UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
UNCTAD
Review of Recent Experiences in the Formulation and Implementation of Competition Law and Policy in Selected Developing Countries
Thailand, Lao, Kenya, Zambia, Zimbabwe
Edition 2005
UNITED NATIONS New York and Geneva, 2005 Foreword
Since the mid 1970s, UNCTAD has been dealing with the issues of competition law and policy and its interface with the development dimension. As evidenced by the large and growing number of countries which have adopted or are in the process of preparing competition laws and policies, there is growing awareness among developing countries, including the least developed countries (LDCs), of the important role which competition law and policy can play in promoting efficiency, economic growth and poverty reduction. This volume highlights the opportunities and challenges which the formulation and implementation of an effective competiton law pose for developing countries. The focus of the country reviews is on the experience gained by the five countries over the last five years on the policy options available to them and on the need for formulation of appropriate institutional framework for effective enforcement. It also identifies best practices and lessons from the five country reviewed and which can contribute to better enforcement and improved economic performance and growth.
The key lessons of the country reviews is that merely adopting a competition law is no panacea. Adequate institutional framework, human resources and transparency and fairness in the enforcement process are needed to ensure that competion law and policy are implemented well for markets to function properly, particularly for the poor.
The country reviews make a series of recommendations for legislative and institutional reforms for Thailand, Lao, Kenya, Zambia and Zimbabwe that are needed for effective enforcement of competiton law and promoting domestic competition, international competitiveness and development. It is hoped that this publication, which is launched on the occasion of the 5th UN Conference to Review All Aspects of the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, which is to be held in Antalya, 14 - 18 November 2005, will raise awareness and enhance expertise among competion agency officials, private sector stakeholders, consumer organizations and sector regulators about the crucial importance of transparency and fairness in the enforcement of competion law.
UNCTAD/DITC/CLP/2005/2
ii CONTENTS
THAILAND ...... 1 1. Introduction ...... 1 2. The Economic Setting of Competition Law of Thailand ...... 2 2.1 The Economic Setting ...... 2 Industry group ...... 4 2.2 Important Economic Regulations...... 5 2.3 The Role State Enterprises (SOEs) ...... 8 3. Major Element of Thailand Competition Law ...... 10 3.1 The Legislation Process: The Product of Political Compromise ...... 10 3.2 Objective of the Act ...... 11 3.3 Statutory Framework...... 11 3.4 Administration...... 11 3.5 Relations with Competitors...... 12 3.6 Other Exemptions...... 12 3.7 Conducts Prohibited by the Act ...... 12 3.8 Other Exemptions...... 16 3.9 Enforcement ...... 16 3.10 Sanctions ...... 17 3.11 Appeals...... 17 3.12 Private Suit ...... 17 3.13 The Competition Act and Consumer Protection Act ...... 17 4. Thailand‘s Competition Authority ...... 18 4.1 The Competition Commission ...... 18 4.2 The Sub-Commission...... 19 4.3 The Specialized Sub-Commission ...... 19 4.4 Investigative Sub-Committee...... 19 4.5 The Office of the Competition Commission...... 20 5. Handling of Competition Clauses ...... 21 5.1 The Proceeding...... 21 5.2 Cases Handled ...... 22 6. Proposed Areas for Amendment to the Competition Act of 1999 ...... 31 6.1 Substantive law...... 31 6.2 Procedural law...... 33 6.3 Enforcement Agency...... 33 6.4 Administrative and Judicial Review ...... 35 6.5 Sanction...... 35 7. Conclusion...... 35 Lao PDR...... 37 Introduction ...... 37 Part I: Competition...... 38 1. The Lao Economy ...... 38 1.1 Economic structure and characteristics...... 38
iii 1.2 Structure of the market and the level of competition...... 41 1.3 National development and poverty reduction strategies ...... 42 2. Structure of government and administration...... 44 2.1 Post-independence political and socio-economic developments...... 44 2.2 Constitutional and legal framework ...... 45 2.3 Administrative bodies ...... 46 3. Implications of trade and investment regimes for Competition Policy and Law.. 47 3.1 Decree on Competition...... 47 3.2 Past practices and implementation of competition requirements prior to the new Decree...... 49 3.3 Trade policy regime...... 49 3.4 Industrial and investment policies...... 52 3.4.1 Industrial Policies...... 52 3.4.2 Investment policies...... 55 3.5 Privatisation policy...... 56 3.6 Labour policy ...... 57 3.7 Government procurement policy...... 58 3.8 Governance...... 59 4. Barriers to competition in the Lao PDR...... 60 4.1 Barriers to competition from foreign suppliers...... 60 4.2 Anti-competitive practices of foreign firms operating in Laos...... 60 4.3 Cross Border Anti-competitive Practices...... 61 4.4 Barriers to competition from domestic anti-competitive practices ...... 61 4.5 Barriers to competition from government policies and practices ...... 62 4.6 Entry barriers to competition ...... 63 5. Sectoral Policies ...... 64 5.1 Utility services...... 64 5.1.1 Power...... 64 5.1.2 Telecom...... 65 5.2 Health Services...... 66 5.3 Financial services ...... 66 5.4 Transport ...... 67 5.5 Cement and fertilizers ...... 68 5.6 Tourism ...... 69 PART II: Consumer Protection...... 70 6. Consumer Problems Relating to Goods ...... 71 6.1 Weights and measures, and labeling ...... 71 6.2 Safety and quality...... 72 7. Consumer problems relating to services ...... 73 7.1 Educational Services ...... 73 7.2 Healthcare services...... 74 7.3 Financial services ...... 75 7.4 Professional services ...... 76 7.5 Travel services...... 77 8. Existing Regulatory System...... 77 8.1 Legal provisions and policies for consumer protection ...... 77
iv 8.2 Administrative system...... 80 8.3 Existing redress mechanisms ...... 80 9. Proposed Regulatory System for Consumer Protection...... 81 9.1 Draft Decree on consumer protection ...... 81 9.2 Administrative system...... 82 References ...... 83 KENYA ...... 85 PART I: Introduction ...... 85 PART II: The Need To Regulate Competition...... 86 PART III: The Evolution And Status Of Competition Policy And Law In Kenya...... 88 1. Historical Foundation...... 88 2. Kenya's Economic Environment Prior to the Introduction of the Present Competition Policy and Law...... 91 3. Evolution of Present Competition Policy and Law...... 93 4. The Present Position...... 94 5. Legal Provisions and Procedures ...... 96 PART IV: Enforcement Institutions...... 106 PART V: Practical Operation Of Kenya’s Antitrust Department...... 108 PART VI: Selected Cases Handled By The Competition Authority ...... 111 1. Case One- Mergers And Takeovers ...... 111 2. Case Two: Prevention Of Future Possible Abuse Of Dominance ...... 116 PART VII: Kenya’s Approach To Extra Territorial Issues...... 129 PART VIII: Challenges...... 131 PART IX: The Way Forward...... 134 PART X: Latest Developments...... 135 PART XI: Conclusion ...... 137 3. Case Three-Collusion/Price Fixing ...... 137 References ...... 150 ZAMBIA ...... 151 Executive Summary ...... 151 Introduction ...... 155 1.0 Zambia’s Position In Southern Africa...... 155 1.1 Zambia’s Economy at a Glance ...... 156 1.2 Economic Policies Supporting Investment in Zambia ...... 157 1.2.1 Deregulation...... 158 1.2.2 Commercialisation ...... 158 1.2.3 Privatisation...... 158 1.3 Specific Economic Policy Measures...... 160 2.0 Performance And Competitiveness Of The Industrial Sector...... 161 3.0 The Need For A Competition Law And Policy In Zambia...... 163 4.0 developing public awareness and government support for competition enforcement...... 165 5.0 A Comprehensive National Competition Policy...... 167 6.0 A Strategy For Competitiveness In The Manufacturing Sector...... 169 7.0 Competitivity Of Zambian Companies ...... 170 8.0 Constraints To The Competitiveness Of The Zambian Industrial Sector ...... 171
v 8.1 Geographical position (landlocked) resulting in high transport costs...... 171 8.2 High energy (electricity and fuel) costs ...... 172 8.3 Bureaucratic and Excessive Licensing Requirements...... 172 8.4 Undeveloped Road, Rail network and other infrastructure...... 173 8.5 Poor and Inadequate Economic Infrastructure...... 173 8.6 Weak Private Sector Support ...... 173 8.7 Insufficient Private-Public Sector Interface ...... 174 8.8 High Taxes ...... 175 8.9 Reliance on imported raw materials and other inputs, most of which originate outside the Common Market for Eastern and Southern African (COMESA) countries ...... 178 8.10 Rampant Incidences of Dumping and Subsidization ...... 178 8.11 Distorted Duty and Tariff Structures on raw materials and intermediate goods, which disadvantages local producers in some sectors...... 178 8.12 Lack of incentives to encourage firms to target the export markets ...... 178 8.13 Influx of imported products due to liberalization, which may lead to transmission of plant, animal and human diseases...... 179 8.14 Weak Government support systems...... 179 9.0 Competition And Regulation ...... 180 9.1 Improving Market Conduct and Competition Enhancing Regulation ...... 180 9.2 The Interface Between the Commission and Regulatory Bodies...... 180 9.3 Concurrent Jurisdiction ...... 182 9.4 Pensions And Insurance Authority...... 184 9.5 National Water Supply And Sanitation Council ...... 186 9.6 Energy Regulation Board...... 191 9.7 Communications Authority...... 193 10.0 Zambia Competition Commission ...... 195 10.1 Functions of the Commission...... 196 10.2 Organisation of Work...... 196 10.3 Sources of complaints and inquiries...... 197 10.4 Advice and responses...... 198 11.0 Enforcement And Investigations...... 199 11.1 Conduct of Investigations...... 200 11.2 Selection of matters...... 200 11.3 Specific Enforcement Priorities ...... 200 12.0 The Institutional Framework...... 201 12.1 The Minister ...... 201 12.2 Board of Commissioners...... 203 12.3 Composition of the Board of Commissioners...... 203 12.4 Appointment and Powers of the Executive Director...... 204 12.5 Secretariat...... 206 12.6 The Organisational Chart ...... 208 13.0 The Autonomous Status Of The Commission ...... 209 14.0 The Stated Objectives Of Competition Law And Policy...... 210 15.0 Application Of The Act...... 211 15.1 The Explicit Exclusions ...... 214
vi 15.2 The De Minimis Exemption...... 215 15.3 The ‘Rule of Reason’ Exemption...... 215 15.4 Definitions...... 216 16.0 The Main Elements Of Competition Law...... 217 16.1 Section 7 Prohibition...... 217 16.2 Abuse of Dominant Position and Vertical Restraints...... 219 16.2.1 The Assessment of Dominance...... 221 16.2.2 What constitutes abuse? ...... 222 16.2.3 The Commission’s Approach to Vertical Restraints...... 222 16.2.4 Predation...... 225 16.2.5 Price Discrimination...... 226 16.2.6 Exclusive Dealing ...... 228 16.2.7 Tie-in Sales and Bundling...... 230 16.2.8 Quantity Forcing ...... 230 16.3 Merger Control Regulation ...... 230 16.3.1 What is a Merger? ...... 232 16.3.2 The Zambia Nexus ...... 233 16.3.3 The Basic Criteria...... 234 16.3.4 The Competition Assessment...... 236 16.3.5 The Commission’s Process for Evaluating Mergers...... 236 16.3.6 Pre-notification of a Merger to the Commission...... 242 16.4 Horizontal Agreements ...... 243 16.5 Anti-Competitive Practices by Trade Associations ...... 249 16.6 Authorisation of Allowable Acts...... 251 17.0 Competition Policy And Consumer Welfare ...... 253 18.0 Competition Advocacy And Compliance ...... 257 19.0 Handling Of Confidential Information...... 259 20.0 Funds Of The Commission ...... 261 21.0 The Commission’s Enforcement Tools...... 262 21.1 Litigation ...... 262 21.2 Simple Administrative Resolution ...... 264 21.3 Decisions of the Board of Commissioners...... 264 21.4 Existence and Practical Availability of Private Rights of Action ...... 264 22.0 Challenging Commission Decisions Before The High Court ...... 265 23.0 Assessment Of A Notification...... 265 24.0 Timetable For Decisions On Authorizations...... 266 25.0 The Role Of The Judiciary In Competition Law And Policy Enforcement.... 266 26.0 Judiciary System In Zambia...... 267 27.0 Sanctions And Remedies...... 270 28.0 Conclusion...... 272 ZIMABABWE...... 277 Section 1: Introduction...... 277 Section 2: Development Of Competition Policy And Law In Zimbabwe ...... 279 Background ...... 279 Formulation of Competition Policy...... 281 The Legislative Process...... 286
vii Section 3 Major Elements Of Zimbabwe’s Competition Law...... 295 Part I: Preliminary...... 295 Part II: Competition and Tariff Commission...... 298 Part III: Financial Provisions Relating to Commission ...... 309 Part IV: Investigation and Prevention of Restrictive Practices, Mergers and Monopoly Situations ...... 310 Part V: Authorisation of Restrictive Practices, Mergers and Other Conduct...... 320 Part VI: Appeals...... 321 Part VII: General ...... 322 Section 4: Institutional Arrangements...... 329 Section 5: Handling Of Competition Cases ...... 333 Restrictive and Unfair Business Practices...... 342 Section 6: Proposed Amendments To The Competition Act ...... 354 Section 7: Conclusion...... 358 MERGER CONTROL GUIDELINES RULES...... 360
viii THAILAND those provisions from price-control provisions. The purpose of this law is to prevent monopoly, restraint of business 1. Introduction competition and that will lead to the promotion of free competition and Why did Thailand adopt a Competition prevention of unfair business practices. Act in 1999? There are a number of Therefore, it is necessary to enact this explanations. It is argued that Section law.” (translated unofficial Thai by the 871 of the current Constitution of the author) Kingdom of Thailand B.E. 2540 (1999) mandates the Thai government to enact However, there is a counter-argument to the competition law in order to prevent the aforementioned explanation. direct and indirect monopolies and to Namely, Section 87 belongs to Chapter ensure fair competition. This V (Directive Principles of Fundamental explaination is reflected in the note at State Policies) which does not have legal the end of the Competition Act of 1999. binding upon government agencies. The note, which explains the rationale Section 88 of the same Chapter reads: for enacting the Competition Act of 1999 reads: “The provisions of this Chapter are intended to serve as directive principles “The reason for enacting this law is that for legislating and determining policies the Price Control and Antimonopoly Act for the administration of the State of 1979 had been repealed and that law affairs.” had both the price control provisions and anti-monopoly provisions. It is deemed The second explaination is based upon appropriate to improve provisions economic structural change and the non- relating to anti-monopoly and separate functioning of the Price Control and Antimonopoly Act of 1979. Due to the rapid economic growth that occurred in 1 Section 87 of the Thai Constitution Thailand from 1987 to 1992, the (1999) reads: economic structure in Thailand changed drastically. The boom that began in “The State shall encourage a free 1987 surprised Thai observers as much economic system through market force, as outsiders. The boom was apparently ensure and supervise fair competition, driven by three principal forces: the protect consumers, and prevent direct depreciation of the U.S. dollar in relation and indirect monopolies, repeal and to other currencies and the fact that the refrain from enacting laws and baht was pegged to it, which made Thai regulations controlling businesses which exports more competitive do not correspond with the economic internationally; foreign investment, necessity, and shall not engage in an especially from two of the present newly enterprise in competition with the industrializing economies (NIEs), private sector unless it is necessary for Taiwan and Hong Kong, which wished the purpose of maintaining the security to avoid rising labor costs in their own of the State, preserving the common countries; and continuing low interest, or providing public utilities.” international petroleum prices in relation
1 to those of Thailand’s export Act (MRFTA), the Taiwanese Fair Trade commodities. It was argued that this Law (FTL), the Japanese Antimonopoly was due to the drastic changes in the Law of 1947, and the German Act economic structure arising from 1987 Against Restraints of Competition. economic crises. The Thai Ministry of Commerce (MOC) established a 2. The Economic Setting of Working Committee consisting of MOC Competition Law of Thailand officials and university professors to examine whether the existing Price In order to adequately understand the Fixing and Anti-Monopoly Act of 1979 design of the current Thai Competition (PFA) was still suitable for the economic Act of 1999, the economic setting and structure that had gone through such a the role of state enterprises during the remarkable growth period. The Working period of 1992 – 1996 is important Committee concluded that the PFA had because the working committee had two serious flaws. First, the primary taken those factors into consideration objective of the controlling prices. during the drafting process. Second, in order to enforce the PFA’s antimonopoly provisions, it first was 2.1 The Economic Setting2 necessary to enforce the price fixing provisions. These two flaws created 2.1.1 Social Character As of mid-1990, tremendous legal and political the population of Thailand was 56 difficulties for the Thai enforcement million. Between 1980 and 1990 the committee to enforce the PFA In fact, population grew at an average annual since the enactment of the PFA, the rate of 1.8 percent, a reduction from 2.7 enforcement agency has taken only one percent over the decade before. action against a price fixing cartel Population density was 107 persons per relating to ice-cube business. square kilometer of total area and 275 persons per square kilometer of The third explaination is based largely cultivable land. In 1990 the urban upon political pressure. Namely, it is population was 23 percent of the total, argued that the International Monetary compared with 13 percent in 1965, and Fund (IMF) imposed this upon the Thai 69 percent of the population worked in government as one of the conditions agriculture, compared with 6 percent in under the stand-by arrangement during industry and 25 percent in services. The the economic crisis (1997-2001). Some corresponding data for 1965 were 82 Thai business leaders believe that the Thai MOC officials initiated the idea of 2 creating the Competition Act of B.E. The economic setting part was largely 2540 (1999) under pressure from the drawn from Peter G. Warr and major trading partners. The author Bhanupong Nidhiprabha, THAILAND’S learned from interviewing key members MACROECONOMIC MIRACLE, The of the Working Committee that the world Bank, 1996. The reason is Working committee modeled substantial because this part of the book accurately parts of the THE COMPETITION ACT describes the economic setting in OF 1999 after the South Korean Thailand during the drafting process of Monopoly Regulation and Fair Trade the drafting process of the Competition Act (1992-1995).
2 percent in agriculture, 5 percent in the value added received by an industry industry, and 13 percent in services. The per unit of output in relation to what it degree of urbanization in Thailand is would be under free trade. unusually low among countries in its Unfortunately, these studies have used income group, and the importance of different types of data, different product agriculture in total employment is high. definitions, and different methodologies. Even more unusual is the degree to Some have used official tariff rates, which the urban population is whereas others have used tariff rates concentrated in a single city, Bangkok. estimated from customs duty collections or from price comparisons. It is 2.1.2 Product Markets Like most low- therefore difficult to compare the results and middle-income developing of these studies over time. Nevertheless, countries, Thailand has favored product the studies do show a similar pattern market policies that implicitly tax over the past three decades (their results agriculture and subsidize industry. In are summarized in table 1 below namely, the past, the government levied export that the protective system has been taxes on several agricultural export biased against the agro-based industries commodities, but these have been slowly phased out. Rubber is now the only commodity subject to an export tax. Tariffs and quantitative import restrictions are used to protect part of the manufacturing sector.
Although parts of the manufacturing sector are highly protected and inefficient, in general the sector is competitive and less highly regulated than its counterparts in some of Thailand’s Southeast Asian neighbors. Thailand does not practice free trade, but its protection levels are moderate and quite stable.
There have been several empirical studies of protection policies in Thailand most of which have concentrated on estimating effective rates of protection (ERPs)—that is, the proportion by which the overall structure of protection raises
3 Table 1: Thailand: Effective Protection of Industry Groups by Levels of Fabrication and End Uses, 1964-84
(percent)
Industry group 1964 1969 1974 1984 Processed food 47.47 -32.6 -19.41 7.93 Beverages and tobacco 215.45 241.3 2280.55 26.50 Construction materials — 47.4 46.91 17.38 Intermediate goods, I 82.02 2.8 15.91 17.63 Intermediate goods, II 60.09 79.1 48.53 241.84 Consumer nondurable goods 70.95 32.5 90.63 23.84 Consumer durable goods 63.87 69.1 200.62 19.29 Machinery 37.48 30.6 30.02 32.40 Transport equipment 118.00 34.9 353.88 45.70
And toward the manufacture of both import-competing and non-import-competing goods. This is the typical pattern or protection found in developing countries.
2.1.3 Financial Markets Thailand’s Industries Finance Office (SIFO). These organized financial markets are made up specialized institutions are either owned of eight main financial institutions: or party owned by the government. commercial banks; finance, securities, and credit companies; specialized banks; The financial market is dominated by the development finance corporations; the activities of commercial banks, which stock exchange; insurance companies; absorb roughly three—fourths of all saving cooperatives; and a variety of deposits placed with financial mortgage institutions. The commercial institutions. There are therefore central banks make up the largest component in actors in Thailand’s financial system. A terms of total assets, credit extended, and significant feature of the commercial saving mobilized. In 1990 they banking industry in Thailand is the high accounted for 71 percent of total degree of concentration in ownership. financial assets in the country. The Ownership is dominated by sixteen second largest is the finance companies, families of Chinese origin (Naris 1993). which began operating in 1969. Thai monetary authorities consider this Thailand has three specialized banks— concentration to be a problem, and the Government Saving Bank (GSB), the attempts have been made to diversify Bank of Agriculture and Agricultural bank ownership. The stock exchange Cooperatives (BAAC), and The has been the main venue for transferring Government Housing Bank (GHB); and ownership. Special legislation has two development finance corporations— limited the number of shares a person the Industrial Finance Corporation of may own. This legislation has proved Thailand (IFCT) and the Small
4 ineffective, however, as banks have not are influenced by these four banks, been able to meet the deadlines for through the Thai Bankers Association. ownership diversification and the deadlines have had to be extended repeatedly. 2.2 Important Economic Regulations
The Thai commercial banking industry 2.2.1 InternationaTrade Regulation has a cartel-like structure with its sixteen Apart from tariffs and export taxes, the banks organized loosely under the Thai trade regime in Thailand includes a Bankers Association, through which number of restrictive measures such as they collectively set the standard rates quantitative import and export controls. for service charges and loan rates. At present, there are import bans on Because of this oligopolistic structure, it eighteen commodities, and special takes time for all the banks to agree on permission is required to import another the same adjustment, particularly in the thirty. The Ministry of Commerce downward direction, with the result that imposes and supervises the import interest rates (on loans and deposits) controls. Commodities under control respond rather slowly to market include those produced in the socialist conditions. As a collective body, countries, weapons and strategic however, Thai bankers possess firearms, rice, and sugar. The controls substantial power in dictating the cost on rice and sugar are designed to prevent and the allocation of domestic credit and reimporting after the products have been in influencing the effectiveness of exported. Export controls are placed on monetary policies. thirty-eight commodities, sixteen of Within the banking system, firms vary which are outright bans. The export greatly in size and market share. This controls are meant to ensure domestic feature is important to keep in mind in supplies for local consumption at low any attempt to understand the bank prices. Items such as paper, pesticide, credit market in Thailand. At present, sheets of flat iron, polyfiber, and cement the market is led by four large banks are regulated to ensure that local whose market shares in deposits and supplies are available. credit totaled 70 percent in 1990. These four banks are the Bangkok Bank, the Under the Price Setting and Siam Commercial Bank, the Thai Antimonopoly Act of 1979, the Ministry Farmers Bank, and the Krung Thai of Commerce also administers price Bank. They dominated the interbank controls on “essential products.” In loan market since they are the main 1986 thirty-four commodities came suppliers of liquidity for smaller banks under price control. Such control has and the foreign banks. In addition, they helped to keep down the cost of living, are the leading players in foreign but it has been at the expense of transactions and thus can exert a degree shortages of these products in retail of control on the supply of foreign stores. exchange. Important decisions regarding interest rates and other price- setting decisions in the money market
5 2.2.2 Exchange Rate Regulation pegged and which had mitigated against Exchange rate management is in the Thai exports—and a strong growth in policy domain of the Bank of Thailand, domestic spending. In response, the but input from the Ministry of Finance is government devalued the baht twice in important. From 1955, when the 1981, bringing the rate to 23 baht per multiple exchange rate system was U.S. dollar. The government also abolished until the devaluations of 1981, abandoned the daily fixing system. Such the baht was maintained at more or less a drastic move, particularly the second fixed parity with the U.S. dollar (20 to devaluation, which then was the largest 21 baht per U.S. dollar). The main in recent history (8.7 percent), proved to argument for this peg was the stability be politically unpopular and led to the and the confidence it was believed to resignation of a deputy finance minister. provide. Between 1955 and 1977, the To build up confidence in the baht after dollar depreciated in relation to other two successive devaluations, the currencies and the baht-dollar rate was government introduced a currency swap adjusted five times, but these in 1981 to guarantee that those bringing adjustments were all very small. in foreign funds would not have to pay back more than the amount they had The volatility of the dollar and the borrowed from abroad when their loans enlarged trade deficits in the late 1970s came due. following the second oil shock prompted the Thai government to reconsider its The abandonment of the daily fixing exchange rate policy. Although much of system was tantamount to returning to Thailand’s trade is denominated in U.S. the old single-rate, fixed exchange dollars, less than 20 percent of its export system. In 1984 the baht was again and import transactions are with the devalued—this time by 14.5 percent—to United States. Pegging to the curb the growing trade deficit. The fixed overvalued dollar in the late 1970s had exchange rate system was also merely increased the country’s balance abandoned and replaced by a supposedly of payment deficits. In March 1978 the flexible exchange rate system, under Bank of Thailand announced that the which the baht is tied to a basket of baht would no longer be tied to the currencies. This switch was to provide dollar but to a basket of currencies in greater flexibility in the management of which the dollar would be a major the country’s foreign exchange. It is component. The new system was, obvious that the basket is heavily however, short-lived. In November dominated by the U.S. dollar. 1978, a system of daily fixing was Approximate parity to the U.S. dollar introduced, in effect putting the baht has been maintained in spite of the back into parity with the dollar, at 19.8 dollar’s realignment in relation to other baht per dollar. currencies. This matter is explored further in chapter 9. In 1979 and 1980, Thailand encountered severe trade deficits, which reached a 2.2.3 Financial Market Regulation record 4.6 percent of GDP. The deficits Regulation in the financial market is the resulted from an artificially strong responsibility of the Bank of Thailand, dollar—to which the baht was still with the approval of the Ministry of
6 Finance. Financial regulations act both capacity to exploit their oligopolistic to stabilize the economy and to preserve power. the commercial viability of the financial system. The present regulations have A Third novel feature is that Thailand four distinctive features. has no direct controls on capital inflows, whereas until recently capital outflow First, entry to the financial industry, has been tightly regulated. In these through the opening of new financial circumstances, local liquidity becomes institutions—commercial banks, finance highly responsive to changes in foreign companies, and insurance companies— interest rates and the exchanges rate. as well as branches of foreign banks, is Since domestic rates are normally regulated by the Ministry of Finance regulated at levels slightly higher than through licensing permits. In the case of the foreign rates, commercial banks and commercial banks, this control, which is large companies can freely adjust their strictly enforced, is aimed at insulating liquidity position by borrowing abroad. the existing institutions from new This flexibility has helped ease the competition in order to ensure their long- pressure on foreign reserves in times of term viability and stability. In recent balance of payments problems. years, this tight control, together with the government’s unwillingness to let ailing Fourth, regulations within the banking commercial banks collapse, has proved system are also plentiful. Besides the costly: government protection enabled usual monetary policy controls, there are mismanaged banks to continue their regulations requiring new bank branches operation at public expense. to fulfill a variety of conditions, including compulsory holdings of Second, until recently the Bank of government bonds. This makes the Thailand regulated interest rates, by market for government bonds a captive fixing the maximum deposit rates and one. There is also and institutional maximum lending rates. Since June regulation known as “agricultural credit 1989 controls on the rates for time policy,” which requires commercial deposits have been relaxed. Commercial banks to lend a fixed proportion of their banks have been encouraged to vary previous year’s deposits (currently set at their own rates voluntarily within the 13 percent) to agriculture. This bounds prescribed in response to their regulation, which came into effect in liquidity positions. Individual banks, 1975, is designed to enlarge the flow of fearing that they would lose their market private credit to agriculture. shares, competed for deposits by offering the ceiling rates for deposits. In 2.2.4 Labor Market Regulation situations of excess liquidity, this Government regulations in the labor reduced bank profits. As a result, market are under the jurisdiction of the liquidity problems were prolonged until Ministry of Interior, to which the Labor the Bank of Thailand eventually Department belongs. Labor regulations intervened, by adjusting the ceiling rates. take two basic forms: the worker The ceiling rates can thus be seen in part protection scheme and minimum wage as a device for limiting the banks’ regulation, which is more relevant to this study.
7 In response to an International Labor employees. An inflationary impact from Office appeal for workers’ rights and such revisions would therefore seem a protection, the Labor Department genuine possibility. introduced minimum wage regulation in 1973. It was intended to guarantee workers a daily income that would be 2.3 The Role State Enterprises sufficient to meet their basic needs. The (SOEs) regulation fixes a standardized minimum daily wage for industrial workers in As in many other developing countries, Bangkok and in the provinces. The public enterprises play a significant role figure is revised annually by in the Thai economy. The sector has representatives from the government, the grown rigidly in recent years and its role employees, and the employers. From in resource allocation has become an 1973 to 1987, the figures were revised important concern of economic policy. fourteen times. The 1987 rate was 73 Far from being confined to baht for Bangkok and the five nearby infrastructure, the activities of provinces; 67 baht for the provinces of Thailand’s state enterprises stretch into Chonburi, Saraburi, Nakorn Rashasima, many areas of business, including Chiengmai; and 61 baht for other manufacturing, transport, hotels, provinces. services, trade, and finance. The Bank of Thailand is also formally a state The effect of minimum wage regulations enterprise. At present, there are sixty- on labor market hiring has been slight, eight state enterprises, seventeen of since only large companies and state which operate in infrastructure. Most enterprises adhere to them. According state enterprises began as special to a survey conducted in 1986, less that projects (revolving funds) under central one-third of the firms in operation paid government departments with their own their workers the minimum level or staffs and financial accounts, then slowly higher. This means that fewer than half graduated to the status of state of the employed unskilled workers were enterprises when their activities paid the minimum wage. Firms paying expanded. less than the legal minimum are mostly small and medium-size firms. After the war, public enterprises became Obviously, the threat of unemployment increasingly important in other sectors of leads workers to accept lower pay in the Thai economy because of the income order to secure employment. Only the they could provide for military officials large firms and state enterprises have and civilian politicians. By 1957, a large formal worker organizations strong part of the country’s industrial capacity enough to police the full administration was controlled by public enterprises. of the minimum wage regulations. The industries they dominated included Despite the limited coverage of the tobacco, paper, sugar, gunny bags, minimum wage regulations, revisions to timber, tin, metal cabinets, the minimum wage do have an impact, pharmaceuticals, batteries, tanneries, by raising the entire wage structure textiles, cement, spirits, glass, rubber within the formal sector, including that footwear, alum, and shoe polish (World of the salaried that of the salaried Bank 1959: 90 - 91).
8 The growth of the public enterprises had political parties have therefore been been haphazard. Not only was there exerting increasing influence on little economic rationale for the choice economic decisions. In the past, these of industries entered by the public chairmanships were dominated largely enterprises, but they had become by senior bureaucrats and military uncontrolled in their operation, finance, officers. The increase in the overall and investment behavior. Furthermore, importance of public enterprises within their practice of lending public funds to the Thai economy is shown in table 2. one another made their accounts difficult In 1970 the public enterprise sector was to interpret. The end result was that smaller than the central government, as these enterprises became major vehicles measured by recurrent expenditures, for the purchase of political patronage. capital expenditure, and revenue. By This was especially important for those 1988, however, it was larger than the Chinese businessmen whose interests central government by all three were directly threatened by the public measures. enterprises. The size and growth rate of public Because the management of a state enterprises appears quite different when enterprise comes under the jurisdiction one looks at employment. Thailand’s of its parent ministry, its chairman is a public enterprises tend to be capital political appointee. Following the move intensive, in comparison with the central toward constitutional government in government. They employed almost 1974 and the increased number of 300,000 persons in 1988, which was civilian politicians assuming ministerial approximately one-quarter the number portfolios, the political influence in state employed by the central government. enterprises has continued to increase. In The rate of increase of employment in 1986, fifty-six out of sixty-eight the public enterprise sector from 1970 to chairmen of state enterprises were 1988 was 7 percent per year, which was members of political parties. Through slightly smaller than the 7.8 percent their control of state enterprises, the registered by the central government
Table 2: Thailand Economic Importance of Public Enterprises, 1970 and 1988 (percent) Capital expenditure/ Recurrent expenditure/ Revenue/GDP GDP GDP Year Public Central Public Central Public Central enterprises government enterprises government enterprises government
1970 9.5 12.1 1.9 5.9 11.2 13.7 1988 18.9 15.9 7.7 2.7 20.8 16.3
9 their term of office is only two years, 3. Major Element of Thailand and they work on the part-time basis. Competition Law Thirdly, the Chairman is the Minister of Commerce. Fourthly, the ex officio and 3.1 The Legislation Process: The secretary general of the Competition Product of Political Compromise Commission is the Director-General of the Department of Internal Trade, a high- In 1992, by the initiative of the level bureaucrat under the Executive permanent secretary of the Ministry of Branch. Finally, the 40 staffs at the Commerce, the Working Committee office of the Competition Commission consisted of a director of economic are officials of the Department of planning, Department of Internal Trade, Internal Trade. They receive salary from an in-house lawyer of the Department of the government just as regular civil Internal Trade, a university law servants of the Central Government. professor, was established in order to That means the Competition draft a competition law appropriate for Commission does not have its own Thailand. The Working Committee budget to hire its own staffs. visited some countries in Asia and Europe and did a comparative study (2) The legislative intent of the draft during 1992-1995. The draft law was Bill was to regulate conducts of business submitted to the State Council, which operators in Thailand. However, there functions as the governmental legislative was political demand in the Senate that bureau, for technical amendment and structural control should be added to the corrections. The draft was then Bill. Consequently, as a political submitted for deliberation in the compromise, Section 30 was Parliament. A number of amendments incorporated into the Bill. Section 30 were made during the deliberation reads: process in the Parliament, especially in the Senate. Finally, the Bill passed the Parliament and was enacted on March “The Commission shall have the power 31, 1999. to issue a written order requiring a business operator who has market domination, with the market share of The Competition Act of 1999 is the more than seventy five percent, to product of political compromise. Below suspend, cease or vary the market share. For this purpose, the Commission may are noted evidences of the said political prescribe rules, procedure, conditions compromise. and time limit for compliance therewith.” (1) The enforcement agency is not “independent regulatory body.” There The fundamental thinking of the are a number of indicators. Firstly, the Working Committee about this political ex officio members of the Competition compromise is that it would be better to Commission are high-level bureaucrats have an inadequate competition law and not independent experts. Secondly, the mediocre enforcement agency than not qualified members (outside members) to have it at all. It is expected that there must receive approval from the Cabinet,
10 would be probability to amend the law in The structure of the Thai economy falls the future. somewhere in-between South Korea’s economic structure, where thirty 3.2 Objective of the Act chaebols dominate the domestic market, and Taiwan’s, where 98% of firms are The objective of The Competition Act of small and medium-sized enterprises 1999 is mentioned in the note at the end (SMEs). The Thai economy is closer to of the Act. The note reads: the Taiwanese economy because (1) there are fewer market dominant firms in Thailand than in South Korea and (2) “The reason for enacting this law is that most of the Thai firms are SMEs. the Price Control and Antimonopoly Act Furthermore, unlike the South Korean of 1979 had been repealed and that law government, the Thai government never had both the price control provisions and has adopted nationalist economic anti-monopoly provisions. It is deemed policies to promote national champions. appropriate to improve provisions The hallmark of Thailand’s economic relating to anti-monopoly and separate development is neoliberalism: trade and those provisions from price-control investment liberalization with few provisions. The purpose of this law is to government industrial policies. prevent monopoly, restraint of business competition and that will lead to the 3.4 Administration promotion of free competition and prevention of unfair business practices. Therefore, it is necessary to enact this When a firm violates The Competition law.” Act of 1999’s substantive provisions, the Competition Commission may issue a 3.3 Statutory Framework written order to the firm to suspend, stop, or correct its actions. In the order, the Competition Commission also may The Working Committee patterned The prescribe rules, procedures, conditions, Competition Act of 1999 largely after and time restraints on compliance. the antitrust statutes of more advanced market economics, particularly those of South Korea and Taiwan. The The Competition Commission possesses Competition Act of 1999 reflects the almost exclusive jurisdiction to enforce Working Committee’s presumption that The Competition Act of 1999. The Thai Thailand’s economic structure, where Ministry of Justice does not have a unit the majority of the domestic product specifically charged with enforcing the markets are monopolistic or antitrust laws, and although the District oligopolistic, is similar to South Korea’s. Attorney may prosecute violations of The Competition Act of 1999 therefore The Competition Act of 1999, such focuses on eliminating unreasonable or prosecution is contingent on a request by anticompetitive pricing behavior by the Competition Commission. A firm dominant firms rather than directly that is unsatisfied with the order of the prohibiting monopolization or monopoly Competition Commission may appeal to itself. the Appellate Committee, whose ultimate decision is final.
11 There are several issues currently under (2) State-owned enterprises regulated debate in Thailand about judicial review under the laws governing budgetary of Appellate Committee decisions. First, procedure; is it legally permissible for an agriefed (3) Farmer groups, co-operative groups firm or business operator to bring the recognized by law and having decision of the Appellate Committee to a business objectives for the benefit of court for judicial review? Secondly, farmers; which court has competence to review (4) Businesses identified in the such decisions? The court of justice or ministerial regulations, which may an administrative court? exempt the application of any or all provisions of The Competition Act 3.5 Relations with Competitors of 1999.
Public education about the objectives of Of the four exempted groups listed The Competition Act of 1999 conducted above, the state-owned enterprises by the Department of Internal Trade (SOEs) are the most controversial. Large (DIT) within the MOC has helped the Thai firms believe that it is unfair that Thai public to understand that The The Competition Act of 1999 regulates Competition Act of 1999 will promote their conduct but exclude from its scope and maintain the process of fair and free SOEs. Thailand’s SOEs are concentrated market competition rather than the actual in natural monopolies (i.e. the electricity, market competitors. In addition, the DIT telecommunications, and railroad emphasized that The Competition Act of industries) and gradually are being 1999 aims to regulate the “privatized” The current debate centers anticompetitive behavior of business on whether these newly privatized firms operators rather than the actual structure should be place under specific regulatory of the businesses. regimes similar to those in the United States and Europe or under the broad The Thai government has tried to regulatory authority of The Competition promote SMEs after the 1997 crisis. Act of 1999. The current trend for the However, its current promotional policy former SOEs doing business in the raises an important issue: how can the electricity, telecommunications, and Competition Commission reconcile its railroad industries is to place them under promotion of SMEs with The specific regulatory regimes. Competition Act of 1999’s objective of maintaining a free and fair competitive 3.7 Conducts Prohibited by the Act process without paying attention to the SMEs being wiped out by larger (1) Abuse of a Dominant Position competitors? The Competition Act of 1999 does not 3.6 Other Exemptions directly prohibit the possession or acquisition of monopoly power. The Competition Act of 1999 does not However, it does proscribe unreasonable apply to acts of: or anticompetitive behavior by large (1) A central , provincial , or local firms with substantial market shares. administration; Section 25 of The Competition Act of
12 1999 forbids “the abuse of a market or provide services, or obtain credit dominant position. Sections 3 and 8 of from other business operators; The Competition Act of 1999 authorize (3) suspending, reducing, or limiting the Competition Commission, with the services, production, purchase, approval of the Cabinet, to prescribe the distribution, delivery, or importation market share and total sales above which into (Thailand) without reasonable a firm will be deemed a business grounds, or to destroy or damage operator with a market dominant goods in order to reduce supply to position. The specific standard under the less than market demand; proposal that is currently awaiting Cabinet approval is a large firm with (1) (4) interfering with the business more than a 33% market share, and (2) operations of other people without whose gross domestic sales total more reasonable grounds. than one billion Thai Baht (approximately US$22 million). The The striking similarity between Section Competition Commission specifically 25 of The Competition Act of 1999 and identifies market dominant firms in the Article 3 of the MRFTA reflects the Royal Gazette. Thus, Section 25 does fundamental presumption of the Thai not cover monopolistic behavior by an Working Committee: The Thai economy SME that does not fall within these is similar to the South Korean economy criteria. However, unlike its model, the due to its monopolistic and oligopolistic South Korean MRFTA, This behavior by markets. However, the Working Thai firms may not even fall within the Committee’s presumption was category of unfair trade practices inaccurate, and it led to a wrong design prohibited by Section 29. of The Competition Act of 1999.
