consumer welfare in the COMESA region,through an effective regional competition frameworkand consumer protection culture. The competitionframework agreement compels adoption ofcompetition laws by the members. In this regard,Ethiopia adopted a national competition law.

Although the competition regulation of COMESA,argued that regional integration contributes toimprove production and distribution or promotingtechnical economic progress in allowing Ethiopianconsumers a fair share of the resulting benefit,Ethiopia’s participation in regional economicintegration of concrete results from COMESA has sofar been very little, which emanates from weakinvolvement in the business, weak industrialstructure, government’s heavy dependence on tariffrevenue, and the uneven distribution of cost andbenefit of the COMESA integration arising fromeconomic differences among member countries.

According to the COMESA Free Trade Area (FTA)treaty, customs duties on the list of category of goodsselected were supposed to be reduced by 25 percentevery two years. However, this treaty has beenineffective in Ethiopia yet, due to the above-mentionedconditions. Further, the Ethiopian consumers andbusiness community lack awareness on theadvantage and disadvantage of joining the FTA.

Due to the above-mentioned facts, Ethiopia is not amember of the FTA (in which it is among the 11member states that are at different stages ofpreparation of tariff reduction to join the FTA) andhas only done a 10 percent tariff reduction on goodsimported from COMESA member countries, becauseof the fear of government revenue losses, potentialdamage to the country’s weak industrial structureand low competition in domestic and internationalmarketplaces.

Although, it is difficult to predict the negative impactof joining the FTA, Ethiopia calculated its negativeeffect on government revenue loss from import-export

Ethiopia


trade deficit perspectives. Ethiopia’s participation inregional economic integration visibility is minimal.

In summary, Ethiopia is exporting less and importingmore from the COMESA, and is not utilising theinstitution. As such, the Ethiopian businesscommunity is largely unaware of the regional tradingopportunities that discouraged the country to adoptand implement the treaty of COMESA. By themselves,treaties and protocols do not bring about regionaltrade expansion, but also require the dynamicparticipation of the business community, governmentcommitment, and willingness to adopt and implementthe competition treaty of COMESA for the benefit ofthe Ethiopian economy. Hence, it would be essentialto create awareness on the advantage anddisadvantage of framing national competition law tothe society at large.

In Ethiopia, although, there has been little structuraltransformation, the trade balance dominated byimport of finished commodities than export of primarycommodities. Ethiopia, as a member of COMESA, itseconomy with small domestic markets, non-diversified production basis, underdevelopedinfrastructure and inadequatelyskilled human capital, financialconstraints, etc. gives only little chanceof competing regionally and globally.

In order to have efficient competitionwithin the business community andmember countries in COMESA, thereis a need to attract new players in themarket with existing or newcommodities and products byregulating the existence of monopoliesand oligopolies in the market. Thisarrangement helps to form large scaleof operation that leads to lowering prices that maybenefit consumers.

To secure a competitive marketplace and thus protectthe consumer from unfair, anti-competitive practices,the state intervention in policy and law area is crucial.For this, Trade Practice Investigation Commissionshould be strengthened institutionally, in human andmaterial resources. The proclamation needs to berevised as to the standard of other similar Africancountries. Also to carry out actively the day-to-dayactivity of the Commission, full-time manager shouldbe in place. Ethiopian Trade Practice InvestigationCommission needs developmental support fromCOMESA member countries of the developing wouldin experience of implementing competition regimes.

Consumer Protection LawEthiopia does not have consumer protection law in aconsolidated form. This does not mean that there isno consumer related legislation at all. It is possible to

consider Consumer Protection Laws in Ethiopia as aconglomerate of various legal rules that are foundbeing scattered in the various branches such as: civil,commercial, penal laws and other sectoral issue andspecific legislations.

These laws have practical application almost on dailybasis to protect the interests of consumers from anyform of abuse. Lack of consolidation of these laws forthe specific interest of the consumers have created aconfusion on the very existence of the law itself. Also,for further analysis of its interface with the competitionregime, lack of data and the problem of naming ofcourt files under the title of competition cases make italmost impossible to deal with its interface with thecompetition regime.

Summary of the Field SurveyTo conduct primary research on Competition Policyand Law, a total number of 200 questionnaires weredistributed to six National Regional State townsAdama, Awassa, Bahir Dar, Gondar, Gambella, Hararand Mekale and two chartered towns Addis Ababaand Diredawa.

Profile of RespondentsAccording to the field survey data analysis, 21.8percent of respondents knew the existence of rules,regulations or laws to check anti-competitivepractices. 20.6 percent of the respondents marked“Yes” for the capability of existing rules, regulationsand laws to check anti-competitive practices.Therefore, there is a need for empowerment of tradepractice commission to create nationwide publicawareness on anti-competitive practices as confirmedby 74.4 percent of the respondents. 85.3 percent of therespondents suggested that the objective of the lawshould focus on economic efficiency and consumerwelfare. 65.5% of the respondents said that the lawshould cover all types of enterprises, persons and allareas of commercial activities.

For the purpose of implementation of the law 63.0percent of respondents advocated for theestablishment of autonomous competition authority(CA) in Ethiopia; 42.2 percent suggested for both

SNNP, 6.40% Oromiya, 11.50%

Tigray, 5.70% Gombella,

6.40% Harari, 6.40%

Amahra, 10.20%

Addis Ababa, 53.20%

SNNP Oromiya Tigray Gombella Harari Amahra Addis Ababa

Figure 3.1: Profile of Respondants by Region

103

investigation and adjudicativecompetition authority; and 37.1%proposed investigative CA, butadjudicative power should bevested to the courts. With regardto the power of CA, 91.4 percentof the respondents marked “Yes”for the question whether CAshould deal with unfair tradepractices and consumerprotection issues. 82.1 percent ofrespondents underlined for theinvolvement of differentstakeholders in CA functions,especially in the area of advocacyand publicity.

In relation to the questions that deal with specialisedregulatory sectors such as: Electricity,Telecommunications, Drug Administration andControl, etc; 33(28.4 percent) of the respondentsentrusted overall power to CA, while 38(32.8 percent)agreed CA as a coordinating institution.

123(78.8 percent) respondents marked “yes” for theexistence of state monopolies in Ethiopia;15(9.6percent) “no”; 12(7.7 percent) said “can’t say/don’t know” and 6(3.9 percent) no response. 94(60.3percent) respondents marked “yes” for the indulgenceof state-owned monopolies in anti-competitivepractices, 18 (11.5 percent) “no”; 30 (19.2 percent) said“can’t say/don’t know” and 14 (9.0%) no response.

Major state-owned/private enterprises in Ethiopiathat have indulged in anti-competitive practices are:ETC, EEPCo, Agro-Industries, National Bank of

Ethiopia, Housing Agency, Sugar Factories, Cementfactories, Media, Agricultural Inputs SupplyEnterprises, Party affiliated, Ethiopian Airlines, AddisAbaba Water & Sewerage Authority, City Bus andPostal services.

When any anti-competitive practice encountered 32.1percent of the respondents marked for “would donothing”; 26.9 percent marked for “to seek help fromConsumer Organisation”. 24 (15.4 percent) seek helpfrom judiciary 22 (14.1 percent) seek help from Police;18 (11.5 percent) seek help from Local Councils.

In a nutshell, out of 156 respondents, 116 (74.4percent)marked “yes” for the need of enactment ofcomprehensive law to check anti-competitivepractices, 12 (7.7percent) “no”, 13 (8.3percent) said“can’t say/don’t know” and 15 (9.6percent) noresponse. Recently, the riters of this CRP have realised

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Figure 3.3: The Level of Awareness on Prevalence ofAnti-competitive Practices in Ethiopia

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Figure 3.2: Profile of Respondents

Ethiopia


Figure 3.4: Responses for the Question Regarding how Consumers are Affected by Anti-competitive Practices

No. Response13%

Moderately17%

Significantly4.5%

Insignificantly57.5%

Hugely8.1%

HugelyNo. ResponseSignificantlyModeratelyInsignificantly

that the government has endorsed “unfair tradepractice proclamation”, which has been said to beequivalent to the competition law.

Finally, the respondents gave their comments that mayhelp to improve the level of competition in theEthiopian market as follows:l Joint judiciary action by government and consumer

protection associations;l Awareness creation on the notion of free market

verses competition policy and law;l Strengthened government measure towards

enabling environment;l Establish AHa ECoPA branch offices in all regional

governments;l Enforcement of effective consumer protection law;l Avoid party affiliated, involvement in business;

andl Consider political, economic, social and cultural

situation of the society while implementing theproclamation.

ConclusionThe study indicates that consumers are severelyaffected due to the absence of competition policy andgross absence of awareness about the benefit ofcompetitive market. Competition policy and

legislation can significantlycontribute to the integrationof the country into theglobal market and helpreduce poverty. Theprimary goal of competitionpolicy should be to drivecompetitiveness andefficiency, which ultimatelyleads to better consumerwelfare in accordance toeconomic principles. Theregulation of a free marketeconomy cannot becompleted without effective

and efficient competition policy and legislation,which ensures free and fair competition in the market.

As a result of the culture of monopolies in theeconomy, the efforts to integrate into the global marketcannot succeed, as local enterprises cannot participateeffectively in the economy. The survey and researchindicate that unfair trade practices, collective pricefixing, entry barriers and bid rigging are the mostvprevalent anti-competitive practices in Ethiopia.These practices would need to be addressed by theTrade Practice Proclamation 239/2003 to beimplemented by the Trade Practice InvestigatinCommission in Ethiopia.

It has been argued that it is only in a country wherethere is economic development that domesticenterprises can be integrated into the global economyor market. Besides, it is through free and faircompetition that weak and poor are allowed toparticipate effectively in their economy and take partin reducing poverty. To allow the weak and the poorto participate and play crucial role effectively in theeconomy or market, there must be an effectivecompetition policy and legislation that protects andprevents consumers from exploitation.

Therefore, the writers of this country research reportrecommend that the government, business andconsumers have to advocate and promote tradepractice proclamation 329/2003, throughawareness creation mechanisms. As statedabove, consumers are victims of anti-competitive practices such as: horizontalagreements, abuse of dominance position,unfair trade practices, collective price fixing,entry barriers and bid-rigging. Hence,consumers have to build pressure for theeffective implementation of the trade practiceproclamation.

Considering that effective trade liberalisationpolicies should protect the weak and the poorthrough trade policies, enterprises operatingin the economy/market have to promote

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Figure 3.5: The Most Prevalent Anti-competitive Practices in Ethiopia

105

economic development so as to reduce poverty. It hasbeen realised that most monopolistic enterprises areprevalent in the market of essential commodities andservices like sugar, cement, electricity, water, soft drinkand air transport etc. As a result of this, the choiceand access of many people for basic necessities isaffected leading to the escalation of poverty and lowlevels of food security. Hence the AHa EthiopianConsumer Protection Association (AHaECoPA) hasendeavoured to undertake a nationwide awarenesscreation program on the advantage of competitionpolicy and law in collaboration with the trade practiceinvestigation commission.

Recognising the importance of consumer rights toequality, social justice, and economic advantage, thegovernment has to seriously work on the area ofcompetition law with enthusiasm to protect ethiopianconsumers (most of who are poor) from anti-competitive practices.

In addition, this report recommends capacity buildingof the trade practice investigation commission in termsof human and material resources to advocate andpromote trade practice proclamation and promotecompetition in the market.

Improving communication between trade practicesinvestigation commission, sector regulators andstakeholders; improving the ability of the judiciary tosupport the commission; upgrading skills of casehandlers for effective enforcement; conducting policyresearch and analysis and holding nationwideawareness creation workshops, panel discussions, antraining are some recommendations stemming fromthis study, which would be crucial for strengtheningthe competition regime in Ethiopia.

Ethiopia

Note: This chapter has been researched and written by Abebe Asamre, Gebremedhine Birega and Seifu Ali of AHaEthiopian Consumer Protection Association (AHaECoPA), Ethiopia. The authors acknowledge the commentsreceived from the members of the Project Advisory Committee. Comments and suggestions on the structureand content of this paper were received from Nitya Nanda of CUTS CCIER and incorporated appropriately.


107

IntroductionPoverty-reducing growth requires healthy privatesector competition between firms among otherrequirements. To enable consumers’ access to highquality goods at lowest possible prices, there is needfor a competitive market that allows the entry of newfirms, allows good firms to thrive, and also that sub-standard firms fail and exit. Competition forcesproducers of goods and services to be efficient and toproduce goods and services that consumers need, atthe lowest possible prices.

While competition can lead to innovation and moreefficient use of resources, it can also lead to theemergence of anticompetitive practices (ACPs) if firmsare not ready for competition. They can form cartels orcollude. In some cases, they form associations underthe guise of developing the sector. These end upwhittling down competition through market sharingor price-fixing.

Effective competition can also be undermined byGovernment legislation, regulation, andadministrative procedures or requirements. These canbe used to limit competition by actually barring entryor raising the cost of market entry. In some cases, well-meaning economic reforms in the form of tradeliberalisation and privatisation can reducecompetition, if not accompanied by appropriatecompetition and consumer protection policies andlegislation.

Cartel-like behaviour amongst buyers of goods andservices can also hurt poor producers. Employers incertain sectors can gang up and fix wages. Wagelabour, in such cases, loses out as it pays below themarket price of their services. Likewise, buyers of farmproduce can collude and determine produce prices.Farmers are forced to accept low prices for theirproduce due to little or no bargaining power, givenabsent or limited markets for their produce.

Lack of competition generates direct and significantcosts to the economy as a whole and to consumers,entrepreneurs, workers and recipients of governmentservices. The poor are harmed the most, because of

their constrained household options and budgets. Ineconomies marked by lack of competition, be it due tothe economic structure or poverty or both, an activepromotion of competition and consumer protection isrequired. While trade and industry and other relatedpolicies address some aspects of the problem, explicitcompetition policy and law are required to addressthe problem squarely. Explicit competition policy andlaw preserve and promote competition for efficientallocation of resources, best possible choice of quality,lowest prices and adequate supplies to consumers.Consumer protection policy and law ensures thatconsumers have remedies against firms who misusetheir dominant position, monopolies who skim thehighest possible profits and suppliers who may beforced to cheat so as to beat competition. Private sectorled poverty reduction requires, both effectivecompetition policy and law as well as consumerprotection policy and law, because profit maximisingis rarely poverty reducing.

Malawi used to have a private sector-led povertyreduction strategy. It is currently developing anotherprivate sector-led poverty reduction strategy. Again,Malawi has competition policy and law as well asconsumer protection policy and law. Malawi has apolicy that covers both competition and consumerprotection. Malawi has laws in its statutes thataddress both competition and consumer protection.These have been in place for at least three years.Whether these have been effective in addressing thecompetition and consumer protection problems is thesubject of this study.

This study is part of a regional project being executedin Botswana, Ethiopia, Malawi, Mauritius,Mozambique, Namibia and Uganda in response to aneed by various stakeholders to take up activities thatwould ensure a level-playing field for competition andeconomic development in the country. The felt needcame in the wake of trade liberalisation, deregulationand privatisation on the one hand and regionalintegration on the other.

The major objective of the study is to build capacity inselect countries and assist them in formulating,implementing and/or enforcing competition policy

Chapter 4Competition Scenario in Malawi

Malawi


and law at the national and regional levels, throughthe engagement of multiple stakeholders by firstsupporting a situation analysis study and then usingthe results of the study to catalyse discussion anddebate among stakeholders on ways of addressingspecific competition related concerns. This studyreport is meant to stimulate the discussions and debatein Malawi.

This study report has benefited from a preliminarycountry report which was presented to the firstNational Reference Group (NRG) and comments onthe report from that meeting as well as regional peergroup members and CUTS itself. The report has alsobenefited from the only study done on competition inMalawi entitled, ‘Why is a Competition LawNecessary in Malawi’ by CUTS and ConsumerAssociation of Malawi (CAMA). It has also usedfindings of a desk study conducted by Steve Dungaand Betchani Tchereni, trade officers in the Ministryof Trade and Private Sector Development (MTPSD).Of those that responded, 52 percent were fromLilongwe. Further, 68 percent were respondents inentities that have first hand information on ACPs interms of practising them or being directly affected bythe ACPs of fellow players. There was no respondentfrom the agriculture sector/rural areas, mainlybecause the survey was urban based. Table 4 presentsthe distribution of the respondents by each sector. Theresponses from these are considered to represent theviews of stakeholders.

The study report has seven sections excluding thisintroduction. It starts by presenting a brief generalbackground of Malawi. The background is followedby a presentation of the socio-economic policies thathave some bearing on competition. Following, are legaland institutional frameworks governing competitionand consumer protection. An analysis of the marketin terms of structure, levels of competition,competitiveness of firms, entry barriers and marketconcentration follows. The section incorporatesfindings from the questionnaire and also discussescompetition and regulation regimes in the selectsectors. Some analysis of the privatisation programmeand how it has impacted on competition follows thesection on nature of markets. The report discussesregional integration before concluding.

Country PofileMalawi is a small country covering 119,140 squarekilometres, 20 percent of which comprises lakes andrivers. It occupies the southern part of the East AfricanRift Valley and is surrounded by Mozambique,Zambia, and Tanzania. The topography is immenselyvaried, from the Rift Valley floor at almost sea level tomountains rising to 3,000 metres. Most of the land isunder smallholdings; maize being the main staplecrop, and tobacco the main cash crop. Other common

food crops include cassava, rice and groundnuts.Specially grown cash crops include tea, coffee andsugar. Lake fisheries are an important source ofprotein.

In 2005, the total estimated population was 12 millionand total fertility rate was 6.1. The population isyoung; 44 percent is below 15 years, 54 percent isbelow 20 years and only eight percent is over 64 years.The national population density is high, averaging104 persons per square kilometre but ranges between86 persons and 200 persons. Close to 90 percent of thepopulation is rural-based where it has access tocustomary land for their settlement and farming.Roughly 12 percent of the labour force is employed inthe formal sector, 46 percent of which are in agricultureand fishing, 15 percent in manufacturing, 14 percentin community and personal services. Of those informal employment, some 20 percent work in thepublic sector.

Malawi became a British Protectorate in 1891,politically independent in 1964, and a republic in1966. The central government dominates publicadministration but the traditional leadership plays avital link between public administrators andcommunities. The local government is very weakdespite a strong drive to decentralise. From 1964 to1994, Malawi was practically under one-party rulewhose president was given absolute powers in 1971.Following a referendum in 1993, the country adopteda multi-party system of government and this wasfollowed by general elections in May 1994. Ademocratically elected government with a multi-partyparliament followed the elections. So far, there havebeen three presidential and parliamentary multi-partyelections in 1994, 1999, and 2004. There has been onemulti-party local government election in 2000 and afterthe elected councillors mandate run out in 2004,government dissolved the local assemblies in 2005thereby making local assemblies run as centralgovernment entities.

Table 4.1: Distribution of Respondents by sector

Sector Number Percent

Professional services 14 28

Distribution 11 22

Manufacturing 7 14

Financial services 6 12

All other services 4 8

Transport 3 6

Utilities 2 4

Communications 2 4

Construction 1 2

Total 50 100

109

By 1995, a new republican constitution was adoptedgranting the internationally recognised bill of rightsand separation of powers among the three organs ofthe state; the executive, the legislature and thejudiciary. Administration of justice is done undertraditional leadership, High Court and the SupremeCourt of Appeal. An industrial relations court, withoriginal jurisdiction over labour disputes and suchissues relating to employment, is provided for andwas established in 1999. Other constitutional bodiesprovided for and in operation include the HumanRights Commission, Law Commission, Anti-Corruption Bureau and the Office of the Ombudsman.

Socio-economic profileMalawi is classified as a least-developed country(LDC). It is poor by both international and regionalstandards as evidenced by its socio-economicindicators. Table 4.2 with a per capita GDP of US$166and HDI of 0.387 in 2001, Malawi has been rankedseventh and 14th from the bottom, respectively. It hashigh food insecurity, adult infant, child, andmaternal mortality and HIV/AIDS prevalence inadults. The situation is likely to have worsenedconsidering that the economic performance has notimproved over the past four years. According to thelatest economic report, the economy grew by anaverage of 1.3 percent since 2000 dragged down bythe small-scale agriculture, which grew only in twoof the five years and averaged 1.5 percent per annumover the same period.

The country has a weak economic structure andrequires a structural transformation if it is to supportsustainable poverty reduction. The economy is stilldominated by small scale and subsistence agricultureeven after over two decades of Structural AdjustmentProgrammes (SAPs)19. Figure 4.1 the low and seasonalincome available to the population implies a smallmarket, and therefore limited scope for increasednumber of large-scale import substitutingmanufacturing companies. The size of the economyis suited for SMEs. This is why employmentopportunities in the formal sector are very limited.

What is clear from this economic structureis that farmers, traders, and intermediariesdominate the private sector. There islikelihood that some manufacturing sub-sectors are dominated by monopolies oroligopolies, which limit the scope forcompetition. However, there is potential forcompetition in production and marketing,trading and possibly in associated serviceslike transport and private services.

Selected Policies AffectingCompetitionThere are a number of government policiesthat have a bearing on competition inMalawi. Most of the policies have beendeveloped under the movement of economicliberalisation. Malawi followed economicreforms that replaced controlled economicmanagement with freed markets, openborders for goods and services, and non-protective tariffs. The speed of the reformswas quick and this mainly resulted inincreased imports but limited investment in

manufacturing. The influx of imports started to chokethe inflexible manufacturing sector, as it failed toimprove its efficiency speedily. With time andincreased imports manufacturing firms started toreduce their production levels while others slowly

19 It is estimated that as many as 56 percent of the farming households are pure subsistence farmers; they produce for own consumption.

Table 1: Socio-economic indicators

Indicator Value Year

GDP Per Capita (US$) 166 2001Population in millions 11.6 2001Population below poverty line (%) 65.3 1998Adult literacy (%) 61 2001 Male 75 2001 Female 48 2001Primary NER (%) 101 2000-01Life Expectancy at birth (years) 38.5 2001Population expected to live up to 40 years (% of cohort) 41.4 2000-5Population with access to essential drugs (%) 44 1999Population with access to safe water (%) 57 2000Population with access to sanitation facilities (%) 76 2000Proportion of under-five children stunted (%) 49 1995-2001Infant mortality rate (number per 1,000 live births) 114 2001Under-5 mortality rate (number per 1,000 live births) 183 2001Maternal mortality rate (number per 100,000 live births) 1100 1985-2001HIV/AIDS prevalence rate (% of the 14-49 age group) 15 2001Source: UNDP Human Development Report 2003

Table 4.2: Socio-economic indicators

Figure 4.1: GDP Sectoral Shares 2000-2004

Services26%

LS Agriculture9%

SS Agriculture30%

Distribution22%

Manufacturing13%

Source: MEPD, Economic Report (Various)

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died under the intense pressure from competition.This is evidenced by a drop in the contribution ofmanufacturing in gross domestic product (GDP) froma high 18 percent in 1988 to an average of 13.3 percentfor the 1991-1994 period to an average of 11.7 percentfor the 2000-2004 period.

On the other hand, enterprises operating in non-competitive markets took advantage of consumers bycharging exorbitant prices. Others operating inoligopolistic markets, opted to collude rather thancompete. Both these practices disadvantaged theconsumer. The Government made some efforts toprotect the local industry from unfair competition andconsumers from being unfairly taken advantage of byintroducing some policies. As will be seen in thediscussions of the major policies, not all of them wereeffective in promoting competition or protecting theconsumer. Poor policy analysis and lack ofimplementation were the major reasons why thepolicies did not achieve their objectives.

Development PolicyThere are currently two development policydocuments that have some bearing on competition inMalawi. These include the Malawi Poverty ReductionStrategy (MPRS) and the Malawi Economic GrowthStrategy (MEGS). The MPRS was launched in 2002and deals casually with competition. It recognises theprivate sector as the driving force for growth withgovernment, non-governmental organisations(NGOs) and donors as mere facilitators of the growthin terms of creating an enabling environment for pro-poor growth, supporting poor-friendly industriesincluding micro, small, and medium enterprises(MSMEs).

Besides this, the MPRS states that the governmentintends to broaden the industrial base by focusing onthe development of export-oriented, high value-addedand high technology industries; develop new andcompetitive industry clusters through integration ofkey industries, suppliers, supporting industries,critical supporting business services, requisiteinfrastructure and institutions; accelerate regionaldevelopment, especially the Zambia-Malawi-Mozambique growth triangle; and integrate MSMEsinto industrial development by strengthening theircompetitiveness through improved access to finance,markets, infrastructure, information, results of researchand development and training, among otherstrategies. Had all of the above been achieved it couldhave, in all likelihood, impacted positively oncompetition. Unfortunately, the MPRS was notimplemented as was expected.

According to the MPRS, competition was to bepromoted in the micro-finance sector. The MPRSstated that the government was to expand competition

and efficiency in the credit market by commercialisingand privatising all government-controlled micro-finance institutions (MFIs). As can be seen,competition was only confined to the MSMEs. TheMPRS also did not mention promotion of competitionamong large-scale manufacturing enterprises.

Competition in the financial sector was meant to beincreased by eliminating the interlocking ownershiplinkages between the two dominant commercial banksthrough full privatisation and encouraging newentrants into the system. Apart from competition, thiswas meant to expand coverage and innovativelending by financial institutions. The interlockingownership was eliminated with the sale ofCommercial Bank of Malawi. With the entry of anumber of commercial banks, privatisation indeedbrought in more competition into the financial sectorthan ever before.

The MPRS recognises that the reforms in thetelecommunication sector (the separation of postalservices from telecommunications and incorporatingthem as commercial statutory corporations) did notachieve the desired goal of facilitating growth anddiversification. It, however, falls short of proposingmeasures to deal with the identified problem.

MEGS was a reaction to MPRS’s apparent glossingover of the role of ‘big business’ in the much-neededpro-poor growth. MEGS dealt with competition issuesmore clearly. One of the strategies advocated was ‘tocreate a competitive domestic market by developingand implementing competition, consumer protectionand trade remedy policies with supporting legislationand regulations for each’. Related actions for thisstrategy were to:• establish the Competition Commission, by July 2003;• enact the Consumer Protection Law, by July 2003;

and• formulate a Trade Remedial Law, by July 2004.

MEGS was developed when the Malawi CompetitionPolicy and its related legislation were already in place.That is why MEGS called for the establishment of theCommission provided for in the law. Again, consumerprotection is covered by the competition policy, butthe legislation on competition excluded consumerprotection, hence the call for a consumer protectionlaw. The second and third actions were combined ina law that provided for consumer protection and traderemedies with a consumer protection council as thevehicle for both. Some action has been taken towardsthe establishment of the competition commission.Members of the Commission were appointed in early2005 but the commission’s full-time secretariat is yetto be set up. None of these actions can, on their own,increase competition or protect consumers.

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Industry and Trade PolicyThe Integrated Trade and Industry Policy (ITIP)predates the MPRS and MEGS by over four years.Nonetheless, it covers competition and consumerprotection, apart from almost all issues necessary forthe development of trade and industry sectors. Forexample, it covers information base for policy-making,improved quality of infrastructure (transportation,utilities, industrial facilities), human resourcesdevelopment (training and labour relations),technology capability, trade and industry financing,competition policy, investment promotion, privatesector development and collaboration with the privatesector.

Under utilities, the policy earmarks two importantmonopolies for private sector participation. The ITIPstates that the government recognises the need topromote competition as a way of increasing efficiencyof service delivery in telecommunications andadvocates private sector participation in the provisionof electricity. Consequently, encouragement of theprivate sector participation in telecommunicationsand in the provision of electricity is seen as one wayof increasing competition in the utilities sector andindeed an important step in the promotion of bothtrade and industry.

The ITIP recognises that a non-competitiveenvironment is one of the factors that hinders privatesector development and acknowledges that acompetition policy counters restrictive business andunfair trading practices. It argues that competitionpolicy coupled with a good investment promotionpolicy creates an environment conducive forinvestment, which eventually leads to increasedconsumer welfare.

The ITIP supports the use of import procurement usingmultilateral trade agreements, preferential tradeagreements and regional as well as bilateral tradearrangements where goods and services are procuredat zero or reduced import tariffs in order to increasecompetition. The ITIP recognises that globalisation isboth good and bad for competition. Globalisationcould be bad if exporters into Malawi use unfairpractices that are not detected and dealt with, inMalawi. The ITIP also recognises the challenges posedto the economy by the fast growing informal cross-border trade. While appreciating the significantimpact that trade makes on the domestic market interms of providing goods at affordable prices, the ITIPrecognises that unfair foreign trade squeezes themarket of locally manufactured goods. The policy,therefore, advocates the use of countervailing dutiesand anti-dumping measures and safeguards toprotect domestic manufacturers, producers andtraders.

In industry, the policy reports of high concentrationlevels of ownership and states that this has somenegative impact on competition. Companies belongingto the same owners are not bound to compete witheach other, but to collude. Finally, the ITIP recognisesthat the government has already taken some actionmeant to encourage the SMEs sector. These includethe establishment and operationalisation of theGovernment Preferential Purchase Programme. Aswill be seen, this has been legislated in the PublicProcurement Act. The government has alsoestablished an SME Fund and has formulated the SMEpolicy

Investment PolicyMalawi’s investment promotion polices andlegislation were developed and adopted in the early1990s. By 1992, the Malawi Investment PromotionAgency was set up and operational. It was set up toimplement the policy and law. The policy and lawwere designed to attract foreign as well as domesticinvestment by offering fiscal as well as administrativeincentives. The fiscal incentives were even moregenerous for those producing to export. As alreadyindicated, the availability of more players in theindustry breeds competition that turns to be beneficialfor, specifically, consumers and to the economy, ingeneral. The slow progress in addressing businessregistration administrative procedures andallegations of corruption, on top of the barriers posedby the country’s land-lockedness, saw this policyachieving very little in terms of fostering competition.The ITIP proposes that the policy and law be revisedto reflect the current situation.

Government Procurement PolicyThere is no black and white government procurementpolicy per se. What is available is public procurementlegislation with its regulations. The PublicProcurement Act presents the principles andobjectives of public procurement while the regulationsprovide the implementation details. The goal of thepublic procurement legislation is to achieve maximumvalue for public money. Since the government (central,local, parastatal, parliament and judiciary) is thesingle-most purchaser of goods and services in thecountry, it has the biggest potential of fosteringcompetition among its suppliers of goods and services.The legislation’s defining principle is theprocurement of goods and services by tendering.Unless dictated by circumstances, three competitivebids are required. It prohibits fraudulent practices,like bid-rigging that may deprive the government fromenjoying the benefits of free and open competition.

The legislation uses thresholds to determine thetendering processes required. The Director of PublicProcurement is empowered to procure goods andservices beyond a certain threshold. The law prohibits

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artificial dividing of procurement in order to haveprocurement lots valued at below the threshold. Thelegislation provides very few exceptions to the rule ofthree competitive bidders. Apart from the fewexceptions, the legislation provides for the promotionof local suppliers. Section 28 states that:“(1) It is the policy of the Government to provide

maximum opportunities for small- and medium-sized enterprises to participate as suppliers,contractors, consultants and subcontractors inpublic procurement.

(2) Heads of procuring entities are responsible foreffectively implementing the small and medium-sized enterprise promotion programme withintheir activities, … and take all reasonable actionto increase participation in procurement by thoseenterprises”

The public procurement legislation, which is atranslation of public procurement policy, written orotherwise, promotes competition in the country andensures efficient utilisation of public resources. It isonly the preferential treatment given to local suppliersthat may, at times, turn out to be an un-competitivepractice if there is no competition among the localsuppliers or if their bids are consistently higher thanthe open and fair bids.

Labour PolicyThere is no written labour policy in Malawi. Thereare, however, pieces of legislation that are consideredto be a translation of unwritten labour policy. Inrelation to competition, the labour legislation providesfor open employment, where vacant positions areadvertised. Employees are also allowed to bargain fortheir terms and conditions of employment collectivelyas trade or institution-specific workers unionmembers. For foreign investors, they are allowed toemploy a certain category and number of employeesfrom outside the country. The ITIP encouragesemployers to train their employees to improveefficiency.

MSEs PolicyMSEs Policy was promulgated to address potentialas well as the actual obstacles MSEs face in areas offiscal policy and regulation; money and banking; tradeand industry policy and regulations; quality andstandards; registration and licensing; managementof their records; and access to raw materials, markets,information and technology. The proliferation ofsuccessful MSEs is good for competition andeventually, consumer welfare. MSEs also facecompetition from medium and large enterprises. Thatis why these enterprises also require governmentassistance through affirmative governmentprocurement programmes. This policy, read togetherwith the ITIP and the Public Procurement Act gives

the impression that the Government ProcurementScheme for MSEs is operational for those dulyregistered.

Co-operatives PolicyThe co-operative sector is not a significant player inthe private sector. However, it is a potentialcontributor to competition and consumer protection.Co-operatives are known to establish wholesale andretail shops which offer goods to its members and thegeneral public at competitive prices. Co-operatives canalso play an important role in mitigating private-sector-growth constrains like capital, credit facilitiesand technical skills by pooling resources together,apart from increasing bargaining power when dealingwith other players in the market. The co-operativespolicy was designed to enhance participation of thepoor in the socio-economic development processthrough co-operatives and to encourage co-operativesto diversify their investments in all sectors of theeconomy, especially industrial co-operatives that areexpected to contribute towards the goal of broadeningthe country’s industrial base. This is what was pickedby the MPRS. In other words, most of the ideals of theco-operatives policy were picked up by the MPRS. Itis unfortunate that the policy was not implemented.

Micro-finance PolicyThe micro-finance policy was developed with the aimof supporting enterprises that have problems inaccessing credit in the formal financial market. Theseare mainly the MSEs, co-operatives and, in some cases,medium scale enterprises. Although the micro-financepolicy does not relate to competition or consumerprotection directly, it fosters competition through itsfunding of healthy cooperatives and MSEs.Flourishing MSEs and cooperatives imply increasedcompetition, and therefore improved consumerwelfare. As long as micro-finance achieves itsobjectives, the probability of promoting competitionis high.

Competition and Consumer PoliciesThe competition policy for Malawi was approved in1997. Its broad policy objective is to promote economicefficiency and protect consumers’ interests. It has threebroad strategies: namely lowering barriers to entry;reducing restrictive business practices; and protectingthe consumer. According to the policy, there are fourfocus areas: un-competitive business behaviour(fixing, collusive tendering or customer allocation, andtied sales) aimed at eliminating or reducingcompetition; unfair business practices aimed at takingunfair advantage of consumers; market structures thatpermit abuse by a dominant enterprise; andgovernment legislation that affect the freedom in themarket.

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Examples of unfair business practices cited in thepolicy include:• hoarding of producer and consumer goods for the

purpose of bringing about a price increase;• misleading the public as to the nature, price

availability, characteristics, suitability for a givenpurpose, or quantity or quality of any product orservice; and

• supplying any product which is liable to causeinjury to health or physical harm to consumerswhen properly used, or which does not comply withconsumer safety standards

The policy calls for the enactment of a law that wouldmake unfair business behaviour an offence andprotects the consumer from the manufacturer orimporter offering defective or sub-standard productsor services by making them liable. It also calls for theestablishment of a trade remedies system where civiland criminal suits could be dealt with, for the purposeof recovery of damages suffered consequent to un-competitive or restrictive business practices.Specifically, the policy calls for the:

• creation of an autonomous competition commissionwhose role will be to administer restrictive businesspractices legislation and consumer protectionlegislation; and

• establishment of a specialised tribunal to resolvecontentious issues in certain specific fields subjectto judicial review on matters of law.

The Government did indeed enact laws that providedfor the promotion of competition and protection of theconsumer. It also provided for institutions that wouldmake the law take effect. These are the subjects ofdiscussion in the subsequent section.

Legal and InstitutionalFrameworks4.1 Legal Framework for Competition

The Competition and Fair Trading Act (CFTA), whichwas assented to by the President, on December 30,1998 and gazetted on December 31, 1998, wasdeveloped immediately after cabinet approval of theMalawi Competition Policy in 1997.

Evolution and Foundation of and Philosophybehind the Competition Law20

Before the liberalisation era, the power of dominantfirms, monopolies and oligopolies were kept in checkby extensive price controls and other governmentpolicies. With economic liberalisation, thegovernment left the markets free to set prices toenhance efficiency and competitiveness. As the

economy continued to move progressively towardsincreased liberalisation, certain undesirable but basicbusiness practices cropped up taking advantage ofthe ‘hands-off’ approach at the expense of botheconomic efficiency and consumer welfare– targets ofeconomic liberalisation. Typically undesirable andconsumer-welfare-reducing business practises thattook advantage of the liberalisation, included price-fixing, tied-sales, speculative hoarding, marketsharing and collusive tendering. ACPs includedtemporary under-pricing to fend off competition;seeking import protection against competing imports;buying up competitor enterprises; and unfairadvertisements against new entrants’ products.

This situation required the government to take up itsfacilitative role of creating an enabling environmentfor fair competition. The philosophy was not tocondemn or penalise those industries in Malawi thathad large shares of the market but to ensure thatconsumers were adequately protected fromexploitative pricing or collusion that was designed toprevent competition. Further, the government realisedthat economic liberalisation, even if given a long time,would not produce perfect markets. The existence ofmonopolies (natural and otherwise) and oligopoliesrequired the government to put protective mechanismsfor potential competitors (attracted by abnormalprofits) and consumers (who are exposed to thedominant firm). The ongoing privatisationprogramme has also resulted and may also result insome public sector monopolies being divested intoprivate ownership with an attendant risk of abuse ofdominant market power. Hence, the competition lawwas considered a good platform to address most ofthese real problems.

Objectives, Scope and CoverageThe objectives of the competition law are clearly speltout in its preamble. Quoting directly, the Act is ‘toencourage competition in the economy by prohibitinganti-competitive trade practices; to establish theCompetition and Fair Trading Commission; toregulate and monitor monopolies and concentrationsof economic power; to protect consumer welfare; tostrengthen the efficiency of production anddistribution of goods and services; to secure the bestpossible conditions for the freedom of trade; tofacilitate the expansion of the base of entrepreneurshipand to provide for matters incidental thereto orconnected therewith’.

The CFTA dwells much on institutional issues relatedto the Competition and Fair Trading Commission. Itprovides for the establishment of the Commissionincluding its Secretariat, its operations, funding, as wellas its management and accountability. It also details

20 The history, evolution and philosophy behind the competition law are found in the background of the Malawi Competition Policy.What is presented here is only a summary.

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areas as well as anti-competitive trade practices thatthe Commission would be concerned and deal with.

The CFTA prohibits all anti-competitive tradepractices defined as‘any category of agreements, decisions, and concertedpractices which are likely to result in the prevention,restriction, or discretion of competition to anappreciable extent in Malawi or in any substantialpart of it’.

CFTA does not deal adequately with dumping (cross-border abuses) and unfair competition posed byinformal traders21 . Informal traders need to be dealtwith because of mushrooming informal tradingsignals. As such, there is a malfunctioning of formaltrading systems. This is possibly due to high importduties imposed on formal traders, which give rise toappreciably high cross-border price differentials,which in turn are exploited by informal traders usingvarious methods, including tax evasion or importunder-valuation. Further, CFTA does not have extra-territorial jurisdiction and is linked to any agreementor arrangement, be it bilateral, regional, or multilateral.Furthermore, the CFTA does not relate itself to anylegislation that would deal with consumer protectiondespite the fact that competition and consumerprotection are related, as demonstrated by their beingunder one policy and consumer protection being oneof the objectives of the CFTA22 .

ACPsCFTA lists the following as ACPs:• predatory behaviour towards competitors

including the use of cost pricing to damage, hinderor eliminate competition;

• discriminatory pricing and discrimination, interms and conditions, in the supply or purchaseof goods and services, including by means ofpricing policies in transactions between affiliatedenterprises which overcharge or undercharge forgoods or services purchased or supplied ascompared with prices for similar or comparabletransactions outside the affiliated enterprises;

• making the supply of particular goods andservices dependent upon the acceptance ofrestrictions or manufacture of competing or othergoods or the provision of competing or otherservices;

• making the supply of particular goods andservices dependent upon the purchase of othergoods or services from the supplier to theconsignee;

• imposing restrictions where or to whom or in whatform or quantities goods supplied or other goodsmay be sold or exported;

• resale price maintenance; and• trade agreements fixing prices between persons

engaged in the business of selling goods andservices, which agreements hinder or prevent thesale or supply or purchase of goods and servicesbetween persons, or limit or restrict the terms andconditions of sale or supply or purchase betweenpersons engaged in the sale of purchased goodsor services.

Regarding trade agreements (collusions), the CFTAprohibits the following practices:• colluding in the case of monopolies of two or more

manufacturers, wholesalers, retailers, contractorsor suppliers of services, in setting uniform pricesin order to eliminate competition;

• collusive tendering and bid-rigging• market or customer allocation agreements;• allocation by quota as to sales and production;• collective action to enforce arrangements;• concerted refusals to supply goods or services to

potential purchasers; or• collective denials of access to an arrangement or

association that is crucial to competition.

Prohibited Unfair Trading PracticesThe Act prohibits hoarding and other acts that aremeant to bring about price increase. The Act alsoprohibits misleading advertisements, the sale of goodsand services using false information, the sale of unsafeor sub-standard products that can cause injury tohealth or physical harm. It also prohibits pyramidand bait selling, conduct of promotion competitionswith no intention to give the prizes and claim ofpayment for unsolicited gifts.

Other prohibited unfair trading practices related tosupply of goods and services include:• making any warranty limited to a particular

geographic area or sales point;• falsely representing that products are of a particular

style, model or origin;• falsely representing that goods are of a particular

age; or• representing that products or services have any

sponsorship, approval, performance and qualitycharacteristics, components, materials, accessories,uses or benefits which they do not have.

Control of Trade AssociationsTrade associations are also known to propagate ACPsand CFTA prohibits such practices. These includeexclusion of potential members and recommendationsof prices and related terms to its members or affiliates.In other words, the Act requires that associationmembers charge freely without being influenced by

21 Formal traders sometimes purchase from informal traders to avoid paying custom duties.22 It is possible that this relationship was deliberately left out because it was known that Government

would enact a law on consumer protection. However, the link needed to be provided for the CFTA.

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the association. Typical examples of such prohibitedpractices are goods and public transport relatedassociations (internal freight transport operators,minibuses, taxis).

Control of M&AsThe Act prohibits mergers and acquisitions (M&As)or takeovers that are likely to result in substantiallessening of competition in any market. Thecompetition authority is mandated to scrutinise anyintended merger or acquisition such that no mergeror acquisition can legally be affected without itsexpress approval.

Control of Dominant Market PlayersThe Act makes it an offence for any market playerwith a dominant position to eliminate or damage acompetitor, prevent entry or deter or preventcompetitors from operating in the market. The Actempowers the Commission to continuously monitorand objectively assess dominant players to ensure thatthey to do not limit competition in the market.

Legal Framework for ConsumerProtection23

The Consumer Protection Act (CPA) is the legalframework for consumer protection. Apart fromproviding for the establishment of the ConsumerProtection Council – a subject for the next section –the Act provides for channels that consumers can usefor trade remedies arising from unfair tradingpractices. Above all, the Act provides for consumerrights with the following entitlements:• protection of their economic, health and safety;• consumer education;• fair and non-discriminatory treatment;• compensation for damages;• freedom and right to join consumer associations or

unions; and• competent protection of their consumer rights,

among others.

The government is obligated to provide the competentprotection while suppliers and trader are obligated tooffer safe, appropriate, and quality products. They arealso required to produce business licences on request,refrain from indulging in unfair trading practices andco-operate with authorities in protecting the consumer.A fine of half a million Kwacha is stipulated for thoseconvicted of unfair trading practices. Consumers arealso obligated to take precautionary measuresincluding acquiring consumer education.

The Act prohibits pyramid selling or baiting and alsonullifies any contract that implicitly abuses consumerrights24 . Where contracts are required, the Act requiressuppliers and traders to furnish the contract beforethe purchase and should be presented in simplereadable official language, and where the contract isto be entered locally, the same should be translatedinto local language, explained to an illiterate, blind,mute, and any similarly physically challengedconsumer in a language s/he understands. The Actmandates the council to regulate standard formagreements and cancel or alter a contract if itdisadvantages a consumer.25

Going through the Act, it is clear that consumer rightsare well covered such that if implemented fully, therewould be few cases of consumer abuses, especially ifthe consumer is well educated on issues relating toconsumer protection. The hitherto powerful (tradersand suppliers), who have for a long time takenadvantage of the illiterate and seemingly powerlessconsumer, would not be excited to see the Actimplemented to the letter. No wonder there is lot ofdragging of heels in setting up competition andconsumer protection bodies.

Institutional Set-up for Competition andConsumer ProtectionThe Competition and Fair Trading Commission is theinstitution provided for by the CFTA for the promotionof competition in Malawi. The Consumer ProtectionCouncil is the institution as under the ConsumerProtection Act meant for the protection of the consumerfrom unfair and uncompetitive trading prices. Boththe Commission and Council are corporate bodieswith perpetual succession and a common seal andare capable of suing and to be likewise sued in theirrespective corporate names. While members of theCommission are nominated by the responsibleminister and appointed by the President, the ministerappoints the Council members. However, the ministeris responsible for both bodies in terms of theirremuneration and related matters and they both reportto the minister. MTPSD is currently responsible forboth competition and consumer protection and byimplication, the Minister for MTPSD is in charge ofthe two bodies. The composition of these two bodiesis similar in nature, although Council membership ismore diverse. Some professions and civil society bodiesare represented in both bodies and two ex-officiomembers are common in both bodies. The Council hasa more diversified civil society representation thanthe Commission (Table 4.3).

23 The discussion is based on the Consumer Protection Bill of 7th February, 2003. The Act was passed and assented to in the sameyear.

24 Section 8 subsection 3, provides a list of contractual clauses that are not allowable in buyer-seller contracts.25 The Act stipulates what constitutes an unfair consumer contracts in section 27 subsection 3.

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Functions of the Competition Commissionare to:• carry out investigations in relation to the conduct

of business so as to determine whether anyenterprise is carrying on anti-competitive tradepractices or unfair trading practices and the extentof such, if any;

• carry out investigations on its own initiative or atthe request of any person who may be adverselyaffected by a proposed merger;

• take such action as it considers necessary orexpedient to prevent or redress the creation of amerger or the abuse of a dominant position by anenterprise;

• provide persons engaged in business withinformation regarding their rights and duties underthe CFTA;

• undertake studies and make available publicreports regarding the operation of the CFTA;

• cooperate with and assist any association or bodyof persons to develop and promote the observanceof standards of conduct for the purpose of ensuringcompliance with the provisions of the CFTA; and

• advise the Minister on such matters relating to theoperation of CFTA as it thinks fit or as may berequested by the Minister.

The Competition Commission has the powers to:• summon and examine witnesses;• call for and examine documents;• administer oaths;• require that any document submitted to the

commission be verified by affidavit; and• adjourn any investigation from time to time.

Functions of the Consumer ProtectionCouncil are to:• investigate any complaint received regarding

consumer protection, and where appropriate, referthe complaint to a competent authority and ensurethat action is taken by the competent authority towhom the complaint has been referred;

• carry out investigations or inspections on its owninitiative or at the request of any person regardingmatters relating to consumer issues;

• identify price mechanisms in Malawi to determinewhether the prices are justifiable;

• monitor the frequency and magnitude of priceincreases;

• Liase and consult with relevant stakeholders inorder to understand what is happening in theeconomy;

Table 4.3: Composition of the Competition Commission and Consumer Protection Council

1 One person representing businessinterests

2 Another person representing businessinterests

3 A lawyer

4 An economist

5 An accountant

6 One person representing consumerinterests

7 Another person representing consumerinterests

Ex-officio

8 Secretary for Commerce and Industry orhis representative

9 General Manager of Malawi Bureau ofStandards or his representative

10 Secretary to the Treasury or hisrepresentative

A representative from Malawi Confederation ofChambers of Commerce and Industry

A representative from the Law Society of Malawi

A representative from an economic body in Malawi

A representative of a trade union in Malawi

A representative from a consumer body in Malawi

A representative from a Women’s organisation

Ex-officioSecretary for Commerce and Industry or hisrepresentative

Director General of Malawi Bureau of Standards or hisdesignated representative

Chief Executive of the Pharmacy, Medicines and Poisons

Board or his designated representative

Secretary for Justice or his designated representative

Secretary for Local Government or his designatedrepresentative

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• coordinate and network consumer activities andliase with consumer associations andorganisations, any competent authority andagencies within and outside Malawi to protectconsumer interests;

• formulate and submit to the Minister, policy andlegislative proposals in the interest of consumers,consider and examine, and where necessary, advisethe Minister on the modification, consolidation orupdating of legislation providing protection toconsumers in the areas covered under, or related tothe CPA or any other written laws;

• provide advice to consumers on their rights andresponsibilities under the CPA and any otherwritten law and make available to consumersgeneral information affecting their interests;

• carry out, promote or participate in consumereducation programmes and activities;

• regulate the operations of consumer organisationsso that they operate in a transparent manner andeffectively throughout the country;

• create or facilitate the establishment of conflictresolution mechanisms on consumer issues;

• advocate for the effective implementation of the CPAand any other written law affecting consumers;

• maintain a complaints register;• disseminate consumer information to the public;• collaborate with other institutions to ensure that

the quality of technology, goods and servicesimported into the country comply with the Malawistandards; and

• recommend to Government, where appropriate,minimum standards for basic or essential needs.

The Consumer Protection Council has the powers to:• request an advertiser to withdraw an advertisement

which contravenes the provisions of the CPA;• publish reports of the complaints the Council has

dealt with; and• caution suppliers or traders who contravene the

provisions of the CPA.

Judging from the above, the Council is more of anadvocacy than a trade remedies body. Its powers arelimited compared to those of the Commissionalthough it has a longer list of functions. While bothcan investigate, the level of investigations by theCouncil is limited in that it cannot summon witnessesand call for and examine documents. Its pricemonitoring role, especially the determination ofwhether prices are justifiable, will be limited ifdocuments are not called for. The provision that the

Council should refer its cases to a ‘competentauthority’ mimics that of the original Anti-CorruptionBureau. The Council could end up being a barkingbut toothless bulldog similar to the original Anti-Corruption Bureau. All said and done, a barking dogis better than none whatsoever, because it acts asdeterrent for a less determined robber.

What is important, though, is not whether this bodywould possibly just bark, but bite as well. With a legacyof dragging its heels on all fronts, the question iswhether these bodies will be operational at all, sinceboth ‘barking’ and ‘biting’ require some energy. Asindicated above, legal frameworks establishing theCommission and Council were enacted some yearsago. It was only in 2005 that the Governmentappointed the commissioners26 and after one year,there is still no full-time Secretariat. The Governmentit is yet to fund the Commission to enable it set up afull time secretariat.27 That said, the interim secretariathad, for the Commissioners, three mergers andacquisitions to be dealt with. One of them, the mergerof Mobil Oil and Caltex Oil, has been stopped. This isencouraging enough, considering that theCommission has no full time secretariat.

If the seven years that the Government has taken toappoint the Commissioners and plan to fund it aretaken as standard then the Council has a long way togo. The major problem cited by the Government isinadequate revenue to support all these ‘important’institutions. The truth of the matter is that resourcesare never adequate – it is the priorities that matter.Though positive, economic liberalisation,privatisation, regional integration and globalisationimpact negatively on the consumerthese reforms wereprioritised. By implication, priority was given to themanufacturer, supplier, trader, and entrepreneur. Itis now time to prioritise the welfare of the consumer,who has been sidelined for many years. Withoutcompetition and consumer protection bodies,consumers’ welfare will continue to be affected,negatively.

As can be seen, the Commission and Council resembleone another in terms of type, composition, and to someextent, functions. They differ markedly in their powers.Both are not yet operational, although there are nowsome moves to operationalise the Commission.Strangely, despite all similarities and the fact that thedevelopment of the policies and laws involved thesame secretariat and stakeholders, the two Acts do

26 The names and affiliations of the non-ex-officio commissioners are Mr. Loyd Mahara of Limbe Leaf Tobacco Company(Chair), Ms Rose Mkandawire of Toyota Malawi, Ms Alice Konyani of BP Malawi, Mr. John Mhone of Unilever South EastAfrica, Mr. Percy Ligoya of Economics Association of Malawi, Mr. Collins Magalasi of Malawi Economic Justice Networkand Ms Jane Pamdule of the Consumer Association of Malawi.

2 7 Although MTPSD indicated that the funding of the Commission was included in the ministry’s budget estimates for the2005/6 financial year, there is no sign of a funded Secretariat even after eight months of implementation. In fact, it seems thatthe setting up of the Secretariat in not in the cards this 2005/6 financial year.

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not relate to each other, explicitly. Had the foundationsof the two legislations been harmonious, then theestablishment of one institution (to addresscompetition and consumer issues) could have beenan explored, instead of having two separateinstitutions that suffer from paucity of resources, andhence are ineffective.

Stakeholder Knowledge of Legal andInstitutional Frameworks

Knowledge of the Legal FrameworkAccording to the results of the fieldwork, fewstakeholders know that the Government has alreadyput rules and regulations to deal with ACPs. Askedwhether there are any rules, regulations and laws tocheck ACPs, 26 percent said ‘no’ as 44 percent said‘don’t know’. It should be recalled that this was eightyears after the legislation was already formulatedthrough what was considered a participatoryprocess28 . This speaks a lot about the effect of non-implementation or lack of proper popularisation ofthe legislation. Even for those who indicated that theyknow there are rules, not all were able to correctly citethe two Acts, CFTA and CPA. In fact, 57 percentmentioned the two. One mentioned the Energy Actwhile another one cited the Anti-Counterfeit Bill.

When those who indicated that there are rules,regulations and laws to check ACP, they wererequested to state whether some serious action is takenwhen the rules are violated, 47 percent said ‘yes’always or sometimes and a similar proportion said‘no’. The expectation was that almost all of therespondents would have said ‘no’ because there hadbeen no institutional set up since the law was passedfor such an action to take place. Strangely, when askedwhether the existing rules, regulations and laws aresufficient to check ACPs, two-thirds said ‘no’. It isstrange because 43 percent of those indicated that theydid not know the ‘rules, regulations and laws’ whilethe rest mentioned irrelevant ‘rules, regulations andlaws’.

As to the agency that provides justice to consumers,CAMA scored highly. In fact, two-thirds of theresponses on the question of consumer protectionmentioned CAMA. Even the MTPSD had only oneresponse. National Electricity Council (NECO) hadthree responses. Others with one response includeMalawi Bureau of Standards, Malawi EconomicJustice Network and Road Transport OperatorsAssociation.

Objectives and Scope of Needed LegalFrameworkThe majority of the stakeholders (80 percent) thinkthat a comprehensive law should be enacted to focuson efficiency and consumer welfare (72.5 percent).Others (22.5 percent) think the law should take intoaccount other socio-economic issues. Thestakeholders further said that the law should coverall types of enterprises and persons and all areas ofcommercial activity (85 percent) and exempt no typeof enterprise or unit (92 percent). Further, 70 percentsaid the law should provide for the monitoring ofdominant firms to avoid abuse of their power. This isin line with their agreement that dominant firms breedefficiency but their activities must be monitored toprevent abuse of their market power; 58 percentstrongly agreeing and 24 percent just agreeing. Askedwhether Malawi has state-owned monopolies, 80percent said “yes”. Further, 60 percent said thesemonopolies indulge in ACPs.

On review of M&As to check substantial lessening ofcompetition, 45 percent of the stakeholders said thatthere should be provisions in the law for reviewingall mergers and acquisitions while 40 percent saidonly bigger deals should be reviewed. These responsesshould be viewed against the background that 56percent of the respondents did not know that whetherthere are provisions in the legislation to determinethe merits of M&As.

The majority of the respondents (80 percent) evensuggested that the law should provide for extra-territorial jurisdiction to deal with practices thatoriginate from outside the country. Two-thirds of therespondents also said that the law should deal withabuse of intellectual property rights by companies withthem.

However, when asked whether they would suggest atotal ban on ACPs, there was some variation althoughthose who wanted a total ban were many, bycomparison (Table 4.4). This ties with the

28 It is possible that the respondents chosen by the visited organisations did not know while others in theorganisation could have been in the know.

Table 4.4: Views on Whether to Ban ACPsFrequency Percent

Yes for all 16 40Yes for some 9 22.5

Yes but exempted for 6 15efficiency gains

No, only if it harms 7 17.5public interestDon't Know 2 5Total 40 100

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stakeholders’ views that business people either focuson profit only (56 percent) or profit, but sometimesthey balance between consumer welfare and profit(30 percent).

The majority (62.5 percent) could not say whether ornot the law should have provisions for leniencyprogramme and whistle-blower protection. Only 20percent said ‘yes’ as 17.5 percent said ‘no’. As towhether there should be exemption on public interestgrounds (e.g., technological advancement, protectinginterest of SMEs or socially advantaged groups,employment), 46 percent said ‘yes’ while 24 percentsaid ‘no’. To protect the provision from abuse, 40percent proposed that well-defined guidelines shouldbe laid while 24 percent said ‘no’. The rest could nottell. When the respondents were also asked as towhether the law should criminalise violations of thelaw, 44 percent could not say anything as 22 percentsaid it should in some cases and 10 percent said itshould not.

Regarding the right to private action, 67.5 percent saidthe law should provide for the same, but when askedwhat they would do if they encountered any ACP, 56percent said they would seek help from consumerforums while 26 percent said they would seek helpfrom legislation.

The Competition Authority and its ScopeAs already seen, the CFTA had provided for aCompetition Commission as an autonomous body.When asked about the kind of implementationmechanism the competition authority should have,57.5 percent said that it should be an autonomouscompetition policy while 35 percent said an agencyunder relevant government ministry or department.There were varied views on the kind of power theauthority should have. Two-fifths (40 percent) saidthe authority should have both investigative andadjudicative powers while 37.5 percent said that theauthority should have investigative powers only withadjudicative powers vested with courts. Others (17.5percent) proposed that the authority should not haveeither powers and that the powers should be with thecourts. As to whether the competition authority should

deal with both unfair trade practices and consumerprotection, 90 percent said ‘yes’.

Considering that some sectors, for example electricityand telecommunications, could have sectoralregulators, respondents were asked to define the scopeof the competition authority in terms of its coverage ofsectors with sectoral regulators. Table 4.5 presentsthe responses to the question ‘should there bespecialised sectoral regulators for electricity,telecommunications etc., or the CA should handlesuch issues?’

Regarding the involvement of other stakeholders inthe functions of the competition authority, 90 percentsaid the authority should involve them through aconsultative committee (75 percent) or by occasionalhearing (17 percent).

Market Structure vis-à-visCompetition in MalawiGeneral Market StructureThe size of the Malawi economy does not present lotsof prospects for competition. The GDP at market pricesin US dollars averaged US$1.8bn in the period 2000-2004 and ranged from a low of US$1.6bn in 2003 to ahigh of US$2.0bn in 2002. This is clearly demonstratedby the less than US$200 per capita levels of both GDPand gross national product (GNP) Table 4.6.

