Transcript Competition Scenario in Bangladesh

Competition Scenario in Bangladesh
Iftekar Ahmed, Senior Research Fellow, BEI
August 16, 2005
Bangladesh Enterprise Institute
Bangladesh - At a Glance
Population
GDP
GDP (growth rate)
1993-94
2003-04
120 m
$ 26 b
4.1%
$224
136 m
$55.1 b
5.5%
$421
GDP (per capita)
Poverty (<$1/day)
-Poverty
71 m (59%)
(national poverty line)
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47 m (36%)
68 m (50%)
Country Achievements
• Impressive achievements in economic and
social development
• Steady economic growth, stable domestic
debt, interest and exchange rate
• Per capita GDP in the 1990s rose three
times faster than 1980s.
• Poverty reduced by 9% in the 1990s
• Gender parity in primary education, lower
fertility rate, near universal primary school
enrollment
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Explaining these achievements
• Macro-stability and opening of the
economy
• Private sector development
• Remittances
• Development of the rural economy and
rural infrastructure
• Capable network of NGOs and microfinance
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Needs to achieve higher growth
• Increases in investment levels and productivity
• Reduce anti-export bias and open the economy to
foreign trade
• Diversify the economy, both manufacturing and
agriculture
• Improve the investment climate (infrastructure,
regulatory burden, corruption, access to finance, law
and order) to promote domestic and foreign investment
• Create more accountable and responsive service
delivery to sustain and accelerate gains in human
development
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Most Prevalent Anti-Competitive Practices
in Bangladesh
50%
40%
30%
20%
10%
0%
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Market Structure
• Industrial Policy
– Investment allowed in all sectors except four
– Directives on saturated markets
• Who decides market saturation?
• Privatization Policy
– Active stance to transfer ownership and
management from state to private sector
• FDI
– Liberalization of capital controls
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Trade Policy
• Liberalization of trade regime
• Reduction in import restrictions
– 1989: 135 HS code banned
– 2002: 5 HS code banned
• Reduction in the number of tariff slabs and
import duties
• Legal provision for anti-dumping
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• Government Procurement
– General Perception
• Bid rigging: 36% of the total respondents
• Are some companies favored?
– Public Procurement Regulation 2003
–
–
–
–
–
Optimize efficiency in procurement
Promote competition among contractors
Promote fairness in the procurement process
Contribute improved business climate in Bangladesh
Procedures are needed to implement
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Market Concentration
• Pharmaceutical Sector
• Top 5 companies control around 50% of market share
• Toiletries
– Toilet soap
• Top 2 companies control around 50% of market share
– Laundry soap and detergent
• Top company controls over 60% of market share
• Tobacco
• Top company controls around 50% of market share
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Financial Sector- Banks
• 4 NCBs
– 3,496 branches
– 45.6% assets and 50.3% industry deposits
• 30 Private Banks and 10 foreign banks
– 36.2% and 6.8% assets
– 36.8% and 7.0% deposits
•
•
•
•
Non-performing loans, inefficient and overstaffed
Capital Adequacy Requirements higher
Requirements to publish interest rates
Interest rate convergence
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Financial Sector - Insurance
• Private insurance companies licensed
through Chief Controller of Insurance
• Dominated by public sector
– Sadaran Bima (general insurance)
– Jiban Bima (life insurance)
• No foreign insurance company
• Private insurers required to reinsure
50% through Sadaran Bima
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Power
• Dominated by public sector
• Only private sector involvement in
generation with long-term power purchase
agreements
• Recently established Bangladesh Energy
Regulatory Commission which will be the
independent regulatory body and set
policies to "promote competition"
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Telecommunication
• BTTB enjoys monopoly in fixed lines (95%)
• 5 mobile operators
• Weak interconnections between mobile and
BTTB
• No restrictions in equity shareholding by foreign
investors
• Bangladesh Telecommunications Regulatory
Commission established in 2002
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Transportation
• Ports
– The Port Act 1908 and Port Rules 1966
• Railways
– Private Operators: Are they regulated?
• Road Transportation
– Cost three-times to that for similar distances
in India
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Anti-competitive Practices in
Bangladesh
• No well-organized evidence on anticompetition behavior of business
enterprises is available
• Further detailed studies are required
• Transport Sector
– Bus operators threatened for reducing fare
• Health Sector
– Private Clinics and Physicians; Diagnostic
Centers
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Competition Law/Policy in
Bangladesh
• No Competition Policy
• Monopolies and Restrictive Trade Practice
(Control and Prevention) Ordinance, 1970
• Has not been implemented but still valid
• Ordinance prohibits
– Undue concentration of individual economic
power
– Unreasonable monopoly power
– Unreasonable restrictive trade practices
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MRTP Ordinance 1970
• Relevant phrases are not properly
explained
• Provides for the creation of a Monopoly
Control Authority to enforce the provisions
of the Ordinance, but was never
constituted
• Never been implemented
• If revived, needs amendments
• Need for a new law
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Profile of Respondents
Policy Makers
29%
38%
Business
Community
33%
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Consumers
Understanding of Competition
80%
60%
40%
20%
0%
BC
CC
PM
Firms
Optimal
Increased
competiting utilization of Efficiency
with each
resources
other
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Increased
Consumer
protection
Reaction to Anti-competitive practices
Business Community
50%
40%
30%
20%
10%
0%
Negotiate
Talk to Match the Ignore
other
move
business
peers
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Complain Complain
to gov to business
Reaction to Anti-competitive practices
Consumers
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Complain
to
business
orgs
Govt.
Complain to
no deal
and/or go
with
another
Argue and
deal
50%
40%
30%
20%
10%
0%
Awareness of rules/laws/regulations to
check anticompetitive practices in
percentage
60%
50%
40%
30%
20%
10%
0%
BC
CC
Yes
No
Do not know
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PM
Objectives of such a law in percentage
100%
80%
60%
40%
20%
0%
BC
CC
PM
26
31
23
In percentage Regulate business enterprises
In percentage Promote business efficiency
In percentage Promote business efficiency
In percentage Promote consumer w elfare
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In percentage Do not know
Nature of the im plem entation
m echanism or com petition
authority
120%
100%
80%
60%
40%
20%
0%
BC
CC
PM
In percentage Autonomous and independent
In percentage Under ministry or department
In percentage
Any other
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Institute
Nature of the pow er of CA
100%
80%
60%
40%
20%
BC
CC
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Don't
know /cannot
Only
investigative
Both
investigative
0%
PM
The Way Forward
• Bangladesh needs a competition law
• Competition law is important for the
continuation of the process of economic
liberalization
• Major Challenges
– Need a New Law?
– Create a Competition Authority
– Awareness and capacity building on
competition issues
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