Free Trade and Competition Policy in Africa
Louise Du Plessis and Charles Mabuza1
Competition Commission of South Africa
Economic Society of South Africa Biennial Conference
Durban
7-9 September 2005
1
Disclaimer: this article does not necessarily represent the views of the Competition Commission
of SA.
2
1. INTRODUCTION
This paper focuses on the effect of free trade and competition policy in selected
African countries. Using a comparative analysis of countries’ trade and
competition policies, the paper investigates the contributions of these policies in
the development of these countries’ economies. The success or failure of the
introduction of trade and competition policies will be analyzed in the light of
economic performance of the respective countries.
Liberalizing trade and competition policies are complementary, since by
removing trade barriers that may inhibit foreign firms from competing in African
national markets, trade policy enhances competition. The introduction of trade
and competition policies might, however, curtail economic growth and poverty
reduction in least developed countries.
This paper examines the links between competition and trade policies in African
countries. The paper further scrutinizes the economic rents, if any, in countries
where trade and competition policies have already been implemented, compared
to those that have not adopted liberalizing policies. The paper also takes note of
the fact that the economic performance of Africa countries is not solely
dependent on these policies, it rather aims to ascertain whether development in
countries with competition and trade policies has surpassed that of countries
without such policies.
2. THE RELATIONSHIP BETWEEN FREE TRADE AND COMPETITION
There is little doubt that considerable thrust for persisting development in
international commerce stems from trade liberalisation. Similarly, globalization
and liberalization of the world economy have brought to the forefront
deliberations on issues of fair competition in global trade. It has also been
acknowledged that competition and trade policies are complementary in nature.
3
Whist competition policy is undeniably concerned with the realization of
economic efficiency, encompassing allocative, productive and dynamic
efficiency, trade liberalization also contributes to these efficiencies by eliminating
barriers that may thwart foreign firms from competing effectively in national
markets. This in turn would be reflected in the quality of products or services and
competitive prices that the consumer would ultimately pay. The crux of the
relationship between trade and competition policy is that, in an environment
where firms are increasingly organizing their operations on a global scale and
where trade barriers between nations are falling, firms are more exposed to the
regulatory systems and business practices that exist in the economies of their
main trading partners.
On its own, trade policy is not sufficient to deal with the conflict between the
economic systems of different countries. By incorporating the application of
competition principles to the policy fraternity balanced, favourable and desirable
outcomes can be achieved.
In Africa, competition policy creates an enabling environment for the
development of new enterprises, particularly SMMEs, by reducing entry barriers.
3. FREE TRADE, INDUSTRIAL AND COMPETITION POLICY IN AFRICA
During the past twenty years, a number of Least Developing Countries (LDCs),
including those in the African continent, have implemented development
strategies based on trade liberalization, (UNCTAD and Commonwealth
Secretariat, 2001: 1; United Nations, 2004:54). In an attempt to meet the
requirements of the Bretton Woods system (e.g. World Bank), LDCs have
introduced domestic economic reform measures to complement trade
liberalization. Amongst these reform measures are privatization, deregulation and
financial sector liberalization. In addition, most LDCs have also adopted some
form of competition policy over the past decade. In a number of instances, trade
4
liberalizing measures have been part of an exercise to get financial aid and have
therefore not been as effective in being able to achieve the purpose they were
intended to serve, namely the installation of competition principles.
In some African countries, greediness, corruption and poverty have resulted in
politicians delaying the introduction of competition policy. This is mainly due to
conflict of interest as most of those in power are also active participants in the
domestic economy. The feeling is that by adhering to globalization and
liberalization policies, their wealth, and the protected nature of their inefficient
businesses would be eroded by the entry of big, efficient and well-managed
multinational companies. Nevertheless, the situation seems to be changing, as
the need for LDCs to adhere to world policies increases.
3.1. DEVELOPMENT CHALLENGES IN LEAST DEVELOPING COUNTRIES
ECONOMIES
There’s no doubt that economic challenges faced by the developed and LDC
economies are different. Whilst developed countries brace themselves for new
technological development, developing countries are still under pressure to
provide basic needs to society. Amongst the developmental challenges facing
LDCs are poverty and unemployment, lack of infrastructure development and an
insignificant inflow of foreign direct investment. The list is endless. Cernat and
Holmes (2004) have summarized these challenges as: employment generation,
promoting investment, enhancing competitive ability, and removing supply side
constraints. These issues are discussed below.