Table 4.5: Competition Authorityor Sectoral Regulators

Option n=40Yes for some with CA havingpower over them 40.0Yes for some with CA coordinatingwith them 15.0Yes for many of them with CA havingpower over them 15.0Yes for many of them with CA coordinatingwith them 22.5Others 7.5

Table 4.6: Size of the Domestic MarketYear Nominal Nominal GDP Nominal GDP Nominal GDP Nominal GNP Nominal GNP

GDP (MKM) (US$m) Per capita (MK) Per capita (US$) Per capita (MK) Per capita (US$)

2000 103,815.0 1,743.5 10,278.7 172.6 10,168.8 170.8

2001 123,704.1 1,713.4 11,894.6 164.7 11,673.2 161.7

2002 148,119.1 1,983.0 13,973.5 187.1 13,709.9 183.5

2003 171,917.8 1,654.8 15,772.3 151.8 15,472.4 148.9

2004 206,708.0 1,898.1 18,964.0 174.1 18,567.6 170.5

Average 150,852.8 1,798.5 14,176.6 170.1 13,918.4 167.1

Source: RBM (2005). Financial and Economic Review Volume 37 Number 1 2005

Malawi


As already indicatedunder the generalbackground, thestructure of theeconomy does notprovide much scope foracross the boardcompetition. See Table6. When trying to assessthe level of competitionin a sector, the numberof players can be usedas a first measure. Incase of the Malawieconomy, the numberof players varies, sectorby sector29 . Forexample, sectors with agood number of playersinclude agriculture(small and large scale),internal freight andpassenger transport,c o n s t r u c t i o n ,distribution, private,social and communityservices. Sectors with limited numbers of playersinclude manufacturing,financial, and professional services. Some likeelectricity, water and telecommunications are run byGovernment utility monopolies. As expected, there isonly one player, the Government, under producers ofgovernment services.

However, it is not always the case that competitionflourishes in sectors or sub-sectors with a largenumber of players. In Malawi, associations andcartels effectively smoulder competition, sincemembers fix prices together rather than subjectthemselves to competition.

The private sector in Malawi was characterised bydominant public corporations and foreign-ownedcompanies. The direct contribution of indigenousMalawians in the private sector has been minimal.Privatisation was introduced to reduce publiccorporations’ presence in the private sector. At thesame time, some efforts have been made to increasethe participation of indigenous Malawians in thepurchase of some of the privatised assets. Themanufacturing sector is dominated by agro-processing and the production of agriculturesupporting inputs. The manufacturing sector is, byand large, under-developed with limited competition,diversification, and inter- and intra-industry linkages.While its orientation is import-substitution, it isheavily dependent on imported raw materials and

29 This section also benefited from a desk study undertaken by Messrs Steve Dunga and Betchani Tcherani of the Ministry ofTrade and Private Sector Development.

intermediaries. This makes the sector a net user offoreign exchange.

Nature of Competition in the MarketThere are a very few competitive markets in Malawi,if at all. As already stated, the size of the economylimits the production capacity of players and byimplication, the number of players. Small-scalefarmers compete when selling their produce.However, they face markets that are not perfect. Forexample, tobacco growers face limited number ofbuyers who collude during the tobacco auction.Likewise, cotton growers compete with each otherwhen selling their cotton but they face a cartel of buyerswho fix prices for the farmers. It is only in the marketsfor less important crops where farmers meetcompetitive markets.

Markets for manufactured goods are, to a large extent,competitive. Trade liberalisation has ensured thatmonopolies or oligopolies face up to competition fromimports. Competition is present in markets ofconsumer goods, edible oils, skin care, beautyproducts and household goods (durable and non-durable). There are few manufactured goods that facelimited competition in Malawi. Limited competitionexists in markets for sugar, opaque beer, and softdrinks. Franchising make markets for motor vehiclesand their genuine parts less competitive. The financialmarket, which used to have limited competition, has

Table 4.7: Structure of the Economy 2000-2004(Sectoral Shares in GDP)

2000 2001 2002 2003 2004Agriculture 39.1 38.2 38.5 39.8 39.1 Small scale 30.9 30.7 30.0 32.3 30.5 Large scale 8.2 7.5 8.4 7.5 8.6Mining and quarrying 1.4 1.6 1.0 1.1 0.9Manufacturing 12.9 11.6 11.4 11.2 11.4Electricity and water 1.4 1.4 1.5 1.4 1.5Construction 2.2 2.2 2.4 2.6 2.8Distribution 21.0 22.1 22.1 21.0 21.4Transport and communication 4.2 4.3 4.9 5.2 5.3Financial and professional services 8.0 8.1 8.5 8.6 8.9Ownership of dwellings 1.4 1.5 1.5 1.5 1.5Private, Social and community services 2.1 2.2 2.2 2.2 2.2Producers of government services 9.2 9.7 9.4 9.0 8.8Unallocable finance charges -3.0 -2.9 -3.3 -3.6 -3.7GDP at Factor cost 100 100 100 100 100Source: Ministry of Economic Planning and Development, Annual Economic Report2005

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some competition due to financial sector reforms withthe entry of some retail banks, the transformation ofnon-retail banking financial institutions into retailbanks, and the privatisation of some financialinstitutions, including the two dominant commercialbanks.

The transport services market is potentially acompetitive market. However, minibus, taxi andtransport operators’ associations have muzzledcompetition. Association members agree on rates andfares. Non-members generally follow seeing theadvantages of using the ‘market leaders’ rates.Although the respective associations fix the transportrates/fares, they are generally negotiable within somelimits.

Some markets have no competition at all. Monopoliesstill run the local air travel, electricity and water. Theentry of two mobile phone operators introducedlimited competition in telecommunication sectors. Inall these three sectors, high economic rents andinefficiencies abound. The Government is workingtowards introducing competition in these sectorsthrough increased private sector participation, as willbe seen later.

Level of Competitivenessof the Local FirmsAnecdotal evidence shows that most of the local firmsare un-competitive. This is evidenced by the shrinkingcontribution of the manufacturing sector to GDP.Apart from scaling down, some manufacturing outfitshave closed down following the introduction of tradeliberalisation. Local firms point at unfair competition(dumping) from imports while analysts point at localfirms’ failure to adjust to competition due to obsoletetechnologies and outdated management styles. A fairassessment of the level of competitiveness of local firmswould cite high transport costs, high-import contentof raw materials (also due to the high transport cost),low labour, (limited skills training) and capitalproductivity (use of obsolete technology) as the maincauses. Trade liberalisation has, of course, led to theblossoming of the distribution sector and informaltrade. It seems local firms have not taken advantageof the trade liberalisation to source their raw materialscheaply or even improve their technologies.

Existing or Potential Entry BarriersFor all practical purposes, there is free entry and exitfor enterprises. In terms of legislation, there are nobarriers to entry for most goods consumed by thepopulation. There are few barriers to entry in Malawi.In some cases, some enterprises have been grantedexclusive concessions, among them sugar and beermanufacturing. These were granted to attract investors

and then protect their ‘massive’ investments. In mostothers it is simple ‘red tape’ despite the enactment ofthe Malawi Investment Promotion Act and theestablishment of the Malawi Investment PromotionAgency, which were meant to streamline businessregistration, among others. Further, allegations ofcorrupt practices among civil servants and politicianshave also acted as barriers to entry. The highest barrierto entry, though, has been economic mismanagement(evidenced by unsustainable domestic borrowing).This has resulted in an unstable business environmentcharacterised by high costs of conducting business(inflation and interest rates).

Apart from these artificial barriers, there are naturalbarriers to entry, especially for foreign investors. Theseinclude the distance (time factor) and cost to foreignmarkets, limited availability of semi-skilled personneland the pervasive poverty (epitomised by a smallmarket). There are also potential barriers to entry insome financial sector where minimum capitalrequirements bar potential players to enter. A recentcase is that of foreign exchange bureaux. Theminimum requirements have been revised upwardsubstantially. Many existing bureaux operators arelikely to fail to renew their licences. Further, theReserve Bank of Malawi has requested bureauxoperators to form an association. This, despite its nobleintentions, will have the negative impact of stiflingcompetition among them – where currently, there issome health competition. There are fears that theincreased minimum requirements will just breedinformal bureaux.

There are legal barriers to entry in the utility sectors.Competition is not allowed in water and electricity.Bureaucratic barriers exist in telecommunicationswhere the MACRA is charged with the responsibilityof scrutinising entrants. So far, a third mobile phoneoperator that applied for a licence some time ago isyet to be given that licence to enable it to operate.

Market Concentration30

There are a number of sectors where marketconcentration exists in Malawi. The clearest exampleis the sugar-manufacturing sector. Illovo Sugar ownsboth Nchalo and Dwangwa plants. There is oneowner each in water, electricity, rail, and watertransport sectors. Government owns parastatalsoperating water and electricity services. Governmentprivatised the parastatal that operated water andtransport services to two separate companies. Thereis also considerable market concentration in the beerand soft drink manufacturing industries. SouthernBottlers Limited owns plants for beer (Carlsberg brandand a local beer called Kuche-Kuche) and soft drinks(Coca cola, Fanta, and Sprite and fruity flavours likeCocopina, Cherry plum, Ginger ale, and Soda water).

30 It has been difficult to calculate indices because of lack of data in most of the sectors.

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Bowler Limited owns the two opaque beer-manufacturing companies. In fact, BowlerLimited acquired a competing company.

There are only two main operators in thetelecommunication market; namely CeltelLimited (a private mobile phone operator)and Malawi Telecommunications Limited(a public fixed line operator and co-ownerof Telekom Networks Malawi Limited, asecond mobile phone operator). A fewdominant players dominate thehospitality market. Sunbird Limited ownsa hotel chain of six hotels and inns. Oflate, the market saw the entry of newowners running equally good, if not better,services in the major cities as well aslakeside resort areas. This has, somehow,reduced concentration. In general,concentration is highest in markets run orpreviously run by state-ownedcorporations where monopolies areassumed to be best suited.

Views of Respondents onCompetition and ACPs

ACPs in MalawiWhen asked to rate the prevalence of ACPs in themarket, eight percent said they are hugely prevalentwhile 44 percent said they are significantly prevalentand 32 percent said they are moderately prevalent.Only six percent said they are insignificant. On theeffect of these ACPs on consumers, at least 74 percentsaid that consumers are significantly affected. In fact,the highest proportion (40 percent) said the practiceshugely affect consumers. Only four percent said thatconsumers are insignificantly affected.

The ACP most prevalent in the market iscollective price fixing. Over half of therespondents (52 percent) mentioned this.This was followed by bid-rigging (10percent) and entry barrier (10 percent).When all the responses for the three optionsare put together, collective price fixing is stillthe largest prevalent ACP. Entry barrier isthe fifth most prevalent ACP with marketsharing, price discrimination and exclusivedealing, in that order, following collectiveprice fixing. Bid rigging, which featured asthe second top most prevalent ACP,becomes sixth when all options arecombined (Table 4.8).

When asked about the sector most affectedby ACPs, the trading sector (distribution)was the one most frequently mentioned.Others mentioned general trading, buttobacco trading was by far the most

frequently mentioned type of trading that was affectedby ACPs. The second sector most affected by ACPswas manufacturing followed by services. When theresponses for the three options are aggregated, thepattern does not change. However, the proportion ofrespondents mentioning manufacturing and servicesincreased (Table 4.9).

On the level ACPs are prevalent, it seems thatstakeholders were clear that price discrimination isprevalent at the local levels while collective pricefixing is prevalent at the national level. It is also clearthat entry barrier is prevalent at the national level.However, the stakeholders seem to suggest that theprevalence of ACPs at the two levels is not mutuallyexclusive. For example, collective price-fixing andentry barriers are said to be prevalent at both local

Table 4.8: ACPs prevalent in the marketsACPs Top most ACPs All ACPs n=50 n=139Collective Price Fixing 52 23.7Market Sharing 6 12.9Price Discrimination 6 12.2Exclusive Dealing 6 11.5Entry Barrier 10 10.1Bid Rigging 10 8.6Resale Price Maintenance 4 8.6Predatory Pricing 2 5.0Concerted Refusal to Deal 0 2.2Under Pricing 4 2.2Tied Selling 0 1.4Small Size Argument 0 0.7Dumping 0 0.7

100 100

Table 4.9: Sectors Affected by ACPs

Sector n=46 n=106

Distribution 30.4 27.4

Manufacturing 13.0 17.0

Private, social and community services 8.7 12.3

Construction 6.5 6.6

Transport and communication 2.2 6.6

Agriculture 6.5 5.7

Financial and professional services 6.5 4.7

Some groups 8.7 4.7

All sectors 6.5 4.7

Government services 6.5 3.8

Utilities 0.0 3.8

Some groups in some areas 4.3 2.8

100 100

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and national levels Table 4.10. Askedwhether the ACPs originate fromoutside the country, 54 percent said‘yes’ while 22 percent said ‘no’. Therest did not know where ACPs originate.

It is not clear whether the stakeholders’suffered from biases. Cursory analysisindicate that a certain bias existed. Forexample, respondents from theprofessional services sector mentionedcollective price fixing and pricediscrimination as the top ACPs. It issuspected that these responses werepurely professional. However,stakeholders from the distributionsectors mentioned concerted refusal todeal, resale price maintenance andexclusive dealing as the top ACPs,which reflect from their experience.Again, those from financial services hadcollective price fixing and exclusivedealing as top two ACPs while those from otherservices sectors mentioned entry barriers andcollective price discrimination. Stakeholders from thetransport sector mentioned mostly pricediscrimination and exclusive dealing.

The analysis is indeed cursory and it is possible thattheir personal experiences as consumers could havebiased their responses rather than their workexperience. To get around this, the sectors in whichACPs are most prevalent were compared against thestakeholders’ sectors. It was found that the responseswere not necessarily biased. For example,manufacturing as the most affected sector with ACPswas mentioned by 23.5 percent of the respondentsfrom manufacturing sector. A similar proportion (24percent) was found in distribution. Otherwise, allother stakeholders mentioned sectors other than thosethey operate in. This implies that the responses werenot necessarily biased.

Market Structure and Competitionin Selected SectorsThis sub-section presents sector-specific legal andadministrative frameworks vis-à-vis competition inpharmaceuticals, financial, power andtelecommunication sectors. This follows literaturereviews and key informant interviews.

PharmaceuticalsThe Pharmacy, Medicines and Poisons Act of 1988governs the pharmaceuticals sector. The Act providesfor the establishment of the Pharmacy, Medicines andPoisons Board of Malawi to regulate the sector. Inparticular, the board is empowered to register and de-

register any entity operating a pharmacy business inMalawi. This includes manufacturing and trading.No pharmacy business is registered unless managedby a registered pharmacist31 under various classes oflicences. A product licence is required for the selling,supplying, exporting or importing, procuring, (for sale,supply and exportation) and manufacturing (for sale,supply and exportation) of any medicinal products.

Apart from a product licence, a pharmaceuticalmanufacturer is required to have a manufacturer’slicence. Likewise, apart from product licence, apharmaceutical wholesaler requires a wholesaledealer’s licence just as a retailer requires a dispensinglicence. An application for a product licence isrequired to have a description of the medicinalproducts on which basis the board checks theproduct’s safety, efficacy, and quality. The boardrequires an application for a manufacturer’s licenceto detail the proposed operations, premises,equipment, qualification of supervisors andarrangements made for safe keeping of the productsand records. Similarly, an application for a wholesaledealer’s licence has to describe the premises for thestorage of the medicinal products, equipment forstoring the products, equipment and facilities fordistributing the products, qualification of thesupervisor and arrangements for safekeeping of theproducts and records.

One would be tempted to conclude that legislationrestricts entry into the sector. However, evidenceshows that entry is not restricted. MIPA and the Boardcontinue to receive enquiries and application onpharmaceutical business, respectively. According tothe latest register, there are three manufacturers;

31 Pharmacists include professional pharmacists, pharmacy technologists and pharmacy technicians.

Table 4.10: ACP Prevalence by Level

ACP Local level National level

n=106 n=129

Price Discrimination 15.1 10.1

Collective Price Fixing 14.2 24.0

Bid Rigging 13.2 5.4

Entry Barrier 13.2 13.2

Market Sharing 8.5 9.3

Predatory Pricing 8.5 8.5

Exclusive Dealing 7.5 12.4

Resale Price Maintenance 6.6 7.8

Tied Selling 5.7 1.6

Concerted Refusal to Deal 3.8 3.9

Under Pricing 2.8 3.1

Small Size Argument/dumping 0.9 0.8

100 100

Malawi


Pharmanova Limited operating from Blantyre, SADMPharmaceuticals Limited operating from Lilongwe,and Kentam Pharmacy operating from Mzuzu.Importation of pharmaceuticals covers for most of thegap in manufacturing. There are 21 registeredpharmaceutical wholesalers, 21 registered retailpharmacies, and 28medicine (for persons, animalsand plants) stores. Most of these are located in theurban and semi-urban areas. Rural areas are starvedof retail pharmacies and drug stores. In terms ofcompetition, the pharmaceutical sector is competitive.It does not have an association and this has helpedkeep the competition. The ACP mentioned in the sectorwas violation of registered trademarks andcopyrights. It was reported that manufacturersproduce counterfeit products of Malawimanufacturers, which qualifies as unfair tradingpractice.

Financial SectorThere are three pieces of legislation that govern thefinancial sector namely the Reserve Bank of MalawiAct, Banking Act and, to some extent, the CapitalMarket Development Act. The Reserve Bank of Malawi– the country’s central bank – regulates the market. Itregisters financial institutions dealing with retailbanking, foreign exchange trade, leasing andfinancing, trade financing, pension fundsmanagement, insurance and re-insurance. Followingthe liberalisation of the financial sector in the early1990s, and lately the privatisation of the twocommercial banks owned by three publicconglomerates (ADMARC, MDC and PressCorporation Limited), the financial sector witnessedthe entry of new players into the market. According tothe latest National Statistical Office’s businessinformation register, there are 20 businesses involvedin financial intermediation, the central bankinclusive32 . Out of these, there were ten commercialbanks with different market shares in terms of depositsas of June 25, 2005 (Table 4.11).

The key barrier in the sector is possibly the capitalrequirement. However, this is considered necessaryfor confidence building and stability of the sector. Thesector has witnessed the introduction of new productsto the advantage of consumers. The main hindrancein the sector has been the crowding out of the privatesector due to the Government’s heavy borrowing. Thishas started to change in recent years after the newGovernment adopted tight fiscal and monetarypolicies. This has resulted in the consistent reductionof the bank rate and, to some extent, the liquidityreserve ratio. Although the sector is more competitivethan before, it can still benefit from the entry of largeplayers. Apparently, dominant and establishedplayers still lead the market and sometimes colludeand engage in predatory pricing. Lack of competition

is manifested by wide deposit and lending ratesspread.

The Government has also recognised that the CapitalMarket Development Act is out of date. A number ofbills to make the Act up-to-date have been developed.These include Securities, Insurance, Anti-MoneyLaundering, and Combating Financing of Terrorismbills. These are yet to be tabled and passed. These willnot necessarily reduce entry requirements, but willincrease the number of products in the financialmarket.

PowerThe Energy Act and the amended Electricity Actgovern operations of the power sector. A state-ownedmonopoly generates, transmits, and distributeselectricity in the country. This was provided for, inthe Electricity Act. The Energy Act, in tandem withthe move to liberalise the sector has provided forprivate sector participation in the sector. The NationalElectricity Council, set up under the Electricity Act,was to regulate the participation of other players inthe electricity sub-sector. With the enactment of theEnergy Regulation Act, the scene was set for privatesector participation in the power sector. The 2002Malawi Energy Policy White Paper and 2003 PowerSector Reform Strategy for Malawi articulate theenvisaged role of the private sector.

The Energy Regulation Act provides for theestablishment of the regulatory body to replace theNational Electricity Council called Malawi EnergyRegulatory Authority (MERA). This will oversee thereforms in the sector apart from playing the oversightrole, once the sector is reformed. According to the twodocuments and key informants interviewed, the firststep will be the unbundling of the market structure

32 Again, one financial institution offering retail banking has closed recently following Government scrutiny of its activities.

Table 4.11: Commercial Banks Market Shares

Bank Share (%)

National Bank of Malawi 40.1

Stanbic Bank of Malawi 23.7

First Merchant Bank 11.3

NBS Bank 11.0

Nedbank Malawi Limited 3.5

Malawi Savings Bank 2.9

Indebank Malawi 2.8

Loita Bank of Malawi 2.2

Finance Bank of Malawi 1.2

Leasing and Finance Company 1.1

All 100

Source: Reserve Bank of Malawi

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into its natural three segments of generation,transmission, and distribution. Reforms in theElectricity Supply Commission of Malawi (ESCOM)started with employment of change managers;establishment of three business units of generation,transmission and distribution; and asset evaluation,and the development of financial systems for eachbusiness unit. Currently, the systems are in place suchthat the three segments sell to each other. The secondphase will be to actually separate the ownership ofthese three business units. The financial andoperational separation will facilitate this ownershipseparation, since some history would have beenestablished as to the assets, financial accountingsystems, and costs and sales for each. Once these areseparated, private sector participation is envisagedas follows:

Generation: A public company will own and operatethe generation. However, independent powerproducers will be allowed to develop and owngeneration capacity. Co-generation by majorindustrial plants will also be encouraged. MERA willbe responsible to facilitate the private sectorparticipation.

Transmission: Government will own the assets, butwill give a long concession to a private company torun the operations. The public company generatingpower and the independent power producers will selltheir power to the private company running thedistribution network. Natural monopoly will bemaintained in this segment.

Distribution: Government will retain the ownershipof the distribution network, but will transfer themanagement to at least three distribution entities,possibly on regional lines, under long-termconcessions of no more than 20 years. The independentpower producers will be allowed to develop andoperate their own distribution networks in distinctivegeographical locations under exclusive geographicallicence and also enter power-purchasing agreementswith the distribution company covering their areas toenable them supply through their networks. In theshort-term, one distribution company has beenenvisaged.

The reforms in this sector are progressing too slowly.According to the reforms implementation schedule inthe strategy paper, all the short-term reforms weresupposed to have been completed by December 2004.However, ESCOM is still intact; the business unitshave not separated in terms of ownership andoperations. The Privatisation Commission has put thison high priority since 2004.

TelecommunicationsThe Communications Act is the legal instrumentgoverning the telecommunication sector. The Malawi

Communications Regulatory Authority (MACRA)regulates the sector. According to the NSO’s BusinessInformation Register, there are 22 operators in thissector. However, there are three main players. A publiccompany, Malawi Telecommunications Limited,operates a fixed-line network covering the entirecountry. There are two mobile phone operators. Thefirst is Telekom Networks, owned by a foreigncompany and Malawi Telecommunications Limited.The second is Celtel Limited. So far, these two arecompeting and each tries to introduce innovativeproducts for the good of their customers.

However, the sector would benefit from more players.The key to competition in the sector is the privatisationof the Malawi Telecommunications Limited. Theprivatisation of this public enterprise began in 2001and was finally concluded in February 2006 after anumber of controversies and court injunctions. It ishoped that efficiency and competition in the short tomedium term will ensue in the fixed line sub-sector.Further, it is hoped that MACRA will issue a licenceto a third mobile phone operator that had applied atleast two years ago.

The Privatisation Programmeand CompetitionOne of the objectives of the privatisation programmeis to increase competition and reduce monopoly. Theidea is that some public enterprises are monopoliesin their sector because of protection afforded to themby legislation, Government policy, or their sheerdominant position. Privatisation can enhancecompetition in many ways. The first is that amonopoly can be broken down and be sold in bitsthat would compete with each other. An examplewould be the privatisation of Malawi Dairy Industriesand Cold Storage Limited units. These are currentlycompeting with each other in the market. ThePrivatisation Commission made sure that these unitswere sold to different buyers to enhance competition.The second involves cutting off protective legislationand policies surrounding a public monopoly beforeits privatisation. This exposes the sector and theprivatised monopoly to competition. This is what isplanned in the telephone, water, and electricity sub-sectors where public enterprises dominate.Privatisation and restructuring of a number ofGovernment financial institutions, including theCommercial Bank of Malawi, the Malawi SavingsBank, Indebank Limited, Finance Company of Malawiand New Building Society, have increasedcompetition in the financial sector.

However, not all privatised monopolies lead toincreased competition. The privatisation of the entitiesin the sugar-processing sub-sector may haveimproved efficiency but has created a monopoly sugarcompany with no clear competition, even from

Malawi


imports. This is also true of the Malawi Railways(1994) Limited and the Malawi Lake Services.Government presence may have assisted in terms ofmoderating price increases. Currently, there is nomechanism to moderate price increases. In general,though, the privatisation programme has increasedefficiency and improved competition, both of whichhave positive effect on consumer welfare.

The pubic has not always viewed privatisation in thelight of its effect on competition. Newspaper articlesin the two major dailies – Daily Times and The Nationfrom 1997 did not relate privatisation to competitionand rarely consumer welfare. Most of the viewsconcentrated on job losses and loss of ownership byMalawi or low participation by Malawians. This isdespite an intensive media and aggressive publicrelations office. In fact, privatisation has rarely beenin the positive light. Of all the sales, privatisation ofDavid Whitehead and Sons (a textile manufacture)and Malawi Telecommunications Limited and theplanned privatisation of ADMARC (a marketing anddevelopment public company) and urban waterboards have drawn the worst criticisms. Althoughthe criticism varies from company to company, thebottom line has been the poverty impact of those fewbenefiting from these public companies and notnecessarily those who fail to benefit from them whocould, once privatisation takes place. So far, theproposed private sector participation in the electricitysupply has not drawn any serious criticism, possiblybecause of its obvious inefficiency in terms of qualityof supply and failure to meet an increasing demand.

Review of ACP Cases in MalawiThere are a multitude of ACPs in the country. Thissection attempts to highlight some cases as review ofthe earlier work undertaken by CUTS-CCIER andCAMA and in light of stakeholders’ views expressedthrough the filled questionnaires and key informantinterviews with the Treasury, Public EnterprisesReform Management Unit, MTPSD, Reserve Bank ofMalawi, Malawi Investment Promotion Agency,Energy Department of the Ministry of NaturalResources and Environmental Affairs, NationalElectricity Council, ESCOM, the PrivatisationCommission and MACRA. The presentation followsthe sequence presented in Chapter 4 of the CUTSCAMA report. Areas deemed to have a problem arenot mentioned.

Cartels, Associations and CollusionsCartels and collusions still exist in petroleumimportation and retailing. Again, and as alreadyindicated above, associations in the transport sectorcollusively set fares and rates. Retail banks alsoseem to collude or simply follow a leader or leaders insetting their deposit and lending rates as well asforeign exchange rates judging from their similar

spreads. In some cases, the difference could be eitherin hidden as opposed to transparent costs such thatthe bottom line is the same.

Other cases of collusions are apparent in the purchaseof produce. The tobacco, tea and cotton markets arecharacterised by collusive buyers. The tobaccomarket’s chance of competition was dashed with themerger of Diamon and Stancom Tobacco Limited.This further reduced the number of players from fourto three and reduced the number of major players toonly two; Limbe Leaf and the amalgamated Dimonand Stancom. In the cotton market, the three majorbuyers grouped themselves in what is called CottonDevelopment Association. This association fixes theprices of cotton. The only player out of this cartel(Iponga) is too small to influence the market. In the teaauction market, the problem is simply too few buyerswith the likelihood of collusive bidding.

Monopolies and Dominant FirmsThere are a few monopolies in the country apart fromthe public enterprises considered natural monopoliesin telecommunications, electricity and water. Onesuch is Illovo Sugar Company, which processes sugar.It owns most of the sugar estates and all the processingequipment. It has insignificant competition fromimports, especially in the upmarket hotels. The railand water transport services, which were also underpublic monopolies, are run as private monopolies.However, the rail and water transport serviceproviders are not dominant players as road transportcompetes favourably except in some water-lockedareas and islands. With the opening up and thedivesture of commercial entities owned by the onceomni-present conglomerates (ADMARC, MDC andPress Corporation), there are few dominant firms withunchallenged market power from imports.

One such dominant firm exists (Southern BottlersLimited) in bottled beer brewing in urban areas,despite competition from imported beer, opaque beerand other alcoholic drinks. It is still dominant due toprice and quality differences among beers and otheralcoholic drinks. The same company dominates theproduction of franchised drinks like Coca-Cola, Fanta,and Sprite. There is some competition from somelocally produced soft drinks as well as imported onesas its market share is still large because of itscountrywide delivery system. No other firm has such asystem. There is also a biscuit manufacturing company,Universal Industries, which dominates, although it isnot immune from imported brands. Its range of biscuitsin terms of brands, price and quality make this companya dominant firm. It used its dominant position to subdueits only competitor, Zokoma Biscuits Limited andeventually acquired it off.

Another sub-sector dominated by one firm is cementmanufacturing. There used to be two companies –

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Portland Cement Company and Shayona CementCompany – but the latter closed down. PortlandCement has exploited its dominant market positionto convince the Government to put a bar on cementimports. In fact, the price of its cement is kept in checkby cement imports.

Restrictive Trade PracticesThe one known existing restrictive practice is whenmanufacturers of drinks and dairies provide ‘chillingcabinets’ to retailers on condition that such cabinetsare used to stock their brands only.

Anticompetitive M&AsThere have been a number of anti-competitive M&Asin the country. The Competition Commission hasjust stopped a planned merger of two petroleum-importing companies. Similar mergers andacquisitions used to take place previously, and wentunquestioned. These included the merger of ChibukuProducts and Napolo Ukana Breweries, two rivals inthe opaque beer market.

Three mergers have been referred to the CompetitionCommission. These were not disclosed but it isassumed that one of them is the thwarted merger ofMobil Oil and Caltex.

Regional Trade and CompetitionFrameworkThe opening up of Malawi to imports and theintroduction of free trade amongst members of regionalgroups like Southern African DevelopmentCommunity (SADC) and the Common Market forEastern and Southern Africa (COMESA). COMESAhas exposed the economy to ‘imported’ African,Caribbean and the Pacific (ACPs). Stakeholderspointed out that some ACPs originate from outside ofthe country and as such the competition law andcommission should be designed to deal with suchACPs as well. Foreign companies can take advantageof the zero-rated custom duties to dump goods in thelocal market. While the Malawi legislation can providefor such eventualities, it is impractical to follow onthese. Some regional framework is necessary toenhance competition and reduce the incidence ofACPs on imported goods and services.

COMESA is more advanced than SADC in terms ofdrafting a competition policy and law.33 Accordingto the COMESA in Brief, the draft regional competitionlaw and policy are intended “to harmonise existingnational competition policies and avoid contradictions andprovide a consistent regional economic environment.”(COMESA 2003a: 14). Malawi was one of the countrieswith an existing competition policy and law by the

33 The discussion is based on drafts made available during the COMESA Regional Competition Policy Seminar held inBlantyre on 2nd May, 2003.

time COMESA developed its own. Further, Malawiwas party to the regional negotiations that shapedthe draft regional competition policy and law.

It is clear after going through the COMESAcompetition documents that both benefited fromsimilar guidelines and principles. Indeed theCOMESA in Brief states that the regional competitionpolicy and law is consistent with the Organisation ofEconomic Development (OECD) and UNCTADguidelines and principles. Just as Malawi hasCompetition Policy, Law and Commission, COMESAhas already drafted a policy and law and hasprovided for a regional body called the COMESACompetition Board.

What has not been seen is the link between the CFTAand the proposed COMESA Competition Law; andbetween the Malawi Competition Commission andthe COMESA Competition Commission. There is noprovision in the CFTA relating itself to the COMESACompetition Law. Further, it not clear from thenational law whether some cases involvingenterprises from the COMESA region can be dealt withby either Commissions or both. Similar provisionscannot compensate for the need to relate to each other.

Conclusion1. This study has come at a time when the

government has taken steps to enhancecompetition in almost all the sectors, includingthose suited for natural monopolies; andestablished a competition commission. The studyhas the unique chance of acting as a baseline forthe Competition Commission.

2. While the small size of the economy could be takenas a good reason for encouraging monopolies, thegovernment has tried to open it up to as manyplayers as possible. The shrinking manufacturingsector is of concern and efforts are being made toreverse the trend as evidenced by the adoption ofthe Malawi Economic Growth Strategy in 2003and current development of the Malawi Growthand Development Strategy.

3 Structural adjustment, with its trademark tradeliberalisation and free markets, provided a fertileenvironment for the growth of uncompetitive andunfair trading practices at the expense of thedefenceless consumer. Price decontrols,commercialisation, privatisation andderegulation, which were meant to lead toconsumer welfare gains via efficient gains, seemnot to have always led to the desired goal in somemarkets.

Malawi


4 Policies developed since 1994 recognisecompetition as a necessity for economic efficiencyand consumer welfare gains. They specificallyprovide for the limitation of monopolistic,oligopolistic and concentrated markets.Competition and consumer protection policy andlaw were considered as solutions. In fact, theGovernment went as far as enacting legislationfor the enhancement of competition and consumerprotection following the adoption of the policies.

5 The enactment of the laws was not, unfortunately,followed with the establishment of institutions tomake the laws effective. It took eight years toappoint the Competition Commission. One yearafter the appointment of the Commission itssecretariat is yet to be set up and it is not clearwhen it will be. Again, the government is yet toestablish the Consumer Protection Council andits secretariat. This gives the impression thatpromoting competition and protecting theconsumer are currently not the government’spriorities.

6 The Competition Commission and the ConsumerProtection Council are needed to addressstructural deficiencies in various markets.Existence of monopolies, oligopolies, associations,concentrated markets and dominant firms requiresconstant monitoring. More so, more work isneeded to change the structure of the economy tolessen the work of the two bodies. There is need toencourage investments in markets known to haveACPs.

7 Government’s efforts to reform the utilities sectorsof power, telecommunications and water throughprivatisation, though too slow, are commendable.

These sectors have failed to support private sectordevelopment, as they have been too slow torespond to demand. Although the pharmaceuticalsector is relatively competitive, Government’sintentions to further liberalise it by privatising theCentral Medical Stores, are welcome.

8 Further, once the two bodies are operational, therewill be need to harmonise the work of sector-specific regulators with those of the two bodies.Again, harmonisation of the work of the twobodies themselves will be essential if either is tobe effective. In fact, a review of their functions andpowers vis-à-vis competition and consumerprotection will be necessary to maximise their cost-effectiveness and impact. The two can benefit fromharmonisation of their work, functions, andpowers.

9 Malawi requires intensive capacity building. Ascan be seen, even established companies havelimited knowledge of both CFTA and CPA.Secondly, consumers have the least knowledgeabout these two Acts vis-à-vis their consumerrights. They have not been prepared to act in theface of ACPs. Training and civic education isrequired if the two acts are to take effect.

10 There are a number of areas where further researchis required. The critical area is on the impact ofprivatisation on concentration and competition.There is need to take stock of sectors whereprivatisation took place to determine whetherindeed privatisation improved competition or wasit a simple transfer of monopoly powers from thestate to the private sector. Another area is marketconcentration. There has been no serious studyon this. No study has calculated concentrationindices.

Note: This chapter has been researched and written by Maxton Grant Tsoka of the Centre for Social Research, Universityof Malawi, Malawi. The author acknowledges the comments received from the members of the Project AdvisoryCommittee. Comments and suggestions on the structure and content of this paper were received from NityaNanda of CUTS CCIER and incorporated appropriately. Inputs were also received from Temwa R. Gondwe ofMalawi Economic Justice Network (MEJN), Malwi.

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IntroductionEconomic theory demonstrates that welfare is greatestwhen markets are perfectly competitive. However,perfect competition does not exist in the real world,but the closer markets are to perfect competition, thegreater the gains in welfare. This is becausecompetition directs resources to their most productiveuses in the economy and motivates firms to adopt themost efficient processes of production. Competitionalso ensures that the increased efficiency does not leadto increased profits for firms only, but reachesconsumers as well.

As such, an effective competition policy shouldprevent the existence of anti-competitive practices.Indeed, a competition policy encompassesgovernmental measures that affect the behaviour ofenterprises and the structure of the industry. It coversthe broad spectrum of economic policies that have animpact on competition in the economy including tradepolicy, sectoral regulation, privatisation, etc. Acompetition law forms an integral part of thecompetition policy of an economy. It can be seen as alegal tool that allows competition principles to beenforced. By keeping a check on concentration ofeconomic power, outlawing rent-seeking behaviour,preventing anti-competitive business practices bydominant firms, eliminating artificial restrictions onentry, exit, and pricing in industries where they exist,competition law and policy ensure competitiveoperation of the market, thereby providingentrepreneurs, including small and medium-sizedenterprises (SMEs), with opportunities forparticipation in the economy and providingconsumers with reduced prices, better quality andwider choices, all with the goal of achieving efficiency,growth, and equity.

In a small economy like Mauritius, one would expectmarket concentration to be higher on average than alarger economy, as a certain minimum scale ofoperation must be achieved to obtain acceptably lowunit production costs. Moreover, a notable feature ofthe Mauritian economy is the concentration ofeconomic powers in the hands of a small number ofenterprise groups, most of them family-controlled. The

operations of these large, extensively diversifiedcompanies have had a pervasive influence on thecommercial and industrial development of the island.However, judging by the extent of competition onstatic data the number of firms in the market andmarket share is not totally right. An important conceptrelated to analysing the competitiveness of a marketrelies in assessing its contestability. It is to be notedthat it is relatively easy for firms to enter many privatesector activities in Mauritius, especially thoseoperations, which are small-scale and labour-intensive.

It should be acknowledged that several key economicreforms introduced over the years have helped fosterstronger competition in the domestic market.Mauritius has witnessed important economicchanges, which have made competition policy moreimportant. These include privatisation andliberalisation with a view to achieving/achieve highereconomic growth. However, to ensure that thisoutcome is achieved, there is a need for regulatoryreform and a clearly-defined competition policy inplace. For instance, liberalisation of controls on foreigndirect investment (FDI) can come in the form ofacquisition of domestic firms, which can have theeffect of reducing competition in the market. Similarly,the government has significantly reduced the numberof goods subject to the price-control mechanism. But,there is a risk that the market might not operateefficiently such as a cartel fixing prices and imposingsignificant price increases onto consumers.

The adoption of the Competition Act in 2003 was amajor landmark in the field of competition. However,it is regretful to note that up till now, it has not beenput into application. Lack of political will seems tohave delayed the implementation of the law. Inaddition, as suggested by journalist, Shyma Soondurof L’Express Dimanche, the business community hasconnived to cause the Competition Act to be destinedto failure. But, following a recent government decisionto subject milk powder to a maximum mark-up andits intention to include other basic products underthe same regime has encouraged the private sector ofthe economy to give the go-ahead to the application ofthe Competition Act (ICP Policy Brief No.3, Aug 2005).

Chapter 5Competition Scenario in Mauritius

Mauritius


The Minister of Industry and Commerce, SMEs, andthe Cooperatives, and will hopefully present the newCompetition Bill to the National Assembly very soon.

This report is part of a study formulated by CUTSInternational entitled, ‘Capacity Building onCompetition in Select Countries of Eastern andSouthern Africa. The study is being carried outsimultaneously in Botswana, Ethiopia, Malawi,Mauritius, Mozambique, Namibia, and Uganda. Theproject is intended to help the policy makers,regulators, civil society organisations (CSOs),particularly consumer groups, academics and themedia to understand and appreciate competitionconcerns from national, regional and globalperspectives.

This report has been enhanced by comments fromdifferent local economic actors from NationalReference Group (NRG) meetings organised by theadvocacy partner, namely the Institute for ConsumerProtection (ICP). In addition, comments from regionalmeetings and from CUTS International itself havegreatly helped in improving the report. All the more, asurvey has been carried out among differentstakeholders to gauge their views on competition. Twosets of questionnaires were prepared; one in Creole(the native language) addressed to consumers; andthe other in English – addressed to the private sectorand government institutions. Firms in the privatesector and the government institutions were chosenso as to have a balanced spread of entities in thefollowing sectors: agriculture; manufacturing;tourism; construction; Energy; and retail anddistribution. It must also be pointed that thequestionnaire from CUTS International was modifiedto take into account the realities of local context. Apurposive sampling method was adopted for thesurvey. The questionnaires were given to 200consumers as well as 50 firms in the private sectorand 50 government institutions.

The study report has seven sections including theintroduction. It starts by drawing a picture of theMauritius economy followed by some selectedeconomic polices that affect competition. An in-depthanalysis of different sectors of the economy in termsof their structure and the level of competition ispresented in the fourth section of the report, whichalso incorporates findings from the questionnaire withregards to the nature of anti-competitive practices inMauritius and the sectors most affected by them. Thefifth section examines the existing laws andregulations that protect consumers. Moreover, itincludes an analysis of the Competition Act (2003)and competition law at the regional level. All the more,the findings of the survey on the adequacy of existinglaws and the kind of competition authority desired isalso reported. Section Six presents the interfacebetween regulatory institutions and competition

regime while analysing two important regulatoryinstitutions in the financial sector and in the utilitiessector. Lastly, Section Seven concludes the paper byformulating some policy recommendations.

Country ProfileMauritius is regarded as a fast developing smallisland economy with an area of 2040 squarekilometers. It is located in the Indian Ocean, about2400 km off the South East Coast of Africa and 940 kmeast from Madagascar with geographic coordinates20° 10' S, 57° 30' E. Since Independence in 1968, it hasdeveloped from a low-income, agriculturally basedeconomy to a middle-income diversified one withgrowing industrial, financial, and tourism sectors.Mauritius has a population of about 1.2 million fromdifferent ethnic and religious group consisting ofIndo-Mauritian (68 percent), Creole (27 percent), Sino-Mauritian (three percent), Franco-Mauritian (twopercent), Hindu (52 percent), Christian [28.3 percent(Roman Catholic 26 percent, Protestant 2.3 percent)],Muslim (16.6 percent) and others 3.1 percent. For mostof the period, annual growth has been in the order offive percent to six percent. Mauritius has benefitedfrom the preferential markets under the LomeConvention and the Sugar Protocol.

This remarkable achievement has been reflected inmore equitable income distribution, increased lifeexpectancy, lowered infant mortality, a much-improved infrastructure simultaneously has beenwell-poised to take advantage of the Africa Growthand Opportunity Act (AGOA). It has achieved rapidgrowth and an enviable development transformationto become a significant exporter of manufactures withan emerging service sector within a short space oftime. The Gini co-efficient was 0.387 in 1997 and fellto its lowest to 0.371 in 2002 in order to represent amore equal spread of wealth and in terms of quality oflife, Mauritius was ranked 62 out of 175 in 2003. Thegross domestic product (GDP) was Mauritius Rupee(MUR) 117 billion (US$3.5bn) in the year 2000 andattained a value of MUR 174 billion US$5,3bn) in 2004,bringing along a per capita GDP value of MUR 9,9995(US$3.046) in 2000 to MUR 14, 0856 (US$4.291) in2004. However, the GDP growth has fallen from 9.3percent in 2000 to reach 1.8 percent in 2002 and slightlyrising to 4.5 percent in 2004. Inflationary pressureswere 5.3 percent in 2003, increased to 6.2 percent in2002 and fell to 3.9 percent in 2004. The ratio of budgetdeficit to GDP rose from 3.8 percent in 2000 to reach5.6 percent in 2004, signaling governmentexpansionary policies on the Mauritian economy.Table 5.1 gives some other economic variables on theMauritian economy since 1968.

During recent years, the Mauritian economy has beenunder severe stress following the phasing out of thepreferential markets and the need for diversification

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in order to prevent a slow down in economic activity.Unfortunately, the rate of unemployment kept onrising from 8.8 percent in 2000 to 10.7 percent in 2004,showing the Government’s inability to createemployment. All lands are fully cultivated, bringingalong a scarcity of land resources in Mauritius.

As regards the political history of the island, the Dutchsettled in Mauritius in 1598. The French took controlof the island in 1715, and ruled the island until it wasceded to British Empire under the treaty of Paris in1814. It became independent from Britain on March12, 1968, and became a Republic within theCommonwealth on March 12, 1992. Mauritius hasan unbroken record since Independence in 1968 as aworking democracy with a good human rights record,an active free press, and an independent judiciary.The President is a non-executive appointment, electedby the National Assembly for a fixed five-year term.There are three main political parties, namely: theMMM, the MSM and the Labour party as well as otherswilling to acquire position. However, ever since thefirst election conducted in the country, elections havebeen conducted in a fair and friendly manner.

Policies Affecting CompetitionThis section analyses a broad spectrum of economicpolicies that have had a direct bearing on competitionin the Mauritian economy over the years.

Trade Policy

Trade LiberalisationTrade policy regime in Mauritius can broadly becategorised into two periods. The period before tradeliberalisation – the 1980s and early 1990s – where themajor thrust of trade policy in Mauritius has been, onthe one hand, the promotion of an export-led growthstrategy with regards to the sugar industry, the ExportProcessing Zone (EPZ) and the tourism industry; andon the other, import-substitution with regards todomestic markets, particularly in agriculture. With

the trade preferences under the Lome Convention andunder the Multi-Fibre Agreement, (MFA) an EPZ wasestablished as from the 1970s and the manufacturingsector is today one of the major pillars of the Mauritiuseconomy, employing around one-fifth of the labourforce and representing around one-fifth of the GDP.The share of agriculture in GDP (mainly dominatedby sugar exports) has declined to around six percent,and that of tourism industry is around eight percent.

The period of trade liberalisation, from around mid1990s, trade policy has been dictated by importantchanges in major export markets and by the need tocomply with various trade reforms due tocommitments taken at the World Trade Organisation(WTO). With the ‘Everything But Arms’ (EBA, 2003)initiative and important changes likely to affect theSugar Protocol and the phasing out of the MFA inDecember 2004, trade policy on the external front isaimed at expanding the economic space andrestructuring of the sugar and textile industries in theEPZ. The Mauritius economy has also diversified intothe financial services sector, which has becomeanother pillar of the economy, and is recentlypromoting the information and communicationtechnology (ICT) sector while at the same timeconsolidating and projecting the tourism industry ona higher growth path. In this changing internationalcontext, trade policy has become so crucial that a TradePolicy Unit has been set up since 1996.

Mauritius is also putting emphasis on the non-sugaragricultural sector, particularly, exports of fruits andflowers, promotion of food processing, and the fishingindustry. Investment opportunities in the Africanregion are also being tapped to benefit better fromAGOA.

Trade policy has also aimed at promoting a moreregional industrial development strategy. Mauritiusis a member of the Common Market for Eastern andSouthern Africa (COMESA), the Southern AfricanDevelopment Community (SADC), the Indian Ocean

Table 5.1: Selected Economic Indicators: 1968-2003

Year 1968 1980 1990 2000 2002 2003

GDP at basic prices (Rs Millions) 827 8697 39629 119529 124954 137206

Real GDP Growth (%) -10.1 7.3 9.3 2.0 4.4

Inflation rate 7 42 13.5 4.2 6.4 3.9

Population 794746 969872 1058800 1186873 1210196 1222811

Unemployment (%) - - 2.8 8.8 9.8 10.2

Per capita income (Rs) 104846 7719 37429 100680 117256 128314

Tourist arrivals (thousands) 15553 115080 278010 656453 681648 702018

Literacy rate (%) - - 81 85 86 86

Total external debt (Rs. M) - - 14234 28408 30046 28658

Debt service ratio (%) - - - 9.7 8.5 8.2

Source: CSO and BOM reports

Mauritius


Rim (IOR) and the Regional Integration FacilitationForum (RIFF). For instance, a Special Economic Zone(SEZ) has been set up in Mozambique, wherememorandum of understandings (MoUs) have beensigned in agriculture, fisheries, horticulture, andlivestock production. Similar initiatives are beingundertaken in Madagascar.

Mauritius is also working upon garnering supportfor recognition of the vulnerability of ‘small islanddevelopment states’ (SIDS) at the WTO. As such, aSIDS conference was held in Mauritius, in January2005. The peculiarities of SIDS will be used as animportant criterion in future trade negotiations.

On the domestic front, with the phased reduction inexternal tariffs, domestic producers are facing morecompetition from imports. Trade is therefore guidedby the need to improve productivity at all levels.However, it is considered that companies producingfor the domestic market are still fairly highly protected,as there are still many high tariff rates with highdispersion. The simple average tariff is 20.5 percenton agricultural imports and 19.8 percent on importsof non-agricultural products. Moreover, import quotasstill apply to a number of products such as potatoes,onions, garlic, and salt. The State TradingCorporation, the Agricultural Marketing Board andthe Meat Authority have import monopoly and fix themaximum prices of some strategic products such asflour, low-grade rice, cement, petroleum products,potatoes, onions, garlic, and meat etc.

The phase of import liberalisation and reduction ofprotection for local firms started in the period 1986-1988, with the progressive dismantling of quantitativeimport restrictions. In 1991, import licensing, onceapplied to the vast majority of imports, was eliminatedfor all except a limited range of products subject tohealth, sanitary or strategic controls. But the numberof categories of prohibited goods has increased from13 in 1995 to 24 in 2001. Imports of controlled goodsare subject to permits issued by the PermanentSecretary of the Commerce Ministry. Specificconditions and restrictions are imposed on the importsof certain controlled goods. For example, imports ofpotatoes and table salt are subject to quotas. However,it was only in July 1994 that a major revision of thetariff structure was introduced. In 1994, a three-column tariff consisting of fiscal duty, general customsduty and a preferential duty was consolidated into aone-column import duty and the number of tariff ratesreduced from 60 to eight. Maximum customs duty waslowered to 100 percent and for preferential countriesthe maximum was set at 80 percent. The maximumcustoms duty was 600 percent before June 1994. Tariffswere lowered on more than 4000 items in June 1994.In June 2000, tariffs have been removed from anadditional 1,300 items. However, it is still consideredthat there are too many high rates and many

exemptions, to the extent that the exemptions representa loss of around 90 percent of tariff revenue. This year,the Government has announced to bring down thetop tariff rates of 65, 55, and 40 percent to 30 percentsuch that the tariff structure will have only three non-zero bands, i.e. 10, 15, and 30 percent. Such measuresare in line with the process of tariff liberalisation totransform Mauritius into a globally competitiveeconomy and move to a Duty Free island to serve theAfrican and Indian Ocean Region.

Participation in Regional Trade BlocsIt is part of the trade policy of Mauritius to expandregional trade and to sign MoUs with neighbouringcountries in different areas of trade and commerce,which are mutually beneficial. Mauritius is a memberof the regional blocs mentioned below:

The lndian Ocean CommissionMauritius is a founding member of the Indian OceanCommission (IOC), created in 1984. The Commissioncomprises the Comoros Islands, the French ReunionIsland, Madagascar, and the Seychelles. EU is themajor funding partner in the various projects/programmes of the IOC. The IOC, with the financialsupport of EU, has established a regional project,‘Programme Regionale Intégré de Developement desEchanges’ s (PRIDE) with a view to make dynamicintra-IOC trade and providing support to the privatesector. Accordingly, the four IOC Member-Statesbelonging to the African, Caribbean and Pacific (ACP)group, are committed to eliminate tariff and non-tariffbarriers (NTBs) on reciprocal basis. So far, Mauritiusand Madagascar are already applying 100 percenttariff reduction between themselves.

Indian Ocean Rim Association forRegional CooperationMauritius is a member of the Indian Ocean RimAssociation for Regional Co-operation (IOR-ARC),which is a platform for economic cooperation amongcountries of the Indian Ocean basin at the inter-continental level. However, the IOR-ARC has not yetelaborated a framework for tariff liberalisation. It iscurrently focussing on the development of thebusiness sector and on trade facilitation projects.

Southern African DevelopmentCommunityThe SADC Protocol on Trade was signed in August1996 by 11 member states, including Mauritius. Inbroad terms, this protocol aims at the establishmentof a Free Trade Area (FTA) within a period of eightyears from its entry into force. The Protocol becameoperational in February 2000 with effective tariffphase down as from September 1, 2000. In this context,members have agreed to reduce their tariff on a linearbasis taking into account the different levels ofdevelopment of members. Liberalisation is being

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carried out on the basis of the variable geometryapproach. Tariffs on about 85 percent of intra-SADCtrade will be liberalised within a period of eight years(i.e. 2000-2008) whilst the remaining 15 percent willbe eliminated from year 2008 to year 2012.

Common Market for Eastern andSouthern AfricaThe Common Market for Eastern and Southern Africa(COMESA) was established in 1994 as a replacementto the former Preferential Trade Area (PTA), whichhad existed from the earlier days of 1981. At present,it has 19 members. An FTA now operates in theCOMESA region as from October 2000, including ninemembers. COMESA also envisages the establishmentof a Common External Tariff by the year 2004. So farthe rates of duty proposed are as follows:• Raw Materials – 5 percent• Capital goods – 0 percent• Intermediate goods – 15 percent• Final goods – 30 percent

All goods are freely traded between Mauritius andother COMESA members that have met the FTAcommitments; Mauritius grants preferential treatmentof 90 percent tariff reduction, on a reciprocal basis, onimports from COMESA members that are not yetparties to the FTA.

It is part of the country’s trade policy to expandregional trade and to sign the MoU with neighbouringcountries in different areas of trade and commerce,which are mutually beneficial.

Investment PolicyInvestment policy measures have been guided by theneed to give appropriate fiscal and monetaryincentives in order to promote the different sectorsand to support the trade policies. In general, a liberalinvestment policy has underpinned the economicdevelopment agenda. In fact, various incentiveschemes have been set up over time and the mostimportant ones are:• Agricultural Development Scheme/Freight Rebate

Scheme;• Export Enterprise Scheme;• Health Development Certificate Scheme;• Hotel Management Scheme;• Industrial Building Enterprise Scheme;• Information and Communication Technology

Scheme;• Integrated Resort Scheme;• Modernisation and Expansion Scheme;• Pioneer Status Enterprise Scheme;• Regional Development Certificate Scheme; and• Technology Diffusion Scheme.

The incentives given under these schemes are broadly,tax rebates, companies paying corporation tax34 ofonly 15 percent, dividends exempt from income tax,free repatriation of profits and capital, generousinvestment tax credits, investment and export financeat preferential interest rates and import dutyexemptions on plant, machinery and raw materials.Though Mauritius performed reasonably well in the1980s in attracting FDI, in the last decade net FDI flowshave been quite erratic. One of the main reasons hasbeen due to rising labour costs. In order to reverse thetrend, the Board of Investment has been set up inMarch 2001 to act as a one-stop-shop for allinvestment. In fact, apart from some specific activitiesin the tourism sub-sector, acquisition of real state andactivities under state monopoly, foreigners are free toinvest in all areas.

Mauritius has consolidated its legislation on thedevelopment of its industrial sector, since 1993, withthe Industrial Expansion Act, with a view to providea new legal framework for industrial modernisation,transfer of technology, upgradation of small andmedium enterprises (SMEs), integration of non-EPZsub-sectors into the EPZ sector, and for protection ofthe environment. Incentives granted under theschemes range from customs duty and VATexemptions to a reduced corporate tax of 15 percentinstead of the standard rate of 25 percent. Moreover,all industrial companies receive an initial investmentallowance for machinery and equipment of 50 percent,and an additional 20 percent investment allowanceannually for new machinery or equipment in the yearthe expenditure is incurred. Capital expenditure onenvironmental protection technology is eligible for ahigher than average initial investment allowance. TheDevelopment Bank of Mauritius Ltd., grants long-termloans for the implementation of projects in varioussectors. These loans carry interest at varied ratesdepending upon the nature of the project.Concessionary interest rates are normally charged forcertain agricultural projects, micro-credits, andpersonal loan schemes. Industrial policy has beendriven by the need to promote both local and foreigninvestment to assist the twin objectives of export-ledgrowth and import-substitution.

In the 2006 budget speech, the government recognisesthat the existing framework for doing business andits incentive system works against democratising theeconomy and competitiveness because the tariff, taxand labour laws favour large firms over SMEs,discriminate against new entrants in favour of theestablished firms. As such, except for a limited numberof activities such as gambling and liquor sales, newmeasures will be introduced to allow entrepreneursespecially micro-enterprises and SMEs to start newactivities within three working days compared to at

34 Initially, companies in the EPZ sector were given tax holidays for a ten-year period

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least 46 days currently and sometimes up to two years.The 2006/07 Budget mentions a series of measuresdesigned to facilitate investment. These include,among others: getting rid of administrative delays vis-à-vis trade licences and development permits;facilitate foreign investment by establishing clearsguidelines that allow starting up without governmentclearance; integrate the EPZ and non-EPZ sectors; doaway with all investment certificates except forIntegrated Resort Scheme and the Freeport; eliminatethe discretion and powers of remission of the Ministerof Finance; and have clear rules and regulations thatwill be enforced uniformly.

These measures indicate that the government is tryingto harmonise investment in different sectors bycreating a level playing field, and as such promotingfree and fair competition in investment across sectorsand industries. The actual system of corporate tax is adual system of 15 percent and 25 percent. This tendsto distort the economic environment and investmentclimate and also act as a severe impediment to thecreation of a fully-integrated and competitiveeconomy. The 2006/07 Budget announces the decisionto move to a flat single rate of 15 percent in July 2009such that all sectors and activities in the economy,including the Freeport, will pay the same corporatetax of 15 percent.

All the more, a series of new measures or existing onesreinforced with the objective to further promote thedevelopment of the SMEs. The Budget aims to promotegreater synergy between large and small enterprisesso that the latter could exploit outsourcing and sub-contracting opportunities. Moreover, to start abusiness, administrative constraints, including redtape and bureaucracy are being dealt with so thatbusiness permits can be issued within three workingdays. This will benefit both small and large enterprisesand encourage more entry into different marketsegments. The institutions, which traditionally tendto support SMEs such as the Development Bank ofMauritius, Small Enterprises & HandicraftDevelopment Authority (SEHDA), EnterpriseMauritius, State Investment Company and MauritiusTrading Houses etc., are being prompted to play amore pro-active role.

Training is also another issue, which is being seriouslyaddressed. Consultants will be trained and placed atthe disposal of SMEs. The Mauritius EmployersFederation and the Human Resource DevelopmentCouncil have come up with a project on mentoring ofSMEs with the involvement of a pool of businessmenand professionals. A tax holiday of four years is beinggranted to start SMEs. Another crucial factor for thepromotion of SMEs is the production of qualityproducts and services. In fact, this motto has been

hailed as the linchpin to promote SMEs on a muchhigher growth path than they have known so far.

Government Procurement PolicyAs far as government Procurement is concerned,Mauritius is neither a member of, nor an observer tothe WTO Plurilateral Agreement. In October 2000, anew Central Tender Board Act replaced existinglegislation deemed stringent, administrativelycumbersome, and difficult to implement. All ‘public-purchasing’ entities must notify the Central TenderBoard (CTB), in writing, of any ‘major contract’ theyintend to execute, and submit all the relevantdocuments to it. Within a reasonable delay afterhaving been informed, the Board may call for tendersin respect of the contract. General guidelines ontendering procedures (including advertisement ofcalls for tenders in the local and, as appropriate, inthe international press) have been issued by the Board.Under the guidelines, procurement of less than MUR500,000 (US$15,232) by ministries and governmentdepartments is allowed without reference to the CTB;purchases of MUR 500,000 (US$1.5232) or more (majorcontracts for ministries and government departments)must be made through the CTB.

Specific thresholds apply to procurement of civilengineering works and capital goods by governmentagencies and state-owned companies, depending ontheir activities: MUR 10 million (US$304,611) for localauthorities and certain parastatal bodies; and MUR25 million (US$716,601) for other parastatal bodiesand state-owned companies. Decisions regardingprocurement procedures are made by the CTB inconsultation with the purchasing entity. There is node jure prescription in this regard; the CTB is free tochoose between open tenders, selective tenders, anddirect purchases. In principle, only local firms andlocal agents of foreign suppliers are eligible for opentenders. Price preferences of up to 15 percent aregranted to local suppliers when tenders are open toforeign firms. Where an international developmentagency is providing the financing, its ownprocurement guidelines (including provisions onpreferential margins) apply. The legislation states thatthe acceptance of ‘kick-back’ 35 would render theperson liable for a fine or a term of imprisonment.However, the operations of the CTB do not apply tothe private sector.