Any firm designated by the Competition Commission as a market dominant firm (2) Mergers and Other Business will receive scrutiny. The commission of Combinations the following conduct by a market dominant firm constitutes an abuse of its The Working Committee modeled dominant position in violation of Section Section 26 of The Competition Act of 25 of The Competition Act of 1999 : 1999 after Article 6(1) of the Taiwanese (1) unfairly fixing or maintaining the FTL. The purpose of Section 26 is to levels of sale or purchase prices of prevent the creation of monopolies and goods or services; the lessening of competition. It (2) setting conditions which , directly or empowers the Competition Commission indirectly, unfairly compel other to regulate “business combinations,” business operators who are Under Section 26 of The Competition customers of the Business Operator Act of 1999, a business combination to limit the provision of services, may take any of the following form: production, purchase or distribution (1) a merger between manufacturer and of goods, or their opportunity to manufacturer, distributor and choose to buy or sell goods, accept distributor, manufacturer and distributor, or service provider and
13 service provider, which results in the agreed price, or limiting the purchase continued existence of one business volume of goods or services; and the demise of another, or the (3) entering into an agreement to take establishment of a new business; over or control the market; (2) the purchase of assets, whether in (4) fixing agreements or conditions in a whole or in part, of another business collusive manner to enable the other to gain control over business party to win a bid or tender for the management policy, supervision or sale of goods or services or to administration. prevent the other party from (3) the purchase of shares, whether in competing in a bid or tender for the whole or in part, of another business sale of goods or services; to gain control over business (5) allocating areas where each Business management policy, supervision or Operator may distribute or reduce administration. the distribution of goods or services, or specifying customers to whom The Working Committee intended each Business Operator may Section 26 of The Competition Act of distribute goods or services without 1999 to apply only to large business competition from the other Business combinations. Currently, there is no Operators; official threshold for what constitutes a (6) allocating areas where each Business “large” business combination, but if the Operator may purchase goods or Cabinet approves the Competition Commission’s criteria proposed in services, or specifying customers Section 25, then a “large” business from whom the Business Operator combination will be defined in terms of may purchase goods or services; two cumulative criteria: (1) possess (7) fixing the volume of goods or more than a 33% of market share, and services which each Business (2) combined sales volume of the Operator may manufacture, merged firm has at least one billion Thai purchase, distribute or provide in Baht. order to keep the volume less than the market demand; (8) lowering the quality of goods or (3) Horizontal and Vertical services compared with the previous Restraints manufacture, distribution or provision, but maintaining or raising Section 27 of The Competition Act of the price; 1999 prohibits the following horizontal (9) appointing or assigning a person as and vertical restrains: sole distributor or provider of the (1) fixing the sales price of goods or same type of goods or services; services to be the same or at an (10) fixing conditions or methods of agreed price, or limiting the sales practice in the purchase or volume of goods or services; distribution of goods or services to (2) fixing the purchase price of goods or be of the same pattern or as agreed. services to be the same or at an
14 In case business reasons necessitate any business operator outside (Thailand) is act under (5) , (6) , (7) , (8) , (9) or (10) prohibited from performing any activity in any certain period, the Business which will restrict the freedom of a Operator shall file an application for person in (Thailand) desirous of permission with the Commission in purchasing goods or services for his/her accordance with Section 35. own use, to purchase the goods or services directly from the business It appears that Section 27 is a operator outside (Thailand) combination of South Korea’s prohibition of undue collaborative Section 28 of The Competition Act of activities and Taiwan’s prohibition of 1999 differs from Article 32(1) of the non-price vertical restrains and MRFTA, which applies specifically to exclusionary practices (i.e. territorial and agreements or business dealings between customer restrictions). Korean firms and foreign firms. Unfair trade practices in import agency agreements under Article 32(1) include: (4) Restrictions in International Agreements (1) unreasonably restricting the agent from handling competitive products; (2) imposing unreasonable requirements on the agent to Section 28 of The Competition Act of purchase parts or supplies for the contract 1999 reflects certain Thailand-specific products from the foreign party or from a consumer traditions that were prevalent supplier designated by the foreign party; and (3) when the Working Committee drafted unreasonably restricting sales quantities or designating an unreasonably high minimum sales The Competition Act of 1999. During target. the period of economic growth, a small portion of the new middle class Thai In essence, Article 32(1) of the MRFTA wanted to buy luxurious German aims to protect South Korean import automobiles (especially Mercedes-Benz) agencies from unfair exploitation by directly from dealers in Germany. foreign manufacturers while Section 28 However, the German dealers were of The Competition Act of 1999 aims to unable to sell the cars to Thai buyers enable wealthy Thai to buy luxurious because of dealer contracts that automobiles directly from foreign prohibited them from doing so. The dealers. corporate headquarters of Mercedes- Benz in Germany wanted Thai buyers to buy directly from dealers in Thailand. Hence, Section 28 of The Competition (5) Unfair Trade Practices Act of 1999 exists for the very specific purpose of forbidding Thai dealers from It appears that the Working Committee entering such contracts: patterned Section 29 of The Competition Act of 1999 after Article 24 of the A Business Operator having a business Taiwanese FTL. Both contain a general relationship, whether by contract, policy, rule prohibiting other methods of unfair partnership, shareholding, or any other competition. In addition, both provide relationship of like nature with a that firms may not engage in any act that
15 adversely affects orderly functioning of Commission to designate unfair business the markets. practices.
Section 29 of The Competition Act of 1999 states: “A Business Operator is (6) Special Issues Involving prohibited from performing any act Intellectual Property Rights contrary to free and fair competition and which results in the destruction, damage, Section 6 of the Antimonopoly Law and obstruction, hindrance or restriction of Articles 23 – 25 of the MRFTA reflect the operations of other business the Japanese and South Korean operators, in order to prevent them from governments’ great concerns over the operating their business or cause the importation of technology. Both dissolution of their business. governments set up screening schemes to eliminate unfair clauses contained in The South Korean MRFTA focuses technology inducement contracts. The primarily on regulating the behavior of Thai Competition Act of 1999, however, the thirty largest Korean chaebols, but it contains no similar provision, and also aims to regulate the unfair trade Thailand benefits from its omission. practices of a number of medium-sized Officials in charge of enforcing The firms. Article 23 of the MRFTA Competition Act of 1999 would (Prohibition of Unfair Trade Practices) is encounter too many difficulties if they patterned closely on the Japanese had to screen unfair clauses contained in Antimonopoly Law. Between 1981 and technology importation agreements 1990, there were only eleven complaints between Thai buyers and foreign of abuses of market dominant firms technology suppliers. while there were 2,592 complaints against unfair trade practices. 3.8 Other Exemptions
One of the substantive flaws in The Unlike the Antimonopoly Law, The Thai Competition Act of 1999 lies in Section Competition Act of 1999 does not 29: it is too vague to be enforced. To exempt the following activities from its remedy this flaw, the Competition purview: export/import transactions; Commission should adopt guidelines export cartels; import cartels; depression similar to the Japanese Fair Trade cartels; small business cartels; and Commission’s (JFTC) 1982 General insurance. Designations of Unfair Trade Methods. This would clarify for the Thai business 3.9 Enforcement community the types of business The competition Act 1999 provides in behavior that are anticompetitive and Art. 8(11) and 8(12) that: likely to violate Section 29. However, there is one legal obstacle to adopting Any person who discovers a violation of similar guidelines: unlike Section 2(9) of The Competition Act of 1999 may report the Japanese Antimonopoly Law, it to the Office of the Competition Section 29 of The Competition Act of Commission. The secretariat of the 1999 does not empower the Competition Office of the Competition Commission conducts investigations, but if necessary,
16 designated staff members may take 3.11 Appeals appropriate measures, including collecting information from the alleged If the alleged party is not satisfied with violator’s business premises or the order of the Commission under summoning the parties for an Section 31 (the order requiring the investigative hearing. business operator to suspend, cease certain business conduct), he may appeal Japan’s enforcement procedure is well against such order to the Appellate developed and is quite similar to a court Committee. proceeding. In contrast, Thailand’s enforcement procedure is still in the The Appellate Committee consisted of early stages of development. Although not more than seven qualified persons Sections 8(11) and 8(12) empower the with knowledge and experience in law, Competition Commission to prescribe economics, business or public enforcement procedure, the Competition administration appointed by the Cabinet. Commission has made no progress in One of the important function of the doing so. Appellate Committee is to consider and decide on the appeal against and order of 3.10 Sanctions the Commission under Section 31 or Section 37 mentioned above. Section 51 of The Competition Act of 1999 appears to follow the pattern of the 3.12 Private Suit Taiwanese FTL. The Competition Commission may impose a maximum The Competition Act of 1999 does not three-year term of imprisonment, or a allow a private party to initiate an action criminal fine of up to six million Thai seeking injunctive relief in the court. Baht (approximately equal to However, the Act allows for private US$120,000), or both for either any action seeking compensation from violation of Sections 25 through 29 of violator that should allow once a final The Competition Act of 1999 or a failure decision is taken by the courts to comply with Section 39. The serious flaw with the penal provisions of The 3.13 The Competition Act and Competition Act of 1999 is that the Consumer Protection Act Competition Commission may impose a maximum three-year term of The objective of the Competition Act of imprisonment for either failing to apply 1999 is to maintain and promote free and to the Competition Commission for fair competition. This free and fair permission to merge businesses or competition will indirectly enhance violating the unfair trade practices consumer welfare. On the other hand, provision. The Competition the objective of the Consumer Protection Commission should sanction violators of Act of 1979 is to protect consumer from these particular provisions with nothing business fraud and misleading more than monetary fines. advertisement. The Objective of the Unfair Clause Act of 1997 is to protect consumers from unfair contract clauses
17 relating to credit cards, high-purchase Competition Commission’s serious etc. flaws: (1) there are too many Competition Commission members; (2) The relationship between the three Acts many of the members are not qualified is that the Competition Act of 1999 competition law experts; (3) the allows the Consumer Protection members only work on a part-time basis Commission or legally-registered and convene only two meetings every consumer association to initiating for eight months; (4) there is a vast claiming compensation on behalf of overrepresentation of the private sector; consumers or members of the (5) Competition Commission members association. receive an extremely low level of compensation; (6) there are no rules 4. Thailand‘s Competition regarding how proceedings are Authority conducted; and (7) the Competition Commission has weak administrative 4.1 The Competition Commission and secretariat support.
The Competition Commission is the The Office of the Competition only administrative agency in Thailand Commission is anchored in the DIT with direct enforcement authority over within the MOC. The director-general The Competition Act of 1999. The of the DIT is the secretary-general, in Public Prosecutor’s office holds certain charge of the performance of the Office. functions in the enforcement scheme as The Office of the Competition well, but these functions are narrowly Commission has a few serious flaws. drawn. First, there are only about forty-five officials who work within the Office, all The Competition Commission is of whom were transferred from the DIT composed of the Minister of Commerce while they were still government (who serves as Chairman), the officials. The Competition Commission Permanent Secretary for Commerce is supposed to be independent, but the (who serves as Vice Chairman), the Office and its staff are an administrative Permanent Secretary for Finance, and agency and therefore not independent. between eight and twelve experts Second, the mentality of the officials in appointed by the Cabinet to serve as the Office cannot switch from market commission members. The Cabinet intervention to market promotion must appoint at least half of the experts automatically. Most of them enforced from the private sector, and they must the PFA before their transfer to the have knowledge and experience in law, Office of the Competition Commission. economics, commerce, business In addition, most are new to the concept management, or government of handling competition cases. Third, administration. Currently, the hearing and investigative procedures are Competition Commission is composed being developed by the competition of sixteen members, with three bureau and their application is in the representing the FTI and three early stages. representing the Thai Chamber of Commerce. This gets to the heart of the
18 The composition of the Competition of Internal Trade as a member and Commission, its secretariat and secretary. administrative support make enforcement of The Competition Act of The specialized sub-committee shall 1999 ineffective. The decision making elect one member as Chairman. process is long while the few decisions taken so far provide little reasoning for the decisions. So far, the Competition Commission has appointed two specialized Sub- 4.2 The Sub-Commission Committees to deliberate whether particular conduct violate the Competition Act or not. Those two Section 11 The Commission specialized Sub-Committee were (1) The may appoint a sub-committee to Specialized Sub-Committee on consider and make recommend- Exclusive Dealing in Motorcycle dations on any matter or perform Business and (2) The Specialized Sub- any act as entrusted and prepare a Committee on Unfair Trade Practice in report thereon for submission to Retail Industry. the Commission. So far, the Competition has appointed 4.4 Investigative Sub-Committee two Sub-Committees to deliberate whether particular conduct violated the Competition Act or not. Those two Sub- Section 14 The Commission Committees were (1) The Sub- shall appoint one or more Committee on Cable Television Case investigative sub-committees and (2) The Sub-Committee on Tying consisting of, for each sub- Arrangement in Whiskey and Beer Case. committee, one person possessing knowledge and experience in criminal cases who is appointed 4.3 The Specialized Sub- from police officials, public Commission prosecutors and, in addition, not more than four persons possessing
knowledge and experience in Section 12 The Commission economics, law, commerce, shall appoint one or more agriculture, or accountancy, as specialized sub-committees consis- members, with the representative ting of, for each sub-committee, of the Department of Internal not less than four and not more Trade as a member and secretary. than six persons qualified in the matter concerned and having knowledge and experience in The investigative sub-committee various fields such as law, science, shall have the power and duty to engineering, pharmacology, agri- conduct an investigation and culture, economics, commerce, inquiry in connection with the accountancy, or business adminis- commission of offences under this tration as members, with the Act and, upon completion thereof, representative of the Department submit opinions to the
19 Commission for further (2) to prescribe regulations for consideration. the purpose of the work performance of the Office of the The investigative sub-committee Competition Commission; shall elect one member as chairman. (3) to monitor the movement and oversee the conduct of It seems that the legislation intent of business operators and report the having this provision is for the purpose same to the Commission; of investigating cartels. The Competition Commission may not have expertise and (4) to conduct studies, analyses knowledge in criminal case. Therefore, it and research in relation to goods, will be helpful to the competition services, and business conduct and commission to develop capacity to make recommenddations and give carryout Cartel investigations including opinions to the Commission on the in cooperation with outside sources, prevention of market domination, especially from the Police Department. merger of businesses and reduction and restriction of So far, the Competition Commission has competition in the operation of not appointed any Investigation Sub- businesses; Committee to handle Cartel cases. (5) to receive complaints by 4.5 The Office of the Competition which it is alleged by any person Commission that violation of this Act has occurred and to carry out its Section 18 There shall be preliminary consideration for established the Office of the submission to the Commission, in Competition Commission in the accordance with the regulations Department of Internal Trade, prescribed and published in the Ministry of Commerce, with the Government Gazette by the Director-General of the Commission; Department of Internal Trade as the secretary-general, who shall be (6) to co-ordinate with the superior official responsible for Government agencies or agencies the official affairs of the Office, concerned, for the purpose of the with the powers and duties as performance of duties under this follows: Act;
(1) to carry out administrative (7) to perform the acts in the tasks of the Commission, the implementation of Notifications, Appellate Committee and sub- regulations and resolutions of the committees appointed by the Commission and perform such acts Commission; as entrusted by the Commission, the Appellate Committee or the
20 sub-committee appointed by the (11) to prescribe rules for the Commission. performance of work of the competent officials for the purpose As previously noted, there are about 45 of the executive of the Act; officials working at the Competition Commission, which is located in the (12) to perform other acts provided by Department of Internal Trade, Ministry the law to be the powers and duties of Commerce. The office of the of the Commission;” Competition Commission budget is part of the overall resources allocated to the In most advanced economies, the due ministry. Strictly speaking, the office of process is closely followed by the Competition Commission and its 45 enforcement agencies. For example, officials are internal part of the there are provisions relating to Department of Internal Trade, Ministry procedural process in the Federal Trade of Commerce. Commission Act of 1914 in the United States. There is Section 76 of the Act 5. Handling of Competition Concerning Prohibition of Private Clauses Monopolization and Maintenance of Fair Trade Act of 1947 in Japan. In The Competition Act of 1999 was accordance with the provisions of promulgated in the Royal Gazette on section 76, the Japanese Fair Trade March 31, 1999 and becomes effective Commission has established a number of since May 1, 1999. The six year of important rules to safeguard the enforcement experience (May 1999 procedural due process. For examples, February 2005) is not conclusive. So far the Rules concerning Investigation and there have been only three decisions Hearing by the Fair Trade Commission rendered by the competition (October 10, 1953). However, the Thai commission. Furthermore, the three Competition Committee has not decisions do not provide yet adequate established any set of rules concerning jurisprudence for convincing authority investigation and hearing and other and predictability. matters yet. It is imperative for a proper enforcement of the competition law that 5.1 The Proceeding in order to safeguard the procedural due process, the Thai Competition Procedural due process is one of the very Committee shall establish set of rules fundamental legal principles which has relating to investigation, hearing, making been widely recognized in almost all decision etc as soon as possible. jurisdictions around the world, including Thailand. Section 8 of the Competition Act reads:
“The Commission shall have the powers and duties as follows:
…
21 5.2 Cases Handled produced programmes, which had been caused by the collapse of the Thai 5.2.1 Cases Handled with Decisions3 currency in 1997. A condition of the approval was that the merged company would continue to offer a basic package The followings are brief outlines of the of programmes intended for low income three cases handled with decisions by the groups. After the merger had been Competition Committee over the years completed UBC then sought regulatory (1999 – 2005) approval to change the structure and content of its programmes packages, (1) Allegation of Abuse of Dominant substantially increase installation Position in Cable Television charges for new subscribers, and also to increase the monthly subscription fee. In early 2000, the Competition The company also requested that it no Commission received complaints from longer be required to offer the original consumer groups that a newly merged basic programmes package to new cable television company (UBC), customers and that it would offer a formed as a result of a combination of suitable substitute, again at a lower price two competitors, had unfairly increased than the new standard package. The its subscription charges to consumers. application was granted. Later, The two original companies were consumers complained to the licensed and regulated by the Mass Competition Commission that the new Communication Organization of standard package price was Thailand (MCOT) and had previously unreasonably high and that UCB had not competed vigorously for subscribers promoted the new basic package at all or using a number of bundled programme had even concealed its existence from packages of differing content and price. potential new customers. The The merger was approved by MCOT, Commission appointed Sub-Committee partly as a result of the deteriorating to deliberate whether or not such financial position of both companies as a conduct violate the Competition Act and result of far higher than expected make a report to the Commission. operating costs of acquiring foreign The Sub-Committee found that UCB was, after the merger, a monopolist in 3 The three cases were largely taken the national cable television market and from the paper of Mark Williams, who was protected from new competitors by visited Thailand a few occasions, to high physical, financial and regulatory gather materials and interviewed barriers to entry. It also found that involved parties arranged by the author. whilst the higher price charges relating to the new standard package was Dr. Williams’s paper is published in reasonable due to increase4d costs as a World Competition 27 (3): 459 – 494, result of the currency depreciation and 2004. The titled is “Competition Law in so did not breach Section 25(1) – Thailand: Seeds of Success or Fated to unreasonable price fixing by a dominant Fail”. operator, the refusal to supply the low cost package to new customers was
22 potentially unlawful under Section 25(3) definition of market dominance in – reducing or restricting services without secondary legislation, which still await a justifiable reason. But the Sub- cabinet approval, no breach of the law Committee took a very literalist view of was made out and thus no sanction could Section 25, arguing that it did not apply be applied. The Commission decided to here as, even after the merger, UBC still report the conduct of UCB to MCOT to consisted of two separate legal entities require UCB under the terms of its and so did not qualify as a single operating license to increase consumer dominant business operator as defined choice”. by Section 3 of the Act. Instead the Sub Committee considered that the actions of (2) Allegation of Tying Arrangement the merged but legally still separate in Whiskey and Beer companies that made up UCB, could violate Section 27 – agreements between business operators by fixing prices or In early 2000, Singha, the largest Thai restricting the volume of services beer producer, complained to the provided or by fixing quantities of Competition Commission that it’s rival services supplied or by reducing the Surathip, the statutory monopoly Thai quality of the service offered. This whiskey producer, who also conclusion may have been arrived at to manufactured Change beer, had utilised allow the Commission power to take unfair tie-in sale practices whereby all action under Section 27 which was wholesalers of its monopoly whiskey operational, given that at the time of the product were required to acquire a fixed investigation, the Cabinet had not ratio of Chang beer for every quantity of promulgated the subordinate legislation whiskey ordered. The background to necessary to define the market share of a this situation was that the beer market business operator who was dominant was liberalised in 1992. Surathip under Section 25 and So it was decided to enter the beer market to effectively inoperable at the time. compete with Singha. In order to gain market share, Surathip produced a high- alcohol beer with a lower price than the These findings were presented to the Singha product (anywhere between 28 Commission, who agreed with the percent to 45 percent cheaper) and used findings of fact, the conclusion that the an aggressive advertising campaign to price increase for the standard package market the new beer. Singha’s share of was justified and that the refusal to the beer market nationwide dropped supply could breach Section 25(3). from 85 percent in 1996 to 69 percent in However, the Commission disagreed 1997. In response, Singha introduced a that UCB was to be treated as two new high-alcohol, low priced beer – Leo. operators, so allowing the use of Section As a result Surathip imposed the 27. It decided that the UCB was a single whiskey-beer tie, mentioned above. business operator as the management, Singha then complained to the ownership and nature of business of the Commission about a tie-in sale. two legal entities was identical. Thus, Section 25 was the appropriate provision to catch the observed conduct, rather A Sun-Committee was appointed to than Section 27. But due to the lack of deliberate whether such conduct violate the Act and reported, that a whiskey-
23 beer tie was imposed by Surathip on its Prosecutor for criminal enforcement distributors, who it was found, were under Section 29 of the Competition legally separate entities but very closely Act. Thai Honda, a subsidiary of the linked by cross-ownership of equity and Japanese vehicle company, is the common directorships. The Sub- dominant motorcycle manufacturer in Committee concluded that Surathip was Thailand. The company’s market share an entity to which Section 25 applied, has increased rapidly form 38 percent in had breached Section 25 (2) – 1990, to 56 percent in 1996 to almost 74 unreasonably fixing compulsory percent in 2003; total annual output is conditions of sale – and thus the conduct approximately 1.3 million units in 2002. was illegal. However, as Section 25 was As a developing country, motorcycles in not operational due to the Cabinet not Thailand are the mainstay of urban and having set the statutory thresholds for particularly rural private transport, car the definition of market dominance, no ownership being restricted largely to the penalty could be imposed. The Sub- relatively small urban based middle Committee also considered whether the class. The alleged unlawful conduct relevant conduct breached Section 27(3) consisted of Honda requiring exclusive – agreements to seek to achieve market dealing agreements with its distributors, domination or control and Section having competitors advertising 27(10) – fixing conditions regarding the hoardings removed, and persuading distribution of goods in order to achieve dealers to switch allegiance from other uniform or agreed practices. The Sub- manufacturers. The Commission Committee, concluded that the utilised the Guidelines on the prohibited agreement must be between implementation of Section 29, discussed business operators who compete with above. However, the Guidelines were each other in the same product market not made public until after the and at the same stage of the production investigation had been completed, so or distribution, so leading to the that they appear to have been applied operation of a monopoly in that product. retrospectively by the Commission. The Since whiskey and beer are different complainants were Honda’s business product markets, the operators involved rivals Thai Suzuki Motors, Thai Yamaha were not at the same stage of production Motors and Kawasaki. It appears that and there was a lack of evidence to show Honda was not provided with an collusion to dominate the relevant opportunity by the Commission to know markets or to fix similar supply the nature of allegations or to answer the conditions, no breach of Section 27 was charges of unfair conduct before the made out. The Commission accepted announcement of the decision by the these findings, merely stating that Minister of Commerce and the Chairman Surathip’s conduct was “inappropriate” of the Competition Commission. A month after the announcement, Thai (3) Allegation of Exclusive Dealing Honda’s President Reiji Matsura in Motorcycle Business confirmed that the company had still not been officially informed by the Commission of the nature of the On 30 April 2003, the Competition complaint, or the reasons for the Commission made public its first decision, nor had Honda been given an decision to refer a case to the Public
24 opportunity to rebut them. The head of (1) Preliminary Probe into the Department of Internal Trade did Allegation of Predatory Pricing in the subsequently agree to a meeting with Straw for Drinking Industry company lawyers but Honda continued to insist that the allegation against it In 2002, a company which manufactures remained vague with no specific straw for drinking complained to the information being disclosed by the office of the Competition Commission government. The Sub-Committee held a that one of its business rivals was series of about twelve meeting to engaged in predatory pricing, having deliberate whether or not the conduct of drastically reduced the price of its the Thai Honda violated section 29 product to the level that was unprofitable (unfair competition practices) of the Act. (about 35-40% lower than its total The Sub-Committee made a report and average cost). This kind of practice was submitted it to the Competition maintained by cross-subsidizing the Commission. The Competition extra profit it gained from raising Commission agreed with the decision of another product, UHT milk cartons. The the Sub-Committee and forwarded its intention of this practice, according to file to the Public Prosecutor with a the complainant, was to drive recommendation to take criminal competitors out of the market. proceedings; a decision on whether to prosecute or not may take up to two years, given the need for high standards The investigation conducted by the of proof required for criminal officials at the office of the Competition prosecution. Commission revealed that the market value of the product was about 98.73 million Baht. The market share of the 5.2.2 Cases Investigated and Dropped alleged party’s was 76.28% and the complainants were 23.72% respectively. There were fifteen complaints that had However, the alleged party did not sell been lodged and the officials at the its product separately from its UHT milk office of the Competition Commission carton. Also the price that the alleged made preliminary probe into those company sold was 20.17-23.26% higher allegations. However, after the than the purchasing price. The preliminary investigation, the officials investigation also revealed the fact that determined to drop those allegations on the complainant’s annual profit (2003) various reasonings and submitted reports increased 208% than the year it lodged to the Competition Commission for the complaint. considerations. The Competition Commission agreed with the The officials at the Office of the determinations of the officials and Competition Commission concluded that approved the requests of the officials to the conduct of the alleged company did drop those allegations. The following not violate section 29 of the Competition brief outline of the allegations will give Act. Furthermore, the complainant the general picture on Thai business formally withdrew its complaint that it operators’ conducts which might run previously lodged to the office of the against the competition Act. competition commission.
25 (2) Preliminary Probe into Allegation of (3) Preliminary Probe into Abuse of Dominant Position in the Steel Allegation of Price-Fixing by a Group of Sheet Industry Television Manufacturers
In 2002, there was complaint lodged by In 2000, the Competition Commission, end-users of steel sheet product that the which has the power and duties under alleged party and its wholesalers raised section 18 of the competition Act to their hot-rolled steel sheet every week monitor the movement and oversee the and certain hot-rolled steel sheet conduct of business operators, found that products were not available in the the price of Thai-made television sets market. Those end-users who tried to with 25 inches screen or bigger was import those products were threatened higher than comparable imported by the alleged party that it the supply television sets, especially those that were would be cut off. imported from China. The officials were suspicious that a group of television The investigations conducted by the manufacturers in Thailand engaged in a officials at the office of the Competition price-fixing cartel. Commission revealed that the alleged party distributed its steel sheet through The investigation conducted by the three channels. The first one was competition commission found that the through its distributors (12%). The price of television sets imported from second one was through wholesalers China was lower than domestically made (26%) and the third one was the direct ones. However, after further sale to end-users (62%). During August investigation, the officials found that the 2002-December 2000, the alleged party prices of various important parts of adjusted its price up and down within the television sets were about 50% higher controlled - price ceiling (steel sheet is a than those parts that were manufactured “controlled product” under the Price and sold in the Chinese market. The Control Act at 1999). The price officials concluded that the substantial adjustment of the alleged party led its difference in the cost of production distributors, wholesalers to do the same between domestic industry and foreign thing. industry led to the substantial price difference between domestically-made The officials concluded that the conduct television sets and imported ones. There of price adjustment the alleged party did was no evidence indicating that a group not violate the Price Control Act of 1999 of television set manufacturers entered because the price was below the into a concerted action of price-fixing. controlled-price ceiling for steel sheet. Also there was no evidence to support (4) Preliminary Probe into the allegation of abuse of market Allegation of Unjust High Price in the dominant position by setting up unjust Al-Liseen Commodity high price. In 2003, the office of the competition commission received a complaint that alleged the market leader in Al-Liseen
26 commodity was engaging in predatory The investigation conducted revealed pricing practice by selling their products that there were four large manufacturers at unjust high price. which dominated the battery industry in Thailand. Therefore, the battery market The investigation conducted by the structure is oligopolistic one. However, Official at the office of the Competition the channels of distribution that the big Committee revealed the … producer in four and other competitors employed Thailand was the only producer of such were diversified and offered consumers a commodity in Thailand and enjoyed the range of differentiated products and market share of 44% in the Thai market. prices to choose from. However, there were eighteen importers, among them, there were two large The commission concluded that there importers with market share of 21% and was no evidence showing that there was 13% respectively. an agreement to divide the market among the big four producers. Also The competition commission concluded there were imported batteries that that it was not probable for the dominant competed directly with the products of firm to abuse its market power by setting the domestic manufacturers. However, the price of its commodity at will there was an exclusive agreement because of a number of reasons. Firstly, between the major convenient store it was easy to import such a commodity chain and the largest battery and the tariff rate was only 1%. manufacturers which might foreclose the Secondly, the vast majority of its channel of distribution of other business customers were feed producing factories rivals. This practice continues to be which could use soy bean as the monitored by the Office of the substitute in case where the price of Al- Competition Commission. Liseen commodity went up. Thirdly, the pricing practice of the alleged company (6) Preliminary Probe into during 2002 – August 2004 reflected the Allegation of Discriminatory Pricing demand and supply and was in Practice in Audio Appliances accordance with the movement of the market. Furthermore the price of the In 2002, the office of the Competition commodity sold in the Thai market was Commission received a complaint from lower than the export price. a group of audio-service centers (repair center) that the leading company in the audio market engaged in discriminatory pricing practices. Namely, it sold parts (5) Preliminary Probe into and components at specially low price to Allegation of in Battery Industry customers who brought their audio appliances to the leading company’s service centers for repairment on the In 2003, the Competition Commission other hand, it sold parts and components had reasonable information to believe to customers who did not use its service that there might have been an agreement center at 50% higher than to those who among four battery manufacturers to used the repairment service of its divide the market among themselves. centers.
27 The investigation conducted by the Commerce. The Thai Chambre of officials revealed the fact that there were Commerce then notified the Office of three types of service centers (audio the Competition Commission about this appliances repairment center). Firstly, conduct. there was service centers operated by the defendant. The second type was service The competition commission centers which were authorized by the investigated the case and found that the defendant. The last type was shoe-polishing market during the period independent service centers. The alleged of 1999-2001 was monopolized by one party operated twenty four service manufacturer, distributor, the defendant centers and authorized four service party. From 2001 on, there were two centers. The price of parts and players in the market, the defendant and components it sold to independent the complainant. The defendant and the centers was 167% higher than the price complainant had 75% and 20% of it sold to authorized service centers. market share respectively. The alleged party and the complainant competed The competition commission concluded with the other on price for a number of that the discriminatory nature of the years. The investigation revealed that pricing practice was reasonable because the department store chain and other the quality of repairment services at the department store chains still carried both two former types of service centers was brands in their department stores. much higher, well-trained technicians and modern facilities, than that of The competition commission concluded independent service centers. that the alleged conduct of tie-out by the alleged company in shoe-polishing (7) Preliminary Probe into product did not constitute a breach of the Allegation of Tie-Out Arrangement in competition act. The forty-six branches Shoe-Polishing Product of the department store chain still carried the new entrant’s shoe-polishing product The complainant was a new entrant in in their stores as usual. There was no shoe-polishing product by being evidence at all to show that the new appointed by a foreign trademark holder entrant’s products were pulled out of the as a sole distributor in Thailand. One of aforementioned department store. the department store chains in Thailand notified the complainant that they (8) Preliminary Probe into wanted to remove the complainant shoe- Allegation of Price-Fixing Cartel in polishing products from the shelves of Construction Cement Industry by their forty-six branches located all over Distributors Thailand. The reasons the department store gave to the complainant was that The Office of the Competition the existing distributor of shoe-polishing Commission had reasonable information product request them to remove the to suspect that there might be a price- complainant’s products from the shelves fixing or supply-restriction agreement and returned all of them to the among construction cement distributors. complainant. The complainant lodged a complaint to the Thai Chambre of
28 The commision concluded that there was rigorous. The Thai producers sold their no evidence to indicate that there was ethylene (one market) and propylene price-fixing or supply-restriction (another market) through two channels. agreement among cement distributors. The first channel was to sell directly to Although, there was parallel price fixing end-user industries (20%) and the because the cement market was second one was to sell their products oligopolistic one. The Competition on through distributors (80%). The price among competitors was rigorous. domestic price of the two products Besides, the construction cement was moved in accordance with Platts Price of one of the products under the Price Singapore and the world’s oil price. The Control Act of 1999. The Department of large end-user bought a large volume of Internal Trade, Ministry of Commerce the two products prior to price increase. required the business operators to seek The small end-user suffered the price approval fifteen days prior to price increase because the lack of financial adjustment and cement manufactures resources to stock those two products. must report to the Department of Internal Trade about their monthly production The competition commission concluded and sales. Therefore, it was concluded that the competition in ethylene market that the conduct of cement and propylene market were rigorous manufacturers distributors did not both domestically and in the violate Section 27 (1) (price-fixing international market. Producers could cartel) of the Competition Act. not set price differently from their competitors. There was no evidence (9) Preliminary Probe into indicating that there was a price-fixing Allegation of Price-Fixing Cartel in cartel among the few producers. Ethylene and Propylene Industry (10) Preliminary Probe into The Office of the Competition Allegation of Abuse of Dominant Commission received a complaint Position, Price-Fixing and Unjust High lodged by a group of end-users Price in Movie Theater Industry (downstream industries) alleging that ethylene and propylene producers In 2004, The Office of the Competition engaged in price-fixing cartel. This anti- Commission received a complaint from competitive conduct drove the price of a group of movie-goers alleging that the two raw materials in the Thai market movie theater operators engaged in some up. kind of anti-competitive conduct that led to price increase in movie tickets. The investigation conducted by the Competition Commission revealed the The investigation conducted by the fact that there was only a few producers Office of the Competition Commission of ethylene and propylene in Thailand. revealed the fact that there were ten However, the ethylene and propylene movie theater operators. The market market has been fully liberalized, anyone structure of movie-showing industry in could import ethylene and propylene Thailand was oligopoliostic. The freely without any tariff barrier. industry was dominated by the big three. Therefore, price competition was
29 Each movie-showing operator set the that particular condominium and lived in price of its ticket independently. The that building. According to the price depends upon the location the Condominium Act of 1979, any dispute facility of the theater and the category of relating to the relationship between seat. The competition among movie- residents and a management board is showing operators was highly rigorous under the jurisdiction of the Department and various marketing strategies e.g. of Land, Ministry of Interior. The facilities, convenience, and services dispute in this case was that the were fully utilized in order to get more management board sold a parking business. keycard at 1,500 Baht whereas the market price for such keycard was only The competition commission concluded at 180 Baht each. that although the concentration ratio was very high in this entertainment industry, The competition commission concluded competition in this market was rigorous. that this dispute fell beyond the scope of There was no evidence indicating that Section 29 (unfair business practices) there was any anti-competitive conduct because it was not the conduct employed of abuse of dominant position (unjust by a business operator to compete with high price), or price-fixing cartel among its business rivals. The alleged conduct movie-showing operators as alleged by was between a group of consumers the complaint. (residents of the particular condominium) and a business operator (11) Preliminary Probe into (the project owner which built that Allegation of Unjust High Price in particular condominium). Therefore, the Keycard by a Condominium enforcement agency of the Competition Management Company Industry Act of 1999 does not have jurisdiction over this alleged conduct and referred the complainants to commercial courts. In 2001, the Office of the Competition Commission received a complaint from a group of condominium residents that The complainants later took the case to the management board, which managed the court on the ground of breach of the condominium where complainants contract. The dispute ended up in the were residents, was engaging in unfair “out-of-court-settlement”. The court trade practice by selling keycard decision number 823/2545 approved this (residents must use keycard in order to compromise agreement between the enter and park their vehicles in the complainants and the alleged party. condominium’s parking lot) at unjust high price. (12) Preliminary Probe into Allegation of Purchasing-Price Cartel in The investigation conducted by the Processed Latex Industry Competition Commission revealed the fact that the defendant was the It was reported on January 2004 in one management board which managed a of the leading daily newspapers in condominium. Most of the complainants Thailand that a group of major movie were owners of condominium units in theater operators agreed to set a common
30 price on movie ticket and the “common party was unfair business practice and price” would be higher than the current caused harm to the business of the independently-set ones. complainant.
The office of the Competition The office of the competion commission Commission issued a warning letter concluded that the promotional period informing the group of major movie was very short (only ten days) and the theater operators that their conduct quality of the promoted goods was might run against the Competition Act of unacceptable to the customers. 1999. Therefore, the conduct did not violate Section 29 because it did not affect (13) Preliminary Probe into competition and did not cause harm to Allegation of Unjust Low Price in any competitor. Furthermore, the Custom Clearance Forms Industry complainant notified the office of the Competition Commission in writing that he wished to withdraw the complaint. In 2004, the Office of the Competition Commission received a complaint 6. Proposed Areas for Amendment alleging that one of the distributors of to the Competition Act of 1999 custom clearance forms was engaging in unfair business practice by selling custom clearance forms at very low The six-year experience price. (1999-2005) reveals some shortcomings of the Competition Act of 1999 which needs to be addressed in order to make it The investigation conducted by the comparable to those in advanced Competition Commission revealed that economies. there were about ten distributors of custom clearance forms, which are used 6.1 Substantive law by exporters, importers freight forwarders etc. in the custom clearance (1) The definition of “business operator procedure. Those ten distributors order with market domination” should be the forms from various publishing amended by deleting reference to “with companies. The price of the forms the approval of the Council of Ministers” varies, depends on the quality of the from the existing one. The new product. The alleged party normally sell definition shall read: a set of forms at 3.08 Baht/per set. During July 1-10, 2004, the alleged party engaged in promotional activities by “business operator with market selling a set custom clearance forms at domination” means one or more 2.65 Baht/per set and if a customer business operators in the market of any bought two sets, he would receive goods or service: who have the market another set as the premium. This share and sales volume above that practice would drive down the price to prescribed by the Commission and 1.77 Baht per set. The purchasing price published in the Government Gazette, of the complainant was 2.43 Baht/per having regard to the market set. Therefore, the conduct of the alleged competition.”
