Transcript Presentation - CUTS International

Malawi Competition Regime
Country Paper
By M G Tsoka
Centre for Social Research
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Study Methodology
Social Economic Indicators
Policies Affecting Competition
Nature of the Market
Competition and Consumer Protection Laws
Competition Commission and Consumer
Protection Council
• Stakeholder views on:
– Anti-competition practices
– Legal and administrative framework
• Conclusions and recommendations
Study Methodology
• Type of study: Desk research and primary data collection
using qualitative and quantitative data collection tools.
• Desk research benefited from ‘Why is a competition policy
necessary for Malawi’ by CUTS-CAMA; PCP presented to
NRG1; official documents; and economic data from RBM
and GoM
• The primary data was collected on perceptions using a precoded questionnaire and open-ended key informants
interviews in pre-selected sectors: power (ESCOM, NECO
and Energy Department), telecommunications (MACRA),
pharmaceuticals (CMS and Pharmacy, Medicines and
Poisons Board of Malawi ) and financial services
(Economic affairs -Treasury).
• MEPD, PERMU, MIPA and MCCI covered all sectors.
Economic affairs of Treasury also covered all sectors
• Out of over 100 respondents visited (excluding those emailed), only 50 responded. See next slide
Distribution of Respondents by sector
Sector
Professional services
Distribution
Manufacturing
Financial services
All other services
Transport
Utilities
Communications
Construction
Total
Number
14
11
7
6
4
3
2
2
1
50
Percent
28
22
14
12
8
6
4
4
2
100
Study areas
• Structure of various markets (nature of competition
and prevalence of anti-competitive practices);
• Level of local firms’ competitiveness;
• Existing or potential entry barriers;
• Market concentration in various markets/sectors;
• Sector-specific regulation vis-à-vis level of
competition in power, pharmaceutical, financial and
telecommunications sectors;
• Stakeholder knowledge and views on competition and
consumer protection
• Institutional analysis of the Commission and Council
(relationship to each other and similar COMESA
bodies)
Indicator
GDP Per Capita (US$)
Population in millions
Population below poverty line (%)
Population without food 4-6 months before harvest (%)
Population (rural) with chronic food insecurity (%)
Population unable to satisfy their basic calorific needs (%)
Adult literacy (%)
Male
Female
Combined primary, secondary and tertiary GER (%)
Life Expectancy at birth (years)
Population expected to live up to 40 years (% of cohort)
Infant mortality rate (number per 1,000 live births)
Under-5 mortality rate (number per 1,000 live births)
Maternal mortality rate (number per 100,000 live births)
HIV/AIDS prevalence rate (% of the 14-49 age group)
Value
170
12
65.3
50
55
40
61
75
48
72
38.5
41.4
114
183
1100
14.4
Year
2002
2005
1998
2000
2000
2000
2001
2001
2001
2000-5
2001
2001
1985-2001
2003
• The country has a weak economic structure and
requires a genuine structural transformation. This is
despite the adoption of SAPs since 1981
• In 2004, 39% of GDP was generated from
Agriculture. Manufacturing was 14% and has been
declining from a high of 18% achieved in 1995
• Distribution has filled the gap created by the
shrinking manufacturing sector. Its share has
increased from 13% in 1994 to 22% since 1995
• GDP growth has rarely been stable
• Figure 1 depicts the story visually
Figure 1: GDP Sectoral Shares 2000-2004
Services
26%
Distribution
22%
SS Agriculture
30%
LS Agriculture
9%
Manufactutring
13%
• Import-substitution drive forced government to protect
manufacturing infants and the consumers using external
tariffs and price controls.
• SAPs opened up borders and freed markets in the quest to
promote competition, force efficiency and deliver benefits
to the consumer.
• Some competition, some unfair, came in some markets.
• Structural and administrative bottlenecks, poor economic
management, allegations of corruption and noncompetitive practices all conspired against increased private
investment in the economy.