Some of the major weaknesses of the currentprocurement legislation are the following:• It describes which party tenders or purchases, but

not how. There are no specific rules concerning themethods to be used in case of international donorfinancing and when to use various procurementmethods and what to do in exceptionalcircumstances;

35 Agreement or understanding among contractors on which firm would submit the lowest tender for particular contracts

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• There is a lack of standardisation of the biddingdocuments;

• There is no public bid opening and publication ofawards;

• Evaluation procedures are at times too general;• There are no time limits for various actions; and• There are no special rules on how to procure

services of an intellectual and advisory nature.

Though the CTB Act and the Manual provide for morethan one procurement method for tenders, there is notenough guidance as to what method of procurementis appropriate under what circumstances. As a result,there is too much discretion. The CTB Act 2000 isrigidly numerical: all contracts above MUR onemillion (US$30,464) have to be tendered and reviewedby the CTB. A heavy workload combined with ageneral lack of support staff have prevented the CTBfrom concentrating fully on enforcement of the CentralTender Board Act 2000 and assertion of its authority.

With regards to the Financial Management Manual,it applies to low value procurement of the centralgovernment, i.e. to ministries and departments. Inpractice, the Manual’s rules are widely extrapolated,and interpreted for low value procurement. Forinstance, the Manual basically leaves it up to anAccounting Officer of a Tender Committee to use directpurchase, selective tendering or open tendering asthey deem fit. In addition, when a tender is estimatedto value under MUR 500,000 (US$15,232) but onebidder’s bid exceeds this limit, the Manual providesthat the tender be referred to the CTB.

In practice, this is seldom done, especially wherereferral of tenders between MUR 500,000 (US$15,232)and MUR one million (US$30,464) is a gray area.Though generally, for most projects it is openinternational/national tendering, it is seen that thereis a lack of procurement planning. Public bodies aresaid to utilise lack of planning and the ensuing year-end pressure to avoid open tendering in favour ofselective tendering or direct contracting. As a result,the general public is entirely left in the dark as to theactual amount of public money spent on a givencontract, although they may be able to get informationon larger contracts that have attracted the attention ofthe Director of Audit, several years after the award.

The government recognises that sometimes,excessively high and unjustified costs overruns oncapital projects. The last budget speech mentions thatways to identify and bar dishonest contractors andsuppliers from applying for government and publicsector contract need to be devised. Moreover, thegovernment intends to increase competition in biddingfor government contracts and expand opportunitiesfor SMEs to benefit. The ‘Empowerment Programme’is designed to build the capacity of SMEs to participateand raise their standards and grading over time, thusincreasing the pool of eligible contractors.

Wages PolicyThe International Monetary Fund (IMF) in its countryreport study has repeatedly criticised the out-modetri-partite wage negotiation process still in place inMauritius. No government has been bold enough tochange this wage determination process, fearing thatin the short term, the political costs are too high. Onone hand, relentless efforts are being made to propelthe economy into high-value added, sophisticatedniche production. On the other hand, the country isstill burdened with a wage compensation policy,which is out of tune with a dynamic and forward-looking economy. Massive efforts and resources arebeing devoted towards attracting foreign investors tostrengthen traditional economic pillars and giveshape to budding sectors like ICT. While the fiscal,monetary and trade policies have been modernisedwith the aim of creating a more business-friendlyenvironment, Mauritius is still saddled with aninvestment-unfriendly and rigid labour legislationand a system characterised by a high degree of stateintervention. Yet, what should be recognised is thatthe only asset is the people.

The Industrial Relations framework is an impedimentto the maximisation of the potential of our humanresources through, for instance, modern workpractices such as multi-skilling, performancemanagement systems based on productivity-relatedwage increases. The present wage determinationsystem in Mauritius is not conducive to productivityimprovement and long-term economic progress as itsuffers from inherent weaknesses and rigidities. Thesystem is fragmented and lacks coordination asorganisations responsible for determination of wagesand salaries in the public and private sectors operatequite independently. Sectoral productivity andeconomic performance are often not taken on boardin the determination process. In view to achievinggreater mobility and higher productivity andimproved competitiveness in the economy, there is anurgent need to review the current wage and salarydetermination mechanism.

In the 2006-07 budget, the Minster has announcedmeasures to reform the labour market which includelinking wages to productivity, reduce the cost ofreleasing workers and integrating various labourmarkets into one regime with same rules andprocedures for all. As such the present tri-partitemechanism for wage compensation will be abolishedfor wage compensation and will be replaced by theNational Wage Council, which will ensure that wagesand compensation are linked to productivity andcapacity to pay. Moreover, there will be reforms inlabour laws and regulations in order to achieveflexibility needed to create demand for labour togetherwith security needed to protect workers as they switchacross jobs. These measures will help to promoteproductivity and enhance competitiveness across the

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economy. Besides, firms, including small ones willface fewer difficulties in hiring and firing workers.

Industrial PolicyThe government, since the structural adjustmentperiod, has always considered the promotion of SMEs.In fact, with directed credit programmes and interestrates regime in the early 1980s, many small farmersand small entrepreneurs, would not meet the lendingcriteria required by commercial banks. Therefore,appropriate schemes were set up under theDevelopment Bank of Mauritius to finance suchprojects, usually at subsidised interest rates. Theobjective was not only to promote self-employmentbut also to tap all opportunities to reduce the relativelyhigh rate of unemployment prevailing. In fact, SMEshave been generating a higher number of jobs thanlarge enterprises. Over the years 1990-2003,employment generation by SMEs increased annuallyat the pace of three percent as opposed to the meagre0.3 percent for large enterprises.

However, it is important to recognise the vulnerabilityof SMEs which are hampered by poor managementand marketing structures. As a result, many are notfinancially sustainable ventures. The report on the‘Proposal for a New Incentive Framework for SMEs’(2001) identifies some general and internal constraintsfaced by SMEs including access to credit facilities, asSMEs are discriminated against large enterprises inloan applications, because of collateral requirements,lack of general policy, insufficient provision ofbusiness development services, internationalcompetition, and lack of forward and backwardlinkages.

The Government set up the Small IndustriesDevelopment Organisation (SIDO), which in 1994became Small and Medium Industries DevelopmentOrganisation (SMIDO). The objective was to providedirect support to small and medium enterprises inupgrading managerial, technical, and marketingskills. The SMIDO provides several incentives andsupport schemes such as export credit guaranteeschemes, export assistance schemes, start-up schemes,business counseling and training and consultancyas well as feasibility studies. The government has alsoextended fiscal incentives including the abolition ofcustom duties on raw materials, reduction in corporatetax to 15 percent to all manufacturing companies andall fiscally promoted companies, tax exemptions ondividends, 25 percent investment allowance, freerepatriation of capital as well as 10 percent investmentrelief.

Market Structure in MauritiusThis section analyses the state of competition indifferent sectors of the Mauritian economy that haveevolved through time. It shows how competition has

been gradually introduced in some sectors such astelecommunications, while others such as the bankingsector remain very concentrated.

Market Concentration in MauritiusIn a small economy like Mauritius, one would expectthe market concentration to be higher on average thana larger economy as a certain minimum scale ofoperation must be achieved to obtain acceptably lowunit production costs. Moreover, a notable feature ofthe Mauritian economy is the concentration ofeconomic powers in the hands of a small number ofenterprise groups, most of them family-controlled. Theoperations of these large, extensively diversifiedcompanies have a pervasive influence on thecommercial and industrial development of the island.However, judging the extent of competition on staticdata as number of firms in the market, and marketshare is not entirely correct. An important conceptrelated to the analysis of the competitiveness of amarket relies in assessing its contestability. It is to benoted that it is relatively easy for firms to enter manyprivate sector activities in Mauritius especially thoseoperations, which are small-scale and labour-intensive.

Upon the request of the government of Mauritius, theUnited Nations Conference on Trade andDevelopment (UNCTAD) Secretariat, with thecooperation of the Ministry of Economic Planning andDevelopment, engaged a high-level expert fromAustralia who undertook a study related to marketconcentration and restrictive business practices inMauritius, in the year 1995. The study found thatmarket concentration exists in many sectors andcertain types of restrictive business practices alsooccur. A high degree of market concentration wasfound in the following industries:

• Public utilities including telecommunications,electricity (excluding generation), radio andtelevision broadcasting and air transport (airlinesand airports operations);

• In beer manufacture, tobacco products, flour,fertiliser, pharmaceutical products, edible oils,livestock feed, paint, soft drinks and poultry;

• Import and distribution of cement (the sole privateimporter and distributor is a consortium of localand foreign investors);

• In the importation of petroleum products (amonopoly of the State Trading Corporation); and

• In services such as commercial banking,equipment leasing and car rental and duty freeshopping.

Businesses surveyed for the study were especiallyconcerned at the high prices and/or poor quality ofkey services in airfreight, telecommunications, andinsurance and attributed this to lack of competition.

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The introduction of a competition law could beespecially beneficial in the services sector, whichaccounts for over 60 percent of the GDP, and in thesupply of some intermediate goods for business.Greater openness to new entrants in highlyconcentrated industries could attract new FDI thatwill be beneficial for the competitiveness of theeconomy (UNCTAD, 2000 Investment Policy Review).Ten years later, market concentration can still beobserved in the above-mentioned sectors, despite someefforts to liberalise the telecommunication sector.

The liberalisation of retail prices started in the early1980s. However, price controls based on a fixedmaximum price system and a maximum percentagemarkup system are also maintained on some strategicproducts such as flour, rice, cement, pharmaceuticalproducts, and so on. The re-introduction of amaximum percentage markup on import of milk wasrecently criticised by the private sector. Indeed if acompetition law was operational, such controls mightnot necessarily be needed.

In order to understand the present level of competitionin the domestic markets, two important factors mustbe taken into account: first, the process of economicdevelopment in Mauritius; and second, thepeculiarities of a small island developing state. Theowners of the sugar industry, benefiting from theboom years of that industry in the early 1970s, werethe major investors in different sectors of the localeconomy. Moreover, two important aspects of the localmarket are: its smallness in terms of demand and thefact that importers face high costs of freight andtransport; and given the faraway location from majorinternational markets. Therefore, for the local market,the minimum efficient scale is often reached with alow number of firms and this is characteristic of manysectors in domestic markets. However, with significantreforms of the external tariff regimes, local producersare facing more and more competition from importedsubstitutes. There are also several factors, which helpto promote competition in the domestic markets,including:• the liberalisation of current account and capital

account transactions has encouraged the entry ofoverseas-owned companies into several activitiessuch as construction, grocery, wholesaling andretailing;

• the number of goods subject to governmentregulation of maximum prices or maximumpermissible mark-up has declined;

• the State Trading Corporation (STC) has become adirect competitor of private sector enterprises bydiversifying its activities into other commoditiesbesides the imports of petrol and cement;

• strong brand preferences on the part of someconsumers favouring imported products; and

• the risk that a new entrant will come into the market

may also force an existing monopoly to maintainits efficiency and avoid raising prices.

Competition is weak or non-existent in someimportant service industries. Public monopolies areresponsible for the provision of traditional publicutility services such as electricity, water supply. Someefforts have been made recently in liberalising thetelecommunication sector with the entry of anadditional provider of fixed line facilities.

The number of small units covered in the Republic ofMauritius during the first phase 2002 was 75,267. Ofthese 60.6 percent (45,586) were establishments andthe remaining 39.4 percent (29,681) consisted ofitinerant units. The majority, 82.0 percent (61,681), ofthe units was involved in four major activity groups:39.8 percent in ‘Wholesale and Retail Trade; repair ofmotor vehicles, motorcycles, personal and householdgoods; 15.8 percent in ‘Manufacturing’, 15.4 percentin ‘Transport, Storage and Communication; and 11.0percent in ‘Construction’. The total value of goodsand services produced or gross output at basic prices,in 2002 by the small units, amounted to MUR 29,596million (US$901mn). Investment made by the smallunits represented around 5.2 percent of GrossDomestic Fixed Capital Formation MUR 31,549million (US$961mn). The two activity groups‘Wholesale and Retail Trade; repair of motor vehicles,motorcycles, personal and household goods’, and‘Transport, Storage and Communication’, togetheraccounted for MUR 1,199 million (US$36.5mn) or 73percent of the total investment incurred by the smallproductive units.

It is observed that the units were almost equallydistributed in rural and urban regions. However thefollowing activities were predominant in the urbanregion: ‘Real estate, Renting and Business Activities’(75.4 percent), ‘Financial Intermediation’ (70 percent),‘Health and Social Work’ (73.4 percent).

The Role of State Owned Enterprises (SOEs)and ParastatalsThe share of the entire public sector, i.e. SOEs andcentral and local government services, in the GDP isaround 24 percent. SOEs contribute almost 100percent of the water output, around 60 percent ofelectricity production and, about half of the totalproduction in transport and communications andabout a fifth in finance and related activities. SOEsaccount for some 23 percent of gross domesticinvestment. They employ about 4.5 percent of the totallabour force and around 16.8 percent for the entirepublic sector.

Several parastatal bodies purchase, import, and store‘strategic products’, including commodities subjectto price control and/or supply certain services. The

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STC, with a turnover of around MAU six billion36

(US$182.7mn), imports the whole of the island’srequirements for petroleum products, flour and rationrice (rice with 25 percent broken)37, and 50 percent ofcement requirements. These products are consideredas ‘essential’ goods for which regularity and reliabilityof supply must be assured. The authorities also justifythe STC’s monopoly, citing the sustainable quantitiesof the goods it enables Mauritius to import and theresultant cheap prices (due to bulk purchases) thatthe STC obtains from foreign suppliers. STC sells thestaple food e.g. flour, ration rice to private wholesalersand bakers, who then distribute the products toretailers. The retail prices of ration rice and flour aresubsidised. Imports of ‘luxury’ (Basmati) rice wereliberalised in 1997. Therefore, the monopoly formerlyheld by STC over the importation of this product hasbeen abolished. Currently, the STC competes withprivate traders in the importation of Basmati rice. Asfor cement, the Mauritius Portland Cement Company(MPCC), and the Ciments de l’Océan Indien Limitée(since 2000) import 50 percent of Mauritius’requirements for cement; the STC’s import price servesas the basis for the local price. Petroleum productsare sold by STC to local distributors at a set price,with price controls maintained along the distributionchain.

The Agricultural Marketing Board (AMB) still holdsa monopoly over, or still monitors, the importationand/or marketing of the main controlled agriculturalproducts, such as table potatoes, onions and garlic,and maize, turmeric, and cardamom. Other parastatalbodies through which the state intervenes in economicactivities e.g., bodies that market or supply productsor services include the Tea Board, the Tobacco Board,the Mauritius Meat Authority, the Central ElectricityBoard, the Central Water Authority, the Waste WaterAuthority, the Development Works Corporation, theNational Transport Corporation, Air Mauritius, theSugar Bulk Terminal Corporation, the Cargo HandlingCorporation, the Mauritius Freeport Authority, theState Investment Corporation.

The Mauritius Sugar Syndicate (a private association)is in charge of sugar marketing, including export, inMauritius. The State Investment Corporation Limited(SIC) is the government’s main investment arm. Itinvests in sectors considered to be of strategicimportance for the socio-economic development of thecountry, and participates in the equity capital ofselected pioneering enterprises, and does not benefitin any preferential regime. It is incorporated underthe Companies Act, operates along commercial lines

and is subject, like any company, to taxation and otherstatutory and fiduciary obligations.

Sectoral Analysis of CompetitionTelecommunicationsMauritius brought forward the commitment it tookwith the WTO to open up its telecommunicationmarket in January 2003. This included the ending ofall monopoly rights in domestic and internationaltelecommunication services. Mauritius Telecom is theprimary supplier of telecommunication services inMauritius38 . It was established in 1992 following amerger between Mauritius TelecommunicationServices and Overseas Telecommunication Services.The other domestic player is Emtel Limited providingmobile phones. Emtel Limited shares the mobile-phone market with Cell Plus, which is a subsidiary ofMauritius Telecom. The Telecommunications Act199839 has divided the industry into three mainplayers: the operators; Mauritius Telecom and Emtel;and a regulatory body i.e. the InformationCommunication and Technology Authority). OnNovember 24, 2000, MT entered into a strategicpartnership with France Telecom, where theGovernment sold 40 percent of its stake in MT for MAU8.6 billion (US$261mn). Of the remaining 60 percent,the State Bank of Mauritius (SBM) owns 19 percent,the employees of MT, one percent, and theGovernment, 40 percent. The local tariffs structurewas not changed till 2002. In fact, there has even beena 15 percent reduction with the introduction of ‘billingby seconds’ in December 1997. It is the turnover fromoverseas calls, which used to compensate for theshortfall on the local market. However, as fromOctober 01, 2002, the domestic tariff has been increasedby an average of 30 percent given that internationaltariffs have been reduced by 50 to 60 percent.

Any revision in tariffs must be submitted by MT to theICTA, which will then consider the request beforemaking its recommendations. The ICTA also has theimportant task of granting licences to new players inthe telecommunications industry. Moreover, newfirms coming in the market will most probably in theshort term use the existing network established byMauritius Telecom and as a result they will have topay a connection rate to MT, which will directlyinfluence their tariffs. The ICTA has the importanttask of ensuring that the connection rate set by MTdoes not affect the level playing field and as a resultkeep competitors out of the market. It is being arguedthat the connection rate is still too high.

36 STC employs 290 persons. Its turnover is estimated at MAU 6.6 billion, its total purchases at MAU5.9 billion, and its value-addedto the economy at MAU 700 million for 2000-01.

37 The vast majority of imported rice (two thirds of domestic consumption)38 Mauritius has the highest tele-density among SADC countries and MT is connected to the SAFE network.39 It has been superseded by the Information Communication and Technology Act 2001

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As from the end of January 2006, Mauritius Telecomno longer has monopoly position in the provision offixed line operations. A new player, MahangarTelephone Mauritius Limited (MTML) has started itsoperations. It is expected that its tariffs will be lowerthan those practiced by MT. However, as far asinternational calls are concerned, the tariff practicedby Data Communications Limited is the lowest (fromMAU 9.40 to 7.20 per minute) compared to, from MAU10.80 and 9.60 for MT. As regards to ADSL Internetconnection rate, the latter has been reduced by around33 percent recently, but it has been observed that theoperators have not yet adjusted their tariffsdownwards. Overall, with MTML on the market, it isexpected that there will be more competition and tariffswill come down for the benefit of consumers.

ElectricityElectricity in Mauritius is generated from three mainsources: hydropower; diesel/gas turbines; and coal/bagasse generators. The Central Electricity Board(CEB) currently accounts for around 58 percent of thetotal production. The balance is produced by theIndependent Power Producers (IPPs), from bagasseof the sugar factories. The Bagasse EnergyDevelopment Programme initiated in 1991, is todayconsidered as a major success of the government’sobjective of diversifying the source for the productionof electricity. The CEB has monopoly position withrespect to transmission and distribution. The first steptowards the privatisation of CEB is ‘corporatisation’,i.e. making the CEB becomes a private company undercompany law. To that effect, the ‘CEB Transfer Bill’will be passed in Parliament. The next stage will be toopen the market with respect to electricity generationto competition.

The CEB has and will have power purchaseagreements with the Independent Power Producers(IPPs). The purchase agreements will be monitoredand approved by the new regulatory body, the UtilityRegulatory Authority. It is presently being claimedhowever, that the purchase price from the IPPs is toohigh, which finally gets passed onto consumers interms of higher tariffs. A consultancy report entitled‘Audit of Optimal Generation Capacities’ by a SouthAfrican firm, PB Power, concludes that the purchaseprice per KWh from the IPPs should be around MAU1.20, instead of MAU 1.87 and makes it clear that theprice being paid by the CEB is too high. The reportalso states that a fixed quantum of electricity must bepurchased from the IPPs irrespective of the fact thatthe CEB own generators are as a result being underutilised (Institute of Consumer Protection, 2002).

With the continuous increase in the price of petroleumproducts and the bad financial position of the CEB,the latter is considering various options, which areboth short term and medium term. These are:

To review the purchase price of electricity from theIPPs so as to bring it more in line with CEB’s own costof production. It is argued that the CEB is paying atleast one rupee above what they should be paying tothe IPPS per KWh of electricity purchased. Thegovernment is fully supportive of this re-negotiationof the contracts with the IPPs, though the latter arequite unwilling. Given the trends in the price of oil, itseems most probable, that they will get back to thenegotiation table.

To diversify the source of supplies for the productionof electricity, considering using more charcoal whereprice volatility is much lesser and bagasse and usingwind energy.To improve operating efficiency and financialmanagement at the CEB, particularly relating topurchase of parts and management of contracts. Infact, the CEB has plans to set up a contractmanagement unit in the near future.

WaterIn March 1999, the government requested the CentralWater Authority (CWA) to enter into an agreementwith a private undertaking with proven experiencein the water sector with a view to concluding a long-term strategic partnership for the modernisation anddevelopment of the water sector. The terms of referenceprovided for a management contract during Stage Oneand followed by a long-term strategic partnership of30 years during Stage Two. The main criteria forselection of the best offer, was the supply of potablewater at the consumer’s tap on a 24-hour basis at acompetitive rate. Other criteria included the proposalsfor the transfer of technology and technical know-howand investments in the water supply infrastructure,assisting the CWA in improving its financial viability,and improving the level of service to customers. TheCWA concluded that the best offer was fromConsortium Suez Lyonnaise des Eaux/Vivendi. InAugust 1999, the CWA entered into an agreement withthe Consortium for a pilot stage of six months fromSeptember 1999 to February 2000, which was reneweduntil December 2000.

When the Consortium was queried about the sourceof their investment of about MAU six billion(US$182.7mn) in our water sector, to the astonishmentof the government and other parties concerned, theclaim was, they were going to raise the money fromthe local market by a progressive increase in tariffsand from ‘soft’ government loans. This has turnedout not to be acceptable.

The government sought the views of the InternationalFinance Corporation (IFC) to advise on the modalitiesof the long-term partnership agreement, given the lackof expertise in terms of concession agreements. InJuly 2000, the IFC said that it would not have advised

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in favour of adopting the approach that has beentaken. Also a United Nations DevelopmentProgramme (UNDP) consultant advised that thefinancial structure of the project was extremelyfavourable to the Consortium and there was a need tocompletely redraft the concession agreement. Asexpected, the contact for Stage One was terminatedand the Consortium was not allowed to proceed toStage Two.

Cargo HandlingGiven the strategic location of Mauritius, there is agreat opportunity to substantially increasetranshipment activities from the Far East countries toAfrica via Mauritius. However, for that to beachievable, the Cargo Handling Corporation (CHC)must in the first place seek a partner with aninternational reputation. The CHC is currently in theprocess of privatisation and the government isconsidering selling 40 percent of its equity to a strategicpartner. Other reasons to have a strategic partner canbe to increase the capital of CHC, as the port will alsoneed significant investment for its state-of-the-art plantand equipment, if it is to increase its operating activitysubstantially – besides transferring technology andknow-how. It is being proposed that 140 percent ofstate investment in the CHC be sold to the strategicpartner.

Construction and the Cement IndustryThree of the leading enterprise groups in Mauritius –The Rogers Group, the Espitalier Noel Group, andthe Hand Group – are shareholders in a majorconstruction company REIHM–GRINAKERConstruction. While considerable capital is requiredto establish a successful construction companycapable of tendering for very large projects, regulatorybarriers to the entry of new firms seem relatively low.Although the market structure may be conducive tocompetition, the possible existence of restrictivebusiness practices in the industry may inhibit thesame, leading perhaps to higher tender prices andreduced efficiency in some individual firms. There isa probability of bid-rigging in this sector.

A monopoly to import and distribute cement was inthe hands of the privately owned Mauritius PortlandCement Co. Ltd from 1957. However, in 1984, thegovernment decided that the STC should take overthe importation of 25 percent of the country’s cementrequirement and in the following year the STC shareof import was raised to 50 percent. At present, theSTC remains responsible for 50 percent of cementimports, which it obtains through annual tenders.These imports are then sold back to the MauritiusPortland Cement Company (MPCC) for distribution.The Ministry of Commerce fixes the maximum pricesfor cement.

Tourism and Air TransportFDI policy towards the tourism sector is quiterestrictive. The government became concerned aboutthe fact that over-capacity in hotel rooms wasdeveloping. It introduced restrictions on newinvestment that fell more heavily on foreign thannational investors. About 100 percent foreignownership of new developments was permitted onlyfor hotels of more than 100 rooms. Foreignparticipation in smaller hotels was restricted to 49percent. There is no FDI restriction for hotelmanagement companies. The remainder of the touristsector is almost entirely reserved for nationalinvestors. Foreign participation in restaurantoperations is limited to 49 percent and only whereinvestment exceeds MAU 10 million (US$304,641),which would be a rare occurrence. No foreigninvestment is permitted in travel agencies, touroperators, tourist guides, car rental, yacht charters,and duty-free shops.

Despite fears of over-capacity, tourism has grownrapidly and there has been significant investment innew hotels by both national and foreign investors.Approximately 40 percent of the 25 larger hotels (withmore than 100 rooms) are partly foreign-owned. Mostmajor restaurants and car rental chains arerepresented through franchises or agencies.According to the final report on the Master Plan forAir Transport in Mauritius (2004), stagnation in thetourism industry has been observed. In addition, hoteloccupancy rates are declining, but rates haveincreased significantly in recent years. This raises thequestion whether there is substantial competitionamong hotels.

Also among the other contributors to the tourismproduct, the airlines, there is limited competition.Although at key routes there is, besides Air Mauritius,a second carrier from the counter part state, these twocarriers mostly operate in code share and otheragreements with each other. The report recommendsthat air access policy be liberalised in a step-by-stepmanner. All the more, it advocates for the governmentto ensure that the market structure between hotels becompetitive in order to meet challenges from othercompeting destinations including Seychelles, Dubai,etc. It is to be noted that the Government of Mauritiusis at present the major shareholder (51 percent) of AirMauritius Company Ltd. Other shareholders areprivate and foreign companies. Local private firmsinclude Rogers Company Ltd and the employees ofAir Mauritius. Foreign shareholders include BritishAirways, Air France, and Air India. The company isalso quoted on the official market of the StockExchange.

In order to achieve the goal of two million tourists bythe year 2015, the government has decided in the lastbudget to continue opening up air access to increase

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the carrying capacity, diversifythe sources of visitors andbring down travel cost toMauritius through greatercompetition.

Financial SectorThe overall strategy of financialliberalisation pursued in theeconomy since the late 1980shas been based on the premisethat market forces lead to a moreefficient pricing, mobilisation,and allocation of financialresources. Diversification andinternationalisation of thefinancial sector are the majorobjectives of policy makers. Thedevelopment of the financialsector is a continuous processof institutional changes andpolicy shifts in order to promotebusiness activities in the financial services industry,maintain public and international reputationconfidence. The use of information technology in thefinancial services industry has significantly improvedthe competitiveness of financial servicesorganisations.

Banking Sector – There are currently 11 commercialbanks in Mauritius. However, there is evidence thatthe market is highly concentrated with the two largestbanks namely: the Mauritius Commercial Bank andState Bank of Mauritius, accounting for 70 percent ofthe market. New legislations namely, Banking Act2004 and Bank of Mauritius Act 2004 haveconsolidated the legal order to create the legalframework in order to modernise and increasecompetition in the banking industry; regulate risks;supervise new activities generated by e-banking andensure the protection of bank customer. There arevarious complaints from customers with respect tobank charges.

Far from being a contestable market, there are manybarriers to entry such as high capital requirements,goodwill and others. With development of moneymarkets, increasing use of open market operations,fostering of deposit taking institutions and enhancingthe financial infrastructure, there is a lot of scope forenhancing competition. The major innovations in therecent Banking Act are the provision for a depositinsurance scheme to protect customers, appointmentof an ombudsperson to deal with complaint andprohibiting mergers between financial institutions thatmight not be in the public interest, the need forapproval of the central bank for significant transfer ofownership, composition of board of directors,provisions of information on monetary policycommittees, and establishment of a credit bureau.

Good governance and international competition areexpected to reduce concentration in the Mauritianbanking sector and increase efficiency for the benefitof customers. It is to be noted that the financial sectoris one, which is included in the schedule ofcommitments of the General Agreement on Trade inServices (GATS).The Mauritian banking industryconsists of 10 commercial banks and this number hasvaried considerably over the years with theconsolidation processes. A simple analysis of bankmarket shares, both in terms of deposits that they holdin the deposits market or in terms of loans that theyshare in the loan market, shows that such adistribution is rather skewed towards two large banks(MCB and SBM) that control over 70 percent of thetotal output.

A summary of the means (1983-2002) calculatedconfirms that over the years, the two banks MCB andSBM, have been dominating the entire market withvalues 0.41 and 0.28 respectively, when measured bydeposits, 0.43 and 0.27 respectively, as measured byloans. Such findings are striking facts in our markets,as disparities in market shares have been rather thesame over the years (Table 5.2).

An analysis of market concentration of banks showsa clear case of monopolistic competition in thebanking market with two largest banks controllingthe whole market.

Insurance Sector – The insurance sector is alsocharacterised by heavy market concentration withthree companies e.g. SICOM, Anglo-Mauritius, andIsland-Insurance holding the major share of themarket. There are also barriers to entry in terms offirst-mover advantage, economies of scale and so on.Moreover, it has been reported that in certain

Table 5.2: Summary of Means of Market Shares (1983-2002)Banks Market share Market share

(as measured by deposits) (as measured by loans)MCB 0.41 0.43Baroda 0.03 0.02IOIB 0.03 0.02SBM 0.30 0.27Barclays 0.08 0.07Habib 0.01 0.007HSBC 0.08 0.09SEAB 0.01 0.008Delphis 0.01 0.01MCCB 0.01 0.009BNPI 0.04 0.04UIBL 0.0043 0.006Means 0.083 .0083(Source: Author’s calculation)

Mauritius


instances, when contracting loans, banks propose toclients the taking of insurance cover from certain sistercompanies. The Financial Services Commission (FSC)regulates insurance activity and protects the interestsof consumers. It is a member of insurance securitiesand non-bank financial authorities (CISNA). It hasalso signed a number of MoUs for the exchange ofinformation and surveillance to enhance supervisoryregime of the non-banking activity in the SADC.

The FSC has come up with a code of business conductto sets standards of market practices for insurers andinsurance intermediaries in relation to the sale ofinsurance contracts. The code aims to ensure that allinsurers and intermediaries under the supervision ofthe FSC adhere to high standards of financialsoundness and business conduct. In essence, itreflects what the FSC considers are minimumstandards of good business practice and ethicalbehaviour on behalf of its licencees. The code alsocaters to the consumers’ interests, including their fairtreatment. Standards have been developed that requireservice providers to act conscientiously, honestly andwith diligence in handling insurance business; toensure that consumers are properly informed and thattheir claims and complaints are handled effectively.

Two insurance companies started their operations inMauritius back in the late 1950’s and since then theinsurance industry has proved to be a prospectivebusiness over time. The insurance industry is

classified as eitherLong termInsurances, whichprovide lifeassurances andpensions funds. Theother type is GeneralBusiness, whichspecialises in fire,motor, personalaccident andtransport insurance.Another type ofinsurance, which isgaining prominence,is the reinsurancesector wherei n s u r a n c e

companies reinsure themselves against risks. Out ofthe 20 existing companies, New India AssuranceCompany and the Life Insurance Corporation (LIC)of India are local branches of Indian companies, whilethe Ceylincostella insurance company is a subsidiaryof the Sri Lankan Company.

Long-term insurance is a dominating market inMauritius – Sicom, Anglo-Maurituis, and BritishAmerican specialise in specific segments of themarket. For example, SICOM’s main business is thatof pension funds of statutory bodies while the BritishAmerican mainly markets low premium insurance tolow-income households. The General InsuranceBusiness comprise fire, motor, personal accident,transport and miscellaneous insurance. Motorinsurance accounts for nearly 45 percent of premiumsout of general insurance companies in Mauritius. Thisshare continues to rise with time, along with that offire and miscellaneous classes. Other products offeredby insurance companies are: personal accidentinsurances, children health policy, various pensionplans or the BA Lady policy of the British Americaninsurance.

An analysis of market concentration over the yearsshows a mean HH value of 0.295 and for theconcentration ratio, it is 0.765 (Table 5.4). The latterimplies that four largest insurance companies namely,Anglo-Mauritius, SICOM and BAI dominate themarket. The HH index implies that the market shows

Table 5.4: Market Concentration of General Insurance Business (1995-2003)Years 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 MeansHerfindahl-Hershmanindex 0.250 0.295 0.265 0.285 0.321 0.325 0.296 0.258 0.963 0.2953 firmconcentration 0.725 0.702 0.698 0.725 0.698 0.714 0.7154 0.702 0.687 0.765Source: Computed

Table 5.3: Levels of Market Concentration (1983-2002)

Years Output Measurement: Deposits Output Measurement: Loans

Herfindahl- 2 bank Herfindahl- 2 bank

Hershman (HH) Concentration Hershman (HH) Concentration

index Ratio (CR) index Ratio (CR)

1983 0.2308 0.6179 0.2567 0.6736

1990 0.2368 0.6457 0.2699 0.7040

1995 0.2699 0.6988 0.2860 0.7130

2000 0.2679 0.6779 0.3308 0.7720

2001 0.3100 0.7315 0.3820 0.8250

2002 0.2954 0.6948 0.3082 0.5080

Means 0.2696 0.6909 0.2881 0.7020

(Source: Author’s calculation)

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a monopolistic tendency and monopoly is rejected.The largest companies in this line of business are theSwan group followed by Albatross, Mauritius Union,and SICOM. These together account for more than 50percent of the market in the sample. These marketshares in line of business indicate that each firm haseconomies of scale in a particular product.

Agricultural SectorWith the removal of trade preferences, the sugarindustry has undergone major structural reforms withmany factories closing down. Sugar production hasbecome concentrated in the hands of a few large sugarmills. These are Mont-Desert-Alma, FUEL and that ofBelle-Vue. This economic concentration is supposedto cut down cost and benefit from economies of scaleespecially in light with developments regarding theerosion of preferences in the context of the WTO. Thiscan be seen by analysing data from the MauritiusSugar Industry Research Institute (MSIRI) both fromthe number of planters as well as production. In 2003,production from these three factories amounted to410,000 tonnes in a total of 645,000 tonnes produced.

The oligopolistic tendency in sugar production in thecountry has increased given the policies adopted bythe government namely that of the VoluntaryRetirement Scheme, especially designed for the smallplanters in the country. As for food crops (vegetables)there is a lack of competition in the sense thatproduction power is concentrated. 60 percent of themarket is taken over by five largest producers (MSIRIannual report, 2003). Tea production is also in thehands of a few large producers such as Corson andLa Chartreuse. Consequently, the price can ultimatelysuffer. There is a need to democratise the market sothat small producers also gain in the productionprocess.

Wholesale and Retail Trade SectorWholesale and retail distribution is a large andimportant sector of the economy accounting for about11 percent of the GDP in recent years and employingabout 70,000 people in 2004. The rise in real incomein Mauritius has attracted many foreign investors inthe retail sector with Courts Ltd., as the first operatorto enter the domestic market and supply furniture andhousehold appliances. The hire purchase facility waspopularised with the coming of that foreign company.

Later, many other large foreign hypermarkets havecome into Mauritius as investors or throughfranchises. They include Jumbo stores, Shoprite, Sparand Game, Kentucky Fried Chicken, MacDonald, Spuramong others. Following these developments, thedistribution sector seemed to be characterised by largehypermarkets which are largely foreign-owned;supermarkets and large self-service stores, which arelocal family-owned belonging to one of theconglomerates and the traditional street corner shopswhich are mostly present in rural areas. Thecompetitive nature of the sector has resulted in manydevelopments including the setting up of mid-sizedstores in order to benefit from economies of scale suchas when undertaking bulk-buying as with bighypermarkets. Consumers have also benefited fromlower prices and wider choices, (MCCI Publications,2005).

However, a recent article by the Institute for ConsumerProtection (August 2005) highlighted the fact that someforeign companies have brought with themanticompetitive practices in particular backdoorcommercial practices including selling specificlocations on gondolas, advertising space on trolleysand on brochures. Such activities bring in a significantamount of money and allow hypermarkets to offercertain fast-moving products below cost price. Such apractice, known as la marge arriere in France, allowfirms to capture a large market share and drive otherenterprises out of business and afterwards theyincrease prices after achieving a dominant positionin the market.

Views of Respondents onCompetition and Anti-competitive PracticesOverall, around 92 percent of the respondentsconsidered that anti-competitive practices are quiteprevalent in the Mauritian markets. At the dis-aggregated level, the results are quite similar with 92percent of consumers, around 93 percent of firms and90 percent of government institutions, whoparticipated in the survey agreeing that such practicesare widespread in Mauritian markets. 94 percent ofthe respondents do agree that consumers areadversely affected by such practices.

Table 5.5: Market Concentration of Long-term Insurance Business over the Years (1995-2003)Years 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 MeansHerfindahl-Hershmanindex 0.258 0.258 0.269 0.289 0.378 0.369 0.258 0.298 0.298 0.285 Three firmconcentration 0.695 0.702 0.714 0.745 0.754 0.798 0.748 0.702 0.768 0.754Source: Computed

Mauritius


The participants were also given 11 categories of anti-competitive practices, namely:1) collective price fixing;2) market sharing;3) bid-rigging;4) tied-selling;5) exclusive dealing;6) concerted refusal to deal;7) resale price maintenance;8) price discrimination;9) entry barrier;10) predatory pricing; and11) any other.They were required to list the three most importantones by order of importance.

Six percent of the total sample considered price fixingas the most prevalent anti-competitive practice inMauritian markets. When the results aredisaggregated by category, consumers share this viewalong with the private sector and the government,ranging from 30 to 34 percent as can be observed fromthe Figure 5.1.

The second most prevalent anti-competitive practiceis market sharing, according to the respondents (17percent). From the disaggregated results, the sameresponse is observed for consumers (17.5 percent) andthe government sector (20.9 percent). But accordingto the private sector, it is exclusive dealing (21.1percent). This is shown in Figure 5.2.

Entry barrier is seen as the third most prevalent anti-competitive practice for the whole sample (18.5percent). Firms and the government, 24.3 percent and20.9 percent respectively, give the same responses.However, according to consumers, it is resale pricemaintenance (19 percent).

Overall, the survey results tend to confirm collectiveprice fixing, market sharing and entry barriers as themost common factors affecting competition in theMauritian markets. This is not surprising given thatmany markets in Mauritius exhibit oligopolisticcharacteristics where entry barriers are high and withsome form of collective price fixing through priceleadership. However, from the survey we see that bid-rigging, resale price maintenance and pricediscrimination are also important factors affectingcompetition.

Most Prevalent Anti-competitive PracticesAt the local level the overall results show that collectiveprice fixing (36.8 percent) is the most prevalent anti-competitive practice. The same is observed for all threecategories, ranging from 25 percent to 39.7 percent.The second most prevalent is resale price maintenance(20.7 percent). Consumers share this response as well(24.7 percent). However, for the government andprivate sector, it is market sharing, 19 to 22.2 Percent.The third most widespread practice is pricediscrimination for the whole sample (15.5 percent).Most consumers also share this view (21.9 percent).However, for the private sector and the government, itis entry barrier (20 percent) and resale pricemaintenance (20 percent), respectively. The responseby consumers that price discrimination is prevalentin different parts of the country is not surprising, giventhat there is significant market segmentationparticularly in the retail sector.

At the national level, bid-rigging is observed as themost prevalent anti-competitive practice (23 percent).From the disaggregated results, consumers give thesame response (25.3 percent. However, for firms andthe government sector, it is collective price fixing, 30.6percent and 22 percent respectively. The number ofconsumers participating in the sample might haveinfluenced the overall result here. Taking this intoaccount, the results confirmed the earlier resultsobtained that collective price-fixing is most prevalent.

The second most important anti-competitive practiceat the national level is market sharing (19.6 percent).The same result is confirmed by all three categories.The third most important practice is entry barrier (14.8percent). The private sector and the government, 22.9percent to 16.7 percent, give the same response. Forconsumers they consider exclusive dealing as thethird most prevalent, 17.1 percent.

Figure 5.1: Prevalence of Price-fixingaccording to Respondent Groups

28

29

30

31

32

33

34

35

Cons Firms Govt

%

0

5

10

15

20

25

Cons Firms Govt

Figure 5.2: Prevalence of Market Sharingaccording to Respondent Groups

%

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Overall, the survey confirms that in the Mauritianmarkets at both the local level and at the national level,the three most anti-competitive practices are: collectiveprice-fixing; market sharing; and entry barrier and to amarginally lesser extent, bid-rigging and pricediscrimination. The results at the local and nationallevel support the findings regarding anti-competitivepractices in Mauritian markets.

The first most important sector where such practicesare prevalent is the consumer goods sector (35.2percent). The consumers and the private sector, 38.7percent and 42.9 percent respectively, also shares thisview. But according to the government sector, it isservices, which is most affected. The second mostimportant sector is manufacturing (22.4 percent).Consumers and the government sector confirm thiswith 25.3 percent and 21.9 percent respectively. Forthe private sector, it is theconstruction industry, 28 percent.This is expected as views havebeen expressed that there isconsiderable bid-rigging in thissector. The third sector where suchpractices are prevalent isagriculture. This response isshared by consumers, but not bythe private sector and thegovernment.

Around 63 percent of the respondents agree that someof such practices originate outside the country. At thedisaggregated level, it is not surprising the privatesector and the government seem to apportion most ofthese practices to multinational corporations than tolocally based firms with around 67 and 86 percent,respectively. On the other hand, consumers allocatethe practices as 56 percent overseas and around 44percent home-based. So for consumers, many of thesepractices originate from the local businessenvironment.

Views of Respondents with Regard to theLegislatureIt is surprisingly to note that only about 56.8 percentare aware that there are laws and regulations to checkanti-competitive practices. The consumers’ group

might influence this result, where only 50 percent areaware of such laws and regulations. For the privatesector and government 77 and 65 percent are awareof such laws and regulations.

As far as actions taken when such laws are violated,around 67 percent of the total sample point out thatactions to sanction such practices are taken sometimes

only. The dis-aggregated resultsfor the three groups show thatwhilst only 15 percent ofconsumers state that ‘no action’is taken, a greater percentage ofthe private sector (31.4 percent)and the public sector (37.5percent) believe that no action istaken if the rules are violatedTable 5.6.

From the survey, it seems thatconsumers are aware of the most importantlegislations, which exist to check such practices,namely the Consumer Protection Act (44.4 percent),the Fair Trading Act (37.8 percent) and the HirePurchase Act (11.1 percent). Thus there could bepractical difficulties for them to seek remedies, asawareness of the legislation does not seem to be anissue. The present framework for consumers and otherstakeholders to address their complaints/grievancesmost probably must be revisited.

Most consumers believe that it is the Ministry ofCommerce, which should provide redress (33 percent).But many also are aware of ICP (27.6 percent), ACIM(25.2 percent) and the consumer protection unit (11percent).

The 1980 Fair Trading Act (as amended in 1988), andthe 1998 Consumer Protection (Price and SuppliesControl) Act, which replaced the 1991 Act currentlycovers certain competition aspects. The Ministry ofIndustry, Commerce, and International Trade isresponsible for enforcement of the Acts. The FairTrading Act aims at ensuring that trade practices donot mislead or confuse consumers that they are notdetrimental to consumer interests, and that fixedprices are not exceeded. The Act prohibits agreements,including exclusive sales arrangements ormonopolies likely to prevent or distort competition inthe production and supply of goods (branded or not)

Table 5.6: Response to the Question on Whether Action is Taken ifRules against Anti-Competitive Practices are Violated

SECTOR(% ) Consumer Private GovernmentYes,always 7.7 17.1 29.2Yes, sometimes 76.9 51.4 33.3No 15.4 31.4 37.5Source: Computed

Table 5.7: Response to Adequacy of Existing Laws and Regulationsto check Anti-competitive practices

SECTOR(% ) Consumer Private GovernmentYes 15.5 23.1 44.2No 84.5 76.9 55.8Source: Computed

Mauritius


and services. The 1998 Consumer Protection (Priceand Supplies Control) Act deals primarily withmonitoring prices and supplies of goods.Administered by the Price Control Unit (PCU) withinthe Ministry of Industry, Commerce and InternationalTrade, price controls in Mauritius still consist of afixed maximum price system and a maximumpercentage markup system.

The markup system applies only to imports, and thefixed maximum price system applies both to importsand locally produced goods. The controlled prices arecomputed by the PCU and approved by the Ministerof Industry, Commerce and International Trade; theConsumer Protection Unit within the Ministry ensuresthat traders comply with the pricing regulations. Thesurvey reveals that 78 percent agree that existing rules,regulations and laws are not sufficient to checkanticompetitive practices prevalent in Mauritius.Table 5.7 shows the breakdown of this new amongthe responpondent groups.

Moreover, above 85 percent of the private and publicsector and above 70 percent of consumers are in favourof introducing a more comprehensive law on anti-competitive practices. Such a law, that is theCompetition Act (2003) has already been drafted buthas not yet come into force to date. The CompetitionAct provides for the establishment of the legalframework for the control of restrictive businesspractices with a view to enhancing competition inMauritius through measures designed to promoteefficiency, adaptability and competitiveness in theeconomy for the end purpose of widening the rangeof customer choice in obtaining goods and services ata fairer and more competitive prices. The Act identifiesfour categories of anticompetitive practices including:the abuse of monopoly power; collusive agreements;anti-competitive agreements; and bid-rigging.

According to the investigation carried out, about 80percent think that the Competition Act should focuson economic efficiency and only 20 percent believethat the law should also consider other socio-economicissues as well. The survey also shows a divided

opinion on whether there shouldbe exemptions to the applicationof the Competition Act. Indeed 59percent of the sample agrees thatthe law should cover allenterprises and persons, that is,no company is to be exemptedfrom the law. In case, there areexemptions, SMEs are the first tobe given preference according to52 percent of the sample. SMEsare followed by Public UtilitiesCompanies (22 percent), State-Owned Enterpries (19 percent)

and only three percent believe that Import/Exportenterprises are to be exempted. However, whilst 24percent of consumers view that state-ownedenterprises should be exempted from the law, this viewis shared by only 11 percent of the business sectorand about five percent of government bodies.

As per the Competition Act 2003, no exemption to thelaw applies specifically to SMEs. However, certaingoods and services are excluded from provisions ofthe law relating to monopoly situations. These includeaviation and harbour services, broad casting services,electricity services, financial services, Freeportservices, information and communicationtechnologies, postal services other than courier, goodsand services supplied by state enterprises, and waterother than for retail trade. In addition, agreementsbetween members of a professional or tradeassociation are excluded from the provisions relatingto collusive agreements. As regards to anti-competitiveagreements, if the Minister is satisfied that such anagreement would be beneficial to consumers, it wouldbe exempted from the provisions of the law. Lastly,concerning bid-rigging practices, which areconsidered to be the fourth type restrictive businesspractices in the Act, exception is made to agreementswhere parties are inter-connected bodies corporate aswell cases where the agreement whose terms are madeknown to the person making the invitation for bids ortenders at or before the time the bid or tender is madeby a party to the agreement.

The survey also reveals that 51 percent prefer anautonomous competition authority whereas 45percent prefer a competition authority that is anagency under the relevant Ministry. The preferencefor an autonomous competition authority is clear fromthe private sector and government institutions as well.In fact, 72 percent of the private firms and 77.6 percentof government institutions interviewed prefer anautonomous competition authority. On the otherhand, about 56 percent of consumers prefer acompetition authority that falls under the Ministry asopposed to 39 percent who prefer an autonomous CA.This may reflect the fact that consumers viewgovernment as an authority who protect their interest

Table 5.8: Response to Exemption from the Competition LawSECTOR

(% ) Consumer Private GovernmentSME 43.5 66.7 75State-Owned 24.4 11.1 4.5Public Utilities 24.4 18.5 13.6Import/ExportOriented 4.2 0 2.3Other 3.6 3.7 4.5Source: Computed

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vis-à-vis private profit-making enterprises, especiallygiven the existing Price Control Unit of the Ministryof Commerce Table 5.9.

As regards to the kind of power that the CompetitionAuthority should have, 35 percent believe that itshould have both investigative and adjudicativepowers against 64 percent who believe that theCompetition Authority should be empowered to carryout investigations only leaving the power to judge toeither a separate authority (43 percent) or to courts(21 percent). In Mauritius, the Competition Act (2003)establishes an Office of Fair Trading as the competitionauthority, which, would be a public office that shallestablish its own procedures. The Director will beresponsible for the day-to-day control, operation andmanagement of the Office. The duties of the Directorinclude: the investigation of any allegation orsuspicion of restrictive business practices; gather,process and evaluate information which give rise tosuch suspicion; and take measures to prevent orterminate any restrictive business practices includingissuing directives and proposals for remedial action.

However, the Director must apprise the Minister, inwriting, before starting an investigation. If the Directorfinds that no undertaking has been made, or that thelatter is unacceptable for some reasons or that theundertaking has not been complied with, he shall referthe matter to the Competition Tribunal, which willissue direction to resolve the matter. The Director isresponsible for the monitoring of compliance with anyundertaking and direction given by the tribunal. TheCompetition Tribunal has the power to give suchdirections it deems fit for the purpose of preventing orterminating an anticompetitive practice. This includesa direction that any line of business or area of activity

of any person engaging inanticompetitive practices beseparated and carried out byanother person.

The majority of consumers (76percent) and 64 percent of theprivate sector believe that theCompetition Authority shouldalso deal with unfair tradepractices and consumer

protection issues whereas 40 percent of state-ownedenterprises think of the contrary. All the more, about68 percent of the sample think that the competitionAuthority should involve different stakeholder groupsin its functioning especially advocacy/publicitypeople.

Concerning sectoral regulators for electricity,telecommunication etc, 70 percent of the sampleconcur with the view that sectoral regulators areneeded in certain sectors only with the CA eitherhaving power over them (43 percent) or coordinatingwith them (27 percent). The remaining 30 percentprefer many sectoral regulators with the CAcontrolling or coordinating with them. Table 5.10shows the answer to the need for specialised sectoralregulators and interaction between the competitionauthority and those regulators.

One of the issues which has caused problems inimplementing the law in some countries is the inter-relationship between the competition authority andsectoral regulators .By looking at the first schedule ofthe Competition Act, it seems that such disputes mightnot arise in Mauritius as it is stated that the law willnot apply to “any practice or agreement expresslyrequired or authorised by an enactment or by somescheme or instrument made under an enactment”.This will imply that regulatory regimes establishedby statute and administered by regulatory bodies areoutside the scope of the law. Besides, the secondschedule of the Act excludes certain goods andservices excluded from provisions relating tomonopoly situations include aviation and harbourservices, broadcasting services, electricity services,financial services, freeport services, information andcommunication technologies, postal services other

than courier, goods and servicessupplied by state enterprises andwater other than for retail trade.

Above 90 percent of the sampleare of the opinion that thereshould be criminalisationprescribed in case the law isviolated including about 30percent who specify that it shouldbe in some cases only.

Table 5.9: Views of Respondents on the Desired Kind ofCompetition Authority

SECTOR(% ) Consumer Private GovernmentAutonomous 39.3 72.1 77.6Under Ministry 56.0 25.6 18.4Other 4.7 2.3 4.0Source: Computed

Table 5.10: Response to the Interface between SectoralRegulators and the Competition Authority

(%)Yes for some sectors with CA having power over them 45Yes for some sectors with CA co-ordinating with them 25Yes for many sectors with CA having power over them 17.9Yes for many sectors with CA co-ordinating with them 11.4Other 0.7Source: Computed

Mauritius


Regarding the question of exemption fromcriminalisation, 66 percent share the view that someshould be exempted on public interest grounds, thatis when it comes to objectives such as technologicaladvancement, protection of SMEs or sociallydisadvantaged groups and employment. However, abreakdown of the Table 5.11 shows that about 55percent of the private sector and 62.5 percent ofgovernment bodies want equal treatment to all, thatis, no exemption with regard to criminalisation, if thelaw is violated.

In case there is a provision for exemption given tocriminalisation penalty, about 70 percent believe thatwell-defined guidelines would be needed to protectagainst the misuse of such provisions .The remainingchose to solve the issue through judicial scrutiny.

According to the Competition Act, any personengaging in bid rigging (excluding exemption cases)is liable to a fine not exceeding MUR 500,000(US$15,232) or to imprisonment not exceeding fiveyears. All the more, any person who fails to complywithout any reasonable excuse to the Act, or givesfalse information, or destroys information, obstructsto the execution of a warrant, refuse to take oath, failsto answer satisfactorily to the Director or the Tribunalor insults / commits any contempt to the tribunal shallcommit an offence and be liable to a fine not exceedingMUR 500,000 (US$15,232) or to imprisonment notexceeding two years or both. As indicated in Section16 of the Competition Act, the Director of thecompetition authority as well as the competitiontribunal should have regard to certain aspects incontrolling restrictive business practices.

Indeed, they should pay attention to the desirabilityof maintaining and encouraging competition and thebenefits to be gained in respect of price, quantity,variety and quality of goods and services. In addition,they should consider the positive effects of absence orpreventing competition which might arise includingbenefits in terms of safety of goods and services,efficiency in production supply and distribution aswell as development and use of new and improvedgoods and services and means of production anddistribution. In addition, the sharing of benefitsbetween consumers and business sector has to beconsidered.

As per the survey, 74 percentagree that the law should haveprovisions for the right to privateaction. A person can make acomplaint about restrictivebusiness practices to the Officeof Fair Trading, which willinvestigate the allegation orsuspicion. Furthermore, anyperson aggrieved by the Director

‘s decision regarding measures taken to prevent orterminate any restrictive business practices includingissuing directives for remedial action, can appeal tothe Competition tribunal within 30 days. Moreover,any party dissatisfied with the determination of theCompetition tribunal may appeal to the Supreme Courtwithin 21 days of the date of determination informingboth the Tribunal and the other party, in writing, thegrounds on which appeal is being made.

One of the main concerns of the Authority is to knowwhether other stakeholders should take part in theconsultation decision process. This will normallyenhance the process and provide fair and adequateremedies. Advocacy and publicity are the main waysthrough which different stakeholder groups canparticipate in the functioning of the CompetitionAuthority. 60 percent prefer that such member viewsbe heard through a structured consultative committeeagainst 40 percent who prefer the views to be heardthrough occasional hearings. As per the CompetitionAct, the Office of fair Trading comprises of publicofficers.

However, the Act establishes a third agency, namelythe Competition Advisory Council. The Council wouldhave the function of advising the Minister on mattersrelating to restrictive business practices withemphasis on consumer protection, promote activitieso raise awareness of the business community andconsumers on competition and related matters,maintain communication with the businesscommunity and consumer associations and promoteresearch in emerging trends in the field of faircompetition and best business practices. The Councilwill comprise of members with different backgroundsincluding a Chairperson, the Director of thecompetition authority, representatives of the Ministry,Attorney-General Office, the Mauritius Chamber ofCommerce and Industry, the Joint Economic Council,two representatives of consumer organisations andfive members knowledgeable in consumer affairs,business, finance, law, public affairs or economics.

LegislationsConsumer Protection LawThere is a wide range of legislations to protectconsumers in various sectors of the economy. The

Table 5.11: Response to Desirability of Criminalisation in

Case the Law is Violated

SECTOR

(%) Consumer Private Government

Yes 77.7 45.2 37.5

No 22.3 54.8 62.5

Source: Computed

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Protection (Price & Supplies Control) Act, 1998provides for better protection for consumers andestablishment of a profiteering division of theSupreme Court. The law makes provisions for theMinister to fix the maximum mark-up and establish acode of practice to provide for the method to be adoptedfor the determination of the maximum recommendedretail price of goods other than controlled goods.Traders should do proper labeling. Traders shouldnot charge VAT illegally, sell goods higher than theindicated price, and also mislead price indication. Anumber of measures have also been taken to preventhoarding such as registration of warehouse, duty tomaintain and produce register, regulations on storage,closure of premises, and exposition of goods.

The Permanent Secretary may designate any publicofficer to be an authorised officer for the purpose ofensuring that the provisions of this Act.

The authorised officer is given power to search so asto examine goods, inspect documents,seize and detaingoods, and obtain a warrant from the Magistrate.Moreover, there is protection of officers from liability.No liability, civil or criminal, shall attach to thePermanent Secretary or an authorised officer in respectof anything done in good faith in the exercise of hispowers under this Act.

There is provision for the purposes of this Act, theestablishment of a division of the Supreme Court to becalled the Profiteering Division of the Supreme Courtand which shall have exclusive jurisdiction to try anyperson charged with an offence under this Act andthe Fair Trading Act.

The Competition Act (2003) provides for theestablishment of the legal framework for the controlof restrictive business practices with a view toenhancing competition in Mauritius throughmeasures designed to promote efficiency, adaptability,and competitiveness in the economy for the endpurpose of widening the range of customer choice inobtaining goods and services at a fairer and morecompetitive price. In addition to the creation of anoffice of fair-trading, it establishes a competitionappeal tribunal and a competition advisory council.Provisions are made to deal with, monopolyexploitation and restrictive trade practices.

According to the Food Act (1998), and FoodAmendment Act (2003), Section 16, a number ofmeasures have been introduced to safeguard theinterest of consumers. Amongst others, any personwho imports, prepares, supplies, distributes or sellsany food which:(a) is poisonous, harmful or injurious to health;(b) contains any foreign matter;(c) is unfit for human consumption;(d) is the product of a diseased animal or an animal

which has died otherwise than by slaughter;(e) is the product of a decomposed vegetable or

vegetable substance; or(f) is adulterated, shall commit an offence.

In order to protect consumers, there is a consumerprotection unit (CPU) under the commerce division ofthe Ministry of Commerce and Co-operatives. It wasformed in 1996 with the responsibilities of consumereducation and enforcement of consumer laws. Theduties falling under the responsibility of CPU include:checking trade premises and price monitoring;conduct surveys; enquire about trade practices; dealwith complaints from consumers and consumerorganisations; and preparing and delivering talks todifferent groups of people. The CPU collaborates withother departments and ministries to fulfill their duties.

In addition to consumer protection laws, thegovernment to instill competition in the economy andto control the prices of strategic and essentialcommodities has established a number of institutions.There are several parastatal bodies which purchase,import and store strategic products and supply someservices. The STC plays an important role in importingpetroleum products, rice, flour and cement,considered essential for the economy.

The Competition Act 2003The Competition Act (2003) aims at providing the legalframework necessary to control restrictive businesspractices and to regulate competition in Mauritius inorder to promote the efficiency, adaptability andcompetitiveness of the economy and to provideconsumers with a range of choices at fair andcompetitive prices.

The Act establishes an Office of Fair Trading as thecompetition authority, which would be a public officethat shall establish its own procedures. The Directorshall be responsible for the day-to-day control,operation, and management of the Office. The lattershall be assisted by public officers as may be requiredor by specialised persons appointed on a temporarybasis. The officers shall be under the direct control ofthe Director. The duties of the Director include:i. investigate any allegation or suspicion of

restrictive business practices or any matter relatingto such allegation or suspicion either on his owninitiative or after receiving complaints orinformation which give rise to such suspicion;

ii. gather, process and evaluate information whichgive rise to such suspicion; and

iii. take measures to prevent or terminate anyrestrictive business practices including issuingdirectives for remedial action

The Director shall apprise the Minister, in writing,before starting an investigation. In addition, he shallarrange for dissemination of any information and

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reports that he may consider necessary for thedischarge of his duties.

