Relevance of Competition Reforms
for Development in Africa
Presentation by
R.Shyam Khemani
MiCRA, Washington, D.C. USA
Conference on Strengthening
Constituencies for Effective Competition
Regimes in Selected West African Countries
CUTS-7UP4 Project
6-7 August 2010
Dakar, Senegal
1
Some Case Examples of AntiCompetitive Situations
• Fishermen and Fish Processors-Tanzania
• Fertilizers-Ethiopia
• Poultry Farmers and Poultry ProcessorsTunisia
• Cement Firms/Sellers-Egypt (and Other
Countries)
• Trucking and Cut Flower Exporters-Morocco
2
Why Competition?
• Competition , broadly defined, refers to rivalry
between different businesses for the patronage and
purchases by customers.
• Businesses engage in rivalry (i.e. ‘compete’
independently) against each other mainly in terms of
prices, quality, service, and innovation.
• The ‘process of competition’ pressures business to
offer customers a wide selection goods and services
at lowest possible prices and highest quality.
However….benefits of competition are broader than
simply lower prices, lower costs, higher quality, wider
selection, and innovative products…….
3
Broader Benefits of Competition
Competition…and effective laws, institutions and policies
that maintain, protect and promote competition foster:
• Better corporate, market and public governance.
• Promote greater accountability and transparency in
business behavior, and government –business relations.
• Reduce opportunities for bribery, corruption and rentseeking behavior.
• Result in entrepreneurship, risk-taking, entry of new and
expansion of existing businesses, increased employment,
productivity, competitiveness, broad-based and shared
economic development……
Given all these benefits…why is competition lacking in many
African and other developing (and also many developed)
economies??
4
Commonly Observed Economic
Characteristics in Developing Economies
•
•
•
•
•
•
High levels of ownership concentration
‘Missing middle’ sized firms
Conglomeration
Lack of ‘Market for Corporate Control’
Under-developed equity-debt markets
Close government-business relationsconnections…and vested interest groups.
• High levels of product (&financial) market
concentration.
• These factors tend to self re-enforce each other.
Plus …lack of political will.
5
The Process of Competition Needs to Be
Safeguarded and Sustained
• The Competitive Process is Not
Automatic.
• Competition Can Be Distorted By
Restrictive Business Practices and Public
Policies.
• Public Policy Often Manipulated by
Interest Groups Including Private Sector.
• Misguided Policies Entrench
Anticompetitive Business Practices, and
• Discourage Both Domestic and Foreign
Investment.
6
Why Competition Policy ?
Competition policy is a set of measures by government
which protect and promote the process of competition
by:
(i) Preventing restrictive business practices which
artificially restrict supply and raise prices of goods and
services, and
(ii) Reduce or eliminate unnecessary regulations and
government policies which adversely affect the
competitive process and raise the cost of doing
business.
Competition policy generally consists of
(a) Competition (Antitrust or Antimonopoly) Law and
(b) Regulatory reform measures e.g. trade and investment
7
liberalization, economic de-regulation, etc.
Competition Law
• 116+ countries and jurisdictions have enacted
competition law
• Majority of the countries are developing and
emerging market economies—most enacted
such laws since 1995
• Driven by failure of government
‘interventionist’ policies, planning, deficits,
etc.
• Competition policy—is/and should not be a
matter of ideology
8
Impact of Competition (Antitrust )
Law & Policy
• Distinction Between Systemic vs.
Industry/Case Specific Impact.
• Removing Public Policy Restraints: Tariffs &
Non-Tariff Barriers to Trade, Restrictions on
Ownership-Investment, Leveling the Field
Between State-Owned and Private Sector
Enterprises and Other Such Policies 
Systemic Impact.
• Competition (Antitrust) Law--Case by Case
Application Against Anticompetitive Business
Practices Firm/Industry Impact.
• Complementary  Buttress Each Other.
