Transcript State of Competition Regime in Ghana Preliminary

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Outline
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Background
Privatisation & Regulatory Reforms
Nature of Competition
Sectoral Policies
Anti-Competitive Practices
◦ Some Evidence and Suspicions
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In the five decades of its independence from British rule,
Ghana has gone through different cycles of growth, mostly
marked by poor economic performance.
The high degree of optimism that swept through the nation in
the days leading to, and up till, independence began to fade
as early as the mid-1960s.
The economic situation was further compounded by military
coup d’etats, creating an enormous political instability
through to the mid-1980s.
Consequently, national economic policies adopted during this
period were either not well-thought out, or so short-lived
that it made very little impact.
At best, the economy seemed to be “muddling through”
during this period.
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A vicious cycle of bad policy to poor economic performance seemed
to be completed by the late 1970s:
high prices led to high interest rates, driving up the cost of
investment and exacerbating the poor economic conditions.
Under such unfavorable investment climate, would-be investors and
government officials found it more profitable to engage in rentseeking and other corrupt activities.
The return to multi-party democracy and constitutional rule began
an economic and political stabilization process never seen before in
the post-colonial era
Growth has become steady and appreciable
Significant progress in reducing poverty has occurred; from 51.7% in
1992 to 39.6% in 1999 and 28.5% in 2006
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However, significant challenges still remain
The agricultural sector still employs about 60% of the labour force,
and contributes 35% to GDP
Recent data also reveals a clear evidence of a weakening
manufacturing sector as domestic markets are now flooded with
imports at highly competitive prices – the result of about two
decades of a more liberalized trade regime
And although the financial sector has never been this competitive,
leading to significant reduction in lending rates, access to credit still
remain beyond the reach of the average entrepreneur.
15.00
10.00
-10.00
-15.00
-20.00
Years
GDP grow th (annual %)
GDP per capita grow th (annual %)
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
-5.00
1972
0.00
1970
Percentage
5.00
100%
80%
60%
40%
20%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Services
30.6
29.6
31.2
31.5
31.7
32.2
32.5
33.2
32
31.4
33.5
32.9
Industry
26.7
26.6
28.7
28.2
28.4
28.4
28.1
27.9
27.8
27.1
21.4
27.8
Agriculture
42.7
43.9
40.1
40.2
39.9
39.4
39.3
38.8
40.2
41.5
45.1
39.3
70
60
% contribution to GDP
50
40
30
20
10
0
China
Indonesia
Japan
Korea,
Rep.
Malaysia
Singapore
Agriculture
T hailand
Industry
Service
Botswana
Ghana
Mauritius
South
Africa
Privatization
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By the mid-eighties, the government of Ghana was engaged in all
sectors of the economy (about 350 state-owned enterprises).
Apart from owning development corporations in all ten regions, it
wholly owned several enterprises in the manufacturing, mining and
services sectors, and had gone into joint ventures with many other
private firms and persons.
It also owned several boards and commissions, which were performing
services in competition with or which could have been easily provided
by the private sector.
The SOE reform agenda entailed two principal components:
divestiture, which involved transfer of ownership of assets or
management of enterprises to the private sector; and liberalisation,
which implied exposing enterprises to more competition.
By end of 2000 nearly 300 SOEs had been privatized and by end of
2003 18 more had been divested.
Despite ongoing privatization, state-owned enterprises continue to
play a significant role in the economy, notably in the electricity,
petroleum, and transport sub sectors.
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Regulatory Reforms
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The introduction of private involvement in the public sector
necessitated the setting up of independent institutions to oversee
and ensure competition, efficiency, affordable pricing and quality of
services.
These institutions were formed as part of the reforms within the
public sector and mandated to perform functions that include
policy-making, commercial operations and regulations.
Ghana has been able to create a workable framework to regulate all
aspects of the economy.
All regulatory bodies have been mandated to maintain high
standards and protect the interests of both producers and
consumers.
Regulatory bodies gradually moving from licensing services to
ensuring compliance with the maximum standard for quality of
service delivery.
Noticeable improvements in the areas to do with business but
bottlenecks in many other sectors.
160
140
2007
2008
120
100
80
60
40
20
0
Starting a
Business
Employing
Workers
Registering
Property
Getting Credit
Protecting
Investors
Paying Taxes
Enforcing
Contracts
Closing a
Business
Consumer Protection Policy
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Ghana lacks a comprehensive consumer protection law.
◦ There is no centralized consumer protection law
and/or policy in Ghana.
◦ What exists currently is a group of public institutions
mandated to oversee specific aspects of consumer
protection.