The Competition Appeal Tribunal which will beestablished for the purposes of the Act shall consist ofa Chairperson and a Vice Chairperson who has to bea barrister or an attorney-at-law to be appointed bythe Prime Minister. In addition, the tribunal wouldinclude: four other members who are knowledgeablein consumer affairs, business, finance, economics ormanagement but would be appointed by the Minister.Members of the Tribunal would be appointed for aperiod not exceeding two years, which shall berenewable on such terms and conditions as the PrimeMinister or Minister, as the case may be, thinks fit.Moreover, the Minister may designate such publicofficers as he thinks fit to assist the conduct of thebusiness of the Tribunal.

The Tribunal has the power to give directions toprevent or eliminate such practice including thedirection that any line of business or area of activityof any person engaging in such practice be separatedand carried out by another person. The Tribunal shallestablish its own procedures, act expeditiously andeven in an informal manner. The tribunal has thepower to request the director of the Office of FairTrading or any public officer or other person toproduce any document or evidence that may berequired.

The Competition Act also establishes a CompetitionAdvisory Council which shall consist of aChairperson to be appointed by the Minister, arepresentative of the Ministry responsible forcommerce, the Director of the Office of fair Trading, arepresentative of the attorney-general’s office, arepresentative of Mauritius Chamber of Commerce andIndustry (MCCI), a representative of Joint EconomicCouncil (JEC), two representatives of consumerorganisations, and not more than five persons whoare knowledgeable in consumer affairs, business,finance, economics or management but would beappointed by the Minister. The Council shall establishits own procedures and meet at least once every threemonths. The Council needs to advise the Minister onmatters relating to restrictive business practices,promote activities o raise awareness of the businesscommunity and consumers on competition andrelated matters, maintain communication with thebusiness community and consumer associations andpromote research in emerging trends in the field offair competition and best business practices.

The Act identifies four categories of restrictivebusiness practices including, the abuse of monopolypower, collusive agreements, anti-competitiveagreements, and bid-rigging.Monopoly is defined as a situation where competitionis nonexistent or where the enterprise enjoys a

dominant position taking into account the availabilityof substitutable goods/service or supply source.Dominance is defined with respect to the ability toinfluence price or output in a given market. Any act orbehaviour which:

• imposes unfair purchase or selling prices or otherunfair trading conditions such as below costpricing;

• limits supply, production, markets or technicaldevelopment to the prejudice of consumers;

• discriminates among trading partners therebyplacing them at a competitive disadvantage; and

• conclude contracts subject to acceptance by theother parties to supplementary obligations whichhave no connection with the subject of the contractshall be considered in the determination of anabuse of monopoly power.

However, the provision of certain goods and servicesare excluded from the above. These include aviationand harbour services, broadcasting services, electricityservices, financial services, Freeport services,information and communication technologiesservices, postal services other than courier, goods andservices supplied by state enterprises, and water otherthan water for retail sale.

Any agreement, which amounts to, a collusiveagreement is prohibited and void. Collusiveagreements include any agreement where the partiesacquire or supply the goods or services of the samedescription with the objective of: fixing the selling orpurchase prices of the goods/services; share marketsor sources of supply; restrict supply or acquisitionfrom any person; and agreements whose effectsignificantly prevents, restricts or distortscompetition. Agreements between members of aprofessional or trade association are excluded fromthe provisions relating to collusive agreements.

Anti-competitive agreements include those whereparties supply or acquire a substantial share of themarket and that whose effect significantly prevent,restrict, or distort competition. However, if theMinister is satisfied that such an agreement isbeneficial to consumers, it could be exempted fromthe provisions of the law

Bid-rigging is also considered as restrictive businesspractice. As such, any agreement whereby one partyagrees not to submit a bid in response to an invitationor a party agrees upon the price, terms or condition ofa bid or tender to be submitted in response to a callshall be considered as bid-rigging. These excludeagreements where parties are interconnected bodiescorporate as well as cases where the person whomakes the invitation knows the terms of theagreement. Any person undertaking bid rigging shall,if convicted, be liable to a fine up to MUR 500,000

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(US$15,233) or imprisonment for a term not exceedingfive years.

Where the Director finds that a person has beeninvolved in bid-rigging, he shall inform the policeabout it.

Where an investigation has revealed the existence ofan abuse of monopoly situation, or existence of anti-competitive agreement or that there has been a breachof prohibition to enter into collusive agreement, theDirector of the Office of fair Trading may accept anundertaking from the person he considers appropriateto prevent or terminate such restrictive businesspractice. The Competition Act defines an‘undertaking’ as an obligation or commitment givenin writing by an enterprise to and which has beenaccepted by the director of the Office of Fair Tradingto prevent or terminate a restrictive business practice.

Moreover, he can give the direction that any line ofbusiness or area of activity of any person engaging insuch practice be separated and carried out by anotherperson. If the Director finds that no undertaking hasbeen made, or that the latter is unacceptable for somereasons or that the undertaking has not been compliedwith, he shall refer the matter to the CompetitionTribunal, which will issue direction to resolve thematter. The Director is responsible for the monitoringof compliance with any undertaking and directiongiven by the Tribunal. In addition, when the Directoris satisfied that there has been a material change incircumstances subsequent to an undertaking, he mayaccept to vary the undertaking conditions or evenrelease a person from the undertaking. He may alsorefer to the Competition Tribunal to vary or terminatedirections issued.

The Director is responsible for the publication of anyundertaking and directions and any variation ortermination of such undertaking and directions. Inperforming the duty of controlling restrictive businesspractices, the Director shall consider the desirabilityof maintaining and encouraging competition as wellas the positive effects of absence or preventingcompetition which might arise including benefits interms of safety of goods, efficiency in productionsupply and distribution as well as development anduse of new and improved goods and services as wellas means of production and distribution. In addition,the sharing of benefits between consumers andbusiness has to be considered. Any person aggrievedby the Director ‘s decision regarding measures takento prevent or terminate any restrictive businesspractices including issuing directives for remedialaction, can appeal to the Competition Tribunal within30 days. Any party dissatisfied with the determinationof the Competition Tribunal may appeal to theSupreme Court within 21 days of the date ofdetermination informing both the Tribunal and the

other party, in writing, the grounds on which appealis being made.

The Director may, in writing, request any personwhose business is being investigated to attend andanswer questions or furnish information or producedocuments with respect to any matter relevant to aninvestigation. Furthermore, the Director can makesuch a request to a public officer as well to furnishany information or reproduce document, in which thelaw does not prevent him from disclosing. TheDirector can make copies of documents and solicitexplanation on them as well where that informationhas been stored in a computer, disc, cassette ormicrofilm or any mechanical or electronic device, theperson shall produce or give access to it in a form thatcan be taken away and which is legible. The Directormay designate any officer to enter and search anypremises and take possessions of any specifieddocuments.

The Director must, within six months, report to theMinister on the activities of the Office of Fair Tradingas well as those of the Competition Advisory Council.The Minister shall present the report at the NationalAssembly. In the annual budget 2004/05, the Officeof Fair Trading would be allocated a sum of MUR onemillion (US$30,464) annually for its operations.

The new government of the country is presentlyengaged in finalising a new competition Act forMauritius.

Competition Law at Regional Levels

COMESAThe COMESA launched a Free Trade Area (FTA) onOctober 31, 2000, and plans to become a CustomsUnion. The absence of tariff and NTBs under the FTAhas enhanced competition in the COMESA region. Inorder to ensure fair competition and transparencyamong economic operators in the region, COMESA,in accordance with Article 55 of the Treaty, hasformulated and will implement a regional competitionpolicy. The policy is consistent with internationallyaccepted practices and principles of competition,especially the Set of Multilaterally Agreed EquitablePrinciples and Rules for the Control of RestrictiveBusiness Practices.

Existing national competition policies shall beharmonised and brought in line with the regionalpolicy to ensure consistency in regional policies, avoidcontradictions and provide a regionally predictableeconomic environment. Primarily, the formulation ofthe regional competition policy is seeking to promotefair competition aimed at boosting regional trade andinvestment and maximising consumer welfare in theCOMESA region through an effective regionalcompetition framework and competition and

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consumer protection culture. The regional competitionpolicy will contribute to the adoption, improvement,and effective implementation of competition policiesas an integral part of Member States’ economicreforms. The policy has taken into account the effectsof economic reforms already undertaken or plannedby the Member States such as price liberalisation,privatisation programmes, dismantling of publicsector monopolies, and the liberalisation of foreigninvestment and trade at the national level. Theregional competition policy is also intended to providea mechanism for technical cooperation amongnational competition agencies and strengthening ofinformation exchange, consultations and jointoperations in the enforcement of competitive standardsand thwarting of anti-competitive practices at thebilateral, regional and multilateral levels.

The laws create an effective regional competitionframework for the promotion of fair competition andan active consumer protection culture. They are thuskey instruments for boosting regional trade andinvestment and maximising consumer welfarethroughout the region. They set out the role of theCOMESA Competition Commission in ensuring faircompetition across the region. They are thus concernedwith cross-border effects and only address theenforcement of competition within Member Statesborders to the extent necessary to ensure faircompetition across the region. Potential breaches ofthe law may be brought before the COMESACompetition Commission, which will investigate thecomplaints, in conjunction with the RelevantAuthorities of the Member States, as defined underarticle 5 (2)(b) of the COMESA Treaty. In this context,Member States will find it useful to establish their ownCompetition Authority with the powers and expertiseto both co-operate with the COMESA CompetitionCommission and to promote fair competition withintheir borders.

At the regional level, within the COMESA, theestablishment of a common Competition Law andPolicy is one of the means to promote further economicintegration and development among its members.However, in practice, it has proven difficult to have auniform competition policy given the disparity in thelevel of economic development across countries. Thisregional competition law is applicable for all COMESAmembers involved in trans-border transactions.However not all member countries have adopted thislaw including Mauritius which Mauritius believesthat it is not yet ready to abide by the regionalcompetition rules and regulations given thedifficulties it is facing in putting in place institutionalmechanisms and its lack of experience inadministration of this subject.

SADCThe SADC is also contemplating the possibility ofhaving a competition framework for its members. Thepromotion of trade and investment with the SADCregional arrangement has placed an increasingemphasis on the development of a suitable competitionpolicy. To this effect, the Special Advisory Division isassisting the SADC Secretariat in developing acompetition law. The development of competitionpolicy and law is very important and of great concernas markets become further integrated especially givendifferent market structures and geographical sizes. Asuitable competition regime will help in assisting theprivate sector and to deal with anti-competitivebehaviour and arrangements through appropriateregulatory and institutional mechanisms.

Interfaces between the RegulatoryInstitutions and Competition RegimeIn this section, an analysis of the function of regulatoryinstitutions in the financial services sector as well asthe utilities sector is undertaken. Regulatory bodiesare very important especially in markets, which havea tendency to be characterised by monopolies oroligopolies. They act as institutions that must ensureefficiency and no abuse of dominant position.

Financial ServicesThe regulatory framework in the financial services inMauritius consists of mainly, Bank of Mauritius(BOM) and Financial Services Commission (FSC). Bothinstitutions have been mandated to foster financialsector development so as to make Mauritius a regionalfinancial centre with international standards andreputation. The diversification of the financial systemand promotion of competition has ranked high ontheir agendas. The BOM has been developing thefinancial infrastructure in terms of paymentmechanism, money markets development andintroduction of financial instruments. In order to reapthe full benefits of financial liberalisation andcompetition, the BOM has shifted its techniques ofmonetary policy implementation from direct to market-based instruments.

The BOM recently launched the ‘Trading of Treasury/Bank of Mauritius Bills’ on the Stock Exchange ofMauritius (SEM) Ltd where the trading of Bills will berestricted to Mauritian citizens dealing a maximumamount of MUR two million (US$60,934) per order.This would ultimately aim at promoting competitionin the money market. Moreover, the BOM has set thefollowing guidelines to regulate and promotecompetition in the market; Guidelines on credit riskmanagement; credit concentration, creditclassification, internet banking, corporate governance,on Related Party Transactions, Public Disclosure of

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information, various notes on Anti-MoneyLaundering with the essence of Customer DueDiligence paper. All these, set standards to promotecompetition in the market as well as to, protectconsumers’ interest. Under the new Banking Act, nodistinction between category one and category twobanks are made and a unique banking license to bothcategories of banks are granted in order to enhancecompetitive behaviour in the market. There is therecent setting up of Banking Ombudsperson withinthe BOM (Bank of Mauritius Act 2004) and moretransparencies in commercial banks are meant to caterto the protection of consumers in banking institutions.The BOM, together with the Financial MarketsCommittee, are acting as forum for discussions ondevelopments in domestic markets in order to regulatecompetition and make the regime fair and sound.

The Credit Information Bureau as a repository of creditinformation from which credit borrowers can haveaccess to symmetric information on various aspectsacts as another competition policy. Furthermore, thereexists the Foreign Exchange Dealers Act 1995 toregulate the activities of moneychangers and foreignexchange dealers and to protect depositor’s interest.The Anti-Money Laundering Act 2003 is meant toreport suspicious transactions to the FinancialIntelligence Unit and protect consumers. The Boardof Investment has set the Investment Promotion Act2002 and the Finance Act 2004 (providing restrictivetrade and investment practices), thereby regulatingcompetition and consumer protection.

The FSC also has the Financial Services DevelopmentAct (2001) and the Companies Act (2001) to regulatethe behaviour of companies, competitors andconsumer protection. Some other Acts are the TrustsAct 2001 in order to protect stakeholders in varioustrusts set up in the country. This is achieved also withthe Stock Exchange (conduct of trading operations bydealer’s authorised clerks) rules 1992, the StockExchange Act 1988, the Stock Exchange Rules 1994in order to regulate competition from foreign investorsin the stock market, the Stock Exchange (Licensing)regulations. Various legislations dealing with theinsurance, securities markets, and moneylenders arebeing enacted in order to enhance the regulatoryframework.

Utilities SectorTelecommunicationsThe mission of the Information andTelecommunications Authority (ICTA) is to ensureuniversal access to ICT at reasonable and affordableprice. The main objectives of the authority include:the democratisation of access to information throughthe use of ICT; creating a level playing field for alloperators in the market; licensing and regulatinginformation and communication services;

encouraging optimum use of ICT in education,business and services; promoting the competitive edgeof Mauritius as an international player andfacilitating research and development (R&D) in ICTand advise on new technologies. The ICTA enjoysconsiderable powers in the furtherance of itsobjectives. The Authority is empowered to ensure thatservices are reasonably accessible at affordable costand to investigate complaints from consumers andtake appropriate corrective measures thereon.

The setting up of ICTA comes at a time when Mauritiusis undergoing profound changes in the field ofcommunications and broadcasting. After decades ofState Control, the electronic media has recently beenliberalised and three private radio stations are actuallyoperating. In telecommunications too, the process ofliberalisation has already been initiated with thecoming into play of competing providers of cellularphone, Internet services and fixed lines telephony.Given the new context of liberalisation andcompetition and the convergence of Information,telecommunications and broadcasting technologiesand services, the ICTA is destined to play an effectiverole in regulating and licensing the activities of presentand future players. It will also be instrumental in thechoice of new technologies in the best interests of thecountry

Utility Regulatory AuthorityThe Utility Regulatory Authority has to ensure thesustainability and viability of utility services; protectthe interests of both existing and future customers;promote efficiency in both operations and capitalinvestments in respect of utility services; and promotecompetition to prevent unfair and anti-competitivepractices in the utility services industry. Subject to therelevant utility legislation, the Authority mayimplement the policy of the government relating toapplicable utility services; grant, vary, and revokelicences in respect of a utility service; enforce theconditions laid down in an undertakingauthorisation; and regulate tariffs and other chargeslevied by a licencee in accordance with any rulesspecified in the relevant Utility legislation; mediate orarbitrate disputes between a customer and a licencee,or between two or more licencees; determine whethera licencee has an obligation; establish an appropriateprocedure for receiving and enquiring into complaintsby customers in relation to any utility services; andestablish and implement adequate systems formonitoring the compliance by licencees withstandards and applicable regulations, and makingsuch information publicly available.

The Authority shall not, in the exercise of its functionsunder this Act or a utility legislation, be subject to thedirection or control of any other person or authority.It is not only important for the regulatory bodies inthe Telecommunications and the Utilities sector to see

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to it that there is no abuse of monopoly or market leaderpositions but they must also regularly liaise with theCompetition Authority to ensure future developmentsin these sectors safeguard consumers’ interest whilemaintaining an adequate and cost effective standardof service

ConclusionIn a small economy like Mauritius, one would expectthe market concentration to be higher on average thana larger economy. Moreover, a notable feature of theMauritian economy is the concentration of economicpowers in the hands of a small number of enterprisegroups, most of them family-controlled.

Several key economic reforms have helped fosterstronger competition in the domestic marketincluding the elimination of protective tariffs, theliberalisation of foreign exchange controls on FDI andforeign exchange transactions, the partialderegulation of the financial system, reduction in thenumber of goods subject to maximum prices or mark-ups and the State-trading Corporation competing withthe private sector in the import of certain goods.

In addition, there is a lot of variation in the level ofcompetition in the different sectors of the Mauritianeconomy. A number of institutional factors havecontributed towards greater competition during therecent decade such as legislations, domesticliberalisation and internationalisation. However,certain types of restrictive business practices still existin certain sectors analysed in this report.

Overall, the survey results tend to confirm collectiveprice fixing, market sharing and entry barriers as themost common factors affecting competition in theMauritian markets. This is not surprising given thatmany markets in Mauritius exhibit oligopolisticcharacteristics where entry barriers are high and withsome form of collective price fixing through priceleadership. However, from the survey we see that bid-rigging, resale price maintenance and pricediscrimination are also important factors affectingcompetition. The sectors where such practices are mostprevalent are the consumer goods sector,manufacturing, services and construction.

According to consumers, many of these practicesoriginate from the local business environment.Therefore, having an efficient and independentCompetition Commission cannot be more relevant inorder to regulate and ensure healthier competition,where not only business and consumers but also thecountry will gain at large.

From the survey, it seems that consumers are aware ofthe most important legislations, which exist to checksuch practices, namely the Consumer Protection Act(44.4 percent), the Fair Trading Act (37.8 percent) and

the Hire Purchase Act (11.1 percent). Thus there couldbe practical difficulties for them to seek remedies, asawareness of the legislation does not seem to be anissue. The present framework for consumers and otherstakeholders to address their complaints/grievancesmost probably must be revisited.Moreover, above 85 percent of the private and publicsector and above 70 percent of consumers are in favourof introducing a more comprehensive law onanticompetitive behaviour. Such a law, i.e., theCompetition Act (2003) has already been drafted buthas not yet come into force to date.

In this era of deregulation and liberalisation of tradeand capital, Mauritius needs an appropriatecompetition law and policy. Competition institutionscan play a valuable role in shaping the structure ofeconomies to stimulate efficiency, growth to the benefitof consumers. A concerted political effort along withreal involvement of all stakeholders is needed as lackof political will together with resistance from theprivate sector has impeded the implementation of thelaw.

The survey showed a divided opinion on theautonomy of the competition authority. Indeed 51percent of the sample prefers an autonomouscompetition authority whereas 45 percent prefer acompetition authority that is an agency under therelevant Ministry. The preference for an autonomouscompetition authority is clear from the private sectorand government institutions as well. On the otherhand, about 56 percent of consumers prefer acompetition authority that falls under the Ministry asopposed to 39 percent who prefer an autonomous CA.This may reflect the fact that as an authority whoprotect their interest vis-à-vis private profit-makingenterprises especially given the existing Price ControlUnit of the Ministry of Commerce. The survey alsoreveals varying opinion on the power of thecompetition authority to investigate and adjudicate.

Many lines of business activities and agreements arepresently excluded from the provisions of theCompetition Act. About 60 percent of the samplebelieves that no enterprises should be exempted fromthe law and in case there should be exemptions themajority believe that it should be SMEs who shouldbenefit. The current law does not make suchprovisions.

One of the issues, which caused problems inimplementing the law in some countries, is the inter-relationship between the competition authority andsectoral regulators. By looking at the first schedule ofthe Competition Act, it seems that such disputes mightnot arise in Mauritius as it is stated that the law willnot apply to “any practice or agreement expresslyrequired or authorised by an enactment or by somescheme or instrument made under an enactment”.

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This will imply that regulatory regimes establishedby statute and administered by regulatory bodies areoutside the scope of the law.

Like in many other developing countries, in Mauritius,competition law and enforcement is a difficult andlittle-known issue. While benefiting form several tradeagreements, Mauritius has been shielded from ‘real’competition. But nowadays, with the dismantling oftrade barriers and phasing out of such preferentialagreements, there is even greater need to develop a

Mauritius

Note: This chapter has been researched and written by Reshma Peerun, Sunil Bundoo and Kheshwar Chandan Jankeeof the Faculty of Social Studies and Humanities, University of Mauritius, Mauritius. The authors acknowledgeinputs received from Mosadeq Sahebdin of the Institute for Consumer Protection (ICP), Mauritius. Commentsreceived from the members of the Project Advisory Committee have helped refine this paper. Views andsuggestions on the structure and content of this paper received from Nitya Nanda of CUTS CCIER have beenincorporated appropriately.

competition culture in business, government and thegeneral public.

Civil Society should have a greater role to play infostering competition by creating, stimulating andsustaining active consumer movement. Moreover,consumer organisations should have the right to bringcases forward. All the more, they can use theirknowledge and networks to assist the competitionauthority in gathering information.


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IntroductionA well functioning economic system requirescompetition among the producers and providers ofvarious goods and services in the market place. Inorder to ensure quality goods and services atreasonable prices to the consumers, there is a need fora competitive business environment and an effectiveregulatory mechanism in the economy. Therefore,competition policy and law is a useful tool, whichcould be used carefully to achieve economic efficiency,competitive markets and public welfare.

While competition policy is a useful tool for settingthe rules for the functioning of a liberal economicsystem, unregulated competition can lead to crowdingout of small firms by large firms and welfare losses toconsumers. Anti-competitive practices are inherentcharacteristics of any market oriented economy,though the gravity and nature of the practices varyfrom sector to sector and country to country. Anticompetitive practices are not only confined to theprivate sector entities but also emanates from publicsector firms, trade associations, interest groups, etc.Many a time , even well intentioned public policiesand regulations can become smokescreens for anti-competitive and monopolistic practices. For instance,welfare oriented public health initiatives throughfortification of household sugar with vitamin A in aSouthern African country has recently been criticisedby consumer bodies for discouraging importcompetition, which resulted in excessive prices forsugar and welfare losses to the consumers.

This section examines the state of competition inMozambique by analysing the policy framework,behaviour of the market players in key businesssectors of the economy, and with the help of apurposive survey and personal discussions with across-section of the society. The initative is in responseto the need for capacity building and targeted policyadvocacy in developing appropriate competitionpolicy and law for enhancing economic developmentand consumer welfare. The report has benefited fromdiscussions held at the first National Reference Group(NRG) consultation and responses received frommany stakeholders.

Country ProfileMozambique became an independent republic in 1975after a long period of colonial rule by Portugal. Sinceindependence, Mozambique followed a communist/socialist pattern of political system and economicdevelopment model with centralised planning andpredominance of public sector for about two decades.Immediately after the independence the new republicplunged into a civil war, which lasted for 16 years,causing severe damage to human life, socialinfrastructure as well as economic development.

In 1994, Mozambique adopted a multipartydemocracy and civil war ended with a cease-fireagreement with the rebel movement in 1995.Consequently, political and socio-economic stabilityemerged in the country. The socio economic changessince the introduction of a multiparty political systemand economic reforms have been rapid inMozambique.

Mozambique is situated on the South-eastern coast ofAfrica and it shares land border with Zambia, Malawi,Tanzania, Zimbabwe, Swaziland, and South Africa.The total land area of Mozambique is 799,390 sq. km.For administrative purposes, Mozambique is dividedinto 11 provinces . Savannah and secondary forestscover about 70 percent of the land area. Approximately45 percent of the land is classified as domestic land,which includes crop and permanent pasturelands.The land is owned by the state. The total area of theexclusive economic zone (EEZ) is about 562 sq. km.Mozambique has a coastline of 2,700 km. in lengthand it provides large access to marine resources.Mozambique is also endowed with over 100 rivers,including the Zambezi, which are sources forirrigation, power generation and other economicactivities.

According to the government estimate of 2006, thepopulation of Mozambique is 19.88 million40 . It growsat an annual rate of 2.5 percent. About 45 percent ofthe population comprise of young people below 15

40 FAO, (2005) Special Report: FAO/WFP Crop and Food Supply Assessment Mission to Mozambique, PDF copy, June, pp.7

Chapter 6Competition Scenario in Mozambique

Mozambique


years old. The working oractive population (betweenages 15 and 65) constitutesabout 50 percent of the totalpopulation. About two thirdsof the population lives in thecoastal zone, which has easyaccess to food andemployment opportunities.Most of the towns, touristattractions, infrastructurefacilities, industry andcommerce are also located inthis area.According to the 2004 HumanDevelopment Report (HDR) ofthe United NationsDevelopment Programme(UNDP), Mozambique ranks171st out of 177 countries on thehuman development index,falling below Ethiopia andonly ahead of Guinea-Bissau,Burundi, Mali, Burkina Faso,Niger, and Sierra Leone.Although levels of povertyremains high by severalstandards, some progress inpoverty reduction has beenachieved in recent years as aresult of sustained economicgrowth coupled with publicand private investment ininfrastructure development,rehabilitation economicemergence of and social sector.According to an estimate by thegovernment on incidence ofpoverty, the estimate suggeststhat the percentage of totalpopulation well below theabsolute poverty line hasdecreased from 69 percent in1997 to 54 percent in 200341.

The economy of Mozambiqueis mainly dependent onagriculture, which constitutesabout a quarter of the grossdomestic product (GDP) andthe bulk of merchandiseexports. Traditional exportitems include shrimp andmarine products, sugar cane,cashew nuts, copra, tobacco,and cotton. The industrial and

41 AfDB/OECD 2005-2006(2006) African Economic Outlook,Mozambique, pp.4

Items/Indicator

Total area

Population

GDP

Annual GDP growth rate

Per capita gross nationalincome (2004):

Per capita gross domesticproduct

Agriculture(cotton, cashew nuts, sugar-cane, tea, cassava (tapioca),corn, coconuts, sisal, citrus andtropical fruits, potatoes,sunflowers, beef and poultry.

Industry:(food, beverages, chemicals(fertilizer, soap, paints),aluminium, petroleumproducts, textiles, cement,glass, asbestos, and tobacco)

Services

Total Imports

Main import items

Total Exports

Main export items

Foreign direct investment(net):

Major export partners:

Major import partners:

Value

801,590 sq. km

18.79 million

US$5.5 billion

8.2%.

US$250

US$276

25.2% of GDP;

(annual growth rate 7.9%)

35.1% of GDP;

(annual growth rate 10%)

39.7% of GDP;annual growth rate 4.7%

US$1.424 billion

Machinery and equipment,vehicles, fuel, chemicals,metal products, foodstuffs andtextiles

US$1.258 billion.

Aluminium, cashews, prawns,cotton, sugar, citrus, timber,bulk electricity, natural gas.

US$317.7 million

Belgium 25.7%, South Africa14.3%, Italy 9.6%, Spain 9.3%,Zimbabwe 4.7% Portugal

South Africa 20.6%, Australia9.0%, US 3.8% Portugal, Japan

Year

2004

2003

2005

2004

2004

2004

2004

2004

2004

2004

2004

2004

2004

2003

2003

2003

Table 6.1: Basic Economic Indicators of Mozambique

Sources: USAID http://www.state.gov/r/pa/ei/bgn/7035.htm Cited on19-7-06) & 2006 index of economic freedom, http://www.heritage.org/Research/features/index/country.cfm?id=MozambiqueCited: 19-7-2006)

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manufacturing sector together with the mining sectoraccounts for 35 percent of the GDP; the majormanufacturing sector includes food processing,tobacco, beverages, aluminium, textiles, and footwear.The mining sector has potential but remainsunderdeveloped. Mozambique is a net importer ofservices. Service sector contributes about 40 percentof the GDP. The key service sector businesses inMozambique are construction, tourism, transport,energy, communication, banking, and consultancy.

Mozal, an aluminium smelter which startedproduction in 2000, is a successful example of a foreigndirect investment (FDI) based enterprise, which hasboosted the domestic and export sector ofMozambique. Having first invested in Mozambiquein the late 1990s, the mining company made a US$1bnexpansion to the existing aluminium plant byconstructing Mozal II around 2003. This investmentmade Mozambique among the major producers ofaluminium in the world.

Mozambique’s geographical location and naturalresource base offers ample scope for investment andrapid social and economic development of the country.Its variety of natural resources include forests withdiverse wildlife, minerals, water resources with a largepotential for hydroelectric power generation, andmarine resources. Located on the coast of the IndianOcean, Mozambique offers harbour andtransportation facilities to landlocked neighbouringcountries.

However, Mozambique faced a huge challenge inachieving economic development. Nearly 60 percentof the population lives below the poverty level 60percent of adults are illiterate. About 15 percent ofMozambican adults are considered to be HIV positive.Despite increased vaccination rates and improvedaccess to basic health service, over 60 percent of thepopulation remain without access to health care.

In order to address challenges of economicdevelopment, and to manage mounting external andinternal debt, Mozambique initiated the StructuralAdjustment Programme (SAP) in 1987 in consultationwith the International Financial Institutions. The SAPaimed at reducing government control over theeconomy, promoting agricultural production,improving marketing of agricultural products,reducing internal and external trade imbalances,improving resource distribution, and expanding theprivate sector in economic activities. In the process,most of the industries and parastatal enterprisesowned by the government were privatised and limitson public spending were introduced.

The liberal economic policies of the government,coupled with the political reconciliation, renderedpositive economic results in a number of sectors.During 1986 to 1989 GDP growth increased from 0.9

percent to 5.3 percent, accompanied with an increasein consumption per capita. Inflation fell from 170percent in 1987 to 40 percent in 1990. In spite of theseeconomic achievements, external debt remained highcompared with the GDP and foreign exchangeearnings.

In general, change has been remarkable since early1990s in some areas with the emergence of functioningnational institutions, three general elections, and theevolution of a new political culture and liberalisedeconomic regime, increased investment and growthrate. However, significant barriers to private sectorinitiative, investment and competitive marketenvironment in the economy still remain. Economicpolicy-making is still dominated by bureaucraticprocesses. Corruption, undue delay, a weak legalsystem, numerous regulations, and poor servicedelivery by public agencies are key challenges inimproving private sector confidence in economicgovernance.

Overview of the EconomyMozambique still ranks among the least developedcountries (LDC) with low socio-economic indicators.Per capita GDP in 2004 was estimated at US$276, asignificant increase over the mid-1980s level of6,955,200 Mozambique Metical (US$120). With a highforeign debt (originally 143640 billion Mozambiquemetical (US$5.7bn) at 1998 net present value) and atrack record on economic reform, Mozambique wasthe first African country to receive debt relief underthe initial heavily indebted poor countries (HIPC)initiative in 1999. In April 2000, Mozambique qualifiedfor the Enhanced HIPC programme as well andattained its completion point in September 2001.

HIPC completion point encouraged the Paris Clubdonor nations agreeing to substantially reduce theremaining bilateral debt in November 2001. This ledto the complete forgiveness of a considerable volumeof bilateral debt. During the summit in July 2005, theG-8 nations agreed to provide significant multilateraldebt relief to the world’s least developed nations. Asfollow up, in December 2005, the InternationalMonitory Fund (IMF) formalised the completecancellation of all Mozambican debt contracted bythe IMF.

Between 1994 and 2004 average annual GDP growthrate was 8.2 percent. Mozambique achieved thisgrowth rate despite the devastating floods of 2000,which slowed down the GDP growth to 2.1 percent.The World Bank has predicted an average growth of7 percent during 2004-2008 period, whereas theGovernment projects between 7-10 percent growth ayear over the same period. However, to keep themomentum of growth requires economic reforms,enhanced FDI, development of the agriculture,transportation, telecommunications, and tourism

Mozambique


sectors. Enhancing economic growth in theagricultural sector is a major challenge. Althoughabout 80 percent of the population engages in small-scale agriculture, the sector suffers from inadequateinfrastructure, investment, marketing networks, highcost of production, and low incentive among smallfarmers due to import competition. However, a largeportion of Mozambique’s arable land is stilluncultivated, which offers room for growthopportunities in the sector.

Economic ReformEconomic reform has been extensive since the late1980s. More than 1,200 state-owned small andmedium enterprises have been privatised.Preparations for privatisation in thetelecommunications, electricity, ports, and railroadsare still under consideration. When privatising aparastatal enterprise the Government usually selectsa strategic foreign investor and concession agreementsare finalised thereafter. As part of the reform in thetrade policy sector, Mozambique introduced a value-added tax system in 1999 as part of its efforts toincrease domestic revenues. Further, customs dutieswere reduced, and customs management streamlinedand reformed. The new reforms under considerationinclude the age-old Commercial Code reform; revisionof the labour law; comprehensive judicial reform;strengthening of the financial sector; civil servicereform; improved government budget making, audit,and inspection capability, and so on.

Monetary PolicyThe Government’s tight control of spending and themoney supply combined with the initial financialsector reform, reduced inflation from 70 percent in1994 to about five percent in 1998-1999. In 2003,inflation reached 13.5 percent, and in 2004 itdecreased slightly to 12.6 percent based on theconsumer price index. As of late December 2005, theexchange rate was approximately 24,000 Meticals perUS dollar, though it had been as low as 18,000 and ashigh as 29,000 at different times during 2005. In thefirst half of 2006, the exchange rate of metical wasbetween 26000-27000 against a US dollar. Since thebeginning of 2006, Mozambique introduced a newseries of meticals i.e. a new metical worth 1,000 oldmeticals. This reform is an attempt to simplify therather depreciated currency, where prices of basicgoods often run into millions of meticals.

Expanding International TradeIn 2004 Mozambique exported 31,752 billion metical(US$1.26bn) worth of goods and imported 35,2800billion metical (US$1.4bn). The ratio of exports hasincreased significantly since the early 1990s, when itused to be about 1:4. Support programmes providedby donors, private and foreign direct investments havelargely compensated for balance-of-payment

shortfalls. A number of recent foreign investmentprojects have helped improve the external tradebalance. Mozal, a large aluminium smelter thatcommenced production in 2000, greatly expandedMozambique’s trade volume. Further, the Sasol gaspipeline connection to South Africa has enhancedexports revenue in recent years.

Traditional Mozambican exports include cashew,shrimp, fish, copra, sugar, cotton, tea, tobacco, citrus,and exotic fruits. Since the economic liberalisation,most of these industries are being rehabilitated, exceptfor cashew and cotton, which faced an unfavourablebusiness environment. In addition, Mozambique isless dependent upon imports for basic food, especiallyin rural areas as a result of steady increases in localproduction. However, the South-western region ofMozambique still imports considerable volume of fooditems from South Africa and Swaziland. Importedfood items are found to be cheaper and they competewith local products. In the case of poultry, importedfrozen chicken from Brazil has a visible priceadvantage as they sell at about half the prices of thelocally produced chicken. The share ofmanufacturing, especially consumer durables in theimport remained high and most of the products comefrom South Africa, Portugal, China, and South andSouth East Asia.

In 2005, despite a jump in the oil import bill, the tradebalance improved slightly, largely due to aluminiumexports. The construction of the Corridor Sands projectand the Moma project are expected to boost imports ofcapital goods in 2006, but will also start to contributeto export growth towards the end of 2007.

Mozambique’s principal export market is theNetherlands, to which 100 percent of Mozal’saluminium is exported, reflecting the importance oftrade links with Netherlands as a hub for thetranshipment of aluminium. Other importantdestinations for Mozambique’s exports include SouthAfrica, Malawi and Portugal. The largest source ofimports is South Africa, followed by the Netherlands,Portugal, Australia, India and the US. At present,Mozambique’s major share of export revenue comesfrom the Mozal and Sasol gas pipeline projects.

SADC, ACP-EU and WTO TradeAgreementsIn December 1999, Mozambique approved theSouthern African Development Community (SADC)Trade Protocol. The Protocol aims at creating a freetrade zone among more than 200 million consumersin the SADC region. Implementation of the Protocolbegan in 2002 and has an overall zero-tariff target setfor 2008; however, Mozambique’s country-specificzero-tariff goal is currently placed for 2015. Under theSADC arrangement, Mozambique will have to

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42AfDB/OECD 2005-2006 (2006) African Economic Outlook, Mozambique, pp.443 Flatters, 2001b44 Economist Intelligence Unit, 1996

announce a schedule of tariff reductions on intra-regional imports beginning in 2008. Mozambique alsoplans to reduce the highest tariff rate from 25 percentto 20 percent on imports from all countries, includingnon-SADC countries, in 2006.

The Economic Partnership Agreement (EPA)negotiations for the European Union (EU), whichbegan in 2002, entered a new round in September 2005,and the present target is to complete it by the end of2007. The objectives of the proposed EPAs includeliberalised trade between SADC EPA group and theEU in the longer term, and EU support for tradecapacity building in the medium term. At present,Mozambique benefits from duty-free access to the EUunder the Everything But Arms (EBA) initiative andCotonou arrangement42 . Since SADC protocol hasflexibility for sugar, the domestic sugar sector gets highprotection; sugar prices are regulated in the market,and imported sugars attracts 70 percent duty.Mozambique joined the World Trade Organisation(WTO) in 1995-1996 and since then has been takingpart in the WTO deliberations and it is also an activemember of the least developing country (LDC) andAfrica group.

Social and Economic PoliciesAffecting CompetitionThis section analyses the key economic policies suchas fiscal, monetary, investment, industrial and tradepolicies, poverty reduction strategic, labour, licensing,etc., as well as their implications on the competitivefunctioning of the market and business environmentin Mozambique.

Domestic policies are the key to effective economicparticipation in the global economy43 . First andforemost are trade policies that are broadly neutralwith respect to both imports and exports, and whichin particular leave potential exports free ofunnecessary regulatory burdens on investment,imports, employment, and production. However, inaddition to ‘open’ trade policies, sound regulatoryenvironment for telecommunications, transportinfrastructure, education, law enforcement and otherbusiness related factors are necessary for providingan enabling environment to promote trade andinvestment. There are encouraging signs in a numberof areas since the introduction of deregulation, and oftrade and investment liberalisation in the form ofincreased exports and development of domesticindustries in a variety of agro-processing andmanufacturing sectors.

Macroeconomic Policy ReformsIn order to address the poor economic performance,the government of Mozambique introduced acomprehensive ‘Economic RehabilitationProgramme’ (ERP) in 1987, with the assistance of theIMF and the World Bank. Subsequently, the reformeffort was renamed ‘Economic and SocialRehabilitation Programme’ (ESRP) in 1989 with a viewto focus on the social dimensions of the adjustmenteffort.

The objectives of the reforms were initially to raiseproduction levels, reduce financial imbalances,eliminate parallel markets and create a basis for futureeconomic growth. In particular, the plan was toincrease market oriented agricultural production bythe family sector by an average growth rate of 29percent per year between 1987 and 1990 and boostindustrial output and transport sector by averageannual growth rates of 12 percent and 23 percent,respectively44 .

The ERP interventions included a series ofstabilisation measures such as fiscal adjustments,monetary restraint and devaluation of the currency.In harmony with the market-oriented reform, price andtrade liberalisation efforts have also been pursuedwith a view to promote efficient allocation of resources.On the fiscal side, the government enforced strict limitson expenditures by many state owned companies andinstitutions since the adoption of the ERP.

The official exchange rate was brought to morerealistic levels after the introduction of the ERP, andan official market for foreign exchange was introducedin 1990. The real interest rates on bank loans becamepositive in late–1991, for the first time, sinceindependence, in order to promote savings and makecredit allocation more efficient. Financial sectorreforms were speeded up in 1992 with the separationof commercial and central bank functions of the ‘BancoComercial de Moçambique’ (BCM). Private sectorparticipation in the banking and financial sector hasexpanded since the introduction of financial reforms,and interest rates were fully deregulated in 1994.

As part of the reform in the agricultural sector, thegovernment controlled only prices of a few items suchas sugar, bread, fuel, transport, and medicines andsubsidies were progressively lifted from food andother items. Consequently, consumer prices of importsand domestic goods and marketed crops roseconsiderably towards market rates during the earlyreform period.

Mozambique


45 Mozambique-EU country strategy paper and national indicative programme 2001-2007, (PDF copy) pg 846Foreign Investment Advisory Service (FIAS) Report, 2005

Trade PolicyMozambique has carried out several domestic andexternal trade reforms, aimed at improving theenabling environment for investment and promotingcompetition. This is despite the unfavourable regionaland global trading environment; especially, theagricultural subsidies of some of the world’s richesttrading countries that adversely affect the farmingsector of the country. However, domestic policyenvironment and lengthy procedures governingbusiness and trade in Mozambique need furtherimprovement to give the business sector betteropportunity to participate and compete not only inthe domestic market, but also in regional and globaltrade, and benefit from the liberalisation process.

In 1999, Mozambique adopted a formal Trade PolicyStrategy (TPS) as part of its effort to modernise theeconomy. Mozambique, as a member of the SADC ,signed a Trade Protocol that became effective in 2000,and whose main objective is the establishment of aSADC Free-Trade Area. Most-favoured nation (MFN)import duties range from 2.5 percent to 30 percent advalorem, and the simple average applied MFN tariffrate is 13.8 percent, among the lowest in southernAfrica45 .

Mozambique has reformed the tariff structure in recentyears, essentially complying with the SADC and WTOagreements. However, many people in the businesssector felt that the adoption of a much more uniformtariff structure would provide a level playing field fordifferent sectors. Lower tariff rates would reducecorruption and smuggling. They would also reducethe anti-export bias of the current tariff structure. Theargument is that the revenue effects would not be verysignificant in budget as the government depends ontrade taxes for only about 15 percent of total revenue.Further, the country has the flexibility to introducecontingent protection measures under the ‘anti-dumping’ and ‘safeguard’ measures agreed by theWTO.

In terms of the effect of the present trade regime, alarge cost of the barriers to international trade is borneby not only the export oriented sector but also by somedomestic sector which depends on imported inputs.The freeing of exports from these hidden costs wouldrequire meaningful reform in import tariffs, customs,and trade facilitation. Removal of unnecessarybarriers that burden exporters with the costs of thedomestic regulatory environment should be one of thehighest priorities in trade policy reform inMozambique.

Investment PolicyThe Foreign Investment and Advisory Services(FIAS)46 report of 2005 documented many basicproblems in Mozambique’s investment and businessenvironment. While Mozambique has attractedseveral large capital-intensive investments in thenatural resource based sector, it has had far lesssuccess in attracting investments that capitalise onabundant labour resources, and that would contributein more direct way to employment creation andpoverty reduction. Many investors feel that negativeelements in labour laws, which does not consider theinadequate skilled persons at national level as ahandicap for the investors. Further, cumbersome landprocedures, tax systems, the financial sector, companylaws and regulations, telecommunications, transport,law enforcement, corruption, etc., are among the othersuggested reform list. Removal of these administrative,legal and systemic barriers to business has been aslow process. And yet these reforms are a criticalcomplementary factor to effective trade and businesspolicies.

The privatisation programme, combined withattracting foreign investment has made some impacton the manufacturing, tourism, telecom and a fewservice sector business activities. The low costelectricity, abundant raw materials combined withabundant semi and unskilled labour at reasonablylow cost should act as a major catalyst forindustrialisation and export-oriented business. Tosupport these process investment incentives weregiven to investment in certain priority sectors. Further,legislation allowing the establishment of free zonesi.e. Export Processing Zones (EPZs) for exportsoriented investments has been introduced.Mozambique’s preferential access to major marketssuch as the US and EU should induce many labour-intensive industries. With the opening of Mozalaluminium smelter Project phase II, the contributionof the manufacturing sector has risen and this hasalso encouraged downstream industry such ascement, power, port, etc.

Most sectors of Mozambique’s economy are open to100 percent foreign investment, and foreign investorsgenerally receive the same treatment as domesticinvestors. Some restrictions remain in effect; such asprivate ownership of land, and mining andmanagement contracts are subject to specificperformance requirements. The investment policydoes not limit foreign ownership or control ofcompanies. Lengthy registration and approvalprocedures governed by various laws and regulationsand in some instances lack of clear statutes becausedelays are affecting domestic and foreign investors.Mozambique allows 100 percent repatriation of profits

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and retention of earned foreign exchange in domesticaccounts. The Investment Promotion Centre (CPI),which processes foreign investment, is yet toharmonise its activities for a ‘one-stop shop’ forinvestors, has not been materialised as investors areto move around in various departments in procuringthe licences. Payments and transfers are subject tomaximum amounts, above which they must beapproved by the central bank. Capital transactions,money market instruments, and derivatives are subjectto controls47 .

Private investment in GDP doubled between 1997-2003, mostly reflecting the influx of foreign investmentin the phase II of Mozal project, which was concludedin 2003. This ratio dropped in 2004-05, but is expectedto increase substantially in 2006 and 2007, since thereare a number of foreign investments in mining andmega-projects are in the pipeline. Public investment,notably donor-supported road building and otherinfrastructure development, increased in 2005 and isexpected to grow further in the coming years.Increased overseas development assistance since thecompletion of HIPC and debt relief is also expected toboost public consumption.

Industrial PolicyThe existing industrial policy and strategies ofMozambique was adopted in 1997. According to thepolicy, the priority sectors are small and mediumenterprises (SMEs), national entrepreneurship, anddiversification of productive capabilities, output andexports. Only a few sections mention FDI and theregional and international context of industrialdevelopment in Mozambique. This policy document,however, has been criticised for not clearly indicatinginstruments that would allow the government toimplement its policies and mobilise the private sector.In practice however, the policies and strategies havenot improved the business climate context, whichmany feel, is not conducive due to so manyadministrative barriers and unnecessary licensingrequirements.

Some estimates suggests that between 1998 and 2000some 40 percent of SMEs owned by nationalentrepreneurs closed down in the wake of competitionand unsustainable business environment. The sectorsincluded cashew, textiles and food processing. As aresult, foreign owned or foreign-local partnershipfirms almost exclusively dominate investments inmanufacturing and most services sectors. Productionand exports have become significantly more narrowlyspecialised, and dynamic sectors of industry with rareexception, are found almost exclusively amongst large,FDI driven firms. Some feel that there is inadequatestrategy to develop SMEs within the context of

business linkages under FDI, while mega investmentsare given priority.

For example, only a handful of local owned firms havebeen able to take advantage of opportunities forindustrial linkages with large FDI based projects. Invery rare cases only Mozambican firms have managedto establish and benefit from such linkages, mostlybecause they either have associated themselves withthe foreign partners, or they are only affiliates offoreign firms. The lack of information about businessdevelopment and credit facilities often retards smallcompanies from making use of the businessopportunities. There is a public perception thatcompanies, which have connections with politiciansand bureaucrats, have been able to find businessopportunities. This situation provides unduecompetitive advantage to the large and FDI based firmsagainst local firms, which also retards competition.

It may be noted in this context that SMEs often playan important role in enhancing economic efficiency,competition in the market place and consumer welfare.Moreover, as competitors are likely to enter as SMEfirst, this is an important aspect of entry barriers orcontestability in the market.

Public Procurement PolicyGovernment procurement policy should ideally havea component of competition policy, since thegovernment is the single largest buyer in the economyand hence plays a significant role in the marketplace.In Mozambique, it is necessary for companies to beregistered in the country if they aim to work asindependent entities i.e. not as part of anotherMozambique-registered company or consortium. If acompany is not registered in Mozambique, it is usuallydisqualified from working on its own at all in thecountry, and the government departments will notaccept a tender from such a company.

The bulk of the tenders published are governed bytwo main systems of procurement, overseen by twodifferent government departments. The two systemsoperate under a completely separate legislation, andrequire registration on separate databases. In somedepartments, there are four different procurementpolicies, some of which are contradictory. But withsupport from external donors,s the Mozambiquegovernment has started a review of the procurementpolicies.

Apart from the legislated or practical procurementpolicies being implemented in the various governmentdepartments, there is a general tendering practice thatis governed by law. This means that in a case of anunfairly adjudicated tender, an aggrieved ‘bidder’

47 NORAD, 2002, Study on Private Sector Development in Mozambique

Mozambique


would appeal directly to the law courts for redress,rather than to Central Tender Board.

In principle, the government does not have anypreferential procurement policies. In practice,however, government departments and agenciesgenerally have a few local companies that tendersuccessfully for all their contracts. Such practices oftendiscourage competition from new entrants.Government tenders are published in the dailygovernment newspaper, and news, which comes outevery day from Monday to Saturday. Some of the largertenders are advertised in the South African and otherinternational media as well.

As the Mozambique government is financially quitecash-strapped, the external donors mostly fund manyof the new contracts put out for tender. Such contractsare usually open to international competitive bidding,but sometimes these tenders favour companies fromthe funding agency’s home country.

Poverty Reduction Action Plan (PARPA)PARPA is the Poverty Reduction Strategy Paper(PRSP) of Mozambique. Mozambique is presentlyimplementing the second generation PRSP. Theoverall objective of the PARPA is to reduce the numberpopulation living in poverty by 30 percent over 13years, from 70 percent in 1997 to below 60 percent in2005 and 50 percent by 2010.

PARPA emphasises economic growth, public sectorinvestment in human capital and productiveinfrastructure, and institutional reform to improve theenabling environment for the private sectorparticipation in the economy. PARPA underlines thateconomic growth must be both rapid and broad-basedto benefit the poor, and the strategy is to achieve anaverage growth rate of eight percent for the period2001-2010.

The sources of growth include capital-intensive megaprojects, enhanced productivity and value-added inagriculture and small manufacturing; and expansionin services. These processes would be complementedby public investment directed towards poverty-reduction objectives. The reforms must also focus oncreating an enabling business environment for thebusiness sector. PARPA, however, has not focusedon the structural reforms needed to stimulate theprivate sector and ensure fair competition in themarketplace.

The overall growth target of Mozambique includesannual average growth of eight percent in agriculture,focussing on cash crops and increased production offood crops. The promotion of rural developmentthrough the provision of basic infrastructure,agricultural extension, and assistance with credit andmarketing are important interventions in a country

with such a large rural population. There is a need todevelop an overall strategy for growth in the privatebusiness sector as an integral part of the PARPA.Further tackling delay, corruption and lengthyprocedures, and to introduce a more SME-friendlyindustrial policy is important to achieve the goals.

Industrial and Commercial CodeUntil recently, all business enterprises in Mozambiqueneeded licences to operate, irrespective of the size.There have been certain modifications to the code inthe wake of recommendations from various businesssources and development partners. New licensingregulations were introduced in 1998. They involvesimplified procedures and no requirement forlicensing of ‘Class 3’ companies, which is defined asvery small enterprises with a working manpowerrequirement up to three people.

The main concerns of the business sector are thatlicensing is still complicated and cumbersome, if thecompany is involved in more than one activity.Licensing requirements are often lengthy and some ofthem are said to be illogical and expensive in aliberalised business environment. An industriallicence will involve, for example, a topographical map,full drawings of buildings, the number and gender ofemployees, number of bathrooms, and environmentalimpact assessment, etc. Preparation of the documentsinvolves several departments of government andinvolved a very time consuming process.

Further, private sector firms consider the number ofinspections carried out by the various departments ofgovernment every year as discouraging. It certaincases, inspectors from various ministries and localauthorities arrive one after the other and check thesame matters. Inspection visits are totally discretionaryand often lead to decisions that are seemingly totallyarbitrary. This is very much a problem of governmentculture and attitudes among civil servants . There area number of reform measures on the card in the wakeof continuous advocacy and lobbying by the businesssector and development partners and the expectedchanges include commercial code.

Sector Analysis of the MarketManufacturing SectorMajor industries in Mozambique include aluminium,cement, oil refining, dairy, glass, textiles, pulp andpaper products, wood processing, beer and soft drinks,sugar, salt and food processing. Some of these industryplants are old and use obsolete technology, whilesome of the new plants have advanced means ofproduction. The hasty exodus of Portuguese settlers,who left the country immediately after independencecreated severe shortage of skilled manpower in thesector. The situation was exacerbated by the civil war.As a result, there was a steep decline in the

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manufacturing sector during post-independent andcivil war period, after which there has been a gradualrecovery.

Since 1995, production in manufacturing hasincreased by an annual average of 10.6 percent over1995-2000. Growth has been particularly strong inconstruction materials, agricultural processing,beverages, tobacco, and certain consumer goods. Thegrowth is seen as a result of macroeconomicstabilisation, improved access to importedintermediate and capital goods, and the increase indemand resulting from foreign investment and higheconomic growth. Most manufacturing companies inMozambique have concentrated in domesticproduction. .

Mozambique’s industrial sector mainly comprises offood processing, petroleum refinery, aluminium, anda few other minor goods for export. Most of theseindustries (about 80 percent) are located in the twomajor cities, Maputo and Beira, capital and the secondlargest city, respectively. Industry’s share of GDP hasexpanded sharply from 16 percent in 1996 to 27percent in 2004. Other capital-intensivemanufacturing industries, such as cement, beveragesand tobacco-processing all recorded goodperformances, subsequent especially to the openingof a cement factory in Nampula and a tobacco factoryin Tete province in 2005.

The biggest companies include the brewery Cervejasde Mozambique, of which SAB Miller has majority(60 percent) shareholdings, Coca Cola producerSABCO, cement producer, Cimento de Mozambique,a Portuguese investment and only the cementcompany in the country, the soap manufacturer,FASOL. MOZAL, which accounts for half ofmanufacturing output, has made Mozambique one ofthe world’s leading aluminium producers. The projectis a joint venture between the minerals and metalsgroup BNP-Billinton, Mitsubishi and the IndustrialDevelopment Co-operation of South Africa. Thegovernment of Mozambique also has a small share.The smelter is now being extended to a capacity of500 000 tonnes. Electricity for the firm is supplied fromthe Cahora Bassa dam through the South African gridand alumina oxide is imported from Australia.

In 2003, the mineral industry of Mozambiqueproduced aluminium, gold, tantalum, and suchindustrial minerals as bauxite, bentonite and otherclays, gemstones, graphite, and salt. The country alsoproduced coal, natural gas, cement, granite, gravel,limestone, marble, and sand.

Mozal now ranks among the most efficient aluminiumplants in the world. There is a new specialised portand a major infrastructure development around theplant. The Mozal plant employs around 1000 local

staff and 150 expatriates. It has received specialtreatment in a number of ways from the government;low-priced electricity and minimal red tape being twoimportant elements. There is little doubt that the projectis potentially very important for Mozambique to beconsidered a national champion.

After expanding by 230 percent the previous year, themining sector grew by 40 percent in 2005, followingthe completion of the Sasol gas pipeline fromInhambane province to South Africa and theconsequent increase in gas production. Foreigninvestors have stepped up exploration activities inbase metals and industrial minerals. KenmareResources of Ireland is the lead investor in a new11,340 billion metical (US$450mn) titanium mine andsmelter in Moma, which is expected to beginoperations in late 2006. Australian and South African–based companies are also initiating the 12,600 billionmetical US$500 million Corridor Sands TitaniumProject in Mozambique.

Thus, Mozambique’s manufacturing sector is smallwith production highly concentrated in a few sectors.It also exhibits a low degree of intra-sectoral linkages.Most producers, with the exception of agro-processorssuch as sugar, cashew, copra, beverages, source theirraw materials from abroad mainly from South Africarather than from the local economy. In addition,manufacturing firms are overwhelmingly inward-oriented. Very few firms export a substantial portionof their output. According to estimates, the industrialsector is working at about half of its capacity. Thegovernment is making efforts to develop the industrialsector to its full operational capacity, at the same timeencouraging foreign investment in new and diverseindustries.

In short, available indicators suggest thatMozambique has a small but growing manufacturingsector. What has changed significantly in recent yearsis the ownership structure of the manufacturingsector. The radical shift in ownership towardsnationalisation and state control, which dominatedthe economic paradigm in the early years ofindependence, has been reversed. Privatisation ofmore than 850 public-owned entities has shiftedownership and control of most manufacturingenterprises into private hands, although thegovernment continues to hold shares in some.

Agro-Based BusinessMozambique has large potential for agriculturedevelopment and exports. Only a quarter of 36 millionhectares of arable lands is being used for cultivation.Mozambique’s soil and climatic conditions aresuitable for growing a wide variety of cash crops,including tobacco, maize, cotton, sugar, cashew nuts,tea, copra, rice, citrus and tropical fruits. However,Mozambique still imports sizeable amounts of

Mozambique


foodstuff from South Africa and Swaziland. Importedfood items are commonly found in the towns andregions closer to South Africa and Swaziland.Imported food items have competitive edge due toprice, packaging, etc over local products, whichdiscourage local production. The agriculturedevelopment strategy focuses on raising productivitythrough increasing extension services and irrigation,improved access to credit, notably by fostering micro-finance institutions, and investment in rural andfeeder roads. Agro-based business view that there isinadequate incentive for the production of food cropsdue to high production cost and import competition.In addition, there is increased production of the maincash crops such as sugar, tobacco, cashew nuts andcotton in the recent years.

Commercial crop production in Mozambique has beenpresently expanding and diversifying. Investment insugar and tobacco has boosted agricultural exportssince 2003. At the same time, contributions from thetraditional export commodities, such as cashews andcotton have fallen; the former dueto declining tree stock and thelatter from market-drivenproduction swings.

SugarSugar cane is an important cashcrop of Mozambique and itemploys about 27000 people. Thetotal installed capacity of sugarcompanies is 320,000 tonnes perannum. The estimated productiontarget is 285,000 tonnes in 2006.The annual export value of sugaris about 1,008 billion metical(US$40mn). Sugar caneproduction in particular grew byan estimated three percent in2004/05 following the 130 percentincrease in 2002/03.

Nearly 30 000 hectares ofindustrial plantations of sugarcane are grown at four operationalsites surrounding two sugar millsin Maputo and two in Sofalaprovinces. Sugar cane productionhas risen from 386 000 tonnes(1998) to 2.22 million tonnes(2004) due to improvedorganisation and productionpractices48 . Sugar-caneproduction in the four estates withan area of 30 000 hectares in 2005was around 2.29 million tonnes.

The recent boom in the sugar sector has been the resultof the entry of large South African and Mauritianinvestments of about 7,560 billion metical (US$300mn)for the rehabilitation and partial privatisation of foursugar-processing plants in the Maputo and Sofalaprovinces, which allowed the country to become a netexporter of sugar. There are four companies involvedin sugar production, including the Multinational firmIllovo. The government in consultation with the sugarproducers regulates the domestic prices of sugarSugarmarketing is being carried out under an arrangementcalled DNA marketing, which is controlled by sugardistributors.

The sugar export sector might be affected by thecombined effects of the phasing out of the sugarprotocol (2006-09) under EU’s EBA and the overallreform of the EU sugar regime (2006-15). In order toface the effect of EU reform, sugar companies inMozambique are working out strategies to switch overto ethanol production.

48 FAO, (2005) pp.17

Box 6.1: Cashew and Sugar Concession: A Saga of Mozambique

In 1995, as part of the liberalisation drive by the World Bank and IMFcompelled Mozambique to allow unrestricted export of unprocessedcashew nuts, whose main market was India. The World Bank arguedthat peasant producers would gain higher prices from the free market.But it did not happen as monopoly buyers in India pushed down theprice; transfer pricing also lowered the price paid to cashew producers.The domestic trading cartel in Mozambique also collected larger margins.As a result the peasants producers lost out and nearly 8500 industrialworkers in cashew processing units became unemployed. Liberalisationof the trade in cashews was one of the conditions imposed by the WorldBank in 1995, in exchange for access to soft loans. The local cashewprocessing industry has been demanding a total ban on raw nut exports,arguing that the exporters compete unfairly with the industry, anddeprive it of its raw materials. The export cartels had such as largeinfluence in fixing the prices of the product.