31 The main reason for the proposed 2. The total market share of not less than amendment to the current Competition three enterprisers is 75/100 or more: Act of 1999 is because the current provided that those whose market share formulation of "business dominance" has is less than 10/100 shall be excluded.” made it difficult to enforce Act since its inception. The Working Group drafted There have been three attempts of the the Act took the South Korean Thai Competition Commission to Monopoly Regulation and Fair Trade prescribe thresholds for being a business Act as a model. The Working Group operator since 2000. In the first attempt, wanted to adopt a competition law that the Thai Competition Commission would regulate abusive and anti- prescribed that (1) a business operator competitive conducts of big firms or whose market share is 1/3 or more; and large corporate groups in Thailand in a (2) sale volume of the previous year is similar manner that the South Korean Baht 1 billion or more. The Second KTFC regulates abusive and anti- attempt, the Thai Competition competitive conducts of Korean Commission prescribed thresholds for Chaebols. However, the crucial being a business operator in only two difference between the current Thai specific sectors -- motorcycle and retail Competition Act and the South Korean business sectors. The latest attempt, Monopoly Regulation and Fair Trade done in March 2005, the Thai Act is that the Thai Act requires two Competition Commission prescribed steps in order to designate whether a criteria for being a business operator firm is a “business operator with market with market domination by looking at domination” or not. Firstly, the Thai the South Korean thresholds, especially Competition Commission prescribes the market share. The Screening thresholds of the market share and sale Subcommittee of the Council of volume. Secondly, those thresholds must Ministers keeps refusing to forward the also be approved by the Council of aforementioned proposed criteria to the Ministers (the Cabinet). On the other Council of Ministers for approval by hand, under the South Korean Monopoly various reasons. Regulation and Fair Trade Act, the status of being a market-dominating enterpriser is prescribed by the Act itself (statutory Since Section 25 (abuse of market designation). Article 4 of the South dominant position) has been designed by Korean Monopoly Regulation and Fair the Working Group with the expectation Trade Act reads: that it would be the most crucial provision in the Competition Act on regulating anti-competitive conducts of “An enterpriser whose market share the Thai large firms, but it has not been in a particular business area falls under functioning adequately at all since its any of the following subparagraphs shall adoption in 1999. Now, it is obvious that be presumed to be a market-dominating this is one of the most serious flaws of enterpriser as referred to in subparagraph the Thai Competition Act of 1999. In 7 of Article 2: order to make its Competition Act comparable to others, Thailand needs to 1. Market share of one enterpriser is do something about this problem. 50/100 or more; or Therefore, it is proposed that amendment
32 should be made in Section 3 regarding Competition Commission shall, based statutory steps required in making upon the power granted to it by virtue of designation of firms with market Section 8 of the Competition Act, domination. Specifically, the step establish set of rules relating to how to pertaining to the Cabinet approval lodge a complaint, investigation, should be removed. hearing, making decision etc.
(2) Introduction of Liniency Program 6.3 Enforcement Agency The past six-year experience indicates that the officials of the Office There are two important issues relating of the Competition Committee could not to improvement of enforcement agency prove any existence of alleged hard-core under the Thai Competition Act. cartel. The task on proving the existence of cartel is extremely difficult, even for (1) The question on the autonomy of the most experienced enforcement the Thai Competition Commission is agencies in advanced economies. crucial. In theory, the ideal enforcement Therefore, a number of the most agency of competition law should be experienced enforcement agencies in the “expert, independent regulatory regime.” United Stated, European Union, Japan In practice, however, one must also be (just amended the law and introduces realistic by recognizing a number of liniency program into their competition constraints relating to institutional laws. It is argued that the introduction arrangements, especially in developing of liniency program into competition law economies. As the author previously led to “competition law reform” in many noted, the institutional arrangement of jurisdictions. Thailand, the author argue, the Thai enforcement agency is the should take serious note on the issue of product of a “political compromise.” whether or not it should introduce That is, probably, it is better to have an leniency program into the Competition inadequate competition law and Act of 1999. mediocre enforcement agency rather than not having it at all. There are a 6.2 Procedural law number of questions pertaining to the current Thai Competition Commission. The author is of opinion that procedural due process is lacking in the whole legal Firstly, are all the members of the Thai process relating to the enforcement of Competition Commission experts in the Competition Act of 1999. For Competition laws? All members of the instances, the Competition Commission Thai Competition Commission are has not issued official and written people who are outstanding in their complaint against the alleged party. In professions – public administration, most cases, the alleged party did not business administration, business, law know the allegation lodged against them. teaching, and economic teaching. Thus, the alleged party did not know Although they are outstanding how to defense or make arguments professionals but only half of them have against the allegation. Therefore, in adequate knowledge about the objective, order to safeguard the procedural due substantive, and procedural elements of process, the author propose that the the Thai Competition Act. One of the
33 serious short-comings of the Thai Finally, as the “political compromise”, at Competition Commission is that all least one-half of all non-standing members (four standing commissioners commissioners must be appointed from and eight to twelve non-standing qualified members in the private sector. commissioners) work as commissioners This political compromise leads to the on the part-time basis. There is no problem of overrepresentation of the opportunity for any of them to develop private sector (regulated parties) in the their knowledge and expertise on Competition Commission. The problem enforcing competition law. Generally, by of this “political compromise” average, there are less than 5 oftentimes obstructs in the deliberation deliberation meetings per year. of the Competition Commission. For instance, the commissioners who Secondly, all non-standing represent the private sector would commissioners are appointed by the oppose the Section 25 thresholds on Council of Ministers (the Cabinet). market share and sales volume if they Other three standing commissioners are think those thresholds are too low. high-ranking bureaucrats in the Ministry of Commerce and the Ministry of Although, this author fully agrees that in Finance. The Chairman of the order to make the Competition Act Competition Commission is the Minister adequately functions, the “political of Commerce. The legislative branch compromise” is a must in Thailand. does not have any role in the process of Someone who represents the interest of appointing commissioners. The Office of private sector should have seats in the the Competition Commission, which is Thai Competition Commission. integral part of the Department of However, six commissioners Internal Trade, Ministry of Commerce representing the private sector is the functions as the standing and full-time number that departs too far from enforcement agency by receiving international best practices. Within the complaints, investigating allegations and authority framework of Section 6, this provides supporting services to the author proposes that the Cabinet should Competition Commission. It is only appoint at more than eight occasionally that a deliberation meeting commissioners. Thus, the number of is called upon. The Competition commissioners who represent the private Commission does not have its own sector will be cut down to four budget and its own staffs. The decision commissioners. The author thinks this of the Competition Commission is a number is more than enough to represent faceless and collective decision because, private sector’s interest. unlike in advanced economies where the enforcement agencies are expert, (2) Adding flexibility to the power of independent, full-time regulatory body, Competition Commission. Currently, it the decision is not written by a is clear-cut whether the Competition commissioner. In sum, the Thai Commission has the power to issue the Competition Commission fully belongs warning notification, or to issue to the executive branch of government. recommendation decision or to enter into the “consent decree” with the alleged party. In most major jurisdictions, the
34 enforcement agency has this kind of 6.5 Sanction flexibility added to their power. The author argues that it will be very helpful The sanction under the Competition Act if the provision of Section 8 is amended of 1999 departs greatly from so that the power and flexibility of the international norm. That is all violations power of the Competition Commission of the Competition Act are criminal is clearly areas. offenses. In order to bring the sanction of the Competition Act into the same 6.4 Administrative and Judicial line with almost advanced economies, Review the author propose the following amendments. The process of enforcing the Thai Competition Act takes very long. The (1) criminal sanction applies only to reason is rather simple. That is there are hard-core cartels and abuse of too many steps, from investigation to the dominant position final decision of the Supreme Court or Supreme Administrative Court. In order to shorten the process, while due process (2) civil liability shall apply to of law is still safeguarded, amendment unauthorized merger and acquisition, should be made into the following items. unauthorized vertical restraints under section 27 (5)-(10), unauthorized parallel import under section 28,
(1) The Appeal Committee should be violation of Section 29 (unfair abolished. business practices).
(2) All appeal matters should go to the (3) introduction of new remedy to the Intellectual Property and Competition. Namely, the imposition International Trade Court. of administrative surcharge on those who engage in hard-core cartels. There are a number of reasons. Firstly, the judges at the Intellectual Property 7. Conclusion and International Trade Court are familiar with domestic business and The Competition Act of 1999 is the international business transaction than product of political compromise. It is the judges at the Court of Justice (the only the second-best or third-best choice Civil Court) or the judges at the Central for Thailand in the mid-1990s. Its Administrative Court. Secondly, the current role is only supplementary to the procedural process conducted in the Price Control Act of 1999. The Intellectual Property and International dependency on the Price Control Act is Trade Court is similar to “trial process” fully understandable, rather easy to in the Common Law traditions – enforce in comparison to the intensive. Competition Act of 1999, the officials of the Department of Internal Trade are far much more familiar with enforcing it and more importantly, enforcement activities are remarkably visible to the
35 public. However, in the long run, it is important for Thailand to use the Competition Act as the main law to enhance the market mechanism of the Thai economy and reduce the role of the Price Control Act to the minimum. There is some room during this transitional period to improve the role of the Competition Act from supplementary role to the principle role. The proposed amendment in Chapter 6 should increase the role of the Competition Law in promoting and maintaining free and fair competition in the Thai economy.
36 Lao PDR
Introduction
Laos is a land-locked Least Developed Country (LDC), with a population of about 5.6 million. Approximately 83% of the population live in rural areas and depend on subsistence agriculture.
According to the United Nations, in 2003, Laos ranked 135th out of 175 LDCs in the UNDP Human Development Index (HDI), making it one of the poorest countries in Asia. As a country relatively recently embarking on an open market system of development, it faces many challenges. This is particularly so, when it has previously been a centrally planned economy and now is opening itself for regional and international trade integration. The fundamental strategy is to reduce widespread poverty through economic growth fuelled by trade.
This study looks at how competition and consumer protection policies, in that context, could help markets work better in Laos.
The study is divided into two parts and government policies for improving nine sections. Part I deals with the level competition. Issues relating to consumer of competition in the Lao economy, and protection are discussed in Part II. examines the implications of
*The author is Economic Policy Advisor in the Ministry of Commerce (MOC), Lao PDR This study was commissioned by UNCTAD in consultation with MOC, as part of UNCTAD’s technical assistance for promoting competition and consumer protection in the Lao PDR. The author is grateful to Dr Hassan Qaqaya of UNCTAD, and Dr Sothi Rachagan of Consumers International, Asia and the Pacific, for their support for this research project. I am also grateful to Mr Sirisamphanh Vorachit, Deputy Permanent Secretary, Ministry of Commerce, Lao PDR, for his valuable comments and suggestions. However, the views expressed are those of the author, and do not necessarily reflect those of the Ministry of Commerce. Mr Viengsavang Thipphavong of the Economic Research Institute for Trade of the Ministry of Commerce, Laos PDR assisted me in this study with data collection.
37
(eg the emerging economies) and some Part I: previously centrally planned economies Competition (such as China, Vietnam and Laos) as well, began to adopt strategies of Theoretically, the higher the degree of development that increasingly used competition in an economy the better expansion of private enterprise, trade will be the efficiency of its resource liberalisation and greater integration allocation, production and employment. with the world economy. In general Until recently, not many developing these economies began to grow faster countries fully realised the importance of and their employment situation competition. Many of the non- improved. What underpinned this communist developing countries, for success undoubtedly is competition in instance countries like Sri Lanka, India the market place. As mentioned earlier, and several others in Asia, preferred to competition is essential for efficient experiment with what some politicians allocation of resources in the economy, termed as the ‘democratic socialism’ which means that investment and other model with a mixture of private and resources will flow into most productive public enterprise. Not only natural economic activities. It increases factor monopolies and key utilities such as the productivity, creates more employment railways, electricity, posts and and income earning opportunities, and communication, but also many can be used as a powerful tool to reduce commercial enterprises such as banks, poverty by facilitating small and insurance and even large manufacturing medium enterprises at rural level. operations such as cement and steel production and trading operations like imports and exports which could more 1. The Lao Economy efficiently be run by private sector became part of the public sector. Most of them were run as monopolies and 1.1 Economic structure and enjoyed preferential treatment from the characteristics government, and as such the level of competition in those economies was Sectoral composition of Lao PDR’s minimal. Mismanagement, political gross domestic product (GDP) is shown interference, and the lack of business in Table 1. Agriculture is the dominant motivation resulted in many public sector of the economy contributing enterprises running at losses at enormous approximately 50% of GDP. However, costs to the public purse. Naturally these over the past years its share has been economies failed to show a satisfactory falling slowly while the share of industry growth, and their unemployment and has been improving. Although poverty grew. Mixed economy model of agriculture contributes about 50% of the development was a failure. GDP, it provides employment to over 85% of the workforce, majority of whom Over past few decades, having realised are still engaged in subsistence farming. this failure, many developing countries
38 During the three years 2000 to 2002, can be considered satisfactory as it is agriculture grew at an annual average of comparable with the growth 4.2%, industry at 9.6% and services at performance of the neighboring 5.4%, indicating that the industry as a countries – Thailand, Cambodia and Viet sector has been growing fastest. During Nam. However, per capita income still the 5 years to 2002, annual economic remains quite low. growth remained at over 5.5%, which
Table 1: Main Economic and Social Indicators 1995 2000 2002 Gross Domestic Product (US$ mn) 1704 1809 Sectoral output as % of GDP- Agriculture 55 53 50 Industry 19 23 25 Services 26 24 25 Per capita income (US$) 326 327 Economic growth rate (%)- GDP 4.0 5.8 5.9 Population growth (% per year) 2.3 Life expectancy (years) 58.9 Infant mortality rate( per 1000 live births) 82.0 Literacy rate (% of age >15) 66.4 Source: UN, World Bank and ADB country data, NSC and Bank of Lao PDR.
Poverty: Despite more than a decade of reached a significant section of the fairly high economic growth, following population. the introduction of market-orientated reforms under the NEM (see Section 1.2 External trade: External sector of the below), Laos is still classified as an Lao economy grew substantially after LDC, and as such is considered by the the NEM and the country’s entry to international community to be one of the ASEAN. However, merchandise exports poorest countries in the world. Although are highly concentrated in a few product there are signs that poverty levels are categories, principal ones being falling, poverty remains widespread garments, electricity, wood products and throughout the country. Poverty fell coffee, which together account for over significantly from 39% in 1997/98 to 90% of total merchandise exports. Of 32% in 2002/034. However, poverty these (in 2002) garments contributed levels are relatively high in the rural 34%, electricity 33%, wood products areas, particularly in the Northern 21% and coffee 5.5%. For the first time Region. Many of the benefits arising in 2003 mining products became a major from economic growth and socio- export contributing US$28 million in the political reforms do not seem to have first half of the year, which would amount to over 15% of total exports.
4 Lao Expenditure and Consumption Surveys (LECS) 1997/98 and 2002/03.
39 Tourism is a major source of Lao PDR’s Foreign Direct Investment (FDI) as foreign exchange earnings. Currently, shown in the Balance of Payments data tourist earnings contribute more than one indicates a sharp drop from 1999 to fifth of the country’s earnings from its 20026. On the other hand aid receipts total exports of goods and services, and (grants as reflected in the item Transfers, ranked the highest in most years5 among and loans included in item Other Capital the major exports of the country. Minor transactions) have remained quite high. exports include handicraft, other Overall, the balance of payments agricultural products such as cardamom, situation has been rather satisfactory maize, live animals (cattle and buffalo), with substantial additions to Reserves chili, fruits, vegetables and various both in 2000 and 2002. forest products. Potential exists for more diversified and processed agricultural export development. During the years 2000-2002, earnings from merchandise exports remained more or less flat at around US$320, while earnings from services exports (mainly tourism) increased from US$145.5 in 2000 to US$175.9 in 2002. In 2002, total earnings from exports of goods and services amounted to US$488 million – about 27% GDP.
A high proportion of imports (over 50%) is composed of consumption goods, mainly food, clothing and vehicles. Investment goods imports (machinery and equipment) account for about one third of total merchandise imports while the balance consists of intermediate goods imports (raw materials for garments and other industries).
Merchandise imports as usual remained much in excess of merchandise exports, which is not unusual for a developing country that receives substantial foreign aid and capital inflows. Together, exports and imports of goods and services have resulted in modest deficits as reflected in the current account 6 It should be noted that these FDI data differ balance (Table 2). widely with those reported in The World Bank Lao PDR Economic Monitor, Oct 2003, which says “In FY2002/03 the actual FDI inflow increased by 67%, from US$93m in 2001/02 to 5 Except in 2003 when there was a substantial US$155m in 2002/03, with a big jump in mining drop in number of tourist arrivals due to SARS. investments”.
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Table 2 Lao PDR: Balance of Payments, 1999-2002 (US$ million) 1999 2000 2001 2002 A. Current Account Balance (1+2+3+4) -75.7 -8.5 -56.1 -2 1. Trade Balance -252.8 -205 -190.8 -209.7 Exports 301.5 330.3 319.5 312.3 Imports -554.3 -535.3 -510.3 -522 2. Services (net) (tourism, insurance etc) 99 132.6 134.4 147.4 Receipts 145.5 175.6 166.1 175.9 Payments -46.5 -42 -31.6 -28.6 3. Factor incomes (net) -21.3 -52.4 -33.4 -26.1 4. Transfers (net) 99.4 116.3 33.7 86.4 B. Capital Account Balance (5+6+7) 69.9 115.2 130 76.6 5. FDI (net) 51.6 33.9 23.9 4.5 7. Other (govt, banks etc)capital transactions (net) 18.3 81.3 106.1 71.4 C. Errors & Ommissions -0.8 -72.1 -81.4 -16 D. Overall Balance (A+B+C) -6.6 34.6 -7.5 58.6 Source: Bank of Lao PDR
Currently, Lao export destinations are adoption of the New Economic limited to a few countries: Thailand and Mechanism (NEM) in 1986. This Viet Nam and the EU countries. resulted in a gradual and steady However, because of proximity, rapidly transformation of the economy from a growing domestic economy and the duty centrally planned system to an open free access to over 200 items, China is market system. Other important becoming an increasingly important components of the NEM are: export market for Lao products. privatization of most of the State Owned Potential exists for further diversification Enterprises (SOEs), open-door policy of Lao export markets as well as export towards both private domestic and products by taking advantage of the duty foreign direct investment, and enactment free access granted recently by Australia of the necessary legal and regulatory and Canada. To be successful in this framework for these measures. Majority respect, Lao government may need to of 640 SOEs have been sold, a few were further its trade policy reforms and be retained for strategic reasons, and the remove remaining barriers to trade and loss-making SOEs including State competition; and also the exporters need Owned Banks (SOBs) are being to carryout market research, improve restructured with the assistance from the efficiency and product standards and IMF and the World Bank. Other key learn to be more competitive. reforms included the liberalization of prices; introduction of market orientated trading systems, a two-tier banking 1.2 Structure of the market and the sector and an administrative framework level of competition needed to support a market economy.
Economic reforms: By far the most Another significant step in the reform significant reform that changed the process was Lao PDR admission to economic system in Lao PDR was the ASEAN in 1997. This provided for
41 increased regional integration and than 10 employees. Similarly, most of further trade liberalization measures the agricultural holdings in the country including the reduction and elimination are small blocks of few acres cultivated of tariff and non-tariff barriers to by individual farmers. As such, the level regional trade required under the of competition among the producers as ASEAN Agreements and Protocols. In well as traders is quite high. the same year Laos applied for accession to WTO, which has also prompted the Laos does not seem to have major Lao government to work towards WTO problems of monopolization as yet, in consistent trade and regulatory reforms. terms of mergers, cartels, takeovers etc. This is largely due to the absence of The Constitution enacted in 1991 large private sector players and the guarantees state protection to all forms unsophisticated nature of the commercial of domestic and foreign investments in structure. the country, guarantees to individuals and organizations the rights to property This is not to say that Laos has no (right to possess, right to use, right to problems relating to competition. Most transfer and right to inherit), and of the barriers to competition exist due encourages all economic sectors to to the nature of public sector policies compete and cooperate with one another and how they are implemented. in carrying out their production and Monopoly elements also exist in a few business activities. Newly amended areas due to state ownership. These are Land Law, enacted in November 2003, discussed in more detail in Section 4. provides for the same property rights to land. 1.3 National development and Thus the commitment to economic poverty reduction strategies liberalization has been maintained and demonstrated. The economy was The Government's national development irreversibly transformed into a market and poverty reduction strategies began to economy where the private sector plays take shape with the adoption of The an increasingly significant role, and the National Socio-Economic Development SOEs plus the public sector have been Plan 1996-2000. Subsequent work on reduced to a minor place in terms of its formulating these strategies was share (6%) in the GDP. supported by the IMF under its Poverty Reduction and Growth Facility (PRGF) Level of competition: Competitive as well as by the World Bank and the environment in the economy improved UNDP. The National Poverty gradually and considerably after NEM. Eradication Program (NPEP)7, finalized The government’s monopoly on trade and presented to the 8th Round Table which was the case prior to NEM, has Meeting in September 2003, sets out the been removed. The private sector firms which dominate the manufactukring sector (over 80%) are predominantly 7 NPEP has since been renamed as National small scale operators. About 98% of the Growth Development and Poverty Eradication firms are small scale firms who have less Strategy (NGPES), and the new NGPES is being prepared.
42 goals and strategies for national • Enhance human resource development and poverty reduction. development through education, particularly basic education. Long-term national goals. Overarching • Develop and modernize social and national goal is poverty eradication economic infrastructure such as through economic growth with roads, transport, warehousing, and distribution and exiting the group of communication. LDCs by 2020. Key elements in this • Facilitate access to electricity for goal are: people in all areas and regions. • Promote industries utilizing domestic • Sustain economic growth with equity resources, and actively promote at an annual average rate of about small and medium-sized enterprises 7%. (SMEs). • Halve poverty levels by 2005 and • Promote private sector development, eradicate mass poverty by 2010. promote foreign direct investment • Eliminate opium production by 2005 (FDI), and place emphasis on export- and phase out environmentally oriented sectors that have a harmful shifting cultivation by 2010. comparative advantage. • Enhance market linkages and trade The following guidelines were set out in facilitation. formulating the strategies for achieving • Create favorable conditions for the above goals: improving financial institutions and capital market development. • Balance between economic growth, • Promote international economic socio-cultural development and integration. environment preservation. • Harmonious distribution of Trade sector-specific priorities: Most of development between urban and the above mentioned priorities are rural areas and among regions and related to trade development. In sectors. addition, specific priorities for the trade • Sound macroeconomic management sector are: and institutional strengthening. • Regional and international economic • Accelerating the WTO accession integration. process. • National security and stability. • Implementing the Common Effective Preferential Tariff (CEPT) Scheme Strategic development priorities. The under ASEAN Free Trade following are the strategies to achieve Agreement. the key national goals, within the above • Mainstreaming trade into national guidelines: development and poverty reduction strategies. • Maintain an appropriate level of • Improving and modernizing trade economic growth for the medium statistics. and long-term in response to • Rationalizing policies on protection. demographic trends. • Continued trade liberalization on a sustainable basis
43 • Rationalization and simplification of government implements the trade related regulatory framework – recommended remedial measures, IF can export/import licensing and be expected to help in achieving the administration procedures, and national goals on poverty reduction. customs and exchange controls. • Facilitating the availability of banking, finance and credit facilities 2. Structure of government and to SMEs. administration • Improving trade information dissemination systems. • Establishing legislative and 2.1 Post-independence political and institutional frameworks for socio-economic developments. competition and consumer protection. Laos was under the French colonial rule • Introducing commercial law reforms. since 1893. Independence from France was achieved in 1945, the Kingdom of Overall, the above goals and strategies Laos took over, but the conflicts for national development and poverty continued between the royalists, reduction are very impressive, ambitious neutralists and communist factions. The and commendable. However, many Kingdom of Laos, however, lasted till challenges lie ahead for a successful 1975. When South Viet Nam fell in achievement of the goals. Given the 1975, most of the royalists left the economic uncertainties and the country and Pathet Lao who fought weaknesses in government alongside with the North Vietnamese, administration and policy peacefully took control of the country implementation processes, an annual and established the Lao People’s average economic growth rate of 7% Democratic Republic (Lao PDR) in would be hard to maintain. December 1975. Lao PDR is a one party state. Until the Constitution was adopted Another recent policy initiative towards in 1991, legislative power was with the poverty reduction oriented development Supreme People’s Assembly. is the Integrated Framework (IF) of the Six Core International Agencies. At the There are four main mass organizations request of the Government, Lao PDR – Lao Front for National Construction, was admitted to the IF initiative. Its main The Lao Federation of Trade Unions, objective is to mainstream trade into The Lao Women’s Union and The Lao overall national development plans and People’s Revolutionary Youth Union – poverty reduction strategies of the which are given recognition in the country, and thus use the dynamics of Constitution as those, among others, that trade to promote growth and help reduce unite all ethnic groups for national poverty by involving rural and low defense and development. income people in trade related activities. Activities under IF include identification An early attempt to decentralize of barriers to trade and taking remedial financial and some administrative measures, and trade related capacity functions was made in 1986, as part of building. If properly carried out, and the the New Economic Mechanism, but was
44 reversed in 1991 because of sharply “in accordance with the provisions reduced central government revenue prescribed by law”, which practically collections due to provincial negligence means a form of guided democracy. The and mismanagement. A new National Assembly, with a two thirds Decentralization Initiative was taken in majority, elects the President of the March 2000 under the Prime Minister’s Republic whose term is five years. Instruction 01. It is officially characterized as “making the province The President with the approval of the the strategic unit, the district the budget National Assembly appoints the planning unit, and the village the Executive, known as the government, implementing unit”. The initiative was which consists of the Prime Minister, aimed at making more districts self- Deputy Prime Ministers, and Ministers. financing, giving them greater incentive The President also appoints the to collect revenue and better manage provincial Governors. their expenditures, and making budget preparation more participatory. Soon this The Judiciary includes the People’s Initiative too created problems for the Supreme Court, lower courts (People’s Central government as transfers of Courts of provinces, municipalities and revenue to it from surplus provinces fell districts, and military courts), and the far short of their targets. As a result, Office of the Public Prosecution. The some measures were taken in the Vice Presidents of the People’s Supreme 2001/02 budget to discipline the Court and the judges of the peoples provinces on fiscal management. These courts at all levels are appointed and included recentralization of taxes on removed by the National Assembly imports. In principle, decentralization is Standing Committee. The Judiciary is desirable. It would provide for more thus independent of the Executive. effective regional and rural development. However, its success would depend on The Republic is divided into provinces, the credibility of the provincial and municipalities, districts and villages. regional officials. Decentralization of Currently there are 18 Provinces (16 some monetary and fiscal Provinces, Vientiane Municipality and responsibilities, could limit the one Special Region). Each province is government’s ability for proper subdivided into districts, and each management of macroeconomic policies. district into villages. Provinces and the Vientiane Municipality are administered by the Governors and the Mayor 2.2 Constitutional and legal respectively. framework Fundamental civic rights are guaranteed The Constitution of Lao PDR was in the Constitution. These include enacted in 1991. It provides for a equality before the law, the rights to vote Westminster style government with a and to be elected, to education, to legislature, an executive and a judiciary. engage in economic activities, and Legislative organ is the National freedom of worship, movement, speech, Assembly. Its members are elected press and association. through a popular vote every five years,
45 Theoretically the rule of law and the about the existing laws in order to claim independence of the judiciary exist. The their legal rights. Supreme Court also acts as the highest court of appeal. Judges and the senior The lack of clarity and precision is public prosecutors are appointed by a another problem in Lao Laws. This committee of the National Assembly. creates confusion and different The body of laws consists of laws interpretations often giving the officials enacted by the Supreme People’s wide discretion in applying the laws. Assembly, and after 1992 by the Weaknesses in the Lao laws were National Assembly, the Decrees issued recently admitted by the Vice Minister by the President and the Prime Minister, of Justice who indicated the need for and the regulations made under the laws overhauling the laws to make them more and decrees. Since the NEM of 1986 precise and devoid of loopholes. He more than fifty laws, including the civil stated that most laws contain general and criminal codes, have been enacted, terms without explaining specifics and several decrees issued. particularly in the area of trade and investment laws, and that many “people The government has publicly announced use the gaps in laws to their benefit”. He on many occasions that it is committed emphasized the need for revisions to to establishing the rule of law. However, improve the laws particularly to promote enforcing the rule of law has been trade and investment.9 limited by the lack of public availability of laws and regulations. Over 50 laws have been enacted so far, but many 2.3 Administrative bodies people are not familiar with them.8 Even many officials who are supposed to The structure of administrative bodies of implement them are said to be unfamiliar Lao Government is given in Diagram 1. with them due to both the non- The Executive arm of the Republic availability of the documents and the consists of the Prime Minister’s Office, lack of interest. Corruption among other Ministries, other key government officials is said to be another factor, as agencies, and the provincial those who are affected by the laws are administrations. The National Science said to bribe the officials not to apply Council which comes under the Prime them. No adequate facilities and funding Minister’s Office is also responsible for are available to print, distribute and technology and environment. explain laws. Even though the country is keen to promote foreign investment, Of the Ministries, the Finance Ministry trade and commerce, most of the is responsible for both treasury and relevant laws are not translated into budget policy functions, as well as for English. There are no effective customs and taxation. Ministry of Public arrangements to make the laws known to Health, in addition to health the people. As most people who live administration, is also responsible for outside the main city centres cannot drug control, and quality control of food read, and as such they know very little products. The State Planning Committee, which has the status of a Ministry, 8 Vice Minister of Justice, Vientiane Times, 13 August, 2004. 9 Vientiane Times, 5 and 13 August 2004.
46 includes the National Economic Research Institute, National Statistics Following this commitment, and with Centre, and Internal and External technical assistance from the UNCTAD Investment Management and Promotion and the involvement of the Consumers Department. International Regional Office for Asia and the Pacific, the Ministry of The Judiciary, which stands out as an Commerce has taken initial steps to set independent entity, consists of the up a Fair Trading Commission to deal People’s Supreme Court, Office of with issues of both unfair competition Public Prosecution, and the Provincial and consumer protection. As a first step People’s Courts. in this direction, the Prime Minister’s Decree on Trade Competition was issued The provincial administration system in early 2004 and came into effect on 1 includes provincial offices of almost all August 2004. It aims to provide for rules central government line Ministries. and regulations to deal with These offices come under what is monopolization and unfair competition, referred to as both ‘vertical’ and to protect rights of consumers and to ‘horizontal’ control: vertically, they are encourage business activities to compete subject to their respective line ministries, and function efficiently. and horizontally to the provincial administration. The Decree prohibits formation of mergers and cartels in order to eliminate The key utility services providing SOEs, competitors, unfair activities such as Lao Telecom, Lao Posts Enterprise, Lao dumping, collusion, price fixing, and Electricity Enterprise and the Water market allocative arrangements with the Supply Enterprise are also treated as intention of eliminating other businesses. public bodies. It provides for a Trade Competition Commission (TCC) with a Secretariat to be set up under the Ministry of 3. Implications of trade and Commerce to enforce the Decree and to investment regimes for formulate the necessary regulations for Competition Policy and Law that purpose.
TCC’s other key functions are to: 3.1 Decree on Competition • Monitor activities of businesses and take actions against offenders The Lao government is committed to • Consider submissions from ensure a fair trading and competition businesses and grant exemptions environment in the economy. As from prohibitions of the Decree on mentioned earlier, the Constitution states socio-economic reasons that “the State encourages all economic • Consider appropriate market share sectors to compete and cooperate with for a business that dominates the one another in expanding their market, and production and business activities. All • Examine complaints from businesses economic sectors are equal before the and consumers law”.
47 An important point to note is that the Decree does not grant any exemptions from its application to any business entity, not even to SOEs and businesses that currently enjoy a high degree of monopoly under investment agreements such as the Beer Lao Brewery. Nor does it specify the level of market domination deemed unfair. These are left to the TCC to determine. In that respect the Decree is quite flexible and provides much Diagram I leeway to the TCC.
Office of the President of the Republic of Lao PDR
Judiciary Legislature Executive Lao National Assembly
People’s Supreme Court
Office of Public Ministries Prosecution
PM’s Office Provincial Administration offices Others Government Agencies Provincial People’s Agricultures and Courts Forestry National Tourism State Planning Committee Authority Commerce -National Statistical Office -National Investment & Promotion Dept -National Economic Research Institute
Communication, Transport, Post and Construction National Land Development Bank of Lao PDR and Policy Development Defence National Geographic Education Department National Science Council Finance Civil Aviation Department Foreign Affaires National Audit Office NOSPA Industry and Handicraft
Dept. of Information and Culture Administration and Civil Service Justice
Others Labor and Social Welfare
Public Health 48 Interior
Though the Decree is supposed to be Prime Minister’s Decree on Goods effective as from 1 August 2004, the Trading Business of 2001 aimed to Ministry of Commerce (MOC) has yet to provide for set up the institutional arrangements for regulations to ensure adequate supply, its implementation. The Secretariat of fair prices, and better quality of goods in the TCC has not been established, nor the market. It provided for setting up the TCC. It is essential for the regulations requiring standards, quality Secretariat to be set up first and its of goods, trade marks, price limits and officials selected and trained. This the margins of stocks accumulation Secretariat is expected to not only periodically. MOC, together with the implement the present Decree on Ministry of Finance, concerned line Competition, but also to function as the ministries, and provincial key arm of the Ministry to initiate administrations, is responsible for further policy and legislative implementation of this decree. developments leading to the expansion of this Decree into a legislative law both on Competition and Consumer 3.3 Trade policy regime. Protection and ultimately setting up of a full-fledged Fair Trading Commission, Under progressive transformation of the as the MOC has announced. economy from a centrally planned to a market system, trade policy regime has undergone a considerable degree of 3.2 Past practices and liberalization. Export licensing is no implementation of competition longer required for exports except for requirements prior to the new logs, rough sawn timber and those Decree restricted for reasons of security, public morale, and protection of wild life. As Until the new decree on competition was for imports, quantitative restrictions are issued, there was no clear policy or law applied for some goods for a variety of to ensure competition in production and reasons. These are cement, steel bars, sale of goods and services in Lao PDR. motor vehicles, foodstuffs, seeds, Nor was there a deliberate policy to chemical fertilizers, casinos, guns, some prevent anti-competitive practices. In audio-visual equipment, drugs, fact the Business Law of 1994 permits explosives, communication equipment, merger of companies, but does not and fuels and lubricants. restrict monopolization, or specify the permissible level of market share for a Licensing, and not tariffs, is used as the merger. However, various legal and means of restricting imports for regulatory provisions served to pave the protection purposes. The rationale for way for greater competition and to restriction of imports of cement and steel prevent some anti-competitive behavior bars is stated to be the protection of local in certain sectors. These relate mostly to industries. Motor vehicles are said to be trade related legal and regulatory subject to licensing to prevent provisions and institutions. congestion on the still less developed road system. However, of late, licensing
49 of vehicle imports are used mainly for All imports are subject to tariffs with registration purposes and importers are certain exceptions. There are no allowed to import as much as they want exceptionally high tariffs aimed at to. Restrictions on imports of foodstuffs restricting imports. They are used mainly are both for reasons of food security and for revenue and as a means of providing protection of domestic production. incentives to attract foreign investment Others, except for fertilizer and fuels, are and to promote some domestic economic restricted on moral or security reasons. activities. Current level of import duty Except for these items, large importers rates can be said to be moderate for a no longer need to seek licensing for each developing country. There are six shipment. Instead, they can each draw up different customs duty rates - 5%, 10%, an annual plan setting out the annual 15%, 20%, 30% and 40%, with a requirements and submit for approval. medium tariff of 5%, and an import- Once approved, the importer can import weighted rate of 14.7%10. Lower rates the products up to the approved amount apply mostly to essential consumer without seeking licences. goods while higher rates apply to luxury items. Intermediate rates apply mostly to Generally, restrictions on imports imports of non-priority items and those adversely affect competition due to the competing with domestic production. potential for supply shortages and consequent black market operations. In However, many duty exemptions are the case of Laos, except for cement and applied as incentives. Approved foreign some foodstuffs such as rice, no major investors and joint-ventures between supply shortages have occurred in recent foreign investors and local partners are years. However, normally during the dry allowed imports of machinery and season housing construction activities equipment at a duty rate of only 1 increase creating a high demand for percent. Foreign investors are also construction material. In particular allowed the import of raw materials free products such cement, rice and meats of duty. Duty free imports of inputs and have experienced seasonal shortages. duty draw-back concessions are also The government’s remedy in such provided to domestic enterprises situations has been to apply price producing for export, government controls in order to prevent the agencies, and even some individuals. inevitable free market price increases. In Similar concessions are also allowed to principle, price controls are an those who produce for import inefficient remedy. It only creates black substitution (also see Section 3.4.2 on market operations and do not alleviate Investment Policies). These exemptions, the difficulties of the consumer. It together with AFTA (see below) adversely affects competition and fair concessions reduce the actual import pricing. At least the second best remedy duty revenue to as much as 3% of the would have been to allow adequate total value of imports11 whereas the imports during periods of shortages. The import-weighted average is 14.7%, best remedy would have been not to apply any quantitative restrictions on 10 imports. IMF, “Lao PDR: Selected Issues and Statistics”. IMF Country Report No.02/61, March 2002. 11 UNIDO (Apr., 2003).
50 which implies that about 80% of import duty is foregone by way of various Although the foreign exchange regime is concessions. somewhat liberal, foreign exchange rationing still exists both as part of the Studies have shown that it is quite import policy regime and foreign normal for a developing country to have exchange management. Currently the imports in excess of exports, which Central Bank allocates foreign exchange means a trade deficit. This happens to importers of several priority items – mainly because of the receipts of foreign about 20 – such as petroleum, fertilizer, aid. It can also happen when a country milk products, capital equipment etc. receives net inflows of FDI and other The practice has forced importers of capital. So, under normal circumstances, other items to buy exchange from the such a trade deficit is not a matter for unofficial market at a higher rate. As a concern so long as imports approximate result, it has created a premium to the total value of exports of both exchange rate in the unofficial market. goods and services plus net receipts of This also encourages exporters and other aid (including aid loans) and foreign recipients of foreign exchange payments capital. However, too excessive trade to divert their foreign exchange earnings deficits (i.e. imports much in excess of to the unofficial market through the back the sum total of exports, FDI and aid door. Under these circumstances, foreign receipts) can occur if a country resorts to exchange rationing and the consequent large budget deficits or excessive bank black market operations could affect lending. competition due to the prevalence of dual pricing (official and secondary Therefore, it is important for sustainable market rates) of foreign exchange. development that the country tries to live Because those who receive exchange at within its means. This means, the the cheaper official rate have an country’s expenditure on its imports advantage over those who buy exchange should approximate to its total income at the higher unofficial rate. from exports, foreign aid receipts and net inflows of capital. Containing Laos uses a policy of managed float imports within the country’s means is under which the daily exchange rates mainly a function of macroeconomic vary practically according to supply and management (i.e. the management of demand subject to some intervention by monetary and fiscal policy). Excessive the Lao PDR when necessary. Under bank lending and too large budget such a regime, there would be no need deficits normally result in excessive for exchange controls except in the case imports, often much in excess of the of large capital transactions, or in the country’s capacity to pay. Such event of severe balance of payments developments can cause severe balance difficulties. of payments difficulties. Trade policy can help very little in such Lao PDR acceded to ASEAN in 1997. In circumstances. Quantitative and other fulfilling its ASEAN membership restrictions on imports are not the correct requirement, Laos started to implement remedies and would be of little help in the Common Effective Preferential such situations. Tariff (CEPT) scheme for ASEAN Free
51 Trade Area (AFTA) in January 1988 and considerations. Of these only three is scheduled to complete by 2008. This products are currently subject to price will reduce tariffs on imports from control: they are fuel, cement and steel ASEAN countries to 0-20% by 2005 and bars. Other products are only subject to to 0-5% by 200812. This process of price surveillance where the officials liberalization will pave the way for a occasionally check prices of key gradual improvement of the consumer goods. Where prices are found competitiveness of Lao produces vis-à- to be too high due to short supply, which vis its ASEAN counterparts. With a could happen mainly for items that are view to achieving greater integration subject to import restrictions, more with the international trading imports may be allowed. community, Laos is fully committed to acceding to WTO as soon as possible, Price control on cement and steel bars and is now going through the phase of which are key building materials is Working Party negotiations. It has also meaningless and adversely affect entered into bilateral trade agreements competition as it could drive these goods with 18 countries including the US, into the black market. Restriction of China, Australia and the EU, and has imports, in principle, also affect received GSP from 34 countries. competition as it prevents competition of domestic products with imports, a Domestic firms, to a large extent, requirement to ensure efficiency and operate on a free and open market quality of domestic products. system. Apart from the informal market operators, all businesses are required to register with the Ministry of Commerce 3.4 Industrial and investment or the relevant provincial authority. policies Subject to this requirement, people are free to engage in normal trading and business activities, and as such the level 3.4.1 Industrial Policies. of competition in the economy and in trade is quite high, and the market sets The industrial sector which includes the prices. However, by law the mining, quarrying, manufacturing, government may regulate the prices of construction, electricity, gas and water, some 20 products, which is said to be contributes about 23.6% of GDP (2001), mainly for cost of living of which the manufacturing sector’s contribution is 17.9%. Manufacturing
industry is dominated by small scale 12 Applies to products in the “inclusion list” (IL). Three categories of imports are excluded from processing, construction and assembly CEPT scheme: those in the “temporary exclusion plants catering mainly to domestic list” - the products which are required to be consumption. Virtually there are no transferred to IL within 8 years; those in the heavy industries except for a couple of “sensitive list” which includes mainly cement factories. During the past decade agricultural raw materials and unprocessed products, but required to be transferred to IL by manufacturing sector grew by 9.4% 2015; and those in the “general exception list” surpassing the GDP growth rate of 5.8% which includes items related to security, culture, during the same period. Most of the health and environment, and are exempted from value added comes from food and the scheme.