 These institutions included:
 Ghana Standards Board (GSB)
 Food and Drugs Board (FDB)
 Public Utilities Regulatory Commission (PURC)
 National Communications Authority (NCA)
 Environmental Protection Agency (EPA).
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Interest in promoting competition in developing countries has
increased over the past decade.
Despite differences, developing countries are generally characterised
by lower degrees of market competition than their industrialised
country counterparts.
The interest has particularly resulted from the failures of economic
reforms in the 1980s, that overly relied on trade liberalisation to
promote domestic market competition.
One general conclusion was that trade liberalisation did not do the
whole job – it did not guarantee by itself a desirable level of
competition in an economy, and correspondingly did not achieve all
it was expected to in terms of increasing productive efficiency and
competitiveness in international markets.
The idea that trade liberalisation would improve domestic
competition has led to a reassessment that indicates that success in
trade and liberalisation is itself dependent on establishing a
competitive domestic market environment.
Nature of Competition in Ghana
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Recent influx of cheaper food and textile imports from China has
created a lot of competition in the market.
Some production plants have closed down because of their inability
to cut production costs to enable them stay in the markets.
Government has been supporting domestic private enterprises with
financial incentives to make them more competitive.
However, manufacturers contend that the country’s tariff structure
places local producers at a competitive disadvantage compared to
imports from other countries.
In recent times, there have been several efforts by the government to
enhance the capacity and competence of Ghanaian firms through the
ff:
 provision of micro credit
 venture capital and export credit
 business support and training.
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Energy
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Water
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Telecom
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Financial Services
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Energy
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Ghana's energy sector is dominated by state-owned enterprises.
Transmission and distribution of electricity are under state monopoly.
Although Ghana is a net exporter of electrical energy in most years, low water
levels at the Volta dam frequently lead to supply shortages and electricity cuts.
The Energy Commission is in charge of technical standards and licensing of
electricity utilities.
The Public Utilities Regulatory Commission (PURC) is responsible for
competition regulation and quality of service monitoring.
There has been no significant privatisation programme to date.
A previous government subsidy of electricity has been drastically slashed in
the past year with consequent increases in electricity tariffs by more than 100
percent.
Water
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There are only 350,000 domestic connections for the roughly seven
million people in Ghana with access to drinking water.
A high % of urban consumers depend on water tankers for their drinking
water supply.
The sector is regulated by the PURC whose key tasks include:
◦ protecting the interest of consumers and providers of utility services
◦ promoting fair competition among public utilities
◦ receiving and investigating complaints and settling disputes between
consumers and the public utility
Ghana Water Company Limited (GWCL) is responsible for the production of
potable water in Ghana
Aqua Vitens Rand Limited (a joint Dutch and South African company) is
responsible for the distribution and management of GWCL.
Aqua Vitens has recently come under fire due to the acute water shortage in the
Accra-Tema areas and other parts of the country.
Water
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Consumers pay rates far in excess of those who rely on water
from the piped system.
E.g. Water from the piped system is charged at 0.6 Ghana
Cedis per 1000 litres; water tankers charge approximately
13.5 Ghana cedis for the same volume of water
Given the problems of price fixing by water tankers, the PURC
could establish a pricing schedule for water tanker trucks,
with small adjustments permitted to reflect varying costs of
servicing different communities.
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Ghana led the way in telecommunications liberalization and deregulation
in Africa when it privatized Ghana Telecom in 1996.
Reforms have been stalled so far, leaving the door open for anticompetitive practices by operators.
Although there is still significant scope for improvement, Ghana has
made huge progress in telecommunications services over the past
decade or so.
Significant effort has been made to stimulate competition and scale
economies.
In 1997, for example, WESTEL, originally owned by the GNPC, was floated
in an IPO, awarded a second network operator licence, and granted a 5year duopoly on basic telecommunications services alongside Ghana
Telecom, to allow for greater competition and improved efficiency.
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Telecom
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Reaction to the news that UK-based Vodafone has finally
secured a deal with the Government of Ghana to annex 70%
stake in state-owned Ghana Telecom has been mixed.
Furthermore, in a bid to support private sector activity in the
day-to-day provision of connectivity solutions, Govt is
developing a National Fibre Communications Backbone
Infrastructure network to facilitate open-access broadband
activity.
The NCA is the regulatory body in charge of the telecom
sector and its main objectives include:
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promotion of fair competition among persons engaged in the
provision of communication services;
protection of operators and consumers from unfair conduct
from other operators, with regards to the quality of
communications services; and
protection of consumer interest
Financial Services Sector
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The past few years have seen a phenomenal growth in the Ghanaian
banking sector (currently there are 24 licensed banks & 125 rural
banks and numerous NBFIs).
