Relevance of Competition Reforms for Development in Africa Presentation by R.Shyam Khemani MiCRA, Washington, D.C. USA Conference on Strengthening Constituencies for Effective Competition Regimes in Selected West African Countries CUTS-7UP4 Project 6-7 August 2010 Dakar, Senegal 1

Some Case Examples of Anti- Competitive Situations Fishermen and Fish Processors-Tanzania Fertilizers-Ethiopia Poultry Farmers and Poultry Processors- Tunisia Cement Firms/Sellers-Egypt (and Other Countries) Trucking and Cut Flower Exporters-Morocco 2

Why Competition? Competition, broadly defined, refers to rivalry between different businesses for the patronage and purchases by customers. Businesses engage in rivalry (i.e. ‘compete’ independently) against each other mainly in terms of prices, quality, service, and innovation. The ‘process of competition’ pressures business to offer customers a wide selection goods and services at lowest possible prices and highest quality. However….benefits of competition are broader than simply lower prices, lower costs, higher quality, wider selection, and innovative products……. 3

Broader Benefits of Competition Competition…and effective laws, institutions and policies that maintain, protect and promote competition foster: Better corporate, market and public governance. Promote greater accountability and transparency in business behavior, and government –business relations. Reduce opportunities for bribery, corruption and rent- seeking behavior. Result in entrepreneurship, risk-taking, entry of new and expansion of existing businesses, increased employment, productivity, competitiveness, broad-based and shared economic development…… Given all these benefits…why is competition lacking in many African and other developing (and also many developed) economies?? 4

Commonly Observed Economic Characteristics in Developing Economies High levels of ownership concentration ‘Missing middle’ sized firms Conglomeration Lack of ‘Market for Corporate Control’ Under-developed equity-debt markets Close government-business relations- connections…and vested interest groups. High levels of product (&financial) market concentration. These factors tend to self re-enforce each other. Plus …lack of political will. 5

The Process of Competition Needs to Be Safeguarded and Sustained The Competitive Process is Not Automatic. Competition Can Be Distorted By Restrictive Business Practices and Public Policies. Public Policy Often Manipulated by Interest Groups Including Private Sector. Misguided Policies Entrench Anticompetitive Business Practices, and Discourage Both Domestic and Foreign Investment. 6

Why Competition Policy ? Competition policy is a set of measures by government which protect and promote the process of competition by: (i)Preventing restrictive business practices which artificially restrict supply and raise prices of goods and services, and (ii)Reduce or eliminate unnecessary regulations and government policies which adversely affect the competitive process and raise the cost of doing business. Competition policy generally consists of (a)Competition (Antitrust or Antimonopoly) Law and (b) Regulatory reform measures e.g. trade and investment liberalization, economic de-regulation, etc. 7

Competition Law 116+ countries and jurisdictions have enacted competition law Majority of the countries are developing and emerging market economies—most enacted such laws since 1995 Driven by failure of government ‘interventionist’ policies, planning, deficits, etc. Competition policy—is/and should not be a matter of ideology 8

Impact of Competition (Antitrust ) Law & Policy Distinction Between Systemic vs. Industry/Case Specific Impact. Removing Public Policy Restraints: Tariffs & Non-Tariff Barriers to Trade, Restrictions on Ownership-Investment, Leveling the Field Between State-Owned and Private Sector Enterprises and Other Such Policies  Systemic Impact. Competition (Antitrust) Law--Case by Case Application Against Anticompetitive Business Practices  Firm/Industry Impact. Complementary  Buttress Each Other. 9

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Figure 2 Per Capita GDP (constant 2000 USD in thousands) and Intensity of Competition in Local Markets Source: Global Competitiveness Report and World Bank DDP, 2005 High Low Low IntensityHigh Intensity 11

Figure 3 Effectiveness of Competition (Antitrust) Law- Policy and the Extent of Market Dominance Source: Global Competitiveness Report Low Dominance Low Effectiveness High Effectiveness High Dominance 12

Figure 4 Business Competitiveness Index and Effectiveness of Competition (Antitrust) Law-Policy Source: Global Competitiveness Report Effectiveness of Competition (Antitrust) Law-Policy Business Competitiveness Index IDANon-IDA countries High Low Low Effectiveness High Effectiveness 13

Figure 5 Intensity of Local Markets Competition and Effectiveness of Competition (Antitrust) Law- Policy Source: Global Competitiveness Report Low Effectiveness High Effectiveness Low High 14

Procedures, Time and Costs of Entry Country Name ( Ease of Doing Business Rank) Number of ProceduresTimeCost (% of GNI per capita) Canada (8)150.4% France (31)570.9% Germany (25)9184.7% Japan (15)8237.5% Korea (19) % New Zealand (2)110.4% United States (4)660.7% Botswana (83) % Burkina -Faso (115) % Gambia (140) % Ghana (92) % Kenya (95) % Nigeria (125) % Senegal (157) South Africa (34)6225.9% 15

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Concluding Remarks Effective competition law and policy benefits both individual consumers and business It will improve domestic and international competitiveness, broaden participation in the economy, and alleviate poverty Create opportunities for entry and expansion of SMEs, investment, Technological Change Foster greater accountability and transparency in government-business relations, reduce opportunities for corruption and bribery, lobbying… 17