52 beverages, garments, tobacco products enterprises (SMEs), (ii) focus on import and wood and wood products. About substitution, and (iii) targeting industries 99% of the number of firms and 55% of and specific products for promotion. employment are in small and medium sized businesses. Promotion of SMEs. The Government’s strategy for promoting SMEs is spelled Several documents outline the out in a recent Decree by the Prime government’s strategies and policies for Minister15. It identifies the following as industrial development in the country.13 priority areas for SMEs: Under the Constitution, Lao PDR is (a) creating an enabling regulatory committed to pursuing the mechanisms environment; of a market economy, with adjustment (b) enhancing competitiveness; by the State. However, an analysis by (c) expanding domestic and UNIDO concludes that although international markets for their significant progress has been made to products; transform the economy from a centrally (d) improving access to finance; planned to a market economy, “when it (e) encouraging and creating favourable comes to manufacturing sector, the conditions for establishment of Government is still applying most of the Business Organisations; and concepts and approaches typical of a (f) encouraging entrepreneurial attitudes centrally planned economy”14. These and characteristics. characteristics used to include extensive government interventions by way of The decree reflects more policy price controls, import controls and development and less interventionist various forms of subsidies with the focus approaches to promotion of SMEs. The on protection of domestic industries, concerned government agencies and the which are now being gradually phased SME Promotion and Development out. In order to proceed on the path to a Office to be established under the well functioning market economy with a Ministry of Industry and Handicraft are high degree of competition, the Lao assigned the tasks of developing policies policy makers would need to improve and programmes for the above priority their understanding of the concepts of a areas. For enhancing competitiveness, market economy and discard the the government will support and remaining practices of a centrally cooperate with all organisations, planned one. academia, research institutes for capacity building, upgrading skills of The key elements of the current entrepreneurs and workforce in SMEs, industrial policy can be classified into (i) improving technology and standards, promotion of small and medium-sized and formulating programs. SME Promotion and Development Funds are 13 The Constitution; the Political Report and to be set up for providing support for Resolutions from the 7th Congress of the Lao program development. Revolutionary Party; Government’s 2020 Vision with eight national goals; 5th Five-year Social- economic Development Plan 2001-2005; National Poverty Eradication Programme, 2003 15 Decree on Promotion and Development of etc. Small and Medium Sized Enterprises, No. 14 UNIDO, (April 2003), p. ix. 42/PO, Apr 2004.
53 Focus on import substitution. As for the expansion. Priority for Laos should be to promotion of traded goods production, pursue a clear export oriented strategy the short to medium term focus seems to with “efficient” import substitution as a be more on import substitution while complementary orientation16, which export orientation is targeted for the means import competing industries longer term. This apparently resulted should be allowed to face competition from the concerns the policy makers (may be except during their true infancy unnecessarily place on the merchandise periods) from imports so that their trade deficit and the efforts to strike a products reach internationally balance in it at all costs. The Commerce comparable quality, and their operations Ministry was expected to target its become efficient. policies at achieving a trade balance (see the discussion on this point under Trade Targeting industries and specific Policy Section above). In this regard, products for promotion. A key feature in import licensing, encouraging import the industrial development strategies in replacement, and requiring importers to Laos is that officials try to identify the achieve certain export levels in order to industrial sub-sectors and specific qualify to receive import licenses have products so that they can be promoted by come to be silently applied practices. targeted incentives by the government. While there may be valid reasons for The industrial development strategy supporting or protecting infant industries contains strong measures in support of based on economic rationale for infant import substitution, such as increased industry protection, it is wrong to tariff barriers on goods produced in the assume that government officials are country, quantitative restrictions on more competent than the private sector imports of goods competing with investors to decide which industrial sub- domestic production, preferential tax sectors or products would have a concessions for domestic manufacturers, potential for producing traded goods on and preferential government a truly competitive basis. It would be far procurement of domestically produced more productive if these officials goods. These measures are anti- concentrate on formulating a sound competitive in nature, and are counter- policy framework so that the private productive to government’s efforts at sector can operate with ease and little trade liberalisation. transactions costs. In such an environment, the private sector would be It is well documented that import better able to find products in which substitution strategies have failed all Laos would have a comparative and over the world, and is an inappropriate competitive advantage. More effective industrialisation strategy particularly for incentives, however, would be to small developing economies like Laos. provide functional support for capacity As a development strategy import building, upgrading skills and substitution has been abandoned in technology, improving market almost all countries. A recent study has intelligence dissemination etc. Such found that the scope for import support would be more competition substitution is very limited in Laos and the potential lies much in export 16 UNIDO (Apr 2003).
54 friendly and more efficient in achieving Under this regime incentives provided to the government’s objectives. foreign investors are:
• Profit tax at 10-20% up to 1-7 years 3.4.2 Investment policies depending on geographical location and amount of investment, and The Lao government recognises the unless tax holidays are granted importance of encouraging the private which can be negotiated. sector investment for market based • Personal income tax at 10%. development of the economy. It is keen • Accelerated depreciation and tax loss to attract foreign direct investment (FDI) carry-forwards up to 3 years. particularly as a means to overcoming • Withholding tax on dividends, capital and foreign exchange shortages, interest, royalties and fees paid enabling transfer of skills and abroad at 10%. technologies, and improving access to • Import of equipment, machinery, and overseas markets. As a matter of policy, vehicles for the enterprise at only 1% foreign investment is welcome in all import duty. sectors of the economy17 and in all parts • Duty and tax free import of raw of the country, subject only to the materials, semi-finished products for consideration of national security. At the use in the production of exports and same time, the government provides import substituting goods, and duty many forms of incentives to encourage and tax free exports. domestic investors. However, the current investment policy regime seems to give Foreign investors are also entitled to more priority to generous incentives to following privileges: investors than to providing a conducive investor environment with features such • To possess, use and transfer property as appropriate macroeconomic policies, freely. a transparent effective legal system, well • To repatriate capital, profits from the developed infrastructure and skills enterprise and salaries of foreign development which would serve to be employees. essential ingredients for competition. • To have 100% foreign ownership or The Lao government recognises the form joint ventures with domestic inadequacies in the latter areas and is investors. committed to addressing them, though • To lease land for up to 20 years from the progress so far has been slow. Lao nationals and up to 50 years from the government. Current investment incentive regime has evolved from a series of successive Minister’s Decree No 46/PM on the 18 legislations over the last ten years . Implementation of the Law on Promotion and Management of Foreign Investment in Lao PDR, Mar 2001; Decision No.013/CPC by the 17 Except in tourism, where administrative Chairman of the Committee for Investment, restrictions seem to have barred direct and joint- Foreign Cooperation and Domestic Investment, venture foreign investment for several years (see Feb 2002; and Presidential Decree/Law No.01 on section on Tourism in Chapter 5). Foreign and Domestic Investment Incentives, 18 Foreign Investment Law of 1994, the June 2003. Domestic Investment Law of 1995; Prime
55 • To bring in foreign expertise and 3.5 Privatisation policy managers if qualified Lao nationals are not available. Privatisation in Lao PDR emerged as a major component of the NEM One-stop service facility that coordinates introduced in 1986 referred to in Section with other relevant agencies for speedy 1.2. The economic reform process approval of foreign investment following the NEM included the reform applications is set up within the of the SOEs. The policy was to privatise Committee for Planning and Investment. most and retain only the strategically important ones. Under privatisation, Investment laws also provide provisions some were leased, and others were sold. that entitle domestic investors access to These included most of the small and same or more generous incentives than medium-sized enterprises. Majority of foreign investors, and for projects 640 SOEs have been privatized, and 55 involving large amounts of capital and retained as SOEs, the major ones being advanced technology. In an effort to Lao National Tourism, Electricity Du attract investments into rural and Lao (EDL), Lao Trade Import-Export mountainous regions in the country, Company, Vehicle and Spare Parts more generous incentives are offered to Supply Co., and 8 commercial banks of both domestic and foreign investors who which six were later consolidated into invest in these areas. one. Some were partly sold and formed into joint-ventures with the state. Of the In actual application, the incentives over non-bank SOEs, five, including EDL, and above what is stated in legal have been selected for documents for both foreign and domestic commercialization. The strategy was to investment seem to be subject to convert and register them as joint-stock negotiation. The law allows for granting companies, appoint Boards of Directors, of special privileges and benefits in and agree on performance criteria which ‘highly exceptional cases’. Thus set out commercial and financial discriminatory treatment is possible, and objectives. Some progress has been is said to be frequently used, which made, but much remains to be done to could distort resource allocation and thus complete the process. The present aim of affect efficient competition. Foreign the government is said to be to continue investors can only use leased land for the privatization program and finally their enterprises, while the domestic retain only 32 as SOEs. investors can own land. Many developed as well as developing countries apply However, because the largest SOEs are this discrimination relating to land use. capital intensive and suffer from weak This tends to allocate resources more in financial management, this sector favour of domestic investors and to that accounts for about one-third of state extend affect competition. owned bank (SCB) loans and nearly two-thirds of non-performing loans (NPLs). In order to overcome these weaknesses, five large non-bank SOEs including EDL are being commercialized (which mean that they
56 will be run by Boards of Directors, will monopoly either due to being a natural have greater freedom to set their prices, monopoly or for reasons of economies of and will be subject to financial scale. discipline), and SCBs are being restructured which includes application of sound banking practices and credit 3.6 Labour policy discipline. Labour policy in Lao PDR is generally The underline principle for privatization conducive to competition in the private in Lao PDR has been to eliminate the sector, which is free to recruit employees government’s monopoly on trade and competitively. The Constitution pave the way for a free market economy guarantees gender equality, and the under the NEM. In that context, its government is committed to promoting outcome would have been to raise the gender equality as a national goal. level of competition in the economy. In Foreign investors are entitled to employ fact today, due to privatization and other foreign skilled personnel subject to work economic reforms the Lao economy is permits being obtained. They are, characterized by a fairly high degree of however, required to give preference to competition. Compared to other Lao nationals wherever possible, and are transition economies, the SOE sector in free to recruit locally as they wish. Laos is now relatively small, with only Domestic enterprises also can recruit about 1% of total employment and 15% foreign expertise if such expertise is not of industrial production19. However, available locally, subject to prior elements of high monopolization exist in approval and work permits from the some sectors, due to large market share Ministry of Labour and Social Welfare. of some large SOEs and SCBs, in some However, the procedures for processing cases due to joint-venture agreements of work permits, visas, and foreign which restrict market entry to others, as nationals’ vehicle registrations are still in the case of insurance, tobacco, and cumbersome and time consuming. These beer20. In the case of banking, although could easily be streamlined in order to the market is open for new entrants, better facilitate engagement of expatriate foreign banks are restricted from expertise and reduce operational costs of opening branches in the provinces, and foreign investors. the SCBs still account for about 70% of total banking assets. In Employment in the Public Sector, telecommunication, there are only 4 however, does not appear to be on a companies, out of which only one is competitive basis. Vacancies are not fully privately owned, others a mixture normally advertised in the press and are of state and private ownership. Lao filled mostly through internal Telecom still dominates the market and arrangements. This seems to have been has the monopoly of fixed line service. the reason for the prevalence of Services such as posts, aviation and widespread inefficiencies and over electricity enjoy a high degree of staffing in the public sector.
19 Source: IMF Labour productivity in the country is low 20 These restrictions are said to have been lifted, largely due to skill inadequacies. but a high degree of monopolization still exists.
57 Facilities for skills development seem to 3.7 Government procurement policy be inadequate with only a few technical colleges and training institutes. Private In Laos, government procurement has sector, however, is free to open up been governed by Implementing Rules training centres and run them as and Regulations on Government businesses. Several such centres, Procurement of Goods, Construction, providing academic and applied training Repairs and Services (IRRs) issued in business subjects such as accounting, under the Procurement Decree computing and English, have been No.95/CM of 199622. All government opened up in main city centres in recent agencies are bound to adhere to these years by both foreign and domestic rules and regulations. The objectives of investors. Availability of proper library IRRs are to ensure transparency, achieve facilities with up-to-date publications is regularity, uniformity, economy, and practically non-existent. These efficiency, and to guarantee suppliers inadequacies may have contributed to and contractors fair access to award of the very low labour productivity that contracts. Invitations to bid are subject prevails in the country. A study reveals to clearly articulated notification that labour productivity in Laos is requirements with respect to 21 among the lowest in the region . In advertisements. Minimum time limits for terms of salaries and wages, the labour bidding, locally and internationally, and costs in Laos are also among the lowest processing of bids, as well as selection providing the country a considerable criteria are laid down. Government comparative advantage and international procurement policy and practices competitiveness. However, this throughout the country are administered advantage is eroded by low labour by the Procurement Monitoring Office productivity. (PMO) which operates within the Ministry of Finance. Only officially and politically permitted trade unions exist in the country, which Although on paper, the rules and operate under the banner of Federation regulations appear to be sound and well of Lao Trade Unions. This seems to meant, there seem to be many loopholes contribute to general stability and that make it possible for officials to industrial peace both in the public and circumvent them and use discretion. A private sector activities. Unlike in many senior official of PMO recently admitted other countries, there are no labour publicly that “contracts for projects such unrests, agitations, and strikes in Laos, as road repairs or public consulting have which probably is a favorable factor for not always been awarded to the lowest investment. Lao PDR is a member of the bidder but rather to the one with the International Labour Organization, but is close connection to those in charge of not a member of any labour market awarding contracts”, and that they are integration agreements well known for “receiving cuts from the
22 Implementation of Rules and Regulations on Government Procurement of Goods Construction Repairs and Services No. 01639/MOF, adopted 21 UNIDO (April 2003), p.10. on 22 December 1998
58 deal”. 23 In an attempt to remedy the trade policies, and so forth. Some of situation, the government has recently these weaknesses were referred to in issued a new Decree24 designed to create previous sections. more efficiency and transparency in the way that private companies are In fiscal management, although the contracted to do public work. It also lays government is committed to maintaining down penalties for officials and a prudent fiscal policy, many companies who violate the law. If weaknesses have been identified by the implemented properly, the new law and IMF both in revenue and expenditure. the regulations framed under it could Weak central tax administration has serve to improve competition in caused poor revenue collection year after government procurement. However, year. Tax system is not well designed; there is one anti-competitive element in arrangements for tax collection are not the new law. It reserves the bids less clear cut and are open to abuse both by than 300 million kip for local companies the tax payers and the tax collectors; and only. poor collections from large tax payers has been a persistent problem. Overly optimistic revenue projections have led 3.8 Governance. to excessive bank financing of budget deficits, and ad hoc expenditure cutbacks Good governance is essential to ensure a affecting planned expenditures. competitive environment in all economic Accountability and transparency in fiscal activities. Governance does not relate management is also affected by the lack only to the application of rule of law. It of proper accounting and auditing involves all aspects of government procedures. Laos still does not apply, as administration and operations as well. a requirement, the internationally acceptable accounting and auditing In Lao PDR, since the introduction of practices. Although the government has the NEM and the promulgation of the taken a number of initiatives to improve new Constitution, governance has fiscal management, much remains to be improved considerably, and is done in order to establish a system for continuing to improve with more steps expenditure tracking and to introduce taken in that direction. These include greater transparency. legal reforms, macro economic policy reforms, trade policy reforms, and Weaknesses in public administration improvements in public administration. include the lack of procedures for However, still there are many performance assessment and weaknesses and deficiencies that affect accountability. Transparent procedures governance. These relate to and guidelines for rewards for efficiency accountability and transparency in the and good work performance are also administration of laws (see Section 2.2), lacking. In the implementation of trade fiscal management, implementation of policies particularly relating to import/export licensing, customs clearance, and business registration, the 23 Vientiane Times, 4 Aug 2004. 24 Decree of the Prime Minister on Government procedures are cumbersome and time Procurement of Goods, Construction, consuming giving room for officials Maintenance and Services, No. 03/PM, Jan 2004.
59 much discretion. These often lead to or not noticeable. Where there is any discriminatory treatment which suspicion, there is no firm evidence to adversely affects competition. support it, except in the case of joint- ventures (which will be discussed in the next section). Also, there is no proper 4. Barriers to competition in the institutional arrangement yet to monitor Lao PDR or check them. One clear one, however, is the case of faked products. Lao market is full of imports of them, which include 4.1 Barriers to competition from items such as watches, audio and video foreign suppliers CDs, CD players, radios and several makes of electrical goods, and clothes Barriers to competition in a country from which carry well known brand names. its foreign suppliers could occur in a Apparently they are smuggled or number of ways. A foreign supplier or illegally imported from neighboring suppliers could: countries, but there is no firm evidence (i) form agreements with its importing as to their origin, or the overseas firms to fix prices, sometimes below suppliers. cost, in order to undercut its competitors, eliminate them and capture the market; 4.2 Anti-competitive practices of (ii) refuse to supply other potential foreign firms operating in Laos importers than those already registered with it; There aren’t very many foreign firms (iii)form cartels, such as the OPEC, to operating in Laos, even though the prevent importing countries having market is open for them for many types access to cheaper suppliers; of businesses. Most foreign firms are (iv) enter into joint-venture agreements those in joint-ventures with the with firms in the importing country, government or the private sector. As with favorable terms, and thus mentioned elsewhere, their anti- acquire a protected market, or even competitive practices relate many to the have monopoly rights; concessions received under either (v) make the supply of particular goods foreign investor agreements or join- or services dependent upon the venture agreements that discriminate acceptance of or the restriction on against other domestic firms. One the distribution or manufacture of example cited elsewhere in this Chapter competing goods; is the case of the insurance firm, (vi) engage in dumping practices where Assurances Generales du Laos. This firm the goods are sold at below cost in practically has the monopoly of the local order to capture the market and insurance market. It does not provide eliminate competitors; and comprehensive insurance cover for (vii) supply faked products. vehicles other than those are brand new. It also does not supply many other forms The Lao market is still small and of insurance that are normally available unsophisticated, and as such some forms in other countries particularly to the of above practices are either non-existent private sector. Another case is the Lao
60 Telecom which is a joint-venture between Laos and Bangkok. In spite of between the government and a private inter-government agreements designed sector has the monopoly of the fixed line to eliminate the problem, most Lao telephone service and a major share of registered trucks are not allowed to the market for other services. back-fill at Thai destinations, and therefore return empty. The same applies to Thai trucks returning from Laos. In 4.3 Cross Border Anti-competitive customs administration, on both sides of Practices the border, the key problems are cumbersome procedures requiring In order to improve its trade and traders much costs in terms of time and competitiveness with its neighboring documentation, and the valuations countries, Laos is anxious to transform procedures. These need to be addressed itself from a land-locked country to a in order to reduce clearance time and land-linked country. The strategy is to costs, which will serve to improve Lao take advantage of the opportunities for PDR’s competitiveness. increased river transport using the Mekong and increased road transport using the North-South corridor between 4.4 Barriers to competition from Cambodia on the South, and China and domestic anti-competitive Myanmar on the North, and the East- practices West corridor between Thailand and Viet Nam. Currently more than 90% of The most common domestic anti- border trade is with Thailand through competitive practices are collective price Nongkhai. Crucial to the strategy is the fixing, market sharing, bid rigging, tied upgrading of the North-South and East- selling, predatory behavior etc. Suppliers West highways, and addressing other of a similar product or service may factors relevant to border trade. The either tacitly or by forming associations latter includes the improvements in the fix prices for their products or services, customs administration and thus avoiding competition among arrangements with bordering countries, themselves. In Laos there is no evidence particularly with Thailand in order to yet of such practices. Market sharing reduce costs of transport and customs occurs when sellers of a product or a clearance. Currently, both transloading service form a franchise or come to an costs and transaction costs (customs and understanding that each will confine its documentation costs), as well as the time operations to a certain geographical area, taken at the border with Thailand are so they do not compete with each other said to be much higher than those with in the same area. This practice which Viet Nam25. could deny competitive supply and pricing does not seem to exist in Laos One long-standing problem for Lao yet. Same could be true of predatory traders is the high cost of road transport behavior where s dominant firm will try to drive out competitors by selling at
25 unrealistically low prices for a while Ruth Bonomyong, Behind the Border Issues – Trade Facilitation”, presentation at the Trade and until competitors are eliminated and then Integrated Framework Workshop held in Vientiane, in June 2004.
61 selling at near monopoly prices, and thus said to be due to the absence of new make excessive profits. entrants although the insurance is now open for competition. Nevertheless, a number of anti- competitive practices do exist in Laos. SOEs normally enjoy concessions Cross border smuggling is a major relating to imports, access to finance problem that affects competition in the from SCBs and sometime preferential domestic market. Most of the smuggling treatment for government contracts. is from Thailand involving products Although banking business is said to be which are either restricted or subject to open to competition, SCBs still dominate high import taxes and therefore are more the banking business with about 70% of expensive in the domestic market. In total banking assets. A joint venture some sense illegal imports would between a Thai and a local firm that enhance competition as they compete produces roofing tiles is said to impose with legal but protected domestic contractual conditions on its retail sellers supplies; and in some sense such imports to restrict import and the sale of other would amount to unfair competition as makes of similar tiles. Bilateral trade they could drive out legally established agreements have become a means of suppliers. another form of anticompetitive practice. Some agreements, particularly those Another form of anti-competitive with China and Viet Nam, with very low practice arises from some of the joint- tariff concessions, discriminate against venture agreements between the state imports from other countries. While and foreign investors. Under the foreign access to cheaper imports under bilateral investment policies, many of the terms agreements is good for the domestic under which agreements are concluded economy, still generous tariff can be open for negotiation. Both the concessions prevent competition from government and foreign investor stand to imports of better quality products from gain financially by the joint venture other countries. Another form of anti- having a protected market. In particular competitive practice that prevails to a the foreign investors try to exploit the small extent in Laos is tied-selling where government’s short-sightedness by either a fast selling items is combined insisting on concessions in the form of with a slow moving item, or a group of special tax and tariff concessions, import related items are bundled together and restrictions and entry restrictions to other sold. This practice is found in mini- potential investors. Almost all foreign supermarkets and glossary shops. investors enjoy some concessions that are not available to domestic investors. Import and entry restrictions were 4.5 Barriers to competition from granted to joint ventures such as Lao government policies and Cement and Beer Lao, which have been practices phased out later on. In insurance, Assurances Generales du Laos, a joint- Policy barriers to competition are as venture between the state (49%) and a important to be aware of as anti- French investor (51%) is still the only competitive practices of firms. insurance provider in the country. This is Particularly in developing countries,
62 they are a major obstacle to economic starting point so long as the policy does growth and poverty reduction. Sound not lock in high costs for export policies, particularly those relating to industries.26 macro-economic management, trade and investment, and their implementation Weaknesses in the government’s policy with transparency and accountability are implementation practices also affect essential for promoting competition. competition. As referred to earlier, existing procedures for import/export In Lao PDR, a number policy related trade administration, custom and constraints to competitiveness exist. business registration affect competition These relate to import and foreign as they increase costs and potentially exchange restrictions, measures of discriminate some businesses. Often protection such as tariff and tax officials tend to interpret rules and concessions, and subsidies. These were regulations as they wish and thus use discussed in the section on Trade Policy wide discretion in the exercise of their Regime (see Section 3.3). In the past, duties relating to import/export under certain investment agreements, licensing, and customs clearance. This some industries have been given certain leaves room for corruption which is well periods of protection from new entrants, known to exist. In order to improve e.g. beer and tourism. Except in tourism, efficiency and competitiveness in the entry barriers seem to have been since economy policy implementation lifted. However, the possibility of procedures need to be simplified, granting entry barriers, if and when streamlined and made fully transparent. necessary, still exists in investment policies. In principle, all these measures create distortions in resource allocation 4.6 Entry barriers to competition within the economy and thus harm competition and efficiency both in Barriers to entry refer to the factors production and trade. There are good which could prevent or deter new firms reasons for a developing country like entering a particular industry. Generally Laos to apply some forms of protection these include: particularly in rural agriculture on which a) economies of scale which restrict the the mass majority of poor people number of firms that can operate depend, and the infant industries in order profitably. In Lao, as discussed to promote industrial development. But earlier, this could be true of cement, they need to be phased out at some stage beer, and insurance; in order to make economic activities b) bid rigging or collusive tendering, more efficient and competitive. where a group of firms on a continuous basis arrange among A study on AFTA benefits in agriculture themselves to agree on the bid prices recommends that Laos should move and the winner for each tender for away from its policy goal of food self- the supply of a particular product or sufficiency towards one of encouraging service, and the winner then a globally competitive agricultural compensates the other firms in the sector. Import substitution offers limited group. This practice would prevent opportunities for growth. It can only be a 26 Lao PDR Government/UNDP, April 1998.
63 new entrants to that particular government has begun to move towards business. In Laos, there is no more realistic pricing of their services. evidence of this happening as yet; Tariff changes towards this end have c) product differentiation where the been adopted in respect of power, water, new entrants will have to overcome telecommunication and aviation. the brand loyalty of existing products. Lao Beer is a good 5.1.1 Power. example which has cost advantages over a new comer. Same applies to Two main sources of energy in Laos are new entrants that wish to compete hydro power and petroleum. A third with established brand names such as minor source of energy is lignite Coca Cola, Pepsi, Champaign etc.; deposits that can be used to produce d) Government policies that may result electricity. The country is well endowed in cost or market advantages to some with hydro resources which are being firms, making it more expensive for harnessed through a number of projects new firms to enter a particular to produce electricity. Laos’ electricity industry. Lao government’s production exceeds its needs for investment and industry assistance domestic consumption, the excess being policies have caused such entry exported mainly to Thailand. A new barriers. These are being now phased project, Nam Theun 2, capable of out, but the discretion to use them producing 995mw, is due to begin still exists. construction in 2004 and commence production by 2008 over 90% of which Lao economy is still not mature enough is to be exported. This project is a Build- to experience a high degree of barriers to own-operate-transfer (BOOT) entry caused by actions of domestic arrangement between the Lao firms. The most likely are those caused government and a private sector by foreign suppliers that have the consortium. Currently, the country’s advantage of well established brand electricity exports account for about one- names. third of the country’s total exports. Petroleum products, needed mainly for transport, are imported. 5. Sectoral Policies Energy policies in Laos do not seem to hamper competition very much, except 5.1 Utility services with respect to its pricing policy on electricity. One state owned company Utility services such as electricity, water, and two private companies (Shell and and telecommunications, and also Caltex) compete freely in the aviation, are provided by SOEs, with distribution of petroleum products, while some elements of pricing subsidies. the same and a number of other private However, increasingly private providers companies do the importation. are entering into these services. Petroleum imports are subject to Recognizing the need to reduce licensing and foreign exchange subsidies and to encourage private allocations; however there does not investments in these sectors, the appear to be any quantitative restriction
64 on imports, as could be inferred from the government is giving priority to rural fact that there are no shortages of supply electrification under which grid supplies in the market. Gasoline products are are to be extended to be accessible to subject to price control for cost of living rural areas and off-grid supplies to be considerations. However, initiated in remote areas. administratively set prices are allowed to vary from time to time to reflect the changes in the import prices. 5.1.2 Telecom
Electricity supply is dominated by one Government policy on telecommuni- SOE, Electricite du Lao. Like gasoline, cation as a sector is to allow full electricity tariffs are also subject price commercialization. At present there are control and differential pricing, and are four companies, of which only one is subsidized. Tariff for embassies and fully privately owned, and the other international organizations is fixed in US three being a mixture of private and state dollars and reflect a much higher price ownership. Lao Telecom, a former SOE than the average charged for domestic converted to a joint venture, still users. Different categories of domestic dominates the market, and has the users are charged differently. Residential monopoly of the fixed phone line users and those who use for irrigation service. The cellular/mobile service, pay the least while commercial users pay however, is fairly competitive, and has higher tariffs. Among the commercial been growing rapidly over the last few users, entertainment industry pays the years, driven partly by foreign highest tariff, with services, and investments. industrial, handicraft and agriculture users paying lesser tariffs respectively. Regulatory arrangements for this sector The tariff policy applied to commercial do not appear to be very clear. The sectors is discriminatory, distorts Ministry of Transport, Posts and resource allocation between the affected Communications and a few other sectors, and therefore affects agencies seem to share responsibilities competition. for this sector, and they do not seem to follow a coordinated set of rules for the Since mid 2002, the government is sector’s activities. Further growth of the allowing electricity tariffs to reflect cost sector would depend on the clarity and recovery, but gradually. At present tariff predictability of the policies on is allowed to increase by 2.3% per telecommunication. month for all users, except for embassies and international organizations, and will Since 2002, tariffs for fixed line services be completed by April 2005, by which have been adjusted upward to reach cost time subsidies are expected to be recovery levels, although these have not eliminated. Still electricity prices are low been reached yet. Domestic calls and compared with most other ASEAN 27 telephone rentals are still subsidized countries . With a view to providing while charges for international calls are subsidized electricity to rural areas and excessively high compared to those in helping poverty reduction, the neighboring countries. In contrast, tariffs for cellular services are said to be less 27 World Bank (Mar 2004)
65 regulated and closer to cost-recovery drugs, which has developed substantially levels. in recent years. However, more than half of the country’s supply is met from imports. As 5.2 Health Services in production, both public and private sectors are engaged in imports. Sale of Being an LDC, health services in Laos, drugs, except at the hospitals, is largely as is evident from the health indicators, in the hands of the private pharmacies are obviously grossly inadequate28, that have sprung up in great numbers in although there have been significant urban areas. Even the state drug improvements in recent years. This is distribution network does not cover partly due to budgetary limitations for remote villages. As a result about 5400 the government to provide adequate villages do not have access to medical public health facilities particularly in the drugs. Furthermore, regulatory areas away from the urban centres, and arrangements for drug safety seem to be partly due to poverty and low incomes of grossly inadequate (this aspect is the people that make it difficult for them discussed in Section 7.2 under Consumer to purchase medical services from Protection). private providers.
Hospital care is available only in public 5.3 Financial services hospitals, which operate at three levels of grading - regional, provincial, and Properly regulated and supervised district. There are no private hospitals as financial services, operating yet, even though hospital service is open competitively, are necessary for for private enterprise. This may be due promoting efficient development of any to inadequate effective demand and economy. In Laos, financial services economies of scale limitations. Privately sector is very small and undeveloped. It run clinics, however, are available in consists mainly of the banking system urban centres. As for funding of public and one insurance service provider health services the government has (referred to earlier in Section 4.4) which adopted a policy of partial cost recovery practically exists as a monopoly. Bank for provision of hospital services. At of Lao PDR (BOL), the central bank, has present about 60% of the major hospital recently licensed three pilot credit budgets come from fees paid by the unions, which, when operational, will patients for hospital care, diagnostic add to the financial sector. Banking examinations and drugs. sector is now open for the private sector and foreign investments, as a result of Pharmaceuticals. Both the public sector which a few private banks have been (two SOEs) and the private sector are opened. Yet, the banking business is still involved in the domestic production of dominated by the state owned banks (SCBs) which account for about 70% of the total banking assets in the country.
28 At present there are four SCBs, two Life expectancy: 59 years; infant mortality: 82 per 1000; maternal mortality: 530 deaths per joint-ventures between government and 1000; access to medical practitioner: 53% of population.
66 private investors, and about nine private 5.4 Transport banks some of which are foreign owned. A well developed transport infrastructure SCBs have been plagued with financial is crucial for efficient economic problems, due mainly to politically development of any country, and directed loans and poor and inefficient particularly for Laos because of its land- credit management practices. As a result, lockedness. Transport inadequacies the SCBs have accumulated large could adversely affect efficient amounts of non-performing loans geographical resource allocation, growth (NPLs). These problems created further of trade and therefore competition within problems for fiscal and trade policy the economy. Laos, without access to sea management. The situation is being and rail links with the networks in remedied with a program of banking neighboring countries, has depended reforms with the assistance of IMF. heavily on road for its transit trade with These include restructuring of SCBs its neighbors. Currently the road net which included merging two smaller work carries about 70% of freight traffic SCBs into one, improving banking and 90% of passenger traffic, while river regulation and supervision, introducing a and domestic air transport accounts for system of rural and micro-finance to about 28% and 0.2% of freight address the financing needs of the rural respectively, and about 8% and 2% of sector, and opening up the banking passenger traffic respectively. Freight system. These reforms have progressed road transport is privately owned and run well but slowly; credit assessment and competitively, while passenger bus management procedures, with the service is subject to limited competition supervision of international banking between state-owned and permitted advisors, have improved; and in general private operators. Both services are the health of the SCBs has improved, but available to cities and towns. Air much more remains to be done. conditioned bus services are also However, the problems of SCBs are not available for long distance travel to main like to go away until most SCBs are cities in the country as well as to some fully commercialized and at least partly nearby cities in Thailand and Viet Nam. privatized. In-town public bus services are available in main cities, and for short distance The absence of competition in insurance travel, the popular mode is the tuk-tuk (a industry is said to be due to the lack of three-wheel cab). As gasoline prices still new entrants although the insurance is contain some element of subsidy, now open for competition. As the transport is less expensive than in business environment is still small, and neighboring countries. State control of the general public is not well aware of bus fares, which used to be the case until the advantages of insurance, the demand recently, no longer seems to exist for insurance services could be practically. inadequate for new entrants into the industry – may be a case of economies The government’s strategy is to of scale limitation. transform its land-lockedness into a land-linked hub of the region by upgrading the north-south/east-west road
67 links with the neighboring countries, government is positively pursuing it, which will serve as major transport encouraged by the commitment of the routes for trade within the region. This is ASEAN leaders to proceed with the expected to overcome to some extent its Singapore-Kunming Rail Link project. geographical isolation and help more effective economic integration with the region. Although arterial road network 5.5 Cement and fertilizers has been substantially rehabilitated and developed over the past two decades, it Of the construction materials, cement is still incomplete, and rural accessibility and steel bars are still subject to both remains inadequate. Construction of new import licensing and price control. roads, particularly in rural areas, and Quantitative restrictions on imports are upgrading the existing ones is ongoing. for the protection of domestic producers, while price control is to keep In aviation, services are available construction costs from rising in a between Vientiane and main cities supply restrictive environment. Both within the country, and capital cities in policies are ill advised and anti- Thailand, Viet Nam and Cambodia. The competitive. Currently there are three state-owned national carrier, Lao cement factories in the country operating Airlines, competes with Thai Airways under government protection. One of for flights to Bangkok, while its them, a relatively new one in international services to Viet Nam and Savanakhet, is a joint-venture between Cambodia are on the basis of joint- government and a group of private operations with their respective national domestic investors, with government carriers. However, Lao Airlines is said to owning 60%. The other two in Van be operating with losses rising over time. Vieng are said to be operating at a loss In an attempt to remedy the situation, and “the largest factory cannot even government intends to restructure the cover its financial costs (about half of its enterprise by converting it into a joint- total costs)”29. Although protected from venture with a foreign airline as a imports, losses could be partly due to strategic partner, and with Lao nationals price control, and partly due to the lack owning 51% shares and the government of economies of scale, the scale of as a minority shareholder. A privately operation being not large enough for the owned helicopter service, used mainly venture to be profitable. It would be far for aerial work and remote area better to allow both the imports and personnel transport, and a private air domestic production to be free from cargo transport service are also now government intervention so that the operational. supply and domestic production operate in a competitive environment which Development of a railway service is part would ensure adequate supplies at of the government’s long-term plans for competitive prices. transport development, in order to link Despite the fact that Laos has deposits of up with the services in the neighboring lime stone, the main raw material for countries. A feasibility study has Portland cement, the government should justified the project in terms of its regional and national importance, and 29 UNIDO (Mar 2003)
68 refrain from supporting a less than due to the SARS outbreak and economically sized factory. Should it consequent drop in arrivals in that protects such a factory by quantitative year.31 Currently, tourist earnings restrictions on imports or high import contribute more than one fifth of the tariffs (which will not be possible under country’s earnings from its total exports AFTA commitments after 2008) the of goods and services, and ranked the result would be higher prices for cement highest in most years32 among the major which would increase the costs for exports of the country. It is also a key building roads, irrigation systems, sector that has a substantial potential to housing construction and other benefit the poor through the infrastructure development activities30. development of tourism related SMEs Currently all the three factories are able and thus taking it to the village levels as to supply about 500,000 tons a year a means of reducing rural poverty, and while the domestic demand is about also of preserving the environment. Lao 800,000 tons a year. National Tourism Authority and its Fertilizer supply market too is provincial tourist offices are the government agencies responsible for uncompetitive. Imports are subject to promoting tourism and formulating quantitative restrictions, may be to policies for it. protect the few government owned factories that produce organic fertilizer. Import restriction is likely to raise the Even though the government places a domestic prices of fertilizer. Being a key high priority to the development of input for agriculture, government policy tourism, unfortunately its policies in the goes counter to its drive for food past have not been very conducive to production and poverty reduction faster growth of the industry in the through the promotion of rural country. Until recently, foreign agriculture. investment in tourism even on a joint- venture basis was not allowed. The registration requirements for domestic investors in tourist-travel businesses 5.6 Tourism have been quite restrictive. With the result the participation of small investors At present, in Laos, services as a sector and the level of competition in the contributes only 25% of GDP. This is industry have been quite low, although quite low even by developing country investment in motels and guest houses standards. Most of the value added in the has been more open for small investors sector comes from tourism related and therefore more competitive. activities. Tourism is a major source of However, after the ASEAN Tourism Lao PDR’s foreign exchange earnings. Forum that was held recently in As a service export, tourism contributes Vientiane, the Lao government has significantly to Lao export earnings. In realized these weaknesses, and is now 2001 and 2002, tourist earnings amounted to US$ 104 million and 113 million respectively, while in 2003, 31 National Tourism Authority of Lao PDR, 2003 earnings dropped to $ 87 million largely Statistical Report on Tourism in Laos. 32 Except in 2003 when there was a substantial drop in number of tourist arrivals due to the 30 Ibid outbreak of SARS in that year.
