Study of competition in the road freight sector in the SADC region Presentation based on study done for SADC Competition Committee, funded by GIZ Thando Vilakazi Centre for Competition, Regulation and Economic Development 5 August 2014

Objectives To assess the nature and extent of competition in the road freight sector in Malawi, Tanzania and Zambia In order to focus the study on a key sector in all of the countries, we evaluate fertiliser trading and transportation across the three countries Establish the differences in prices and assess these against what would be justified by efficient and competitive transport, given distance Focus on two key areas to evaluate whether prices are higher than could/should be: o Impact of regulation, restrictions o Effect of concentration and state of competition SADC Committee, August 2014

Urea prices (avg $/t across countries) gap between Zambia & Tanzania prices about $120

Urea price comparisons Prices far above export sources, and by much more than the sea- freight and related costs (=$50) Gap with FOB has increased substantially, not explained by increased sea freight costs Major issues with local ports and transport efficiencies and prices (including more efficient DCG terminal at double port authority discharge) Zambia landlocked with longest distances, but price fell to close to Tanzania/Kenya; Malawi prices remain very high, even by comparison with neighbours SADC Committee, August 2014

Cross country comparison SADC Committee, August 2014 Table: Port and landlocked country price benchmarks, 2013 Table: Mark-ups over benchmark competitive prices by country, 2013 Country Average fertilizer price (2013) ($/ton) Mark-up over competitive price per ton ($/ton) Zambia Tanzania (compared to port country) Malawi (compared to landlocked) Kenya (compared to port country) Competitive coastal country fertilizer price$709 per ton (delivered South Africa) Competitive transport rate$110 (Johannesburg to Lusaka) Competitive landlocked fertilizer price$819 per ton (Zambia)

Zambia and Malawi – a tale of two freight sectors? We know that Zambia both: Cracked a fertilizer trading cartel in 2012, and Made it much easier for regional trucking companies to operate, especially from Zimbabwe and South Africa, including single-permit system Improved efficiencies with: Increased investment in trucking services; import restrictions lifted in 2 nd hand trucks; cabotage rules maintained Increased mining activities provide significant backhaul opportunities for fertiliser (and other) transporters. Increased participation of new players in Zambian fertilizer - ETG Compared to Malawi, fertilizer is $200/t cheaper (+/- 20%) Malawi: remains very concentrated; association recommends rates; subsidy programme is price floor; obstacles to competition despite opportunities, including from Beira and Nacala SADC Committee, August 2014

The case of Tanzania Tanzanian fertilizer prices $101 above benchmark competitive rate Strong growth in the road freight sector in volumes and participants, but outcomes in the fertilizer sector do not seem to be competitive Wholesale margins of between 27% and 36% over the CIF price Relatively concentrated in fertilizer trading; access to port and bagging facility is also important Poor backhaul opportunities Questions about role of trucking association Indications that domestic transport is becoming cheaper The remainder of the margins may accrue due to possible rent- seeking at the level of retailers/agro-dealers, after accounting for any storage, overhead and local transport costs Overall, this accumulation of margins is likely to explain, at least in part, why prices in Tanzania are comparable to those in Zambia in 2013, while Zambia is much further from ports SADC Committee, August 2014

TFC Q ETG Q TFRA (2013) Benchmark Q FOB CIF Port charges Bags, bagging and storage Importer margin20-- Sub-total: ex-port warehouse (bagged) Inland transport costs Wholesale price Final retail price Average Retail List Price (Chimala agro-dealer price) National average retail list price, source: AMITSA Fertilizer price composition supply Mbeya (rich agricultural area, close to Zambian border)

Drawing together the threads Complex considerations for all 3 countries Zambia had a substantial increase in the number of participants in road freight (especially in the regional market) and there was also a reduction in prices relative to Tanzania and Malawi Aided by increase in backhaul opportunities, and growing trade from DRC Domestic environment remains a challenge – fuels cost, tolls, taxes, competition from foreign firms with base in Zambia Malawi has seen an increase in trade with neighbouring countries while domestic freight rates are generally higher than cross-border rates - domestic backhaul opportunities limited SADC Committee, August 2014

Drawing together the threads While the transport costs (fuel, spare parts etc) are not abnormally high in Africa, transport prices (what transporters charge) are generally high in Africa – problems remain Zambia improved efficiencies in licencing and enforced competition law – emphasis quality improvements Issues around common standards for licensing, taxes, tolls etc. Cabotage and 3 rd party rule: these rules are still in effect in all three countries; rules themselves are only part of the picture Increased competition between ports including the rise of Beira and Walvis Bay (less so) provide substantial opportunities for more efficient transport leading to lower prices for buyers (farmers) Considering the role of users of transport services in making policy is important SADC Committee, August 2014