CONTRIBUTION OF
COMPETITION TO GROWTH
AND POVERTY REDUCTION.
George K. Lipimile
Senior Advisor
UNCTAD
DEFINITION OF POVERTY
• Income perspective: A person is poor if his/her income
falls below a defined moneymetric poverty line, e.g. $ 1 a
day.
• Basic needs perspective: A person is poor if he/she
falls short of the material requirements for minimal
acceptable fulfilment of human needs. This concept goes
beyond the lack of income.
• Capability perspective: A person is poor if he/she lacks
certain basic capabilities to function, e.g. food, clothing
and shelter.
(Zambia Poverty Reduction Strategy Paper – PRSP -2002)
What is Competition?
• Competition occurs when two or more
firms are pursuing the same objective at
the same time
• In a healthy market economy companies
compete with each other to gain the
purchase of the consumer
• Competition then leads to:
– greater efficiency
– fair prices
– Innovation
COMPETITION AND GROWTH
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Competition is a process of rivalry (not just the number
of sellers/concentration)
Rivalry can take many forms – in price and quality (short
term), new processes and products (long term)
Competition forces firms to strive for improved efficiency
and to respond to changing market conditions
No part of market is sheltered or unexplored
Prices reflect efficient level of costs, diversity of products
offered, plenty of innovation
Obverse of competition is market power/market failure
COMPETITION AND GROWTH
• Competitive markets provide a strong incentive for
achieving economic efficiency.
• Market forces ensure that goods that the consumer
wants are produced in the quantities they want, using the
most efficient production methods and marketed and
distributed to the consumers who wish to purchase them
in the most efficient means possible.
• Competitive market forces ensure that there is efficient
levels of investment in discovering new production
technologies, new production processes and new
products. In other words, competive markets promote
economic efficiency.
COMPETITION AND POVERTY
REDUCTION
• Competition is central to the operation of
markets, and fosters innovation,
production and growth, all of which create
wealth and reduce poverty.
• Many African countries now prioritise
growth in their national poverty reduction
strategies. Because effective competition
is a drive of productivity, competition policy
should be an essential component of any
propoor growth strategy.(DFID Briefing –
COMPETITION AND POVERTY
REDUCTION
• Most Competition Laws address Poverty
eradication issues through the application
of the public interest/benefit principle.
• The public interest test allows Competition
Authorities to take into account socia –
economic issues in competition
assessment.
• For example, mergers can be ollowed if
they demonstrate a public benefit – a
common feature in developing countries.
COMPETITION AND POVERTY
REDUCTION
• Competition Act of Malawi:A merger shall
be regarded advantageous to Malawi it is
likely to increase employment, lower
prices to consumers, increase
technological advancement.
• Competition Acts of Zambia, Swaziland,
Namibia, Mauritious etc:Competition
Authority may authorise an act which on
balance the public benefits outweigh the
anticompetitive effects.
COMPETITION AND POVERTY
REDUCTION
• Need to create a competitive environment.
• Note that competition is about the competition of firms or enterprises
not member states.
• Its is firms (who are the contestants) that drive the process of
competition
• « Vigorous competition between firms is the lifeblood of strong and
effective markets. Competition helps consumers get a good deal. It
encourages firms to innovate by reducing slack, putting downward
pressure on costs and providing incentives for the efficient
organisation of production » (UK White Paper – 2001)
• Innovation – the route out of poverty (DFID – CRC Policy Brief,
2004)
COMPETITION AND POVERTY
REDUCTION
A process of competition law is intended to protect the process of
competition by:
• Preventing firms from entering into agreements which have the
effect of restricting competition, either between themselves or
between them and third parties, and which do not have any
beneficial features;
• Controlling attempts by monopolists or firms with market power to
abuse their position and prevent new competition emerging;
• Ensuring that workable competition is maintained in oligopolistic
industries;
• Preventing mergers which may concentrate the market and diminish
the competitive pressures within it.
COMPETITION AND POVERTY
REDUCTION.
Empirical reports from Zambia and Zimbabwe with
over ten years experience of Competition Law
and Policy Enfoncement.
CONTACT:
• Mr. Thula Kaira, Executive Director, Zambia
Competition Commission, zcomp @zamtel.zm
• Mr Alexander Kububa, Competition and Tariff
Commission of Zimbabwe,
compcomm@mweb.co.zw
• Study findings that mergers conditionally
approved by Commission generated
considerable competition benefits:
– monopoly situation eliminated in cigarette
manufacturing industry;
– market exits prevented in number of industries
and sectors (electrical appliances industry, health
services sector, explosives manufacturing
industry, etc.); and
– vertical restraints and conditional trading
removed in number of industries and sectors
(roofing tiles industry, health services sector,
electronics industry, etc.)
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• Specific socio-economic benefits realised from
the mergers included:
– Employment Creation and/or Protection:
• 294 new jobs created in cigarette manufacturing industry, and
130 in the beverages industry
• additional jobs also created in the health services sector
• many more jobs saved from resuscitation of ailing firms in
various industries and sectors
– Export Earnings:
• new export-oriented firm created in cigarette manufacturing
industry from conditions put on approval of a merger in that
industry
• local beverages brands turned into regional brands now
being exported to four different regional markets
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– Continued Availability of Commodities:
• local beverages and cigarette brands prevented from exiting
the market
• closure of local cement plant prevented
– Indigenisation and Localisation of Economic Activity:
• mergers in cigarette manufacturing industry and petroleum
distribution industry approved on condition that excess plant
and equipment should be sold to indigenous entrepreneurs
– Promotion of Foreign Direct Investment:
• mergers in beverages industry, cement industry and timber
processing industry approved on condition that foreign
acquiring parties make substantial investments in the local
operations.
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BENEFITS OF COMPETITION IN
ZAMBIA
• Intervention by the the Competition Authority led
to the creation or presenvation of jobs.
-The abolishment of the exclusive dealership
agreements in the beverage and soft drinks
sector opened the industry to employment in the
informal sector;
-In the Dairy sector a monopoly company was
directed to purchase milk from the small diary
farmers, hence providing a market;
-The monopoly Retailer(Shoprite of South Africa)
was directed to purchase farm produce from the
small scale farmers as against importing.
PROCOMPETITION
INTERVENTION IN ZAMBIA
• The Commission negotiated a set of
incentives with Government on behalf of a
dominant company in the beer sector
which was threatening to exit the market in
a city called Ndola – promoted the growing
of millet to small farmers.
• Commission negotiations led to a new
cement plant in Lusaka with higher
production capacities.
PROCOMPETITION
INTERVENTION IN ZAMBIA
• The Commission held discussions with
government which resulted in lowering entry
barries in the passeger transport business e.g.
reduced duties, lift of restrictions on
routes,relaxed licencing system.
• The Commission held discussions with the
multinationals in the tabacco, cottonand poultry
sectors aimed at streamlining the contract outgrower schemes focusing on the pricing system
so that the peasant farmers can benefit fron
good prices of their crop.
thank you …