69 taking steps to open up the industry to level of poverty is highest in the rural foreign investment as well as to small mountainous districts in the Northern domestic investors. Plans are under way Provinces where the availability of to amend the existing restrictions on cultivable land and the access to roads is foreign investment to allow gradual very low resulting in shortages of food opening up of travel business for foreign (mainly rice) and other essential goods investment, with initially allowing for and services. Other key factors affecting joint-ventures with 49% foreign the poor are inadequate health and participation. As for hotels, motels and education facilities which tend to reduce resorts in excess of 16 rooms, and their employability. restaurants with no night clubs, no restrictions for foreign investment apply. The government recognizes the problem Inadequate skills development and poor of poverty and has given high priority to conditions of access roads to some of the its eradication. However, being an LDC remote tourist attractions seem to be the with severe funding limitations, Laos is other factors that constrain the industry not able to provide an income safety net to the very poor as is being done in at the moment. The government is taking developed countries. The Lao steps to encourage upgrading of government’s overarching development accommodation and other facilities in priority is to eradicate mass poverty by and around places of tourist interest year 2010 through a strategy of throughout the country and to improve economic growth with distribution. A the service standards in guesthouses key element of this strategy is to provide through regulations and regular an enabling economic and infrastructure inspection. Road and air transport environment within which the facilities for tourist travel are also to be households would be able to take self- improved and upgraded largely through private sector participation. help initiatives to support themselves. To this end, a comprehensive National Growth and Poverty Eradication Strategy34 has been formulated and is PART II: being supported by the Lao PDR’s Consumer Protection multilateral and bilateral donor partners. Poverty related consumer problems are Many of the issues and problems dealt issues largely to be dealt with by the with in Part I on Competition also have government through its socio-economic much relevance for consumer problems development strategies and welfare and consumer protection. These will be programs. This section of the paper does referred to where appropriate in dealing not deal with these issues, but confines with specific issues relating to consumer itself to market-related consumer protection. As mentioned in Section 1.1, problems that normally come within the poverty is widespread in Lao PDR purview of consumer protection policies causing many consumer problems and measures. relating to access to basic consumer needs. According to latest data, 22% of the population lives in poverty33.The
33 LECS, 2002/03. 34 NGPES (2004)
70 6. Consumer Problems Relating to Goods 6.1 Weights and measures, and In Laos, there are mainly three types of labeling markets where consumer goods are sold: formal markets, less formal markets and Many problems relating to the use of informal markets. Formal are the mini weights and measures, and labeling exist supermarkets where mostly imported in Lao PDR. These are common mostly groceries are sold. Less formal are those in the informal markets where most such as the Morning Market in consumers purchase their day to day Vientiane, where some shops that sell requirements of foodstuff and groceries. expensive consumer durables like TVs, Often correct weights and measures are refrigerators, furniture etc, exist side by not used; goods on sale are not price side with less formal shops that sell less marked, except sometimes in the mini- expensive durables, and informal small supermarkets. Even where proper shops and outlets which sell food, weights and measures are available, vegetables, fresh fruits and some some traders try to cheat customers by groceries. Informal markets are those under-weighing or under-measuring, where the traders do not have established whenever they get the opportunity do so. premises but use small space in the open However, in the case of items such as market on a daily rent basis and sell rice and eggs, unit prices of different mostly fresh foods, vegetables, fruits and grades are displayed in competitive sales meat. There is adequate competition in points. all these markets. An interesting problem relating to the sale of gas in cylinders was reported in Normally competition in the market the press recently. Gas is subject to price should ensure consumer sovereignty. He control, and the current controlled price should be able to purchase from those is said to be lower than the import price, sellers whose practices are better and making it impossible for the traders to more favorable. However, where there stay in business unless they cheat the are no proper regulatory procedures and customers on the weight. Traders are institutional arrangements to ensure reported to sell gas with less weight than good practices in the sale of goods, what is stated on the cylinder in order to competition does not necessary cover costs, and the consumers are guarantee protection from malpractices advised by government to check the by the traders. This happens to be case in weight when buying gas cylinders, Lao PDR. Several laws and regulations which is not possible for average have been introduced with good consumers as they would not have the intentions. But the weaknesses and proper means to do so. This is a classic inadequacies in their implementation and case of wrong government policy, institutional arrangements for it have unintentionally though, encouraging made the laws and regulations traders to be dishonest.35 ineffective. As a result many improper trading practices exist. The regulatory Proper labeling is found only sometimes and institutional problems are dealt with on items produced or supplied by in more detain in Section 8 below. 35 Vientiane Times, 29 Sep 2004.
71 reputed firms. Most grocery products are lacking, even though some government imported from Thailand. Of these, agencies are charged with these canned and bottled food items produced responsibilities. There have been under international brand names carry instances when fresh chicken and some full information with details on types of fruits injected with formalin for ingredients used, manufacture dates, preservation were imported from expiry dates, nutritional facts, warnings Thailand and some people falling sick etc. However, some food items produced after eating them. Only when such cases in Thailand lack full information, are reported, the officials would take particularly the expiry dates and action to crack them down. Recent warnings where relevant. Some locally outbreaks of the deadly bird-flue virus produced and packed foods such as that infected many poultry farms in yoghurt do not carry expiry dates. South-east Asia and many humans have Packed goods imported from Thailand prompted the government to ban imports are labeled in Thai which is of chicken from Thailand and Viet Nam. understandable to many Lao consumers. Yet illegal imports of chicken seem to Labels in Lao language are found in have take place, as a few such cases some grocery items and other goods reportedly have been detected at the produced in Laos. border. Another related problem is the absence Adulteration of food, food outlets and of the issue of sales documents by the chemical residue in food. trader to the purchaser. In the informal The contamination of food with harmful markets the issue of receipts is not substances such as pesticides and practiced at all. Even in the formal chemical residues, formaldehyde, and markets receipts are not normally issued food colors is said to be common unless requested by the purchaser. Even through out the country. The producers when requested, the trader would try to and importers of such items do not issue a receipt without recording his always ensure the quality of their address. No proper printed receipt books products and their safety to consumers. showing the address and other details of These weaknesses are due to the the seller are used. Instead, most traders inadequacies of the laws and regulations use a common receipt form where details concerning food and drugs, lack of can be filled in. Often, the consumers, trained personnel to carry out proper mainly due to ignorance of their rights. checks, and the lack of cooperation do not ask for receipts when purchasing 36 among concerned authorities. goods. Traders conveniently try to avoid issuing receipts partly to evade Eating out and buying cooked foods responsibility and partly for tax evasion. from wayside food outlets is quite common in Laos, particularly in the
urban areas. Small eating houses and pavement cooked food stalls are a 6.2 Safety and quality common sight. These places do not
Regular and reliable administrative 36 arrangements to ensure quality and Lao PDR Government, National Poverty safety of both imported and locally Eradication Programme – Background produced consumer goods have been Document, Sept., 2003.
72 appear to maintain proper standards of However, with the ongoing process for hygiene and safety in the handling of WTO accession, the Lao government is foods, nor are they regularly inspected being pressured to put in place by concerned officials. One often hears appropriate legislation that will be of stomach disorders related to food consistent with WTO Trade Related infections after eating out. Intellectual Property Rights (TRIPS) (see Section 8.1). Recently, the Most imported and locally produced government has announced a new food items are well packed with sealed crackdown on pirate CD VCD trade packaging. However, packing and under which shops have been noticed to wrapping of fresh foods such as fish, replace the fakes with genuine ones meat and cooked foods are often not 38 hygienically packed. The use of soiled before 30 September 2004 . However, newspapers and pages torn from used the sale of imitation goods does not exercise books for wrapping of such seem to have disappeared from the food items is not uncommon. market even after the deadline. Sale of imitation goods. 7. Consumer problems relating to Lao PDR is not yet a signatory to services standard conventions on intellectual In Laos the services sector is relatively property rights such as the Bern small contributing only about 25 of the Convention. Although there are decrees GDP as mentioned earlier. This is on trade marks (see Table 3 in Section largely due to undeveloped nature of 8.1) and patents37, they are either most of the services that are crucial to inadequate or not properly implemented any economy, such as education, health, to prevent import and production of and banking. Most of the services related imitations goods. As such, as yet there is to consumer problems in Laos arise no effective control over the sale of largely due to supply-side constraints imitation and faked goods in Laos. In that affect the availability of these fact informal markets are full of such services to meet the growing demand of products. These relate mostly to the people. wristwatches, music cassettes, audio and video CDs, ready-made garments, some 7.1 Educational Services electrical goods such as radios, food mixtures etc. that copy popular brand In principle, universal access is available names. Given the low income levels of up to secondary education supplied by the people, many consumers would not government. At tertiary level, entry is be able to afford the genuine products of subject to success at entrance these fakes. Hence majority of examinations. Private sector supply of consumers prefer to purchase the fakes education is available in main cities from knowingly. This is quite true in the case primary to tertiary level. Foreign of items such as music and film CDs, investment in education is permitted up wristwatches, and garments. Therefore, to post-secondary including adult it is not seen as a serious problem as yet. education. However, access to education is limited by many factors. In poorer and 37 Decree on the Protection of patents, petty patents, and industrial designs, No. 01/PM, Jan 2002. 38 Vientiane Times, 28 Sep 2004.
73 mountainous areas, parents do not 7.2 Healthcare services understand the value of education and consider children attending school as Sectoral issues relating to health services limiting family labor. For this reason, were discussed in Part I above (see and for the reason of not having enough Section 5.2). Major healthcare problems money to pay for basic fees for school to consumers arise from the shortage of necessities, enrolments in such areas are health facilities such as access to low. Other factors that limit access to qualified medical practitioners, clinical basic education in rural areas include facilities, and hospital care, and the distance to schools, inadequate class proper dispensing systems for medicines room facilities, shortage of qualified and pharmaceuticals particularly in areas teachers and government funding to outside the main city centres. In some construct more schools. Some rural areas in the North the longest distance to schools have classes only up to five a hospital is 96 km, and in the South 75 grades and children do not transfer to km. In the North, about 29% of the higher schools due to long distances for population lives 16 km away from even such schools, and as such dropout rates a health centre. In the central and are high. In urban schools inadequate southern areas, the situation is better room and low income limit children only slightly. The supply of qualified 39 seeking secondary education. medical practitioners is very limited. The At tertiary level, university education is annual intake to the Medical Faculty at very limited with only one university in the University is limited and bachelor’s the country. There are only a few medical degree course is too long. vocational and technical colleges Recently, the period for the basic degree providing professional courses such as has been extended from 7 to 9 years, accountancy, commerce, computing, probably as a substitute for inadequacies engineering and other skills, and as such in the quality of secondary education, the supply of these skills in the country and the quality of teaching at the is very limited. In order to address the medical faculty. This has made the problems and to universalize basic course too long and expensive for education, to eradicate illiteracy and to average students as it is subject to some increase training of skilled professions to fees. meet the increasing demand, the The availability of health workers, government is initiating several aid- traditional birth attendants, and health funded educational projects. volunteers in the rural areas is very limited and insufficient. The availability of essential drugs such as chloroquine, paracetamol, antibiotics etc at the village level is about 52%. Health network does not reach the people in mountainous and remote areas effectively. There is gross 39 Although the Decree No.138/PMO of 1996 inadequacy of health workers to meet the mandates participation in primary schooling and needs of the people. The available health does not allow students to drop out until the age workers tend to accumulate at provincial of 14, about 20% of primary school age levels, leaving severe shortages at population does not attend primary schooling (NPEP, 2003). district and village levels. The lack of
74 female health workers in some areas Some drugs do not meet the required make it less likely that women will seek standards. Many drug stores obtain their care for pregnancy, childbirth, family supplies from illegal sources, and sell planning, or gynecological problems, drugs without prescriptions and without which probably account for high receipts being issued. As many as 70% maternal mortality rates and high birth of the people buy drugs from pharmacies rates. The government spending on and drugstores without consulting a healthcare sector is said to be very low - medical practitioner. For minor ailments at about US$1.25 per person in 2000. they go direct to the drugstore and ask Per capita spending from all sources - for a suitable cure, and pharmacists are government, donors and out-of-pocket – not qualified to dispense drugs like that, amounting to US$11.5 in 2000-01 is let alone to sell drugs in a proper lower than in Cambodia (US$16), Viet pharmacy. There is a government ban on Nam (US$19) and Thailand (US$ 71).40 the sale prescription-medicines without a Partial cost recovery policy of the prescription, but it is ineffective. government for public healthcare Unregistered drugs are sold at drugstores many of which are not licensed or referred to in Section 5.2 is said to limit registered. The poor are the most the low income people seeking medical vulnerable to the sale of illegal and services at all. In order to solve the faked drugs as most of them live in areas problem of such people, the government where regulation and inspection are is in the process of introducing a weakest.41 Recently, it was reported that ‘community health insurance (CHI)’ a child had to be hospitalized after scheme. The mechanism of CHI is for taking medicine prescribed by a local the government to initially contribute to pharmacy42. the CHI fund which will also be contributed to by members of the community who then become members of the CHI scheme and become entitled 7.3 Financial services to receive medical services from the local hospital. The extremely poor who As with health services, many issues are unlikely to be able pay membership relating to financial services were dealt fees are to be assisted through equity with in Part I (see Section 5.3). funds from the government and/or Consumer problems in the financial donors. It is anticipated that by the year sector concerns mainly accessibility to 2005, the voluntary CHI will cover financial services readily and at about 10-15 per cent of the population. reasonable costs. Although the banking ‘Drug revolving funds’, both in hospitals system is now open for foreign as well as at village level is another investment, foreign banks are not means of helping the poor to have easy allowed to open branches in the access to medication. provinces. Banking facilities in the rural areas are practically not available. Even As for pharmaceuticals, drug safety is a where the banking facilities are major problem for the consumer in Laos. available, access to bank credit is still
40 NPEP (2003), and UNFPA, Lao Reproductive 41 NPEP (2003). Health Survey 2000, Mar 2001. 42 Vientiane Times, 9 Aug 2004.
75 limited due to problems of providing which enjoys the monopoly of the security. This is due partly to insecurity market. As a result, insurance needs of of land tenure. Most property holders the people are not available on a lack official recognition and long-tem competitive basis, and also are not fully legal rights to their land. In both urban met. For instance, the sole supplier and rural areas, most property holders do Assurances Generales du Laos (AGL) not have the ability to make legally does not accept comprehensive binding transactions and use their land as insurance of second-hand vehicles. It collateral for loans. This has driven only provides the compulsory third-party many investors to seek very expensive to all vehicles and comprehensive credit from private money lenders which insurance to brand new vehicles. This is very common in the country43. This means, owners of second-hand vehicles also seriously affects the growth of who are mostly low income earners and SMEs and their ability to compete. It small businesses cannot insure their also affects development of small rural vehicles, and therefore bear the risk of and agricultural economic activities and having to meet the full cost of repairs or the rural consumers’ need for finance. loss of their vehicles. Other insurance facilities such as life and health are Generally Lao people are not used to provided by AGL, but at a very high banking practices. Many do not know cost, and therefore are beyond the reach even how to open an account with a of the majority of the people. bank. Majority of the people do not have even a bank savings account. Almost all the public servants and majority of 7.4 Professional services private sector employees receive their pay in cash and keep it in cash until fully The supply of professional services such spent. Only a handful would save any as accountancy, legal, engineering, balance in a bank account. The situation information technology (IT), and is worse when it comes to obtaining consultancy is limited in Laos. This is credit from a bank. Even advisory mainly due to the lack of adequate services for such people are not readily academic facilities for training locally. available. As a result most of their credit Courses on legal and engineering studies and savings needs go unfulfilled. There are available at the Lao National is a need for commercial banks to make University, and are subject to fairly high banking habits more popular among the fees. Those who graduate from the people through publicity activities and University find it hard to proceed for programs. However, as there is not much higher studies overseas as the courses competition in the banking sector, banks are conducted in Lao language only. are more interested in catering to the Foreign supply of these services is business and wealthy community than permitted subject to the same criteria as spending their energies resources on less for foreign investment. lucrative low income clients. Foreign law firms are permitted to open Insurance. Insurance, as mentioned in offices in Laos to provide advice to Section 4.4, there is only one supplier clients, and to form joint-ventures with local law firms. However, foreign layers 43 World Bank (2004).
76 can practice law only as consultants, and 8. Existing Regulatory System cannot appear in courts. To appear in courts, lawyers must be members of the Lao Bar Association whose membership 8.1 Legal provisions and policies for is not open to foreigners. At present, the consumer protection availability of legal services for clients seems to be inadequate, and as such Legal provisions: Currently there is no excessively expensive. As for comprehensive and coordinated legal accountancy services, facilities for and regulatory framework for consumer training and obtaining qualifications are protection in the Lao PDR. However, available at the University, technical there are a number of ad hoc legal colleges, and as well as at privately run provisions and regulations concerning commercial colleges. The supply of the supply and marketing of goods and services seems to be adequate as there services that affect consumer interests. are both foreign and domestic firms These relate largely to food and drug established in the country. The same is safety, quality and standard of products true of engineering and IT services. In and their circulation, patents, and particular, private facilities for the use of labeling. Legal instruments relevant to Internet in the urban areas are quite good consumer interests are given in Table 3. with many Internet Cafes being available The Decree on Goods Trading Business at affordable fees. of 2001 provides for regulation of trade in goods to ensure sufficient supply and fair prices. 7.5 Travel services. Legal provisions on ‘quality control of Most of the problems relating to travel domestically produced food products’ of were discussed in Section 5.6 on 1991, and the recommendation on Tourism. Subject to those facilities for foodstuffs No. 035/FMC of Aug 1991 both air and surface travel are adequate had been designed to control quality of except in very remote areas where the both domestically produced and road conditions remain undeveloped or imported foodstuff, to provide for proper inadequately developed. Good long labeling, to prohibit the sale of low distance private bus services, both with quality, unsafe and unlabelled foodstuff, and without air-conditioning, are and for inspection by the Ministry of available between main cities catering to Health. However, as these regulations both local and tourist passengers at have been to be inappropriate to the affordable fares. In the urban and current situation, they are expected to be surrounding areas, passenger bus revised under the new Food Law of services and tuk-tuk taxis are adequately April 2004. This law provides for available. regular inspection of production and sale of foods for quality and hygiene, and for investigation of any complaints from consumers on unsafe foods, by the Health Department. Also under the new law, both import and sale of foods and foodstuffs require a license from the
77 Health Department of the Health Technology and Environmental Agency Ministry. (STEA) whose role is coordination of the management of standards and quality The Decree on Trade Marks of 1995 of goods in order to ensure the quality of requires registration of trade marks to goods and products, to expand ensure the quality of goods, and protect international cooperation, to promote the the consumer from illegally traded production of high quality products and goods. Decree on Patents 2002 provides to protect consumer rights and benefits. the right to the owner of a patent to The Decree on Goods Trading Business protect his/her invention from violations of Sept 2001 provides for sufficient such as illegal production, importing, supply and distribution of goods, stocking, offering for sale, selling and promotion of production of goods, price using of the product or process, in and exchange rate stabilization, and accordance with the terms of Article improving living standard of people. 28.1 of the TRIPs Agreement.
The List of Medicines Prohibited based on the Decree of Ministry of Health of 1994 lists 65 items of medicines prohibited in the country. The Law on Drugs and Medical Products of April 2000 specifies the requirements for production, import and sale of drugs and medical products. Drugs are classified into four groups: those sold under prescription; those sold under a pharmacist’s control; those safe to be sold without a prescription; and those which are toxic. Doing business in drugs and medicines (cultivation, production, sale, exportation and importation requires a license under the Business Law, and must be registered with the Ministry of Health; the producers and sellers must be or have a qualified pharmacist; advertisers must ensure that the drugs advertised are those licensed, and in accordance with the quality, contents and forms licensed by the Ministry of Health.
Under the Decree on the Management of the Standards and Quality of Goods and Services of1995, a Central Management Agency was established under Science,
78 Table 3. Legal Provisions relevant to Consumer Protection
Agency Legal Instrument Responsible Ministry of Elaborated Recommendations Relating to the Regulations on Quality Control of Export- Health Oriented and Imported Foodstuffs No. 035/FMC, 9 September 1991
Ministry of Provisions on Quality Control of Domestically Produced Food Products Health No. 048FMC, 26 September 1991
STEA Provisions for Quality Control of Domestically circulated Foodstuff, No. 105/FMC, 31 October 1991 Ministry of Provisions on Quality Control of Domestically Produced Food Products, 048/FMC, Oct Health 1991 STEA Additional Explanation on Regulation of Quality Control of Domestically Circulated Food products, No. 027/MOH, 1992
STEA Decree on Patents, No. 01/PM of Jan 2002
Ministry of Decree on the Quarantine of Plants in the Lao PDR No. 66/PM Forestry and Adopted 23 March 1993 Agriculture -do- Decree on Livestock Management in Lao PDR No. 85/PMO. 31 May 1993 Health List of Medicines Prohibited in the Lao PDR based on the Decree of the Ministry of Public Health No. 740/MPH, 3 April 1994 STEA Decree on Trade Marks, No.06/PM, January 1995
STEA List of Chemical Products Under Restricted Control No. 1364/95/DFM, September 1995
STEA Decree on the Management of the Standards and Quality of Goods and Services, No. 85/PM of 2 November 1995 Department of Regulation on Livestock Management in Lao PDR No. 0004/MOAF, 2 January 1997 Agriculture and Forestry -do- Instruction for the Regulation on Livestock Management in Lao PDR No. 0005/MOAF Adopted on 2 January 1997
Ministry of Law on Drugs and Medical Products, No.01/NA. Apr 2000 Health MOC Decree on Goods Trading Business, No. 206/PMO of Sept 2001
Ministry of Food Law, No 4/NA, Apr 2004 Health
The Lao PDR is in the process of and Artistic Works by 2004. It is drafting a law on Copyrights and Related expected to become a member of the Rights based on WIPO Model Law and Patent Cooperation Treaty in 2003 and is preparing to adhere to the Bern of other conventions no later than 2006. Convention for the Protection of Literary The Lao PDR has no bilateral
79 agreements that have special reference to goods and services. The Ministry of consumer protection measures. Commerce is responsible mainly for the However, it has entered into bilateral administration of trade and price trade agreements with 17 countries, and surveillance to ensure adequate supply receives GSP from 34 countries of goods at fair prices to the consumer. including China, Australia and the EU. In addition to these bodies, there is the Division of Economic Police whose In addition Laos enjoys reciprocal Asian main responsibility is to assist the other Integration System of Preferences relevant authorities in dealing with the (AISP) with Thailand, Cambodia, offending traders and businesses and to Myanmar, and Vietnam. Under the investigate any complaints relevant to bilateral agreement with Viet Nam, Laos economic activities brought to them by allows imports of certain items from any person. Viet Nam at half the rates of tariffs applicable to imports from other Thus, as yet there is no one government countries. These arrangements benefit agency to coordinate and exercise the Lao consumers in terms of relatively overall responsibility for consumer cheaper supply of imported consumer protection in the country. However, as a goods particularly from Viet Nam, and matter of policy, the government has increased incomes made possible recently announced the need to establish through expansion of exports under GSP an institutional arrangement and a facility. The same is true of ASEAN legislative framework for consumer AFTA scheme (see Section 3.3) which protection. The Ministry of Commerce will increase the supply of relatively (MOC) has been entrusted with the task cheaper goods from ASEAN countries. of developing policies and legislative provisions, and to seek technical assistance, in order to establish 8.2 Administrative system institutional arrangements for consumer protection as well as for competition. As can be seen from Table 3, different Steps taken in this regard are dealt with government agencies are responsible for in Section 9. implementing different aspects of laws and regulations relevant to consumer protection. In some cases more than one 8.3 Existing redress mechanisms Ministry shares the responsibilities. The Ministry of Health is responsible for Under the existing legislative provisions, matters such as quality control and there are no mechanisms for consumer safety of food and food products, drugs redress under which consumers can be and pharmaceuticals, Ministry of compensated for losses incurred due to Forestry and Agriculture for quarantine malpractices by traders. However, of plants and livestock, while STEA is Economic Police would investigate any also responsible for quality control of complaint, brought to their notice, of food products and for regulation of malpractice or ill treatment by traders, chemical products. Other consumer and refer the matter to MOC or other protection related responsibilities of government agency that may have a STEA include trade marks, weights, standards, and also quality control of
80 direct responsibility regarding the Competition (see Section 3.1) has matter. already been issued, and the Trade Competition Commission (TCC) to The legislations, mentioned above, only implement it is yet to be established. provide for punishments to offending MOC’s intension is to expand TCC to traders. For instance, those traders who include the functions on consumer do not use proper weights and measures protection and to rename it as Fair can be either warned, fined, or their Trading Commission. A new Decree on trading licenses cancelled, and similarly Consumer Protection is being proposed, for those who engage in trading of and when it has been issued the two unsafe foods, drugs, and other products. decrees are expected to be combined into As for trading of illegal goods such as one law on Fair Trading, which will the import of unsafe or banned goods, establish the Fair Trading Commission. the offenders can be warned, fined, goods confiscated, or trading licenses cancelled. However, administrative 9.1 Draft Decree on consumer arrangements for monitoring the protection compliance of rules and regulations are weak, inadequate, and often ineffective. The draft decree on consumer protection, Often the staff in relevant agencies is prepared in consultation with Consumers insufficient, and those available are International Regional Office for Asia overloaded with activities related with and the Pacific (CIROAP), is being food safety promotion, inspection and considered by the government for enforcement of food regulations, and promulgation. The draft decree: they lack adequate training and expertise • gives the fundamental principles to carry out proper inspections relating under which consumer protection is 44 to food and drug safety . In other areas provided; such as the import or the sale of illegal • indicates the types of goods and goods, corruption too said to hamper services prohibited for sale; effective enforcement or rules and • defines the rights and obligations of regulations. the consumer; • defines the obligations of the business entities; 9. Proposed Regulatory System • provides for the establishment of a for Consumer Protection Fair Trading Commission (FTC); and As mentioned before, the Government • provides for penalties to offenders, has announced its intention to establish a and redress to aggrieved consumers. Fair Trade Commission under the MOC which will have the overall FTC will be responsible for responsibility for implementing laws implementing the decree on Fair Trade relating to both competition and Competition (see Section 3.1) as well as consumer protection that are to be 45 the proposed decree on consumer introduced . The Decree on Trade protection. Under the latter, its main responsibilities are: 44 UNIDO, Dec 2002 45 Government of Lao PDR, NPEP, Sep 2003.
81 • Initiating rules and regulations for will take shape only after the issue of the consumer protection proposed decree on consumer protection. • Providing for consumer education Until then, the Commission and its • Considering complaints from secretariat will confine their consumers responsibilities only to the • Enforcing measures against implementation of the decree on offenders competition. This will of course provide • Establishing redress mechanisms for gradual capacity building and resource availability for ultimately the The Commission has considerable functioning of the Fair Trading flexibility and discretion in formulating Commission after the decree on rules and regulations for consumer consumer protection is issued and comes protection as well as for imposing into force. Until then, it would be penalties for offenders as it sees fit from necessary for the MOC to commence time to time. The main form of redress initial steps in that direction, which provided for in the draft decree is would need to include selection of initial compensation from offenders to staff, soliciting technical assistance for consumers who have suffered losses as a their training, and obtaining the result of breaches or commission of necessary resources and facilities. offences. Other forms of redress and mechanisms for providing redress are left to be decided by the Commission.
9.2 Administrative system
As provided for in the draft decree, MOC, together with the Ministries of Finance, Agriculture and Forestry, Industry, Health, Science, Technology and Environment, National Tourism Authority, and other concerned Ministries and Provinces, is responsible for implementing the decree throughout the country. As provided for in the Decree on Trade Competition, the Minister of Commerce is responsible for the FTC who appoints its members. Both the FTC and its Secretariat are to function under the MOC. As mentioned earlier, entire administrative system for the implementation of the two decrees
82 References
1. Adhikari, Ratnakar, “Prerequisite for Development-oriented Competition Policy Implication: A Case Study of Nepal”, UNCTAD, Competition, Competitiveness and Development: Lessons from Developing Countries, United Nations, New York and Geneva, 2004. pp.53-90. 2. Bank of Lao PDR, Annual Report, various years. 3. Bourdet, Yves “LAOS: An Episode of Yo-Yo Economics”, Southeast Asian Affairs, 2000 4. Lao PDR Government, National Growth and Poverty Eradication Strategy (Final Draft), 2004 5. Lao PDR Government, National Poverty Eradication Programme – Background Document, Sept., 2003. 6. Lao PDR Government, National Poverty Eradication Programme, Sept., 2003 7. Lao PDR Government/UNDP, Maximising the Trade, Investment and Other Economic Benefits of ASEAN and AFTA for the Lao PDR, Apr., 1998. 8. Ministry of Commerce, Lao PDR, What and How to do Business in the Lao PDR, Vientiane, 1998. 9. Stuart_Fox, Martin, “Politics and Reform in the Lao People’s Democratic Republic” Political Economy of Development Working Paper No.1, The College of William & Mary, Willamsburg, VA, May., 2004. 10. UNCTAD, Competition Policy for Development: UNCTAD Capacity-Building and Technical Assistance Programme, United Nations, New York and Geneva, 2004. 11. UNCTAD, Competition, Competitiveness and Development: Lessons from Developing Countries, United Nations, New York and Geneva, 2004. 12. UNCTAD, the United Nations Set of Principles and Rules on Competition, United Nations, Geneva, 2000. 13. UNCTAD, WTO Core Principles and Prohibition: Obligations Relating to Private Practices, National Competition Laws and Implications for a Competition Policy Framework, United Nations, New York and Geneva, 2003. 14. UNIDO, Composition and Evaluation of Lao PDR’s External Trade, Vientiane, Nov., 2002. 15. UNIDO, Food Processing Sector in Lao PDR, Vientiane, Dec., 2002 16. UNIDO, Lao PDR: Medium Term Strategy and Action Plan for Industrial Development, Vientiane, Apr., 2003. 17. UNIDO, Prospects for Further Integration of Lao PDR’s Manufacturing Sector into ASEAN, Vientiane, Mar., 2003 18. World Bank Vientiane Office, Lao PDR Economic Monitor, World Bank, Oct., 2003 19. World Bank Vientiane Office, Lao PDR Economic Monitor, World Bank, Mar., 2004 20. WTO, Accession of the Lao PDR: Memorandum on the Foreign Trade Regime, Mar., 2001 21. WTO, Working Party on the Accession of the Lao PDR, Questions and Answers, Oct., 2003.
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KENYA of time and area within which it is expressed to apply, and to all the BY circumstances of the case, the PETER MUCHOKI NJOROGE46 provision or covenant is not reasonable either in the interests of the parties, inasmuch as it affords PART I: more than adequate protection to the Introduction party in whose favour it is imposed against something against which he Competition Law and Policy is relatively is entitled to be protected, or in the new to Kenya. Before independence, the interests of the public, inasmuch as colonial government applied patently the provision or covenant is injurious anticompetitive laws and policies to the public interest;” 47 skewed towards favouring the settler community and disadvantaging the other In other words, the agreements or sections of the national community. contacts envisaged by the Contracts in After attainment of independence, the Restraint of Trade Act are valid subject same anticompetitive laws were simply only to their invalidation upon review by adopted by the new government. A good the High Court. example of an anticompetitive law which is still extant is the “Contracts in It is only in 1988 that the Kenya Restraint of Trade Act, 1932”. To government made its first serious demonstrate its notoriety as the veritable attempt to dismantle the entrenched legal/statutory high priest of edifice of anticompetitiveness through anticompetitiveness in Kenya, its section the promulgation of the Restrictive 2(i) is reproduced here-below: Trade Practices, Monopolies and Price Control Act. The objectives of the law “ 2. Any agreement or contract which are to encourage competition in the contains a provision or covenant economy by: whereby a party thereto is restrained from exercising any lawful profession, 1. Prohibiting restrictive trade trade, business or occupation shall not be practices; void only on the ground that the the 2. Controlling monopolies; provision or covenant is therein 3. Controlling unwarranted contained: concentrations of economic power; and Provided that- 4. Controlling prices.48 (i) the High Court shall have power to declare the provision or covenant to 47 Many enterprises purport to justify restrictive be void where the court is satisfied business practices such as exclusive dealing by that, having regard to the nature of leaning on this law. 48 the profession, trade, business or It is ironical that a law that sought to bring in a occupation concerned, and the period competition regime also sought to retain a price control arrangement. Although all price controls were done away with by 1994, the part on price 46 The writer is the Commissioner, Monopolies controls is still in the statute books. Theoreticaly, and Prices Commission, Kenya. therefore, it can be reactivated.
85
Kenya’s competition was, ab initio, What Adam Smith observed in England intended to be transitional, that is, to in 1776 has indubitably and consistently move the structure of the economy from proved prophetic over the last few a price controlled one to a liberalized centuries and withstands the test of time one. This reality notwithstanding, the up to this day. As testimony to the law has not been reviewed, even once, immutability of Smith’s statement, it has since its promulgation in 1988 and become one of governmental or intra- operationalization on 1st February, 1989. governmental regulatory functions to encourage fair and open Competition. This paper will discuss the following This has been done through anti-trust areas: laws.
1. The historical background upon There are inherently conflicting interests which Kenya’s lack of a competition among businesses. As W.G. Shepherd culture is substructured; and Clair Wilcox have opined: “The 2. The evolution that led to the business Community is like a continent introduction of a competition law; full of warlike tribes. There is strife 3. A discussion of Kenya’s competition among firms, among industries, among law including its enforcement sectors; big versus small, and local institutions and practical application; versus international. Firm A’s gain 4. A narration of selected important usually causes a loss to some firm B,C,H cases; or Z. Good public policy recognized 5. The ongoing measures to promulgate these natural contraries, and it often puts a new law; such opposed private interests to work. The deepest single contrast is between established firms and newcomers; between old-line, blue chip, established PART II: firms and new outsiders.”50 The Need To Regulate Competition Businesses invariably have deep public The need to regulate competition is effects. Businesses Commonly marshall brought out clearly by the following and employ the capital of thousands of statement made by Adam Smith: “It is investors (Shareholders), employ not from the benevolence of the butcher, thousands of workers, buy from the brewer, or the baker, that we can hundreds of suppliers, and sell to expect our dinner but from their regard thousands or millions of customers. to their own interest... people of the They affect jobs, prices, local prosperity, same trade seldom meet together, even future resources, national security, and for merriment and diversion, but the often the quality and meaning of life. conversation ends in a conspiracy The behaviour of many business firms is against the public, or in some properly a matter of public concern. To contrivance to raise prices.”49
50 William C. Shepherd and Clair Wilcox, Public 49 Adam Smith: The Wealth of Nations, Policies Toward Business, ( Illinois: Richard (Harmondsworth, Eng: Penguin Books,1982), Irwin, 1979), chapter 4. The contents of the next page 782. paragraph are largely borrowed from this source.
86 take care of these disparate interests may also not be bad to keep reminding there is need for a macro-regulatory others of the positive attributes of a good regime. This macro-regulatory regime is thing. After all, the Holy Bible is about the Competition Authority. In Kenya, two thousand years old. And yet this is the Monopolies and Prices reference is made to it every Sunday, Commission. indeed every day, minute, and second !
Whereas political vibrance assures With the obtaining ubiquitous and political democracy, robust competition untramelled wave of liberalization-cum- assures economic democracy. Both globalization, promotion of competition political democracy and economic has been internationally embraced. The democracy buttress comprehensive International Community, through democracy. specialized agencies such as the World Trade Organization (WTO) and the Competition is the best general process United Nations Conference on Trade and for optimizing efficiency and equity. Development (UNCTAD), has accepted Efficient producers can undersell others, the supremacy of competition in the who must cut costs or be weeded out. International Market place. The fittest survive. Competition also forces sellers to advertise their wares Kenya is part of the International informatively. Competition fosters Community. Relatively, and in progress, by giving a free run to new juxtaposition with developed economies blood and new ideas. It rewards the such as the USA, the UK and Japan, innovator and compels the others to Kenya is a debutante in the competition imitate rapidly. It spreads income and matters domain. Kenya must, however, wealth widely, by averting monopoly for recognize that all the successful the few, and by feeding rewards to new developed economies have vibrant operators and innovators. It provides the competition authorities which widest opportunity for seeking success. dispassionately oversee the Market Competition enlarges freedom of choice place. Kenya does not need to reinvent for most citizens. It also gives a certain the wheel. For its economy to succeed, cultural richness by catering to the full it requires a strong competition regi me range of consumer wants. To assure the similar to the regimes subsisting in the sustenance of these benefits demands the developed World. As the rookie, Kenya existence of a competition regime.51 must learn from the experience of the denizens and accordingly, take It is deemed necessary to mention the appropriate measures. above positive attributes of competition, even though they may sound hackneyed. Internationally, in competitive trading In any case, it is accepted, almost terms, Kenya is a member of the World universally, that the culture of Trade Organization. Regionally, Kenya competition has not deeply set root in is a member of the East African developing countries such as Kenya. It Community and COMESA. Both groupings have embraced prmotion of
51 The contents hereof are generic and are found competition in their Charters. in many competition and economic books Specifically, Article 75 of the EAC- including Shepherd and Wilcox, op. cit,.
87 Treaty recognizes the need for competition as envisaged by the modern coordinated competition policies to be antitrust regimes in the nascent incorporated in the protocol that will government’s agenda. establish the proposed East African Customs Union. Also, Article 55 of the This reality notwithstanding, first and COMESA Treaty obligates member foremost, the imposition of colonial rule states to promote competition within the engendered the process of Capitalist trading bloc. penetration of African economies. Colonialism, then affected the articulation of indigenous modes of PART III: production with the capitalist mode of The Evolution And Status Of production and the integration of African Competition Policy And Law In economies into the Western capitalist Kenya system. The Capitalist mode of production is characterised by, first, the exclusive appropriation by one class of 1. Historical Foundation means of production that are themselves the product of social labour; second, the A historical look at the roots of whole of social production takes the economic relations in Kenya does not form of commodities and, third, labour evince a palpable Culture of power itself becomes a commodity Competition that compares favourably which means that the producer, having with that one envisaged by the American been separated from the means of 54 system sired by the Sherman Act of production, becomes a proletariat . 1890 and which has evolved over the Hence, with all the disruptive years to spawn a motley of hybrids that revolutionary impact that it entailed, the have been adopted by states and advent of colonialism catapulted the supranational institutions in places as African, albeit unwillingly, into a new diverse as Japan, the United Kingdom world of economic relations. This new and the European Union(whose system reality embraced a dual mandate. J. M. now subsumes the UK one).At the onset Lonsdale and B. J. Berman have of the colonial rule, the predominant aim concluded that the colonial state: of the colonizers was conquest, simple and clear. In this pursuit of conquest “...had to organize the reproductive Kenya was in the ten years between conditions not of one dominant mode 1895 and 1905 transformed from a of production but of a capitalist footpath 600 miles long into a Colonial mode not yet dominant whose social administration52. These British integument included the other modes conquerors were preoccupied with the to which capital was articulated and Creation of a hierarchy of self interest whose own social relations and out of the existing network of ideological charters it therefore authority53. There was no place for threatened... The colonial state indeed straddled not one but two levels of articulation: between the 52 W.R. Ochieng (Ed.), A Modern History of Kenya 1895-1980, ( Nairobi: Evans Brothers, 1989), page 6. 54 Claude Ake, A Political Economy of Africa 53 Ibid. (London: Longman, 1976), page 81.
88 metropole and the colony as a whole Through the formation of bodies such as as well as within the colony itself. It the Kenya Farmers Association (set up was at once a subordinate agent in its to handle maize and wheat) and the restructuring of local production to Kenya Cooperative Creameries (set up meet metropolitan demand, yet also to handle milk and butter) a movement as the local factor of cohesion over by the settlers, supported by the state, to the heterogeneous fragmented and control the internal market of key contradictory social forces jostling commodities and cushion themselves within. The very Dual Mandate against the vagaries of international defines the dilemmas of the colonial commodity fluctuations was instigated, state55.” and later on entrenched58. These Organizations succeeded in pushing the In the facilitation of the penetration of state to erect barriers against imports of Capitalism, the colonial state favoured commodities they handled. The Africans the settlers and relegated the Africans to were not allowed to join these an inferior position. The Africans were Organizations and were thus only allowed on an experimental basis to disadvantaged. grow coffee in 1933. Settlers were able to expand because they could obtain Unorthodox measures were employed to credit from British Commercial and assure settler farmers of cheap labour Merchant Banks established in the which effectively thwarted competition country and from private money-lenders from African farmers. The settlers some of whom were Indians, whereas considered that the protectorate’s Africans could not56. As a consequence administration should apply legislative, of the great depression, many settler administrative and financial pressure on farms sank into bankruptcy. By a show the Africans to induce them to go to of extreme favouritism, the colonial state work on European farms59. In 1901 a directly intervened in the provision of Hut Tax was imposed, through the Hut credit to settler farmers through the Tax Regulations[1901], which was a creation of the Land Bank in 1931 financial inducement to work. Another ,through the Land and Agricultural Bank example of these Unorthodox measures ordinance No.3 of 1931, which was not was the Promulgation of the Master and allowed to lend to Africans57. These Servant Ordinance 1906, which imposed were no doubt anti-competitive penalties of imprisonment or fine for practices. In any case under the Credit to negligent work on those already Natives Act, 1903, no credit of more working. The Hut and Poll Tax than £10 could be given to an African Ordinance 1910 consolidated these trader unless approved by a District measures. Another example was the officer. Native Authority Ordinance 1912 which stipulated that commercial labour was compulsory for everybody, including men past working age, women and
55 Ochieng, op.cit, page 38. 56 R.M.A. Van Zwanenberg and Anne King, An 58 Ochieng, op. cit, page 43. Economic History of Kenya and Uganda, ( 59 Y.P. Ghai and J.P.W.B. McAuslan, Public London, 1975), page 296. Law and Political Change in Kenya, ( London: 57 Ibid,, page 296. OUP, 1967),page 83.