In 1999, the government imposed a surcharge of 14-18 percent on theexport of raw nuts after a study by the Food and Agriculture Organisation(FAO). In the end of 2000 the International Financial Institutions allowedMozambique to protect its two most important agro-industries Cashewand Sugar as a result of intense pressure from the MozambicanGovernment, trade unions local business and civil society. In 2000, theIMF Executive Board agreed to a policy under which some cashewfactories will be closed down, but the rest will be protected. The protectionis two-fold, an 18 percent export duty on unprocessed cashew nuts, plusthe local industry given the right of first refusal – to purchase nuts beforethey are exported. In 2001, Mozambique banned the export ofunprocessed cashew nuts. The failed export liberalisation policies oncashew proved has useful to the domestic sugar sector, as IMF has allowedMozambique to protect its expanding sugar industry.

(Source: Joseph Hanlon, Africa Policy E-journal, 19.02.2001) http://www.africaaction.org/

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TobaccoAnother major cash crop grown within the peasantsystems and out-grower scheme is tobacco, of whichproduction has expanded from 3500 tonnes in 1997to 50 000 tonnes in 2004. Fresh investment by farmersmigrated from Zimbabwe in Manica province has beenresponsible for the sudden growth of tobaccoproduction by 20 percent recently.

The crop estimate for 2005 was 63 000 tonnes fromaround 180 000 growers organised through eightcompanies of which the Tobacos de Mocambique andMozambique Leaf Tobacco (MLT) are the mostsignificant. This compares favourably with the 50 000tonnes from 147 000 growers reported in 200453 .

Mozambique’s first tobacco processing plant wasopened in Tete in 2005. Before this factory was built,Mozambican producers had to take their tobacco overthe border into Zimbabwe or Malawi for processing.The factory is owned by MLT, a subsidiary of the US-based Universal Leaf Africa Company, and representsan investment of 1,386 billion metical (US$55mn). Thefactory hopes to process and export 24,000 tonnes oftobacco in 2005, with an estimated value of 1,260billion metical (US$50mn). The installed capacity ofthe plant is 50,000 tonnes of tobacco a year. The factorycurrently employs 1,600 workers, some on apermanent basis and some seasonal.

In the meanwhile, another major tobacco firm AllianceOne indicated that it is pulling out of Mozambique in2007. Alliance One was formed out of a mergerbetween the two US-based companies Dimon andStancom, both of whom held concessions in theMozambican provinces of Niassa, Tete, and Manica.They provided peasant tobacco growers with inputs,and purchased their crop under an out growerscheme. The reason for the Alliance One’s decision towithdraw was said to be in response to a governmenttobacco concession, in Chifunde in the Tete districtthat was withdrawn from Dimon in 2005, and giveninstead to a competitor, MLT.

According to a recent report, the government wantstobacco processing in Mozambique, and has so urgedthe concessionary companies to build processingplants. Only MLT has responded, and has built thesecond largest processing plant in Africa in Tete City.In response, the government rewarded MLT withChifunde concession49.

CottonCotton is a major cash crop and harvests fluctuatedfrom 74 000 tonnes in 1997 and 35 000 tonnes in 1999to 93 000 tonnes in 2004. Cotton, along with oilseeds,

tea, citrus, and horticultural crops, particularlytomatoes, offers alternative sources of revenue to smallfarmers in the interior districts, where coconuts andcashews are not grown50 .

Cashew and Processed NutsCashew crop is an important source of income forabout one million smallholders who remain soleproducers of raw cashews, but is also an importantsource of foreign exchange for the country. Cashewproduction is still contributing substantially to farmincomes and food supply. Peasant holdings of tens oftrees produce around 50 000 tonnes of nuts annuallyand the export forecast for 2005 was 80 000 tonnes.

Since the beginning of the privatisation process,several new private processing-factories have enteredthe industry. Between 1995 and 1997 the number ofprocessing factories increased from 12, with an actualworking production capacity of 30,500 tons, to 16large-scale factories with a production capacity of54,500 tonnes in the 1996/97 season. As part of thereform, the World Bank recommended that thegovernment adopt a liberalisation policy in thecashew sector, gradually reducing export tax on rawcashew nuts. This tax represented the only means ofprotection for the industry. Liberalisation resulted ina rise in the prices of raw cashew nuts for theproducer, and the cashew nut processing companiescould not compete with exporters. This caused marketfailures and many domestic processing factories wereclosed down by 2001.

According to 2004 Data, the Mozambique cashewsector recovered processing capacity with 12processing plants in operation. But, these are clearlyvery small and they only employ 2,300 people, andprocess 8,600 tonnes of nuts. These are all labourintensive units, shelling the cashew nuts by hand.The mechanised cashew factories, which oncedominated the sector and made Mozambique a majorplayer in the world cashew trade, remain closed51 .

Edible OilMozambique has the raw materials to produce a wide-range of oleaginous seeds to supply the local edibleand industrial oil factories. These include cotton,copra, sunflower, groundnuts, and sesame. Coconutsplay an equally important role in household foodeconomies throughout the coastal belt for an estimated20 percent of peasant families. Farm families manage100–200 trees, each producing 100 kg of nutsthroughout the year, which may be sold as nuts atMt 1 000 each or as copra.

49 All-Africa.com, 2006-05-19 & 2006.05.08, Author Agencia de Informacao de Mozambique, Maputo50 FAO, 200551 Mozambique News, 2004.05.06

Mozambique


Despite this potential, the Mozambican edible oilindustry depends on imported raw materials. In 1998,Mozambique imported crude sunflower oil amountingto metical 115.9 billion (US$4.6mn) to be refined locallyat the four large oil factories. Besides the oil producedby large factories, there are several micro-enterprisesin the central and northern regions of the country thatare manually pressing sunflower and sesame seedsto produce cooking oil. The oil produced in micro-enterprises is marketed and sold in rural areaswhereas that from large enterprises is marketed andsold in urban and peri-urban areas and villages.

Beverages (alcoholic and non-alcoholic)This sub-sector is dominated by large-scale companiesmanufacturing lager beer and carbonated soft drinks,contributes to the Government budget largely throughthe payment of consumption taxes. Their main rawingredient, barley malt, is wholly imported whereasmaize grits and brown sugar are added as cerealadjuncts come from local industry. Coca Cola ispresently the principal manufacturer of carbonatedsoft drinks in Mozambique, bottling its products intwo large factories, one in Maputo and other inChimoio, and has also developed a third plant inNampula. South African Braveries is the market leaderin beverages production.

There are also two medium-scale soft drink plants inXai-xai and Manica manufacturing their own brandfor the southern and central region of the country,respectively. The factory in Manica is also bottlingtable water and beer, which is being commercialisedthroughout the country. Schweppes started bottlingsoft drinks and tonic water in Maputo. Besides sugarand water, all the ingredients for the manufacture ofsoft drinks are imported. The small-scale non-alcoholic beverage industry in Mozambique is verysmall in terms of production volume. Theymanufacture non-carbonated soft drinks (a mix ofsugar, water and flavours).

MaizeMaize is grown mainly by the family farming sector,which currently produces about 93 percent of thelocally marketed maize (1996 data). The maize millingindustry with an installed capacity of over 50,000tonnes has the potential to process maize for localconsumption. The majority of the mills located in thecentral and northern regions of Mozambique andthose small-scale mills located in the southern regionsatisfy the demand for milling white maize producedlocally.

FisheriesThis sector is characterised by catch, processing, andconservation of fish products, including shrimp. In1997, prawns contributed to 76 percent of the total

fishery production value. This industry has been veryimportant in terms of external trade where fishproducts, particularly shrimp, have been responsiblefor more than one third of export revenue. In 1997,shrimp exports amounted to metical 2066.4 billion(US$82mn), representing 36 percent of total exports.Fishing activities are carried out by three industrialfirms responsible for 80 percent of shrimp exports.Foreign investment in prawn farming also aided thefishing sector, which expanded by 7.7 percent in 2005,thus reversing a declining trend52 .

Services SectorServices sector is the largest contributor to the economyand its share is 40 percent of the GDP. The majorservice sector industries in Mozambique are telecom,banking, construction, transport, retail, distribution,and consultancy. Among the service sector, transportand communications grew by 13.2 percent in 2005.Growth in transport reflected investment in roadsaround the three corridors viz. Maputo to South Africa,Beira to Zimbabwe and Nacala to Malawi/Zambia.

Among the major service sector activities, air trafficdecreased by 2.2 percent in 2005 however, probablydue to safety concerns about the national carrier,Linhas Aéreas de Moçambique (LAM). Prospects forair travel are improving as LAM is undertakingmeasures to improve safety and has signed a code-share agreement with Kenya airways to expandMozambique’s international connections. SouthAfrican airways have dominance in connectingMozambique with the region.

TelecommunicationsTelecommunicacoes de Mozambique (TDM) is anindependent state-owned firm responsible for theprovision of public telecommunication services. TDMwas transformed into a publicly-owned business firmby a government Decree in 1992, as part of the reformprocess. TDM was restructured to function as acommercial entity with financial autonomy, and it hasresponsibility for planning, installation and operationof the national and international network. TDM hasestablished commercial linkages with foreign firmson the use of technology to enhance its core business.

TDM is also expanding its infrastructure anticipatingcompetition in the wire-line market. Mozambique wasone of the first African countries to reform itstelecommunication sector, having partially liberalisedthe domestic long-distance (DLD) and internationallong-distance (ILD) segments in 1999, but TDM stillenjoys a de facto monopoly on the provision of local,DLD and ILD voice services. This arrangement wasinitially for five years after the incumbent is privatised,although the exact duration of its exclusivity remains

52 AfDB/OECD (2006) African Economic Outlook 2004-2005, pg.4

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at the discretion of the government. The sale of part orall of TDM was originally slated for 2004, but has yetto materialise. The sale of a majority stake in TDM to astrategic investor is in the pipeline, and a second fixed-line operator is to be licenced by 2007. The challengenow is for TDM to attract the appropriate strategicalliances with which it can successfully deal with thetechnological challenges of the future. This createsopportunities for international telecommunicationfirms to enter the market.

The mobile sub-sector has experienced good growthrates since 1997. In a bid to encourage competition,TDM was converted into a limited company in 2003,and its mobile subsidiary ‘MCel’ was spun off into astandalone company. Vodacom of South Africaentered the market as the second provider of mobilephone services in 2003.

Transportport Logistics

Road and RailMozambique’s strategic geographic location makes ita natural regional transport and service hubconnecting several countries in Southern Africa viz.Botswana, South Africa, Swaziland, Malawi, Zambia,and Zimbabwe. Mozambique has a long experiencein rendering transport and logistical services to theregion. Railway and port charges used to make up alarge share of the country’s public revenue and rail,road and port handling were major service industries.

There are three main corridors of transport throughMozambique. The link between Maputo andJohannesburg are served both by rail and road. Theroad has recently been renovated as a privateinvestment project and is therefore a toll road. Therail line has been commissioned to Spoornet of SouthAfrica.

Port terminals and operation in Maputo has beengradually privatised and are slowly developing tomore modern standards. The second corridor is in themiddle of the country and starts at the port of Beira.The port has been extensively renovated in recentyears and is among the more modern in the region.The main operation has been to serve Zimbabweantrade, which moves either by rail or road. Thenorthern corridor from the port of Nacala is lined tosouthern Malawi and Zambia.

According to a 1999 estimate, Mozambique has a totalof 30,400 km of roads of which 5,685 are paved and24,715 km are unpaved. Rehabilitation of the internaltransport system has been targeted as a priority forthe transport sector through the Roads and CoastalShipping (ROCS) Programme led by the World Bank.The northern part of the country has poor road and

transport network, while the west-east connectionsare generally better than that of the north-southconnections.

The state-owned port and railway company, CFM,has been restructured into a holding company.Together with the Government, it decided to grantingconcession of the main port and railway systems, aswell as to bringing all three-transport corridors underprivate sector operation despite the job loss of about12.000 workers. The involvement of the private sector,with the associated increase in competition, isexpected to have a beneficial effect on services andcosts. The government’s declared objective is to extendthe granting of concessions to other tertiary ports.Coastal shipping and air transport are to be liberalisedgradually, so as to reduce the costs of domestic andinternational trade. Though the regulatoryframeworks are being adapted, competition in theareas of coastal shipping and domestic air routes isstill limited or non-existent53 .

Air TransportAir traffic sector grew at a rate of 238.2 percent in2004, in the wake of opening of new entry points tothe country, the implementation of the new civilaviation policy, the streamlining of the licensing andaircraft entry procedures, the increase of tourism.Scheduled services on main routes are provided bythe state owned airline Linhas Aéreas de Moçambique(LAM).

LAM developed financial problems during the early1990s and managed to sail through with state supportand returned to profitability in 1996. Its businesssuccess is mainly on based on its domestic monopolyposition and consequent ability to charge high prices.An apparent attempt to privatise the airline in 1997did not work when the privatisation agency UnidadeTécnica para a Reestruturaçäo de Empresas (UTRE)did not approve bids from foreign and local aviationcompanies. Subsequently, the government tried otheroptions for restructuring LAM, including making it alimited liability company in preparation for a flotationon the stock market.

Scheduled services to internal destinations but notserved by LAM are provided by several private charterairlines and a regular airline. It seems that theGovernment is not keen to have a fast trackliberalisation of the air market and LAM is to retainits monopoly on the main domestic routes. There is aprivate domestic air service provider called Air-corridor, which, many in the sector feel, faces unduecompetition from the state run monopoly. Air-corridorhas been given licences to cover only five provinces ofthe country and its effort to expand to other provinceshas not been permitted, where as LAM has been

53 EU-Mozambique country strategy paper, 2001-2007, pp.17

Mozambique


allowed to fly to all the provinces. LAM also has flightoperations to neighbouring countries.

International services are provided from Maputo toLisbon, Mauritius, Addis Ababa, Johannesburg,Durban, Richard’s Bay, Harare, Manzini, Blantyre,and Nairobi by various airlines. International flightsfrom Beira go to Johannesburg, Harare, and Blantyre.A large share of intercontinental travel to and fromMozambique is directed through Johannesburg. SouthAfrican airlines and LAM are the main carriersconnecting between South Africa and Mozambique.The five international airports and 14 principalairports are managed by Airports de Moçambique(ADM)54 .

Shipping and Harbour ServiceShipping industry has improved since mid-1990swhen the state shipping company, Navinter,collapsed. The sector was opened to private sector in1996 and four foreign-owned companies, includingthe privatised Navinter, now provide containerservices between Nacala, Quelimane, Beira, Pembaand Maputo, and on to Durban.

Mozambique’s three main ports, e.g. Maputo, Beiraand Nacala, form the centre of the transport system.The port of Maputo serves South Africa, Swazilandand Zimbabwe, while the ports of Beira and Nacalahandle cargo from Malawi, Zambia, Zimbabwe, andoccasionally from Botswana and the DemocraticRepublic of Congo. All of the ports have containerfacilities. The port of Maputo has reorganized itsmanagement, turning several of its terminals,container, citrus, coal and sugar, over to privatecompanies. The Government has granted concessionto the ports and railways company, Portos aCaminhos de Ferro de Moçambique, EP (CFM),Mozambique’s largest public sector employer, to aconsortium of companies55 .

Energy SectorMozambique is endowed with huge energy resources.The Cahora Bassa dam is the second largesthydropower installations in Africa with the capacityof 2,074 Mw. Moreover, reserves of natural gas arebeing exploited and gas is exported via a new pipelineto South Africa. There are explorations to locate oil,which is normally a companion of gas. Mozambiquealso just started exploring reserves of coal, which areestimated at 10 billions tonnees. In its nationalstrategy to combat poverty, the Government hasidentified the energy sector as priority areas forinvestment.

The dam company, Hidroeléctrica de Cahora Bassa(HCB), is 82 percent owned by the Portuguese

Government and 18 percent by Mozambique. There isa 1,400 km direct power line to South Africa and theproduction, at around 2 000 MW, represents morethan 90 percent of all electricity produced inMozambique. There are plans for three additionaldams on the Zambezi River, namely the NorthernCahora Bassa dam, the Mpande Uncua dam and theAlto Malema dam, are planned.

Mozambique has liberalised the electricity market andopened up for private-sector generators in July 1997.Mozambique’s consumption of energy is among thelowest in the region. Less than three percent of thepopulation has access to electricity and establishingeconomically viable systems for the transmission anddistribution of electricity is an enormous challenge.

The state-owned electricity parastatal Electricidadede Mozambique (EDM) has initiated ways ofattracting private investment to improve its operationand coverage. Potential investments that are thoughtto be viable include power transmission lines to theprovincial capitals and rural and urban electrificationin certain areas.

A pipeline for transporting methane to South Africahas been developed and the Government has acontractual right to use five percent of the gas fromfive access points along the pipe. There is also anagreement to establish a link from the pipeline toMaputo in order to use some of the gas in the Mozalaluminium smelter and market the rest in theindustrial area. The Government announced that thestate owned oil and gas company HCB will berestructured.

The Energy Fund (FUNAE) supports energy projectin rural areas, which are otherwise difficult to reachwith investment. As part of the programme, FUNAEreceives foreign assistance to support the EDM in itsreorganisation into a commercial and competitivefirm.

Banking/InsuranceThe banking sector in Mozambique is comprised ofeight commercial banks, all of which are majorityowned by foreign firms, mainly from Portugal andSouth Africa. The sector is highly concentrated withthe Portuguese owned Banco Internacional deMoçambique (BIM) holding over 50 percent of allbanking assets. The baking sectors reach is largelyremains limited to large companies in the urbanlocations. Mozambique has implemented severalreforms in the financial sector, including the creationof an independent Central Bank, Bank of Mozambiqueand liberalisation of the financial sector. However,the financial system remains quite small and

54 EU-Mozambique Country Strategy Paper 2001-2007 and national indicative programme, pp.2055 Norad (2002) & SADC Review 10th Anniversary: 1997-2006 www.sadcreview. Updated on 1 May 2006.)

171

dominated by banking. Mozambique’s financialsystem provides for the most common methods ofpayment, including open account, letter of credit, cashin advance, and documentary collections etc.

As part of the reform, liberalisation of interest rateswas approved in 1994. Between 1996 and 1997, thegovernment began to sell financial institutions toprivate buyers. The merger of two banks, BIM and theCommercial Bank of Mozambique (BCM), wascompleted in 2001. The re-privatisation of BancoAustral to ABSA of South Africa, the purchase of BNPNedbank by African Banking Corporation, the closingof Credicorp, and more recently, the merger ofCommercial Bank of Mozambique (BCI) and Bancode Fomento have created major changes for thebanking sector.

Grupo BIM is the dominant player in the Mozambicanbanking system. Grupo BIM controls 48 percent of theloan market and 52 percent of the deposit market, andhas as its majority shareholder the PortugueseCommercial Bank (BCP). The second major player isBCI-Fomento. The other minor players are StandardBank, Banco Austral-ABSA, and the African BankingCorporation.

The Economist Intelligence Unit reports that thegovernment owns 33 percent of the country’s largestbank, BIM, which controls 45 percent of the bankingmarket. The Government has sold its minority stakein Banco Austral, the country’s fourth largest bank interms of assets56 . Commercial banks in Mozambique are specialised inproviding short-term loans, trade-related finance, andfee-based services. Medium-term loans are available,but stiff collateral requirements and high interest ratesdeter many in the commercial sector. Long-termfinance other than mortgage-based lending is notgenerally available. Leasing is an area of growingcommercial bank interest. The range of services offeredby domestic banks is limited, and there is a littlecompetition in the sector.

The year 2004 witnessed the entry of more operatorsin the financial system as well as the merger of BCI-Banco Comerciale de Investimentos and BF-Banco deFomento, SARL, which was initiated in 2003. Themerger between BCI-Banco Comerciale deInvestimentos (Incorporating Society) and BF- Bancode Fomento SARL, was finalised in 2004. In 2004, somenew institutions joined the banking sector, theseincludes: SOCREMO (a micro finance bank) and 12other institutions.

These institutions were given licences for creditactivities by Bank of Mozambique, some of these

include Associação de Romão, Associação para oDesenvolvimento de Malhazine, Associação deMachava Industrial, Associação 3 de Fevereiro andothers.

The micro-finance industry in Mozambique isgrowing. Capital markets in Mozambique are verysmall and centred on the Bolsas de Valores deMoçambique (BVM), which opened in 1999. Trading,however, is limited to government bonds and a fewcorporate bonds. The International FinanceCorporation (IFC), United States Agency forInternational Development (USAID) and NetherlandsDevelopment Finance Company (FMO) have providedassistance in developing micro-finance institutionsthat extend lending service to rural areas (2003).

The insurance and pension sectors are also small.Despite recent privatisation efforts, the insurancemarket remains dominated by the state-owned insurer.

Legal and Regulatory FrameworkThis section covers the regulatory framework in keysectors, such as electricity, telecommunications,banking, etc., considering the significant interfacebetween sectoral policies and competition policy andlaw. Ever since the introduction of economic reformand enhanced private sector participation, thegovernment regarded legislative and regulatoryreform, together with enhanced institutional capacityas a strategic goal. The government has prioritisedthe adoption of legislation that would foster privatesector activity and development. In its efforts ofsimplifying regulations and reducing red tape , anInter-ministerial Commission for Removal ofAdministrative Barriers has been set up to oversee theimplementation of priority measures of reform.

Telecom SectorThe telecommunication sector in Mozambique hasundergone several reforms as part of the liberalisationprocess. Since 1992, the Government began a strategythat actively encourages private sector participationin the production and delivery of goods and services.The Telecommunications law sets forth the followingobjectives:• Promotion of the availability of high quality

telecommunications services;• Promotion of private investment in the

telecommunications sector;• Promotion of fair competition and consumer

protection; and• Increased telecommunication access and advanced

information services nation-wide.

56 2006 index of economic freedom, cited: http://www.heritage.org/Research/features/index/country.cfm?id=Mozambique

Mozambique


Article 18 of the Telecommunications Law of 1992(Law 22/92) prescribes the following regulatoryguidelines for the promotion of competition:

“…1. The public telecommunications operator mustensure that all telecommunications operators use thepublic telecommunications network under equalconditions of competition. 2. When the public telecommunications operatorprovides complementary telecommunications servicesor value added services, any unfair competition orabuse of its predominant position is forbidden. 3. The use of circuits rented from the publictelecommunications operator is limited to the userhimself or to the provision of complementary servicesand value added services. Their re-sale isforbidden…”

In addition to establishing TDM as an independentcompany, the Instituto Nacional das Comunicacoesde Mocambique (INCM) was established as anindependent regulatory body under the umbrella ofthe Ministry of Transport and Communication (MTC).INCM is mandated to have responsibilities, includinglicensing, spectrum management, formulation andinterpretation of sectoral policies, internationalrelations, and defining and monitoring compliance.

Banking and Financial servicesThe banking sector is regulated and supervised byBanco de Mozambique, the Central Bank. Although

Mozambique hasadopted a number ofreforms in the bankingand financial sector,including establishingan independent centralbank, the financialsystem remains smalland dominated bybanking. There are eightcommercial banks, all ofwhich are majorityforeign-owned. Thebanking system isrecovering from the2000–2001 bankingcrisis, during which twolarge banks weredeclared insolvent.

As part of its mandate, in2004, the Central Bankimplemented a restrictivemonetary policy, whichwas to deal with theappreciation of themetical against the USdollar (20.8 percent)caused by internal and

external factors. This was in accordance with theGovernment’s programme for 2004, which aimed atreducing the interest rates.

The Central Bank exercised its regulatory role in thefinancial sector and as a result new issuance andamendment of various legislations were made in 2004.The changes include legislation of the creditinstitutions and financial societies. It gives theGovernor of Bank of Mozambique the powers toauthorise orders of constitution, revocation of theauthorisations, statutes changes, mergers,dissolutions and establishment of credit institutionsand financial societies (ICSF’s) branches in thecountry. Previously, these functions were held by theMinister of Planning and Finance.

With regards to the financial sector legislations, thefollowing were the major changes introduced in 2004:laws for credit institutions and financial srvices;approval of the new inter-bank exchange marketregulation; widening of the incidence base for theverification of obligatory reserve; and approval of theDecree No. 57 of 2004 on the micro-finance generalregulator framework.

The ministry of finance regulates the insurance sector.The insurance and pension sectors are also small.Despite recent privatisation efforts, the insurancemarket remains dominated by the state-owned insurer,which provides all types of insurance services.

Table 6.2: Major Firms in the Mining/Manufacturing Sector in Mozambique

Company/firm

Cervejas deMozambique

Coca Cola Sabco(Mozambique)

Sasol

Cimento deMozambique

Mozal

Mozambique LeafTobacco, Limitada

Illovo, a dominantglobal player andthree othercompanies operatein Mozambique

Sector/Products

Brewery

Carbonated soft drinks

Natural gas

Cement

Aluminium

Tobacco

Sugar

Stake/Monopoly

SAB Miller has majoritystake in it

Multinational it has sectormonopoly

South African investment

Portuguese investment –monopoly

SA/Australian investment

Subsidiary of US LeafTobacco It owns the onlyTobacco processing plant inMozambique and gotspecial concessions

South African andMauritian investment. Theproducers receive stateprotection

173

Table 6.3: Major Services Sector Business Firms in Mozambique

Serial No.

1

2

3.

4.

5.

6.

7.

8.

Company

Maputo Port DevelopmentCompany, SARL;

M Cell and Vodacom

Total Mozambique, SARL;Shell Mozambique, Limitada;

Banco Austral, SARL;Standard Bank; BIM União Comercialde Bancos, SARLBCM

Southern Sun Mozambique;Hotel Holiday Inn

South African Airways -regionalLAM- the national airlines –nationaland internationalCorridor-the private domestic airline

Price Waterhouse CoopersCrown Agents

TDM –the public monopoly

Sector

Port, logistics

Mobile phone

Fuel distribution

Banking

Hotel and recreation

Air transport

Consultancy

Fixed telephony

In order to protect theinterests of the financialsector, service providersthe AssociaçãoMoçambicana de Bancos(AMB)57 was set up andthe association sharesinformation among themembers and consultsand lobbies on issues ofcommon interest.However, there is noindication that theassociation is engaged incartel or restrictivebusiness practices.

EnergyIn August 1997 a newElectricity Act wasapproved by theParliament to define:• general policy for the

organisation of theelectrical energy sectorand theadministration of thesupply of electricalenergy; and

• general legalframework forelectrical energy generation, transmission,distribution and sale within the country, as well asits exportation to and importation from outside thenational territory, and granting concessions for suchactivities.

New municipal legislation was enacted in 1997,giving municipalities certain functions in investmentplanning and the operation of electricity services inlocal authorities. The objectives were to follow up theintentions of the Electricity Act reforms through thegranting of concessions, including proposals for tariffregulation.The National Directorate of Energy (DNE) is a centralorgan of the Ministry of Minerals Resources & Energy,responsible for study, conception and developmentof energy policies. The organisational structure ofDNE was approved in April 1997 by a ministerialdecree.The main tasks of DNE are as follows:• to study, propose and administer the energy policy

in the country;• to promote the diversification of energy use and

optimise the use of various energy sources;• based on the development of the economic

perspectives of the country, to determineenvironmental issues, to provide the plans and theprogrammes for the development of the sector;

• to promote and to maximise the rational use of thenational energy sources with relevance to theinstalled capacity, namely, through theencouragement of investors; and

• to promote the co-operation with public and privateinstitutions, national or foreign, in achieving themaximum potential in the technical developmentand sector regulation.

WaterUnder the National Water Policy (NWP) approved in1995, the Government has undertaken broad reformof water supply provision aimed at moving towardsthe delegated management, and improving itsregulation and financial planning. In December 1998,the legal framework for private sector participation, aregulatory board for water, and a water tariff policywere all approved. With respect to urban provision,the Government completed the contracting out to fullprivate sector management the water supply servicesin five major cities e.g. Maputo, Beira, Quelimane,Nampula and Pemba in 1999.

The Government also introduced tariff adjustmentsto ensure the improvement and the sustainability ofwater provision. An integrated water sanitation and

57 KPMG, 2004, Mozambican Banking Survey (English), Maputo

Mozambique


Table 6.4: Market Structure of Some Manufacturing Industries in Mozambique

Industry

Alluminium

Sugar

Tobacco

Softdrinks

Beveragesbeer

Cement

Types of Competition (Number ofEnterprises)

Single company and national champion

Four producersPrices of domestic sugar is controlled bythe govt. Strong domestic protectionthrough punitive import tariff

Eight companies including the largeinternational companies have presenceOnly one manufacturer with aprocessing plant of tobacco – MLT andthe rest are procurers

Coca cola and (major player)Schweppes and small firms (smallmarket share)

SA Miller has 60% share in Cervejas deMozambique (CdM)- dominant playerManica- is a minor player in the market

Cimento de MozambiqueSingle producer – and FDI fromPortugal;about 50 % market share

Concentration

Concentrated

Limited competition ,as price is regulated inconsultation withmarketing companies

Relatively competitivemarket

Highly concentrated –as there is no domesticcompetition for CocoCola

Highly Concentratedwith the dominance ofCdM

Limited competitionthrough imports

(Various sources)

Imports/year

hygiene strategy was completed in 2002. With regardto rural water supply, the Government has begunimplementation of a Rural Water Transition Plan,which aims at transforming the planning and deliveryof rural water and sanitation services from a supply-driven model to a sustained demand responsiveapproach, characterised by community management,cost recovery, and the involvement of the private sector.

Transport Policy and RegulationThe transport policy, approved in 1996, identifies theinvolvement of the private sector in construction andrehabilitation of transport infrastructure, in themanagement by contract or concession of the ports,railways and airports, and in the companies involvedin air services and shipping. Government retains therole of facilitator, responsible for defining policies andcreating an environment conducive to investment. Itis also responsible for the establishment of regulations,the licensing of transport activities, and supervisionand control. The Ministry of Transport andCommunications (MTC) is responsible for developingtransport policies, as well as for monitoring the

efficiency of the sector and the implementation of thesepolicies through specialised institutions and byprivate operators.

The implementation of the transport policy and theincreasing number of concessions of ports, railways,airports etc., has raised the need of economicregulation. The Government policy is to establish anefficient system of economic regulation to protect theinterests of the stakeholders – public and private.Coastal shipping and air transport are to be liberalisedgradually, so as to reduce the costs of domestic andinternational trade. Maritime Law (lei do Mar) of 1997has been completed and adopted to facilitate andincrease the capacity of coastal shipping. A decreepromulgated in 1998 lays the framework forcompetition in, and entry into, domestic air routes.While all other routes are now open to entry, LAMhas exclusive rights to serve the national trunk routeuntil 2003, after which the route will be open tocompetition. A strategic private partner is beingsought for LAM, which was converted to a limitedliability company in December 199858 . However, even

58 EU-Mozambique Country Strategy Paper 2001-2007, pg 32

175

in 2006, the most domestic airline destinations arenot open for competition or private participation.

A key element indicated in Mozambique’s roadspolicy is the implementation of institutional reformsto ensure sound, sustainable and commercialmanagement of road infrastructure. In this context, anew Road Management System was established inthis law, including the creation of an autonomousentity i.e. National Roads Administration (ANE) tomanage the country’s roads. Efforts were made toenhance private contributions to the road sector byinvolving the private sector in decision-making,initiating the privatisation of public worksorganisations, and strengthening local contractorsand consultants.

Market Structure and CompetitionThe share of the agriculture, industry and servicesare 25 percent, 35 percent and 40 percent respectively.Agriculture is the main economic activity of the peopleand about 80 percent of the population depend on it,although its contribution to the GDP is the lowest.The major non-farm economic activities aremanufacturing, tourism and several services sector,which are concentrated in the urban centres locatedmostly in the coastal regions of the country.

Mozambique is characterised by a small economy interms of volume of economic activities, and for mostindustries, domestic demand is relatively small. Thus,industry concentration in Mozambique is relativelyhigh probably because a few firms in each sector ofeconomic activity meet domestic demand. Highconcentration in the industry sector need not alwaysimply market power as free entry of products intoMozambique through trade liberalisation ensurescompetition on price, choice and quality. In addition,a regulatory practice in the services and utility sectorsensures some amount of competition. Mozambique’slegal system has not undergone much reforms and itfunctional reputation has been marred by unduedelays and poor service delivery. According to ourinteraction during the field survey, the private sectordoes not always like to depend on the legal systemand commercial justice due to delay, cumbersomeprocedures etc.

Mozambique has a thriving informal sector, which isrelatively free from the tax net and numerousregulations of the Government in engaging acommercial/business activity in the country. Informalbusiness sector also has a role in providing competitiveprices in many goods and services. The informal sectorhas low barriers to entry and there are several microbusiness entities that serve the poor in the semi-urban

localities and also rural areas. This sector also reducesthe chances for the emergence of a successful pricingcartel in the urban and rural retail sector. In short, theinformal sector thrives on the distortion effects of tariffand taxes as well as numerous regulations. Thus,curtailing the informal sector is one of the goals of theorganised private business lobbies and thebureaucracy in Mozambique.

Manufacturing SectorThe industrial sector comprises of mining,manufacturing, and energy. The sub-sectors are foodand beverage production, chemical and petroleumindustries, and non-metallic mineral products. A goodportion of the value of industrial production comesfrom food processing by the small-scale sector, thoughthe share has decreased considerably over the pastdecade. Mozambique has only scant database onmarket shares. Information on enterprise turnover,sales, production volume or consumption of inputs isscarce and is mostly in Portuguese. Majormanufacturing industries are aluminium, cement, oilrefining, dairy, glass, soap, textiles, pulp and paperproducts, wood processing, beer and soft drinks,sugar, cashew, cotton and tobacco. Some of theseindustry plants are old and use obsolete technologywhereas new industries such as aluminium,carbonated soft drinks are modern.

AluminiumMozal, the aluminium smelting plant, has addedsignificantly to the country’s industrial production.The first phase of the project had capacity 250 000tonnes of raw aluminium per year and it extended toa capacity of 500 000 tonnes by 200359 .

BauxiteMozambique is a producer of bauxite in the region.E.C. Meikles (Pty.) Ltd. of Zimbabwe is the producerof bauxite mine, which had an output of 11,793. All ofMozambique’s bauxite output was exported in 2003at a value of metical 213.9 billion (US$849,000)60 .

CementCimentos de Portugal, SGPS, SA (Cimpor) held a 65.4percent stake in Cimentos de Mozambique SARL,which is the country’s only cement producer. In 2003,Cimpor increased the combined capacity of theDondo, Matola, and Nacala plants to 760,000 tonnes/year. National consumption of cement was estimatedto have increased to 675,000 tonnes in 2003 from575,000 tonnes to in 2002 and 313,000 tonnes in 1998.Cimpor’s share of the domestic market rose to 88percent in 2003 compared with 85 percent in 200261 .The remaining domestic cement demand was metthrough imports.

59 Mining Journal, 200360 Estevao T. Rafael Pale, National Directorate of Mines, March 15, 200461 Cited in Thomas, Ref. (Cimentos de Portugal, SGPS, SA, 2001, pp. 78; 2004, pp. 74)

Mozambique


Table 6.5: Market Structure of Various Service and Utility Sectors in Mozambique

Sector

Banking

Insurance

Road Transport

Aviation

Public telephonenetwork)

Cellular provider

Internet Services

Electricity

Petroleum supplyand trading

Type of Competition (Number of Operators)

Eight commercial banks-j all of them aremajority foreign owned- Portuguese or SouthAfrican stake. The main players Group BIMand BCI-Fomento. The other minor players areStandard Bank, Banco Austral-ABSA, and theAfrican Banking Corporation.

Public sector monopoly

Private participation in passenger and freighttransport is allowed.The passenger transport operators work likecartels through associations –although pricesare regulated by government

Domestic: Two firms LAM and Air corridorState run monopoly LAM has unlimited accessand Air corridor has only limited routes

International: SAA and LAM

TDM – the state run company has monopoly

Two companiesMcell- the state owned – major playerNew entrant Vodacom (2003) and minor sharein the market

Oligopoly

State owned firm EDM has monopoly

The private participation but prices areregulated

Market Share

It is concentrated. BIM has45% of all banking asset. Itcontrols (48% loan and 52% ofinterest market)

Majority share

Several small providers in themarket

Majority market share by LAM

SAA has dominance

Monopoly

Latest sector data not available

Monopoly in both urban andrural areas

Competitive market

(Various sources)

Natural GasIn 2002, energy company Sasol of South Africainvested in the southern province of Inhambane tolaunch a natural gas project. The undertakingincludes the building of an 865 km pipeline betweenthe Mpande and Temane gas fields, in Inhambane,and the industrial complex of Secunda, in SouthAfrica. The Natural Gas project is expected to addabout 20 percent to the Mozambique’s GDP62 .

Services and Utilities SectorServices contribute to just over 40 percent of the GDPin 2004. Services comprising transport andcommunication, commerce, banking, telecom andother services etc., are largely characterised by mediumsized enterprises and the dominance of one or twoactivities. The level of market concentration in theservices and utility sector tends to be significantlyhigher than that of the manufacturing sector. These

62 Mozambique news, 2002

177

enterprises are often granted monopoly rights thatthey sometimes auction off to private concessionairesthrough long term revenue-sharing concessions, asdescribed earlier. Consequently, the market structureof most service industries can be described asmonopolistic or oligopolistic.

Hydroelectrica de Cabora Bassa of Portugal operatedthe Cabora Bassa dam, which had a capacity of 2,075megawatts (MW). In 2003, production in the electricitysector fell by 14 percent because of rehabilitation andmodernisation at Cabora Bassa that reduced thenumber of generators available for production.Exports to Botswana, South Africa, and Zimbabwefell and domestic consumption increased because ofeconomic growth and rural electrification63 .

In August 2003, the Governments of Mozambique andSouth Africa signed a memorandum of understanding(MoU) to build a hydroelectric plant at MepandaUncua in Tete Province with a capacity of 2,500 MW.The plant was expected to cost metical 3276 billion(US$1.3bn).

Mozambique has about 30,400 km of roads, of whichapproximately 5,700 km was paved. In 2003, theGovernment rehabilitated 827 km of roads comparedwith 714 km in 2002 and 1,096 km in 200164 .Mozambique’s rail network covered about 3,100 km,which included the 600km Sena rail line. The countryhas 865 km of natural gas pipelines, 306 km of crudepetroleum pipelines, and 289 km of petroleumproducts pipelines65 .

Reflections on Anti-competitivePracticesA liberal economic order, which provides easy entryand exit opportunities for the producers and variouschoices to consumers, is useful for achieving economicpolicy goals such as efficiency, growth, welfare, forall the participants in the market. However, in reallife markets are not inherently fair, efficient or openalthough the ideal market situation, which consumerswant to achieve, is competitive and not concentrated.The most commonly referred anti-competitivepractices that distort the developing country marketsinclude: price-fixing; cartel arrangements; abuse ofdominant position; monopolisation of market; mergersthat limit competition; vertical agreements that blocksmarkets to new competitors; and various entry andexit barriers to new firms.

Economic TransitionSimilar to many newly independent countries inSouthern Africa, Mozambique also had chosen an

63 Agencia de Informacao de Mocambique, 200264 Yager, Thomas, R, (2003), The Mineral Industry of Mozambique, PDF copy65 Thomas R. Yager, (2003)

economic model where the public sector was thedominant actor for about two decades sinceindependence. The public sector activities spread intoall the key areas of the economy and bureaucrats runthe business entities. The liberalisation andprivatisation programme of the 1980s and 1990s hadto not only spearhead transformation of public sectorto private sector but also to change the mindset of thepolicy makers to unshackle the bureaucratic barriersput up against the private sector initiatives. In thisprocess, most of the public sector enterprises, whichacted as state monopolies are either being transferredto the private sector or converted into limited liabilitypublic sector undertakings. Despite the liberalisationdrive, one could find examples of several anticompetitive aspects in the policies and laws governingthe commercial/business sector and utility sector inMozambique.

Public Policies and Barriers to CompetitionAdministrative and other policy-induced barriersoften act as barriers to competition in the market. Incertain cases, domestic laws and regulations posebarriers to entry for the new players – both domesticand foreign investors. In many developing countries,state owned service and utility firms often receiveundue protection, which acts as a barrier tocompetition. Mozambique is not free from the practiceand one could give several examples. An examplereferred by many is state patronage and exclusiveflying right to operate from most domestic destinationsgranted to state subsidiary LAM, whereas the privateairline Air corridor has not been allowed to do so.This allows LAM to overprice for domestic operations,a means to remain in the market despite beinginefficient at the expense of consumer welfare.

A serious barrier for entry in the market identified bymany in the private sector is the commercial code forthe country, which in effect has many hiddenprovisions of entry barrier. The commercial code hasits colonial origin, which provided priority to settlercommunities in key business sector as against the localpeople. For instance, even now any investment andcommercial activity would require prior approval fromthe Government. This approval process would takemonths or years and there are no transparent rules onthe decision-making or approving a business. Hence,this bureaucratic process on approval-which is notautomatic at all is governed by the commercial codeposes as a serious entry barrier for new players inmany sectors.

Some of the trade instruments, especially tariff andnon-tariff barriers (NTBs) also limit competition inthe market. Mozambique applies a variety of non-tariff

Mozambique


measures, some of them have little effect on trade, whileothers intend to reduce imports and benefit localproducers. In certain sector, import of raw material orintermediary goods attracts more duty than import offinished products. The sectors where domesticprotection is high include textiles, cashew, tobacco,sugar, etc.

In addition, government gives certain monopoly rightsthrough concessions granted to existing monopoliesin sectors such as tobacco, cotton and sugar. Our fieldinteraction with the business sector suggests thatwhen the government gives commercial monopolyrights to a few firms, it discourages the very conceptof competition. For instance, 70 percent import dutyon sugar provides undue competitive advantage tothe domestic sugar companies, irrespective of whetherthey are efficient or not. Similarly, 18 percent exporttax on raw cashew export does not encouragecompetition, though the intention of the governmentis to promote local processing. Further, thegovernment still fixes the prices of a number of goodsand services sold in the market.

Barriers to Competition byPrivate Anti-competitive BehaviourThe perception survey conducted under the projectrevealed that various types of private anti-competitivepractices do exist in Mozambique, includingpredatory pricing, price fixing, exclusive dealing,monopolisation of upstream markets, etc. Many peoplefelt that certain industries/sectors have almostabsolute monopoly of certain companies. Forinstance, carbonated soft drink is almost anabsolute monopoly of Coca Cola and it is difficultfor a new entrant to compete the market segment.

Sectoral Regulation and CompetitionRegulatory governance policies play animportant role in creating a competitive businessenvironment in the market. AlthoughMozambique does not have a competition policyand law, it has sectoral regulators in many of theservice sector business activities such as power,telecom, transport, banking, water etc.

Air Lines SectorSome indicated that domestic airline industry hasentry barrier as it is dominated by the public airlines,LAM and there is only one private sector airline-corridor so far allowed to operate and that too only infive provinces out of 10. The latter’s effort to expandto other provinces and also regional flights have notsucceeded. Despite liberalisation, domestic airlinessector is not open to foreign companies.

There are regulatory agencies in the electricity, water,banking, telecom, etc., though the effects of regulationare not very evident in the market.

Price-fixing and Other CartelArrangementsPrice fixing and market-sharing arrangements areprevalent in Mozambique and this has an effect oncompetition. Some people in the business sector feltthat Government has a policy of fixing prices in anumber of products such as sugar, medicines, bread,petrol, gas, cotton, etc. This has an effect on thecompetition in the economy.

In some sectors such as the public transport sector,the operators use their collective bargaining power tofix prices.

Bid-riggingThis practice is common, especially in the constructionand public procurement sector, where contractors andsuppliers decide the price of the contract inconnivance with corrupt officials in the departments.There is inadequate rules and transparency in thesystem, which encourages the practice.

Abuse of DominanceMonopoly or dominant enterprises in the market –whether public or private – can engage in many anti-competitive practices. The retail sector in the urbancentres is dominated by a few firms and chains, whichdiscourage new entrants. The Government controlledMcell is the dominant player in the mobile phonesector and it has the ability to control the prices ofproducts, despite the entry of Vodacom, the secondserviced provider.

Many viewed that abuse of dominance was evidentin the electricity distribution, sector where the stateowned power distribution company EDM hasmonopoly. EDM has very poor service deliveryrecords, due to irregular supply of power andinaccuracies in the billing system. EDM often violatesconsumer rights through it arbitrary pricing practiceswhere consumers do not have a choice.

As per the field survey of 106 persons under the project,about 50 percent of the respondents suggested thatthere is state owned monopolies in Mozambique; andonly 15 percent perceive that there is none. Amongthe total respondents 36 percent believed that stateowned monopoly firms engage in anti-competitivepractices and 20 percent believe that they do not.

Table 6.6: Do State-owned Monopolies Indulge in

Anti-competitive Practices?

Answer No. of Responses %

Yes 38 35.8

No 21 19.8

Can’t Say 42 39.6

No Response 5 4.7

179

Perspectives On CompetitionPolicy And LawThis section analyses the public perceptions on thestate of competition in various sectors of theMozambican economy, including the relevance ofcompetition policy and law in promoting competitionin the market place.

This analysis is drawn on the basis of responses andinformation gathered from about 100 persons througha structured field survey undertaken in early 2006under the framework of the 7Up3 project. For thepurpose of administering the questionnaire, a total

purposive sample of 250 persons was identified fromvarious segments of the economy. They wereapproached with a request to fill in the questionnairein Portuguese language, mostly by direct visits in areasaround Maputo and for other regions by mail. Out ofthe total requests, 106 persons responded by fillingup the questionnaire and also provided additionalinformation. Table 6.7 provides the classification ofrespondents by the sectors, which they represent.

Nearly half of the respondents (49 percent) belong toeither development organisations, which includeacademia, non-governmental organisations (NGOs),media etc., or from the service sector business whichincludes consultancy, hotels, recreation, transport, etc.This is representative as about 40 percent of the GDPderives from the service sector activities. A quarter ofthe sample (25.5 percent) was drawn from thegovernment agencies/departments and publicutilities. The remaining one quarter of the sample wasdrawn from manufacturing, banking, construction,business association, and other related activities.

Public Perceptions on Anti-competitivePracticesAccording to the field survey result (Table 6.8), 51percent of the respondents indicated that anti-competitive practices (ACPs) are moderately prevalentin Mozambique, whereas 23 percent considered thatit is significantly prevalent and a minority of fivepercent felt it is hugely prevalent. Among therespondents only 19 percent considered that ACPsare insignificant or not a serious matter at all in theeconomy.

Here, these respondents shared their perceptionsbased on their experiences in a varietyof sectors such as trading anddistribution, services, and agriculturalmarketing. Some respondentssuggested that collective tenderingand price fixing is common amongwholesalers and retailers in thetrading and distribution sector. Someof the local small scale firms indicatedthat they face unfair competition fromimported products in the market, maybe due to domestic policies and alsothe higher cost of production in thedomestic market. Further, manyparticipants in the small scale sectorbelieved that large companies getundue protection and also variousconcessions from the government,whereas small companies face severalbarriers are not able to compete in themarket.

A stakeholder-wise break up of responses toprevalence of anti-competitive practices in the countryrevealed interesting results(Figure 6.1). It was observedthat in addition to a third (36 percent) of the consumerswho felt ACPs were insignificant, a quarter (25percent) of government officials felt likewise. This wasin contrast to the observation in the businesscommunity, only 15 percent of who felt that ACPswere insignificant, with most of them (approximately80 percent) feeling that the prevalence of ACPs wasmoderate to significant in the Mozambican market.

Prevalence of Anti-Competitive Practices inMozambiqueAbout the economic and welfare effects of anti-competitive practices of firms on consumers inMozambique, 43 percent said that consumers aresignificantly affected and 15 percent felt the effect ishuge. As against the above, 23 percent felt the effectsare moderate and 12 percent felt it is insignificant. Itis quite evident that the participants are quite awareof the effect of various market practices of firms onconsumer welfare..

Table 6.7: Classifications of RespondentsCategory Number of %

RespondentsPublic Utilities 8 7.5Development organizations andCivil Society (Academia, media,civic society and consumer groups, etc) 27 25.4Services Sector includingconsultancy, hotel, etc. 25 23.6Government agencies/departments 19 18.0Manufacturing 11 10.3Banking 7 6.6Business Association and agriculture 5 4.7Construction 3 2.8Regulatory organization 1 0.9Total 106 100

Mozambique


When asked to indicate the top three most prevalentanti-competitive practices prevalent in Mozambique,the perceptions of the participants vary considerably.(Table 6.9) Among the major areas of concern identifiedby participants collective price fixing (34 percent),price discrimination (26 percent) market sharing, bidrigging, exclusive dealing, entry barrier (23 percent)each. The responses suggested that the above are thekey areas of concern, though some indicated otherareas such as resale price maintenance, refusal to dealand predatory pricing. However, those whosuggested earlier that the effects of ACPs were minimalor negligent did not identify these as serious marketdistortion issues.

Further, in order to gather the perceptions respondentson the sectors most affected by ACPs, each respondent

was asked to indicate three areas where they consideras important or priority areas. Table 6.10 gives thedetails of responses. According to the survey result,about 46 percent of the responses indicated that ACPsare very prevalent in public utility such as watersupply, electricity, gas, etc., and in the manufacturingsector.

Over one third of therespondents (34.2 percent)identified transport and abouttwo fifths of responses (18percent) identified agricultureand other services sectors,where one experiences marketdistorting practices.Incidentally, people perceivethat telecommunication andbanking are relatively free fromanti competitive practicesalthough a public ownedcompany is the dominant

player in fixed and mobile services, and a handful oflarge firms dominate the banking sector.

After considering the prevalence of anti-competitivepractices by actors at local and national levels, thestakeholders considered that collective price fixing,and big rigging, predatory pricing, refusal to deal,market sharing, resale price maintenance are commonpractices at local level as about two fifth of theresponses have identified these areas (Table 6.11).

At the national level, two fifth of the respondents (39percent) have identified predatory pricing as the singlemost important issue, 29 percent identified pricediscrimination as the next serious barrier. Further,about one fifth of the responses indicate collectiveprice fixing, bid rigging and exclusive dealing are also

prevalent at national level.

When we analysed the perceptionson the effectiveness of existing lawsand regulations (Table 6.12), twothird of the (66 percent) respondentsmentioned that the existing rules,regulations and laws are notsufficient to check anti-competitivepractices. This indicates the seriousweakness in the existing regulatoryframework in Mozambique. Forexample he respondents consideredthat sector regulators and otherinstitutions do not take seriousactions when there are undesirablepractices by the dominant players inthe market

When asked to comment on the needfor a competition law forMozambique, 83 percent of

respondents suggested that the country should adoptcompetition policy and law to check anti-competitivepractices (Table 6.13). A minority (five percent)believed that a new law is not required as it will notbe effective due to systemic issues, while imposingburden on public expenditure. Some respondentsviewed that given the present economic governance

Table 6.8: Prevalence of Anti-Competitive Practices

Type of Responses No ofrespondents % Comments

Insignificantly 20 18.8(or not at all)Moderately 54 50.9Significantly 25 23.5Hugely 5 4.7No Response 2 1.8Total 106 100

0

10

20

30

40

50

60

Percentage

Stakeholder groups

Prevalence of anti-competitive practices

Insignificantly 36 15 25

Moderately 50 59 25

Significantly 14 24 45

Hugely 10 2 5

Consumers Business Government

Figure 6.1: Stakeholder-wise Break up of Responses Indicating

181

structure and business environment a competitionlaw and implementing institution can be a toothlessbody, which cannot achieve its objectives.

A large majority of respondents (83 percent) viewedthat Mozambique required a comprehensivecompetition policy and law, which should cover alltypes of economic activities.

As is evident from Figure 6.2, there wasconsensus across stakeholder groupson the need for a competition law inMozambique to deal with anti-competitive practices. The interestingfact was the overwhelming unanimityin the government circle for theenactment of a competition law. This isin line with the present situation asobserved while discussions withvarious government officials in thecountry, that the government iscommitted to developing competitionlegislation for the country.

The respondents had a prettygood understanding on theimportance of market regulationin a liberalised policyenvironment. According to 69percent of the responses, the keyobjective of a competition lawshould be economic efficiencyand consumer welfare. Whereas24 percent suggested that othersocio economic and welfareissues are to be considered whiledeveloping the competition law.

When considered acrossstakeholder groups (Figure 6.3),the results indicate that thegovernment is quite clear that a

new competition legislation would focus on economicefficiency and consumer welfare. The reaction fromthe business community was also inclined heavily infavour of a law with similar objectives. However, the

views of consumers were a bitskewed, which could be attributed tothe level of their understanding.

Perceptions on the Coverageand ImplementationMechanismAs regards the suggestions forimplementation mechanism of acompetition authority forMozambique, 53 percent suggestedthat the authority should be under thegovernment Department/Ministrywhere as 37 percent preferred to havean authority under an autonomousset up.

When responses were segregated into stakeholdergroups (Figure 6.4), it was observed that there wasdifference of opinion even within the groups,

Table 6.9: Type of Anti-Competitive Practices Prevalent in the Market

Type of ACPs Total no= 105 % in all options

Collective price fixing 36 34.2

Market sharing 25 23.8

Bid Rigging 24 23.0

Tied selling 13 12.3

Exclusive dealing 24 23.0

Concerted Refusal to deal 17 16.1

Resale Price Maintenance 20 19.0

Price discrimination 27 25.7

Entry Barrier 24 23.0

Predatory pricing 11 10.4

Any other 54 51.4

Table 6.10: Sectors Most Affected by Anti-Competitive PracticesSectors No of Responses % in allFinancial 9 8.5Transport 36 34.2Telecommunication 8 8.4Public utilities(water, electricity, etc) 49 46.6Manufacturing 48 45.7Agriculture 19 18.0Services 20 18.3Retail 7 6.6Whole sale 6 5.7Number of Respondents = 105

Table 6.11: Prevalence of Anti-Competitive Practices by Level

Options Local % National %

Collective price fixing 24 22.8 24 22.8

Market sharing 19 18.0 16 15.2

Bid Rigging 20 19.0 20 19.0

Tied selling 10 9.5 10 9.5

Exclusive dealing 16 15.2 20 19.0

Concerted Refusal to deal 22 20.9 12 11.4

Resale Price Maintenance 25 23.8 14 13.3

Price discrimination 24 23.8 31 29.2

Entry Barrier 18 17.1 14 13.3

Predatory pricing 21 20.0 41 39.0Any other 36 34.2 14 13.0

Mozambique


particularly the government and the businesscommunity, with regards the status of the competitionauthority for Mozambique. While a majority ofrespondents from both these groups (business– 51percent and government- 58 percent) were of theopinion that the authority should report to the

Ministry/Department, a relatively high proportion ofrepresentatives of both the groups (business – 42percent and government – 37 percent) felt that thecompetition authority should be autonomous. Therewas, however, a clear indication among consumersthat the competition authority should be under theM i n i s t r y / D e p a r t m e n tconcerned.

When asked to suggest on thepowers of the competitionauthority for Mozambique, 41percent suggested that theauthority should have bothinvestigative and adjudicativetasks where as 27 percentsuggested that the authorityshould have investigative

powers only and 19 percent preferredfor court as the better option inadjudicative matters.

A large majority (70 percent) of therespondents suggested thatcompetition law in Mozambiqueshould cover all the enterprises,whereas 20 percent suggested havingexemptions given to certain sector ofthe economy on account of publicwelfare. Those respondents whoproposed exemptions in law for

certain sectors clarified that these exemptions shouldbe confined to public utilities, state owned firms, SMEs,rural enterprises and providers of welfare servicessuch as education and health.

Coverage of the LawAs regards the specific coverage, 57 percentrespondents suggested that the law shoulddeal with both unfair trade and consumerprotection. Whereas, 25 percent preferredto have separate mechanism for competitionmatters and consumer protection to avoidoverloading the institutions by mixing upboth issues. When asked to mentionspecifically on which agency assists inredressing consumer grievances at present,about 35 percent of the respondents believethat ADECOM (a consumer protectionorganisation) offers justice to aggrievedconsumers in cases of dispute whereas asmall number (10 percent) believes thatministry of commerce and industry offersjustice to consumers.

Status of Competition Policyand LawThis section analyses the recentdevelopments with regard to the drafting of

a competition policy and law in Mozambique. Thefocus here is on the assessment of the existingregulatory or competition framework that wouldcomplement the process. Further, the effectiveness andacceptability of any policy and law depends on theextent to which these instruments have actually

Table 6.12: Effectiveness of Existing Regulations and Laws toCheck Anti-Competitive Practices?

Whether the existing laws effective Number ofRespondents %

Yes 19 17.9No 71 66.9Can’t say/don’t know 14 13.2No Response 2 1.2Total 106 100

0

20

40

60

80

100

Percentage

Stakeholder groups

Need for a Competition Law

Yes 75 90 100

No 13 3 0

Can't say 12 7 0


Figure 6.2: Stakeholder-wise Break up of Responsesto ‘Need for a Competition Law’

Table 6.13: Preference for the Type and Extent of the Competition Law

Whether a comprehensive law to No. %check anti competitive practices required? of Respondents

Yes, Required 88 83.0

No, Not Required 5 4.7

Can’t say/don’t know 8 7.5

No response 5 4.7

Total 106 100

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evolved in the country in the context of socio-economicdevelopments.

The present market regulation in Mozambique comesabout as a result of the liberalisation and structuraladjustment programme in the early 1990s. The other

factors, which complemented the process are thepolicy interaction among Government, developmentpartners and international financial institutions,business, and consumers. The decade and a half longeconomic liberalisation and privatisation hasunleashed the market forces in Mozambique, whichprompted the Government to think about acompetition policy and law for creating an enablingenvironment for the business. The regional andmultilateral initiatives at SADC, WTO and UNCTADalso complemented the new thinking. This does notmean that there is any strong drive for fast track

0

50

100

Percentage

Stakeholder groups

Objective of Competition Law

Eco Efficiency & ConsWelfare

52 73 85

Other Socio-Economic 33 22 15


Figure 6.3: Stakeholder-Wise Break up of Responses to‘Objectives of a Competition Law’ of Mozambique

0

10

20

30

40

50

60

70

Percentage

Stakeholders

Status of Competition Agency

Autonomous CA 30 42 37

Under Govt. Deptt./Ministry 63 51 58

Any other 7 7 5


Figure 6.4: Stakeholder Wise Perception on Statusof a Competition Agency in Mozambique

implementation of competitionpolicy and law in the country.

Efforts towards DevelopingCompetition PolicyThe drive towards competitionpolicy and setting up of regulatoryinstitutions in many countries inSouthern Africa has been the resultof liberalisation process; externalpressure such as that ofinternational financial institutions,regional and multilateral tradeagreements, and financial andtechnical support from developmentpartners and intergovernmentalbodies. The recent spread ofcompetition and regulatoryinstitutions in the Southern Africa

region perhaps prompted Mozambique to have anational introspection, debate and consultation onthe advantage and disadvantages of a domesticcompetition policy and law and to undertake anassessment of institutional capacity to implement theprogramme. In this context, Mozambique has taken a

cautious and rather slowapproach to develop acompetition policy and throughconsultations, capacitybuilding and debate on thesubject since 2002.

