Transcript Competition Policy and Growth in Sub-Saharan Africa

Competition Policy and Growth
in Sub-Saharan Africa
CUTS’ 7Up3 Conference on
“Promoting a Healthy Competition Culture in
Sub-Saharan Africa”
Gaborone, 14 February 2008
Roger Nellist
Growth and Investment Group
Department for International Development, London
Themes
• Reflections and Overview of linkages
• Competition links with Growth (inc
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Investment Climate)
Competition links with Poverty Reduction
Competition abuses in Africa and
elsewhere
Evidential challenges
Competition Assessment Framework
Challenges and Conclusions
Page 2
Reflections on Competition
• Competition is the process of rivalry between
firms striving to gain sales and make profits
• Major concept, but cannot be measured directly
• Competition is a process and not an ‘equilibrium
event’; it is not automatic; markets can fail
(forces at work against); needs to be promoted,
nurtured and protected
• Competition, vs. fair competition
• Culture of competition
Page 3
Overview of Linkages
CP -> Competition -> PSD -> Growth -> Poverty reduction
and/or
CP (via business behavioural changes) -> Poverty reduction
(consumer welfare)
[Efficiency and Equity]
Page 4
Competitive Markets Essential
for Growth – Basic Premises
• Fair and effective competition - and
competition policy - is fundamental to the
functioning of a modern market economy
• Efficient, fair markets essential to catalyse
private sector development and growth
• Competition drives innovation and
productivity improvements; these drive
economic growth
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Some Economics: Production
Function and Growth
 
• Cobb-Douglas: Y  AK L
• Endogenous growth theory: long run
economic growth depends on rate of
technical progress
• Production Possibility Frontier moves out
with enhancements in innovation and
productivity
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Production Possibility Frontier
K
Output increases with innovation and
productivity enhancements, for any given
level of K, L inputs
PPF²
PPF¹
L
Page 7
More Competitive Pressure,
More Innovation - Evidence
• Firm-level surveys confirm the importance of competitive
pressure for incentives to innovative and increase
productivity
Source: WDR,
2005
Page 8
Competition – what it means in
practice
• Fair, effective competition creates level
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playing field for domestic SMEs (livelihoods,
firms and jobs, globalisation)
Free entry and exit - innovation, technology,
productivity
Intermediate inputs
Links with international competitiveness
More effective competition also limits
corruption
Page 9
Competition Policy and
Investment Climate
• A consistent competition policy framework
boosts investor confidence
• CP is part of good business regulatory regime
NB: Competition Policy is complementary
to privatisation and de-regulation
reforms
Page 10
Regulation and Growth
“Countries which improve their regulation to the best
international standards can increase growth by as
much as 2.3% a year”.
UK 2006 White Paper “Eliminating World poverty: making governance work for the
poor” - based on World Bank (March 2006, Djankov, McLeish, Ramlho)
“If each Indian state could attain the best practice in
India in terms of regulation and infrastructure, the
economy should grow about two percentage points
faster.”
Investment Climate Assessment (ICA) of India, World Bank, 2002
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Private Investment Has Grown
Faster in Countries with Better
Investment Climates
Source: WDR,
2005
Average 1984-2000
based on
International Country
Risk Guide’s index of
“Investment Profile”
Page 12
Roots of Growth and Poverty
Reduction to be Found in
Improving Investment Climate
WDR2005: Investment climate reforms in, for example China, India,
and Uganda, have been associated with:
Dramatic increase in private investment/GDP
Dramatic fall in poverty
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Competition Links with Poverty
Reduction
Think of people (poor) as:
• Consumers
• Employed
• Entrepreneurs
• Recipients of government-funded services
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Links with Poverty Reduction
• Direct benefits - fair competition enhances
consumer welfare (prices, choice,
standards?); essential private goods and
services consumed by poor.