(a) Job creation
The biggest problem for most LDC’s is the lack of employment opportunities. In
addition, a large part of the population in these countries is dependent on
agriculture for survival. However, the volatile and unpredictable nature of this
sector has some negative implications to LDC communities. The industry is not
5
immune to price fluctuations. Moreover, lack of market access minimizes
chances for success. A major objective of these countries is, therefore, to create
and facilitate the growth of viable industrial and service sectors. This will aid the
process of diversification into secondary and tertiary sectors and thus, amongst
others, help to alleviate the high unemployment levels prevailing in these
countries.
(b) Enhancing investment
To create sustainable job opportunities and speed up economic growth, LDCs
have to encourage inward investment. This is possible, only if most of the tariff
and non-tariff barriers are eliminated within these economies. On the African
continent, South Africa has surpassed most other countries when it comes to
offering incentives for purposes of attracting foreign direct investment.2
Whether
these incentive programmes have produced the expected FDI inflows, remains to
be seen.
The African continent is lagging behind the rest of the world in terms of domestic
investment, which in turn limits the continent’s ability to attract more FDI. Gross
fixed capital formation as a share of total output in Sub Saharan Africa declined
by 13% from the period 1980 – 1989 to 1990 – 1999, compared with an increase
of 3% for all developing countries (Asiedu, 2004).
(c) Improving productivity
The global nature of markets requires that LDC companies equip themselves so
that they can compete with multinationals. This implies that companies have to
rely strongly on competitive advantages such as economies of scale, technology,
marketing strengths, efficient production processes, distribution systems and
affordable labour (Adhikari and Ghimire, 2001:7). Amongst the limitations
2
See Department of Trade and Industry website: www.thedti.gov.za
6
suppressing the performance of African companies is low labour productivity.
This can be attributed to, amongst others, poor health conditions, illiteracy and a
shortage of relevant skills. Jordaan (2005: 90) has found that in Africa output per
worker during the period 1960 to 1973 was slightly higher than that of South Asia
(1.9 compared to 1.8). The figure fell to –0.6 compared to 2.6 in South Asia
during the period 1973 to 1994 resulting in lower total factor productivity.
In South Africa, in particular, the rigid natures of labour laws have also been
blamed for lack of productivity in the country. The prevalence of central
bargaining powers and the inflexibility of the Basic Conditions of Employment Act
and other labour laws have been recognized as the main factors hindering
economic development. The seriousness of the problem is also evident from the
ruling party’s attempt to relax part of the labour legislation. However, its tripartite
alliance partners COSATU and the South African Communist Party are strongly
against the relaxation of these legislations.3
(d) Eliminating supply-side limitations
The ability of LDCs to pursue and specialize in critical productive sectors is
limited by poorly developed infrastructure (e.g. transport, power and storage
facilities), support services (e.g. telecommunications, financial services and other
technical support service institutions). The general lack of trade facilitation
measures also limits their ability to compete in a globalising world. This is
prevalent in most African countries, including South Africa, wherein strategic
infrastructure, particularly ports infrastructure, is more than 500 Kilometers away
from the sectors it serves. This therefore increases logistical costs, as companies
have to spend exorbitant amounts of money on transport.
In most LDCs, African countries in particular, rail systems are not a viable means
of transporting bulk loads. The excessive use of road/land transport further
3
www.polity.gov.za
7
deteriorates the conditions of countries’ already damaged roads, implying that
roads have to be, but are not, maintained continuously.4
Telecommunications
services are also blamed for the minimal level of FDI in LDCs. As a comparative
example, the number of telephones per population in Sub-Saharan African
countries increased by 71% between the periods 1980 1999. This increase was
considered insignificant compared to a 490% for East Asia and 158% for all
developing countries (Asiedu, 2004). What aggravates the problem further are
the low levels of entrepreneurial and technical skills prevalent in most African
countries (Jordaan (2005:63). The elimination of these supply-side constraints
will help facilitate exports, as LDCs will be able to take advantage of market
access opportunities (United Nations, 2004: 85).
(e) Diversification of export profiles
LDCs are susceptible to international market instability and have not been able to
spread the risk by diversifying their domestic production profiles. A World Trade
Organisation report (WTO 2001), states that: “ of the 4 162 products exported by
LDCs to 30 major trading partners in 2000, only 127 accounted for 90 per cent of
their total export trade.” The report also found that on average, the top three
commodities exported by each LDC usually account for over 70 per cent of its
total exports (WTO, 2001). These export concentration ratios5
have remained
high and unchanged since 1980 for all the LDCs reviewed.