Apart from the domestic policycontext, SADC tradearrangements UNCTAD andWTO capacity buildingprogrammes also prompted thecountry to consider the need forevolving a competition policyregime for the country. Forinstance, SADC protocol ontrade deals with competitionpolicy as well and exhortsmember states ‘to implementmeasures within thecommunity and prohibit unfairbusiness practices and promotecompetition’. In this regard,

SADC as well as Southern African Customs Union(SACU) made some initiatives to go for developing aregional competition policy framework and also toharmonise national competition rules. WTO andUNCTAD have given technical training oncompetition policy to the countries in the region. Theother SADC countries such as South Africa,Zimbabwe, Zambia, have fully grown competitionregime, while others such as Malawi, Tanzania,Mauritius, Namibia and Botswana have progressrecently in setting up institutional mechanisms oncompetition.

Mozambique


In 2004, a study supported by the USAIDrecommended the adoption of a staged approach fordeveloping a competition law in Mozambique. Itfurther prescribed the law to focus exclusively onprohibiting price-fixing behaviour, and suggested theproposed competition agency to take up competitionadvocacy as a priority activity.

Further, a ‘working group’ within the Ministry ofTrade and Industry was required to be established toserve as the focal point for garnering support, funding,assistance, training, education, and constituencybuilding.

The following tasks were recommended for this‘working group’:·Develop a competition law proscribing naked cartels,prohibiting price-fixing, and empowering acompetition agency to review proposed bill or statutewithin the government;

l Begin developing a competition policy for thecountry;

l Examine alternatives to competition lawenforcement; and

l Plan for a Competition Agency (Authority), whichis independent; gradually extends its scope ofenforcement; embrace competition advocacyfunctions.

As a follow up, the Ministry of Industry and Commerce(MIC) established a working group to deliberate thecompetition policy matters. The Ministry hasappointed two officials of the designation of Directorsto oversee all activities pertaining to competitionpolicy and law in the country. The ‘working group’,comprising of various stakeholders, including civilsociety organisations (CSOs) has also beenconstituted. This working group has been meetingregularly and discussing plans of action. The IC hasalso engaged a lawyer-consultant working on tradeand competition policy issues since 2004.

In 2005, UNCTAD organised a training programmein Mozambique, which was attended by workingcommittee members and Government officials. The7Up3 project was launched in 2005 to do both researchand advocacy work on competition policy. In early2006, Government of Finland supported to hosttraining on competition policy in Mozambique.

Around the middle of 2006, due to some internalreshuffle at MIC, the charge on competition has beenshifted to department of internal trade from the externaltrade department.

The MIC with the assistance of the consultant hasstarted preparing the competition policy and the draftis expected by September 2006. According to theofficial sources, the policy formulation will be followed

by developing the competition law for the country, bythe legal department of the government.

Though there is no divergence of views on the needfor a competition policy, there is no consensus on thecompetition law and rules and institutional structurefor the authority. There are business lobbies thatadvocate for adopting a toothless competitionauthority without investigative and adjudicativepowers but as an advisory and reviewing agency dueto the following:

They believe that little tradition in competition, limitedjurisprudence in the subject, limited capacity toadminister laws, little confidence in the legal system,budgetary reasons and many in the business feels thatnothing much to gain.

At the same time, the pro-competition lobby andconsumer protection agencies are rather weak in thecountry. The Government does not seem to be verykeen on a fast track approach towards developing acompetition policy and law.

ConclusionsThis section examines the key public policyinstruments as well as the structure of some of thesectors of the Mozambican economy, which have abearing on competition and consumer welfare. It alsoanalyses the perceptions of over 100 stakeholders froma cross section of the economy on the current state ofeconomic regulation, competition and consumerprotection. This research study was initiated at a timewhen there are some concerted efforts at thegovernment level in developing a competition policyfor the country. Further, the importance of the studyderives from the fact that this is the pioneer effort togather the views of the stakeholders on marketbehaviour of firms and suggestions on setting up acompetition regime through a structuredquestionnaire. There have been some efforts in thepast to analyse whether the country would require acompetition policy and law.

The economic liberalisation and structural adjustmentpolicies of 1990s provided the necessary impetus forenhancing private sector participation as well ascompetition and efficiency seeking market systems inMozambique. The privatisation of most of the stateowned firms, especially in the utility sector alsonecessitated the creation of regulatory institutions inthe country. Despite this, there are state owned andprivate monopolies as well as concentration of marketpower in certain business entities in the country.

In general, the various public policies as well asregulatory statutes aim at enhancing economicgrowth, investment, efficiency and encouragingprivate sector participation in the economy. However,

185

there are still policies and statutes, which discouragecompetition and retard consumer welfare. The marketstructure of several firms in the consumer goods andservices sectors are dominated by monopolies oroligopolies.

The investment promotion policies of the governmentfocus on attracting mega or large-scale foreign directinvestments into the country. In this process,government grants special incentives, concessions aswell as protection from imports to companies,irrespective of whether it promotes competition andconsumer welfare or not. The instances can be foundin goods and services sector viz. sugar, tobacco,leasing of ports and infrastructure services. At thesame time, various administrative barriers to entrydue to the application of age-old statues andbureaucratic tendency to check private sector still affectthe state of competition. Many in the business sectorfeel that in order to start a business right contacts with

Mozambique

Note: This chapter has been researched and written by Alberto Bila of the University Eduardo Mondlane, Mozambiqueand Sajeev Nair of CUTS Africa Resource Centre, Zambia. The authors acknowledge the comments receivedfrom the members of the Project Advisory Committee. Comments and suggestions on the structure and contentof this paper were received from Nitya Nanda of CUTS CCIER and incorporated appropriately.

the help from politicians and bureaucrats arerequired.

The findings of the field survey under the projectindicate the prevalence of various types of anticompetitive practices in the economy. There is prettygood awareness among the respondents about thenegative effects of anti-competitive practices by firms.Most of the respondents viewed that country requirea comprehensive competition policy and law toregulate market and enhance public welfare.However, still there are skeptics in the business whofeel that a competition authority with investigativeand adjudicative powers would not do much goodcorresponding to the cost, since there are othersystemic issues in the economic governance arena,which need to be tackled first. There is howeveroptimism among the advocates of competition thatthe country would adopt a policy and law soon.


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IntroductionNamibia is situated on the South-western coast of theAfrican continent, alongside the Atlantic Ocean. Thecountry shares borders with Angola in the north; withZambia, Zimbabwe and Botswana to the North-eastand East; and with South Africa in the South. Namibiais one of the most sparsely populated countries inAfrica, if not in the world, with a population of around2.0 million people on surface area of approximately824,116 sq km, with a population density of just 2.4persons per sq km².

The country is surrounded by two deserts: Kalahariin the South-east; and Namib in the South-west,making it one of the most arid countries in Sub-Saharan Africa (SSA), where average annual rainfallranges between 300 mm to 700 mm. Despite lowrainfall, many Namibians are still dependent onagrarian activities (mostly subsistence farming) fortheir livelihood. Namibia is endowed with a lot ofnatural resources, making it an important exporter ofdiamonds, uranium, copper, other minerals, fish andfish products, beef, grapes etc, and benefitsenormously from its tourism industry. The diamondmining sub-sector forms the core of the economy,

accounting for about 10 percent of gross domesticproduct (GDP) and it provides raw materials forfurther processing, enhancing the country’s valueadding activities. With per capita income of aboutUS$1,810, Namibia is classified as low middle-incomecountry.

Germany occupied Namibia from the late 19th century(1883), until the end of World War I, following thesigning of the Versailles treaty of 1919 in Paris, France.South Africa, acting on behalf of the British Empire,

then took over the occupation ofNamibia and administered it as aC-mandate67 until after WorldWar II, when it annexed theterritory. In 1966, the South WestAfrica People’s Organisation(SWAPO) launched a guerrillawar for independence of Namibia,setting up its military wing, thePeople’s Liberation Army ofNamibia (PLAN). The war wasprolonged until 1988, when SouthAfrica finally agreed to end itsadministration in accordance witha UN peace plan for the entirecountry. Independence came in1990 following multi-party

elections and the establishment of a constitution. Sincethen, the country has experienced political stability,which came about through establishment of anindependent judiciary, a representative parliament, afree press, and a representative labour system, amongother ingredients of democracy.

Policies Affecting CompetitionDevelopment PolicyAfter independence in 1990, Namibia devised itsdevelopment strategy by formulating andimplementing three consecutive development plans

66 Based on a broad or expanded definition of unemployment, which includes all non-working labour force, irrespective of whetherthey are looking for work or not. The strict definition yields 20.2 percent

67 C-Mandate means that the Territory is to be administered under the laws of the mandatory power

Table 7.1: Socio-Economic indicators: Namibia

Indicator Value

Current GDP level (NPC 2006) US$6.0 billion

Average GDP growth (1995 – 2004) 3.9%

Per capita GDP (US$ p.a.), 2005 1,810

Inflation (2003-2005, December 2001 = 100) 4.6%

Gini coefficient (preliminary survey 2003/2004) 0.60

Unemployment rate66 (Labour Force Survey 2000) 33.8%

Population (2005 estimate) 2.0 million

Population growth rate (1991 – 2001) 2.6%

Literacy rate (2002 estimate) 83.3%

Life expectancy (2002 estimate) 41.5 years

Chapter 7Competition Scenario in Namibia

Namibia


to date. These plans set out short-term to medium-term objectives and strategies for realising suchobjectives. The three development plans are: theTransitional National Development Plan (TNDP), athree year plan that covered the period of 1991/92 to1993/94; the First National Development Plan(NDP1); a medium-term plan that covered the periodof 1995/96 to 1999/2000; and the Second NationalDevelopment Plan (NDP2), another medium-termplan that covered the period of 2001/02 to 2005/06.NDP3 has been formulated to cover the period 2006/07 to 2009/10. Recently, a long-term development plannamed Vision 2030 has been formulated. This long-term plan captures the aspirations and commitmentsof Namibians to strive for achieving growth sufficientto reduce maladies of poverty and underdevelopment,and ultimately to attain a developed country statusby the year 2030. The first two development plans setfour development objectives, which are to stimulateand sustain economic growth; creating employment;reducing inequalities in income distribution; andreducing poverty. Given the increasing importance ofgender issues, the need to fight the spread of HIV/AIDS and other diseases, the second nationaldevelopment plan increased these objectives to nine.The country is now pursuing the followingdevelopment objectives (NPC 2002:50):• poverty reduction;• employment creation;• promoting economic empowerment;• stimulating and sustaining economic growth;• to reduce inequalities in income distribution;• to reduce regional (within Namibia) development

inequalities;• to promote gender equality and equity;• to enhance environmental and ecological

sustainability; and• to combat the further spread of HIV/AIDS

Development policy objectives include creating acompetitive environment for efficient firms to flourish,but also other issues such as the promotion of smallbusiness and the welfare of historicallydisadvantaged persons, which are of social ratherthan economic nature. Overall, the development policygives a picture of how various policies would be linkedand compromised for a balanced development. Forinstance, economic empowerment objective distractsfrom competition due to the fact that the governmentis encouraging activities that support the poor, employhistorically disadvantaged people, rather than justconsidering efficiency alone.

Industry and Investment PoliciesAt independence in 1990, the new Namibiangovernment started with an economy whosemanufacturing sector’s contribution to GDP wasmerely 4.3 percent (average annual contribution for1980-88). This obviously needed to be changed. Thefirst move towards enhancing manufacturing or value

adding activity came in the form of an industrialstrategy as set out in the white paper on IndustrialDevelopment of August 1992. The industrial policyas enshrined in the white paper embraces thefollowing concepts (GRN 1992):• the private sector as the leading economic actor;• overnment creating an enabling environment for

the private sector, an environment in which theprivate sector should prosper but aninternationally competitive environment;

• government to create environment geared towardsattracting foreign direct investment (FDI) and todevelop local capacity through education andtraining and fostering of entrepreneurial skills;

• consistency in policy-making andimplementation;

• proper communication within government as wellas between government and the private sector;

• prevention of further creation of monopolies inNamibia, through exposing industry to importcompetition;

• limited government intervention in the market tosituations where it is meant to control monopolies,based on non-economic factors and unfaircompetition, such as dumping; and

• Increase value addition by stimulating exportsand, where efficient, import substitution.

The Namibia government has made the developmentof the manufacturing industry a cornerstone of itseconomic policy. One of the major tools forencouraging export of manufactured products is thesetting up of the Export Processing Zone (EPZ) throughthe EPZ Act (Act no. 6 of 1995). The aim of thegovernment is to attract companies to EPZ regime forthem to produce manufactured exports, as well as toencourage skills and technology transfers.

Enterprises that qualify for an EPZ status are thosethat undertake manufacturing, assembly, re-packaging and break-bulk operation and gear all oralmost all of their production for export, earn foreignexchange and employ Namibians.

EPZ enterprises get tax benefits, whereby for anunlimited duration, they do not pay corporate tax,import tax, sales tax, stamp and transfer duties ongoods and services required for EPZ activities.

Further incentives include allowance to hold foreigncurrency accounts with local banks, enjoy industrialcalm as no strikes or lock-out are allowed in the EPZ-regime, freedom to locate their operations anywherein Namibia and having access to Government grantsfor training purposes.

The Namibian EPZ regime has attracted significantlocal and international interest, but the practicalpicture on the ground has been disappointing in termsof a number of companies, which have set up

189

operations of economic significance. The positiveaspect of this is that many firms to whom the EPZstatus has been granted did not withdraw theirinvestment out of the economy, but rather moved outof the EPZ to the main stream of the economy. Thiscan be attributed to regional restrictions onimportation (into regional countries) of productsproduced under the EPZ regime. It is often arguedthat Namibia provides too-generous investmentincentives, while the resultant quantity and qualityof investment is far below expectations, or too low tojustify incentives given. The Foreign Investment Act(Act no. 27 of 1990, amended in 1993) forms thefoundation of Namibia’s policy on foreign investment.This Act established the Namibian Investment Centre(NIC), which together with the Offshore DevelopmentCompany are official promoters and facilitators ofinvestment in Namibia. The two are also key promotersof the EPZ regime and the general export-basedindustrialisation strategy of Namibia. They provideinvestor information, evaluate investment projects andadminister numerous investment incentives.

Manufacturing incentives are applicable to bothexisting and new manufacturers, in all sectors.Manufacturing activities include local value-additionin the form of processing of Namibia’s minerals, fishand agricultural products. Some of the incentivesgiven to entrepreneurs who invest in manufacturingactivities are listed below (NCCI 2005):• Exemption from VAT on purchase and import of

machinery and equipment;• Factory buildings written off at 20 percent in the

first year and the balance at eight percent for 10years;

• Export promotion allowance of 25 percent isdeducted from taxable income;

• Additional deduction of incentives for trainingand production wages of between 25 percent and75 percent;

• Deduction of 50 percent of cash grants for directcost of approved export promotion activities; and

• Corporate tax abatement of 50 percent for fiveyears and phasing out of abatement over thefollowing 10 years.

EPZ and investment policies have objectives topromote investment in the country, with somepreference given to investments in manufacturing andexport-oriented activities. This is to reduce economicdependency on other countries that have developedmanufacturing capacities by attracting manufacturingfirms, both from outside and within the country. Theprotection (in form of incentives) given is for specifiedperiods, after which those firms are then expected tobe ready to compete internationally. This process doescompromise on competition during the period whennew firms are protected, and in the medium to long-run competition will be increased because of the morecompanies.

The white paper of 1992 has an objective to avoid thecreation of further monopolies. The maintenance ofexisting State-owned monopolies can however beviewed as the way to promote national champions.Most of these companies continue to depend on statebail-outs, while those that are self-sufficient in fundingtheir operations have generally failed to improveefficiency e.g., service charges by Telecom Namibiawere recently rated to be second highest in a sampleof SSA countries.

Trade PolicyNamibia does not have a written trade policy or Act.Unwritten trade policy is anchored on four keyelements:• WTO requirements/obligations;• SACU Agreement;• Diversification of exports away from primary to

manufactured products; and• Diversification of export destinations, reaching

preferential trading arrangements both at bilateraland multilateral levels to increase market access,and to boast its participation in regional tradingblocks as a way to promote greater economicdevelopment.

As a member of the WTO, Namibia is committed tofacilitate global trade through progressive reductionsin all kinds of trade-restricting practices. In thiscontext, the government has undertaken to minimisedomestic support by privatising support services suchas tractor and seed provisions.

The Southern African Customs Union (SACU)members i.e. Botswana, Lesotho, Namibia, Swaziland(BLNS) and South Africa have a system of a commonexternal tariff. SACU Agreement has recently beenrenegotiated, with key elements being revised andgiven new focus in light of the need to allow BLNScountries greater say in the determination andadministration of SACU tariffs. It is through SACUthat Namibia has secured bigger markets i.e., mostlythe South African market, which allows Namibianindustrial planners and business to plan for the widerregional market.

The South African Development Community (SADC)Trade Protocol calls for the removal of all intra-regional tariffs, but does not cover the liberalisationof trade with non-SADC countries. The protocolsignificantly allows for special treatment for ‘sensitiveproducts’ (in agriculture and manufacturing), byallowing tariff reductions in these sectors to move at aslower pace than the rest. Under the accord, SADCcountries would phase out tariffs on all ‘non-sensitive’ products by 2008, and by 2012 the groupingexpects fully liberalised trade. The implementation ofthe SADC agreement has been delayed since the year2000 while negotiators continued to discuss the thornyissue of market access to South African markets, theregional economic powerhouse.

Namibia


A couple of Namibian products benefit frompreferential access under the Cotonou Agreement. Asa result of the preferences under this trade pact, a selectof Namibian exports enter the EU market duty free.These include an annual duty-free quota for beef tothe tune of 13,000 tonnes under the Cotonouagreement. Exceeding the quota means that youshould be paying escalating tariffs depending on theexcess tonnage. According to the Meat Board ofNamibia, the country’s annual production of beefamounts to some 100,000 tonnes of whichapproximately 80 percent is exported (Meat Board ofNamibia 2005). Namibia also faces an export quotafor seeded grapes, whereby the country is allowed toexport seeded grapes to the EU market up to 900 tonnesper annum, which is also below the country’s annualgrape exports capacity. This is not a completelyquantitative restriction, because Namibia can exportmore that 900 tonnes per year to the EU market, but atescalating tariff rates. Namibia is said to be currentlyexporting grapes to EU in the range of 12,000 tonnesper annum. South Africa, Namibia’s main tradingpartner, faces lower duties because of its Trade andDevelopment Cooperation Agreement (TDCA) that ithas signed with the EU, and this has some negativeimpacts on Namibia’s competitiveness.

Namibia itself employs various barriers to trade. Tradebarriers refer to measures undertaken by governmentsto impact positively on local production capacity,especially manufacturing, increase governmentrevenue and improve the balance of payments (BoP).One can say that in most cases, trade restrictivemeasures are introduced to restrict competing imports,thereby increasing local manufacturing capacity. Theother two effects (on government revenue and BoP)are consequences, and not the primary purpose forwhich such measures are taken in the first instance.The famous infant-industry argument is both thetheoretical and policy rationale for trade barriers. Bothdeveloped and developing countries use exportsubsidies as a way to promote exports. In the case ofNamibia, there are no direct export subsidies. Whatwould be equivalent to export subsidies aremanufacturing incentives for industrial development,especially in the EPZ regime.

Many countries, including the popular ‘Asian tigers’,had import-substituting policies during earlier stagesof development, but that did not constitute the overallthrust of their economic industrialisation strategies.In the case of Namibia, there are some trade barriers,but the overall policy focus is more outward-oriented.

Tariffs on ImportsNamibia has a set of common external tariffs with therest of its SACU partners. Inputs of capital andproducts, which are not manufactured and which donot have substitutes in SACU, bear a zero rate. On theother hand, manufactured goods, or goods with

substitutes in SACU generally bear relatively highertariff rates.

Namibia Agronomic BoardNamibia Agronomic Board issues import licences asper Agronomic Industry Act (Act no. 20 of 1992). Thereare a number of trade restrictions; amongst them areon pasta (macaroni), milk and maize. In the case ofpasta and milk, import levies are applied as a way toprotect infant industries in Namibia as it has beenprovided for within the SACU framework. Despite theexistence of the infant industry, South Africanproducers do sell these products on Namibianmarkets, sometimes at lower prices than thosesupplied by domestic producers. Claims from the milkindustry, for instance, alleges that some of theimported milk is sold at lower prices in Namibia thanwhere it is produced and this may well constitutepredatory pricing. Trade restrictions on white maizeare in form of temporary border closures for imports(until domestic supplies are depleted) and arebasically to protect Namibian producers with the viewto develop the domestic industry. The Board tries toensure that local millers or processors use upNamibian produce before reverting to importingwhen necessary, and this is accomplished throughoccasional border closures for imports, accompaniedby a floor price. The floor price is determined byconsidering a 5-year average price for the sameproduct in South Africa, recorded by the South AfricanFutures Exchange (SAFEX), transport margins andother issues.

This is good for the purposes of developing domesticindustries as producers get guarantees that they willsell their produce and get at least the floor price. Onthe other hand, the arrangement represents reducedconsumer choices and floor price may work tosuppress consumers, especially considering that thisis being applied on one of basic necessities. Anothertool in place to promote domestic industry is therecently introduced Namibian market sharepromotion for fresh produce, whereby any businesstrading in horticultural products in Namibia isrequired to acquire at least 12.5 percent of its totalsupply from within Namibia. This requirement isrevised each quarter and is set to be raised to 15 percentsoon. So, there are entry barriers by tariff, temporaryborder closures and other conditions, but not bycomplete refusal. Besides, the case of maize, wherebyborders are closed, failure to adhere to theserequirements for other products such as fruit maymean that you do not get an import permit for the nextseason. The plight of small and remote traders whofind it difficult to source any supplies from thedomestic market is under stress.

There are some policy areas that are likely to lead tostagnation rather than industrial growth inhorticulture. One being due to the fact that a levy (to

191

generate revenue for the functioning of the board) isimposed on domestic supply and not on exports, andthis leads to producers to target the export marketsrather than the domestic market, despite the fact thatthe country is a net importer of horticultural products.

Meat Board of NamibiaThe Meat Industry Act (Act no. 12 of 1981) establishedthe Meat Board of Namibia, among other things, tomonitor and control imports and exports of livestock,meat and meat products by means of issuing importand export permits and by conducting inspections atborder posts. In essence, this system is not traderestrictive, but is rather meant to, and works to recordand manage trade in livestock, meat and meatproducts. The application of the Act focuses on themonitoring aspect. What is important for the Board isto ensure that health standards are maintained, andif importers do not comply, the Board restricts theimport of the product under consideration.

There is also a domestic industry promotioncomponent, which is monitored through theapplication of levies and other requirements. Thereis, for instance, a levy on the exportation of raw hidesand skins, and to export small stock on hoof, you arerequired to provide proof that you have slaughteredthe same in Namibia. These are non-tariff barriers(NTBs), which are perfectly legal within the WTO aswell as SACU framework.

Exchange ControlsExchange controls are often used to improve thecurrent account of the BoP and at the same time, togive required protection to infant industry. As amember of the Common Monetary Area (CMA),Namibia is bound by the provisions of the Agreementto maintain exchange controls as long as it isnecessary. However, with the political transition of1994 in South Africa, and the coming in force of theWTO agreement in 1995, South African authoritiesmoved to liberalise their trade regime.

In Namibia, the Ministry of Finance has delegated allexchange control powers, functions and duties to theBank of Namibia, which in turn, has delegated someof the exchange control functions and powers toauthorised dealers, which are the country’s fourcommercial banks i.e. Bank Windhoek, Nedbank, FirstNational Bank and Standard Bank. Exchange Controlin Namibia is used both to discipline the local demandfor foreign currency in order to stabilise the officialforeign currency reserves of the country and to allocateavailable foreign currency in the best interest of thecountry as a whole (http://www.bon.com.na/content/excon). Restrictions on trading of foreignexchange are not that intense because limits are quitehigh. The equivalent amounts of foreign exchangeallowed are N$130 000 (US$18,177) per person of 12years or older and N$40 000 (US$5,593) per child

under the age of 12 years for calendar year. Limits areeven higher for things like study allowances and alike(Namibweb.com).

The Bank of Namibia can also be approached on acase-by-case basis through authorised dealers wherethe transaction, or its amount, does not fall within thegeneral mandate given by Bank of Namibia to theauthorised dealers.

Import/Export LicensingImport licences are required as per existing laws forall imports outside SACU trading zone. According toofficials of the Ministry of Trade and Industry, thefunction of the import licensing section is basically torecord and manage imports into the country. Thereare, however, specific groups of products requiringimport permits, of which the following products arenot granted automatically: medical and relatedsubstances; chemicals; frozen and chilled fish; meat(including game); live animal and genetic materials;controlled agronomic products (maize, wheat, anddiary products); pornographic materials; controlledpetroleum products; firearms and explosives;diamond; gold and other minerals; and coins and allsecond hand and used goods such as cloths andvehicles.

In the case of exports, the following specific groups ofproducts require export permits, and are also notautomatically granted: medical and relatedsubstances; live animals and genetic materials; allostrich breeding materials (eggs, chickens and birds);meat and game products; protected species (flora andfauna); plants and plant products; propagatingmaterials; firearms and explosives; diamonds; goldand other minerals; coins and bank notes; and worksof art which had been in Namibia for more than 50years, national monuments and archaeologicalfindings.

SME PolicyThe national policy and programme on smallbusiness development was launched in 1997, withmain objectives of promoting employment, reducingpoverty and inequality, increasing growth andeconomic diversification. This is believed to be thesector in which previously disadvantaged personshave the greatest chance of making an impact througheffective participation. Five programmes have beendevised to realise these objectives. These are:• access to finance;• development of markets for small and medium-size

enterprises (SMEs) products;• provision of information on input sources and the

promotion of group purchasing schemes;• development of sites and premises; and• provision of support training in the form of

mentoring and after-care services.

Namibia


The policy was reviewed in 2004 and is in the processof being revised to address current challenges withinthe SME sector. The Small Business Credit Guaranteescheme is in place, while the Namibia Chamber ofCommerce and Industry, together with the Ministryof Trade and Industry (MTI) provide advice and othernecessary services to SMEs. The prevalence of SMEsmeans that there are more participants in the marketand consumers are presented with wider productchoices, especially in instances where SMEs areinvolved in manufacturing activities. The small sizeof SMEs is usually compensated by publicinfrastructural facilities (at affordable terms in mostcases), training and advance services provided inorder to make them competitive. In practice, it is almostimpossible to boost competition in technical sectorslike financial services and telecommunicationsthrough SME policy. The GDP contribution by theSME sector is around 11 percent and the sector is avery important source of employment. The promotionof SME activities may distract competition in the short-run because of incentives given and because biggerfirms whose activities have positive effects on SMEdevelopment are given preference in the governmenttender system, but in the long-run that is how domesticindustries and employment is created and competitionincreased.

Labour and Employment PoliciesThe Ministry of Labour and Manpower (now theMinistry of Labour and Social Welfare) wasestablished immediately after independence in 1990.Through this ministry, the government enactedpolicies and legislation aimed at furthering labourrelations, in consistency with other nationaldevelopment goals i.e. growth, employment etc. Thisincludes policies and legislation to:• advance persons who have been disadvantaged

by past discriminatory laws and practices;• ensure equality of opportunity for women,

particularly in relation to remuneration;• provide maternity leave and employment security

for women;• promote sound labour relations and fair

employment practices by encouraging freedom ofassociation by way of, inter alia, the formation oftrade unions to protect workers’ rights andinterests, and to promote the formation ofemployers’ organisations;

• lay down certain obligatory minimum basicconditions of service for all employees;

• ensure the protection of the health, safety andwelfare of people at work and to prevent the abuseof child labour; and

• where possible, adhere and give effect tointernational labour conventions andrecommendations of the International LabourOrganisation (ILO).

Having multiple national goals and objectives meansthat the nation needs to optimise and compromisebased on priorities given to various developmentobjectives. Competition and competitiveness areessential to attain economic development throughnational and international trade. Since the self-interestprinciple may not always achieve a desirabledistributional outcome, the government may need touse other mechanisms to re-allocate resources basedon other criteria, rather than on allocative efficiency.In most cases, these criteria are based on theachievement of equity e.g., Namibia has mechanisms(including labour policy and legislation) to correctincome imbalances from the past.

The Labour ActThe Labour Act of 1992 established the LabourAdvisory Council, labour courts and set out basicconditions of employment, including: maximumworking hours; overtime; and annual sick andmaternity leave. It regulates the termination ofcontracts, unfair disciplinary actions, trade unions,employers’ organisations and collective agreements.Though information about its actual coverage is notavailable, it can be assumed that it is limited toregulating employment in the formal sector. The abilityof the ministry to enforce the act is also limited due toa small number of Labour Inspectors (Nielsen andHansohm, 2003).

The office of the Labour Commissioner was enactedthrough the act of parliament in 1992. This is a neutraloffice whose main functions include providing adviceon labour issues and mediation in conflicts. The 2004Labour Act replaced the 1992 labour Act. The latestanalyses and comparisons of the old and the newActs indicated that the new legislation is bound toincrease costs of labour and possibly hamperproduction and growth (Lejonhud & Haimbodi2005:iii). This is mainly due to increased annual leavedays, introduction of compassionate leave, increasedallowances for maternity leave and other provisions.Having too generous working conditions would meanhigh business operation costs and local firms will betherefore less competitive internationally. Concertedagreements reached in terms of the labour Act areexempted from the competition law (GRN 2003,section 3(1)). The government is again reviewing theLabour Act 2004.

Social Security ActThe Social Security Act (34 of 1994) requires that everyemployer and employee to be registered. Everyemployer registered is entitled to maternity leave, sickleave, and the death benefit fund.

The system provides for the protection againsteconomic and social distress that may be caused bythe stoppage or substantial reduction of earnings

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resulting from sickness, maternity, injury,unemployment, invalidity, old age, and death. Thesocial security system also provides for medical care,and subsidies for destitute families.

Section 20 of the Act stipulates that employers whoseemployees are younger than 65 years and who workfor more than two days a week, must register with theSocial Security Commission as an employer and mustregister all their employees. A self-employed personwho does not employ any person may voluntarilyregister himself or herself as an employer andemployee. The Commission issues a Certificate ofRegistration to each registered employer, and a SocialSecurity Card to each employee upon registration.Membership contributions include an N$10.00(US$1.39) registration fee for each employer/employeeand monthly contributions determined as 0.9 percentof monthly salary, but these cannot be less than N$2.70(US$0.37) or more than N$27.00 (US$3.77).

Employment PolicyThe National Employment Policy was formulated in1997, with the following objectives:• To develop and transform the economy in order to

achieve a high rate of growth of per capita GDP;• To create adequate jobs to absorb the annual

entrants to the labour market and to reduce theinherited high levels of unemployment andunderemployment; and

• To promote the protection of the workingpopulation.

It is also notable that the various policy objectives arenot prioritised, nor are any potential conflicts amongthem accounted for. Most importantly, however, itneeds to be noted that the 1997 Employment Policy isnot in fact a reference point for the actual policymaking process (Nielsen and Hansohm 2003).

Affirmative ActionThe Affirmative Action [Employment] Act, 1998 wasenacted with the aim of achieving equal opportunityin employment in accordance with Articles 10 and 23of the Namibian constitution. The main focus of theAct is to enforce equality and fair treatment of allpersons when it comes to employment issues. Itrequires that previously disadvantaged persons,persons with disabilities and women enjoy equalemployment opportunities and conditions. The Actestablished the Employment Equity Commission toenforce affirmative action plan. In fact, preferentialtreatment has to be given to suitably qualifiednationals.

The overall labour policy and regulatory frameworkis flexible and even more so in some areas such asEPZ where industrial strikes and blackouts are notallowed.

Labour Hire Companies provide labourers to thosefirms that choose to outsource personnel services. Byusing this system, firms can avoid having to go throughrigidities associated with firing workers and can bemore flexible in hiring labourers for seasonal jobswithout much commitments. This system has howeverfeatured in recent national discussions because to itsalleged exploitative nature when it comes to thewelfare of labourers and this highlights theweaknesses in supervision of Labour Hire companiesby labour inspectors.

This system has potential to constitute unfaircompetition if competing firms operate under differentlabour conditions, some having to pay worker benefits,some not. International experience however showsthat in the long-run, worker motivation that is achievedthrough incentives and job security leads to highproductivity, implying that firms are likely to go backto employ full-time workers rather than having all ofthem switching to the labour hire system.

Market Structures, Competition andEconomic Regulation in Select Sectors

Nature of Namibian MarketsThe Namibian economy is closely linked with theSouth African economy, the former being a colonialpower with distinct features.

Firstly, Namibia has a limited monetary autonomy asit mainly relies on Common Monetary Area (CMA)for monetary policy, practically practiced by SouthAfrica who is the dominant member. Other CMAmembers are Lesotho and Swaziland. All other CMAcurrencies are also pegged one-to-one with the SouthAfrican Rand.

Secondly, most of big firms in Namibia are subsidiariesof South Africa based firms. Finally, Namibia sourcesover 80 percent of its imports from South Africa, eventhough some imports originating from other regionalcountries ‘are believed to be mistakenly recorded’ asfrom South Africa as they pass trough the country.

Lastly, Namibia has a small open economy, heavilydependent on trade, with a trade to GDP ratio in therange of 95 percent to 106 percent between 1996 and2005. Despite having low population, Namibia offerssignificant market opportunities because of high percapita income, when compared with the rest of theregion or continent, but a skewed distribution ofincome makes the markets less attractive. Most ofmarkets are fairly competitive, for instance the retailindustry has attracted a lot of big retailers with shopsin major towns. In most instances, competition isbecoming limited to those big firms as smaller localfirms are forced out of the markets.

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One challenge when it comes to promotingcompetition in Namibia is the business ownershipcomposition, where there are operators in some sectorsowned by more or less the same shareholders. Privatebusiness managers strive for the goals that maximisethe interests of their principals – the shareholders andcompetition may not be in the interests ofshareholders. To increase competition in such sectors,one needs to have new firms from different markets,and with different ownerships and that is a problemfor Namibia.Good examples are in finance and furniture retailingindustries. In the retail industry, for instance, thereseems to be many firms in the sub-sector, but all ofthese firms (except one) belong to two holdingcompanies.

Namibia has several monopolies, some of which areconsidered to be natural monopolies based oninfrastructure requirements and the necessity ofproducts they produce and supply to the nation.These include the main three regulated monopolies,which are the telecommunications company (TelecomNamibia), Power Utility company (NamPower) andthe Water utility company (NamWater). Plans havebeen in place to liberalise the telecommunicationindustry (not much has been said about other sectors)and it looks like it will take a long time before it canhappen.

One major barrier to entry is a natural one, which isalso common for many developing economies – theshortage of necessary skills. The commercial bankingsector is, for instance alleged to charge high handlingfees, especially when compared to those in otherdeveloping countries. The limit to local skills andinfrastructure requirements however make itimpossible for the creation of new competitors for anyof existing firms in these technical industries such asfinance, telecommunications, power etc.

Financial SectorThe Bank of Namibia Act, 1997 (Act 15 of 1997) madeprovision for the establishment of the Bank of Namibia(the Central Bank) to serve as the state’s principalinstrument in performing the basic functions of thecentral bank, including the regulation of thecommercial banking sector. The financial sector is verycrucial to the economy as it provides finance forindustrial development and economic growth.Namibia’s financial sector consists of four commercialbanks and many non-banking financial institutions.Recent analyses have found oligopolistic competitionin the commercial banking, with limited pricecompetition.

The commercial banking sector in Namibia consistsof four commercial banks, an investment bank and asavings bank. The commercial banks are: FirstNational Bank (FNB); Standard Bank (STB); Bank

Windhoek; and Nedbank. Three of the four banks arebranches of South African banks. One of the smallerlocal banks was recently created, called the CitySavings and Investment Bank (CSIB), but it did notlast for long. CSIB was fully Namibian owned andwas first taken over by the Building Society Company– SWABOU, to form a subsidiary called the SWABOUBank, which later merged with FNB, the largestcommercial bank. The case of CSIB illustrates that itis difficult for smaller institutions to enter the financialsector.

There are clear indications that there is no real priceor product competition in the Namibia’s bankingsector. FNB and Standard Bank hold about 62 percentof total assets and receive about 60 percent of totaldeposits and loans (Ashipala 2004:7). The ownershipcomposition in the commercial banking is possiblyone the obstacles to competition. Competition ishowever increasingly coming from micro lenders andNamPost bank and the Agricultural Bank.

The non-banking financial sector is regulated by, andfirms are registered with the Namibia FinancialInstitution Supervisory Authority (NAMFISA), whichwas established in terms of NAMFISA Act, 2001 (Actno. 3 of 2001). NAMFISA operates under the Ministryof Finance and it has an agreement with its SouthAfrican counterpart, the Micro Finance RegulatoryCouncil (MFRC). This sector comprises of ContractualSavings Institutions (Pension funds, long-term andshort-term insurance), unit trusts, cooperatives andmicro finance lenders. The non-banking financialsub-sector is also not competitive - at least three biggestinstitutions dominate the market. Jonathan Andongoand Christoph Stork (2005) made use of theHerfindahl-Hirchman Index and found anoligopolistic market structure for Namibia’s bankingsector. Their policy brief also found that the size ofthe banking industry increased by more than 100percent between 1997 and 2003, measured in terms oftotal assets. This growth is mainly attributed to fourfactors:• Increased demand for banking services due an

increasing numbers income earners as historicalinequalities continued to be addressed;

• Establishment of new branches in under-bankedparts of the country (expansion of local banks);

• Domestic and cross-border mergers andacquisitions leading to economies of scale; and

• Increased competition from non-banking financialinstitutions such as pension funds and insurancecompanies.

One can however argue that there have been nosignificant mergers and acquisitions (M&As) thatmight have led to economies of scale in Namibia’sbanking sector. Small banks, which have been takenover by larger banks may have had no major influenceon the overall sector at the first place.

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Electricity SectorOf the first attempts to address the challenges andinefficiencies in the Namibia‘s Electricity SupplyIndustry (ESI) was the Cabinet decision in 1997 toinstruct the Ministry of Mines and Energy (MME) tolaunch an in-depth investigation into the ESI.

The main objective of the study was to makerecommendations on possible future structures, whichwould enable the ESI to continue being the engine foreconomic development and prosperity in Namibia inan effective and efficient manner. The White Paperon Energy Policy, released by the MME in May 1998,gave further guidance to the restructuring exercise.

The Electricity Act, 2000 (Act no. 2 of 2000), whichcame into effect in July 2000 made provision for theestablishment of the Electricity Control Board (ECB)to regulate the ESI in Namibia. This Act requireselectricity undertakings to be licenced by the ECB, withthe main objective to foster competition in generation,transmission and distribution of electricity inNamibia. Thus, the key functions of the ECB arelicensing, electricity pricing, standard setting,consumer protection, mediation and disputeresolution, efficiency enforcement and electricity sectordevelopment planning (Ashipala 2004:6).

Round three of the ESI restructuring study carried outby Government in 2000 found that there is a need torestructure the industry from a non-competitivevertically integrated system to a more competitivestructure (SAD ELEC 2000). Thus the ECB embarkedupon the restructuring of the ESI aimed at the creationof a single buyer market structure, creation of RegionalElectricity Distributors (REDs) and introduction of alicensing system, which was approved by Cabinet in2000 (Ashipala 2004:6). In addition to the provisionfor the establishment of the ECB, the Act also providedfor the establishment of four REDs for the North, West,Central and Southern Namibia, which will be openedup for the private sector participation. However, thegeneration and transmission of electricity is still amonopoly of NamPower, the national electricityprovider, while distribution is done by variousplayers, including a number of regional and localauthorities. The creation of REDs, which aremonopolies (currently fully owned by the state) islikely to increase costs as they are not competing, butthey may fulfil the social function of cross-subsidisation of poor local authorities.

Telecommunication SectorAs part of the transition from the pre-independenceinstitutions, the Department of Posts andTelecommunications was dissolved in 1992, andreplaced by Telecom Namibia and NamPost. TelecomNamibia, which is a state owned enterprise, wasgranted a full monopoly over all basic

telecommunications services. The NamibiaCommunications Commission (NCC) created in 1992,as a quasi-independent regulatory body, regulates thetelecommunication industry, which has long beenscheduled to be fully liberalised by the year 2004.

Telecom Namibia was granted a monopoly licencefor five years with the objective of extendingtelecommunication services in Namibia to facilitateeconomic development. The plan was to grant telecomNamibia a monopoly status over all basiccommunication services for a period of five years,while building necessary infrastructures andpreparing for deregulation after such period. Oncecompetition is introduced, the NCC would ensure thatcompetition is taking place on fair and equitable terms(Ashipala 2004:6).In realistic terms, telecommunications seem toconstitute natural monopolies, having fixed lines andhaving to provide some of their services based onsocial rather than economic reasons. For most of poorlocalities in rural areas where people’s willingness topay is too low, no private firm may be in the positionto supply such necessary services on a competitivebasis. This is in itself a market failure or a missingmarket situation. It is in that light, that governmentsassume their responsibility of providing social goods.Due to fast changing technology, with increasingmobile telecommunication networks, it has now beenrealised that telecommunication products are notsubject to the same cost conditions. This has createda number of close substitutes, which weaken thenatural monopoly and increasing consumer choice,although the mobile communication service provider(Mobile Telecommunications Limited (MTC) is stillusing infrastructures of the Telecom Namibia. Themobile telecommunication services has improvedsince the establishment of MTC in 1995 (TelecomNamibia and MTC are owned by one holdingcompany belonging to the state) and it is effectivelycompeting with Telecom in call services. The Cabinethas recently approved the licensing of the secondmobile network operator and this is expected toincrease competition and efficiency in the sector oncethe new company enters the market.

Transport SectorIn the transport sector, the white paper on transportpolicy (of June 1995) led to the commercialisation of anumber of government activities, including thecreation of State Owned Enterprises (SOEs) also calledParastatals, in the sector. These include NamibiaAirport Company and Namibia Ports Authority inthe airports sub-sector, the Roads ContractorsCompany, Roads Authority and Road FundAdministration in the road sub-sector. The railnetwork is owned by the government and operatedby TransNamib Limited, also a Parastatal.

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Probably the most important form of transport to thenation is road transport. Namibia has a fairlycompetitive, but regulated public transport sector,which consists of short-distance taxis and longdistance taxis. All taxis are regulated by the Ministryof Works Transport and Communications (MWTC),as well as by local authorities. Most taxi operators aremembers of the Namibia Bus and Taxi Association(NABTA), but membership to NABTA is notcompulsory. In principle, NABTA consults with theMWTC and local authorities when setting or changingtransportation prices.

The only monopoly is in the rail transport whereby itis believed that the market is too small to justify havingmore than one operator. Transport operators thatprovide international air and road transport dooperate in the country, but only on certain routes.

Competition LegislationGlobal ContextEmpirical data and experience suggest that economieswith greater competition are better able to withstandeconomic shocks, and have higher levels and rates ofgrowth in per capita GDP (World Bank 2005). Thismeans that trade liberalisation, promotion of inwardFDI and encouraging entrepreneurship are profoundways of increasing competition in the domestic marketand thereby growth.

Governments often use two basic instruments toenforce a competitive business environment: hecompetition law and competition authorities. Albeitcompetition institutions, objectives and enforcementmechanisms do vary across countries, authoritiesshare core objectives of avoiding anti-competitivebusiness practices, trying to enforce competition inmarkets where it does not exist or is weak andscrutinise new regulations to ensure that they do notinduce anti-competitive behaviour in the market.Competition authorities are usually established undercompetition law. An effective competition policyfosters a flexible, dynamic, and competitive privatesector that leads to sustained and widely sharedeconomic development (World Bank 2005). Thetheoretical rationale of competition policy is tocircumvent or deal with market failures resulting fromthe prevalence of un-competitive market structuresand externalities. The emphasis of competition policyis however on market failure arising from abuse ofmarket power (Ashipala 2004:1).

On the global competition issues, reference can bemade to the United Nations set of principles and ruleson competition. In 1980, the United NationsConference on Restrictive Business Practices adoptedthe set of multilaterally agreed equitable principlesand rules for the control of restrictive businesspractices, which were approved by the UN General

Assembly during the same year. These principlesrecognised the importance in international trade anddevelopment, of competition and consumer welfareespecially relevant for the development needs ofdeveloping countries. As such, these are generalprinciples, mainly to provide guidance with respectto the formulation of national, regional orinternational competition policies. The abridged setof these principles and rules are as below (adoptedfrom UNCTAD 2000):1. Appropriate action should be taken in a mutually

reinforcing manner at national, regional andinternational levels to eliminate, or effectively dealwith restrictive business practices, including thoseof transnational corporations, adversely affectinginternational trade, particularly that of developingcountries and the economic development of thosecountries;

2. Collaboration between government at bilateraland multilateral levels should be established, andwhere such collaboration has been established, itshould be improved to facilitate the control ofrestrictive business practices;

3. Appropriate mechanisms should be devised at theinternational level and/or the use of existinginternational machinery improved to facilitateexchange and dissemination of informationamong governments with respect to restrictivebusiness practices;

4. Appropriate means should be devised to facilitatethe holding of multilateral consultations withregard to policy issues relating to the control ofrestrictive business practices;

5. The provision of the principles and rules shouldnot be construed as justifying conduct byenterprises which is unlawful under applicablenational or regional legislation;

6. The extent to which conduct of enterprises isacceptable under applicable legislation should betaken into account;

7. Developed countries should take into account, intheir control of restrictive business practices, thedevelopment, financial and trade needs ofdeveloping countries, particularly the leastdeveloping countries (LDCs).

Since the adoption in 1980, this set of principles andrules has been reviewed three times under theauspices of UNCTAD – in 1985, 1990 and 2000. Thelast review (November 2005) adopted a resolutionreaffirming the validity of this set of principles andrules as “UN Set of Principles and Rules onCompetition”, and called on all member states toimplement the provisions of the Set.

Namibian Competition LawBefore independence in 1990, competition issues inNamibia have been regulated by the Regulation ofMonopolistic Conditions Amendment Act, 1955 (Act24 of 1955) and its Amendment versions of 1958, 1975

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and 1976. Section 9A of this Act states: ”This Act andany amendment thereof shall apply also in theterritory of South West Africa, including the EasternCaprivi Zipfel” (Legal Assistance Centre, Namlex).This Act was then replaced in South Africa by theMaintenance and Promotion of Competition Act 96 of1979, which was not made applicable to Namibia.After independence, the Regulation of MonopolisticConditions Amendment Act was then repealed by theNamibia Competition Act (Act no. 2 of 2003), whichis yet to come into force as of now. This CompetitionAct made provisions for the establishment of theNamibian Competition Commission (NaCC) toimplement the Act.

As part of its endeavours to enhance efficiency in theallocation of resources and protection of publicinterest, the Act set the following specific objectives:• to promote the efficiency, adaptability and

development of the Namibian economy;• to provide consumers with competitive prices and

product choices;• to promote employment and advance the social and

economic welfare of Namibians;• to expand opportunities for Namibian

participation in world markets while recognisingthe role of foreign competition in Namibia;

• to ensure that small undertakings have an equitableopportunity to participate in the Namibianeconomy; and

• to promote greater spread of ownership, inparticular to increase ownership stakes ofhistorically disadvantaged persons.

GRN 2003 (Act no. 2 of 2003, section 2)

The Act applies to all economic activity in Namibia,or having an effect on Namibia, except the following:• collective bargaining activities or collective

agreements negotiated or concluded in terms of theLabour Act, 1992 (Act no. 6 of 1992);

• concerted conduct designed to achieve a non-commercial socio-economic objective; and

• in relation to goods or services, which the Ministerof Trade and Industry, with the concurrence of theNaCC, declares by notice in the GovernmentGazette, to be exempt from the provisions of thisAct.

Furthermore, the Act binds the state, when the stateengages in trade or business for production, supplyor distribution of goods or provision of any service,but the state is not subject to any provision relating tocriminal liability. The Act applies to activities ofstatutory bodies, except in cases when such activitiesare authorised by the any law. GRN 2003 (Act no. 2 of2003, section 3)

Independence, Capacity and Powers of theNaCCFor effective implementation of the competition law,competition authorities need to be independent,having the capacity (authority and resources) to carryout their functions effectively. Hartzenberg (2003:3)argued that it is necessary that the NaCC isindependent from the MTI in a sense, for the NaCC toget its funding from somewhere else rather thandirectly from MTI. Furthermore, the NaCC needs tohave adequate human and financial resources, whichwill enable it to carry out proper research andinvestigations in order to make sound and informeddecisions. From the outset, the Act established theNaCC to be:• having jurisdiction throughout Namibia;• independent and subject only to the Namibian

constitution and the law; and• that must be impartial, and must perform its

functions without fear, favour or prejudice.

The NaCC is allowed to collaborate or cooperated withits counterparts from other countries on competitionrelated issues. Section 5 (2) of the Act obliges theMinister of Trade and Industry to appoint persons,who are in the opinion of the said Minister, haveexpertise in industry, commerce, economics, law,accountancy, public administration or consumeraffairs. The current situation is that consumers arenot represented in various economic decision-makingplatforms due to the absence of active consumerforums or lobbies in the country. MTI is reportedly inthe process of developing parameters to facilitate theestablishment of a consumer forum. One would feelthat the NaCC is not that independent from politicalinfluence based on the fact that one or twoGovernment officials determine the terms rather thanthe whole Parliament or Cabinet:• NaCC members are appointed (and re-appointed)

by the Minister of Trade and Industry for a term of3 years with a possible re-appointment for thesecond consecutive term;

• NaCC members are remunerated as the Minister ofTrade and Industry, with the concurrence of theMinister of Finance, may determine;

• Key decisions by the NaCC require the approval orconcurrence of the Minister of Trade and Industry.

Some of the powers of the NaCC, some with theapproval of the Minister of Trade and Industry are asbelow:• prescribe procedures to be followed in respect of

applications and notices to, and proceedings of,the commission;

• prescribe fees to be paid for the purposes of thecompetition Act;

• prescribe the procedures for investigations underthe competition Act;

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• prescribe he requirements for the smallundertaking;

• NaCC Inspectors have powers to enter and searchany premises in the course of their duties;

• to search any person or premises if there arereasonable grounds for believing that the personhas personal possession of any document or articlethat has a bearing on the investigation;

• make extracts from, or make copies of any book ordocument found on the premises that has a bearingon the investigation;

• use any computer system in the premises, or requireassistance of any person on the premises to usethat computer system, in the course of theirinvestigation.

GRN 2003 (Act no. 2 of 2003, sections 22 and 34)

Restrictive Business PracticesThe rationale for the competition law derives from theneed to achieve the best possible efficient allocationof resources in the economy. Which means, theresource allocation that is most beneficial to bothproducers and consumers are taken together. Theunderlying objective of the Namibian competitionpolicy is to restrict distortionary effects resulting from:• Collusive practices• Abuse of Dominant position• Mergers

Prohibited Collusive PracticesThe theory of competition policy argues that some formof policy intervention is needed to monitormonopolistic behaviour when buyers are numerousand sellers are few due to economies of scale(Ashipala 2004:2). The Namibian Competition Actprohibits practices and arrangements betweenundertakings that are considered anti-competitive,and thereby detrimental to public interest. The Actprohibits the following conducts:• horizontal and vertical collusion;• market sharing;• collusive tendering;• price fixing;• minimum resale price maintenance; and• bid-rigging.

More exceptions are again made within the Act topromote national socio-economic development goals.This means that the Competition Act is applied inconsistency with many other policies and Acts. In thisregard, its coverage is limited i.e. it cannot regulatematters agreed under a collective bargaining in termsof the Labour Act, 1992 (Act No. 6 of 1992), concertedconduct designed to achieve non-commercial socio-economic objective and goods and services which theMinister together with the commission declared bynotice in the Gazette to be excepted from the provisionof the Act. In addition, it does not prevent a supplieror producer from recommending a resale price

provided that the recommended price is not biddingand the words recommended price appears next tothe price.

Furthermore, the Act makes provision for anyundertaking to apply for an exemption from certainrestricted practices. Conditional or unconditionalexemption for agreements or practices may be grantedto firms who apply if such agreement or practice:• promotes exports;• promotes small undertakings owned by previously

disadvantaged persons;• improves the production or distribution of goods;

and• promotes technical or economic progress in any

industry designated by the Minister.

Other exemptions are based on intellectual propertyrights (IPRs) and on professional rules. TheCommission may, however, revoke the exemption if itis found that the exemption was granted on materiallyincorrect information, and that there has beensignificant change of circumstances since theexemption was granted or if the condition upon whichit was grated has not been complied with (GRN 2003,section 29).

Abuse of Dominant PositionThe Act left the issue of the dominant position to theNaCC and the Minister of Trade and Industry todetermine, but it is to be determined in terms of annualturnover and/or the value of total assets. Dominancecan be defined as the ability of firms to raise pricewithout losing customers while the abuse of dominantposition occurs when firms raise price above long-run marginal cost (Ashipala 2004:3). Under theNamibian Competition Act, 2003, the Minister isallowed or tasked to determine a threshold of annualturnover or value of assets below which anundertaking is not considered to be in a position ofdominance. The Act defines abuse of dominantposition to include:• direct or indirect imposition of selling or purchase

prices, or other unfair trading conditions;• restricting production, market outlets, market

access, investments and technical development ortechnological progress;

• applying dissimilar conditions to equivalenttransactions with other trading parties; and

• making the conclusion of a contract subject toacceptance by other parties, of supplementaryconditions, which have no connection with thesubject matter of the contract.

Dealing with MergersThe Namibian Competition Act defines a merger tooccur when one or more undertakings directly orindirectly acquire or establish direct or indirect controlover the whole or part of the business of another

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undertaking (GRN 2003, section 40). Thus, a mergerentails an acquisition of, control through purchase ofshares, or assets of other undertaking and throughamalgamation with other undertakings. This Actprohibits all mergers which are believed tosubstantially prevent or lessen competition or whichare contradictory to public interests.

The theoretical rationale in favour of mergers standsfrom the economies of scale argument. Larger firmscan achieve productive efficiency through increasedscale of production, which results in reduced long-run average costs. This can come about whenpreviously small firms combine forces in terms ofcapital, research and development, productiontechnologies and other forms in order to becomecompetitive in wider markets context.

From the other perspective, mergers do not increasecompetition in the rest of the economy. In fact, theyreduce the number of competing brands, may createconditions for collective dominance and may lead toincreased non-price competition and reducecompetition at retail level, thereby creating an entrybarrier to smaller rivals (Ashipala 2004:3-4).

Parties to the proposed merger are required to givenotice to the NaCC, which will then carry out anextensive investigation and then announce its verdictwithin 30 days, by a notice to parties and in theGovernment Gazette.

In order to preserve public interests, the followingfactors are crucial in consideration of a mergerproposal:• Whether the flow of benefits from the proposed

merger in the form of enhanced technical efficiency,increased production, efficient distribution of goodsand access to markets outweigh the negative effectsof the merger;

• The extent to which the proposed merger wouldlessen competition or restrict trade;

• The extent to which the proposed merger wouldlead to any undertaking (either involved in themerger or not) acquiring a dominant position;

• The extent to which the merger would affect aparticular industry or region;

• The extent to which the proposed merger wouldaffect employment;

• The extent to which the proposed merger will affectthe ability of SMEs, especially those owned byhistorically disadvantaged persons; and

• The extent to which the proposed merger will affectthe ability of national industries to compete ininternational markets.

If parties to the proposed merger are not satisfied withthe Commission’s verdict on the proposal, the strugglecan be long. The Act provides for the right of the partiesinvolved to apply to the Minister to review theCommission’s decision. If a merger is implemented

in contravention of the provisions of this Act, theCommission may again apply for an interdictrestraining the parties to the merger fromimplementing the merger, to declare the agreementnull and void or to impose a penalty.

In the regional context, the Namibian competition lawis applicable to issues within the Namibian bordersas well as cross-border issues that have effects on theNamibian market. The NaCC is also allowed andtasked with the duty to liaise and exchangeinformation, knowledge and expertise withauthorities of other countries entrusted with functionssimilar to those of the NaCC (GRN 2003, section 16b).It is very important for Namibia to have a competitionlaw that takes into account, regional businessactivities because most of big firms in Namibia arenon-Namibian companies, mainly with their basesin South Africa. Even if the country cannot directlyregulate a foreign business, whose activities havenegative effects on the domestic economy, it can atleast regulate its business activities, say restrictimports if they are found to constitute an unfair tradepractice. Allowing the national competition authorityto collaborate with their foreign counterparts can aswell mean that we are a step closer to reaching a formalagreement on how to collaborate on cross-bordercompetition matters. Such collaboration can bebilateral or multilateral (say a SACU or SADC-widecollaboration).

Implementation of Competition LawThe Namibian Act is still due for enforcement as alaw. The Ministry of Trade and Industry is nowworking on regulations, which will be given tostakeholders for their inputs and the Government willthen promulgate such regulations and the Act will beenforced.

Chapter nine of the Namibian Competition Act makesprovision for the transitional period, between thepromulgation of the Act and enforcement of the Act.According to this chapter, if a merger is effected duringthis transitional period and such a transaction isconcluded after the date of commencement of the Act,such a merger is regarded for a period of 12 monthsfrom the date of commencement of the Act, to be amerger implemented in contravention of chapter fourof this Act. This presents some investment problems,at least for the time-being. Investors are very cautiousand hesitant to implement any joint ventures ofsignificant magnitudes due to uncertainties as towhether such ventures will be allowed to continue orabolished upon the commencement of the NaCC.Namibian consumers appear to be under-representedas national institutions, formally representingconsumer interests are at best weak, or non-existent.The Ministry of Trade and Industry is however in theprocess of setting up or to facilitate the formation of aconsumer lobby.

Namibia


Are we expecting to see the NaCC operating soon?The renewed commitments from the side of theresponsible ministry (MTI) are visible in a recent re-thinking and restructuring of its programmes. Theimportance of competition appears to have been moreappreciated, following the renaming of theRegistration of Companies, Patents and Trade marks(combined with standards weights and measures) tobecome the Domestic Market Competitivenessprogramme (DMCP), which is responsible for thedevelopment of policies, regulations and setting upof the NaCC in terms of the Competition Act of 2003.The Minister of Finance presented a ratherconservative 3-year rolling budget for the financialyears 2006/7 to 2008/9 to parliament on March 16,2006. The new budget period has seen votes increasedfrom 29 to 30 in order to include a recently inauguratedAnti-Corruption Commission (ACC). Over the wholethree-year period, however, the establishment of theCompetition Commission has merely been mentionedunder the vote of the Ministry of Trade and Industry(under DMCP to be precise), but no financialcommitments have been made for the commission.While budget allocations for the whole Ministry aredeclining in absolute figures, specific allocations tothe DMCP are only expected to grow at less thaninflation rate over the three years ahead.

Regional Economic IntegrationNamibia became a member of the WTO in 1994 as afounding member. The goal of WTO is to try to ensurethat member states conduct their business in atransparent and predictable manner. It is expectedthat all bilateral and multilateral trade agreementswould be consistent with the requirements andprinciples of the WTO. Namibia is a member of SACU,CMA, SADC, the EU-ACP agreement (known asCotonou Agreement). The country is also havingbilateral trade agreements with Zimbabwe and withAngola, other members of SADC, and it has recentlydismembered from the Common Market for COMESAduring 2003.