• In markets where competition came from imports,
‘stunted manufacturing infants’ slowly died.
• Consumers became vulnerable to unfair trading practices
as well as unjustifiable price increases in markets controlled
by monopolies or oligopolies
• Privatisation of SOEs has helped a little.
• Under SAPs, MTI/MCI was forced to become a private
sector facilitator instead of being a regulator
• Government introduced a host of competition enhancing
policies namely (i) investment promotion (ii) integrated
trade and industry (iii) micro and small enterprise (iv)
micro finance policies and ultimately (v) competition.
• Latest development policies include the MPRS and MEGS.
These are being updated into a Malawi Growth and
Development Strategy (MGDS)
• Some of the policies were followed by legislation, e.g.
Competition and Fair Trading, the Consumer Protection
and Public Procurement Acts
• The Public Procurement Act requires competitive tendering
for purchases of goods and services to promote competition
among suppliers. It however favours Malawi SMEs
Nature of market – size of the market
• The Malawi economy is small; nominal GDP
averaged less than US$2billion over the 20002004 period.
• In per capita terms, the average is less than
US$200 per annum
• This income includes value-added estimated for
non-monetarised economic activities (subsistence
production of goods and services, gathering and
housing)
• This presents no major prospects for competition
Nature of market – structure
• Govt-led import substitution through the set up of
state-owned or affiliated conglomerates effectively
reduced prospects for competition
• Privatisation has introduced some competition in some
sectors
• The manufacturing sector is still under-developed with
limited competition, diversification and inter- and
intra-industry linkages. It is still import-substitution
orientation yet with heavy dependencycy on imported
raw materials and intermediaries
• Associations, set up with Government urging,
dominate all sectors with good numbers of players and
informal ‘gentlemen’s agreements’ oligopolistic
sectors
• Associations and collusions characterise most of the
markets in Malawi
Nature of market – competition by sector
• There is competition in the consumer goods,
edible oils, soaps and household and non-durable
goods markets facilitated by imports
• There is limited market competition in the
franchise dominated sub-sectors (sugar, beer, soft
drinks and motor vehicle and genuine spares sales)
despite market liberalisation
• Utilities face no competition. Competition in
electricity is still not in sight. The sale of MTL is
expected to bring competition in the
telecommunications sector
• The financial, meat processing and diary sectors
have competition thanks to privatisation although
it has benefited the sugar sector
Nature of market – concentration
• There are a number of ownership concentrated
markets in sugar, soft drinks, beer and biscuits
• Illovo dominates the sugar sub-sector, Southern
Bottlers produces Carlsberg and Coca-cola
products while Bowler Limited is the sole owner
of traditional beer manufacturing outfits
• Universal Industries is ‘biscuits ‘R’ us’ in Malawi
• There is some market concentration in the
telecommunications as Celtel and MTL are the
major players with MTL being the sole operator in
ground phones and owner of MTN
• Sunbird runs a major hotel chain with little
competition
• The shrinking manufacturing sector (scaling down
and closures) are possible signs of local firms’
lack of competitiveness in the face of trade
liberalisation with its blossoming informal trade
• Local firms blame it on unfair competition
• Commentators point at local firms’ inefficiencies
and use of obsolete technology
• There are others factors, though, like high import
content, transport costs and Government’s poor
fiscal management with its attendant private sector
crowding out effect - high cost of borrowing and
foreign exchange
• There are no serious administrative and
legislative entry barriers
• There are some entry barriers in financial
services but very little in manufacturing.
These take the form of minimum capital
requirements and franchises
• There are natural barriers – landlockedness,
quality of human resources and size of the
economy (poverty)
• Further, poor macroeconomic environment
caused by poor economic management
• Government enacted the Competition and Fair
Trading Act in 1998
• The law has most of the necessary provisions
as envisaged in the policy
• The law has adequately dealt with the
dominant firm, collusions and price fixing
associations, mergers and acquisition and
monopolies and oligopolies
• It does not adequately deal with cross-border
trade-related anti-competitive practices like
informal trade and dumping
• The law provides for a competition authority
• A Consumer Protection Act was enacted in 2003
• It provides for the establishment of Consumer
Protection Council
• The Council would protect consumers from a host
of unfair trading practices and seek compensation
• The law covers most of the key consumer
protection issues although local firms are not
featured as consumers.