Chandrasekhar and Ghosh (2000:4) concur with the WTO’s findings. They state
that African countries do not supply enough of certain products, minimizing their
ability to influence world prices to their benefit. In other words, they are price
takers in most cases. This is understandable, considering the limited number of
products that they export, with the same commodity accounting for a large share
of their export basket (Chandasekhar & Ghosh, 2000:4). The solution to the
4
For example, the road that links Nairobi and Mombassa (Kenya) makes doing business expensive for
investors in that country.
5
Defined as the share of the principal export product in the total export value
8
problem identified above would require LDCs, and African countries in particular,
to start diversifying their export scope. This will ensure that they have a role to
play in the determination of world prices, particularly internationally traded
commodities.
3.2. COMPETITION POLICY IN AFRICA
Writers such as Adam Smith (1776:1) and Alfred Marshall (1890) emphasized
the benefits of free entry to and exit from markets. The theory of “contestable”
markets has acknowledged this insight, whereby it has established that the
dynamic benefits of competition are obtained when it is relatively easy for new
and more efficient firms to enter a market while older, less efficient ones are
forced to upgrade or leave. Consequently, competition ensures that prices are
kept as low as possible for consumers whilst opportunities are created for new
firms, including small firms, to enter markets. In addition existing firms are under
pressure to innovate. In the long run, this would lead to a wider variety of
products and services and more efficient management techniques which would
help to alleviate having to incur expensive research and development (United
Nations, 2004:10)
Developing countries might be significantly affected by the monopoly power of
large international firms, exercised either unilaterally or collusively, if such power
is not properly regulated (UNCTAD, 20025a: 11). Competition law is thus an
important part of market reform. It ensures that social welfare is increased and
that developing countries can enjoy at least some of the benefits of world
markets. However, the conditions for perfectly competitive markets in most
developing countries are far from being realized. Therefore, the potential benefits
of competition do not necessarily always translate into additional growth. A good
competition policy is a basic requirement for market-based reforms. Competition
enhances consumer welfare and economic efficiency. It also enables
9
governments to keep in check issues around market concentration and power
(Gachuiri, 2001: 61).
The underlying objectives of competition policy in Africa do not differ from those
in developed countries, whereby they largely relate to the promotion of free and
fair markets for the ultimate benefit of consumers. A complementary effect is that
competition policy encourages transparency in trade practices.
In addition to the benefits associated with the application, or implementation, of
trade and competition policy it is also important to look at the main hindrances
that may impede the effective execution of these policies. In the international
arena, researchers and leaders have generally acknowledged that competition
policy and law is required for all the countries regardless of their level of
economic development.
Laffont (1999:1) summarized the concerns of developing countries regarding
competition policy and law: “Competition is an unambiguously a good thing in the
first-best world of economists. That world assumes large numbers of participants
in all markets, no public goods, no externalities, no information asymmetries, no
natural monopolies, complete markets, fully rational economic agents, and a
benevolent court system to enforce contracts, and a benevolent government
providing lump sum transfers to achieve any desirable redistribution. Because
developing countries are so far from this ideal world, it is not always the case that
competition should be encouraged in these countries.”
The United Nations, (2004: 57-62) and the Economic Commission for Africa
(1999: 11-12) lists the problems and constraints that African countries and other
LDCs experience. While some of them are unique to LDCs, others are also
experienced in other countries. These issues are discussed below:
10
(a) Conflict with other policy objectives
Governments in Africa tend to be opposed to the idea of implementing
competition policy. There is the extended belief that applying competition policy
unnecessarily constrains the ability of governments to achieve other “genuine”
policy objectives. For example, LDC governments are reluctant to expose their
small and medium enterprises (SMEs) to foreign competition because they doubt
the latter’s potential to create job opportunities. A counter argument would be
that the opening up of national markets, through trade liberalization, would further
facilitate foreign investment. As new efficient and productive firms enter the
territory and erect new production centers, more job opportunities will be created
for local citizens. In certain African countries, such as South Africa, the issue of
local participation in the domestic economy is one of the objectives of
competition policy. In South Africa the evaluation of public interest issues, such
as Black Economic Empowerment (BEE), is an important consideration in merger
proceedings and has not been received adversely from foreign firms: they have
entered the country’s market through joint ventures with BEE accredited
individuals or firms and have thus provided increased opportunities for previously
disadvantaged individuals to enter the mainstream economy.6
(b) Resistance from vested interests
The issue of vested interests, or resistance to competition, within LDCs and
developing countries in Africa seem to surface from both business firms and
politicians. Opening up borders to competition is seen as dangerous for the
survival of national firms. It is understandable that change is uncomfortable or
even threatening; as a result, business would definitely try to avoid competition
as far as possible (Lachmann, 1999: 19). It is however important for policy
makers to demonstrate and weigh the long-term costs and benefits of
competition policy and law implementation, so as to get business support.
