Transcript BOTSWANA COMPETITION BILL

ANTI-COMPETITIVE AND ANTICORRUPTION ACTS - BIRDS OF A
FEATHER?
by
Thula Kaira - CEO
Presentation to the Zambian Anti-Corruption Commission/DCEC
Gaborone
Thursday, 6th June 2013
PRESENTATION OUTLINE
1. Introduction
2. Why we should protect competition
3. Principles of Competition Policy
4. Botswana’s Competition Act
5. How we operate
6. Competition Policy & Corruption
7. Birds of a feather…?
1. INTRODUCTION
The Government of Botswana through its
Cabinet adopted the National Competition
Policy for Botswana in July 2005
The Policy was preceded by an Economic
Mapping Survey (2002) that noted high
levels of unemployment, increasing
dominance of foreign firms in Botswana’s
economy, etc
Arising from the Policy, the Government through its
Parliament enacted the Competition Act in 2009
whose objectives in its preamble are to:
• Establish the Competition Authority
• Outline its mandate
• Regulate competition in the economy
This is not unique to Botswana as such
exist in over 130 countries, including
BRICS, USA, EU, Egypt, Israel, Japan,
Mauritius, Namibia, Zambia, Zimbabwe ,
etc
4
A
THE
COMPETITION
AUTHORITY IS
Agency
Accountable
Guided By
to Govt through
the Minister
Other over-arching
National Policies
Govt
2. WHY PROTECT COMPETITION?
UN SET of Principles
& Rules on
Competition
… States, in their control of restrictive business
practices, should ensure treatment of enterprises
which is fair, equitable, on the same basis to all
enterprises, and in accordance with established
procedures of law. The laws and regulations
should be publicly and readily available
Monopoly markets are slow to
innovate and adapt to new ways of
doing business
A National Competition policy will
assist the Government and all its
agents to ensure fair business
opportunities for both foreign and
local firms.
Competition policy & law provides a
set of rules and principles that are not
based on privilege but conducive to
and responsive to leveled-ground or
fair competition
3. PRINCIPLES OF COMPETITION POLICY
Transparency
Procedural
fairness
NonDiscrimination
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 The WTO is a multilateral trade organisation that
has recommended a fair, transparent and nondiscriminatory multilateral trading system
 Botswana is a member of the WTO and has
voluntarily promulgated rules of fostering fair
competition in the domestic economy through
the Competition Act
 Implementation of such a law has to adhere to
the best international principles of transparency,
non-discrimination and procedural fairness
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4. BOTSWANA’S COMPETITION ACT
1. Private
Commercial
enterprises
The Law
applies to:
2. The State’s
commercial
activities
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ELEMENTS OF THE COMPETITION ACT OF BOTSWANA
CARTELS:
VERTICAL
AGREEMENTS
:
- Resale Price
Maintenance
- Price-Fixing
- BidRigging/
Collusion
- Market/
Customer
Allocation
ABUSE OF
DOMINANCE
:
- Excessive
Pricing
- Predatory
Pricing
- Territorial
Restraints
- Tied Selling
MERGERS
Acquisitions
-Takeovers
Amalgamations
 Vertical Agreements
These are agreements that businesses have
from the production/supply source through
logistics, wholesale/warehouse, retail
ending up with the consumer
What contracts, conditions, agreements,
arrangements, practices are in place to
move a product from manufacturing to
retailing? Long-term exclusive supply
contracts effectively close out new entry
Transparent, fair, non-discriminatory?
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 CASE EXAMPLE Vertical Agreement
Medical Aid Funders (MAFs) have entered
into some form of arrangements with the
Medical Service Providers (MSPs) such as
dentists, gynaecologists, paediatricians etc
on how much MAFs will pay for services
rendered by MSPs to consumers (patients)
Patients pay high monthly subscriptions to
MAFs but MSPs still claim extra payments
from patients – invoicing system blurred
Is the system pro or anti-competitive?
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 Horizontal Agreements (HAs)
HAs are any manner of formally or
informally coordinated common market
behaviour by competitors eg banks agreeing
to have uniform bank charges or bakers
agreeing to sale bread at the same price
HAs constitute the most serious offences in
anti-trust and attract huge fines in RSA, USA
and Europe. Record cement cartel fine of
US$1 billion in India
They create ‘unfair-profits’ for the crooks
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 CASE EXAMPLE of Horizontal Agreement
A group of car repair garages in Gaborone
have allegedly conspired not to compete
on price and so, they provide collusive
quotes to insurance companies (bidrigging/collusive tendering)
They assist each other when requested
with ‘cover prices’ high above the normal
charges
Is this pro- or anti-competitive?