• The council’s functions are comprehensive but its
powers are limited even in investigation.
• The Council is yet to be established.
Stakeholder Perceptions on ACPs
• The majority said ACPs are prevalent (44% significantly
and 32% moderately)
• 74% said ACPs significantly affect consumers
• 52% said collective price fixing is the commonest ACP in
many sectors
• Market sharing and price discrimination were mentioned as
well
• 30% said distribution is the sector most affected by ACPs.
Professional services is the least affected sector
• ACPs are said to be prevalent at both national and local
levels
• 54% said ACPs originate from outside the country
• These perceptions are not hugely biased by sectors of origin
of respondents
• Most of the respondents had little knowledge of
the policies and laws on competition and
consumer protection
• As many as 80% said ‘don’t know’ or ‘no’ when
asked if there are laws against ACPs.
• Even those that said ‘yes’ did not correctly point
out that very little is done when violations are
done due to the absence of the CA.
• Stakeholders want a legal framework that focuses
on efficiency and consumer welfare (73%)
covering all enterprises and activities (92%)
• 80% said the law should have extra-territorial
powers to deal cross-border ACPs
• On total ban on ACPs, 40% said ‘yes for all’, 22% said
‘yes for some’ and 15% said ‘yes but exempted for
efficiency gains’ and 18% said ‘no, only if it harms
public interest’
• 56% said businesses focus on profit only while 30% said
they also focus on consumer welfare
• 20% said ‘yes’, 17.5% said ‘no’ and 63% said ‘no idea’
to providing for leniency programme and whistle-blower
protection
• 82% agreed that firms with dominant powers should be
monitored
• 45% said all mergers & acquisitions should be reviewed
while 40% said only major ones should be
• 67% said CAMA provide justice to consumers while only
one respondent mentioned MTPSD & another MEJN.
CFTC was not mentioned at all
• 58% said the CA should be autonomous while 35% said it
should be under ministry/department
• 40% said it should have investigative and adjudicative,
38% said only investigative and 17% said neither powers
• 65% said the CA should have power over sectoral
regulators and 38% said the CA should coordinate them
• 90% said the CA should cover both competition and
consumer protection
• 90% said the CA should involve stakeholders through a
consultative committee (75%) or use occasional hearing
(17%)
Selected sectoral analysis
• The pharmaceutical sector is regulated but there is no
evidence that the regulation impedes competition. Number
of players is healthy
• The financial sector is adequately regulated and monitored.
Capital requirements limits entry to a small extent.
Regulations have not caused entry failure so far.
Competition is, apparently, hampered by dominant players
• The power sector is undergoing sectoral reforms.
Introduction of regulatory bodies following legal reviews is
yet to introduce competition in the sector. Progress is too
slow
• The telecommunications sector is regulated. Apparently, the
regulatory body has been slower than expected in
introducing competition in the sector. The fate of the license
for the third cell phone operator is a case in point. The sale
Conclusions
• ACPs exist in Malawi. They have evolved depending on
policy and legislative environment
• Most of them owe their existence to poor economic
policies adopted after independence and most of them
owe their continued existence to the absence of an
effective CA and CPA
• Policies and legislation for the promotion of competition
and protecting consumers’ welfare exist in Malawi. What
is missing is implementation; the setting up of
functioning CA and CPC already provided for
• There is evidence that government does not prioritise the
promotion of competition and consumer protection; snail
pace implementation is one such evidence
• Businesses are not aware of CFTA. Awareness is needed
Thanks very much for
your attention