Of all these Regional Trade Arrangements (RTAs),SACU is the most important as far as trade andcompetition issues are concerned. SACU consists ofthe regional economic powerhouse in the region –South Africa, and four small countries, namely,Botswana, Lesotho, Namibia and Swaziland, shortlyreferred to as the BLNS countries. The integration ofthe Namibian economy into SACU as a CustomsUnion means that there are no trading bordersbetween member states and many internationalinitiatives and frameworks such as internationalprinciples and rules on competition do not applywithin Customs Unions.

Though there is no sufficient hard evidence to proveit, there are always outcries from firms based in these

small countries about unfair trade practices by theSouth African companies. As it may be the case inmost parts of the world, infant industry protectionhas been granted to a couple of emerging industriesin these small countries, but they grossly fail to takeadvantage. For Namibia, infant industry status hasbeen granted to two sub-industries within theAgricultural sector – in the Diary (UHT milk) andMilling industries (Pasta), in both cases for an eight-year period running from 2000 to 2008. There areopinions that smaller members of SACU should dosomething about South African firms instead ofkeeping complaining, but having the nationalcompetition policy should be a starting point beforewe talk about having a regional competition policy.Against this background, opinions are held that aregional competition policy will not help much, sincefrom the present evidence it has been noticed thatcompetition laws are only enforceable at nationallevel.

Articles 40 and 41 of the 2002 SACU agreement are oncompetition policy and unfair trade practicesrespectively. The agreement encourages member statesto implement competition policies and to cooperatewith each other vis-à-vis the enforcement ofcompetition laws and regulations. The SACU councilis also charged with the responsibility to developpolicies and instruments to address unfair tradepractices between member states.

Since most, if not all BLNS countries do not have fullydeveloped competition policies and regulations inplace, implementing national frameworks in thiscontext would be the starting point before goingfurther to develop a regional competition policy. Itwould then be up to national implementinginstitutions such competition commissions and sectorregulators to keep checking for unfair trade practicesconstantly. It is also important that competitionregimes take account of other policies such as infantindustry protection to ensure harmony betweenvarious implementing agencies since all these issueshave a bearing on trade.

The CMA comprises of SACU countries, excludingBotswana. This is a monetary area that centralisedmonetary policy with the aim of achieving greaterfinancial stability for the region. The monetary policyis controlled by South Africa, and all other CMAcurrencies are pegged to the South African Rand.

SADC is another regional trading block to whichNamibia is a member, but SADC is not yet at anadvanced stage like SACU. Of all the member statesof SADC, only South Africa and Zimbabwe had fully-fledged competition policy and legislation by the year2002 (Isaksen 2002) and member states are still in theearly stages of reducing trade barriers amongstthemselves.

201

Consumer ProtectionTo date, Namibia has no consumer protection policyor legislation. Before Namibia’s independence in1990, most of South African laws were applied toNamibia. Some of these old South African laws thatare still applicable to Namibia are rather productspecific, not applied to general protection ofconsumers and are mainly regulating credit.Examples include the following (see Legal AssistanceCentre):• Formalities in respect of contracts of sale of land

Act 71 of 1969 (amended in 1978), which setnecessary formalities for the sale of land or certaininterests in land. Section 3 of this Act states thatthis Act and any amendment thereof, shall alsoapply in the territory of South West Africa (nowNamibia).

• Sale of land on instalments Act 72 of 1971 (amendedin 1978), whichregulated the saleand purchase ofresidential landwhere payments areto be made ininstalments over aperiod of at least oneyear. Section 19 ofthis Act states thatthis Act and anyamendment thereof, shall also apply in the territoryof South West Africa.

• Credit Agreements Act 75 of 1980 (amended in1981), which replaced the Hire-Purchase Act 36 of1942. It regulates transactions where movablegoods are purchased or leased on credit. It alsoapplies to services rendered on credit. It is appliedto Namibia through section 1 of the credita g r e e m e n t sproclamation (AG17/1981). Twoamendments havebeen made to the Actsince 1981 andbefore Namibia’sindependence, buthave not beenapplied to Namibia.

Despite insufficiencyon the legal framework,there are still initiativeson the ground, whichare aimed at protectingconsumers. TheNamibia ConsumerLobby (NCL) wasestablished in 1988 with its main goal of protectingthe consumer from possible exploitative practices byfirms, as well as producing better understandingbetween producers and consumers. The NCL has a

good vision, but struggled to make a significantimpact, mainly due to limited human resources andis little known in the country. Further, media coverageof consumer protection issues is very limited and oftenabsent.

In addition, Namibia Financial InstitutionsSupervisory Authority (NAMFISA) providesconsumer education on various services provided bythe non-banking financial sub-sector that it regulates.This includes: educating consumers on microlenders;short term insurance; capital markets; medical aidfunds; and life assurance and pension funds. Thiseducational information is available on the website,but it may only be accessible by small proportion ofconsumers with access to computers and Internetsince other avenues of disseminating this informationare at least not known.

The Ministry of Justice’s Law Reform andDevelopment Committee was working on drafting aconsumer protection law a couple of years ago, butthis has not gone far. According to officials from theMinistry of Trade and Industry, the development ofconsumer protection legislation will be next on theMinistry’s agenda after the completion of thelegislation on the national quality infrastructure.

At the same time, the civil society initiatives to establisha consumer group for Namibia is taking some shape,with the emergence of Namibia Consumers

0%

10%

20%

30%

40%

50%

60%

Ins ign ifican tly o rno t a t a ll

Modera te ly S ign ifican tly H uge ly

B us iness

Consum ers

Governm ent

Figure 7.1: Prevalence of Anti-competitive Practices in the Namibian Markets

Table 7.2: Prevalence of ACPs, Percentage Distribution of Responses

Business Consumers Government Overall

Insignificantly or not at all 23.3 13.3 8.0 15.3

Moderately 23.3 46.7 16.0 29.4

Significantly 30.0 30.0 52.0 36.5

Hugely 23.3 10.0 24.0 18.8

Total 100.0 100.0 100.0 100.0

Namibia


Association (NCA), a consumer organisation recentlyformed that appeared in the media criticising high

bank charges in the country. NCA is in the process tobe registered, first with the Namibia Non-Governmental Organisation Forum (NANGOF) andthen with MTI, following which it would engage moreproactively on relevant consumer issues. However, aconsiderable amount of hand-holding and capacitydevelopment of NCA and its staff would be imperative,especially on consumer protection and competitionpolicy issues.

Perceptions of Respondents toCompetition

Survey ToolsThe aim of the survey was to document views ofconsumers, business people and government officialson the state of competition in the domestic economy,with a special focus on the prevalence and severity ofanti-competitive trade practices in Namibian markets.A structured questionnaire was used for all types ofrespondents, but wider views regarding competitionissues were collected as well. A total of 85 respondentswere interviewed, composed of 30 consumers, 30

business managers or heads of business associationsand 25 policy makers/government officials. While

consumers wererandomly picked atshopping centres,business people andgovernment officialswere selected based ontheir relevant knowledgeand experience.Selected businesses werethose that are subject tocompetition in theiroperations and keyrespondents weremanagers/owners forsmall undertakings ordirectors/marketingmanagers for largerbusinesses. Policymakers were selectedfrom the Ministries of

Trade and Industry, Agriculture, Finance, Mines andEnergy etc. Other policy makers were sector regulators.The survey was conducted in Windhoek, the capitalcity where most of business activities are concentrated.

Anti-Competitive Practices in Namibian MarketsThis section gives the outcomes of the survey for allrespondents, with comparisons being made for thethree types of respondent i.e. businesses, consumersand government.

The respondents were asked to rate the prevalence ofAnti-Competitive Practices (ACPs) and their perceivedeffects on consumer welfare. At least 55 percent of allrespondents indicated that such practices aresignificantly or hugely prevalent in Namibianmarkets, 29 percent said these are moderatelyprevalent, and the remaining 15 percent said theseare insignificant or not prevalent at all. Table 7.2shows the distribution of responses by differentstakeholders.

Government officials indicated that ACPs are muchsevere (76 percent said ACPs are at least significantlyprevalent in Namibia); responses by business people

were much more evenlydistributed, while only 40percent of consumers indicatedhuge or significant prevalence(see Figure 7.1). Similarly,Government officials felt thatthe effects of ACPs onconsumer welfare areenormous, but this timefollowed by consumers than bybusiness people.

Table 7.3: Most Prevalent ACPs in Namibian Markets – by all respondents, % Rank 1 Rank 2 Rank 3 All Ranks

Collective price fixing 15.3 21.2 7.2 14.6Market sharing 17.6 8.2 13.3 13.0Bid ridding 1.2 8.2 7.2 5.5Tied selling 9.4 5.9 12.0 9.1Exclusive dealing 5.9 8.2 6.0 6.7Concerted refusal to deal 1.2 3.5 4.8 3.2Resale price maintenance 15.3 5.9 4.8 8.7Price discrimination 8.2 11.8 18.1 12.6Entry barrier 12.9 16.5 15.7 15.0Predatory pricing 12.9 9.4 8.4 10.Other 0.0 1.2 2.4 1.2Total 100.0 100.0 100.0 100.0

Table 7.4: Economic Sectors Most Affected by ACPs, % DistributionRank 1 Rank 2 Rank 3 All Ranks

Retailing 20.2 10.8 17.7 16.3Utilities 29.8 16.9 16.5 21.1Transport 10.7 20.5 15.2 15.4Financial sector 19.0 15.7 17.7 17.5Telecoms 7.1 12.0 7.6 8.9Wholesaling 8.3 18.1 19.0 15.0Others 4.8 6.0 6.3 5.7Total respondents 100.0 100.0 100.0 100.0

203

most ranked numbertwo, whilewholesaling was themost ranked numberthree. In terms ofoverall ranks,utilities, financialservices andretaining are the most

identified sectors, where ACPs are most prevalent.

There are no significant differences in the type of ACPsthat are prevalent at local level and those that areexperienced nationwide, mainly because operatorswhose trade strategies give rise to ACPs apply theirpolicies nationwide. Given the kind of economicrelations of Namibia and South Africa whereby mostof the big companies in Namibia are branches of SouthAfrican entities and the fact that the two countries aremembers to a customs union, ACPs in the Namibianmarkets originates either within the country or fromSouth Africa. About 65 percent of the respondentsindicated that ACPs originates from outside thecounty as well and this was against a 32 percent ofthe respondents who said these are purely domesticproblems. The remaining three percent chose theoption of don’t know/cant say.

Competition issues do not feature much in publicdiscussions in Namibia, and this has come out clearlythat most people do not know whether there arecompetition related rules and regulations in thecountry or not.

Posing the question whether there are rules andregulations to check ACPs to ordinary consumersproduced a response rate of 53 percent in don’t knowcategory, with the remaining percentages equallyshared between yes and no. Similar responses havebeen observed for the business people and Governmentofficials (see Table 7.5 and Figure 7.2). For all therespondents together, about 52 percent did not knowwhether there are competition related rules andregulations in the country.

There is a clear indication that the awareness aboutthe existence (or non-existence) of rules andregulations to check ACPs is low amongst allrespondents, as most have chosen don’t know/cant

It is clear that the votes by business people are widelydistributed across the four categories, the majority ofconsumers (46.7 percent) indicated the ACPs aremoderately prevalent, while the majority of policymakers (52 percent) indicated that ACPs aresignificantly prevalent.

Various types of ACPs were listed and definitions andexamples provided to the respondents. Respondentswere then asked to list and rank the three mostprevalent ACPs in order importance. Table 7.3 showsthat market sharing and collective price fixing are themost ranked number one problems, with 17.6 percentand 15.3 percent respectively. Entry barrier andcollective price fixing have been identified by mostrespondents to be amongst the three most prevalentACPs on Namibian markets (last column, Table 7.3).

The results also shows that votes are widelydistributed amongst various anti-competitivepractices, conforming to some views that all listedACPs are prevalent in Namibia.

Business people identified entry barrier, pricediscrimination and predatory pricing as the mostprevalent ACPs, consumers voted for collective pricefixing, price discrimination and market sharing to beon top, while policy makers identified collective pricefixing, market sharing and predatory pricing as thetop three.

Having identified the most prevalent ACPs, Table 7.4illustrates information about sectors that are believedto be the most affected by ACPs i.e. sectors in whichmost ACPs are prevalent.

The sectors identified to be most affected by ACPsinclude retailing, utilities and transport. Utilities,retailing and financial sectors have been rankednumber one by most respondents, transport was the

Table 7.5: Awareness About Rules and Regulations to Check ACPs, % Distribution


Yes 6.7 23.3 16.0 15.3

No 36.7 23.3 40.0 32.9

Don’t know/cant say 56.7 53.3 44.0 51.8

Total 100.0 100.0 100.0 100.0

Table 7.6: Preferences on Involvement of Stakeholders in NaCC Functioning

Business Consumers Government All Respondents

No. % No. % No. % No. %

Yes 12 60.0 20 87.0 21 91.3 53 80.3

No 6 30.0 1 4.3 1 4.3 8 12.1

Don’t know 2 10.0 2 8.7 1 4.3 5 7.6

Total 20 100.0 23 100.0 23 100.0 66 100.0

Namibia


say category. Awareness is much better amongstGovernment officials followed by business people.

About 78 percent of all respondents preferred that acomprehensive competition law that covers all areasof commercial activity and all types of enterprises andpersons be put in place. This is pretty much what theNamibia Competition Act (due for enforcement)provides, by covering all commercial activities andmaking exemptions on a case-by-case basis.Exemption can be granted to entities that promoteexports, and entities whose activities are helping inthe promotion and development of smallundertakings owned by previously disadvantagepersons with an intention to make these undertakingscompetitive, promoting technical progress etc (GRN2003, sub-section 28).

Over 60 percent of respondents preferred to have anautonomous Competition Authority over other formsof institutional set-ups, emphasising that such anauthority can achieve both autonomy in decisionmaking and financial sustainability by being fundedin a similar way as the national judiciary. TheCompetition Act did make provision for the NaCC tobe independent, but that independence may well beundermined procedures regarding appointment ofcommissioners, determination of benefits of thecommissioners and the power of the commissionersto make decisions. Furthermore, about 55 percent ofrespondents prefer that the competition regime shouldhave both investigative and adjudicative powers andaround 97 percent feel that it should deal with unfair

trade practices and consumer protection issues as itscore business. This is well in line with the provisionsof the Competition Act. The current procedure is thatNaCC would investigate, and impose fines, ifnecessary, based on its findings. If the fined entity isnot happy, then the issue can be taken to the highercourt.Based on the survey, a competition regulator, whichcoordinates with specialised sectoral regulators (asopposed to having power over sectoral regulators) isslightly preferred over other forms of institutional set-ups. Other institutional arrangements that have beensuggested are concerning the number of regulatorswho have a lot to do with competition e.g. having thecompetition regulator with power over sectoralregulators or even to have a single utility regulator,combining all specialised regulators. The later ismainly justified on the need to avoid having too bigand too many institutions (single regulator requiresless support staff), but it also has a bearing onimplementation of competition rules. In this case, theprevailing relationship between the competitionregulator (NaCC) and specialised sector regulators isthat if there is a conflict between NaCC and a sectorregulator regarding competition, the decision of NaCCwill prevail.

Should NaCC involve different stakeholder group inits functioning? The Competition Commission needsto source information and other inputs from the publicand from stakeholders who may be in better positionsto know. The question is whether these stakeholdersshould be involved as part of investigations or any

other formal structures of theNaCC. It is good to havedifferent perspectives into aninvestigation, but there is alsofear that various stakeholderswill attempt to influenceoutcomes to suit theirparticular interests or evenmake the whole processbureaucratic.

Posing the question torespondents, about 80 percentagreed that stakeholdersshould be involved, preferably

Table 7.7: Necessary Action Against ACPs, Number and % of Responses

Business Consumers Government All Respondents

No. % No. % No. % No. %

Legislation 14 48.3 19 63.3 3 12.0 36 42.9

Judiciary 11 37.9 6 20.0 11 44.0 28 33.3

Consumer Forums 2 6.9 2 6.7 4 16.0 8 9.5

Other 2 6.9 3 10.0 7 28.0 12 14.3

Total 29 100.0 30 100.0 25 100.0 84 100.0

0

10

20

30

40

50

60

Awareness (%)


Stakeholders

Figure 7.2: Stakeholders' Awareness of Rules & Regulations Related to Competition Issues in Namibia

Yes No Don't know/Can't say

205

through structured consultative committees. Table7.6 shows that Government officials prefer more thatstakeholders become part of NaCC structures (by 91.3percent), followed by consumers (87 percent) then bybusinesses (60 percent).

With the Competition Act not yet into force, and withweak or non-existent consumer forums, there is aconcern about how to safeguard the welfare ofordinary consumers who are the most likely to havethe least information about markets in which they findthemselves as participants. Consumers are not theonly vulnerable group as new or small businessesmay well find themselves on the receiving end as theircompetitors may try to eliminate them from markets.The question was posed to all respondents as to howone would react when an ACP is encountered.

Despite having no competition law in place andconsidering limited affordability of judiciarylitigation, over 33 percent of respondents indicatedthey would seek help from judiciary (Table 7.7).Besides, it emerged shows that the majority ofconsumers and business people would like to revertto the legislature for help, while the majority ofGovernment officials would seek help from judiciary.The Government does have the policy to intercede inthe market when competition is not fair, but limitingsuch intervening cases is part of the policy objectivesas well. Some respondents, who fell into the category‘other’, felt that there is nothing an ordinary personcan do at the moment given that there is no specificlaw in place and even more, taking the issue to thehigh court is not something that many can afford. Thisis probably the most correct statement as it was madeby officials who are in the best positions to know.

ConclusionsNamibia has four natural monopolies in thetelecommunications (Telecom Namibia), utilities(NamWater and NamPower) and rail transport(TransNamib) sectors. The economy faces challengesthat include the need to diversify export products andimport/export destinations in order to reducevulnerability. To achieve and build competitivemarkets, Namibia does not only need to encouragethe entry of new firms, but also more importantly newfirms with different ownerships and from marketswith different characteristics.

Namibia lacks written policy and legal frameworksin areas of trade, industrial development andcompetition. These shortcomings make it difficult toregulate and control trade and competition relatedmatters in the country and also not having theseframeworks in place makes it difficult for the countryto embark on regional (SACU) trade competitionframeworks.

The prevalence of multinational corporations in theeconomy (at least in the sense that Namibia is part ofSACU), particularly their dominance in developingeconomies calls for regional or internationalcollaboration on competition issues in order to curbcross-border anti-competitive practices. TheNamibian competition legislation makes room forsuch collaboration, by allowing the NaCC tocollaborate with their counterparts outside thecountry’s borders, but Namibia has no trade borderswith its main trading partner.

The Namibian Government is one of big producers,making large contributions to its national output. Italso maintains monopolies and oligopolies in variousmarkets, the situation which may remain for decadesbefore any serious liberalisation could be witnessedin some of those economic sectors. Examples of suchsectors are electricity, water, telecommunications andtransport industries.

The Namibian Competition Act (2003) is underwayfor implementation. Under this Act, competitionrelated developments that take place over the periodof 12 months before the enforcement of this Act will besubjected to the scrutiny of the NaCC i.e. competitionrelated developments over this period are required tocomply with the provisions of the Act as well. Allcases regarding Restricted Trade Practices (RTPs) willbe recorded and dealt with once the NaCC comes intooperation. What this means to hesitant investors isthat there is more uncertainty when making somebusiness decisions, which may involve acquisitionsor mergers because the competition law will basicallycome in place 12 months before the enforcement of theAct and the subsequent commencement of the NaCC.

The Act makes provision for the establishment ofNaCC, as an independent body subject only to theNamibian constitution and has jurisdictionthroughout Namibia. This independence mayhowever be limited as political approval is requiredin most of decisions that NaCC would make.Furthermore, at most two Ministers determine thebenefits of the NaCC members. The usual preferenceis that the benefits of the commissioners be determinedby the Parliament, and that the CompetitionCommission should remain responsible to theParliament and to the Constitution of the Republic.

There is no clear sign of the NaCC commencing withits full functions in the very short term because of thefollowing:• The NaCC is not explicitly catered for in the current

3-year National Budget, which runs from 2006 toearly 2009. However, since this is a rolling budget,there is nothing preventing us from believing thatfinancial resources may be allocated for theestablishment of the Competition Authority as fromApril 2007;

Namibia


• Upon the enforcement of the Competition Act, andofficial inauguration of the NaCC, Commissionersand the Minister of Trade and Industry will haveto determine procedures and other issues left openby the Act (to be gazetted) before they can start.Examples include the need to prescribe criteria fordetermining whether a firm has a dominantposition or not; the Minister with the occurrence ofthe NaCC may need to determine classes of mergersto be exempted from provisions of chapter four andso on;

• The Minister needs to give notice in the Gazetteabout the date when this Act or various provisionsthereof should come into operation, which meansthat the whole competition law would not beexpected to come into operation at the same time.

It is however expected that NaCC will be funded fromother sources when it commences with its operations.

Despite the fact that consumers are not a minoritygroup in any sense, consumer interests are under-represented in Namibia. Namibia still does not havea consumer protection law in place; no effectiveconsumer lobby at the moment; and consumer welfaresections in regulatory institutions and in privatebusinesses operate voluntarily with no realobligations. It is however the responsibility of the

state (not only Government) to ensure that consumersare organised, empowered and be brought on boardas key stakeholders in policymaking. There is somehope on the horizon with the recent establishment ofthe Namibia Consumer Association (NCA). In viewof the fact that the Government had already embarkedon an exercise to operationalise a Consumer ProtectionAct for Namibia, it is recommendable that theGovernment accelerates this process, and facilitatesthe activities of NCA.

From the survey that was conducted as part of thisreport, entry barriers, collective price fixing and marketsharing came out on top as the most prevalent ACPs,but ranking votes were widely distributed, conformingto the view that most types of ACPs are prevalent inNamibia. The sectors identified to be the leading onesin which ACPs are most prevalent are utilities (waterand electricity), financial services and generalretailing.

The awareness of respondents about competitionrelated rules and the status of the current competitionregime are rather weak and one can only expect thatto improve once the competition authority is in placeand when the activities of consumer associations areintensified.

Note: This chapter has been researched and written by Rehabeam Shilimela of the Namibia Economic Policy ResearchUnit (NEPRU), Namibia . The author acknowledges the comments received from the members of the ProjectAdvisory Committee. Comments and suggestions on the structure and content of this paper were also receivedfrom Dirk Hansohm of NEPRU, Namibia and Nitya Nanda of CUTS CCIER and incorporated appropriately.

207

IntroductionUganda remains one of the poorest countries in theworld, with low per capita income and high ruralpoverty. A series of household expenditure surveysduring the 1990s show that the percentage ofUgandans living below the poverty line ofapproximately US$1/day has declined markedly,from 56 percent in 1992 to 35 percent in 2000, butrecently increased to 38 percent. The significantdecline in poverty has been linked to considerableeconomic growth and expansion of the economy formost of the 1990s.

Sovereign trade and investment liberalisation hasbeen a key to Uganda’s economic performance sincethe mid-1980s. Along the path of this developmentwas the realisation that anticipated transformationswould require attraction of foreign donors andinvestors and creation of conditions for rapideconomic recovery.

Uganda’s recent performance testifies to whatliberalisation and economic reforms could achieve ina poor, devastated economy. It is vital to note thatcontinuation and consolidation of the process iscrucial in the rebuilding of the economic structure;trade policy, in particular, the creation of a domestictrading environment devoid of traditional command-economy era biases.

Enhanced international integration, based oncommitments under the East African Community(EAC), the World Trade Organisation (WTO) and theCommon Market for Eastern and Southern Africa(COMESA), in spite of several teething andfundamental concerns, are helping to ensure that themomentum of reform spurs resource efficiency,provides market potential for emerging industries, andencourages long-term development of trade andinvestment.

Virtually, all restrictions have gone since theintroduction of automatic licensing under far reachingtrade reforms in 1991 in both the export and importtrade sub-sectors. The restrictions, policy remnantsfrom the pre-1987 economic liberalisation drive, werelargely crafted to protect local industries that were

predominantly state-owned. Now the private sectordominates and there is considerable competition inall spheres of economic activities.

Laissez faire policy developments like those governingprivatisation and investment led to a huge influx offoreign capital and rapid expansion of the privatesector amidst debate as to the right extent of stateregulation of conduct in private sector spheres.

However, since the adoption of market-orientedeconomic policy entailed the withdrawal of the statefrom the industrial and service sectors so as to makeway for private initiative, the environment requiredfresh examination. This was because the customaryefficiency of private capital does not necessarilytranslate into an improved economy, as a market madeup of private actors will not necessarily be competitive.As was predictably established in several recentstudies (including “The state of competition in Uganda,”carried out by CONSENT with support from CUTSInternational) the local market is replete with anti-competitive practices. The growth of foreign directinvestment (FDI), trade, regional and sub-regionaleconomic integration and cooperation have led topractices such as restrictive business practices,including price cartels, market sharing, among someof the undesirable and deleterious practices. Thesepractices, if not checked, could adversely impact uponcompetition and therefore are inimical to consumerwelfare, as well as economic prosperity of Uganda.

Anti-competitive practices may constitute an obstacleto the achievement of optimal economic growth, tradeliberalisation and economic efficiency within thecountry and in the immediate region or beyond.

It is well established that even if all other structuresare in place to support a market-oriented system, itcannot be assumed that the private sector will operateindependent of each other in the marketplace, or thatthe interaction of market forces will automaticallymaximise consumer welfare. Therefore, it is pertinentthat the state intervenes to protect competition byprohibiting agreements and activities that undermineconsumer welfare. This intervention takes the form ofcompetition policy.

Chapter 8Competition Scenario in Uganda

Uganda


Table 8.1: Vital Socio-Economic Statistics on Uganda

POLITICS & GEOGRAPHY

Geographical location

Geographical neighbours

Administrative system, structure

Area

Life expectancy

Population distribution

System of government

SOCIAL & HISTORICAL POINTERS

Historical background

Major languages

Major religions

Number of phone lines

Access to electricity

Access to clean water

Literacy rate

Adult HIV prevalence

No of radio sets (per 1000pple)

No of television sets (per 1000pple)

Prevalence of poverty

Available HEP capacity

Population / population density

Population growth / fertility rate

ECONOMICS & TRADE

Main exports

Monetary unit

East Africa, astride the Equator, land locked

Kenya, Tanzania, Sudan, Democratic Republic of Congo,Rwanda

Decentralised system with central government retainingrole of policymaking, supervision and admin. Units - 76districts

241,038 sq km (93,072 sq miles)

45 years (men), 47 years (women) – UN

82% rural, 18% urban

‘No party’ movement system, transiting to multipartydemocracy after 2006 elections

Former British protectorate, stable before independence butchaotic afterwards (turmoil, unrest, economic decline)

English (official), Kiswahili, Ganda

Christianity, Islam

1,500,127 mobile, 100,056 fixed (5% penetration) –MoFPED, June 2006

5% of population (250,000 connections - ERA)

60% (national), 55% rural – 2004 (DWD)

69.9%

7% (MoH, 2005)

130 (unicef, 2002)

16 (unicef, 2002)

38% (MoFPED, 2004)

315mw (April 2005- ERA); reduced to 200mw at of 2005and to a crisis 170mw in January 2006

27 million / 126 persons per Km2 (MoFPED, 2005)

3.4% PA / 6.8 children per woman

Coffee, Fish and fish products, tea, tobacco, cotton, maize(corn), beans (MoFPED)

Uganda shilling

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However, in Uganda, the need for such interventionhas been met with considerable debate, and in somerespect, resistance. This is part of broader debate aboutthe desirable balance to be kept between regulationand deregulation under the framework of economicliberalisation. In many countries, competition policyand law expressly incorporates economic and socialpolicies that are different from, if not antithetical to,the protection of competition.

In this respect, stakeholders have spoken at lengthabout policies that include: promotion of economicefficiency; promotion of production or distribution ofgoods/or technical or economic progress; protectionof consumers; promotion or strengthening of exports;protection of economic freedom; and protection of the‘public interest’.

Against this backdrop, the need for stakeholderawareness, advocacy, and consensus building cannotbe overstated. This is underscored by developmentslike the twin processes of developing competition lawswithin the EAC and COMESA. This is buttressed bysimilar developments at the local level, involving thedrafting of a law to regulate competition.

This Country Research Report on the competitionscenario in Uganda is in respect of a two-year study‘Capacity Building on Competition Policy in SelectCountries of Eastern and Southern Africa’ codenamed7Up3.

As part of the study, a survey was carried out inUganda and the findings are detailed in later chaptersof this report. It is envisaged that the above and otheractivities to follow should go a long way in enablingthe realisation of the project that aims: to develop thecapacity of national stakeholders, including the policymakers, regulators, civil society organisations (CSOs),academicians and the media in each of the projectcountries, through a participatory process, inunderstanding and addressing prevailing

competition concerns from the national, regional andinternational perspectives, and enabling them to playtheir respective and expected roles.

Social and Economic PoliciesAffecting Competition

Development policy: Poverty EradicationAction Plan (PEAP)Poverty Eradication Action Plan (PEAP) is also thecountry’s Poverty Reduction Strategy Paper (PRSP)that provides an over-arching framework in guidingpublic action to eradicate poverty. It has been preparedthrough a consultative process involving central andlocal Government, Parliament, donors and civilsociety. Under the plan, Government should ensurethe provision of public goods to support bothagriculture and industry. In order to reverse the recentmarked increase in inequality, Government aims toincrease the ability of the poorer households toparticipate in economic growth through self-employment in and outside agriculture and wageemployment. The PEAP provides the foundation for avibrant and competitive economy with forward andbackward linkages amongst the component sectors.

Following are the four core challenges for the PEAP,including:• The restoration of security, dealing with the

consequences of conflict and improving regionalequity;

• Restoring sustainable growth in the incomes ofthe poor;

• Human development; and• Using public resources transparently and

efficiently to eradicate poverty.

The PEAP is grounded on five ‘pillars’ or components:Economic management; Production, competitivenessand incomes; Security, conflict-resolution and

Exchange rate

GDP per Capita

Integration, trade arrangement

Major taxes

Total External debt stock

Inflation

Tax revenue

$1=sh1,800; º1=2,200; £1=3,200

US $240 (MoFPED, 2005)

Member of EAC, COMESA, WTO, OIC, ESA, IGAD

Income tax (including corporate tax), withholding tax andrental income tax; value added tax (VAT); excise duty oncertain products and sales tax. Imported goods attractimport duty and import commission. (Source: MoFPED)

US$ 4.3billion [10% GDP] (2003/04 – MoFPED)

7.0% (March 2004 – MoFPED)

12% of GDP (MoFPED)

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disaster-management; Governance and Humandevelopment. Considered together, the five pillarsprovide a framework for improved distribution ofresources, engagement in economic production andimproved welfare of citizens (consumers) albeit lacedwith elements of competition.

However, the first and second pillars i.e., economicmanagement and improved production,competitiveness and incomes have direct inferenceand reference to market competition. In theory andpractice, the authorities have ensured the adherenceto the pillars through liberalisation of the country’seconomy, regardless of the prevailing shortcomings,deficiencies and consequences.

Also, government has formulated and implementedthe Medium Term Competitive Strategy (MCTC),conceived as a means to remove obstacles tobusinesses, in a bid to deepen liberalisation andcompetition in the marketplace. The MCTC is anoffshoot of the PEAP, as it is the over-archingframework for formulation of public policy. Andunlike PEAP, it is relatively easier to trackimplementation of the MCTC, particularly in the shortrun as budgetary allocations are normally set asidefor the purpose. Preliminary reports indicate somesuccess in implementation of the MCTC, althoughthere remains a long way before most of the majorobstacles (that also include legal and policy reforms),could be in place.

Industrial PolicyThe country’s industrial sector is still small butgrowing steadily and is now completely dominatedby the private sector – both local and foreign. Thesector is dominated by processing industries usingagricultural produce e.g. Coffee, textiles, sugar, beer,leather and tobacco among the major ones.

The sector is steadily transforming from import-substitution to an integral part of the economy withforward and backward linkages aimed at contributingto the country’s pursuit for improved production,competitiveness of its products and improvement ofincomes for poverty eradication. However, acomprehensive policy on industry is not yet in placeexcept some scattered provisions.

Nevertheless, considered together, the scatteredprovisions provide for a competitive environment withhardly any impediments, save for provisions over theenvironment and land rights as provided for inenvironment and land laws. Licensing requirementsin place do not constitute barriers to competition butrather are part of regulatory requirements aimed atconsumer protection, technical regulation, generally,to ensure adherence to relevant laws, rules andregulations.

With deep privatisation that started in the ‘1990s,there are hardly any national champions left. Evenwith the few that have been in existence, protectionhas been in the form of short-term fiscal rather thandirect legal instruments or provisions in relevantpolicies or laws.

Trade policyUganda does not have a modern, comprehensive tradepolicy but a series of scattered provisions in placetaken from other policies. Considered together, thesescattered provisions seek to facilitate the full andeffective integration of Uganda into regional andglobal markets, including the economic and socialtransformation of Uganda into a competitive, flexibleand outward-oriented economy for the benefit of allUgandans. The policy is anchored on the principlesof liberalisation aided with strong elements ofcompetition set on an outward looking framework.

Uganda extends tariff preferences only to countriesin the COMESA group and to Kenya and Tanzaniaunder the East African Community Treaty. Nearly 800products are covered by these preferences.

Trade AgreementsLargely spurred by globalisation and the need toreactivate regional integration efforts that broke downin the 1970s, Uganda has signed several tradeagreements and is playing an active role in multilateraland regional trade negotiations. The country is amember of the following regional and multi-lateraltrade agreements:I. The World Trade Organisation (WTO);II. The ACP-EU Cotonou Agreement;III. New Economic Partnership for Africa’s

Development (NEPAD).IV. Common Market for Eastern and Southern Africa

(COMESA);V. The East African Community (EAC); andVI. Inter-Governmental Authority on Development

(IGAD).

In addition to the above, Uganda as a Least DevelopedCountry (LDC), is a beneficiary to a number of marketaccess initiatives. Prominent among these initiativesare:• The Africa Growth and Opportunity Act (AGOA)

of the US; and• Everything-But-Arms (EBA) of the European Union

(EU).

The net effect and objective of the country’sinvolvement in the various trade and economicgroupings is a drive towards an outward lookingeconomic dispensation in which there is free entryand exit of capital, and where market forces determinedemand and supply of goods and services. So far, thecountry has a laissez faire trade policy that guarantees

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more than minimal levels of competition in all spheresof trade (the market).

Regulatory PolicyLiberalisation and privatisation in the early 1990s ledto restructuring of the economy informed by shiftingof the means of production and changing roles of thestate. Deregulation was instituted in sectorsconsidered crucial to the economy to check anti-competitive activities and take charge of firms andpersons whose actions could be injurious to theeconomy and to individual consumers. It was alsodue to the need to put in place a rigorous regulatoryregime following withdrawal of government frombusiness.

This would be particularly a danger in areas whereone, two or three firms may be operating therebyraising the prospect of price-fixing, attempts to runcompetition out of the market through hostiletakeovers, and creation of virtual monopolies etc.Through bodies like the Uganda CommunicationsCommission (UCC), the law has prescribedsafeguards. The framework covers licensing,supervision, regulation and surveillance. Theagencies have investigative powers as well as powersto discipline, handle consumer complaints and toarbitrate in disputes involving firms. The bodies enjoya large measure of operational and financialautonomy, although they are still under the oversightof a Minister responsible to the Cabinet and haveultimately to account to Parliament through therelevant Minister.

In addition, there are intra-sectoral councils andassociations like the Pharmaceuticals Council andAssociation, Law Society and Council, Medical andDental Practitioners’ Council and the BroadcastingCouncil with powers to set or advise on operationaland ethical standards and a code of conduct; powersto investigate member (individuals or companies) andeither directly take or recommend disciplinary action.In this respect, this voluntary sector association mayact on its own or at the request of or in concert withthe sector agency or government.

However, the case of recent action by the MediaCouncil delegating its powers to the Media Centre,including powers to revoke licences of practisingjournalists, a non-statutory body created bygovernment raises questions of concern overindependence of regulatory bodies and their capacityof oversight as well as limitations over industry players.Therefore, while regulatory policy has had significantsuccess in elimination of structural bottlenecks,remnants from the days of the command economy,inensuring order in the marketplace, shortcomingsremain, underlined by several cases (at least as reportedin the media) where the authority of regulatory bodieshas been undermined or interfered with.

Investment policyGovernment created the Uganda Investment Authority(UIA) in 1991 partly to effect emphasis on investmentas the engine of growth. The UIA was formed topromote and facilitate investments in Uganda, andadvise the Government on policies conducive toinvestment and provide information on investmentissues, among others. One of the core functions of theUIA is attracting FDI into the country, as well aspromoting investments by Ugandans.

Following failure to realise its original mission, theUIA’s role was later changed to a one-stop centre forprospective investors. Along with the creation of theUIA, Government put in place a law to govern foreigninvestments – the Investment Code of 1991. However,the Code has been reviewed and the flagship ‘carrot’,— a package of investment incentives, including taxholidays to investors has since been scrapped. All taxbenefits under the new incentives regime have beenharmonised so that eligible investors enjoy the benefitsdirectly without need for a certificate of incentives aslong as they make investments of a capital nature.

The above development, in a classical view of theprevailing investment policy framework, ‘levelled’ theground for investors, local and foreign. Before thescrapping, it had been observed that the country’sinvestment sector had suffered a reversal with foreigninvestors getting a preference package at the expenseof their local counterparts, a practice deemed outrightanti-competitive. Although elements of ‘anti-competitiveness’ (like insistence on sourcing a portionof raw materials locally, regardless of cost as well aslimitation of players in certain sectors liketelecommunications) still exist, the sector generallyremains liberal and competitive.

Government Procurement PolicyThe need for transparency has resulted intotightening the regulatory noose around publicprocurement. It’s now governed by a separate policyand law in Uganda and is under the regulatoryoversight of an independent body — the PublicProcurement and Disposal of Assets Authority(PPDA). Consequently, it has had the double effect(benefit) of helping to improve transparency as wellas upping competition as new rules explicitly call for‘competitive bidding’ for services/goods whose valueexceeds US$5,000. This has dealt a blow to thetendencies by departments and public servants thatuse arbitrary powers, many times unfairly orcorruptly, to procure goods and services ostensibly inpublic interest.

Before the above reforms, public procurement waslargely a den of corruption with public servants takingbribes before awarding contracts or outrightlyawarding contracts to firms in which they had visibleinterests. Well, as such cases have not completely been

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uprooted, there is a marked decrease of corruption inpublic procurement, at least according to perceptionsand anecdotal evidence. What remains to be done isto improve the regulatory capacity of the authority,especially its investigative capacity in a bid to identifyand counter anti-competitive practices like bid riggingthat are ‘white collar’ in nature and therefore hard todeal with under the status quo.

Labour PolicyIn principle, labour policy is liberal and conducive;allowing free movement of labour Rights of workershave to be protected as enshrined in variousinternational laws, treaties and regulations to whichUganda is a signatory.

However, until recently, the main drawback wasfailure to enact modern labour laws and review ofexisting ones, a shortcoming blamed for prevalenceof abuse of workers by unethical employers. Severalmedia reports have also pointed towards the existenceof sweatshops (work places where workers’ rights areabused and/or, are exploited) in the country at thehands of mainly foreign investors.

The labour sector received a big shot in the arm withrevitalisation of the labour movement from the 1990sat a time when the Government was carrying outrestructuring of the economy legal/policy reforms.Complementary efforts from private sector bodies likethe Federation of Uganda Employers (FUE) havechannelled consequential synergies into a push forbroader ownership of the policy and law reformprocess.

Also, the long awaited modern labour framework wasenacted in March 2006, aimed at addressingcontemporary issues in the increasingly dynamicmarketplace. In this respect the laws included-theEmployment Bill 2005 (consolidating and revising thelaw relating to employment) and the OccupationalSafety and Health Bill 2005 (reforming the law relatingto safety at workplace) Others include the LabourDisputes Bill 2005 (to address arbitration and disputessettlement) and the Labour Unions Bill 2005 (toprovide for issues pertaining to workers’ rights andthe need to consolidate interests.

Even with the laws being in place, local businesses issometimes seen by sections of their foreigncounterparts as employing ‘cost cutting’ measuresthat violate labour rights, for instance, payment ofcomparatively low wages, longer hours of work, anddenial or exclusion of benefits like insurance, etc. Suchmeasures help local companies save on their cost ofproduction, which foreign companies claim give localcompanies upper hand with regards pricecompetition in similar products. Foreign companiesassert that such practices constitute elements ofunethical behaviour that hinders competition.

It is envisaged that when fully implemented, the newframework should make the country’s labour policysufficiently flexible so as to encourage investmentsbecause labour-related issues would not constitutean impediment to free entry and exit from markets.

SMEs PolicyImportance is being attached to Small and MediumEnterprises (SMEs) although there is lack of acomprehensive policy to address the enterprisesholistically.

SMEs provide for about 12 percent of employment inrural areas and 40 percent in urban areas. Governmentplans to develop a cost effective way of deliveringservices to them, particularly in business developmentskills and has indicated that it intends to review themethod of taxation used for this sub-sector. As a gain,bureaucratic obstacles to their operations are expectedto be reduced by the systematic and consultativescrutiny of proposed new regulations and review ofexisting ones. In practice, SMEs in Uganda have beenfaced with several obstacles e.g. access to credit, poorinfrastructure, inaccessibility to utilities etc., that haverendered them uncompetitive, contrary to expectationsthat they enjoyed privileges – essentially on paper –that protected them against external threats.

However, the long-term interests and concerns ofSMEs can only be addressed under a relevant policyand institutional framework established through aparticipatory approach in which industry players areinvolved. Well, as the prevailing dispensation iswrought with relative disorganisation, the overallenvironment guarantees competition in themarketplace but falls short of precepts required toregulate conduct with a view to checkingmalpractices. Affairs of SMEs are not governed by acomprehensive policy and institutional framework;there is sufficient competition by default, owing to thenature of the environment (many players due to liberalentry and exit ‘rules’). However, this leissez fairedispensation falls short of guaranteeing consumerprotection and economic efficiency like what wouldbe expected from a situation where competition isregulated.

Consumer PolicyCertain provisions on consumer protection andwelfare exist in sectoral policies e.g. water,telecommunications, electricity, etc. However, acomprehensive consumer protection policy is not inplace yet, although a draft to the effect is expected tobe originated by the Cabinet at the same time when itwould be considering the draft proposed ConsumerProtection Bill.

The absence of consumer protection policy andsupportive legislation in the country means that

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consumer perspectives are seldom taken into accountin the formulation of public policy. In case they areconsidered, it is haphazardly done. Therefore,enactment of policy to this effect will go a long way inrefocusing the attention of authorities andstakeholders on the market practices that may bedetrimental to the interests of both consumers andbusinesses alike.

However, on the whole, the strength of the country’sscattered consumer policy is a reality that it isanchored on principles of liberalisation and free-market approaches that guarantee more thanminimum competition in the marketplace.

Nature of Market CompetitionOverviewThe market economy is still in its infancy,characterised by absence of enabling laws/institutions in some sectors (and industries) or theexistence of inadequate and/or archaic policies andlaws e.g. sale of goods, consumer protection, foodsafety, Intellectual property etc. The emergence ofcompetition in the marketplace has largely been as aresult of Government direct involvement in attractionof investments or enhancement of capacity forprovision of goods and services where none existedor where their existence was inadequate.

Consequently, except in retail trade, the level ofcompetition locally is relatively low given the infantnature of the country’s industrial and service sectors.In other areas of the services sector, there exists relativecompetition, although high market concentrationremains a barrier to the attainment of desirable levelsof competition in the marketplace. In areas involvinghuge capital investments, a de facto oligopolistic setuphas emerged. This includes the utilities sector.

There is market concentration in several sectors of theeconomy, particularly in financial services(insurance), manufacturing (mainly food processing)and beverages, among others. Under this set up,dominant entities normally set the pace in form of defacto leadership on all fundamental aspects of theirrespective sectors thereby hurting competition.

A monopolistic competitive dispensation prevails inseveral sectors. The effect of all this is that there are

many cases of anti-competitive behaviour in themarketplace that is/or, could be deleterious to bothmarket competition (and related consequences) aswell as consumer welfare.

Alongside this, involvement of the state in businessstill exists to some extent, for example, in telecom,power, milk processing, etc. Also, policy options thathurt competition like ill-enforced public procurementand selective and inequitable provision of subsidiesto some businesses and industry e.g. BHS Limited,GBK Limited and generally, urban formal businessesas opposed to rural and small scale businessesprovide cases to examine and enforce competition inthe country.

However, multinationals are making in-roads into themajor production sectors of the economy as well asprovision of basic services. With the opening up ofborders under the EAC Customs Union, COMESAand the WTO, the need for competition regulation hasnever been timelier.

Institutional FrameworkUganda’s economy until very recently has been highlyregulated. When competition68

was not deliberatelyand negatively interfered with, it was ‘encouragedrather haphazardly. Competition was dealt withusually in the context of other legislations and notdirectly. Therefore, one can hardly speak of aninstitutional framework69 , rather of a series of sectoralarrangements. In addition, and perhaps to be fair tothe authorities of the day, the majority of firms inUganda are small family controlled entities, makingthe need for an enforceable competition regime hardto implement.

Due to the nature of the country’s economy, suchphenomena as mergers, takeovers, monopolies andprice cartels were either rare or when they did occur,their possible harmful effects were not considered tobe serious by the authorities. Following thederegulation of recent years, the government has,mostly by default, taken the sectoral approach butcuriously only for those sectors where control70 byGovernment or its agents are still considered ofparamount importance. This led to formation ofauthorities and commissions, like the National DrugAuthority (NDA), Uganda Communications

68 Competition may be defined as an effort by two or more parties to ensure the custom of a third party by offering the most favourableterms. A competitive market is one in which a large number of sellers and buyers vie or compete for identical products or commodities,deal with each other freely, and retain the right of entry into and of exit from the market.

69 Under an ongoing law review process in Uganda, an institutional framework has been mooted that would cover business-related lawsincluding competition law in a more comprehensive manner. The Ministry of Tourism, Trade and Industry (MTTI) has drafted acompetition law was scheduled to be tabled before Parliament in 2005. However, the term of the 7th Parliament ended before this andother related laws (commercial) could be debated. The draft has since been sent back to the Ministry responsible for trade for onwardtransmission (back to Parliament) via cabinet.

70 Sectors like arms manufacturing and importation, trade in drugs and the utilities sectors are still considered a responsibility of the state andtherefore should not be left entirely to the private sector. Semi-autonomous publicly funded bodies oversee these sectors.

Uganda


Commission (UCC) and Uganda InsuranceCommission (UIC) among other sectoral regulatoryagencies.

Competition RegulationAs far as can be established, there is currently no lawor set of laws in Uganda that address the exclusivesubject of competition in business. Private monopoliesare not normally subjected to any restrictions orcontrol, but in certain sectors such as finance(insurance) there are certain rules at least on mergersand similar phenomena. In general, it would be safeto say that any regulations to prohibit or sanctionrestrictive practices and enhance competition arelargely part of other legislations.

In Uganda, many basic services like water andelectricity are still only available largely from publicenterprises with total monopoly positions Althoughpower generation and distribution was recentlyprivatised but earlier liberalised, the existingenterprises enjoy monopolistic positions in themarketplace. These enterprises are allowed to set theirprices subject only to regulatory authority approval.

The majority and by far the most important firms inUganda are registered under the Companies Act, acomplex piece of legislation first introduced duringthe colonial era and which does not concern itselfwith competition in any direct way.

Competition Law

Competition Law: Evolution, Foundation,Legislative History, and PhilosophyUganda neither has a law nor a policy on competitionregulation. However, drafts are in place and could betabled in Parliament for enactment soon. The draftlaw, to be known as the Competition Act, seeks tocreate, encourage and protect competition, encourageinvestments, strengthen the efficiency of productionand distribution of goods and services and protectand promote social welfare of consumers in Uganda.

Architects of competition law through the existingconsultative process were at first attuned to pursuingstatic and dynamic economic efficiency, which arethe principal reasons for introducing competition.However, developments in the COMESA region(following enactment of a regional policy and law oncompetition), later the EAC as well as from civil society(particularly consumer organisations) led toconsideration of consumer welfare in the consultativeprocess.

Market failures to deal with ‘excesses’ occasioned bythe inbuilt safeguards and assumptions led to theconviction that competition regulation could producesignificant benefits, and motivation to, in as many

sectors as possible. Authorities and lay stakeholdersalike, were not familiar with what constitutes acompetitive market and what threatens it and wereresigned to reliance on structural remedies whichwould probably prove to be a better instrument fordeveloping competition than dependence on a set ofbehavioural prescriptions.

Government’s unwritten policy was to wind downboth access and economic regulations as and whencompetition becomes sufficiently strong. The point ofdeparture at which formal and broader(comprehensive) regulation should come, as institutedelsewhere has been to consider the fraction ofresources devoted to such regulation of a specificsector. Sectoral regulatory bodies were largelyinstituted to perform their traditional ‘policing’ rolesin a bid to persuade the private sector, i.e. prospectiveinvestors, that the Government was committed tomaking the transition.

It was envisaged that competition agencies(authorities) have important expertise in identifyingand helping to eradicate market power, which if leftunchecked, would greatly reduce the benefits ofregulatory reform. This is especially necessary becausefirms that are used to operating as monopolies or beingcoordinated by regulators may find it ‘normal’ andhighly attractive to continue in their pre-regulatoryreform modes of doing business. Uganda wasespecially a ripe case in the aftermath of the massiveprivatisation process that saw the divestiture of tensof formerly state-owned enterprises, some withimmense powers in the marketplace and therefore athreat to smaller competitors as well as consumerwelfare.

In practice, regulatory reform has rarely consistedsimply of abolishing regulations and leavingeverything up to market forces operating withingeneral framework competition law. In a great numberof situations, the thinking entailed policy makersadopting the view that competition must be fosteredby a new kind of regulation, which may or may not bestrictly transitory. Some new or existing sector-specificregulators were being mandated to promotecompetition and sometimes being charged withformulating and/or applying sector-specificcompetition rules.

What has been in contention is the optimal level ofinvolvement; competition agencies elsewhere havebeen assigned tasks that had previously beenperformed by Government departments or by sector-specific or general regulators. In practice, there arefew, if any, countries where that division can beregarded as finally settled, especially since thetransition to greater competition is far from complete.Debate on this and other substantive issues, i.e.competition with regard to policy and law is expected

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to continue in Cabinet and in Parliament. With thedeferral to debate the draft law, it is expected that therecould be some more stakeholder consultations beforeit is re-submitted to Cabinet before going to Parliament.But a timetable for the same is not clear. Nevertheless,the draft had been considerably well discussed bystakeholders while still under the aegis of the UgandaLaw Reform Commission (ULRC). Given theprocedure of Parliamentary debate, still, morestakeholders would be requested to make theirsubmissions when the law is at ‘committee stage’.Therefore, stakeholders who may still wish to maketheir submissions would be availed an opportunityto do so then.

Objectives, Scope and Coverage ofCompetition Policy/LawIt is appreciated locally that introducing competitionin sectors previously dominated by state owned orheavily regulated vertically integrated firms andprotecting consumers from supra-competitive pricingare difficult tasks that require a very broad range ofexpertise and experience.

In addition to dealing with structural, stranded costand universal service issues, there are four taskstypically needing careful attention during and afterthe transition from Government ownership or heavyregulation to much greater reliance on market forces.The fifth area, embraced by an increasing number ofcountries, is consumer protection. The five tasks are:1. Competition protection - controlling anti-

competitive conduct and mergers;2. Access regulation - ensuring non-discriminatory

access to necessary inputs, especially networkinfrastructures;

3. Economic regulation - adopting cost-basedmeasures to control monopoly pricing; and

4. Technical regulation - setting and monitoringstandards so as to assure compatibility and toaddress privacy, safety, and environmentalprotection concerns’ and

5. Consumer Protection – though partly the focus intechnical regulation, stakeholders are of the viewthat consumer protection requires special focus. Itinvolves setting and monitoring standards andbenchmarks against which consumers would beprotected against economic and safety fallout fromunconscionable conduct of competing businesses.

Against that background, the Ugandan law, to bereferred to as the Competition Act, is aimed at fosteringand sustaining competition in the Ugandan marketso as to protect consumer interests while safeguardingthe freedom of economic action of various marketparticipants and preventing practices which limitaccess to markets or otherwise unduly restraincompetition, affecting domestic or international tradeor economic development and establishing regulatorybody, the Uganda Competition Commission.

The jurisdiction, power and authority of the proposedcommission shall be exercised through benches,whose members shall be appointed by theChairperson of the Commission. Every proceedingbefore the Commission shall be deemed to be a judicialproceeding within the meaning of the Civil ProcedureAct and the Commission shall be deemed to be a civilcourt for the purposes of that Act.

Any person aggrieved by an order of the Commissionfrom which an appeal is allowed by this Act but noappeal has been preferred, may within 30 days afterthe date of the order, apply to the bench which madethe order for a review of the order and the bench maymake such order on the application as it thinks fit.The law provides for establishment of a principlebench, on which the chairperson sits, as well assubsidiary benches. Each bench shall have a judicialofficer appointed as member.

Dealing with Horizontal RestraintsPart VI of the draft law on the broad area of ‘Prohibitionof certain agreements’ deals with the exclusive subjectof vertical and horizontal restraints, specificallyreferred to in Section 43 of the draft law as anti-competitive agreements. Sub-section (1) of thespecified section states: “An enterprise or associationof enterprises shall not enter into any agreement ortake any decision or engage in any concerted action,in respect of production, supply, distribution,acquisition or control of goods, or the provision ofservices, which causes or is likely to cause anappreciable adverse effect on competition”. Sub-section (2) further stating: “An agreement reached ordecision taken or concerted action engaged in, incontravention of sub-section (1) is void”.

Sub-section (3) deals exclusively with horizontalrestraints thus: “An agreement entered into betweenenterprises or a decision taken by an association ofenterprises, including cartels, or concerted practicesbetween enterprises, involved in the same or similarmanufacturing or trading of goods or provision ofservices, which:• directly or indirectly fixes purchase or selling prices;• limits or controls production, supply, markets,

technical development or investment;• shares markets or sources of production supply by

territory, type, size of customer or in any other way;• directly or indirectly results in bid rigging or

collusive tendering, is presumed to have an adverseeffect on competition”.

Dealing with Vertical RestraintsSub-section (4) of section 43 of the draft law dealsexclusively with vertical restraints thus: ”Anagreement or concerted practice between enterprisesat different stages or levels of the production chain indifferent markets, in respect of production,distribution, sale or price of or trade in goods or

s

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provision of services including: tie – in arrangement;exclusive supply agreement; exclusive distributionagreement; refusal to deal; resale price maintenance,is an agreement or practice in contravention of sub-section (1) if the agreement or concerted practice causesor is likely to cause an appreciable adverse effect oncompetition”.

However, the law includes more provisions to guidedetermination of restraints as defined in sub-section(4). This is for purposes of determining whether thereis an adverse effect on competition. The draft law listsa number of factors that may be taken into account bythe Commission. The Commission is expected toconsider whether the agreements or concertedpractices:• result in creation of barriers to new entry or;• result in forcing existing competitors out of the

market or;• result in foreclosing competition by hindering

entry into a market;• result in any consumer benefit or pro-competitive

impact; and• contribute to the improvement of production and

distribution and promote technical and economicprogress, while allowing consumers a fair shareof the benefits.

Nevertheless, Part VI of the draft law does not applyto any agreement, decision or concerted action leadingto any combination (mergers and acquisitions), evenif no notice is required to be given to the Commissionunder Section 45 that focuses on combinations ormergers and acquisitions (M&As).

Also, provisions do not restrict the right of any personto restrain any infringement of intellectual propertyrights (IPRs) granted in Uganda or to impose suchreasonable conditions as may be necessary for thepurposes of protecting or exploiting such IPRs.

The provisions of the law in Part VI do not restrict theright of any person to export goods from Uganda, tothe extent to which the agreement, decision orconcerted action relates exclusively to the production,supply, distribution or control of goods or provisionof services for the export.

Dealing with Dominant Market PositionPart VII of the proposed draft law covers the broadarea of “Prohibition against abuse of dominantposition.” Section 44, sub-section (1) of the draft lawprohibits enterprises from abusing their dominantpositions.

In the proposed law, dominant position is defined tomean a position in the market which materially restrainsor reduces competition in the market for a significantperiod of time; and where shares by that person orenterprise of the relevant market exceeds 35 percent.

According to draft law, for the purposes ofdetermining whether an enterprise enjoys a dominantposition, or otherwise, one or more of the followingfactors may be taken into account:• market share of over 33 percent;• size and resources of the enterprise;• size and importance of the competitors;• economic power of the enterprise includingcommercial advantages over competitors, which maybe measured by reference, among other factors, toproduct range, established trade marks, customerloyalty, vertical integration of the firm, sales or servicenetwork;• technical advantages enjoyed by the firm, which

may be judged with reference, among other factors,to patents, know-how and copyright;

• dependence of consumers;• monopoly status or dominance acquired as a result

of any Act, or by virtue of being an undertaking ofthe Government, Government company or a publicsector undertaking;

• entry barriers if any, which may be judged byreference, among other factors, to regulatorybarriers, financial risk, high capital cost of entry,marketing entry barriers, technical entry barriers,economies of scale, high switching costs forcustomers;

• countervailing buying power;• market structure and size of market; and• any other factor which the Commission considers

relevant.

The proposed law states that abuse of a dominantposition having an adverse effect on competition,competitors or consumers occurs when an enterprise:• directly or indirectly imposes unfair or

discriminatory purchase or selling prices orconditions, including predatory prices;

• limits production, markets or technicaldevelopment to the prejudice of consumers;

• indulges in actions resulting in denial of marketaccess;

• makes the conclusion of contracts subject toacceptance by other parties of supplementaryobligations which, by their nature or according tocommercial usage, have no connection with thesubject of those contracts; and

• uses dominance in one market to move into orprotect another markets.

Dealing with Mergers and Acquisitions(M&As)Part VIII of the draft law covers regulation of“combinations” or M&As. Like competition law inother jurisdictions, the Ugandan draft law providesthat it is an obligation to give notice of combinationsin certain cases.

The law provides that “Any person who proposes toenter into an agreement or combination …shall give

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notice to the Commission in the prescribed form,specifying the details of the proposed agreement orcombination, within seven days after the occurrenceof any of the following events:• the Board of Directors of respective companies

accepting a proposal of merger or amalgamation;• the conclusion of negotiations of an agreement for

acquisition or acquiring of control; and• the execution of a joint venture agreement,

shareholder agreement or technology agreement, inrelation to any joint venture”.

Only the Commission (competition authority/agency)has powers to grant an exemption from filing the noticerequired under the law. This should be in respect ofan acquisition by a public financial institution, foreigninstitutional investor, bank or venture capital fundunder any covenant of a loan, share subscription orinvestment agreement or financing faulty. Theenterprise concerned should apply for exemption inthe prescribed form, specifying the extent and termsof control, the circumstances for exercise of suchcontrol, the consequences of default and control ofthe enterprise.

However, a public financial institution, foreigninstitutional investor, bank or venture capital fund isnot exempted from filing a notice under the law, inrelation to any inter-related or controlled enterpriseat the time of acquisition or establishing acombination.

Powers to Investigate into Acquisitions,Mergers and Joint VenturesThe draft law gives the competition authority powersto enquire into every combination referred to forsatisfying itself that the combination does not causeor is not likely to cause any adverse effect oncompetition within the relevant market in Uganda.