6
See Broad Based Balck Economic Empowerment strategy for South Africa, 2003-2005
11
(c) Lack of good governance
One of the reasons that the governments of many African LDCs do not
implement competition policy measures is the lack of good governance.
Governments provide concentrated benefits to a small favoured organized group
of the population, e.g. a business lobby. In the process the widely dispersed and
unorganized groups, e.g. consumers, forfeit the benefits of competition. These
types of activities can be linked to the corruption activities prevalent in some
African countries. The politics-business relations are exacerbated by the attitude
of people in power, who make decisions based on their personal preference and
connection, rather than on the merits. In the smaller LDC economies, where
people tend to know each other fairly well and there is a strong cultural tradition
to favour the relatives, friends and cadres, it is almost impossible to root out
corruption and mal-governance.
The International Country Risk Guide (ICRG) indicates that the quality of
corruption and bureaucracy in institutions in sub-Saharan African countries
increased in the 1990’s. In contrast to this, corruption in developing countries as
a whole declined and the quality of bureaucracy improved (Asiedu, 2004:47).
(d) Tension with sector-specific regulators
In most instances, competition authorities are put in place to regulate the overall
economic activities within a country, including those sectors under the ambit of
sector-specific regulators. However, competition authorities cannot explicitly deal
with issues such as redistributive policy and universal service obligations (Tirole,
1999). In this regard, sector-specific regulators will continue to play the role for
which they were created: to make optimal arrangements for the supply of public
goods, while insuring that natural monopolies do not abuse their position in the
market. Confusion sometimes exists between competition and other regulators
12
as to who has jurisdiction over certain matters. To avoid conflict and
confrontation between a general competition authority and a sector specific
regulator, a Memorandum of Understanding (MOU) is often entered into.7
This
aims to ensure that an industry is not subjected to duplicative or conflicting
intervention by regulators.8
The South African Competition authorities have had to deal with a number of
concurrent jurisdiction issues. This led to the review of the South African
Competition Act in 2001.9
(e) Capacity constraints
Capacity constraints seem to accelerate some of the challenges faced by LDCs.
This is exacerbated by the financial crises that most of these countries face, but
is also due to the lack of political backing of competition policy. Because
competition regulators are exclusively dependent on state for funding,
competition authorities’ independence is undermined (Adhikari and Knight,
2003).
In South Africa great efforts have been made to develop the skills and education
of existing staff members. The South African Competition Commission’s
commitment to a culture of continuous learning is reflected in the number of
7
Refer to South Africa’s Competition Commission newsletter articles: www.compcom.co.za. The
South Africa Competition Authority has entered into MOUs with the country’s telecommunication
regulator, ICASA and the National Electricity Regulator.
8
In Zambia, a clear overlap exists between the tasks of the Zambian Competition Commission
(ZCC) and the Securities Exchange Commission (SEC). In a case where the ZCC required the
shares of the acquired entity to be floated on the stock exchange in order to prevent the
concentration of stock in the hands of the acquirer, the SEC allowed the acquirer to offer the
shares to the minority shareholders. Although this resulted in the acquirer having total control
over the company with negative implications for competition, the ZCC could not prevent this as
the SEC’s decision prevailed. Basant (2001)
9
The initial conflict arose when the authority was analyzing a takeover within the financial service
sector. The issue of who has jurisdiction on the takeover/merger led to a squabble between the
Registrar of Banks and the general competition regulator. The Minister of Finance thereafter
decided on the matter, after having considered findings and recommendations by both the sector
regulator and the competition authority.
13
hours spent by their employees on training, as well as the percentage of the
budget being invested in academic development.10
The South African
Commission has invested in the training of its staff through its collaboration with
international organisations like the OECD, UNCTAD, and the EU. Agreements
have also been signed with foreign Competition Authorities like the US
Department of Justice, US Federal Trade Commission, Australian Consumer and
Competition Commission and Norwegian Competition Authority where staff from
these agencies has been seconded to the South African Commission, as
mentors. South Africa has also entered into an agreement with the Kenya’s
Monopolies and Pries Commission, whereby staff are seconded to this institution
for capacity building purposes.11
(f) Lack of political will and independence
The absence of political support and interference on the activities of competition
authorities undermines the institution’s independence as custodians of
competition. A list of criteria for independence in this regard is provided by CUTS
(2003b) and includes, amongst others, the following:
- Legal independence, whereby members cannot be removed without
proper justification and the competition agency is not a part of any
government department.