89 children. Its stipulations amounted to representation62. As if the Africans were forced labour for government purposes being represented at all, let alone in an in the reserves. Instead of doing unpaid electoral manner! compulsory work it offered incentives to Africans to go and work for settler It is apposite to refer to two cases which farmers at cheap rates. show that egregious discrimination against Africans and other races was The whole colonial era is replete with practised. Of course, in an atmosphere of examples of practices and measures discrimination, competition is which were anti-African and antithetical trammelled. The first is the case of Mbiu to a culture of competition in economic Koinange V R63. This case concerned an relations. For example though most of attempt to prevent Mbiu Koinange from the colonial states revenue went to planting coffee. The rules in Question develop the settler sector, by 1930 the conferred powers to limit the area within Africans were responsible for 37 1\2 per which certain crops could be grown. In cent of the colony’s total revenue60. blatant misuse of powers, the authorities Considering that additional revenue was sought to limit the classes of people who indirectly collected from Africans could grow the crops. This is a clear through customs and Excise duties, example of an attempt to forestall Local Native Council Levies and other competition among coffee farmers. indirect taxation, it is evident that Africans contributed much more than The other case concerned the power of was acknowledged. N. Swainson, has the Commissioner of Lands to impose estimated that together hut, poll tax and restriction on who could bid at auctions customs duties were responsible for 60 for sales of crown land, and their use to 80 per cent of the colony’s revenue61. thereafter64. The Commissioner had Paradoxically, the bulk of this income advertised the auction of town plots at was pumped into the settler sector, at the which only Europeans were to be expense of the African majority allowed to bid and purchase and had population. stipulated that during the terms of the grant the grantee should not permit the The enormity of the taxation measures dwelling house or outbuilding thereon to imposed on Africans denied them the be used for the residence of any Asiatic savings upon which they could build up or African who was not a domestic adequate capital to undertake servant employed by him. competitive economic relations against the white settler farmers. The same The Commissioner’s powers to dispose settlers who benefited from the taxes of the land was derived from the Crown exacted upon Africans had opposed Lands Ordinance of 1915. The taxation on the basis that it was only Ordinance had made a distinction relevant where there was elective
62 Hay V. Commissioner of Income Tax, 1940, 7 E.A.C.A 7. 63 [1951], 24(2), K.L.R. 130. 60 K. Ingham, A History of East Africa, (London: 64 The Commissioner of Local Government, OUP, 1967), page 337. Lands and Settlement V Kaderbhai, (!930), 12 61 Ibid. K.L.R. 12.
90 between the disposal of agricultural and spheres66. Antitrust and other related urban land, and the power to impose policies were not an exemption! As Y. P. racial restrictions or covenants was Ghai and J. P. McAuslan opine, “The expressly granted only in the case of Africans in Kenya came to political agricultural land. It was argued by the awareness within a legal system in appellants that, therefore, there was no whose rhetoric praised equality and power to impose these restrictions on the justice but whose practice sharply disposal of land in towns. The Judicial distinguished between those with and Committee, saying they were concerned those without power, wealth and with law and not policy, found for the influence... The law is seen solely as Commissioner, holding that prima facie being a tool of the wielders of power the rights of the Crown and its servants who use it as they think fit, legalizing to dispose of Crown property were their own illegal exercises of power, and analogous to those of the private owners. attempting to prevent the acquisition of They had to observe express terms of the power by, and the development, of the statute, but apart from that they were powerless”67. Just as the Europeans had free to impose what restrictions they used the law to thwart African choose. The learned Lords went on to competition in economic relations, the argue that it would be valid to restrict the new ruling class inherited their stance on bidding to industrialists, or the trading attainment of Independence. community, in appropriate cases. Hence there was nothing wrong in extending this principle to racial groups! 2. Kenya's Economic Environment Prior to the Introduction of the By the time Kenya attained Present Competition Policy and independence there had not developed a Law68 culture of competition as envisaged by modern antitrust regimes. The system of Prior to Kenya's attainment of Self-Rule licensing, for example, was made use of in June 1963 and full Independence on to give leverage to British Capital so that 12th December 1963, the degree of it faced little or no competition. Indeed industrialisation and monetization of the licensing encouraged “the movement of economy was rather basic. Most capital into large oligopolistic units and consumer items such as sugar, fats, razor a highly concentrated industrial structure blades, pangas, jembes, etc which were emerged”65. With the advent of needed by the settler community were Independence the new ruling class took imported from U.K. in support of Her over the position hitherto occupied by Majesty's motherland. In Kenya itself, the colonial ruling class and generally the interests of the consuming settlers perpetuated the economic relations they were protected through a Price Control inherited. The new ruling class was able Regime which ensured that consumers to control directly and in great detail most of what went on in the country in the political, economic and social 66 Ghai and McAuslan, op.cit,. page 507. 67 Ibid, page 508. 68 The narration given in this part is a 65 N. Swainson: The Development of Corporate synthesitation of government papers, academic Capitalism in Kenya, 1918-1977 (London, papers and books and material obtained from the 1980), page 123. Monopolies and Prices Commission.
91 of essential goods and services were not v) Establishment of import quotas for exploited by sellers through the Price certain goods. Control Act of 1956. vi) Complete banning of imports of certain goods. Kenya embarked on a process of rapid vii) Letters of No Objection. industrialisation and indigenisation of viii) Allocation of Foreign Exchange. the economy on attainment of ix) Fixed Exchange Rate. independence on 12th December 1963 through the setting up of import Kenya's industrialization programme substitution industries to meet Kenyan through imports substitution strategy and East African Community reached saturation point in mid 1970s requirements and the transfer of non- and the programme was hard hit by the citizen firms to Kenyans. To this end, collapse of the East African Community the independent Administration of which resulted in Tanzania and Uganda Kenya enacted the Trade Licensing Act, opening their markets to imports from Cap. 497 of the Laws of Kenya which China, Taiwan, Korea, India, etc. with legalised the take-over of non-citizen the loss of the larger captive East firms by citizens of Kenya through African market. Kenya's domestic denial of Trading Licenses to certain industries found themselves with a very Trades and Businesses. The small domestic market and products Administration also legalised the control which could not compete in the export of the importation and exportation of markets because of their high prices, low goods of any description and the control quality, poor packaging, poor design etc. of supplies essential to the life or well- This was followed by falling being of the community through Legal (decreasing) employment opportunities Notice No. 303 of 1964 under the and falling standards of living for Imports, Exports and Essential Supplies Kenyans. Act, Cap.502 of the Laws of Kenya. To reverse the trend of economic Briefly, therefore, the commercial decline, it became abundantly clear that activities of Kenya were regulated Kenyan industries must produce not only mainly through instruments provided for domestic market but also for the under the Price Control Act, Trade export market. The Government Licensing Act and Imports, Exports and therefore decided in the mid 1970s to Essential Supplies Act which included expose them to competition first in the among others the following domestic market by allowing some instruments:- imports so as to prepare them for export market competition. Competing imports i) Fixing of prices of certain goods and were selectively allowed into the services. Kenyan market; banned items were ii) Transfer of certain businesses from progressively removed from the list of non-citizens to citizens of Kenya. banned items and price controlled items iii) Establishment of imports substitution removed from price control lists industries. progressively. In addition, additional iv) Imports and Exports licensing. industries were licensed to boost domestic competition, lower consumer
92 prices, increase employment recommended that legislation with opportunities, improve the efficiency in respect to unfair practices be enacted and the use and allocation of scarce that a Monopolies and Prices resources to competing needs. Commission be established to enforce it. This Commission should also assume The policy was aimed at the the functions of the present Price Control improvement of the marketability Division. The Commission should be (competitiveness) of Kenyan products in empowered to collect annually the export market, increase job standardized financial information on all opportunities, lower the cost of living public companies and to investigate and raise the standard of living for complaints relating to unfair market Kenyans throughout the Republic. prices and practices. Such a commission should have quasi-judicial powers analogous to those of the Industrial 3. Evolution of Present Competition Court, and should be able to impose Policy and Law sanctions for practices in restraint of fair trade as defined in the legislation." The proposal for the Development of a Competition Policy and the enactment of Paragraph 91 touched on the manning of a law to support the implementation of the institution that the economy would such a policy in Kenya was advanced in expect to be able to regulate the conduct 1982 by the Working Party on and the structure of the market so as to Government Expenditures (WPGE). obtain the desired performance in the The proposal is contained in Chapter III, market place and noted "The Pages 24-27 of the WPGE Report which Commission will require a staff of noted that, as direct Government economists and financial analysts to intervention in the economy via state- report on market conditions, paying owned commercial enterprises particular attention to movements in diminishes, "more reliance will be put on prices and costs at all levels of policy instruments to influence farm production and distribution and their management and industrial decisions on effects on both supply and demand. product choice, investment and Apart from its regulatory function it employment." The Report further noted should contribute to Government policy that, "as private sector activities and formulation in matters affecting trade, community efforts increase in scope and production and prices." magnitude, opportunities for abuses, favouritism and exploitation may also The WPGE principal objective in its increase." recommendations for a competition policy, legislation and establishment of More specifically, paragraphs 87-91 suitable institutions for the spelt out the WPGE views on the type of administration and enforcement of the legislation and institutions that Kenya Policy and Law, was to provide Kenya needed to facilitate the desirable changes with an instrument for influencing from a controlled economy to a market resource allocation in constructive oriented free economy. Paragraph 90 in directions while helping to curb the particular stipulated that, "It is, therefore,
93 abuses associated with unbridled private establishing an administrative enterprise. mechanism to enforce it." This commitment by the Government resulted The WPGE recommendations of 1982 in the enactment of the Restrictive Trade gave the advocates of a liberalized Practices, Monopolies and Price Control economy both in Government and Act, Cap.504 of the Laws of Kenya in private sector food for thought and 1988. studies were undertaken between 1983 and 1985. Towards the end of 1985, a comprehensive Cabinet memorandum 4. The Present Position was prepared and submitted to the Cabinet proposing the enactment of a The Kenyan anti-trust position is law prohibiting Restrictive Trade encapsulated in the Restrictive Trade Practices and the establishment of a Practices, Monopolies and Price Control Monopolies and Prices Commission in Act (Chapter 504 of the Laws of Kenya). Kenya. The Cabinet approved the Before 1989, Kenya had a Price Control proposal and mandated the then Ministry Act which by and large sought to control of Finance and Economic Planning to prices of goods. The old Act did not by consult widely with other relevant and large seek to Control Services. The Government Ministries and Departments provisions of the new Act have so as to be able to draft a engendered the regulation of Mergers, suitable bill for debate and enactment by control of unwarranted Concentrations Parliament. of Economic Power and prohibition of Restrictive Trade Practices. It has, Kenya's momentum for change from a however, rather atavistically in this age controlled economy to a free economy of liberalization, contained virtually all was amplified by Sessional Paper No.1 the price control provisions contained in of 1986 on "Economic Management for the replaced Act. Renewed Growth," which noted on page 24 paragraph 2.53 that the "Government Sessional Paper number 1 of 1986 (op. will establish the market-based cit) articulated unequivocally the path incentives and regulatory structures that Kenya was destined to follow in the will channel private activity into areas of realm of competition. It said, greatest benefit for all Kenyans. In doing so, Government will rely less on “Price Controls in Kenya are instruments of direct control and administered to stabilize the prices of increasingly on competitive elements in necessities and to restrain monopoly the economy." At paragraph 6.31, page producers from raising prices above 100, the Sessional Paper also noted that, competitive levels in the absence of "At present, Kenya has no sufficient import competition. To make comprehensive legislation making price Controls more effective as a tool to restrictive practices illegal and no increase productivity and growth, the administrative or legal mechanism to functions of price control will be prevent them". Therefore "Government integrated with those of control over will propose legislation prohibiting restrictive market practices; and to make restrictive trade practices and controls more equitable for both
94 consumers and producers, the rules and competition regime69. This was evidence procedures will be streamlined: that Kenya was not only committed to a transitional promotion of competition 1. A department of Price and Monopoly arrangement; it was willing to eventually Control (DPMC) will be created in liberalize the market and fully embrace the Ministry of Finance, under new competition. This settled the matter legislation to be prepared, to monitor internally: Kenya was poised to adopt a actions in restraint of trade and to fully liberalized market regime to be enforce rules prohibiting unfair regulated by a Macro Competition practices; regulator, the present day MPC.
2. Administration of price controls will In the East African scene, Kenya is a be streamlined and applications for member of the East African Community. adjustments acted upon within 90 Article 78(1) of the original draft Treaty days, in the absence of which price of the East African Community which adjustments will be automatically discussed competition at the formative permitted; stage provided that:
3. The Determination of Costs Order • “The partner states agree that any will be revised to include costs that practice that adversely affects the are not currently a basis for price objectives of free and liberalized adjustments and will permit the trade shall be prohibited. To this end introduction (on an experimental the partner states agree to prohibit any basis at first) of importality formulae agreement between undertakings or on which to base adjustments; and concerted practice which has as its objective or effect the prevention, 4. Items that are not produced by restriction or distortion of competition monopolies and are not essentials for within the Community”. low-income families will be considered for decontrol on a gradual Eventualy, competition was subsumed basis”. by Article 75(7) of the Treaty for the establishment of the East African It is clear from the sessional paper that Community [EAC] which states that the restrictive Trade Practices, competition shall be one of the elements Monopolies and Price Control Act [Cap. of the EAC Customs Union. In 2003, a 504 of the Laws of Kenya] was intended draft competition policy and law was to be a transitional piece of legislation to adopted by the Council of Ministers70 enable Kenya move from a price control and is awaiting promulgation by the regime to a true Market (Competition) EAC regional assembly. This proposed Regime. In the 1988 Budget Speech law obligates Kenya to promote which announced the publication of the competition and, by inference through draft bill which eventually crystallized into Cap 504, the Vice President and 69 then Minister for Finance, Professor Budget Speech, 1988, Government Printer, Nairobi. George Saitoti, declared that Kenya was 70 The Council of Ministers is the policy and committed to a market driven decision making organ of the East African Community.
95 the Terms of Reference issued to the “The multilateral trade negotiations of consultants who crafted the EAC draft the Uruguay round culminated in the competition law, to have an autonomous establishment of the World Trade national competition authority.71 Organization (WTO). It set out an ambitious agenda which included If one needs evidence of an reducing trade barriers further. Kenya is unambiguous position that the Kenyan a signatory to this Agreement and must government policy articulates work within its trade regulations and untrammelled competition in the market recognize that international trade will place, this is it. Unequivocally, the become more competitive. However, government has committed itself to new trade opportunities will emerge as a prohibit any practice that adversely result of the new multilateral affects the objectives of free and arrangements that will encourage liberalized trade. international trade provided Kenya can establish export oriented industries. ” To further buttress its commitment to local and international competition, the The above positions demonstrate that the Kenya Government has stated that government of Kenya is committed to facilitation of both local and the promotion of Competition. Sessional international trade will be two of its Paper No.1 of 1986 and the Budget most important industrialization Speech of 1988 committed Kenya to the strategies. In a forward to Sessional promotion of competition internally. Paper No 2 of 1996 on Industrial Sessional Paper No 2 of 1996 committed Transformation to the Year 2020, the the government to promotion of then Minister for Commerce and competition through the path of Industry, Hon. Joshua Angatia, with comparative advantage and hence, regard to international trade, said: “… internationally. The paper also As a country, we must look outward to committed Kenya to the World Trade our neighbours and the world both to Organization (WTO) agreement which seek opportunities for our enterprises arose from the Uruguay Round and and to invite others to participate in stressed that Kenya would abide by building our economy. We cannot WTO trade agreements which promoted create a future if we can turn our backs international trade. on the challenges of international trade and commerce”. 5. Legal Provisions and Procedures The sessional paper further reiterated the need to assure promotion of competition Kenya’s Antitrust Law among local traders“ through strict enforcement of anti-monopoly and anti- Kenya did not have an antitrust trust laws”. The sessional paper also department before 1st February, 1989 definitively stated: which was the commencement date for the Restrictive Trade Practices, Monopolies and Price Control Act [Chapter 504 of laws of Kenya]. Instead, 71 The writer was one of the five consultants who it had a Price Control Act. The said law wrote the draft EAC competition policy and law.
96 merely sought to control prices. The by section 4 as referring to an act Price Control Act was repealed by the performed by one or more persons Restrictive Trade Practices Monopolies engaged in production or distribution of and Price Control Act. goods or services which:-
The purpose of the Restrictive Trade (a) In respect of other persons offering Practices, Monopolies and Price Control the skills, motivation and minimum Act is explained by its preamble as capital required in order to compete follows,“ An Act of parliament to at fair market prices in any field of encourage competition in the economy production or distribution, reduces or by prohibiting restrictive trade practices, eliminates their opportunities so to controlling monopolies, concentrations participate: or of economic power, and prices and for (b) In respect of other persons able and connected purposes”. willing to pay fair market prices for goods and services, either for The antitrust department is production, for resale or final established by section 3 of consumption, reduces or eliminates the Act which:- their opportunities to acquire those goods or services. 1. creates the post of Monopolies and Prices commissioner and allows the The section also explains that reduction appointment of such other officers as or elimination of opportunities is to be may be necessary for the due measured with reference to the situation administration of the Act. that would pertain in the absence of the practices in question. Section 5 allows 2. stipulates that the monopolies and restrictive Trade practices which are prices commissioner shall, subject to sanctioned by parliamentary authority, the control of the Minister, be professional licensing practices and responsible for the control and certain trades which are licensed with management of the monopolies and the authority of parliament. prices department of the treasury. Section 6 enumerates what are deemed 3. Allows the Commissioner to restrictive practices for the purpose of authorize any officer to exercise any the Act and declares such agreements of the powers conferred by the Act unenforceable. Section 7 applies the Act upon the commissioner subject to to restrictive trade practices conducted such limitations as the commissioner by or on behalf of a trade association. may think fit. Section 8 deals with the issue of refusal or discrimination in supply as a As said in the preamble, the Act seeks to restrictive trade practice. Section 10 encourage competition in the Kenyan prohibits predatory trade practices to economy by prohibiting restrictive trade repress competition and section 11 practices and controlling monopolies and prohibits collusive tendering. Section 13 concentrations of economic power and declares bidding at auctions criminal. prices and for connected purposes. “Restrictive trade practices” is defined
97 When complaints relating to restrictive production and distribution of goods and trade practices arise, any person who services in Kenya under review to considers himself to be aggrieved as a determine where concentrations of result of a restrictive trade practice, is economic power exist whose detrimental allowed by section 13 to submit a impact on the economy out-weighs the complaint to the Minister, through the efficiency advantages, if any, of Commissioner, in the prescribed form. integration in production and Where the Commissioner considers a distribution. In identifying unwanted complaint to have merit, the Act allows concentrations of economic power, the the commissioner to investigate. The minister is required to pay particular commissioner may also initiate attention to specific factors which are investigations into alleged restrictive enumerated by section 23. practices when appropriate. A hearing may be required to be held following The Minister has the power to direct the restrictive trade practices allegations. Commissioner to investigate any The complainant and the alleged economic sector which he has reason to malfeasor shall both be given reasonable believe may feature one or more factors advance notice of the holding of a relating to unwarranted concentrations of hearing. Both may be represented by an economic power. For that purpose the advocate of each party’s choice. Commissioner shall be entitled to require any participant in that sector to Upon the conclusion of the investigation, grant him or any person authorized in including the holding of a hearing, the writing by him access relating to patterns commissioner is required by section 17 of ownership and percentages of sales to present his report together with accounted for by leading enterprises in recommendations for action by the the sector. The commissioner may also Minister. The Minister may by notice in require any person possessing relevant the Kenya Gazette, make an order records to give him copies of the records requiring a person committing or or alternatively to submit the records to deemed to have committed a restrictive him for copying. trade practice to desist from the said practice and such a person may also be After receipt of the Commissioner’s required to take certain positive steps to report, the minister may order that assist existing or potential suppliers, inimical interests be disposed. This, the competitors, or customers, in order to minister may do under powers contained compensate for the past effects of these in section 24 of the Act. Of course, an practices. Under section 20 aggrieved aggrieved party, either with matters persons may appeal to the Restrictive relating to restrictive trade practices or Trade Practices Tribunal and if not monopolies and concentrations of satisfied they may lodge a final appeal in economic power, may appeal to the the High Court. Restrictive Trade Practices Tribunal in the prescribed form. A second appeal Part III of the Act deals with control of goes to the High Court whose decision monopolies and concentrations of shall be final. economic power. Section 23 requires the minister to keep the structure of
98 Section 27 outlaws mergers between two (c) Whether a merger or takeover will be or more independent enterprises engaged disadvantageous to the extent that it in manufacturing or distributing encourages capital-intensive substantially similar commodities, or production technology in lieu of engaged in supplying substantially labour-intensive technology. similar services unless there is an authorizing order from the minister. The Under section 31 the Minister, may, after takeover of one or more such enterprises considering the recommendation of the by another such enterprise, or by a commissioner, make an order person who controls another such concerning the application for enterprise is similarly outlawed. No authorization of a merger or takeover. merger or takeover undertaken in Any aggrieved person may appeal to the contravention of section 27 is lawful or Restrictive Trade Practices Tribunal and enforceable. Under section 28 any finally to the High Court. person is allowed to apply to the minister, through the commissioner, for Procedures an order authorizing a merger or a takeover. The commissioner is obliged There are three types of procedures by section 29 to investigate any followed to vindicate infraction of application and he is required in his antitrust laws as follows: evaluation of the application to pay regard to the following criteria:- a) Restrictive Trade Practices
(a) Whether a merger or takeover will be In the case of restrictive trade practices advantageous to Kenya to the extent any aggrieved person may submit a that the participants produce goods complaint to the Minister, through the and services entering into Commissioner, in the prescribed form. international trade and the merger or The Commissioner investigates the takeover will yield a substantially complaint and may inform the person more efficient unit with lower complained against about the allegations production costs and greater and the evidence adduced and invite the marketing thrust, thus enabling it to person to comment on the allegations compete more effectively with and the evidence and to indicate what imports, expand Kenya’s exports and remedies the person would propose in thereby increase employment. order to bring his trade practices into conformity with the law. The (b) Whether a merger or takeover will be Commissioner may also inform the disadvantageous to the extent that it person complained against that the reduces competition in the domestic weight of the evidence supports the market and increases the ability of allegations that have been made and producers of the goods or services in request the person in question to take question to manipulate domestic specific steps to discontinue the practice, prices in accordance with the and in addition, compensate for the past principles of oligopolistic effects of such practices by taking interdependence; positive steps to assist one or more existing or potential suppliers,
99 competitors or customers to participate concentrations of economic power. The fully in producing or trading in the Commissioner then reports back to the goods or services to which the Minister who may make an order allegations relate. directing any person he deems to hold an unwarranted concentration of economic In case there is no response to the power in any sector to dispose of such commissioner’s communication by the portion of his interests in production or indicated date or any ameliorative action distribution or supply of services as the taken is deemed by the commissioner to Minister deems necessary to remove be inadequate, the commissioner is unwarranted concentration. Any required to invite the person to negotiate aggrieved person may appeal to the a consent agreement satisfactory to the Restrictive Trade Practices Tribunal and commissioner binding the person to finally to the High Court. desist from specified practices and to compensate for their past effect. Such c) Control of mergers and takeovers agreement is gazetted and copies sent to any person complaining of the said Mergers and takeovers effected without practice/s and to any other persons the an authorizing order from the Minister Commissioner deems to be affected by are illegal ab initio and not justiceable. the agreement. Any person intending to effect a merger applies to the Minister through the Should the preceding measures not be Commissioner for action by the minister. effective, either because of lack of The minister may then make an order, by satisfactory steps or because of breach of notice in the Gazette, requiring that agreement terms, the commissioner ameliorative action, including specific informs the person in question that he requirements be undertaken within a proposes to recommend that the minister given time which must be longer than make an order regulating the practices in twenty eight days of the publication of question and that a hearing on the the order in the Gazette94. The desirability will be held on a specified publication of the notice in the Gazette is date. Upon concluding the requisite an important act. This is because in the investigation under section 16, including case of other infractions of antitrust law the holding of a hearing, the this matter is treated differently. In the Commissioner presents his report case of control of unwarranted together with recommendations to the concentrations of economic power there Minister. is no requirement, whatsoever, that the Minister’s order be gazetted95. In the b) Control of unwarranted case of control of mergers and takeovers, concentrations of economic the Minister is only required to cause an power order to be published in the Gazette as soon as is reasonably practicable after it In the case of abuse of monopolies and is made96. dominant positions, the Minister directs the Commissioner to investigate any The Commissioner investigates the economic sector which features one or applications and gives his more factors relating to unwarranted recommendations to the minister, who
100 may make an order of authorization guilty of an offence. Intention is not either approving or rejecting the required in all other aspects of restrictive application. An aggrieved person has trade practices or in infractions of recourse to the Restrictive Trade monopoly and dominant positions. In the practices Tribunal and finally to the case of mergers and takeovers, all High Court. unauthorized actions are prohibited per se. Intention Market Power Kenya’s antitrust position specifies the necessity of there being intention only in The Minister is given an imperative the case of predatory trade practices mandate to keep the structure of intended to repress competition. The production and distribution of goods and intention to engage in the predatory services in Kenya under review in order practices may be an exclusive intention to determine where concentrations of or an intention in common with other economic power exist whose detrimental objects. The purposes covered are97; impact on the economy out-weighs the efficiency advantages, if any, of (a) to drive a competitor out of business, integration in production and or to deter a person from establishing distribution; and in identifying a competitive business in Kenya or unwarranted concentrations of economic in any specific area or location power. The minister is required, by within Kenya; or section 23, to pay particular attention to the following factors: (b) to induce a competitor to sell assets to, or merge with another (a) a person controls a chain of party, whether that party is the distributing units the value of whose offender himself or a third person; or sales exceeds one-third of the relevant market for the category of (c) to induce a competitor to shut down, goods sold by the chain, comprising whether temporarily or permanently the national market in the case of a an existing manufacturing facility or national chain or a regional or urban wholesale or retail outlets or outlet market in the case of a regional or for the sale of services, or to deter a urban chain, respectively; or person from establishing any such facility or outlet in any one or more (b) a person, by virtue of controlling two locations in Kenya; or or more physically distinct units which manufacture substantially (d) to induce a competitor to desist from similar products, supplies more than producing or trading in any goods or one-third of the value, at ex-factory services or to deter a person from prices, of the domestic market for the producing or trading in any such category of the goods into Kenya but goods or services. excluding exports of goods from Kenya; or Any person committing predatory practices with the above purposes is
101 (c) a person has a beneficial interest, guilty under section 11 or 12 or exceeding twenty per cent of subsection (1) of section 21, may outstanding shares, in a order the convicted person, in manufacturing enterprise, and addition to any other penalty which simultaneously has a beneficial may otherwise be imposed, to pay a interest, however small, of fine of two times such monetary outstanding shares, in one or more value98. This is analogous to the wholesale or retail enterprises which USA position with regard to suits distribute products of the instituted by private parties. See: manufacturing enterprise; or Westinghouse Electric Corp. V Rio Algon Ltd99. In the Clayton Act (d) a person has a beneficial interest, treble damages are provided for exceeding twenty percent of whereas in the Kenyan law, double outstanding shares, in a wholesale damages are legislated for. Failure to distributing enterprise, and comply with an order is also a simultaneously has a beneficial criminal offence100. interest, however small, in one or more retail enterprises which (b) In the case of unwarranted distribute goods supplied by that concentrations of economic wholesale enterprise. power(i.e. abuse of monopolistic and dominant positions), the Minister may direct the malfeasor to dispose Remedies of such portion of his interest in production or distribution or the (a) In matters concerning restrictive supply of services as the Minister trade practices, the malfeasor is deems necessary to remove the required by the Minister to desist unwarranted concentration101. It is from the trade practices prohibited also a criminal offence to contravene by antitrust law and the Minister may or fail to comply with the order of also require the malfeasor to take the Minister or any part thereof102. specific steps to assist existing or potential suppliers, in order to (c) In the case of mergers and takeovers, compensate for the past effects of the any action taken without the particular infractions. Minister’s authority is void ab initio and unenforceable in legal Interesting is a provision akin to the proceedings103. Any person provision of the Clayton Act, one of contravening the law is also liable to the key antitrust laws of the United imprisonment for a term not States of America. The Restrictive exceeding three years or to a fine not Trade Practices Tribunal, if satisfied exceeding two hundred thousand that a monetary value can reasonably shillings or both104. be placed on the damage, including loss of income, suffered by a person, Figures 1.1, 1.2 and 1.3 here-below as a result of restrictive trade illustrate procedures relating to the practices committed by a person enforcement of antitrust laws in Kenya. Figure 1.1 - Restrictive Trade Practices (Kenya)
102
COMPLAINT (i) By Individuals (ii)By Commissioner ⇓
COMMISSIONER -Investigations -Consent Agreements ⇓
HEARING -Representations -Recommendations ⇓
MINISTER -Gazettement of orders to desist -Requirement to ⇓ Compensate
TRIBUNAL -(i)Upholds Orders -(ii)Overrules Orders ⇓
HIGH COURT -Final Determination
Note : The Minister is required to Gazette Order.
SOURCE: AUTHOR.
103 Figure 1.2 - Monopolies/Dominant Positions(Kenya)
DIRECTION BY MINISTER TO INVESTIGATE
⇓
COMMISSIONER -Investigates -Recommends/Reports ⇓
MINISTER -Makes order to dispose if necessary -No Gazettement required ⇓
TRIBUNAL -Upholds Order -Overrules Order
⇓
HIGH COURT - Final Determination
Note : The Minister is not required to Gazette Order.
SOURCE: AUTHOR.
104
Figure 1.3 - Mergers/Takeovers (Kenya)
APPLICATION -Application for Merger by Proposer
⇓
COMMISSIONER -Investigates, -Evaluates -Recommendation to Minister ⇓
MINISTER -May Authorize -May Reject -Gazettes within Reasonable Time ⇓
TRIBUNAL -Upholds Order or -Overrules Minister
⇓
HIGH COURT - Final Determination
Note :Unauthorized Mergers are illegal ab initio; Agreements unenforceable. The Minister is only required to Gazette Orders within reasonable time.
SOURCE: AUTHOR.
105 hands of the Minister for Finance. PART IV: Section (3)(2) of the Restrictive Trade Enforcement Institutions Practices, Monopolies and Price Control Act Cap.504 of the Laws of Kenya Competition cases in Kenya are handled subjects the Commissioner for by four principal institutions. These are Monopolies and Prices to the control of Legislature (Parliament), Office of the the Minister and the Commissioner Minister in-charge of Finance, the Office obtains compliance with his of the Commissioner for Monopolies professional prescriptions for the market and Prices, the Restrictive Trade through Ministerial orders. The Minister Practices Tribunal and the High Court of relies heavily on the professional advice Kenya. Each one of these institutions of the Commissioner for Monopolies has its functions, responsibilities and and Prices, who, with a team of powers clearly spelt out in the economists, financial analysis, lawyers legislation. and other necessary market analysts is the principal custodian of Kenya's Legislature (Parliament) Competition policy. The Commissioner, whose appointment is mandated under Parliament is the principal custodian of section 3(1) acts as a watchdog, keeping public interest in Kenya and it creates an eye on commerce as a whole, both the institutional and legislative carrying out initial enquiries and frameworks for the promotion and ordering in-depth investigations protection of public interest. In the whenever situations demand. The competition area, Parliament enacted the Commissioner has the primary current legal instrument, i.e. the responsibility for conducting Restrictive Trade Practices, Monopolies investigations into all possible situations and Price Control Act, Cap.504 of the of anti-competitive practices such as Laws of Kenya. And because the market restrictive trade practices, abuse of is dynamic, the Law that regulates the dominant market power, mergers and functioning of the market must be take-overs. In practical terms, such reviewed from time to time so as to align investigations are carried out by the it with the dynamic changes in the Commissioner's staff in the Monopolies market place. My submission here is and Prices Commission. The work that Parliament has a functional involves responding to complaints by a responsibility of ensuring the updating company's competitors or customers, of the country's Competition Law so that and carrying out informal research into the Law is able to support and promote markets where competition problems are effective competition so as to further the thought or alleged to be present. economic interests of the public and the efficiency of business. The Office of the Commissioner for Monopolies and Prices
Office of the Minister for Finance The Commissioner for Monopolies and Prices is appointed in pursuant to the The overall responsibility for provisions of Section 3(1) of Kenya's competition Policy in Kenya is in the Competition Law and he, in turn,
106 directly and indirectly controls, manages Competition Authority had a budget of and influences competition in exercise K. Shs.30,000,000. It had 22 technical of the powers conferred upon him by the officers, all of whom had training in the Law and such limitations as the Minister requisite areas of apposite Law and may think fit. The Law does not provide Economics. the authority that is responsible for the appointment of the Commissioner for The Restrictive Trade Practices Monopolies and Prices. However, once Tribunal (RTPT) the Commissioner is appointed he is independent and has a range of statutory Pursuant to Section 64(1) of the duties and responsibilities. He heads the Restrictive Trade Practices, Monopolies Monopolies and Prices Department of & Price Control Act, Cap.504 of the the Treasury and has responsibilities for Laws of Kenya, a quasi-judicial efficient administration and enforcement authority, that is the RTPT, is appointed of Competition Law. He has also every other five years since 8th February responsibilities in the consumer 1991. The RTPT consists of a Chairman protection field. He seeks to maximise who must be an advocate of the High consumer welfare in the long term, and Court of Kenya of not less than seven to protect the interests of vulnerable years standing and four members. The consumers by: members of the RTPT have a five years secure term of office and may be a) empowering consumers through appointed for other terms of office at the information and redress. expiry of the five years. b) protecting them by preventing abuse. It must be stressed here that once c) promoting competitive and constituted by the Minister for Finance, responsible supply. the RTPT is absolutely independent of the Office of the Minister and the Office It must however be understood that the of the Commissioner for Monopolies Commissioner has no powers to help and Prices. The principal function of the individual consumers in their private Tribunal is to arbitrate our competition disputes with traders. However, he may policy disputes resulting from ministerial be able to suggest who would be in the orders made on the recommendation of best position to help. the Commissioner for Monopolies and Prices. The RTPT has powers to The writer wishes to point out that overturn, modify, confirm and/or refer the government of Kenya has back to the Minister orders appealed unequivocally stated that in the near against by aggrieved parties. future, Kenya’s Competition Authority will, through a new legislation, be Orders and decisions of the Tribunal are accorded operational and financial only appealable to the High Court of autonomy. This decision has been Kenya and such appeals are only feasible published in the “Economic Recovery within 30 days following the Strategy, 2003” at pages 18 and 75. The communication of the Tribunal's new law is at the drafting stage. During decisions/orders to the concerned the 2003/4 Financial Year the parties.
107 established enforcement machinery, The High Court of Kenya although several other African countries were examining the possibility and at All appellants to the RTPT in pursuant least one (Ghana) was reported to be to the provisions of Sections 20(1), 251 drafting requisite legislation.72 and 31(1) in respect to ministerial orders made in pursuant to the provisions of From 1989 to 2000, the Monopolies and Sections 18(1), 24(1) and 31(1) Prices Commission has considered the respectively who are dissatisfied with following cases: the decision of the RTPT may appeal to the High Court of Kenya against that decision within thirty days after the date on which a notice of that decision was served on him and the decision of the High Court should be final.
PART V: Practical Operation Of Kenya’s Antitrust Department
As already seen, the Restrictive Trade Practices, Monopolies and Price Control Act became effective on 1st February, 1989 by converting the former Price Control Department into the present Monopolies and Price Commission (MPC). It also authorized establishment of a fairly autonomous Restrictive Trade Practices Tribunal (RTPT) to consider appeals against ministerial orders and the other ministerial actions as provided by the law.
In the developing world, Latin American countries were the first to establish such machinery, some doing so as early as the 1950s, modelling their legislation on United States antitrust law. In Asia, India and Pakistan adopted restrictive trade practices control laws in 1969-70, followed by Thailand in 1979 and South Korea and Sri Lanka in the 1980s. As at the end of 1992, Kenya was the only 72 The source is attributed to the 1989-92 Report African country to have enacted a of the Monopolies and Prices Commission. competition policy and to have Generally, the narration contained in this part is attributable to the reports of the Commission.
108 TABLE 1.1
Cases Considered by the Monopolies and Prices Commission (1989-2003)
Year Restrictive Trade Merger and Practices Cases Takeover Cases
1989 7 6 1990 6 9 1991 6 10 1992 7 9 1993 7 7 1994 13 9 1995 15 14 1996 15 11 1997 10 11 1998 15 12 1999 8 24 2000 18 37 2001 18 23 2002 15 35 2003 19 20
Total 179 237
SOURCE :MONOPOLIES AND PRICES COMMISSION
It means that during the twelve year practices, under the Restrictive Trade period spanning the years 1989-2000, Practices, Monopolies and Price Control the antitrust department handled an Act, have been given a very wide average of 10 cases per year in the area catchment area. In the area of mergers, of restrictive trade practices. Although the average is 13 mergers per year. As the 1982 report intimates that the mergers and takeovers are ongoing government encourages dialogue in businesses, this can not be said to be a resolving competition cases, this is a very bad situation. very small number especially when it is considered that restrictive trade
109 From the annual reports covering the control and regulation of monopolies is twelve years, there was no indication one of the key areas of antitrust that any merger or takeover application regulation. had been rejected by the Minister. The explanation in the annual reports was According to the report covering that all mergers had been found in order, 1989/92, the Minister of Finance meaning that they were not antitrust. constituted the Restrictive Trade Practices Tribunal through Legal Notice The Annual Report for the four years Number GN No.503 of 21st January, ending 1992 indicated that during that 1991. On the same date the Minister for period only one Consent Agreement and Finance appointed a Secretary of the one Order of the Minister were Gazetted. Tribunal. Earlier, by Legal Notice Under Consent Agreement GN No 6136 No.179 of 18th April, 1990, the Minister of 17th December, 1991, a carbonated for Finance had enacted the Restrictive soft drink manufacturer agreed to refrain Trade Practices, Monopolies and Price from exclusive dealing as well as from Control (Appeals) Rules, governing predatory practices against the marketing procedures for presentation of appeals of the competitors’ products. and their consideration by the tribunal.