The laws empowers the authority to carryoutenquiries into any acquisitions where the parties tothe proposed combination namely, the acquirer andthe company whose shares, voting rights or assetsare being acquired, jointly would have assetsworldwide, exceeding five hundred currency points,i.e. Ugandan Shilling 10,000,000 (US$5,600) orturnover worldwide, exceeding one thousand fivehundred currency points, i.e. Ugandan Shilling30,000,000 (US$16,800).

Alternatively, the group to which the entity in whichthe shares, assets or voting rights, as the case may be,would have been acquired will belong, would haveassets in Uganda in excess of two thousand currencypoints, i.e. Ugandan Shilling 40,000,000 (US$22,400)or a turnover exceeding six thousand currency points,i.e. Ugandan Shilling 120,000,000 (US$67,200); orworldwide, assets in excess of one billion US dollarsor a turnover in excess of half a billion US dollars. In

our view, unless otherwise construed, the abovewould constitute thresholds that the CRR advisorcould have referred to in his comments. However, asregards to their possible effects on the businesscommunity or the planned regulatory body, we cannotascertain that for now. Nevertheless, this could besubject to further debate in the meantime whileawaiting the tabling of the draft law before Parliament.

Also to be overseen, is a combination involving controlby a person over an enterprise where that person hasalready direct or indirect control over anotherenterprise engaged in production, distribution ortrading of the same or substitutable goods or provisionof the same or substitutable service.

Dealing with Cross-Boarder AbusesThe law provides for regulation of acts taking placeoutside Uganda but having an effect on competitionin Uganda. The competition regulatory authority, theUCC is given powers under the draft law to regulatecross boarder acts.

Where any practice of an enterprise, as provided forunder the law, is carried on outside Uganda, but hasand is likely to have an appreciable adverse effect oncompetition in Uganda, the Commission hasjurisdiction to make such orders as may be necessaryto combat the effect of the practice.

Also, the Commission is given powers to vetcombinations (M&As), including in situations whenone of the parties is from outside the territory ofUganda. The powers are conferred to the Commissionto carryout enquiries with a view to satisfying itselfwhether that combination causes or is likely to causean appreciable adverse effect on competition withinthe relevant market in Uganda.

Extra-Territorial Jurisdiction and ItsEffectivenessExtra-territorial jurisdiction of would only be effectivewhen considered under the broader bilateral orregional cooperation arrangement of agreement withcounterpart agencies in neighbouring territories.

Because Uganda does not have a functionalcompetition framework, the effectiveness of theenvisaged arrangement cannot be ascertained at thisstage.

Checks and BalancesIn Uganda, regulatory reform as well as process ofestablishment of a framework on competitionregulation, has induced important debates about thedegree to which sectors being opened up to greatercompetition should also be subject to generalcompetition laws enforced by the same competitionagency responsible for protecting competition in othersectors of the economy.

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In practice, regulatory reform has rarely consistedsimply of abolishing regulations and leavingeverything up to market forces that would later beoperating within general framework competition law.It is expected, like in a number of situations elsewhere,policymakers would adopt the view that competitionmust be fostered by a new kind of regulation whichmay or may not be intended to be strictly transitory.

There are some examples of new regulators beinggiven mandates to promote competition and evenbeing charged with formulating the competition rules.The status quo, with regard to division of labour, isthat regulatory agencies by default are supposed toensure that competition takes place in the sectorsunder their respective jurisdiction. However, the draftlaw gives the competition agency the ultimateauthority with regard to competition regulation. Thelaw provides that: “where in the course of aproceeding before any statutory authority entrustedwith the responsibility of regulating any utility orservice, an issue is raised by any party that anydecision that the statutory authority has taken orproposes to take, is or would be, as the case may be,contrary to the provisions of this Act, then the statutoryauthority shall make a reference to the Commission”.

Other Characteristics: Exclusion ofJurisdiction of Civil CourtsThe law provides that no civil court would havejurisdiction to entertain any suit or proceeding inrespect of any matter which the Commission isempowered by or under the proposed law to determineand no injunction would be granted by any court orany authority in respect of any action taken or to betaken in pursuance of any power conferred by or underthis law. However, the Constitution of Ugandaprovides that the High Court has jurisdiction in allmatters. In light of this, therefore, the proposed lawwould have to be revisited. The would-be conflict ofthe law and the constitutional provision should beaddressed during debate in Parliament and it isexpected that it would be taken care of, as severalstakeholders have already raised it.

Competition AdvocacyMechanisms on competition advocacy/ adverselyhave been built in the proposed law. Particularly, informulating a law or policy, the Minister responsiblefor trade or whose docket the proposed changes fall,may make a reference to the Commission for itsopinion on possible effect of such law or policy oncompetition and on receipt of such a reference, theCommission is mandated to, within sixty days, giveits opinion to the Minister.

Establishment of Competition FundThe law provides that the Minister responsible fortrade should establish a fund to be called the

Competition Fund. The Fund, among other sources,would be credited with fees received from any personfor filing a complaint or any application under thisAct; the money received as costs, if so directed by theCommission, from parties to proceedings before theCommission; grants and donations given to the Fundby the Government, companies or any otherinstitutions for the purposes of the Fund; the interestaccrued on the money paid to the fund; and the interestor other income received out of the investments madefrom the Fund.

The Fund would be utilised for the promotingcompetition advocacy, creating awareness aboutcompetition issues, and training, in accordance withsuch rules as may be prescribed.

The Fund would be administered by a committee ofmembers of the Commission as would be determinedby the Chairperson.

Sectoral ApproachesIn Uganda, the deregulation policy was instituted aspart of other measures considered crucial to theeconomy as a means of checking anti-competitiveactivities and actions of unethical firms and personsthat could be injurious to the economy (and to smallextent individual consumers). It was also due to theneed to put in place a rigorous regulatory regimefollowing the withdrawal of Government frombusiness.

It was envisaged that possible unrest could emerge inareas where one or more firms may be operating,raising the prospect of price-fixing, attempting to runcompetition out of the market through hostiletakeovers, and creating virtual monopolies etc.Through agencies like the UCC the regulatory bodyin the communications sector, Government hasprescribed safeguards. The framework coverslicensing, supervision, regulation and surveillance.The agencies have investigative powers as well aspowers to discipline, handle consumer complaintsand to arbitrate in disputes involving firms. Theagencies enjoy a large measure of operational andfinancial autonomy, although they are still under theoversight of a Minister responsible to Cabinet andhave ultimately to account to Parliament through therelevant Minister.

In addition, there are intra-sectoral councils andassociations like the Pharmaceuticals Council andAssociation, Law Society and Council, Medical andDental Practitioners’ Council and the BroadcastingCouncil with powers to set or advise on operationaland ethical standards and a code of conduct; powersto investigate member (individuals or companies) andeither directly take or recommend disciplinary action.In this respect, this voluntary sector association mayact on its own or at the request of or in concert withthe sector agency or Government.

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Nevertheless, while competition regulation has beeninstituted in some sectors that have recently beenrestructured, anti-competitive practices (ACPs) orunfair trade practices are not broadly defined underthe established frameworks and therefore are not perse illegal. Nevertheless, a fair level of competition hasbeen encouraged which could act as a foundation forestablishing a culture of competition that could requireconsiderably less effort to enforce.

Utilities Sector: PowerBefore enactment of the Electricity Act 1999, theUganda Electricity Board (UEB) a Corporationestablished as a body corporate by the UgandaElectricity Act, Cap 135 was in charge of generation,transmission, distribution and supply of electricity.The UEB would in addition make and recover chargesfor electricity, construct, evict and maintain powerlines, acquire land and set tariffs for electricity.

This scenario was changed with the enactment of theElectricity Act, 1999. The Act established the ElectricityRegulatory Authority (ERA) whose main functionsare to issue licences for generation, transmission,distribution, sale of electricity and consumercomplaints handling. The ERA also ensures thatcompanies issued with licences do abide by theconditions of their licences, which may be revoked incase of continued non-compliance.

Under section 126 of the Act, the Minister isempowered to form successor companies to assumeall the duties and functions of the UEB, which wouldeventually be dissolved.

Consequently, three companies have been formed totake over the functions of UEB, including: UgandaElectricity Generation Company Ltd; UgandaElectricity Transmission Company Ltd; and UgandaElectricity Distribution Company Ltd. According tothe new power policy, power generation anddistribution are to be open to competition buttransmission would be the preserve of the state.

Accordingly, functions of the UEDCL have beenconcessioned to Umeme Limited, a consortium madeup of South Africa-based powerhouse Eskom andGlobeleq, a subsidiary of the CommonwealthDevelopment Corporation (CDC). UEGCL has goneto Eskom while UETCL remains in the hands ofGovernment. Umeme Limited and Eskom, in theory,are open to competition, as new players have beenlicensed to start business. However, the newlylicenced entities are very small in nature that theycannot be construed to pose any threat to Umeme andEskom. It is envisaged that this would eventuallycreate competition, which may result into betterservices for the consumers.

Generation – The main power (hydro-electric power)generation facilities in the country are in the hands ofthe private sector. The two power generation facilities;Kiira and Nalubaale Power Stations are currentlybeing run under a 20-year concession to South Africa-based Eskom. However, the Government under UEBis running thermal generation plants in NorthernUganda. A new 50mw thermal power plant has beenestablished in Kampala (Lugogo), under a speciallease arrangement between Government and AggrekoInternational Power Company.

West Nile power Limited, another small power plantcurrently serving the major towns of Arua and Nebbiis another player that emerged most recently. Smallerhydroelectric power generation plants exist at KilembeMines (Kasese), Maziba (Kabaale) and Uganda CobaltCompany (Kasese).

Transmission – The function as well as the powertransmission entity are in the hand of the state andare to remain that way unless the law is changed.According to the Electricity Act 1999, the nationalpower grid (high voltage) and the entire function ofelectricity transmission shall be overseen andundertaken by the state. UETCL undertakes the abovefunctions.

Distribution – Restructuring and privatisation of thecountry’s power sector received new impetus in 2005when Umeme, a consortium made of Eskom andGlobeleq, a subsidiary of the Common WealthDevelopment Corporation (CDC) took over UEDCL.Umeme emerged as the first private sector companyto distribute power in the country.

In spite of the recent developments, the power sectorin the country is dominated by South Africa-basedpower giant Eskom by way of its acquisition of a 20-year concession to run largest power generation plantsin the country and its stake in the Umeme Consortium.

Pharmaceuticals SectorBefore 1993, trading in drugs was unduly highlyrestricted for reasons related to public safety andnational security.

In Uganda there is generally no restriction on whatone may engage in subject to obtaining the relevantlicences, and fulfilling other requirements on health,premises and their location and where availability ofthe relevant expertise may be a prerequisite, forexample to operate a dispensing pharmacy. Even insome of these cases, lax supervision and applicationof the law could result in unfair competition.

Since the 1960s, the External Trade Act was thecentral regulating statute for import and exportoperations. Following the enactment of the National

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Drug Authority (NDA) Statute in 1993, the situationhas changed. The law, among other things, givespowers to the Minister responsible for health to requirethat a licence be obtained to export or import certaingoods. However, the powers over licensing importersof pharmaceutical products have now been transferredto the autonomous NDA.

The NDA statute lays out the National Drug Policyand contains a provision for the authority to ensurethe provision and use of essential and efficaciousdrugs. The statute covers Government control on themanufacturing, exportation, marketing and use ofdrugs. The National Drug Policy is supposed to coverboth the private and public sector.

Although one of the functionsdeals with “ensuring that drugneeds are met as economicallyas possible”, the law does nothave an explicit provision thatempowers the drug authority toenforce competition in themarketplace.

According to available data,economic liberalisation in thelast 10 years as well asestablishment of the NDA havenot only helped bridge thedemand of pharmaceuticals inthe country, they have largelyprecipitated competition in thesector. Due to the open regimerelated to licensing andimportation of drugs in thecountry, competition nowprevails relative to the 1980sand early 1990s although bydefault.

For instance, there are concernsthat centralised procurement byGovernment through a state-run company, the NationalMedical Stores (NMS)continues to lockout many would-be suppliers andmay in the process mean consumers are paying higherprices for drugs they would otherwise get at lowerprices.

The Government had indicated that the NMS wouldhave been privatised by 2005, a development thatcould open state procurement of pharmaceuticalproducts to competition and lead to price reductionand, it was anticipated, availability of variety ofcompeting products in the market.

Interface Between Competitionand Economic Regulation

Utilities: Communications Sector

After years of slow growth and inefficientmanagement, Uganda’s communications sectorexperienced a growth spurt in the late 1990s, a periodin which the sector was liberalised and opened tocompetition for the first time. Although in principlethe country’s economy was liberalised in 1993, thecommunications sector did not adjust in responseuntil the late 1990s when a new legal and institutionalframework was put in place.

The passage of the Communications Act 1997 by

Uganda’s 6th Parliament set into motion a new era inthe country’s communications sector with wide-ranging implications to the whole economy. First, thelaw broke the monopoly of the state-run Uganda Postsand Telecommunications Corporation (UPTC),hitherto the only player in the local communicationssector. UPTC was for long the soletelecommunications company, courier serviceprovider in addition to offering money transferservices and banking (savings accounts) services.

Most importantly, the law put in place the UCC, thesector regulatory body. UPTC was split into theUganda Telecommunications Limited (UTL), Uganda

Box 8.1: Case Study: Competition Regime under Test

UCC’s role as a regulator faced its first test when competitors emerged inthe country’s mobile telephony service market leading to price wars withthe new operators reducing call tariffs significantly in a development thatbore the hallmarks of predatory pricing. When the privatised state-run UTLstarted cellular telephony services in 2001, call rates further dropped. MTNUganda had started the first downward trend in prices. However, withoutdirect intervention in the setting of prices, the phone tariffs have remainedstable since mid 2002. The stability is linked to Government fiscal policy,which involved introduction of taxes on phone call credit (airtime) for mobilephone that took effect in 2001. Consequently, companies were, indirectlythrough a fiscal policy restrained from making further cuts in phone tariffs.

Internet ServicesPrice wars also broke out among Internet service providers between 2001and 2002 leading to the collapse of several Internet cafes in Kampala.However, the matter was resolved by the Association of Internet Cafes thatresolved that net-time (per-minute charges) should not be reduced belowUgandan Shilling 25 (US$ 0.013).

In 2002, the UCC waived licence fees to Internet cafes as a way ofencouraging proliferation of communication services. However, the waiverhad other effects like increasing the number of businesses offering Internetservices. The move also removed some financial pressure off Internet cafes,which could have contributed towards stability of prices and dumped theprice wars.

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Posts Limited (UPL) and Post BankUganda Limited.

UCC issues licences to prospectiveoperators of all services in thecommunications sector in line withregulations laid down in thecommunications Act 1997. The Actalso gives the Commission powersto ensure competition prevails inthe market.

Several companies have sinceemerged in the private sectoroffering services that include: VSATbusiness services, mobile trunkedradio services, cellular services butmostly valued added services likepayphones, fax bureau, call boxes,internet cafes, etc.

The courier market has expandedtremendously to include globallyrenowned companies like: DHL,TNT, FedEx, Yellow Pages andSkynet. Local and regionalcompanies include: Daks Couriers,ACME Cargo Limited, Elma ExpressDelivery, Trans Africa Air ExpressCouriers Limited in addition toUPL’s EMS Speed Post. As a resultof liberalisation, thetelecommunications sector hassince attracted: South AfricanMobile Telephone Network (MTN)that holds the second nationalnetwork operator licence. UTL wasprivatised in 2000 with acontrolling stake (49 percentshares) sold to the UCOMconsortium made of Egypt’sOrascom, Germany’s Detecon andTelecel. CelTel Uganda, the pioneermobile phone company in thecountry holds only a mobiletelephony licence.

As a result of competition in themarketplace, telephone fixed lineshave jumped from 45,000 in 1997to 71,000 in 2004; mobile phonelines shot up from 3,000 in 1996 to close to 1,100,000in 2005; call offices increased from 992 in 1997 to over5000 in 2002 and internet subscriptions from 1,000 in1996 to over 6,000 in 2000 and 15,000 (2003).

Energy (Electricity Power) SectorUganda’s electricity grid serves 200,000 householdsand five percent of the country’s 24 million people.

Consumption is growing steadily due to the boomingconstruction and manufacturing sectors.

The country’s hydro-electricity power sub-sector datesback to the 1950s when the Owen Falls Dam (renamedNalubaale in 2000) was constructed. A second powerstation, Kiira was commissioned in 2000. UEGCLowns both power stations.

Box 8.2: Case study: Failure of Privatisation and Liberalisation?

The prevailing drought conditions in the region, unprecedented sinceindependence of Uganda in 1962, have exposed the vulnerabilities inthe country’s power sector. The water level in Lake Victoria from whichthe River Nile originates, sank by three metres as on January 2006. Thesituation has been exacerbated by reliance on hydroelectric power that,as the drought has indicated, is vulnerable to the vagaries of nature.Power generation capacity at Kiira and Nalubale dams combined,formerly at 340mw, has since dropped to 170mw. A 50mw thermalplant located in Kampala has done little to nothing to alleviate theprevailing power shortages.

Secondly, it has been widely observed that power generation was notgiven sufficient attention by government, resulting in power demandoutstripping supply by a significant proportion. It had been expectedthat at least two power generation plants would be operational in thecountry shortly after 2004. The first one, Bujagali, is expected to comeonline after 2010. Consequently, the power sector has become the singlesector blamed for undermining production in the country, particularlyto the largely infant manufacturing sector.

By January 2006, the whole country came under a painful power-rationing regime that almost brought the manufacturing sector on itsknees. It is feared that the on-going power woes could adversely affectthe economy of the country, whose growth recently lost some of itspreviously high progression impetus.

The Government is considering setting up more thermal generationplants, to produce up to 150mw of power, in an attempt to ease thepower crisis. However, the interventions are not commercially viableand are not expected to attract bidders with a long-term view in thepower sector. The high cost of fuel, in addition to competition from themore efficient hydropower facilities, in the long-term, mean that thermalgeneration plants cannot survive at all in the power sector withoutstate support.

Also, the search is on for alternative power sources. However, theoptions are expensive to exploit, making most of them commerciallyunviable, unless they are subsidised by the state. Solar facilities remainout of reach to most Ugandans, 38 percent of whom live below thepoverty line. Also, the high costs of production in the country, includingpower, make other power sources other than hydro only feasible as astopgap alternative in the short-run.

All the above developments have come on the heels of phenomenalincrements in power tariffs much to the discomfort of most consumers.The ERA has given notice that the cost of power would go up once moreduring the first quarter of 2006.

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Case for Competition in Uganda’s PowerSectorUntil 1999, the state-owned UEB was in charge ofpower generation, transmission and distribution. Ineffect, UEB comprised the entire power sector of thecountry.

However, following passage of the Electricity Act1999, UEB was split into three companies: UgandaElectricity Distribution Company Limited (UEDCL);Uganda Electricity Generation Company Limited(UEGCL); and Uganda Electricity TransmissionCompany (UETCL).

The law also provides for the Electricity RegulatoryAuthority (ERA), the sector regulatory agency. ERAwas established in 2001 when its administration wasconstituted. Most of its structures havesince been put in place.

The resultant effect is that thelaw put into force a new legaland regulatory frameworkpremised on the need forprivatisation and liberalisationof the sector leading tocompetition (at least for powergeneration, and to some extentfor concessions fordistribution) and therefore,with the outcomes of improvedservice delivery and efficiency.

In line with the newframework, UEGCL wasprivatised early in 2003 undera 20-year concession to SouthAfrica-based Eskom Africa,one of the leading hydropowerutility companies in Africa.UEDCL was privatised in2005.

Earlier, Government licencedtwo private companies todevelop hydro-electricitypower facilities along RiverNile. The two companies arethe American AES - NileIndependent Power andNorwegian Norpak. However,due to policy bottlenecks andfinancial difficulties faced bythe Norwegian and Americancompanies respectively,construction of the powerplants has not taken off.Instead, Government haslicenced a new investor todevelop a 300mw power

generation facility at Bujagali, the location formerlyto be developed by the American AES-NileIndependent Power.

In line with the Electricity Act, several companies haveapplied and been granted power generation licences.The companies have subsequently signed supplyagreements with the UETCL. The companies include:the state-owned Kilembe Mines Limited that operatesa 2mw power station. Kasese Cobalt CompanyLimited, a Canadian cobalt mining concern andKakira Sugar Works Limited. Two other smallhydropower power generation companies are in theprocess of setting up facilities along the Nile in WestNile, to the Northwest of Uganda.

Financial SectorUganda’s financial sector is increasingly becomingmore competitive following the establishment of newlegal and institutional frameworks. Banks and

Box 8.3: Banking: In Spite of Privatisation, Changes Are Slow

The Financial Institutions Statute 1993 was enacted to put into place a newframework to deal with financial institutions extensively, including co-operative societies, credit institutions and building societies. The law wasaimed at strengthening and regulation of financial institutions by the centralbank as a precursor to opening up the sector to competition and thereforemore efficient service delivery.

Enforcement of the new law resulted into the closure of 4 local banks, partlyfor non-compliance with the capital adequacy requirement stipulated inthe law. The law also sought to break the practice of family ownership ofbanking institutions blamed for mismanagement and closure of at least twoof the 4 banks whose operations were halted.

After the bank closures, competition increased in the commercial bankingsector leading to improvement in service delivery, slight lowering of interestrates, ‘exotic’ credit schemes and proliferation of new services like automaticteller machines and electronic money transfer among others.

The situation, in terms of competition has changed following the sale ofUCBL to Stanbic. Its obvious that the acquisition of UCBL with its extensivebranch network, makes Stanbic the dominant commercial bank in thecountry. In 2002, Standard Bank International of South Africa bought 80Percent shares in UCBL thus emerging the dominant entity. UCBL was thelargest commercial bank in the country overall.

The development has once again adjusted the market share of the variousbanks in the commercial banking sub-sector although it’s not clear yet,what effects the divestiture would have on competition in the long-run.

The development banking sub-sector is under the monopoly of the state-owned Uganda Development Bank. The bank is slated for privatisationwith 30 percent stake offered to a multinational financial investor, 30 percentto strategic investors with the rest going to the general public through thestock exchange. At regional level Uganda is host to the East AfricaDevelopment Bank. Merchant banking is completely non-existent in thelocal banking sector.

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banking services are now regulated under theFinancial Institutions Statute 1993, while theinsurance industry is under a new frameworkfollowing enactment of the Insurance Statute 1996.The Financial Institutions Bill that is intended toreplace the Financial Institutions Statute is aimed atenhancing prudential regulations governing banksand non-bank financial institutions. Anotherproposed law, governing micro-credit institutions hasbeen enacted, expected to lend some order to a sub-sector that has grown in breadth and influence overthe last 5 years.

However, the country’s financial system remainssmall, in terms of value and the volume of transactionsundertaken, and undiversified in terms of the type oftransactions that it undertakes. By the end of 2000there were 16 commercial banks, 8 credit institutions,2 development banks, 15 insurance companies, 28insurance brokers, 18 micro-finance institutions and62 foreign exchange bureaux.

BankingCommercial banks dominate the financial sector andaccount for over 90 percent of the assets of the bankingsystem.

Before and after independence, several commercialbanks operated in the country, notably from India andthe United Kingdom (UK). However, thenationalisation drive of the late 1960s resulted in stateacquisition of majority shares in the banks. Apart fromthe state-owned Uganda Commercial Bank, the stateacquired shares in Barclays Bank, Bank of Baroda andTropical Africa Bank (formerly Libyan Arab Bank).

Despite the liberalisation and divestiture of state stakein commercial banks in the country under theprivatisation programme, most local banks are weakwith many sticking to retail banking and generallyshying away from lending. However, two banksremained dominant: the recently divested former state-owned Uganda Commercial Bank Limited (UCBL)that dominated the so-called indigenous banks andStandard Chartered Bank that tops among the foreignones. UCBL was recently bought by Standard BankInternational (Stanbic) of South Africa

InsuranceAlthough the local insurance industry was liberalisedin 1990 when the state-owned Uganda InsuranceCorporation (NIC) was opened to competition for theprivate sector, the industry is still largely under-developed and therefore does not adequately meet theneeds of the market. The insurance industry islicenced, regulated and streamlined by the UgandaInsurance Commission (UIC) in line with theInsurance Statute of 1996.

The industry, valued at Ugandan Shilling 40 billion(US$22mn) in 2002, has limited coverage: mostinsurance companies are in general insurance andlife assurance. Engineering and liability insurance isunderdeveloped; the insurance market does notprovide aviation, marine hull, agriculture, livestockand crop insurance. Social insurance for instanceeducation and health expenses are totally lacking.

Elusive Competition in Insurance Sector?By 2001, there were 15 insurance operatorscategorised: 11 covering non-life insurance only and4 covering non-life and life insurance. There were 28licenced insurance brokers categorised as: 4 for non-life insurance only, 19 for non-life and life insurance,2 for loss assessment, and 3 for insurance surveyorsand loss assessors. The industry’s expansion islargely stymied by low level of awareness aboutinsurance services, partly caused by relatively highilliteracy rates.

As consequence, competition in the sector remainsrelatively low or lacking with regard to certainproducts. According to a 2000 report on the industry,70 per cent of the insurance market is under the controlof four insurance companies and close to 60 percentof insurance brokers’ business is under control of onebroker.

The Insurance Statute of 1993 sought to strengthenthe industry as well as make it more competitive so asto attract new players, particularly foreign investors.The American Insurance Group (AIG) joined theindustry, which together with the recently privatisedNational Insurance Corporation (NIC) control the bulkof the business. It had earlier been envisaged thatprivatisation of NIC would serve as a major boon thatwould spur competition in the industry.

However, lack of competition mainly arises fromweaknesses on the part of ‘indigenous’ companies.When the UIC enforced a provision in the law thatsets minimum capital requirements, over six localcompanies were locked out – some had less thanUgandan Shilling 10 million (US$5524) as workingcapital. The law sets Ugandan Shilling 500 million(US$2,76,243) for local companies and UgandanShilling one billion (US$5,52,486) for foreign ones asminimum working capital.

Regional IntegrationCOMESA Competition Policy and LawIn a bid to ensure equity and fairness through apredictable and level playing field, COMESA hasinstituted measures to improve the businessenvironment under which economic operators in theregional economic bloc undertake their work. Inaddition to elaborating the trade remedies and

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safeguards, COMESA has worked towards raisingawareness, understanding and appreciation ofcompetition law and policy at national, regional andmultilateral levels as member states integrate moredeeply regionally and multilaterally.

Accordingly, COMESA prepared and ratified aRegional Policy to deal with anti-competitivebehaviour and restrictive business practices. Article55 of the COMESA treaty provides for a regional

policy on competition and was used as a starting pointfor developing a regional competition policy.

Also, COMESA has urged member states to enactCompetition Laws and to establish competentenforcement authorities. Currently, only four countries(Kenya, Zambia, Zimbabwe, and Tanzania) have alaw and an enforcement agency. One country (Malawi)has a law but no enforcement agency. Five countries(Egypt, Mauritius, Namibia, Uganda, and Swaziland)are at different stages of development of national laws.

The objectives of the regional competition law include:dealing with anti-competitive practices of a regional(cross-border) nature; instituting formal co-operationregionally among competition authorities; enhancinginter-agency co-operation, as well as getting moreinvolved as a region in multilateral discussions; andensuring policy dialogue on competition policy.

The law contains specific provisions on mergercontrol - types of mergers, the need for pre-merger

notification, and implications forinvestment in the regionaleconomy. With regard toconsumer protection, theproposed law and policycontains provisions onmisleading and deceptiveconduct, unconscionable conductfor unsafe goods. Both policy andlaw are in the process ofenforcement.

East Africa CommunityCompetition Policy andLawSpurred by inadequaciesincidental to the practice thatnational competition authoritiesdo not normally protectcompetition outside their ownjurisdictions, the EAC moved toput in place a regionalcompetition framework, completewith a competition policy andlaw. When fully enforceable, thiswould create a framework withpowers of checking cross boarderrestraints to competition.

EAC competition policy takesprecedence over partner states’national competition policies.Within its jurisdiction, the EACcompetition policy will takeprecedence of over other regionalpolicies on competition. The

policy deals with cross-border restraints of competitionand international dimensions of competition, affectingtrade and competition between the EAC and thirdcountries. The law provides for a regional competitionauthority independent from Partner States’governments as well as from any other EAC organ orinstitution. However, the decisions of the authorityshall be subject to judicial review by the East AfricanCourt of Justice. The EAC policy and law containspecific provisions on merger control modelled on theCOMESA framework.

Box 8.4: Anti-competitive Practices in Bus ServicesAffecting Consumers

To become a bus operator in Uganda, all that is required is a vehicleirrespective of its conditions and age. This will cost on average US$3,000and a Public Service Vehicle (PSV) licence, which is delivered after abasic visual inspection of the vehicle and without reference to anytransport plan or strategy. The current organisation of transport servicesdoes not allow efficient use of the vehicle fleet. The transport market isnot competitive, and is controlled entirely by one Association, whichencourages admission of new members who operate used and non-roadworthy vehicles.

The Directorate of Transport is under-staffed and not equipped to carryout the planning, regulation and monitoring functions.

The Association therefore not only sets fares, but also allocates routesand carries out self-enforcement on their operations, regardless oftransport needs and efficiency. The Association encourages theenrolment of new members since payment of membership fees is the solecondition for their admission. Since collecting revenue for localauthorities has become its main activity, the Association has divertedfrom its initial objectives and has been neglecting the interests of itsmembers.

Operating bus services that offers obvious prospects for profitability,attract many unskilled operators/drivers to enter the transport business,which has led to an oversupply of vehicles of high average age (15 years,or more), high queuing time at bus stations (one hour), which in turnleads to low vehicle availability and utilisation and to high vehicleoperating costs, thereby affecting lay consumers/users of the service.

(Source – ‘Urban transport services in Sub-Saharan Africa: Recommendationsfor reforms in Uganda’, M Benmaamar, 2001)

225

Consumer Protection LawScattered provisions on consumer protection andwelfare exist in sectoral policies (water,telecommunications, electricity, etc). However, acomprehensive consumer protection policy is not inplace yet, although a draft to the effect is expected tobe originated by Cabinet when it’s considering thedraft proposed Consumer Protection Bill.

The absence of consumer protection policy andsupportive legislation in the country means thatconsumer perspectives in trade are not taken intoaccount. In case they are considered, it is haphazarddone. Therefore, enactment of policy to this effect willgo a long way in refocusing the attention of authoritiesand stakeholders on the market practices that may beinjurious to the interests of both consumers andbusinesses alike.

Elements of consumer policy exist in other policies,particularly in sectors that have been recentlyrestructured with additional regulatory oversight e.g.power, telecommunications, and financial services(insurance).

Envisaged Consumer Protection PolicyThe Constitution of Uganda seeks to ensure for itscitizens — social, economic and political justice.However, the status quo is to the contrary of that idealsituation envisaged in the supreme law of the land.Consumers face imbalances in economic terms,education/awareness levels and bargaining power.

Currently, neither is there an overall consumerprotection policy nor a law to protect consumers inUganda. A draft proposed bill was produced in 1997and presented to the ULRC during the review ofcommercial laws.

With regard to consumer issues, it is envisaged by thelocal consumer movement that the NationalConsumer Policy should promote and protectconsumer rights for just, equitable and sustainableeconomic and social development. The Movement has suggested that, taking into accountthe needs of and priorities for consumers, theobjectives of the National Consumer Policy thusshould be to: • strengthen production and distribution patterns

which are responsive to the needs of consumers,and with the goal of promoting sustainableconsumption on an equitable basis;

• advocate and promote ethical conduct,transparency, consumer participation andresponsiveness in the choice of appropriatetechnology and environmental responsibility inproviding goods, services and technology toconsumers at all levels;

• oromote the development of market conditionswhich provide consumers with appropriatechoices at fair prices and right quality, and lesserburden on the environment;

• promote assessment of consumer impact in everyarea of governance where consumer interests areaffected;

• promote participation of consumers in every areaof governance

• promote adoption of Citizens’ Charters forgreater accountability and transparency ingovernance;

• encourage policies and programmes to enablesustainable production and consumptionpatterns; and

• promote regional and international cooperationin the field of consumer protection, sustainableconsumption and production patterns.

The policy should be designed to: • empower consumers to have access to the basic

needs of life; • protect consumers from hazards to their life and

safety; • enhance the access of consumers to adequate

information to enable them to make informed andenvironmentally benign choices according toindividual as well as societal needs;

• promote consumer education through formal aswell as non-formal education systems so as tohelp consumers in their decision making;

• promote accountability and transparencythrough adoption of Citizens’ Charters;

• provide expeditious and inexpensive system ofdelivery of justice;

• promote an independent consumer movement inthe country by providing assistance to consumerand other relevant groups to form theirorganisations and giving them the opportunityto present their views in the decision-makingprocess; and

• initiate and implement appropriate mechanismsfor exchange of information on measures ofconsumer protection, nationally, regionally andinternationally.

Draft Consumer LawA major process of law reform has been underway inUganda since 2000 when the statutory ULRC wasformed. The reform is underway in the context of otherlegal and economic reforms. One of the prominentissues that have arisen since the onset of the lawreform process started is consumer protection.Spearheaded by the local consumer movement, theprocess of enactment of a consumer protection lawhas been protracted but with apparently low intereston the part of government.

In addition, there is increasing anxiety in the countryregarding the impact of trade liberalisation on

Uganda


consumer welfare and how it can be addressed toGovernment for consideration as part of theorganisation’s bid to ensure that a law to protectconsumers was enacted. Contents of the draft havebeen considered and are included in the Governmentdraft produced by the ULRC. The draft awaits Cabinetapproval before it commences to the Parliament.

The proposed draft Consumer Protection Billrecognises the following six rights of consumers: I)the rights to safety; ii) to be informed; iii) choice; iv)representation; v) redressal; vi) consumer education.Furthermore, from the UN Guidelines for ConsumerProtection, 1985, two other rights of consumers areinferred: the right to basic needs and the right to ahealthy environment.

The draft also addresses the following broad areas:• Safety requirements: Defines what safe consumer

goods are as well as provides for general safetyrequirements that consumer goods should complywith. It stipulates illegal acts that are punishableunder the law.

• Advertising: It covers and defines what ispermissible and otherwise in the process ofadvertising. It identifies acts that are punishable inthe event of breach of law.

• Guarantees: Sets principles and guidelines forguarantees that clearly states that an offence tocircumvent the law with regard to offeringguarantees to consumers.

• Measures for consumer redress and mechanisms:Gives a broad set of options for defence, promotion,enforcement of consumer rights, includingindividual, collective, mediation, negotiation,arbitration or litigation.

Competition Perception Survey inUGANDAOverviewThe survey was a follow-up to the earlier one carriedout to gauge the baseline status of Uganda on marketcompetition. The survey took place in November-December 2005 and covered public-private sector and

CSOs as well as individual customers. A total of 100institutions (80 percent) and individual consumers(20 percent) were sampled and their respectiveresponses logged. From the survey findings, it wasestablished that the vast majority of respondentsaverred that consumers are moderately affected by thepractices, mainly bid rigging, unfair trading practices,price discrimination and market sharing.

Identifying trade, manufacturing and the servicessectors as most affected, the respondents alsocontended that rules and regulations to check ACPswere inexistent. Some could not tell and were evennot aware of the existence of the rules and regulations.The majority called for enactment of a comprehensivelaw to check ACPs whose objectives would focus oneconomic efficiency and consumer welfare. Details ofthe survey findings are available later in this chapter.

MethodologyThe survey was based on questionnaire-basedinterviews conducted under the direction of the 7Up3Project team leader, CONSENT. The samples for thesurvey were, save for consumers, pre-selected samplesof respondents selected from five stakeholdercategories to wit: consumers; businesses/businesssupport organisations (BUSOs); research andacademic institutions (RAIs); law, policymakers andregulatory (LPR) bodies; and CSOs.

The pre-selection aspect of the sample was used toavoid respondents without any idea of issues at hand.Non-response in questionnaire interviews producessome known biases in survey-derived estimatesbecause participation tends to vary for differentsubgroups of the population, and these subgroupsare likely to vary also on questions of substantiveinterest.

Sample Size and Survey AreaA sample size of 100 was administered, 80 percent ofwhich were targeted at institutional respondents. Thiswas aimed at gauging the knowledge of keystakeholders by category in a bid to ascertain theirability to meaningfully get engaged in the capacitybuilding and advocacy elements of the project.

Choice and Nature of RespondentsGiven the selection of respondents as well as limitedsample, the geographical coverage of the survey waslimited, although in terms of respondents who wouldbe expected to actively participate in future projectactivities, the samples were meaningfullyrepresentative.

Ins titutions80%

Individuals (Cons um ers )

20%

Figure 8.1: Survey Sample Size

227

Survey Findings

Awareness and ImpactClose to half of the respondents interviewed onaverage (consumers – 40 percent; BUSOs -40 percent;RAIs – 50 percent; CSOs - 42 percent; LPRs - 40 percent)admitted that they had knowledge about the ACPs inthe Ugandan market.

The results reflect that knowledge about competitionissues is in comparison, appallingly low, even amongthe elite and the educated. Given that significant effortswere channelled into sensitising respondents beforethe interviews, the responses were an indicator oflow business and economic literacy in the country.

A substantial proportion of the respondents statedthat they were significantly affected. The breakdownwas: Consumers - 50 percent; BUSOs - 45 percent; RAIs– 50 percent; CSOs - 40 percent; and LPRs -35 percent.

The results were consistent with responses onawareness about competition. Still, this reflects thatsince few (half) of the respondents had knowledgeabout competition issues, a similar figure would bein position to appreciate its impact.

Most prevalent ACPsThe most prevalent ACPs as perceived byrespondents in the respective categories, in order ofranking – from most to least important are:consumers (collective price fixing, pricediscrimination and resale price maintenance);business/business support organisations (bidrigging, unfair trade practices, entry barrier) and RAIs(collective price fixing, price discrimination, entrybarrier). Other responses were: civil society (bidrigging, unfair trade practices and entry barrier); and

LPRs (price discrimination, unfair trade practices andbid rigging).

Considered against perceptions on knowledge andimpact, the responses on most prevalent ACPs are areflection of a common characteristic in the country –behaviour symptomatic of but not necessary due tocollusion. Also, price discrimination affects manyconsumers largely due to a common practice bytraders who do not display retail prices.Consequently, buyers are charged through adiscretionary approach using often undeclared andunknown criteria as basis for charges. A law (revisedSale of Goods Act) has been mooted that wouldprovide for compulsory display of prices by retailersin the country.

‘Recommended prices’, viewed in the context ofRPM, are ubiquitous in the marketplace, pushed bythe manufacturers as part of their brand wars, in what

is a clear manifestation of vertical restraints.Respondents from Academic and researchinstitutions had similar responses …

To businesses, that ranked bid rigging first, it was areflection of both common sentiment and the realitythat public procurement remains contentious.Frequent media reports and commissions of inquiryin the country provide a perfect background to thesurvey responses. In fact, formation of the PublicProcurement and Disposal of Assets Authority(PPDA), under the broader legal framework of thePPDA Act, was in response to a dire need as well as amechanism to restore confidence and protectcompetition in the public procurement arena.However, concern over UTPs and EBs reflects bothfrustration and powerlessness over practices normallya preserve of the ‘rich club,’ condemning the smallenterprises to the cold.

For instance, misleading advertising that indirectlymaligns competing products of smaller enterprises

0

10

20

30

40

50

60

1 2 3 4 5

Co

ns

um

er

s

CS

Os

BU

SO

AR

I

LP

R

Figure 8.2: Level of Awareness ofAnti-competitive Practices (ACPs)

Category of respondents

0

5

1 0

1 5

2 0

2 5

3 0

3 5

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4 5

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Figure 8.3: Respondents Significantly Affected


Uganda


devotes relatively less spend on advertising. Entrybarriers are not a common phenomenon (few caseshave been reported over time and scope). However,the survey wasn’t qualitative to investigate details ofthe various dimensions of the responses.

Civil society had similar responses and rankings tothe business community. Perhaps this reflected thelevel of awareness (mainly through research) andregular interface with and about the businesscommunity. Law/policy makers and regulatorybodies were a cross section between business (UTPsand BR) and research and academic institutions (PD).Perhaps given the assumption that the LPRstakeholder category has more custom of business-related data and information than any otherstakeholder group of respondents, their views shouldbe given additional focus, their limited knowledge ofACPs (10 percent) notwithstanding.

Effects on EconomyAgriculture, trade and services sectors were listed as

the most affected economic sectorsby the whole spectrum ofrespondents. The responses:consumers (agriculture, trade,services); BUSOs (trade,manufacturing and services) andRAIs (trade, manufacturing andservices). Other responses were:CSOs (trade, manufacturing andservices); and LPR bodies (trade,manufacturing and services). Allcategories of respondents were ofthe view that the trade and servicessectors were affected most byACPs. Only consumers listed theagriculture sector as affected.However, it could have been basedon the fact that as final consumers,they had additional knowledge,

particular on trade in goods (transport-marketingchain) that the other categories either did not haveaccess to or considered anecdotal or inconsequentialin the context of market competition.

The overwhelming percentage of respondents (70percent) was of the view that some of the ACPsoriginate from outside the country as well. Theresponses were thus: (Consumers-70 percent; BUSOs-80 percent; RAIs – 60 percent; CSOs - 65 percent; andLPR bodies-60 percent).

This reflects the structure of the country’s trade andmanufacturing sectors, activities in which formedbasis for responses got in the survey. With dominationof the trade and manufacturing sectors by companiesof foreign origin or joint ventures with local partners,the responses were therefore premised on currentrealities.

Rules to check ACPsThere were mixed reactions on the question of rules to

check ACPs with 60 percent ofconsumers surveyed saying theyexisted and an almost similar figure(50 percent) of respondents from theRAIs concurring and LPR bodies (70percent) sharing the same view. Out ofthe rest, 70 percent of the respondentsfrom the business sector said they didnot know or were not sure. Themajority (40 percent) from CSOs werenot sure as well as with the rest eitherasserting in the affirmative or inopposition.

On average, the majority ofrespondents indicated that some rulesexisted to check ACPs. However, asignificant number of respondentsweren’t sure about the rules. This

1 2 3 4 5

L EGENDRe s p o nd e n t Cate g o r ie s

1. C on s u m e r s

2. BUSO

3. A RI

4. C SOs

5. L PR

CPF

PD

RPM

BR

UTP

EB

CPF

EB

PD

BR

UTP

EB

PD

UTP

BR

Ran k in g o f A CPs fr o m to p to b o t tom

Figure 8.4: Most Prevalent ACPs by Category


70

60

65

60

0 20 40 60 80

1

2

3

4

5

cate

gory

Consumer

BUSO

ARI

CSOs

LPRs

Figure 8.5: Perceived Scope of ACPs 9.8 Extent of ACPs

80

229

question required knowledge abouttechnical detail on the prevailingpolicy and legal framework, which tothe majority was not clear.

Asked to substantiate their responses,most respondents could not name anylaws and regulations that completelyaddress other business/industry orbehaviour /practices. However, someresponses indicated some knowledgeabout laws that to some extent addresscompetition in general but notspecifically ACPs. These include:UNBS Act, CMA act, UCC Act, amongothers. Prompted on action taken bythe authorities to combat ACPs,respondents were split down themiddle, with half saying sometimesaction is taken and the rest stating inthe negative.

Consumer Protection and JusticeUganda National Bureau of Standards (UNBS)emerged as the most popular institution perceived tobe offering protection to consumers and requirecompetition in the marketplace. The respondents(consumers-50 percent; BUSOs-45 percent; RAIs – 20percent; CSOs - 50 percent; and LPR bodies-50percent). This was not surprising given the enduringmedia coverage of the quality certification body’sactivities in enforcement of standards. UNBS does nothave mandate in law to regulate competition. Neitheris consumer protection its primary role.

Competition Policy and Law FrameworkAll categories of respondents averred that regulationsin place to check ACPs were not enough. Less thanhalf of the respondents gave their views on thisquestion, understandably, if considered againstrespondents’ knowledge and impact of ACPs. Theviews reflected the perceptions of an unregulatedmarket. Nevertheless, on the question that followed,an overwhelming majority endorsed the need to enacta comprehensive law on competition regulation. At

least 70 percent and above across all stakeholdercategories (with 100 percent apiece for consumers andlaw, policy and regulatory sector) calling forenactment of a specific policy and law to addresscompetition regulation.

Scope and SafeguardsStill, the majority of respondents were of the view thatthe law should not only cover competition as anavenue to ensure economic efficiency but alsoconsumer welfare as well. As a logical next step, mostrespondents gave their mode to a law that shouldcover all types of enterprises and persons, includingall areas of commercial activity.

However, the respective stakeholder groups suggestedactivities and sectors that ought to be exempted fromthe proposed competition regulation framework thus:majority of consumers (35 percent - with the rest eithernot giving responses or responding otherwise); andcivil society (50 percent) wanted SMEs exempted. Sodid 90 percent of respondents from the LPR bodies.The majority of BUSIs wanted public utilities off thehook, while RAI bodies wanted state-ownedenterprises. The common denominator in the

responses was that competitionlaw should not extend to thepublic domain as well as toenterprises that benefit the poor(SMEs). Coming fromconsumers and civil society, theresponses were a consequenceof individual or groupexperience (consumers) anddirect interaction with affectedcommunities/groups (civilsociety and law/policymakersand regulatory bodies).

R AI

50%

B U S O

70%

CS R

40%

Consumer s

60%

L P R

70%

Figure 8.6: Do Rules to Check Competition Exist?

Table 8.2: Views of stakeholders on effectiveness

of existing framework

Are regulations in place enough to ensure minimum competition?

Stakeholder Percent

Category Yes No Cant Say / Don’t Know

Consumers 10% 30% 10%

BUSO 5% 15% 10%

RAI 10% 60% 30%

CSOs 5% 30% 10%

LPR - 100% -

Uganda


For businesses, the responses could be linked to therelatively high cost of doing business in Uganda thatis widely understood to be exacerbated by the cost ofutilities. Competition, it is feared by some, couldworsen the status quo. When respondents from RAIbodies opted for exemption of state-ownedenterprises, perhaps, given the knowledge base of thegroup, was premised on the philosophy that publicresources or interests should be protected fromlaissez-faire competition and as far as can beestablished, adverse conditions since they arenormally not profit-making but were set up to achievesocial ends.

Institutional Design/StructureThe overwhelming majority of respondents were ofthe view that the proposed CA should be at the centreof competition regulation in the country. Theapparently homogeneous response was linked to thepractice in regulatory reform in the country. Reformhas normally taken the form of setting up specificsector regulatory (SSR) bodies to oversee all aspects ofregulation. Endorsement of the CA should be seen inthis light.

Powers and RolesOn the crucial question of powers of the proposedCA, consumers were split down middle in theproposal of a CA with both investigative andadjudicative, and one with investigative powers onlywith adjudicative powers vested with a separateauthority. Both responses accounted for 35 percent.

The choice of consumers could beappreciated when the prevailingframeworks are considered.Consumers normally preferservices on a ‘one-stop-centre’principle, rather than a stratifiedinstitutional set-up, a structurethat is normally linked tobureaucratic red tape.

Respondents from businessesand business supportorganisations were also splitdown the middle: some 40 percent

of the responses endorsed a CA with both investigativeand adjudicative powers, with a smaller percentageopting for one with investigative powers only, whileadjudicative powers are vested with courts of law.On the era of state-owned monopolies, courts of lawwere the last resort in case businesses sought justicein the marketplace. The views, therefore, could havebeen formed in this respect other than out of informedpragmatism. Respondents from RAI bodies wanted aseparate body, a decision construed as based on thedesire for separation of roles (investigative andadjudicative) to ensure independence in the processof hearings.

The majority of responses from all respectivestakeholder categories endorsed the view that the CAshould deal with UTPs and consumer protectionissues as well. This was a logical outcome thatcorroborated the earlier positions, for instance thatthe CA should be a body whose roles would covereconomic efficiency and consumer welfare as well asestablishment of a law that would cover allenterprises, persons and business activities.

Also, the majority of respondents from businesses,civil society and research/academic bodies wantedspecialised sector regulators (SSRs) given overallpowers to handle competition regulation issues.Consumers wanted the CA to retain a coordinatingrole, while LPRs opined that that well as SSRs shouldbe involved, the CA should coordinate with them.Views of CS, businesses and RAI were in line with the

traditional institutional designof most SSRs. Consumers’ andLPRs’ views were tinged with‘checks and balances’, in a bidto provide a locked-inmechanism that would ensurefairness and separation ofroles/responsibilities.

C o r p o r a t e / P e r s o n a lLiability and AlternativeMechanismsThe majority of responses from

Table 8.3: Views of stakeholders on enactment ofgeneral law on competition

Should competition law be enacted?Stakeholder PercentCategory Yes No Cant say / Don’t knowConsumers 90% 10% -BUSO 100% - -RAI 70% 20% 10%CSOs 95% - 5%LPR 100 - -

Table 8.4: Views of stakeholders on criminal liabilityShould transgressions in competition law be criminalised?

Stakeholder Percent Yes inCategory Yes in all cases No Cant say/

some cases Don’t knowConsumers 65% 35% - -BUSO 35% 50% 15% -RAI 40% 40% - 20%CSOs 45% 45% - 10%LPR 40% 40% - 20%

231

the RAI, CS and LPR were equally split. Those of theview that violations of the competition law should becriminalised in some cases were equal to those whosaid, in all cases, contraventions should becriminalised. Consumers endorsed personal criminalliability in some cases, well as RAI went for liabilitylimited in all cases. In all, it worthy noting that allstakeholder groups opted personal criminal liability,underscoring their desire to put in place to regulateclimate that deters personal impunity.

COs, BUSOs and CSOs were of the opinion that theproposed law should have provisions to ensure rightto private action. LPRs were equally split with thosefor and against right to personal equal. Only responsesfrom RAI had a majority rejecting the right to privateaction. The views reflect the structure and nature ofthe traditional commercial justice system that containsflexibilities, including the right to private action.

Competition AdvocacyAll stakeholder categories were of the view that theproposed CA should involve different stakeholdersin its functioning, especially advocacy and publicity.In view of the era of private-public partnerships, thiswas expected. Also, all the stakeholder categories wereof the opinion that businesses should try to balancetheir profit motives with consumer welfare.

However, on the important question of howrespondents would react of they encountered anyACP, all but consumers were of the view that theywould seek help from consumer organisations. Fortheir part, majority of consumers said they would donothing about it. The apparent irony is based on thereality that consumers know better that COs do nothave powers and mandate to redress market mal-practices, well as others simply assumed that theycould get justice from COs.

Broken down, the ;others’ response includedamicable settlement with goods/service provider orby approaching the relevant sectoral umbrella bodyor regulator, among the main responses.

Recommendations andConclusionsRecommendations and conclusions have beenstratified to map out the obligations and challengesthat exist, or that need to be addressed in order tohave a functional and effective competition regulationregime in the country.

General Conclusionsi. Competition policy and law can have a role to

play in ensuring that trade liberalisation is notundermined by anti-competitive behaviour.Scoped and implemented appropriately,competition regulation should play aconsiderable role in checking adverse effectscaused by malpractices and structuralweaknesses in the emerging free market inUganda. In the long-run, such interventionsshould protect the process of liberalisation froma host of threats, including political backlash bya polarised populace at variance in terms ofbenefits from the prevailing system.

ii. Ugandan competition law and policy couldencounter major challenges when it comes toemerging international phenomena like cartelsand mergers. This calls for additional safeguardmeasures or mechanisms to check the externalthreats.Foreign investments are increasingly findingtheir way into the economy through non-traditional channels like M&As. Well, as itrepresents a faster way to set up and operatebusinesses, when unregulated, it may hurtcompetition through possible collapse of someof the ‘losing’ competitors, with adverseconsequences to the state (loss of taxes, jobs, etc)and consumers (welfare reversals occasioned byreduced options or increased prices).

iii. The crafting and ratification of the COMESAcompetition framework should provide thenecessary linkages and support to addresscompetition-related cross-border concerns in

Table 8.5: Views of stakeholders on who would be competition ‘police’ under status quo

Who would you report to in case you were victim of an ACP?

Stakeholder Percent

Category Local Police Court Consumer

Council organisation Other Nothing

Consumers 5% 10% 20% 25% 40% -

BUSO 5% 15% 10% 35% 30% 5%

RAI - - 20% 50% 30% -

CSOs - - 5% 40% 30% 25%

LPR - - 25% 30% 20% 25%

Uganda


Uganda and the immediate region.With ever-deepening economic integrationCOMESA (mainly Kenya) is the country’s secondlargest trading partner); this presents challengesrelated to conduct of companies that trade acrossborders of the 20-member states of COMESA.Therefore, linkages across common boarders inthe economic bloc should be established orstrengthened to address competition-relatedconcerns.

iv. Uganda has no specific legislation oncompetition, although there are policies used toinfluence the local markets e.g. trade policy,investment and licensing regulations, companyand partnership laws, labour and environmentlaws.Systematic and effective competition regulationwithin and between the country and its tradingpartners would require the enactment of acompetition law. Yet, as most countries inCOMESA have enacted appropriate laws oramended deficient ones, Uganda does not haveone in place. This would undermine efforts,internal or joint, to check ACPs.

v. Enactment of competition policy and law andsetting up an enabling institutional frameworkneed to be expedited and implemented to enablethe setting up of benchmarks for proper conduct,mechanisms for monitoring, sanctions andredress mechanisms.Proper sequencing and coherence in competitionregulation would require specificity, fairness andtransparency, an aspiration possible through aclear framework on competition policy and law.

Challenges the Government Has To Addressi. Low stakeholder awareness

Results from the survey, shared, indicated thatrelatively few stakeholders were aware of thepractices broadly defined as anti-competitive orunfair as well as possible effects of the same onthe respective category of stakeholders. Thisportends serious consequences to victims andunjustifiable reward to businesses involved inthe malpractices. In view of the foregoingtherefore, the need for awareness creation isparamount.

ii. Harmonisation of sectoral and generalcompetition regulation regimesSectoral regulation, put in place shortly beforeand, in some sectors, after privatisation wasinformed by frameworks with a wide array ofprovisions, including the facilitation ofcompetitive markets. However, competitionregulation per se is not adequately provided for,for sectors where it was recognised (energy/power, communications etc). Also, with the

imminent enactment of competition policy andlaw, a clear mechanism on how the two regimes(sectoral regulation and competition regulation)will interface should thoroughly be examined.

iii. Further adjustment of the economy to attractquality investmentsMacro-economic re-alignment of close to twodecades has led to considerable transformationof the country’s economy. However, in order todeepen the gains, particularly, to have long lastingimpact on the socio-economic spheres (throughincreased investment, etc), there is need, wherenecessary, to regulate activities of the dominantprivate sector. This should dispel fears and lowerrisks as perceived by prospective investors(mainly from overseas).

iv. Absence of or a weak auxiliary policy andlegislationGiven the reality that competition policy and lawcannot be expected to be a panacea for marketimperfections or shortcomings, the need forenactment and enforcement of auxiliary policyand legislation cannot be overstated. Theseshould include laws related to: consumerprotection; sale of goods; contracts; customsmanagement; and product standards, amongothers.

v. Harmonising economic and trade policies withinthe EAC and COMESA regionWith further economic integration, Uganda willincreasingly need to harmonise her policies andlaws with sister countries in the EAC andCOMESA. This should forestall major difficulties,and possible gridlock cross borderimplementation of law or honouring obligations,or enjoyment of rights and other entitlements.

Expected Government ActionTo realise effective fair trade regime and consumerwelfare, especially since there might still be some timebefore the competition law is passed, it is pertinentthat the following are put in place:i. Stakeholder awareness and education

programmes should be stepped up throughoutthe country in a bid to facilitate understandingand subsequently, general support for a market-driven competition regulation and consumerprotection dispensation.Focus should be directed on supportingstakeholder awareness initiatives, as well-informed stakeholders are expected to driveeffective implementation and enforcement of thesoon-to-be-enacted competition policy and lawas well as the establishment of a competitionculture in the country.

233

ii. In a bid to enhance competition, developmentslike mergers and takeovers need to be governedby enforceable rules so as to protect smallbusinesses, consumers and promote fair trade ingeneral. At the moment some rules, in the realmsof privatisation exist. However, comprehensiverules to govern all sectors and enterprises needto be put in place as well as monitoringmechanisms.Cases exist from the privatisation process and,generally, liberalisation of the economy wheretakeovers and mergers resulted into restructuringof markets (market share) leading to difficultiesand, or collapse of small businesses. This, theoryand reality, would have a deleterious effect onconsumer rights and welfare, which calls formitigating measures to be put in place mosteffectively through competition law, includingby amending some of the existing laws.

iii. The expected competition framework should becoherent with national development strategiesfor poverty eradication, sustainable socio-economic development, other sectoral regulatoryregimes as well as regional and multilateralinitiatives.There is evidence, particularly in the commoditysector onto which the country still dependssignificantly, that ill regulation of competitioncould lead to severe consequences. It followstherefore, that competition regulation should beexamined beyond the narrow confines ofchecking adverse effects on firms to potential ofruining livelihoods of millions of predominantlypoor people.

iv. Functional consumer protection regimes shouldbe established and promoted to ensure efficiency,economic growth, best practice, qualityassurance and fair trade.The public sector (government) should be advisedthat it will require more than enactment ofrelevant policy and law but establishment of aneffective framework requires professionalenforcement backed by sufficient resources. Thisshould be planned for in advance.

v. There is need to expeditiously enforce the EACcompetition policy, particularly in view of realand potential challenges related to the emergenceof the EAC Customs Union.

vi. Establishment of a competent authority mannedby professional and experienced manpower toaddress the increasingly complex challenges inthe economy.Countries that have recently embarked onregulation (through law and policy) haveencountered problems related to manpower gaps,as professionals with relevant skills andexperience are hard to come by. Also, institutional,readiness and training interventions are needed.

vii. Enactment or review of auxiliary policy andlegislation to ensure general readiness of thecountry’s trade sector to anticipated changes.These include trade policy, investment,privatisation, policy on SMEs and labour, amongothers.

viii. Strengthening sectoral regulatory bodies to buildtheir capacity play their expected roles incompetition regulation.Sectoral regulatory bodies, by their very nature,will play a pivotal role in competition regulation.However, they require capacity building to elevatetheir readiness in a bid to play their expectedroles.

ix. Government should lend the requisite politicalsupport for the anticipated market dispensationby way of enactment of supportive legislation,followed by their enforcement.The public sector (political leadership) will needto use advocacy measures to help supportmechanisms aimed at bringing about acompetition culture for socio-economic growthand development.

x. In light of the existence of sectoral competitionregulation (in some sectors), establishment of acomprehensive competition regime couldencounter barriers at implementation stage.There is therefore need for harmonisation ofsectoral and general competition regulationregimes to avoid anticipated conflict.

Where specific sector regulators (SSRs) aremandated to enforce competition in themarketplace, care should be taken, throughprovisions in the proposed competition policyand law that clearly assign roles, responsibilitiesand obligations but avoid fomenting possibleconflicts between the envisaged competitionauthority and SSRs.

Uganda

Note: This chapter has been researched and written by Shaban Sserunkuuma of Consumer Education Trust of Uganda(CONSENT), Uganda with inputs and views from Kimera Henry Richard of CONSENT, Uganda. The authoracknowledges the comments received from the members of the Project Advisory Committee. Comments andsuggestions on the structure and content of this paper were received from Nitya Nanda of CUTS CCIER andincorporated appropriately.

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CUTS International - Consumer Unity & Trust Society