- Financial independence.
- De facto independence, whereby the competition agency would have the
support of other government agencies to enforce its decisions.
(g) Low participation in multilateral trading negotiations
While Multilateral Trade Negotiations (MTNs) have facilitated radical
improvements in international trade relations. There are arguments that Africa’s
10
See the Competition Commission’s Annual report
11
See Competition Commission News Letters, 2004
14
participation in these forums has been minimal. By 1997, only thirty-two countries
had received membership of the World Trade Organisation. It is also said that the
existing members’ participation in the Uruguay Round of negotiations, leading to
the establishment of the World Trade Organization, was marginal. Furthermore,
existing members are not able to effectively follow daily discussions within the
framework of the WTO, as very few countries constituently maintain delegations
at the headquarters of the GATT/WTO in Geneva. The bargaining power of the
African countries, as a group, in the Uruguay Round of Multilateral Trade
Negotiations was not strong as very few sub-Saharan African countries
participated. Unity amongst Africans countries themselves would give them the
authority to influence deliberations within various international forums.
(h) Persistence of natural monopolies
By regulating mergers, competition policy aims to reduce concentration and
market power. However, a simultaneous implementation of competition policy
and trade liberalization may at times inhibit LDCs ability to achieve minimum
efficient scale. Therefore, the use of interventionist policy should be allowed to a
certain extent to help so-called up-and-coming enterprises to attain economies of
scale. Lachmann (1999) is of the view that the “the initial costs of protection [not
competition] will be outweighed by the long-run benefits of increasing
competitiveness and participation in international trade”
Amongst some of the deliberations and compromises reached within WTO and
UNCTAD negotiations on trade and competition policy have been that certain
activities, or institutions, within LDCs be exempted from the application of
competition policy. This compromise is aimed at giving national economic
institutions ample time to fully establish themselves so that they can operate and
compete effectively once their national markets are fully opened to competition.
The exemption of certain host countries’ economic institutions from the ambit of
competition policy has restrained effective implementation of the policy, as it
15
lends itself to abuses in both developed countries and LDCs. There are concerns
that some countries tend to misuse the protection afforded to them by
haphazardly picking national champions, or keeping infant industries protected
far too long (Raghavan, 1996)12
The use of the infant industry strategy has been recognized by Porter (1998). He
points out that amongst the reasons that warranted the acceptance of this
concept has been that industrialized countries took over a century to develop
their laws and procedures. Developing countries should, therefore, be given the
opportunity, space and time to reach to a comparable stage, rather than get a
“one size fits all” jacket, which would place them at a distinct disadvantage.
However, protection should only be given to deserving countries within
acceptable time frames.
3.3 AN ANALYSIS OF POLICY CHANGES IN INDIVIDUAL AFRICAN
COUNTRIES
During the 1980s and 1990s many developing country governments shifted their
economic development strategies from that of government intervention to market
oriented or non-interventionist (Gachuiri, 2001: 61-66). According to some
analysts, these restructuring processes had some negative impacts on some
African countries. An UNCTAD economist, as quoted by Raghavan (1996,
March:1)13
, states that trade liberalization policies have resulted in deindustrialization
in many of the least developed countries. In actual fact, the
predicament that continues to face these countries is how to react to the intrinsic
inequalities of the world trading system, which basically arises from an
unbalanced distribution of economic power between the developed and
developing countries.
12
WTO Competition Policy ignores political economy, by Chakravarthi Raghavan, 1996.
http://www.twnside.org.sg/ign-cn,htm
13
Trade liberalization causes de-industrialization, by Chakravarthi Raghavan Geneva 7 March, 1996.
16
As part of the general trend towards implementing reforms, several African
countries have established relatively open trade regimes. These countries
introduced competition laws and reduced unnecessary trade barriers. In
countries such as Ghana, Egypt and Malawi competition legislation is in the
preparation phase. The following paragraphs provide some insight into the
developments in selected African countries. It is, however, important to note that
though some African countries have introduced competition law in their national
markets, the effectiveness, success and independence of these institutions is
questionable, with a few exceptions. The structure of some of these institutions is
outlined below.
3.3.1 Autonomous competition regulatory bodies
From the list of African countries with competition policy, Zambia and South
Africa are the only two countries, with autonomous competition regulatory bodies.
The autonomy of a competition authority ensures that the institution is immune
from political intervention.
