1 Competition Policy and Issues of Sustainable Economic Growth in African Context: A Framework

2 1. The Scope of Competition Policy Competition policy refers to all policies that can enlarge competition and eliminate all barriers to the operation of market forces Such market obstacles can be created both by gov’t/public and private agents Hence competition policy involves: Liberalization measures (trade, finance, industry, infrastructure, even the judiciary) Privatization Competition law

3 1. The Scope of Competition Policy … Competition law: deals with all business restrictive practices both at national and International levels. At national level, it includes: Horizontal and vertical agreements (cartelization) Abuse of dominance (monopolistic) position Mergers and acquisitions Unfair competition

4 1. The Scope of Competition Policy … At international level, it deals with all practices hampering trade and investment, including: Agreements to ease and secure foreign investment – TRIMs Agreements on the abolition of subsidies – SCM Introduction of competition in service sectors – GATS Anti-dumping Polices related to technology transfer - TRIPs

5 2. Relevant Competition Policies in African Context What aspects of the competition policy are essential in African context? 2.1 Factors to consider: No blue print for competition policy, particularly for achieving sustainable growth Countries (to some extent regions) have their own specifics – both economic and social African economy can be largely characterized by - Large subsistence sector – mainly agriculture - Small industrial base - Outmoded technology/Lack of technological capability - Large public sector dominance/control of modern industrial & service sectors

6 2. Relevant competition …. As a result Low productivity, and low income Small market size, Limited availability of entrepreneurs Poor infrastructure, etc. Prime objective: Institutional and structural change 2.2 Prime goal of competition (a) Generate short term efficiency gains (b) Sustainable growth (long term dynamic efficiency)

7 2. Relevant competition …. (a)Competition policy and Short term efficiency: How is it achieved? Introducing measured liberalization: decontrolling product and factor market prices, etc. Introducing regulatory measures to improve the efficiency of public sector service provisions – granting operational autonomy SOEs: Reducing protection and subsidy, granting operational autonomy, and privatizing some Subjecting private enterprises in general to create rivalry (healthy competition) in the domestic market

8 2. Relevant Competition …. Therefore, competition policy/law should address, Horizontal and vertical agreements (cartel conduct) Abuse of dominance (monopoly behavior) Such an approach is meant to create short term efficiency gains while at the same time, - Limit unnecessarily deep liberalization - Target most harmful restrictive practices - Avoid the need for excessive administrative supervision - Avoid unnecessarily maximum (wasteful) competition

9 (b) Competition policy for sustainable economic growth Does competition policy alone lead to sustainable economic growth? While the short term efficiency gain of competition is widely acknowledged, there is no guarantee for its efficacy to produce long term dynamic gains Underline arguments Institutional and structural obstacles could make competition an unpredictable process Barriers to global market entry for developing countries limits the benefits of competition As a result, competition policy in developing countries, particularly in LDCs may have to be managed 2. Relevant competition ….

Experiences in some E. Asian economies Sequencing new entrants (investment), and deterring excessive competition at an early stage Provision of incentives to deepen industrial structure, technological upgrading, and exports rather than towards enhancing the microeconomic efficiency of resource allocation Incentives and protection to stimulate local industrial activity (traditional infant industry) at different stages of maturity, but selectively to achieve international competitiveness 3. Managed competition

11 3. Managed Competition …. Promoting managed competition, including the encouragement of mergers, coordination of capacity expansion to create scale economies Entry restrictions to promote specific industries by preventing excessive competition among domestic firms Selective control on imports and even FDI Tying import licenses to export performance (rather than opening up) subsequently relaxing intervention and deepen liberalization to allow new entrants and strengthen financial and technical capabilities

The lesson to note: Sustainable economic growth requires not only free- market competition but also some form of cooperation (managed competition) at an early stage the need to reconcile competition policy objectives with other policy objectives for sustainable growth (employment, income, etc) Exposure to international competition alone is not sufficient and active policies for the promotion of sustainable competitiveness are also necessary Hence the need for a broader concept of competition policy at the national level; stronger international cooperation and adopting int’l competition policies selectively and gradually as domestic competitiveness strengthens. 3. Managed Competition ….

13 4. The Competition Authority 4.1 The role of the competition authority Day-to-day follow up of business practices, investigate anti-competitive conducts Accept complaints from business, public, civil society groups and individuals and conduct investigation Conduct advocacy programs on competition for public, private/business and civil society forums Coordinating/leading public institutions for reconciling different polices and competition policy Provide guidance and technical support to government authorities with regard to other policies requiring changes for improving the competitive environment, and also identification of firms requiring structural intervention before privatization.

14 4. The competition authority 4.2 Composition and structure of the competition authority Its composition need to be broad based: public, business, consumer groups, labor union, etc Independent of any government body with own budget Chair of the authority (commissioner /minister) be appointed by the legislative Decision of the authority be available for public use Be able to report to Parliament

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