1 RELEVANCE OF COMPETITION REFORMS FOR DEVELOPMENT IN AFRICA By Peter Muchoki Njoroge Chairperson COMESA Competition Commission

2 CHARACTERISTICS WITH REGARD TO COMPETITION IN THE AFRICAN REGION ■ Government involvement in many sectors. ■ Reliance on Governments to provide essential services for the majority: education, health, water etc. ■ Supremacy of the Executive vis a vis other government arms. ■ Lack of Strong Competition Culture

3 CHARACTERISTICS OF AFRICAN STATES contd Generally there is weak regulation. Probability of regulatory capture is high[ both industrial and political]. High poverty levels. Policy Makers are also by and large BO’s or are highly intertwined with BO’s. Vested interests have high propensities to converge. High Concentration of economic power. Lack of CPL in most countries eg in the COMESA region out of 19 member states there are only 2, 3 or 4 fairly active CAs. CL has been promulgated in about 7 States. This scenario is replicated elsewhere

4 CHARACTERISTICS contd Small sizes of markets not conducive to entry competition Little local capital enhances role of MNC’s Foreign and domestic cartels may execute restrictive distribution and market sharing agreements Lack of strong supportive institutions: Independent judiciary; good governance; independent media; professional well remunerated public service; HENCE:

5 CHARACTERISTICS contd Risk of law being misapplied Possibility of unnecessary intervention in markets, corruption and bribery Possible affected government services: Customs, tax collection, safety etc

6 EXAMPLES OF RTPs IN THE AFRICAN REGION Trade agreements [ geographical market sharing, price fixing, economies of scope provisions, production quantities provisions etc]. Cartelization through trade associations. Refusal or discrimination in supply. Predatory practices to repress competition.

7 EXAMPLES OF RTPs contd Collusive tendering [BR]. Collusive bidding at auctions [BR] Security related contracts Statute supported arrangements eg OTS in Kenya Outrightly dictated arrangements (generally a thing of the past- hopefully?)

8 RELEVANCE OF COMPETITION REFORMS FOR DEVELOPMENT IN AFRICA The environment is conducive for proliferation of RTPs. RTP will spawn transparency and accountability which will go a long way towards controlling corruption. Promotion of good governance by introduction of enforceable rules. As already stated governments are involved in many sectors of the economy. As the majority of the people are poor, CPL will speak on their behalf. Consumer Welfare will be enhanced.

9 RELEVANCE OF COMPETITION REFORMS contd. Trade Associations are used to promote RTPs in key sectors such as Insurance, Banking, Manufacturing, Oil, Construction, Pharmacy, Medical etc. Some claim to embrace safety and best standards. CPL is needed to tame them. As stated earlier vested interests control many sectors of African States’ economies. CPL is needed to tame these interests

10 RELEVANCE OF COMPETITION REFORMS contd. There has been a proliferation of EPA negotiations. Coupled with regional integration initiatives plus WTO issues, reforms are needed to conform with the new realities. Competition Policy may be more important in developing countries than in developed countries. In many developing and least developed countries, many people subsist on one or two dollars per day.

11 RELEVANCE OF REFORMS, contd That dollar when taken away, through uncompetitive practices, from the poor person disproportionately affects him more than it would affect people from richer countries. In situations where public funds are involved, for example in bid-rigging, security, govt and statute supported RTPS and collusive tendering, the dollar which would go to assist the poor in state provision of medicine or in providing universal primary education ends up in private pockets. This is anti- development.

12 RELEVANCE OF REFORMS contd Enterprises, especially Multinationals, abhor adverse publicity. Any indication, therefore, that a Governmental Agency is investigating them spawns positive effects. The company being investigated, and many other such companies, will desist from conduct involving RTPs.

13 RELEVANCE OF REGIONAL COMPETITION AUTHORITIES IN DESIRED REFORMS Desired reforms must embrace regional CAs. Will capture extra territorial violations on behalf of regions in more effective and coordinated methods. Treaties establishing regional economic cooperation initiatives normally have competition adherance provisions. Regional CAs are best placed to enforce obligations arising out of such provisions especially with regard to member states lacking CAs. Regional CAs have competition advocacy provisions within apposite regions e.g COMESA, EAC rules. Regional CAs may be less amenable to Industrial and Political capture.

14 PROPENSITY TO EMBRACE RTPS IN AFRICA [EXAMPLE ONE] Quoted from a paper delivered by Prof Jennings in South Africa Houblon.net [Portrait of Pierre Castel, 2008] Man to man. Over the years, his contacts increased. African heads of state become his « friends ». « If someone gives me a hard time, I get in touch with my friends so they can solve the problem, he says. Like imports by Lebanese merchants in the Central African Republic. « I told the government: If you don’t stop them, I will freeze my investments. » Same thing in the Ivory Coast, where he controls one of the major sugar plants, Sucaf. This spring, he asked to see Laurent Gbagbo so that over the border smuggling would be stopped. A few weeks later, the Ivory Coast government banned sugar exports for two years ! NB: The Castel Group is one of the two beverage companies in Africa. The group has beer, carbonated soft drinks in fracophone Africa, including Angola, Benin. Burkina Faso, Cameroon. Central Africa Republic, Ivory Coast, DRC, Gabon, Mali,Tunisia, Morocco, niger, senegal and Togo. It is also in Ethiopia.

15 PROPENSITY contd EXAMPLE TWO- STATEMENT BY NAJIL FAIRBASS, COMMUNICATIONS DIRECTOR SAB MILLER [2001] “ This agreement enabled us to develop opportunities… There may be antitust laws at the national level, but none covering the continent. I don’t see what the problem is.” -This statement was about a market sharing agreement, contrived in 2001, which protected preferred zones for the two groups without fierce competition.