3.3.1.1 South Africa
South Africa’s new competition legislation was promulgated in 1998. The
Competition Act, no 89 of 1998, provided for the establishment of the
Competition Commission, the Competition Tribunal and the Competition Appeal
Court to replace the Competition Board which had been responsible for the
implementation of the Maintenance and Promotion of Competition Act of 1979
(Trade and Industrial Policy Strategies: 2002, p1). The Competition Commission
is the investigative body, responsible for investigating mergers, exemptions and
complaints although it does take decisions on intermediate mergers. Once it has
conducted its investigation, the Commission refers its decisions on complaints,
exemptions and large mergers to the Competition Tribunal. It is important to note
17
that the Commission is an autonomous institution, with the rights to initiate
investigations.
The Tribunal is regarded as the Court of First Instance. It handles appeals on
intermediate mergers and complaints non-referred by the Competition
Commission. The Competition Appeal Court considers appeals of Competition
Tribunal decisions. The Appeal Court has the status of a High Court.
3.3.1.2 Zambia
In the Republic of Zambia, the Competition and Fair Trading Act is the only
legislation in Zambia giving the courts jurisdiction to review a code of conduct,
which is “anti-competitive” or “unfair”. The Act considers anti-competitive trade
practices as “any category of agreements, decisions and practices which have as
their object the prevention, restriction or distortion of competition to an
appreciable extent in Zambia” Part II of the Act establishes an enforcement
machinery: The Zambian Competition Commission is mandated to implement the
Act. It is responsible for monitoring; controlling and prohibiting acts or behaviour,
which are likely to negatively affect competition and fair-trading in the country.
The Commission is an autonomous institution and, has power to initiate
investigations or at the request of any person investigations in relation to the
conduct proscribed by the act.
3.3.2 Non-autonomous regulatory bodies
Whereas Zambia and South Africa are the only two countries with autonomous
regulatory bodies, the next paragraphs provide a discussion on those countries,
which have Competition bodies that are not autonomous in the execution of their
mandates. Amongst these countries are Kenya, Malawi and Tanzania. Botswana
has recently accepted the importance of competition legislation. Developments in
this regard are also described below.
18
3.3.2.1 Kenya
The Monopolies and Prices Commission (MPC) is mandated to enforce
Competition Principles and Rules in accordance with the provisions of the
Restrictive Trade Practices, Monopolies and Price Control Act, Cap 504 of the
Laws of Kenya. The Act was enacted in 1988 and came into force in February
1989. It covers restrictive trade practices, mergers and takeovers, unwarranted
concentrations and price control. The MPC staff comprises of 37 people, the
majority of whom are economists. The institution investigates cases and
recommends to the Minister.14
Competition law was introduced in Kenya to curb unfair market prices, ensure
that consumer welfare is not violated and reduce direct Government controls and
regulations in all economic activities within the country.15
The main objective of
the Act is to encourage competition in the Kenyan economy by: prohibiting
restrictive trade practices; controlling/regulating the activities of monopolies
controlling the concentration of economic power; controlling of prices of some
commodities believed to be essential to economic development and to enhance
the welfare of low income consumers.
3.3.2.2 Malawi
In Malawi, competition policy has not been implemented as yet, however, the
government has adopted a competition policy framework. With this competition
policy framework, the Government is endeavors to adopt a competition policy
and law aimed at further economic liberalization, which will lead to greater
competitiveness in domestic markets.
14
This means that it is not an autonomous institution.
15
Restrictive Trade Practices, Monopolies and Price Control Act, Cap 504 of the Laws of Kenya
19
The major goals of competition policy include the protection of consumer
interests and the promotion of economic efficiency. Government envisages
achieving these goals essentially through lowering barriers to entry and
eliminating restrictive business practices. Three primary areas have been
targeted including business behaviour calculated to eliminate or reduce
competition; market structure which permit abuse by an entity in a position of
market power; and government legislation, both existing and proposed, which
may impact on operation of free market in the country. In addition, a Competition
Policy Tribunal is expected to be established to resolve contentious issues in
specific fields.
3.3.2.3 Tanzania
Tanzania’s competition legislation takes the form of the Fair Practices Act of
1994. The Act does not contain any “per se”16
prohibitions. It provides for the
imposition of restrictions of restrictions where monopolies are not in the public
interest. The Act also contains provisions relating to consumer protection
whereby it, prohibits misrepresentation and misleading advertising. The Tanzania
Commission investigates restrictive practices and makes recommendations to
the Minister.