9
Figure 1
Figure 1
Competition, Entry and Economic Growth
15
GDP growth rate
GDP per capita (USD)
40000
20000
10
5
0
-5
4
5
competition
6
7
3
4
5
competition
6
7
15
40000
GDP growth rate
GDP per capita (USD)
3
30000
10
20000
10000
5
0
0
-5
4
4.5
5
entry
5.5
6
4
4.5
5
entry
5.5
6
Source: World Economic Forum and World Bank SIMA Indicators. “Competition” is the average
response in each country to the question “In most industries, competition in the local market is (1=limited
and price-cutting is rare, 7=intense and market leadership changes over time).” “Entry” is the average
response to the question “Entry of new competitors (1=almost never occurs in the local market, 7=is
common in the local market).”
10
Figure 2
Per Capita GDP (constant 2000 USD in thousands) and Intensity of Competition in Local Markets
High
40
IDA Countries
Non-IDA countries
35
30
GDP Per Capita
25
20
15
10
5
Low
0
Low Intensity
Intensity of Local Markets Competition
High Intensity
Source: Global Competitiveness Report 2006-2007 and World Bank DDP, 2005
11
Figure 3
Effectiveness of Competition (Antitrust) Law- Policy and the Extent of Market Dominance
High
Dominance
Non-IDA countries
Extent of Market Dominance
IDA
Low
Dominance
Low
Effectiveness
Effectiveness of Competition (Antitrust) Law-Policy
High
Effectiveness
Source: Global Competitiveness Report 2006-2007
12
Figure 4
Business Competitiveness Index and Effectiveness of Competition (Antitrust) Law-Policy
Business Competitiveness Index
High
Low
IDA
Effectiveness of Competition (Antitrust) Law-Policy
Low
Effectiveness
Non-IDA countries
High
Effectiveness
Source: Global Competitiveness Report 2006-2007
13
Figure 5
Intensity of Local Markets Competition and Effectiveness of Competition (Antitrust) Law- Policy
IDA
Non-IDA countries
Intensity of Local Markets Competition
High
Low
Low
Effectiveness
Effectiveness of Competition (Antitrust) Law-Policy
High
Effectiveness
Source: Global Competitiveness Report 2006-2007
14
Procedures, Time and Costs of Entry
Country Name ( Ease of Doing
Business Rank)
Number of Procedures
Time
Cost
(% of GNI per capita)
Canada
(8)
1
5
0.4%
France
(31)
5
7
0.9%
Germany
(25)
9
18
4.7%
Japan
(15)
8
23
7.5%
Korea
(19)
8
14
14.7%
New Zealand
(2)
1
1
0.4%
United States
(4)
6
6
0.7%
Botswana
(83)
10
61
2.1%
Burkina -Faso
(115)
4
14
50.3%
Gambia
(140)
8
27
215.1%
Ghana
(92)
8
33
26.4%
Kenya
(95)
12
34
36.5%
Nigeria
(125)
9
17
76.7%
(157)
4
8
63.7
(34)
6
22
5.9%
Senegal
South Africa
15
Figure 6
High
entry costs inhibit FDI inflows
Partial correlations controlling for
High entry costs inhibit FDI inflows
Partial
correlations
controlling for
market
size, human
capital, macroeconomic
market size, human
stability capital, macroeconomic
stability
FDI
FDI
3
-2
2
3
1
2
0
-2
-1
-1
-1 0
1
-2
0
-3
-4
Source: DECRG, World Bank
1
-1 0
2
3
1
2
3
-2 Costs
Entry
-3
-4
Entry Costs
Source: DECRG, World Bank
16
Concluding Remarks
• Effective competition law and policy benefits both
individual consumers and business
• It will improve domestic and international
competitiveness, broaden participation in the
economy, and alleviate poverty
• Create opportunities for entry and expansion of
SMEs, investment, Technological Change
• Foster greater accountability and transparency in
government-business relations, reduce opportunities
for corruption and bribery, lobbying…
17