16 PROPENSITY contd EXAMPLE THREE-THE ANGLO LEASING SCANDAL [KENYA]- WIKIPEDIA 2009  In 2005 plans were hatched to buy a sophisticated passport equipment system from France. TheGovernment wanted to replace its passport printing system. The transaction was originally quoted at 6 million euros from François Charles Oberthur of Paris - the world's leading supplier of Visa and MasterCards, but was awarded to a British firm, the Anglo-Leasing and Finance Company Limited, at 30 million euros, who would have sub-contracted the same French firm to do the work.British Anglo-Leasing and Finance Company Limited Despite the lack of competitive tendering Anglo Leasing was paid a "commitment fee" of more than £600,000. Being a security related matter, the law removed this pernicious arrangement from the ambit of CPL and competitiveness.

17 ANGLO LEASING contd Anglo Leasing's agent was a Liverpool-based firm, Saagar Associates, owned by a woman whose family had enjoyed close links with senior officials in the regime.  Company records show Saagar Associates was owned by Mrs Sudha Ruparell, a 47-year-old Kenyan woman.Sudha Ruparell Mrs Ruparell was the daughter of Chamanlal Kamani, the 72-year-old multimillionaire patriarch of a business family which enjoyed close links with senior officials in a past regime.Chamanlal Kamani Anglo Leasing made a repayment (refund) of euro 956,700 through a telegraphic transfer from Schroeder & Co Bank AG, Switzerland on May 17, 2004.May

18 PROPENSITY contd EXAMPLE FOUR-THE GOLDENBERG SCANDAL– KENYA-WIKIPEDIA This is the longest-running scandal in Kenya. The Goldenberg scandal occurred in early nineties when the government had fallen foul of the Bretton Woods institutions and badly needed foreign currency.Goldenberg scandal The Kenyan government (through parliament) subsidized exports of gold, paying exporters in Kenyan Shillings (Sh) 35% over their foreign currency earnings. In this case, the gold was smuggled from Congo. Most of the gold was non existent but the customs and geology and mines depts certified the gold as real. The Goldenberg scandal cost Kenya the equivalent of more than 10% of the country's annual GDP. Again, there was no competitive bidding before Goldenberg was picked as the sole handler of this scheme.

19 PROPENSITY contd EXAMPLE FIVE-THE TRITON OIL SCANDAL-KENYA-WIKIPEDIA In Kenya, regulation of the oil industry is in the hands of the Ministry of Energy and one of its arms. Around 2003, the Ministry and the marketer adopted a so called ‘Open Tendering System’. The system only allowed one marketer to import oil products on behalf of all players in the industry. The 2009 Triton Oil scandal involved the unauthorized releasing of oil by Kenya Pipeline Company (KPC) without informing financiers.oilKenya Pipeline Company

20 THE TRITON SCANDAL contd The scandal became public in January, The release of the oil occurred in 2008 when Triton Oil Company was allowed by KPC to withdraw oil amounting to Kshs 7.6 billion or (US$98.7 million). The company collapsed shortly afterward, withdrawing the oil and selling it to the market.KshsUS$ The government may have to reimburse the financiers as KPC is a public entity.

21 PROPENSITY contd EXAMPLE SIX-THE FAMINE MAIZE SCANDAL-KENYA-WIKIPEDIA This scandal in Kenya became public in January 2009Kenya It concerned the sale of imported maize.maize In late 2008, the ban on importation of maize was lifted by the government to allow capable businessmen to import maize to supplement the local produce that was short of the minimum required to satisfy the local market.

22 THE FAMINE MAIZE SCANDAL contd The scandal alleges that the following events might have taken place: A.- Briefcase millers, existing only on paper, some of whom were defunct at the time when the scandal unfolded, were awarded large quantities of maize by the Strategic Grain Reserve management entity.millers B.-They accomplished this by inflating their milling per- hour capacity and having public officials vouch for their authenticity.

23 THE FAMINE MAIZE SCANDAL-KENYA- contd C. - The briefcase millers and local businesses that were either awarded quotas by the SGR or awarded import permits by the NCPBK (National Cereals Produce Board of Kenya respectively might have also re-directed the bags of maize outside the country in order to avoid price controls stated by the government to help the poor and thus make bigger profits.National Cereals Produce Board of Kenya D.- Some of the maize imported in 2009 by local businesses was certified unfit for human consumption and might have been released into the market after directions of senior government officials. Again this was a scheme protected from application of competition law.

24 PROPENSITY- EXAMPLE SEVEN-USAID PROJECTS IN EGYPT-BID RIGGING [US District Court, Birmingham (Alabama) v. AICI and others (2000) USAID financed waste water treatment works in Egypt between 1989 and Concerned firms gave astronomically high bids to favour winning company. The winning company compensated the co-conspirators. The public and USAID, as a result, did not get the best value for money

25 USAID PROJECTS IN EGYPT contd The money lost could have financed other projects. Egypt at that time did not have competition law. There was no CA.

26 CONCLUSION CPL promotes development whether at regional or national levels. The characteristics (broached in Slide 2 etc) require taming by effective enforcement of CPL. There may be inordinate propensity to embrace RTPs in Africa if the examples given are replicated in other states.

27 CONCLUSION contd CPL may be required more urgently in the African region ( and in other comparable regions) than perhaps would be required in more developed regions. Money saved through enforcement of CPL will go into important services such as water, health and education. African countries have progressively adopted political democracy. CPL will spawn economic democracy. Political democracy combined with economic democracy will bring about comprehensive democracy. Competition and attendant reforms may be the prodigal son that will help tame corruption and economic dictatorship in Africa.

28 CONCLUSION contd Thank you for your attention. Good-bye. Au revoir