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 Abuse of Dominance/Monopolisation
Abuse of dominance provisions are
directed at enterprises which are larger in
a market, which in Botswana is any firm
with at least 25% market share
The law prescribes conduct that dominant
firms cannot engage in as the effect is
more severe in a market esp. for SMEs
It is important to ensure that markets have
as many players as possible to provide a
competitive market system
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 CASE EXAMPLE on Abuse
Exploitative/excessive pricing is one form
of abuse by a market player. At the
Competition Authority, an IT tender
produced a monopoly technical winner at
P5.8 million
UNDP (the funders) questioned what kind
of IT infrastructure CA needed at P5.8m
and requested we verify the pricing of our
needs or readvertise tender
Renegotiations resulted into a P2.4 million
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 Mergers and Acquisitions
Mergers, takeovers, amalgamations or
combination of ownership into multiple
controlled and/or single firm under same
hands is a way of reducing the number of
players in a market, reducing competition/
choice and increasing market dominance
Most competition laws thus have
provisions to ensure that there is an
inquiry and assessment before a proposed
merger or takeover is effected in a market
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 CASE EXAMPLE of Mergers and Acquisitions
G4S is the dominant player in the private
security business in Botswana, with an
estimated market share of over 60%. It
attempted to takeover a small player with
less than 5% market share (Shield Security)
The CA refused to authorise the takeover
as it was going to increase G4S dominance;
reduce competition; and reduce consumer
choice (price, service, etc)
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5. HOW WE OPERATE
• CA initiates an investigation on its own or after a
complaint
• CA can summon persons to produce evidence
• CA can search business premises after obtaining a
court warrant
• CA can seek assistance of police, DCEC, PPADB, etc
• CA can appoint adhoc inspectors
• CA can cooperate with foreign CAs
• Competition Commission (CC) makes final
decisions (except on mergers/takeovers)
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Court of Appeal
High Court
The Judicial
Process
Competition
Commission
Competition
Authority
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6. COMPETITION POLICY & CORRUPTION
 Competition policy and law deals with both
the public and the private sector
 While the corruption law does extend to deal
with persons directly, competition law in
Botswana deals with the corporate entity –
thus fines are meted not to persons, but to
firms
 Competition & corruption in public service
are intertwined through ‘rent-seeking’
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 Rent Seeking is spending resources in order
to gain by increasing one's share of existing
wealth, instead of trying to create wealth.
The net effect of rent-seeking is to reduce
total social wealth, because resources are
spent and no new wealth is created.
 Rent-seeking implies extraction of
uncompensated value from others without
making any contribution to productivity.
SOURCE: Conybeare, John A. C. (1982). “The Rent-Seeking State & Revenue Diversification,” World
Politics, 35(1): 25-42 http://en.wikipedia.org/wiki/Rent-seeking
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 In our society, rent-seeking reduces
competition and breeds corruption the
moment competition is frustrated/reduced
 Rent seeking is higher where there are limited
opportunities for growth/ wealth creation
 A lax public officer who is a sole decider or has
discretionary authority in a key process may
create a loophole for rent-seeking activities
e.g., use of agents in immigration or customs
clearance
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 Concepts related to ‘rent-seeking’ that may
reduce competition and breed corruption are:
Lobbying for tariffs to be imposed on
imported products to protect local
competitors
Introduction & processing on import permits
Regulatory capture
State-capture by strong interest groups who
may influence policy & funding pertains
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The economist’s natural approach to corruption
control is to appeal to the concept of competition
as it is argued that bribes are harder to sustain
where perfect competition prevails…a way to
reduce corruption is to introduce competition at
the level of the official receiving bribes: When a
bureaucrat dispense a scarce benefit, the existence
of competing officials to reapply in case of being
asked for a bribe will bid down the equilibrium
amount of competition
SOURCE: Rose-Ackerman, Susan. Corruption: A study of political economy. New York: Academic Press, 1978 (as
quoted by Alberto Ades and Rafael Di Tella, Rents, Competition and Corruption, The American Economic
Review, Vol. 89, Issue 4 (Sep., 1999), 982-993 http://www.people.hbs.edu/rditella/papers/AERRents%26Corruption.pdf
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 An economic system based on the rule of law
and fair competition can only function well, if
trust accompanies contracts, i.e. if economic
actors can calculate risks and probabilities
attached to events and outcomes in the
future. A high intensity of corruption induces
an additional uncertainty and hence not only
affects distortion of competition.
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 Also, in a corrupt society, pressure groups
might try to prevent enactment of a law that
could control as much as restrict their own
activities.
Hypothesis... A high level of corruption reduces
the probability of enactment of a competition
law.
SOURCE: Factors accounting for the enactment of a competition law – an empirical
analysis, Report by Franz Kronthaler, Johannes Stephan, September 2005, Halle
Institute for Economic Research
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Where monopoly/oligopoly control a market,
the State may wish to engage private companies
to perform specific tasks or public works or
provide services. To the extent that only a very
small number of companies can practically carry
out the work, the ground is fertile for corrupt
practices (such as overcharging, providing lowquality work or delivering the work late). Such a
condition obtains, eg, in defence projects
SOURCE: United Nations CRIME PREVENTION AND CRIMINAL JUSTICE DIVISION, United Nations action
against CORRUPTION and BRIBERY, September 1997 http://www.uncjin.org/Documents/corrupt.htm
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7. BIRDS OF A FEATHER…?




Both competition and anti-corruption
policies relate to good economic
governance and curbing ‘unholy’
advantage
Both lead to loss of competitiveness in an
economy as unworthy people gain in
commerce and industry
Information sharing and assistance in
investigations by enforcement agencies
should thus be a national interest issue
Formalisation of cooperation through
MoUs
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KE A LEBOGA…
FOR FURTHER INFORMATION:
Thula Kaira - CEO
Competition Authority
Plot 50664, Fairgrounds
Private Bag 00101
Gaborone, BOTSWANA
Tel: +267 393 4278
Fax: +267 312 1013
EMAIL: [email protected]
[email protected]
WEBSITE: www.competitionauthority.co.bw
FACEBOOK: Competition Authority – Botswana
TWITTER: @CompetitionBots