Under Order, GN No.5190 of 11th As at the end of 1992, the Tribunal had November, 1992, a distributor of held three organizational meetings but tobacco products, was directed to cases had not yet been referred to it. All continue supplying cigarettes to a indications tend to the conclusion that particular stockist, and to any other the Tribunal has not been active over the stockists/traders he might have stopped last five years. Indeed only one case has supplying his allocated market. been referred to it since its inauguration. This related to the year 1998 One of the Restrictive Trade Practices International Merger of accounting firms Cases classified under exclusive dealing PriceWaterhouse and Coopers. The case, led to a High Court Case in 1991/92. A however, did not proceed to its full firm in the distilling sub-sector hearing as the case was referred back to complained to the Commission of unfair the Minister for Finance who approved business practices against it by a the merger. competing firm which had applied to the Minister for exemption from competition The 1996 Annual Report records the law under section 5 and which then Commission’s Staff Complement exemption had been granted as: The Commissioner, a Deputy Chief inadvertently. The reports do not Economist, a Senior Assistant indicate that other cases have gone to the Commissioner and other officers of High Court since then. various cadres. In the later part of the year, a Deputy Commissioner replaced It is clear from the annual reports that the Senior Assistant Commissioner. the area of control of unwarranted concentrations of economic power The Commission, in the same year, saw (monopolies) has not been activated. the coming in of a Senior Principal State This is puzzling in view of the fact that Counsel, to head the Legal Division, and
110 also the posting of Seven Monopolies PART VI: and Prices Officers and an executive Selected Cases Handled By The officer. Other officers included, 9 Competition Authority Economists, 38 Monopolies and Prices Officers, 1 Statistical Officer, 1 Senior Assistant Secretary, an Accountant II, 1 Executive Officer and several Support 1. Case One- Mergers And staff (i.e. drivers, clerical officers, Takeovers 104c secretarial staff, etc.) . The following case is intended to The annual reports covering the period demonstrate how Competition Policy 1997-2000 express a recurring theme and Law can be used to ensure the which bemoans that the Monopolies and achievement of intended prices Commission lacks autonomy, top- public/political/governmental objectives. notch lawyers, top-notch economists and The new Kenyan Government had skills in other areas deemed crucial to placed a premium on the creation of new the effectiveness of a competition employment opportunities and the authority. protection of existing jobs when it took over power in January, 2003. To achieve Interestingly, the Annual Report of 1995 this objective, the Monopolies and Prices recorded that a merger involving Commission recommended conditional Transnational Bank Ltd. and approval of the intended takeovers in Transnational Finance Co. Ltd., was order to protect existing employment. In authorized by the Minister of Finance a country where there is no competition through the provisions of the Banking law, the use of competition policy to Act instead of the case of the Restrictive achieve such public interest goals will Trade Practices, Monopolies and Price not be possible. Control Act. In another interesting happening, the 1996 Annual report had TAKEOVERS OF THE ASSETS OF an item recording Tetra Pak and Alfa TRUFOODS LIMITED AND KABAZI Laval as having entered into a merger CANNERS LIMITED BY PREMIER which was detected by the Commission FOOD INDUSTRIES LIMITED through the daily newspapers. When Tetra Pak was asked to furnish the Introduction Commission with information relating to the merger, it argued that the merger was Premier Food Industries Limited, an consummated outside the country. The operating company of Industrial merger was found, however, not to be Promotion Services (Kenya) Limited detrimental to competition. applied to the Monopolies and Prices Commission on the 21st November, 2002 seeking approval to takeover the assets of Trufoods Limited and Kabazi Canners Limited in accordance with Section 28 of the Restrictive Trade practices, Monopolies and price Control Act, Cap 504.
111 quoted in the Stock Market. It is located Company Profiles in Bahati Division of Nakuru District. The Company was established in Premier Foods Limited November 1949. It also manufactures food products. Premier Food Industries Limited is a limited local private company Rationale for the Takeovers established on 28th December 1987 and is located in Baba Dogo Street Some of the reasons given by the (Ruaraka), Nairobi. Its business applicants for the proposed takeovers operations involve manufacturing, include: processing and selling of processed fruits, vegetable products and beverages. (i) It is envisaged that the acquisitions The Company is owned 75% by will greatly benefit the Kenyan Industrial Promotion Services (Kenya) consumers and enhance export Limited and 25% by the International potential for processed foods to EAC Finance Corporation (IFC) which is an and COMESA markets. The arm of the World Bank Group in charge acquisitions will also, as a of encouraging private sector activity in consequence, contribute to the developing countries. Industrial growth of the agricultural sector. Promotion Services is an investment company whose sole shareholder is the (ii) Trufoods and Kabazi face dwindling Agha Khan Foundation and its main low market shares resulting in lower activity is the promotion of projects economies of scale. Growth potential development within the private sector for both local and export markets is including industrial and infrastructural constrained and production costs and projects. It is situated in the City Centre. overheads are high for the two companies. This has prompted them Trufoods Limited to sell their businesses.
Trufoods Limited is a limited local (iii)To derive advantage through private company not quoted in the synergies to be spawned by Nairobi Stock Exchange. The Company combined operations with the started operations in November 1958 resultant economies of scale being and is in the business of manufacturing utilized to manufacture and process food products. It is situated along Jogoo high quality products at competitive Road in Nairobi and sells its products in prices for the benefit of consumers. Kenya and the wider East African The resultant economies of scale will Community (EAC) market. allow the acquiring entity to contract farmers directly and thereby improve the farmers income.
Kabazi Canners Limited Research and Investigations
Kabazi Canners Limited is also a limited The Commission conducted the requisite local private company and is also not research and the following was revealed
112 about the parties involved in this Somalia, UK and Uganda. Trufoods transaction and the entire sub-sector:- sold a value of Kshs 179,126,749 in the local market while Kshs 8 (a) There existed inter-locking million was sold in the foreign directorships and shareholdings markets (EAC). Kabazi’s export between Trufoods Ltd and Kabazi sales were negligible while its local Canners. The directors and sales were estimated to be about shareholders were the same for both Kshs 120 million. The negligible firms. Fifty percent (50%) of the exports, alluded to herein, went to two firms were owned by Someg the EAC market. Investments Limited-a Swiss firm. Someg Investments Limited did not (d) The three firms had a very wide have engagements in any other distribution network which involved business activity hence dispelling over 200 distributors spread across any fear of occurrence of the country. The companies also had concentration of economic power. numerous competitors in the same Twenty percent (20%) of the shares market. Notable among these were were held by one person while the Cirio Delmonte Kenya Ltd, rest of the shares were held by 16 Bestfoods, Kenya Orchards Ltd, individuals with none of them Excel Chemicals, East African owning more than two percent (2%). Breweries Ltd, Kuguru Food The shareholders were all engaged in Complex, Unilever, Nestle Kenya business activities which were Ltd. More competition was posed by substantially not similar to what importers such as Heinz Ltd, Ceres Trufoods and Kabazi were involved Ltd, Robertson etc. Numerous Jua in. Kali sector [MSE’s] players were also involved in this business. (b) The specific products that Premier, Trufoods and Kabazi (e) The proposed new entity would lead manufacture/process and sold could to an increase in employment. At the be divided into four broad categories, time the takeover application was namely; spices and condiments, considered, Premier employed 223 beverages, spreads, and canned people (90 casual and 133 products. Spices and condiments permanent), Trufoods had 192 (113 include Tomato Sauce and Tomato casual/contract, 86 permanent), Ketchup; Beverages are juices, fruit Kabazi 159 with 69 being drinks and concentrates; Spreads permanent. The services of the staff comprise jam and marmalade; and of the two target firms, it was agreed, Canned products include corn, beans, would be transferred to Premier peas and other vegetables. Foods Limited. The 3 firms had human resource development (c) Premier sold its products both in the programmes which included training local market - 4104 metric tonnes on quality management, computers, (Kshs 168 million) and export ISO, HACCP, lean manufacturing, market - 218 metric tonnes (Kshs 12 supervisory skills, waste million) in Tanzania, Zanzibar,
113 management, First Aid and personal consumers as a result of lower health care and plant hygiene etc. production and overhead costs.
(f) Premier Foods Ltd expected to Over 30 companies were operating in increase the utilization of its plants to this sub-sector and none had any 90% after the take-over. Due to appreciable control of the market in any efficient purchase, manufacturing particular product. For instance, while and distribution, the company Trufoods and Kabazi had a significant expected to adopt competitive market share in the jam and tomato pricing mechanisms for its products sauces segment, they only had a minimal which would eventually lead to market share in all the other products; increased exports. Excel Limited had a bigger market share in squashes while Highlands Mineral (g) The turnover levels for the three water had more presence in mineral companies for 2001 were water and cordials. Milly fruit was a Kshs187,126,751 for Trufoods, Kshs major player in the canned juices as 179,994,596 for Premier and Kshs compared to the other firms. In overall 126,631,367 for Kabazi. terms, there was no particular firm that could be said to be having any material Analysis dominance in the market that could lead to anti-competitive practices. Therefore, The issue of inter-locking directorships the takeover was unlikely to lead to any and shareholdings showed that the two dominance by Premier Foods Limited. target firms were, for all practical Premier’s estimated market share of purposes, one and the same and they about 10% did not pose any competition thus were subject to the same concerns. management control on a day-to-day basis. Since the shareholders were The survey also revealed that the market engaged in businesses which were had a fair presence of the informal dissimilar to that of the firms involved in industries commonly known as the “Jua this transaction, there was little Kali Sector” who were now competing possibility that there could ensue with the established formal industry. unwarranted concentration of economic This enhanced competition in this power. market.
Since the three firms manufactured and The two target firms were experiencing sold products to the wider EAC and difficult times due to their ancient COMESA markets, there was a real technology which was on the verge of chance that with the takeovers and the becoming irrelevant and this meant that possibility of a consequent improvement they faced the danger of closing down. in efficiency, they would enhance their The takeover looked likely to salvage exports to these areas and this would go this situation and thus ensure that those a long way into bringing more foreign persons already in employment would exchange to the country and also spawn retain their jobs. Further, the expected competitive prices for the Kenyan expansion would in the medium to long-
114 term create more employment assets of the three firms would pose a opportunities in this sector for Kenyans. threat to competition. In any case, Trufoods and Kabazi were owned by one Employment group and had the same management with the result that their coming together Premier Food Industries Limited was did not change the market situation. only purchasing the assets of the two There was also a great possibility that target companies. This being the case, it after being acquired by Premier, the was not legally assuming any liabilities almost obsolete technology of the two or any contractual-cum-legal firms would be updated and this could responsibilities of the target companies. only lead to greater and efficient Such responsibilities subsumed production and more employment. employees. Although the proposed takeovers did not spawn any palpable It should also be noted that with the competition concerns, the Monopolies emergence of the East African and Prices Commission was cognizant of Community (EAC) and COMESA the government’s commitment to markets, there was need for Kenyan creation of employment and the companies to compete in this arena sustenance of existing employment. The effectively. The takeover would likely Commission therefore obtained create a bigger, stronger and more confirmation from Industrial Promotion efficient firm which was capable of Services (Kenya) Limited that it would, penetrating and competing in the two post-acquisition, ensure that the current markets and the wider global arena. employment levels would be maintained. This would spawn greater economic Mr. Lutaf Kassam, the Managing prosperity. Director, of Industrial Promotion Services was sanguine that the It was, therefore, recommended in terms employment numbers would rise from of Section 29 of the Restrictive Trade the current 148 to about 500 in a short Practices, Monopolies and Price Control while as the new owners would take Act (Cap 504) that the takeover be advantage of the EAC and COMESA approved on the following conditions: integration initiatives. The Commission also obtained confirmation that all those 1. Trufoods Limited and Kabazi existing employees of Trufoods and Canners Limited would pay all their Kabazi who would wish to join Premier pre-takeover employees their full Food Industries would be given first employment benefits in accordance priority before recruitment of any other with the contractual arrangements employees by the acquiring enterprise. governing their employment. This would not include 3 senior managers and 4 directors. 2. Premier Food Industries Limited would enter into new employment contracts with those of the said Recommendation employees who would wish to become its employees. In view of what is stated above, it was unlikely that the coming together of the
115 3. Employment levels, post-acquisition, proposal. In this transaction the NSSF would remain at least at the same seeks to sell 9,300,000 shares which are level as that subsisting at the time part of its shareholding in EAPC Ltd and of the application for the intended 870,000 shares, which is its total takeover. shareholding in ARML to Chanui Holdings Company. Source: Monopolies And Prices Commission The participating parties are NSSF and Chanui Holding Company. NSSF is a pension fund created by the Government 2. Case Two: Prevention Of Future of Kenya, while Chanui Holding Possible Abuse Of Dominance Company is a local investment company, wholly owned by Associated The following case seeks to International Cement (AIC). AIC is an demonstrate that where a Competition international holding company owned by Authority exists, its opinions are taken Blue Circle Industries (BCI) of United seriously by governments. In this case Kingdom. the recommendation that the National Social Security Fund should not be This paper attempts to evaluate this allowed to sell its shares in East African proposal in accordance with the Portland Cement Company Limited to provisions of Cap. 504 of the Laws of Bamburi Cement Company Limited was Kenya. The paper is divided into the accepted by the government. The following three parts: proposed sale evinced competition concerns. i) Background of Cement Industry in Kenya. The following narrative is the ii) Application of competition policy background and the opinion the and law to this proposals Monopolies and Prices Commission iii) The way forward gave to the government of Kenya. It is reproduced in its original form.
PROPOSED SALE OF 9,3OO,OOO cement manufacturing and marketing in NSSF SHARES IN EAST AFRICAN Kenya PORTLAND CEMENT LTD AND 87O,OOO NSSF SHARES IN ATHI There are three factories, which produce RIVER MINING LTD BY BLUE cement in this country namely:- CIRCLE INDUSTRIES [BCI] OF UNITED KINGDOM i) Bamburi Cement Limited (BCL). ii) East African Portland Cement Introduction Limited (EAPCL). iii) Athi River Mining Limited (ARML). By his letter dated June, 2000 the Managing Trustee of NSSF wrote to the The three factories have annual capacity Permanent Secretary, Treasury seeking of production of 2.1 million tones while approval to carry out the above-named domestic consumption is 1.2 million
116 tones. In terms of export, it is only market. It is one of the largest factories Bamburi which does exportation. in the country with annual capacity of 1.2 million tones but sells approximately BAMBURI CEMENT LIMITED (BCL) 600,000 tones annually. Currently it is commanding a market share of 54%. BCL is located in Mombasa and started its operation in 1954. It is a limited local The company has 13 directors as public company quoted in the stock follows:
NAME STATUS NATIONALITY
Didier Tresarrieu Managing Director French
Alan Y. Lemeur (alt.Max Vogeli) Director French/Swiss
David Masika Director Kenyan
James M. Shiganga Director Kenyan
Geoffrey c.D. Groom Director Kenyan
Jean C. Hillenmeyer Director Kenyan
Solomon Karanja Director Kenyan
Joshua C. Kulei (alt. William Director Kenyan Sambu)
Mbuvi Ngunze Director Kenyan
Raphael M.Thyaka Director Kenyan
Richard Kemoli Director Kenyan
Toney Hadley Director British
Ronald Roy Director Canadian
117
In terms of shareholding Bamcem holding limited is leading with 73.3% of issued share capital. The shareholders are as follows:
No. NAME OF SHAREHOLDER No. OF SHARES % SHARE ISSUED
1. Bamcem Holdings Ltd. 265,907,994 73.3.
2. National Social Security Fund 57,314,178 15.8
3. Baloobhai Chotabhai Patel 8,249,741 2.3
4. Barclay Trust Investment Patel 5,583,981 1.5
5. Insurance Co. of East Africa 2,272,088 0.6
6. Kenya Reinsurance Corporation 2,735,748 0.8
7. Old Mutual Insurance Co. 2,347,740 0.6
8. Others 18,537,255 5.10
9. Total 362,942,725 100
Bamcem holding is an international brand name Boabob Cement and its company registered in jersey, Channel market includes the Coast, Rift Valley, Islands. Its shareholders are: Western and Nyanza provinces. For its export market it relies on Uganda, Indian i) Cementia 40% Ocean Islands of Mauritius, Comoros, ii) Costal 20% and Madagascar. In order to capture the iii) Association International Cement Nairobi Market, BCL has set up a (AIC) 40% grinding plant at Athi River and this plant was commissioned in 1999. Cementia is an international holding Recently, BCL has invested Kshs.189 company 100% owned by LaFarge of million in ARML through a one year France. convertible bond. This will result in BCL having a shareholding of 19.4.% in It should be noted that the leading world ARML. In order to supply the Ugandan cement producer namely Blue Circle of Market better, and also capture the United Kingdom and LaFarge of France Democratic Republic of Congo market, have an indirect shareholding in BCL it has acquired Hima Cement Ltd in making BCL more of a foreign Uganda. company. It trades its products under a
118 EAST AFRICAN PORTLAND company quoted in the Nairobi Stock CEMENT LTD. (EAPC) Exchange. Its factory is located in Athi River and was commissioned in 1958. This is the second largest factory in the country with a production capacity of EAPC is a Kenyan Company as the 800,000 million tonnes annually citizens have a combined shareholding contributing approximately 500,000 of about 53%. Its shareholders are as million tonnes to the domestic follows: consumption. It is a limited local public
No NAME OF SHAREHOLDERS NO. OF % OF ISSUED SHARES SHARE CAPITAL
1. NSSF Board of Trustees 24,300,000 27
2. P/S to the Treasury 22,799,505 25.33
3. Cementia Holding AG 13,180,442 14.64
4. Associated International Cement Ltd 13,144,442 14.60
5. Bamburi Cement Ltd. (Nairobi 10,016.068 11.13 Norminees Ltd)
6. Public Thro’ N.S.E. 6,559,543 07.29
Total 90,000,000 100.00
119
In terms of directorship EAPC has eight directors. A part from one, all the others are Kenyans. Their names as follows:
No. NAME OF DIRECTOR STATUS NATIONALITY
1. A.M. Lulu Chairman Kenyan
2. T.K. Barmazai Managing Director Kenyan
3. T.K. Ibui Director Kenyan
4. M. Chemengich Director Kenyan
5. T. Hadley Director Kenyan
6. M.L. Oduor-Otieno Director Kenyan (Alt. G.M. Mitine)
7. G.C. Groom Director Kenyan
8. D.W. Masika Director Kenyan
In 1986, the management of EAPC started looking for a strategic partner. realized that there is need to replace its Two partners were approached namely, plant, as it was old (38 years). Plans Commonwealth Development were made to rehabilitate the plant and Corporation and Pretoria Portland various financing agents were Cement Co. of South Africa. However, approached. Among those approached this process stalled and the company is include Blue Circle and Cementia and still being controlled by the Government. they were not willing to fund the project. EAPC has a technical agreement with In 1994 the government opted to seek a Blue Circle Industries where they loan from Japan, under Overseas provide advice on technical matters Economic Corporation Fund (OECF) related to its cement and clinker worth K£2,254,435 (U.S. Dollars 65 manufacturing. However, under the Million). This loan is fully guaranteed current Government policy of by the Government for seven years. The divestiture, the EAPC, is targeted for new factory was completed on privatization. December, 26, 1997 and commissioned in early 1998. The traditional market, for EAPC is Nairobi and its surroundings. However In the same period the government this market has been threatened by entry decided to diversify from EAPC and of ARML and also BCL. The company
120 is now trying to venture, in other areas outside Nairobi, and also exploring ways ARML is a limited local public company of entering the export market. and is quoted in the stock market. Its estimated annual capacity is 100,000 ATHI RIVER MINING LTD. (ARML) tones and it commands a market share of 8%. This is one of the smallest cement manufacturing plants in the country and Its Directors and Shareholders are as started producing cement in 1985. follows: However, the company started its operation in 1973 and it has been producing chemicals and minerals. It has two factories, one located in Athi River in Machakos District and the other is based in Bondora, Kilifi District.
NAME OF NATIONALITY STATUS % DIRECTOR SHAREHOLDING Brian Rogers Kenyan Chairman Nil Harjivandas J. Kenyan Vice-Chairman 28.256 Paunrana Pradeep H. Kenyan Managing Director 25.619 Paunrana Sudhir A. Tanna British Director 0.270
Wilfred Murungi Kenyan Director 1.112
Palle J. Rune Kenyan Director 0.453
The Acacia Fund Kenyan Corporate Director 8.162 Ltd. Total 63.872
The other shares are held by about 4,000 has already been executed and is saving plus shareholders, who brought shares, ARML three million shillings per month when the company offered for sale 23 in terms of interest cost. As a result, million new shares in the Nairobi Stock Bamburi will be represented in the Exchange in 1997. Board of ARML.
In April 2000 ARML proposed to issue 18 million new shares, via convertible APPLICATION OF COMPETITION bonds to Bamburi Cement Ltd. which POLICY AND LAW will give them 19.35% of the total expanded capital of the company upon Under Section 23 of the Competition conversion after one year. This proposal Law, the Ministry of Finance is expected
121 to keep the structure of production and particular circumstances, the effect distribution of goods and services in thereof is or would be: Kenya under review to determine where concentration of Economic power exists, a) To increase unreasonably the cost whose detrimental impact on the relating to the production, supply or Economy outweighs the efficiency distribution of goods or the provision advantages, if any, of integration in of any service. production and distribution. In identifying the concentration of b) To increase unreasonably the price at Economic power, the following factors which goods are sold and profits are considered: derived from the production, supply or distribution of goods from the i) A Person controls a chain of performance of any service. distributing units, the values of whose sales exceed one-third of the c) To reduce or limit competition in the relevant market of category of goods relevant market. sold by the chain. d) To result in the deterioration in ii) A person by virtue of controlling two quality of goods or in the or more physically distinct units, performance of any service. which manufacture substantially similar products, supplies more than Looking at these provisions of the law, one third of the value. the main parameters to determine whether an enterprise has economic iii) A person has beneficial interest, power are control and the market share. exceeding twenty per cent of This proposal of the NSSF therefore outstanding shares, in manufacturing would be evaluated under the two enterprises, and has a beneficial parameters, and the main focus will be interest however small of Bamburi Cement Ltd which has a outstanding shares in one or more shareholding in the other two cement wholesale or retail enterprises which factories. distribute the products of the manufacturing enterprise.
In the same law, control is defined as power to make major decisions in respect of conduct of affairs of an enterprise, after no more than nominal consultations with other persons, whether directors or other officers of the enterprise. An unwarranted concentration of Economic power is prejudicial to public interest if having regard to the existing economic conditions in the country and all other factors which are relevant in the
122 CONTROL
If the proposal of the NSSF to sell shares to Chanui Holding Company, is executed. The shareholding of the two companies, will change as follows:
EAPC
No. Name of ShareHolder Current % issued share % Shareholding after proposal is Capital executed 1. NSSF Board of 27 16.67 Trustees 2. P/S to the Treasury 25.33 25.33
3. Cementia Holding 14.64 14.64 AG 4. Associated 14.6 24.93 Internaional Cement Ltd. (AIC) 5. Nairobi Nominees 11.14 11.14 Ltd. (Bamburi C. L.) 6. Public thro' NSE 07.29 07.29
Total 100 100
Chanui is a local holding company owned wholly by Associated International Cement Ltd. (AIC). AIC is owned by Blue Circle of U.K. It is therefore assumed that the shares owned by Chanui are directly owned by AIC. From the above BCI’s and Lafarge’s ownership of EAPC, will increase from 40.38% to 50.70% while the Local Holding, will decline form over 52.33% to around 42%.
For the two foreign investors, Blue circle will increase its shareholding to 24.93% from 14.60% while LaFarge shareholding will remain 14.64%.
123
BAMBURI CEMENT LTD.
No. Name of ShareHolder Current % issued share % Shareholding after proposal is Capital executed 1. Bamcem Holding 73.3 71.89 Limited 2. National Social 15.8 17.25 Security Fund 3. Baloobhai Chotabhai 2.3 2.3 Patel 4. Barclay Trust 1.5 1.5 Investment 5. Insurance Co. of East 0.6 0.6 Africa Ltd. 6. Kenya Re-insurance 0.8 0.8 Corporation 7. Old Mutual Insurance 0.6 0.6 Co. 8. Others 5.10 5.10
Total 100 100
NSSF will buy 5,276,315 units of shares co-sharing of Bamcem in Bamburi in BCL which translates to 1.45% Cement Ltd will change among the three shareholding. After sale of these shares, holding firms as follows: the shareholding of Bamcem, will change to 71.8%. This means that the
No. Current % After Implementation Shareholding of Proposal 1. Cementia 29.32 29.32 2. Associated 29.32 27.87 International 3. Coastal 14.66 14.66 Total 73.3 71.85
In Bamburi Cement Ltd the leading In terms of shareholding, it can be shareholder will be Cementia, which is a concluded that the two leading cement holding company owned by LaFarge. manufacturing palnts in the country will be owned by foreign investors who already control BCL, the leading cement
124 manufacturer. Again, Blue Circle will be in Kenya can strategize on itself as the the leading shareholder in EAPC while Board member/s representing the LaFarge will be leaders in Bamburi. competitor/s will avail any important information to the competitor/s. It should be noted that there is a cross directorship (inter-locking directorates) MARKET SHARE in the two companies whereby three directors of EAPC are also directors in Currently BCL is a market leader with BCL. If the proposal is executed, it will an estimated average market share of also increase this cross directorship. 55%. However, this share has been BCL will also be represented in the reducing over the years as the following Board of ARML. This state of affairs is table indicates: inimical to competition as none of the three cement manufacturing companies ESTIMATED MARKET SHARES
FACTORY 1994 1995 1996 1997 1998 1999 BAMBURI 63.8 74 74.3 57.3 55.6 58.5 EAPC 36.2 26 23.0 36.7 37.0 34.6 ARML 2.2 6 2.2 6.0 7.4 6.9
On the other hand EAPC has a market excess capacity in that country. The share of 35% currently and its share has only solution for BCL is to consolidate been fluctuating between 23% and 37%. its domestic market share and increase its exports to Uganda. In Uganda, this Bamburi's traditional exports market has has been achieved by acquiring Hima been the Indian Ocean Islands. Due to Cement Ltd. collapse of the Asian Economies, this market has become uncertain. The The table below shows annual disposal Asian countries have increased their of Kenyan cement for the last six years exports to these islands. The next in both domestic and export markets: alternative was Tanzania but there is
YEAR 1994 1995 1996 1997 1998 1999 Domestic 848 1,044 1,148 1,252 1,352 1,447 Sales x 1000 tones Export Sales 616 514 447 683 748 703 x 1000 tones Total x 1000 1,464 1,558 1,595 1,935 2,100 2,150 tones Bamburi is the only company which Looking at the two parameters, control exports cement in the country. From the and market share, it can be concluded table, it is clear that from 1997, it has that Bamburi Cement Limited has been increasing its export sales. dominant economic power as it controls more than 50% of cement sales in the country and, therefore, may exercise
125 control over the conduct of the other two Grinding and packing 5% factories in the area of pricing. If the Factory overheads 5% NSSF proposal is carried out, it will increase further its control in EAPC and Total 80% Athi River Mining Ltd. How BCL will use its enhanced The cost differential between EAPC and economic power may be presumed from Bamburi in 1999 was estimated at about its past activities, especially in terms of Kshs. 2,500 per tonne. The implication price and profit. BCL has been a price of this is that the BCL products should leader while the others were followers. be cheaper than EAPC. The obvious It incurs lower cost of production than deduction is that BCL Cement is priced the other two factories. The cost of unreasonably high. production in EAPC is 80% higher than that incurred by the BCL. The main The profits for the two factories during contributors to this cost differential are: the 1995 to 1999 period are shown here below: Raw Materials 31% Furnace Oil 33% Profit before tax for Kenya Cement Labour 6% Industries
YEAR END 1995 1996 1997 1998 1999 BAMBURI 1,325 1,453 1,477 563 890 EAPC 93 105 111 499 (1,294) ARM 19 28 60 12 19
Profits in Kshs. x 1000 THE WAY FORWARD
From the above table it can be concluded Cement is a basic input in construction that BCL has been making substantial and building industry which plays an profits throughout the five years. The important role in economic development profits have also been increasing. The of the country. This product has no other two factories have been making substitutes and due to its importance in minimal profits compared with Bamburi. national economic growth, it ahs been referred to as a "strategic material". As mentioned earlier, Bamburi has There is need therefore to keep the bought convertible bonds in ARML. structure of the cement market efficient One of the conditions given to ARML and competitive. was that they should buy clinker from Bamburi. This resulted in ARML EAPC is controlled and managed by closing down its clinker plant. This Kenyans. The Government has been resulted in reduction of competition in granting loans to the company although the production of clinker as for now only and currently EAPC has a government EAPC and Bamburi are producing guaranteed loan from OECF. The clinker. Clinker is an essential raw Company is financing its obligation material in production of cement. without any recourse to the Government. Despite the foreign exchange losses, the
126 company has been paying dividends to January, 2001.73Automatically the Treasury almost every financial year. LaFarge took control of BCL. It has a state of the art modern factory at Through this acquisition LaFarge Athi River. took charge of 41.7 per cent shareholding in EAPC, BCL’s In terms of marketing, the company has competititor. Through the same deal a strategic position compared to BCL. It LaFarge acquired 19 per cent in the is near Nairobi, the most lucrative shareholding of BCL’s third, albet market for cement. With improved small, competitor. This had the effect financial and technical management, of allowing representatives of EAPC can check the monopoly position LaFarge to sit in the Boards of all the currently enjoyed by BCL. three cement manufacturing companies in Kenya. Had the Arising from this therefore, the NSSF proposal to sell NSSF shares as proposal to sell shares to Chanui originally planned been approved, Holding Company should be shelved for the control of the cement industry by the time being. Members of the public LaFarge would have been tighter. should be given the first opportunity to subscribe to these shares through IPO at PART SIX the Nairobi Stock Exchange. Like many other developing countries, it Therefore, NSSF should be advised to is difficult to get good and very reliable sell these shares in an open market market data in Kenya. In some Merger through Nairobi Stock Exchange. This and takeover cases competition will achieve accountability and authorities merely rely on information transparency in the disposal of these provided by the applicants. This is a very shares and create opportunities for undesirable position. The same situation Kenyans and other investors to buy exists in the area of restrictive business them. It will also promote competition in practices. Concerned governments the cement manufacturing industry. should address this problem. An indicative Market structure for Kenya is proffered here-below. POSTSCRIPT
1. The Government accepted the advice of the Monopolies and Prices Commission and NSSF was denied authority to sell its shares in EAPC as per its original proposal.
2. Around July, 2001 LaFarge acquired Blue Circle worldwide to create the world’s biggest cement group. The acquisition agreement had been reached during the first week of
73 See Financial Times, 9th January, 2001.
127
Indicative Market Structure for Kenya: 1992 and 2000.
S/no. Item Specific/Good/Service Indicative Nature of Monopoly/Competition 1992 2000 1. Petroleum Imports/Wholesale supply Public monopoly 8 firm oligopoly Distribution No monopoly 8 firm oligopoly 2. Fertilizer Imports No monopoly Competitive Distribution No monopoly Competitive 3. Exports of Tea No monopoly Competitive crops Coffee No monopoly Competitive 4. Production Wheat Flour Milling No monopoly Competitive Activities Maize Milling No monopoly Competitive Sugar Production Public monopoly Competitive Vegetable Oil production No monopoly Competitive Textile production No monopoly Competitive Cement production Public monopoly 3 firm oligopoly Mineral Extraction No monopoly Competitive 5. Import Wheat Public monopoly Competitive Trade Rice No monopoly Competitive Sugar No monopoly Competitive Other Staple Foods No monopoly Competitive Vegetable Oil Private monopoly Competitive Medicines No monopoly Competitive Textiles No monopoly Competitive Cement No monopoly Competitive 6. Services Banking No monopoly Oligopolistic Competition Telecommunications Public monopoly Duopoly Hiring of Labour No monopoly Competitive Personal Insurance No monopoly Competitive Import Insurance No monopoly Competitive Urban Bus Transport No monopoly Competitive Source: Adapted from World Bank 1994, Table A. 11
128 capacities or even attempting to establish PART VII: them, as no Competition Regimes exist Kenya’s Approach To Extra at all in many of the developing states. Territorial Issues Like other developing countries, Kenya requires time and resources to nurture Internationally, Kenya is a member of effective policies and structures and also the World Trade Organization. to reflect upon the effects of a Regionally it is a member of both the multilateral agreement in this area. East African Community and COMESA. Kenya, therefore, subscribes to the It has obligations emanating from its notion of progressivity and flexibility in membership of these bodies. At the all matters apposite to competition to WTO level, Kenya effectively allow it time and space to nurture a firm participated in the proceedings of the and sustainable competition culture and Fifth Ministerial Conference which took to build institutional capacity for the place in Cancun, Mexico, in September enforcement of competition principles 2003. At the National Level, the and rules. Commissioner of Monopolies and Prices chairs the Trade and Competition Working Group of the National “Kenya, the above view Committee on the World Trade notwithstanding, is a member of WTO Organization. This gives the competition and will participate fully in its affairs authority an opportunity to advocate its and will embrace those facets of such mandate nationally. The Kenyan affairs which will spawn benefits to its position towards the Cancun Conference people. In any such matters, Kenya’s as articulated by this working group was position will be as follows: as follows: “That Kenya: “As a developing country, Kenya notes that it is still grappling with the i) Supports the good work being tremendous challenges of establishing undertaken by the Inter- viable, effective and efficient structures Governmental Group of experts for a national competition regime. [IGE] and the Working Group on These structures should subsume the Interaction Between Trade and creation of a strong competition policy Competition Policy [The Working and law. In juxtaposition with countries Group]. Taking note of the fact that from the developed world, exemplified the two groups have not completed by countries/unions such as the USA, their work. It recommends that the Canada, and the EU, Kenya has only two bodies be allowed time to experimented with a national complete their work. Pending competition regime for only a decade, submission and consideration of their while all the others have had effective reports, Kenya’s position is that no competition policies and regimes for definitive decision should be fifty years and above. Indeed, most, if reached. not all, developing countries are either ii) Recognizes that the conduct of striving to improve their domestic TNCs, hardcore Cartels and Cross- Competition Regimes’ institutional Border Mega Mergers may spawn
129 deleterious effects the world over developing countries should be and supports the IGE’S resolution accorded requisite assistance in that the UNCTAD secretariat should strengthening their expertise and to instigate and facilitate a study on the buttress their effectiveness during anti-competitive effects of multilateral negotiations and when unwarranted economic called upon to cooperate in issues concentrations. Kenya will, in all germane to competition policy. circumstances, retain its Furthermore, Kenya feels that a independence of action and decision- system to monitor and evaluate the making in relation to restrictive trade short-term and long-term practices and other forms of assault implications of a multilaterally by TNCs on its sovereign economic negotiated Trade and Competition space. Policy, particularly on Developing Countries, must be integrated into iii) Regarding other restrictive trade any eventual agreement, if ever one practices, Kenya is of the view that is reached, with corrective measures as a developing country there is need prescribed on a diversity- for its enterprises to be afforded time progressivity-flexibility principles and resources to create critical basis. masses which will allow them to marshall some muscle in the world v) Is of the view that in order to come competition arena. up with appropriate and harmonized policies on both Trade and iv) Subject to its unequivocal stand Competition, there is need for encapsulated under paragraph 1 improvement of co-operation at three hereof, Kenya supports the activities levels. One, among national of IGE under UNCTAD geared competition authorities particularly towards the promulgation of a on information exchange. Two, possible multilateral arrangement among governments. Three, which should take into account the between competition agencies and diversity of member states, both enterprises. This co-operation will developing and developed, in levels promote a harmonized approach to of development, institutional issues such as cross-border mergers, capacities and structures. Any such hardcore cartels, dumping, subsidies, multilateral arrangement should deferential tariffs etc. Requisite subsume, and be predicated upon, consultations should be encouraged the principles of diversity, and dispute resolution mechanisms progressivity and flexibility alluded should be embraced. This co- to earlier . In addition, any such operation will assure equality of arrangement should not be employed treatment for member states. as a way of “clipping the wings” of comparatively stronger firms in the vi) At the national level subscribes to developing countries by well the practice of governments to established firms of the developed ensure that competition policy world. Before actualization of any considerations are taken into account such multilateral arrangement, in the formulation and
130 implementation of trade and other related policies. xi) Supports the view that competition policy should be juxtaposed with a vii) Will apply the provisions of comprehensive adoption of safeguards and special and consumer protection measures. differential treatment (S&D) in the Countries should be allowed time to WTO agreement to cushion its infant establish consumer protection laws industries for purposes of protecting to safeguard the welfare of their its fundamental interests in areas citizens. This is of utmost such as agriculture and security and importance since competition is in any other area which may affect meant to enhance community the social and economic stability of benefits. the country. xii) Requests WTO to collaborate with viii) Supports the resolution of the UNCTAD in all matters germane to Fourth UN Conference to Review the proposed multilateral All Aspects of the Set of arrangement on Competition Policy. Multilaterally Agreed Equitable Principles and Rules for the Control xiii) Supports co-operation between of Restrictive Business Practices. It members states in technical also supports the proposal that assistance, training and in all forms UNCTAD should initiate a study to of capacity building but any such consider the possibility of the assistance to developing countries establishment of a completely new must not be predicated upon the organ for the promotion of consumer condition that the member states interests. must subscribe to any multilateral agreements. ix) Is of the view that labour standards, environment and human rights issues xiv) Recommends that a mechanism be are well addressed by other UN established to operationalize the Agencies such as the ILO and UNEP existence of Bilateral, Regional and and should therefore not be linked to Multilateral Peer Review Sessions Trade or Competition. with a view to the achievement of eventual global convergence on x) Furthermore, Kenya feels that a Trade and Competition Policy.” system to monitor and evaluate the short-term and long-term implications of a multilaterally PART VIII: negotiated Trade and Competition Challenges Policy, particularly on Developing Countries, must be integrated into Although Kenya was one of the first any eventual agreement, if ever one African Countries to enact a competition is reached, with corrective measures policy and also establish an enforcement prescribed on a diversity- machinery (the MPC ), the transitional progressivity-flexibility principles arrangement promulgated through basis. Cap.504 still obtains. Countries such as
131 Zimbambwe and Zambia whose competition authorities have powers to Competition Authorities were conduct dawn raids. Nearer home, the established much later, are now South African and Zambian authorities autonomous Competition Authorities. have been granted wide-ranging and The New South African Competition effective powers. In Kenya, MPC is Authority which was established only reduced to the position of being reliant afew years ago is both financially and upon the information given by the operationally autonomous. It also enjoys “suspects”. The Law also does not concurrent jurisdiction with sector clarify how MPC should relate to the regulators in all matters germane to Police Department or the Attorney competition law and policy. General’s Chambers. In the EU a legal framework has been promulgated to The MPC, by law, is a department of the capture extra territorial infractions of Treasury. Although the law has antitrust law, including Mergers, and bestowed upon the Commissioner the Acquisitions. The Kenyan law should Control and Management of the MPC, accord the MPC such a legal framework his legal remit is subject to the control of to handle anti-trust cases which spawn the Minister for Finance. Furthermore, international ramifications. although Cap 504 was intended to be a transitional piece of legislation, it has It is through the same spirit of promoting not been reviewed since its whimsical subjectivity that section 16 of promulgation. Although all prices were the act allows the Commissioner to decontrolled before the end of 1994, Cap authorize any person in writing to 504, still retains the price control conduct all or any portion of any hearing provisions. A recrudescence of this on his behalf. The person in question price control recently manifested itself in does not have to be an officer of MPC. the Kenyan Parliament in the form of the He or she can be an unemployed Joe Donde bill intended to regulate graduate or even a messenger. He or she interest rates and in the proposed bill could be indigent. The options are intended to regulate the prices of legion!. petroleum products. It should be cautioned that Kenya has obligations Whereas many Competition Authorities both regionally and internationally to from the developed World have promote competition and to enforce anti- provisions for application of the de monopoly/anti-trust law!74. The legal Minimis rule when dealing with provisions encapsulated in Cap 504 are mergers, this is not the case in Kenya. rather convoluted. The provisions of the The Kenyan system prohibits relevant existing law do not provide for elaborate horizontal mergers per se. This is a and definitive enforcement procedures. system that may be abused by egregious For instance in the EU Countries, subjection of businessmen and businesses to negative bureaucracy.
74 The Bill proposing statutory controls on Bank In matters of economics and business, Interest Rates was actually passed by Parliament. time is of the essence. When dealing It has, however, been mired in litigation at the High Court and some of its provisions were with restrictive trade practice declared unconstitutional. It has, therefore, not complaints, when controlling taken effect.