• Indirect benefits through:
- general growth enhancements;
- access to sustainable livelihoods in formal
sector (shared growth, MMW4P);
• Publicly provided infrastructure and services
(Govt procurement arrangements, and bid
rigging)
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Competition abuses hurt
consumers
“People of the same trade seldom
meet together, even for merriment
or diversion, but the conversation
ends in a conspiracy against the
public, or in some contrivance to
raise prices”
Adam Smith, The Wealth of Nations, 1776
“The ‘really big’ distortions to
competition are in poor countries”
W. Lewis (2004) The Power of Productivity
Page 16
Competition Abuses in Africa
• A study of media reports in sub-Saharan
Africa identified allegations of 617 anticompetitive practices between 1995 and 2004,
in 41 business sectors and in 34 countries.
• Harm to consumers and businesses
• The food and beverage sector received the
most allegations (148) – high prices in this
sector have a direct impact on the welfare of
the poor, who spend a higher proportion of
their income on necessities like food.
[Evenett, Jenny, and Meir, 2006]
Page 17
Competition Abuses in
Africa – other examples
• Commission for Africa Report 2005
- Role of competition policy in investment climate
- Examples of low competition’s impact: transport costs
• Distortions include:
(1) Private sector misconduct e.g. insurance, alcoholic
beverages in Kenya, transport cartels
(2) Privatization can create private monopolies e.g. Uganda
(3) ‘Subsidies’ for SOEs e.g. Telecoms in Zambia
(4) Alleged vested interests e.g. competition law in Egypt
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Competition Abuses – other
international examples
• Cartels: basic commodities - Bangladesh (e.g. rice,
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sugar, potatoes); drinking water - Lao PDR; brick
making –Nepal
Predatory pricing of beverages - Vietnam
Bid-rigging: e.g. school construction- China; water
pipes- Nepal; road construction and bridge
building-Japan; infrastructure constructionVietnam
Transport cartels – e.g. Bangladesh, Nepal and
India
International cartels e.g. vitamins
Mergers reducing cement producer competition –
India
Page 19
Legislative Barriers often a Major
Impediment to Competition:
Many kinds, but entry barriers particularly serious
Starting
a Business
Africa
Number of
Procedures
11
8
8
Time in days
64
53
35
Cost
(% Nat. Inc.)
215
43
40
Minimum Capital
(% Nat. Inc.)
297
110
1
E.Asia
S.Asia
* Adapted from Broadman (2007), figures rounded
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But, how do we know?
“Distortions to competition are
not always obvious…. They have
to be dug out in each market”
W Lewis
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Evidential challenges:
CP, Growth and Poverty Reduction
• Assembling the evidence:
- What relationships are we examining?
- Theoretical, anecdotal, empirical?
• Research challenges:
- attribution (CP reforms often part of a
package)
- paucity of data for DCs
- timing of benefits
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Making Progress: Assessing the
state of Competition
Recognise the different sources and types of
anti-competitive practise:
• Public sector as well as private sector
impediments to competition;
• Fundamental political/economy as well as
technical, legal and economic impediments vested interests (institutional, commercial,
individuals)
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DFID’s Competition
Assessment Framework (2008)
• Flexible diagnostic tool for policy makers
• Holistic approach, reflecting multiple causes of
limited competition
• Sequential set of questions
• Annexes highlighting key competition issues in
particular sectors
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Uses of the CAF
• Developed as side product of continuing
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DFID-WBG (FIAS) competition programme
in India with CCI
Africa Regional Workshops – Tanzania
(Jan08), Botswana (Feb 08)
India, Bangladesh (March 08)
Vietnam, ++ (2008)
ODI Competition Research Programme into
state of competition in Africa and Asia
(2008 – 2009)
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Challenges in implementing
Competition Policy
• CP is at a ‘crossroads’
• Conflict with other policy objectives?
• Persistence of natural monopolies and tension
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with sector-specific regulators
Resistance from vested interests
Too technical and of lower priority?
Lack of political will and independence
Small (vulnerable?) DC markets
Capacity constraints
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Conclusions
• Fair competition matters for:
- stimulating growth (innovation and productivity)
- entrepreneurs (SMEs) to enter/expand market
- wealth creation, poverty reduction
• It matters in Africa!!
• Successful CP needs:
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pro-market commitment from top
bottom-up advocacy, and culture of competition
appropriate policies, laws, institutions
technical capability, financial resources
operational independence
• Beware of vested interests, that block reforms
• Assess and address the real impediments to competition
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