3.3.2.4 Botswana
Of late, the Government of Botswana has announced its intention to promulgate
a policy that regulates competition in Botswana's economy. It acknowledges that
it is critical that the policy adopts a clear language that spells out specific actions
that government will take to address inequities in the economy. These
developments are currently at an infancy stage, but are also welcomed by its
trading partners within SADC. Proposals to have the policy clearly show that
16
“Per se” is an outright prohibition.
20
Botswana is keen to embrace best economic practices. The draft policy seeks to
enhance economic efficiency, thereby maximizing consumer benefits.17
4. IS THERE EMPIRICAL EVIDENCE THAT COMPETITION POLICY
PROMOTES ECONOMIC GROWTH?
The discussions on this paper have reiterated the important role that competition
policy has for development. It has been evident that through market liberalization
and the introduction of effective competition authorities, African countries may be
able to attract FDI and improve the performance of domestic economies. Dutz
and Hayri (1999) (in Teo, 2003:8) studied the strength of association between
intensity of economy wide competition and growth. They constructed three types
of variables, related to policy, structure and mobility, to capture intensity of
economy wide competition. Policy measures capture the quality of the
microeconomic incentive regime and the enabling legal and regulatory framework
in areas that directly promote competition. Structure variables reflect the extent
to which market structure is concentrated from an economy wide perspective.
Mobility variables capture the ease with which new enterprises can enter and
grow in any market. Their results indicated a strong correlation between the
effectiveness of competition policy and growth. They concluded that the effect of
competition policy on growth is strong and goes beyond that of trade
liberalization, institutional quality and a generally favourable policy environment.
Bee San and Changfa Lo (2002) (in Teo, 2003:8) examined the social and
economic impact of the implementation of the Fair Trade Law (FTL) on the
economy of Taiwan. They used a multi-equation system and took the FTL’s
statistics on decision with sanctions, together with key macroeconomic indicators
into account. According to their results, Taiwan’s international competitiveness
and exports would be significantly enhanced by the implementation of the FTL.
Their results also showed that the implementation of the FTL would also create
17
Competition Policy long over due, The Reporter, August 12 2005.
21
more job opportunities and stimulate more innovation efforts.18
The section below
attempts to compare the economic performance of a set of countries believed to
have effective and efficient competition policies (autonomous regulatory bodies)
against those without an autonomous regulatory body. Although several
variables will be considered, the main ones are foreign direct investment and
trade flow. The objective of this study was not to provide an empirical analysis of
the impact of competition policy on the economies of African countries. While
taking cognisance of the fact that numerous factors have an influence on
economic indicators of countries, it is interesting to note the following19
:
Foreign direct investment (net inflows) in countries with autonomous
competition policy is on average 50% higher than countries with nonautonomous
competition authorities and those without competition policy.
20
From the sampled African countries, it was found that on average trade in
goods, as a share of GDP for countries with competition policy (including
those non-autonomous regulatory bodies) was slightly higher than the
figure for countries without.
The study also found that on average there is no significant difference in
the gross capital formation between countries with or without competition
policy.
From the above, it seems as if competition policy should have a positive impact
on the economic development indicators of the African countries sampled.
However, the causality between development and competition policies is not
known. The accurate impact would have to be assessed through a more detailed
empirical study, which falls beyond the scope of this paper.
18
Competition Policy and Economic Growth, Chadwick Teo, Ministry of Trade and Industry,
Singapore Government.
19
See Appendix 1 for complete data on economic indicators for sampled countries.
22
5. CONCLUSION
The paper explored the positive and negative impacts of competition and free
trade policies. The overall conclusion of the report is that these policies do
contribute to enhanced performance in all countries, regardless of the stage of
development. However, one size does not fit all. This is due to the fact that
developmental challenges facing developing and developed countries are
different. It is therefore imperative that each country formulates its own policies to
address its own specific needs. In order to more fully assess the impact of
competition on African countries it is recommended that an in depth econometric
study be undertaken.
20
Note that the figures mentioned apply to countries sampled in this paper as listed in Appendix
1.