The overall regulatory body is the Bank of Ghana (BoG) and one of
its key roles is ensuring that there is fair competition among banks
in Ghana.
Competition in the banking sector is becoming increasingly stiff,
particularly with the recent entry of a number of Nigerian banks
such as Guaranty Trust Bank, Zenith Bank and United Bank for
Africa.
Not surprisingly, the degree of market concentration, as measured
by assets of the top five banks, has fallen steadily – from 77.6% in
March 2000 to less than 55% in 2008 (Stanley, 2008).
This is much lower than in South Africa, where the top five banks
have a concentration ratio of more than 80% but is higher than the
SSA average.
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Financial Services Sector
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However, there are several reasons to question the extent to
which banks actually compete. Although bank concentration
appears to be moderate by regional standards, the dominant
state owned bank (GCB) enjoys a substantial market power,
with 20 percent of total deposits and 44 percent of total
branches—a situation that may influence price setting among
banks and distort competition.
Profitability indicators suggest that, despite high overhead
costs (7 percent to average assets but substantially higher
than the SSA of 5.7%) and sizable provisioning, Ghanaian
banks’ pretax returns on assets and equity are among the
highest in SSA—a situation that reflects very wide interest
margins (Buchs & Mathisen, 2005).
Financial Services Sector
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In 2003, the three largest commercial banks accounted for 55
percent of total assets of the banking sector, which is relatively
moderate compared with other countries in the region.
Yet, about 25 percent of total assets and 20 percent of deposits
were held by a single state owned commercial bank (GCB).
The banking penetration ratio, at one bank branch per 54,000
inhabitants, was relatively high, but formal banking reached only 5
percent of the population and the coverage varied widely.
This reflects the fact that 35 percent of bank branches are in the
greater Accra region even though this region represents less than 13
percent of the country’s population (Buchs & Mathisen, 2005).
Anti-competitive practices – Some evidence
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Ghana does not have legislation on anti-competitive practices
although a bill has been under consideration for several years.
Anti-competitive practices include price fixing, market sharing,
bid rigging, exclusive dealing, tied selling, misuse of dominant
market positions and unfair trading practices.
They also deny the consumer the wider benefits that competition
can bring (such as lower prices, higher quality and more choice).
Likely to have detrimental long term effects on growth and
employment.
Ghana does not have legislation on anti-competitive practices
although a bill has been under consideration for several years.
The Ministry of Trade, Industry, Private Sector Development and
President's Special Initiatives (PSIs) however oversees all trade
dealings and practises including unfair trade practises.
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Ghacem, the major player in the industry, has long been
suspected of price-fixing.
Prices of cement range from 5.6 to 10 Ghana Cedis
But calculations commissioned by the Auditor-General suggest
that it can be retailed at less than 4.6 Ghana Cedis.
Furthermore, Scancem, the owners of Ghacem, have been found
on at least two occasions in ten years to be involved in price
fixing in Europe, lending credence to the suspicion.
The government appears helpless in the face of the allegations
with very little action being taken
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Many of us suspect that firms involved in the food sector
whether as sellers or manufacturers are in collusion over
recent price rises.
Many food companies have, in recent months, increased
consumer prices, as commodity costs soar all over the world.
However, some allege that the price rises by for e.g. Uniliver
were higher than the increase in raw materials.
Publication: The Ghanaian Chronicle
Date: Wednesday, October 1 2003
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An Indian company has broken what appeared to be cartel
dominating sales of rough diamonds in the Ghanaian rough
diamond sector.
According to the newspaper, the cartel was broken at a tender which
took place on August 28, when Balaji Diamonds, an Indian company,
was successful with its offer to buy diamonds offered by the Ghana
Consolidated Diamond Company (GCDC) at a floor price of $30.24
per carat.
In so doing, it beat out the price offered by an Israeli company, DWS
Diamonds, which had offered $28.10.
Conclusion
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Market concentration enhances the power of multinational
corporations to dictate their terms, compounding the difficulties of
commodity-reliant developing countries.
There is at least circumstantial evidence to indicate that anticompetitive trade practices are on the increase related to market
concentration and increased buyer power among the TNCs.
Given the situation, policy must play a role in ensuring that levels of
market concentration in local and international markets need to be
tackled to ensure that the MNCs cannot abuse their market power
and extract unfair profits
National competition law in developing countries could play an
important role in tackling some abuses of market power, especially
by domestic intermediaries or domestic subsidiaries of MNCs.
However, this is not an easy task, unfortunately, because most
developing countries lack the institutional and human capacity to
enforce such a competition policy.
Thank You!
For further information or clarification please contact us by email.
Dr. Charles Ackah ([email protected])
Ama Pokuaa Fenny ([email protected])
Dela Tsikata ([email protected])