23
6. APPENDIX
Table 1: Countries with Autonomous Competition
Policy
Country 1999 2002 2003
Population growth (annual %)
Zambia 2.1 1.7 1.5
South Africa 2.4 1.2 1.1
Average 2.25 1.45 1.3
GDP growth (annual %)
Zambia 2.2 3.3 5.1
South Africa 2 3.6 1.9
Average 2.1 3.45 3.5
Gross capital formation (% or GDP)
Zambia 17.6 23 26.1
South Africa 15.9 15.9 16.8
Average 16.75 19.45 21.45
Fixed lines and mobile telephones (per 1,000 people)
Zambia 11.1 21.2 29.4
South Africa 248.1 410.5**
Average 129.6 215.85 29.4
Trade in goods as a share of GDP (%)
Zambia 60.2 59.1 56.4
South Africa 40.7 55.5 48.5
Average 50.45 57.3 52.45
Foreign direct investment, net inflows in reporting country (current US$ millions)
South Africa 1,500 735.2 819.6
Zambia 162.8 82 100
Average 831 408.6 459.8
Source: World Bank Economic Indicators: www.worldbank.org
24
Table 2: Countries with a Non-Autonomous Competition Policy
Country 1999 2002 2003
Population growth (annual %)
Botswana 2 1 0.6
Tanzania 2.4 2.1 2
Namibia 3 2 1.5
Malawi 2.1 2 2
Lesotho 1 0.9 0.9
Kenya 2.4 2 1.8
Gabon 2.4 2.2 2.2
Average
2.19 1.74 1.57
GDP growth (annual %)
Tanzania 3.5 7.2 7.1
Botswana 5.4 4.4 5.4
Malawi 4 1.8 4.4
Namibia 3.4 2.5 3.7
Lesotho 0.2 3.8 3.3
Kenya 1.3 1.1 1.8
Average
2.97 3.47 4.28
Gross capital formation (% or GDP)
Lesotho 48.6 32.5 29.8
Botswana 28 28 27.5
Namibia 23.3 17.2 22.7
Tanzania 15.5 19.1 18.6
Kenya 16.2 13.4 12.9
Malawi 14.8 12.5 8.1
Average
24.40 20.45 19.93
Fixed lines and mobile telephones (per 1,000 people)
Botswana 134 328.5 371.9
Namibia 79.7 144.8 182.5
Kenya 11.4 51.8 60.5
Tanzania 6.3 24.1 29.5
Malawi 6.3 15.2 21
25
Lesotho 15.9 55.7**
Average
42.27103.35133.08
Trade in goods as a share of GDP (%)
Lesotho 104.6 155.9 131.5
Namibia 84 86.2 76.4
Botswana 96.7 77.3 70.6
Malawi 62.2 57.2 68
Kenya 43.3 43.9 42.7
Tanzania 24.3 26.2 33.2
Average
69.18 74.45 70.40
Foreign direct investment, net inflows in reporting country (current
US$ million)
Botswana 36.7 403.4 86.3
Kenya 42 27.6 81.7
Lesotho 163.3 80.8 41.9
Tanzania 516.7 240.4 248
Malawi 58.5 5.9 23
Namibia ** ** **
Average 163.44 151.62 96.18
Source: World Bank Economic Indicators: www.worldbank.org
Table 3: Countries without Competition policy
Country 1999 2002 2003
Population growth (annual %)
Uganda 2.8 2.8 2.7
Swaziland 2.9 1.9 1.6
Nigeria 2.5 2.4 2.4
Mozambique 1.9 2 1.9
Gabon 2.4 2.2 2.2
Average 2.5 2.26 2.16
GDP growth (annual %)
Nigeria 1.1 1.5 10.7
Mozambique 7.5 7.4 7.1
Uganda 7.9 6.8 4.7
Gabon -6.2 0 2.8
Swaziland 3.5 3.4 2.2
Average 2.76 3.82 5.5
26
Gross capital formation (% or GDP)
Mozambique 36.7 30.3 27.9
Gabon 28 28.4 23.9
Nigeria 23.4 26.1 22.7
Uganda 19.4 19.7 20.7
Swaziland 18.7 17.9 19.4
Average 25.24 24.48 22.92
Fixed lines and mobile telephones (per 1,000 people)
Gabon 39.2 239.7 253.1
Swaziland 46.3 95 128.5
Uganda 5.1 18.1 32.7
Nigeria 4.4 19.2 32.5
Mozambique 5.5 18.6**
Average 20.1 78.12 111.7
Trade in goods as a share of GDP (%)
Swaziland 145.7 161.8 104.9
Gabon 74.3 61.2 59.7
Nigeria 64.5 48.5 53.3
Mozambique 35.2 56.5 52
Uganda 31.2 26.5 28.8
Average 70.18 70.9 59.74
Foreign direct investment, net inflows in reporting country (current US$ million)
Gabon -156.6 123.2 53
Swaziland 100.4 45 43.5
Mozambique 381.7 347.6 336.7
Uganda 140.2 186.6 194.2
Nigeria 1,000 1,300 1,200
Average 293.1 400.5 365.5
Source: World Bank Economic Indicators: www.worldbank.org
27
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