132 concentrations of economic power and department which deals with such when controlling mergers/takeovers, the infractions. time within which investigations should be completed should be established by A plethora of Laws spawn anti- law, subject to the caveat that the period competitive tendencies. These, inter may be extended where the parties do alia, include, many of the Acts not fully cooperate with MPC. establishing professional societies such as the Law Society of Kenya, the The existing provisions of the law do not Industrial Property Act, the Seeds and give the Kenyan competition authority a Plants Varieties Act, the Coffee Act, the legal framework to delve into the areas Trade Licensing Act etc. These Laws of Advocacy, Education and Publicity. should be harmonized so that they During a recent regional seminar75, it accord with modern competition laws. was acknowledged that Advocacy, Education and Publicity are key to the The provisions of the law establishing success of competition Authorities. The the Trade Practices Tribunal expose success of both the UK and the South members to intimidatory possibilities. African Competition authorities was They are paid on ad hocacy basis. The ascribed to their successful education remuneration is in the form of and publicity programmes. subsistence and travelling allowances determined by the Minister. Yet they are In the recent past, and particularly due to supposed to handle appeals against the liberalization of state enterprises, there Orders of the Minister. has been a proliferation in the number of sector-regulators. A legal mechanism The members of the Tribunal are should be provided to allow coordination appointed by the Minister. And yet the and cooperation between the Macro- aggrieved persons appeal against the Regulator (MPC) and sector regulators Minister’s orders to the Tribunal. This is to ensure that competition principles are against natural justice. It is like the judge systemically upheld. (Minister) appointing a prosecutor (the Commissioner) who prosecutes the case With regard to consumer welfare, the before the judge (Minister) having the law should give the competition appeal from his case heard by an authority a legal operational framework. appellate judge (the Tribunal) appointed This is not the case today. A simple by the judge (Minister) himself. The example is apposite. Under the Trade basic checks and balances are lacking. Descriptions Act (Cap 505), false or To make matters worse, the Minister misleading indications as to price makes the rules that regulate the constitute an offence. Even though price operations of the tribunal. is involved here, the Monopolies and Prices Commission has no mandate. The enforcement of antitrust law Rather it is the Weights and Measures inexorably requires the antitrust staff to interact with businessmen who are being investigated. Businessmen who attract
75 Report of the Regional Seminar on the attention of the antitrust authority are Competition Policy and Law, Mombasa, Kenya, almost invariably the successful ones. March,2001, sponsored by UNCTAD.
133 The government of Kenya has stated that overwhelming bureaucracy and 5. The Law should provide for the corruption are considered by many application of the de minimis rule in entrepreneurs to be a major source of the area of Mergers. A minimum frustration to the business community. threshold should be established. The Government has also stated that it is determined to root out corruption . 6. The Law should provide for the capture of extra-territorial infractions in merger cases. PART IX: The Way Forward 7. Provisions which contain non- transparent procedures e.g. Sections It has been demonstrated that the 18, 24 and 31 of Cap 504 should be government of Kenya has committed amended to obligate the Minister to itself to the promotion and sustenance of take appropriate action as and when a Competitive Market place nationally, necessary. This suggestion will regionally and Internationally. The need become superfluous once the for a regulatory regime has also been Competition Authority is made discerned. In order to successfully autonomous. Similarly Section 16 of police antitrust issues, the deficiencies the Act which allows the identified above and any others which commissioner to authorize “any have not been pointed out should be person” to conduct a hearing should remedied. More particularly the be amended to usher in objectivity in following recommendations are made: the enforcement of antitrust law.
1. The MPC should be granted 8. The time frame within which cases financial and operational autonomy. should be investigated should be There is also need to establish a provided for. Board of Directors/Commissioners. 9. The retention of Part IV of Cap. 504, 2. The Tribunal should be accorded full which relates to the Control and autonomy. Display of Prices should be done away with. Through Legal Notice 3. Both the Competition Authority and No. 382 dated 28th October, 1994, the Tribunal should be manned by a the government removed petroleum cadre of professional staff who products as the last item from the should be well remunerated. price control regime.
4. There is need to harmonize various 10. Even though competition should be laws so that anticompetitive practices allowed to rule supreme in an can be adequately policed. These untramelled manner, unfair laws, inter alia, include, the Banking competition is one of the areas that Act, the Seeds and Plant Varieties should be overseen by an antitrust Act, the Trade Licensing Act, Laws authority. Kenya is a member of the establishing deregulated public World Trade Organization (WTO) corporations, etc. and is bound by the Organizations
134 antidumping provisions. As the competition nationally, regionally and antidumping international internationally. However, the existing perspective is a possibility in the area law denies MPC legal, financial and of international trade, an operational autonomy. The law contains antidumping legislative regime convoluted provisions which render its should be promulgated for the enforcement cumbersome and Kenyan antitrust agency. sometimes even impossible. Section 5 validates antitrust conduct done under 11. A legal framework to enable the legal veil. It is necessary for the law to Kenyan Competition Authority to be reviewed so that this unnecessary veil handle Consumer Welfare Issues is lifted. The present law needs to be should be established. harmonized with sectoral laws so that the MPC, as a macro-regulator, is 12. A legal mechanism of Coordination bequeathed with a legal framework for and Cooperation between MPC and cooperation with Sector Regulators. The Sector Regulators to ensure that enforcement procedures contained in the competition principles are present law are veritably inadequate. In systemically upheld should be the realm of consumer protection, the established. present law is completely silent and this is an undesirable state of affairs. More 13. The Competition Authority should apposite, during the obtaining be strengthened through conferring Information Super-highway Age, effective enforcement powers to it. Kenya’s competition law needs to embrace E-Commerce and other modern 14. There is need to provide for the Information Systems predicated advocacy role of the Competition ramifications, including an Information Authority both as the adviser of the Technology mechanism for cooperation Government and as the protector of with other Competition Authorities. the competition interests of enterprises and consumers. The realm of International Trade continues to offer challenges of 15. The envisaged new law should unparalleled enormity. There has been embrace a flexible macro-dynamic an ubiquitous influx of cheap imports framework by making it possible for into the local markets. This has spawned the Competition Authority to competition concerns and more so promulgate requisite regulations as because the cheap imports are posing a changing circumstances demand threat to many local companies which instead of unnecessarily resorting to are finding it difficult to compete. There parliamentary amendments. is an urgent need to level the playing 16. field to obviate the spectre of unemployment which is already high in PART X: Kenya. Latest Developments This problem is compounded by the on- We have seen that Kenya’s Competition going attempts by the developed world Policy is committed to the promotion of to introduce global competition rules
135 through the World Trade Organization. be having a robust and effective Some Kenyans have interpreted this to Competition Authority. The Ministerial be an indirect way of giving the Rationalization Report of the Ministry of developed world’s multinationals Finance and Planning, prepared as part untrammelled access to the markets of of the Civil Service Reform Programme, the least developed and developing has stated:77 countries. This is inspite of the uncontroverted fact that in at least one The following functions have also been area, rich countries have been overtly proposed for granting of Autonomous protectionist. This is the area of status as Government Agencies: agriculture. Rich countries spend over 300 billion US dollars a year supporting •Kenya Institute of Public Policy their farmers76. This is as much as the Research and Analysis entire national product of sub-Saharan •Insurance Department Africa! This frightening possibility •Monopolies and Prices Commission. ❞ buttresses the urgent need for strengthening Kenya’s Competition The same Ministerial Rationalization Authority so that it is well placed to not Report has also recommended, in respect only handle domestic competition of the Monopolies and Prices concerns but to also embrace future Commission, that: realities in a fast changing world. •the staff establishment be reviewed in The Monopolies and Prices Commission order to provide for senior positions in has striven to play its part as a veritable the fields of Law, Trade. Commerce and impartial arbiter in the market place. In Economics. doing so, it has, all along, subscribed to the belief that competition is the best all- •The Restrictive Trade Practices, round economic framework for resource Monopolies and Price Control Act [ Cap. allocation and development. However 504 of the Laws of Kenya ] be replaced the MPC requires legislative, financial with a Competition and Fair Trade Act. and operational reinvigoration if it has to effectively and efficiently consummate •The Commission’s institutional set up its mandate. Through the strengthening or framework should be accorded of the Macro Regulator (MPC) or its autonomy with proper legal successor by whatever other name it is to jurisprudence to perform its mission be called, the country will enhance its more effectively; and fulfillment of national, regional and international obligations relating to •Legislation on Competition and Fair competition matters. Trade should also provide for the assignment of mandate over policy It is heartening to note that recent responsibility in government. pronouncements by the government have rekindled the hope that Kenya will soon
76 The figure of 300 billion dollars is liberally 77 Ministry of Finance Rationalisation Report, mentioned in WTO and other publicly accessed Civil Service Reform Programme, Government documents including International magazines. of Kenya, 2000.
136 It is quite clear that more and more assaulted the competitive process in Kenyan Policy Makers do now Kenya. understand the importance of an effective competition policy and law. Finally, the paper has demonstrated the determination of the government of PART XI: Kenya to promote competition in the Conclusion national economy. This commitment towards effective regulation of We have seen that Kenya is quite young competition is buttressed by the on- in the area of competition policy and going review of the existing law with a law. The paper has traced Kenya’s view to granting the competition evolution from the open culture of authority effective autonomy and anticompetitiveness, which was amending the Act to reflect modern intentionally embraced by the colonial competition principles. government, to the present culture of : Annex I: Selected cases by the limited, though growing, appreciation of Monopolies and Prices Commission the need for open and competitive markets. 3. Case Three-Collusion/Price The law enacted in 1988 and Fixing operationalized in 1989 allowed Kenya to regulate competition in the generic The Commissioner of Monopolies and areas of Restrictive Business Practices, Prices and The Association of Kenya Monopolies and Concentration of Insurers Economic Power. The law, however, failed to give autonomy to the 1. This case addresses the problem competition authority which remains created by a powerful Cartel in the under the control of the central Insurance Industry in Kenya. government. The act contains contradiction and vague provisions 2. The case also addresses the problem which make it difficult to enforce. There posed where there is a sector are also many other laws which require regulator in the particular industry harmonization with the competition law. being investigated by the These weaknesses notwithstanding, the Competition Authority. competition authority has handled 179 Restrictive Trade Practices cases and The Association of Kenya Insurers is 237 Mergers and Takeovers cases from one of the strongest industry associations 1989 t0 2003. It has also conducted in Kenya in terms of financial clout and frequent sectoral studies which have a hundred per cent membership of the provided invaluable data for use in actors in the Insurance Industry. Its market analysis. The competition rules required all members not to reveal authority has also continued to surveil the decisions and strategies of the the market and in this role has no doubt association. Hefty fines were imposed discouraged many enterprises and on those members who failed to abide by individuals who would have otherwise the prices and practices decreed by AKI. The fixing of insurance premium prices
137 had been taking place for quite some time. However, as happens with cartels, 1. You have been making, directly or it was difficult to get hard evidence. indirectly, recommendations to your members which relate to the prices The repression of competition in the charged or to be charged by your insurance industry in Kenya caused members. uproar. Insurance brokers and players in the transport industry protested. At one 2. You have been making, directly or time, all Matatus (minibuses used in an indirectly, recommendations to your estimated over 90% of public passenger members which relate to the terms of transportation in Kenya) threatened to sale of insurance services and those remove their vehicles from the Kenyan recommendations directly affect roads. The Association of Kenya prices, profit margins included in the Insurers called a truce and started prices or the pricing formula used in negotiating with the Matatu Welfare the calculation of prices. Association quietly regarding reduction of the fixed prices. At this point, the I, therefore, invite your association to Monopolies and Prices Commission comment on the above allegations and made a break through and obtained a the evidence provided to us, and to copy of the AKI Motor Rating Schedule indicate what remedies (if any) you dated 4th June, 2002 which set rates, propose in order to bring your trade terms and benefits to apply to all motor practices into conformity with the policies issued after 1st July, 2002. The Restrictive Trade Practices, Monopolies Commission also obtained a copy of and Price Control Act. The evidence AKI Resolution 07/2002 wherein it was relates to the rates, terms and benefits resolved and agreed that other contained in the AKI Motor Rating supplementary rates would apply with schedule effective from 1st July, 2002. effect from 1st January, 2003. By powers conferred upon me by Section 15 of the Restrictive Trade The Commission wrote the following Practices, Monopolies and Price Control letter to AKI: Act, I request you to furnish your response to me, latest, by 24th February, 7th February, 2003 2003.
Restrictive Trade Practices COMMISSIONER In accordance with Section 15 of the MONOPOLIES AND PRICES Restrictive Trade Practices, Monopolies COMMISSION and Price control Act, Cap 504 of the Laws of Kenya, I wish to inform you AKI replied as follows: that allegations have been made that you have been engaging yourselves in 19th February, 2003. Restrictive Trade Practices and specific RESTRICTIVE TRADE PRACTICES evidence has been presented to substantiate those allegations. The We refer to your letter dated 7th allegations are: February, 2003 regarding allegations
138 made against this body concerning member of the insurance industry alleged restrictive trade practices. We must comply; observe that your letter does not disclose the identity of the complainant or the b) directing insurers and reinsurers on nature of the evidence presented to you, the standardization to contracts of as required by law. In any event, we compulsory insurance; now wish to address you as follows: c) directing an insurer or reinsurer, 1. The Association of Kenya Insurers where he is satisfied that the wording of a particular contract of insurance 1.1 The Association of Kenya Insurers issued by the insurer or reinsurer is (“AKI”) is a Society registered under obscure or contains ambiguous terms the Societies Rules (1968) and under or terms and conditions which are Certificate of Exemption for unfair or oppressive to the policy- Registration number 2166 of 5th holders, to clarify, simplify, amend January 1988. Its objects include: or delete the wording, terms or conditions, as the case may be, in “Protecting, promoting and respect of further contracts; advancing the common interests of members including the taking of d) the approval of tariffs and rates of such concerted measures as may be insurance in respect of any class or deemed expedient whenever the classes of insurance; business of the members of the Association may be affected by the e) such other duties as the Minister may action or proposed action of any assign to him. authority, organization, body or person; and to acting as a medium of (1a) The Commissioner may, with the consultation and communication approval of the Minister make with the Government.” regulations for the purpose of giving effect to the provisions of this Part. 2. The Insurance Act (2) The Commissioner shall, as soon as
reasonably practicable after each 2.1 The insurance industry is regulated year ending on 31st December, by the Commissioner of Insurance furnish to the Minister a report on appointed by the Minister of Finance the working of the Act during that in accordance with Section 3 of the year together with summaries of Insurance Act. Section 5 of the returns and documents deposited insurance Act (the “Act”) further with him under Part VI during that provides that: year; and the minister shall lay the
report before the National Assembly (1) Subject to this Act, the duties of the Commissioner shall include: as soon as reasonably practicable thereafter.” a) the formulation and enforcement of
standards in the conduct of the 2.2 It will be noted that Section 5(1) (d) business of insurance with which a imposes a duty on the Commissioner
139 of Insurance to approve tariffs and (a) to advise the Minister with regard to rates of insurance in respect of any any matter regarding the insurance class or classes of insurance and industry, including rates, terms and Section 5 (1A) permits the conditions of policies, operation of Commissioner to make regulations the act whether arising from the for the purpose of giving effect to the Commissioner, the industry or other provisions of that Part. source, or as may be referred to the Each insurer in Kenya is required to Board by the Minister; present its proposed rates to the Commissioner of Insurance for (b) assist the Commissioner in matters approval. In actual fact it is the relating to the insurance industry Commissioner who specifies the including formulation of standards in range within which such rates may conduct of business; and be levied (see Section 5 (1) (d) set out a paragraph 2.1 above) and no (c) deliberate and advise the Minister on insurer is permitted to charge rates disputes between the Commissioner outside those parameters. It is and the insurance industry.” therefore mandatory for insurers to charge premia within those specified The Commissioner of Insurance parameters under the Act. carries out his duties under Section 75 of the act in accordance with the 2.3 Section 75 of the Act requires an advice given to him by the Insurance insurer carrying on general insurance Advisory Board under this Section business to file with the 163. Commissioner a schedule or manual of rates of premia, proposed to be 3. The Restrictive Trade practices, used by each insurer for each class of Monopolies and Price Control Act business. The Commissioner is entitled under Section 75 (5) to 3.1 The Restrictive Trade Practices, require an insurer to modify or revise Monopolies and Price Control Act the schedule or manual of rates filed states that: with the Commissioner for his approval. As part of its self- “(1) For the purposes of this regulation procedures AKI requires act, “restrictive trade practice” refers each of its members (which are all to an act performed by one or more insurers licensed and registered to persons engaged in production or conduct insurance business in distribution of goods or services Kenya) to comply with the rates and which: terms set out therein. (a) in respect of other persons offering 2.4 The Insurance Advisory Board the skill, motivation and minimum created by Section 157 of the Act seed capital required in order to has, as amongst its functions set out compete at fair market prices in any in Section 163 of the Act; field of production or distribution, reduces or eliminates their opportunities so to participate; or
140 (b) in respect of other persons able and licensing of participants in certain willing to pay fair market prices for trades and professions by agencies of goods or services, either for the Government acting in accordance production, for resale or final with authority conferred on them by consumption, reduces or eliminates an Act of Parliament.” their opportunities to acquire those goods or services. Insurers in Kenya clearly fall within both limbs of Section 5 (i.e. sub- (2) For the purposes of subsection (1) section (a) and sub-section (b) and reduction or elimination of can only be licensed to practice if opportunities is to be measured with they comply with the requirements reference to the situation that would of agencies of the Government, pertain in the absence of the which in this context are the Minster practices in question. of Finance and the Commissioner of Insurance who are so authorized to (3) Subject to exemptions set out in act by the Insurance Act. When Section 5, the practices enumerated acting in compliance with the rates in Section 6 to 12 are declared to be specified by the Commissioner of restrictive trade practices for the Insurance for particular classes of purposes of this Act.” insurance, Insurers would be exempt form the Restrictive Trade practices, 3.2 It is doubtful that the provision of Monopolies and price Control Act. insurance business as defined in Section 2 of the Insurance Act, falls within the ambit of Section 4 of the 3.4. The specification of the Restrictive Trade Practices, applicable rates for any class of Monopolies and Price Control Act. insurance is to provide protection for the 3.3 In any event, Section 5 of the consumer of those services and not Restrictive Trade Practices, the provider (insurance companies) Monopolies and Price Control Act and to guarantee sustainable exempts from the provisions of the solvency of insurance companies Act; (which ultimately enhances the protection of the policyholder, as a “(a) trade practices which are consumer). It is therefore our directly and necessarily associated submission that the protection with the exercise of exclusive or offered by the Restrictive Trade preferential trading privileges Practices, Monopolies and Price conferred on any person by an Act of Control Act was not intended by Parliament or by an agency of the Parliament to be applicable to the Government acting in accordance insurance industry. This with authority conferred on it by an submission acquires overwhelming Act of Parliament; support from the fact that both Acts (i.e. the Restrictive Trade (b) trade practices which are directly and Practices, Monopolies and Price necessarily associated with the Control act and the Insurance Act)
141 and both Commissioners (the Ministry of Finance Commissioner of Insurance and Commissioner of Monopolies and AKI also provided a letter in which the Prices) fall under the authority of Commissioner of Insurance had the minister of Finance and it could requested AKI to come up with premium not have been intended that the two guidelines. AKI took advantage of the Acts would contradict each other. innocent requests to justify and to Parliament could not have intended practice price fixing. the Minister of Finance to compel the performance of a particular act under one Statute, whilst at the The said letter is reproduced below: same time making the same Minister responsible for enforcing 20th August, 2001 the prohibition of the same act under a second statute. PREMIUMS RATES
3.5. Insurance claims emanating form Please refer to my address to the Chief motor vehicle business are a Executive Officers of Insurance sensitive and emotive subject in the Companies of 8th August, 2001. context of the Kenyan economy and it is for the protection of those It is appreciated by all that one of the injured by motor vehicles and in biggest problems facing the Industry particular commercial motor vehicles today is that of premium rate that the Commissioner of Insurance undercutting. requires rates to be approved by his office. I did in my referred address require that AKI comes up with rating guidelines on 4. Conclusion all classes of General Insurance Business for the market. We hope that the above is a sufficiently adequate response to your invitation to Underwriters will thereafter be required us to comment on whatever allegations to file with this office rates to be charged have been made. If you wish us to make by them w.e.f. 1.1.2000 in accordance a more comprehensive verbal with Section 75 of the Insurance Act. presentation, we would be happy to do so. This is therefore to request you to expeditiously draw up the guide stated Yours sincerely, above.
WILFRED R. NJERU SAMMY M. MAKOVE G. EXECUTIVE DIRECTOR COMMISSIONER OF INSURANCE
Copy to: The Commission’s position was that it did not agree with AKI and replied as Commissioner of Insurance follows:
142 negotiated within the law as laid down 5th March, 2003 by section 15 of Cap. 504. The negotiation for the Consent Agreement RESTRICTIVE TRADE PRACTICES to which you are being invited will take place on Tuesday, 25th March, 2003 at I acknowledge receipt of your letter 11.00 a.m. dated 19th February, 2003. COMMISSIONER Please note that our letter of 7th MONOPOLIES AND PRICES February, 2003 made reference to two COMMISSION specific allegations made against you which principally related to the AKI On 23rd April, 2003, the Commissioner Motor Rating Schedule effective from 1st of Monopolies and Prices and the July, 2002. The said schedule is in your Association of Kenya Insurers signed a possession as you authored it, vide your Consent Agreement in the following letter AKI CIRCULAR NO. terms: 86/2002/MNW of 4th June, 2002. Among the complainants are the Kenya “THE RESTRICTIVE TRADE Transport Association and the PRACTICES, MONOPOLIES AND Federation of Kenya Employers. PRICE CONTROL ACT, CAP. 504, LAWS OF KENYA) We do not agree that the Restrictive Trade Practices, Monopolies and Price In accordance with Section 15(3) of the Control Act and the Insurance Act Restrictive Trade Practices, Monopolies contradict each other. We also do not and Price Control Act, the Monopolies agree that when fixing prices or when and Prices Commissioner and the recommending prices, your Association Association of Kenya Insurers have this is exempt from the application of the 23rd day of April, 2003 negotiated a Restrictive Trade Practices, Monopolies Consent Agreement stipulating as and Price Control Act. We also note that follows:- you do not deny the allegations made against you. 1. That the Association of Kenya Insurers undertakes to withdraw, In accordance with Section 15(3) of Cap with immediate effect, all its present 504, I deem your Association’s response and past Decisions on Premium as contained in your letter of 19th Rates which purport to recommend February, 2003 not sufficient to remove prices chargeable for insurance the grounds for the allegations made services by its members. The against you as contained in our letter of Association of Kenya Insurers also 7th February, 2003. Consequently, I undertakes to desist from making invite your Association, through its such decisions and from issuing such legally mandated officers, to negotiate Premium Rates recommendations in with the Commissioner, who is the future. undersigned, a Consent Agreement satisfactory to the Commissioner. The 2. That the Association of Kenya said Consent Agreement will be Insurers undertakes to observe, with
143 effect from the date of this Consent Agreement, all the Provisions of the Restrictive Trade Practices, Monopolies and Price Control Act.
3. That the Association of Kenya Insurers will diligently and strictly observe the terms of this Consent Agreement in order to compensate for the past effects of the said past Decisions.”
It is work noting that since abolition of this insurance cartel there has been peace amongst the players in this industry, i.e. the Insurance Companies, the Insurance Brokers, the transport industry (the matatu sector especially) and the public. The dismantling of this hardcore cartel must have spawned immense benefits for the Kenyan economy as eventually it is the consumers (the public) who eventually suffer the consequences of repressed and/or distorted competition.
144 Annex II: Modersation of the Kenyan Monopolies and Prices Commission (the Restrictive Trade Practices, monopolies Competition Authority) include the and Price Control Act 504 outdated Restrictive Trade Practices, Monopolies and Price Control Act; For example, in 2003 Hon. Gor Sungu, a inadequate financial resource allocation member of Kenya’s Parliament moved to the Commission therefore hampering the following motion: its effectiveness; and lack of harmony between sector regulatory laws and “THAT this House do grant leave to competition law itself. introduce a Bill for an Act of Parliament to repeal the restrictive Trade Practices, The Government has, at page 18 of the Monopolies and Price Control Act (Cap Economic Recovery Strategy for Wealth 504 of the Laws of Kenya) and to and Employment document, indicated replace the same with appropriate law that it will: entitled the Competition Act in order to reduce monopolization and collusive a) Enact and enforce relevant and behaviour between firms and for matters appropriate laws supportive of incidental therewith.˝ competition. The law will aim at checking, among others, abuse of The answer drafted by the government dominance, collusive behaviour etc. of Kenya was: It will, at the same time, be geared towards the reduction of barriers to “MOTION ON THE REPEAL OF entry in the market and promoting THE RESTRICTIVE TRADE the competitiveness of our industries PRACTICES, MONOPOLIES AND locally and internationally; PRICE CONTROL ACT (CAP. 504) b) Harmonise the Competition Law with sector regulatory laws;
Background c) Accord the Competition Authority requisite autonomy and The Government supports the Motion adequate budgetary provisions to build since the action contemplated is in line the necessary capacity to enable it with the Economic Recovery Strategy regulate all sectors of the economy. for Wealth and Employment Creation document (2003-2007) which was At page 75 of the Economic Recovery launched by H. E. The President in June, Strategy document, the Government has 2003. The Government has stated in this indicated that enactment of the intended important document that for Kenya to law will take place during the 2003/2004 succeed as a market economy and for it financial year. to enhance the gains from liberalization, there is need to regulate and manage competition policy. The Government notes that the challenges that have undermined the effectiveness of the
145 Amendment (b) When is the Government going to Arising out of the foregoing, the introduce "Anti-trust Regulators" to Government seeks the amendment of the Monopolies Act to control unfair this Motion to read: trade practices? [Perhaps he meant “effective antitrust regulations” THAT, this House do grant the including requisite autonomy] Government time to introduce a Bill for an Act of Parliament to repeal the Restrictive Trade Practices, Monopolies REPLY and Price Control Act (Cap. 504 Laws of Kenya) and to replace the same with an a) The Government is not aware that appropriate law to enhance gains of some Multinational companies are liberalization by effectively prohibiting using unfair trade practices to kill all unfair business practices, including locally incorporated companies. collusion by oligopolies, by controlling Nevertheless, the Government has monopolies, by regulating Mergers and put in place appropriate legislation to Acquisitions and by according Kenya's cater for any unfair trade practices, Competition Authority requisite which might be meted to any autonomy. enterprise operating in the Kenyan economy. This is because we are Unfortunately, due to parliamentary committed to ensuring that all technicalities, the motion lapsed. investors have equal and unfettered However, it is clear that the draft answer freedom when conducting their captures the mood of the Kenyan businesses. The Restrictive Trade government towards its commitment to Practices, Monopolies and Price have in place an effective competition Control Act, Cap. 504 prohibits policy and law. restrictive trade practices and also controls monopolies so as to Another question was asked by another eliminate abuse of dominance. member of Parliament, Hon. Raphael Section 10 (1) of the said Act is very Muriungi in April, 2004. The question explicit on what is outlawed. It is and the answer given by the Minister for illegal for any enterprise to commit a Finance through his assistant Minister is practice which is aimed at: reproduced here-below: i) driving a competitor out of business; “Question No. 078 ii) inducing a competitor to sell assets The Member for Igembe (Mr.Raphael to, or merge with another party; Muriungi) to ask the Minister for Finance:- iii) inducing a competitor to shut down; and (a) Is the Minister aware that some multinational companies are using iv) inducing a competitor to desist from unfair trade practices to kill locally producing or trading in any goods or incorporated enterprises? services.
146 Competition Law and be in tandem b) The current Competition Law, The with the best regulatory practices. Restrictive Trade Practices, These are, regulation of market Monopolies and Price Control Act, structure (all mergers/acquisitions), Cap. 540 was transitional in nature. control of abuse of dominance and It was meant to be transitory; from a all other anti-trust activities controlled regime to a liberalized (prohibiting predatory practices, regime. Due to increased private cartelization and other restrictive sector participation and also trade practices) while at the same increased enterprise activities in time addressing consumer protection. view of the changing global economic and trade environment, the We are also committed to separating Government has noted that the the policy, management and current law is not effective enough to regulatory functions of the enhance fair competition and accord Monopolies and Prices Commission consumers adequate protection. to enhance its flexibility and buttress its credibility and integrity in its To this end, the Narc Government in decision making. This is important its Economic Recovery Strategy for in the ever-changing World of wealth and Employment Creation business.” 2003-2007 has committed itself to reviewing the current legislation. Both COMESA and the East African The Government realizes that for Community have decided to promulgate Kenya to succeed as a market regional Competition Policies and Laws. economy and enhance the gains from The East African Community’s Council liberalization, we have to encourage of Ministers has boldly decided that the fair competition by enhancing Community will have an autonomous capacity to regulate and manage it. Competition Authority. In accordance with the principle of subsidiarity, What hampers effective regulation of Member Countries will be required to competition currently, is outdated have autonomous and effective legislation. Consequently, the Competition Authorities. Kenya will be Government has committed itself to required to honour its obligations both improve competition by enacting and under COMESA and under the East enforcing relevant and appropriate African Community. law supportive of competition, according the Monopolies and Prices The operationalization of the proposed Commission more autonomy and changes will grant the future Kenyan enhanced budgetary provisions. To Competition Authority requisite legal, this end, I am in the process of operational and financial autonomy to constituting a Task Force to review effectively consummate its national, the current legislation. regional (including COMESA and the East African Community) and The Government envisages that the International mandate. resultant law will cover all the main provisions of an effective
147 In may, 2004, the Minister for Finance Contracts in Restraint of Trade Act, approved a Task Force to be chaired by 1932 (Chapter 24 of the Laws of the Commissioner of Monopolies and Kenya) which has spawned veritable Prices to manage the process of problems in the enforcement of reviewing the Restrictive Trade competition law in Kenya. As Practices, Monopolies and Price Control mentioned elsewhere in this paper, Act [Chapter 504 of the Laws of Kenya] this law validates anticompetitive and the promulgation of a new contracts subject only to the powers competition law. The Task Force’s of the High Court to declare such membership includes a representative of contracts void. The area of sector the Attorney General who is in charge of regulation is of particular importance the drafting work. in this area.
The Terms of Reference issued to the 6. Provide for the advocacy role of the Task Force are to: competition authority as an advisor of Government in competition 1. Review of the institutional matters. This should enable framework to provide for an collaboration between sector autonomous Competition Authority regulators and the competition with an established mechanism for authority and also in the privatisation management and technical of public utilities. This role should manpower. This is in line with the embrace articulation of Kenya's Government commitment contained Competition positions both in the Economic Recovery Strategy domestically and internationally. for Wealth and Employment Creation (pages 18 and 75). 7. Review part IV on Price Controls with a view of removing it and if 2. Review the enforcement procedures found desirable to replace the Part to make them easy to follow by the with consumer protection and price competition authority officials, the surveillance provisions. courts and also the business community. 8. Review the functions of the Competition Tribunal and to provide 3. Provide for time frames and apposite provisions. thresholds for merger and take-over cases. 9. Review the relevance of Exemption provisions. 4. Clearly spell out Litigation Procedures and each institution to be 10. Review the Provisions dealing with assigned specific action. (See RTPs and group them into "per se” sections 16, 18, 24 and 31 of Cap. illegal and others for case-by-case 504. analysis. Also to bring in simplified provisions, which are easy to follow. 5. Harmonise existing laws with the Specific prohibition should be competition law. Consideration clearly spelt out in “per se” harmful should be given to the repeal of the
148 infractions such as cartels, price fixing, market sharing etc.
11. Include a confidentiality clause in the revised law and provisions empowering the Commission to get information and also provide a leeway for negative clearance.
12. To align the law with the best international practices and more specifically with the proposed EAC and COMESA Laws.
13. To align the Law with Kenya's international obligations in the Competition area.
14. To provide a legal framework for co- operation and networking with regional and international bodies on Competition issues. The bodies include the EAC, COMESA, UNCTAD and WTO.
15. As part of the advocacy role, alluded to in paragraph 5 above, and for avoidance of any doubt, to allow the Competition authority to publicly comment when competition issues are being discussed in the media or elsewhere and to articulate the official positions of the Government in such matters.
Kenya is grateful that UNCTAD has in the past assisted, and is willing to assist in the future, towards the drafting of a new competition law in Kenya.
149 References
1. W.G. Shepherd & C. Wilcox, Public Policies Toward Business, (Illinois: Richard D. Irwin, 1979).
2. Adam Smith : The Wealth of Nations (Harmond-Sworth,Eng: Penguin Books, 1982).
3. John Beardshaw: Economics, (London; ELBS,(1992). Republic of Kenya;Sessional Paper No.1 of 1986 on Economic Management for Renewed Growth, Government Printer, Nairobi.
4. W.R. Ochieng (Ed.),A Modern History of Kenya 1895-1980 (Nairobi:Evans Brothers, 1989).
6. Claude Ake, A Political Economy of Africa (London:Longman, 1976).
7. R.M.A. Van Zwanenberg and Anne King, An Economic History of Kenya and Uganda (London, 1975),296.
8. Y.P. Ghai and J.P.W.B. McAuslan, Public Law and Political Change in Kenya, (London; OUP, 1970).
9. K. Ingham, A History of East Africa (London; OUP, 1967)
10. N. Swainson:The Development of Corporate Capitalism in Kenya, 1918- 1977 (London, 1980)
11. Restrictive Trade Practices, Monopolies and Price
12. Control Act, Chapter 504, Laws of Kenya.
13. Republic of Kenya: Sessional Paper No.2 on Industrial Transformation To The Year 2020.
14. Treaty for the Establishment of the East African Community.
15. COMESA Treaty.
150 ZAMBIA settings: relationships and agreements among otherwise independent firms, ∗ George Lipimile actions by a single firm, and structural combinations of independent firms. The Executive Summary first category, agreements, is often Governments rely on several policy tools subdivided for analytic purposes into to ensure that their markets remain two groups: “horizontal” agreements contestable and that competition in among firms which refers to implicit or markets is maintained as far as possible, explicit arrangements between firms so that economic growth and welfare are competing with identical or similar not adversely affected by the inefficient products in the same market (section 9), allocation or use of resources. The tools and “vertical” agreements among firms of such policy include trade policy, which refers to agreements between Foreign Director Investment (FDI) operators at different stages of the policy, regulatory policy with respect to production and marketing chain (section domestic economic activity, and 7(2). The second category is termed competition policy. “monopolisation”, in the Act referred to under section 7(2) as abuse of dominant While the first three comprise rules and position”; a practice employed by regulations that serve several purposes dominant firms to maintain, enhance or and not only that of maintaining exploit a dominant position in a market. competition with a view to fostering The third category, under section 8, efficiency, the last relates specifically to often called “mergers” or the competition rules and regulations “concentrations” refers to horizontal, with respect to arrangements among vertical and conglomerate mergers. The firms/suppliers and the conduct of determination is whether a proposed individual firms/suppliers, generally but merger will have the effect of not exclusively, in national markets. In substantially lessening competition in response to the need for creating a the relevant market or substantially market economy, Zambia in 1994 increase the ability to exercise and abuse enacted the Competition and Fair market power. Trading Act. Agreements may permit the group of The Competition and Fair Trading Act firms acting together to achieve some of preserves market processes by the attributes of monopoly, of raising preventing firms from engaging in prices, limiting output, and preventing activities which undermine rather than entry or innovation. The most enhance overall economic efficiency. troublesome horizontal agreements are The Act prevents firms from distorting those that prevent rivalry within the the competitive process through fundamental dynamics of market agreements designed to exclude actual or competition, price and output. The Act potential competitors. In this regard, the under section 9 prohibits naked law essentially addresses the problems agreements to fix prices, limit output, rig of monopoly power in three formal bids, or divide markets. To enforce such agreements, competitors may also agree ∗ Executive Director, Zambian Competition on tactics to prevent new competition or Commission
151 to discipline firms that do not go along; agreements with potential competitive thus, the laws also try to prevent and significance: a franchise agreement may punish boycotts. Horizontal co-operation contain provisions about competition on other issues, such as product within geographic territories, about standards, research, and quality may also exclusive dealing for supplies, and about affect competition, but whether the rights to intellectual property such as effect is positive or negative can depend trademarks. on market conditions. Thus, the law deals with these other kinds of Abuses of dominance or monopolisation agreements by assessing a larger range are categories that are concerned of possible benefits and harms, or by principally with the conduct and trying to design more detailed rules to circumstances of individual firms. A true identify and exempt beneficial conduct. monopoly, which faces no competition or threat of competition, will charge Vertical agreements try to control higher prices and produce less or lower aspects of distribution. The reasons for quality output: it may also be less likely concern are the same – that the to introduce more efficient methods or agreements might lead to increased innovative products. Laws against prices, lower quantity (or poorer monopolisation are typically aimed at quality), or prevention of entry and exclusionary tactics by which firms innovation. Because the competitive might try to obtain or protect monopoly effects of vertical agreements can be positions. Laws against abuse of more complex than those of horizontal dominance address the same issues, and agreements, the legal treatment of may also try to address the actual different kinds of vertical agreements exercise of market power. For example varies even more than for horizontal under some abuse of dominance agreements. One basic type of agreement systems, charging unreasonably high is resale price maintenance: vertical prices can be a violation of the law. agreements can control minimum, or maximum, prices. In some settings, the Merger control tries to prevent the result can be to curb market abuses by creation, through acquisitions, or other distributors. In others, though, it can be structural combinations, or undertakings to duplicate or enforce a horizontal that will have the incentive and ability to cartel. Agreements granting exclusive exercise market power. In some cases, dealing rights or territories can the test of legality is derived from the encourage greater effort to sell the laws about dominance or restraints; in supplier’s product, or they can protect others, there is a separate test phrased in distributors from competition or prevent terms of likely effect on competition entry by other suppliers. Depending on generally. The analytic process applied the circumstances, agreements about typically calls for characterising the product combinations, such as requiring products that compete, the firms that distributors to carry full lines or tying might offer competition, and the relative different products together, can either shares and strategic importance of those facilitate or discourage introduction of firms with respect to the product new products. Franchising often markets. An important factor is the involves a complex of vertical likelihood of new entry and the existence
152 of effective barriers to new entry. The • exclusive dealing which substantially Act applies some form of market share lessens competition, with third line test, either to guide further investigation forcing prohibited per se; or as a presumption about legality. • resale price maintenance for goods; Mergers in unusually concentrated and markets, or that create firms with • mergers and acquisitions, which unusually high market shares, are substantially lessen competition in a thought more likely to affect substantial market. competition. The Act provides for a pre- notification requirement for mergers. The law establishes the Zambia Competition Commission, which is The scope of application functionally and operationally independent from government. The The law applies to all market Commission does not operate in a transactions and to all entities engaged in political vacuum, but nonetheless enjoys commercial transactions irrespective of significant autonomy and parochial ownership or legal form. All exceptions political concerns do not play a role in to the application of the law are its decision making process. However, explicitly identified in the law. for accountability purposes, the Commission is created by an Act of There are two broad principles which Parliament under the Ministry of will underline the competition law: Commerce Trade and Industry. The Commission is a public enforcement • that any behaviour which has the agency and has power to seek object, or effect, of substantially injunctions, penalties, damages, and lessening competition in a market other appropriate remedies from the should be prohibited; and High Court. Divestiture is also provided • such behaviour should be able to be for. The Commission has both authorised on the basis of “economic enforcement and adjudicative role. efficiency”. Private enforcement action is possible under the proposed Act. The main types of anti-competitive conduct which are prohibited include: Under section 13, conduct that may substantially lessen competition under • anti-competitive agreements and the proposed Act may be granted exclusionary provisions, including authorisation. Authorisation is a primary and secondary boycotts, mechanism that provides immunity from with a per se ban on price fixing and legal proceedings for certain boycotts; arrangements or conduct that may • misuse of substantial market power otherwise contravene the Act. In for the purpose of eliminating or practice, authorisation is granted on the damaging a competitor, preventing ground of public benefit. Depending on entry or deterring or preventing the arrangement or conduct in question, competitive conduct; the Commission must be satisfied that the arrangement results in a benefit to the public that outweighs any anti-
153 competitive effect; or that the conduct results in such a net benefit to the public that the conduct should be allowed to occur. The decisions made by the Commission in relation to all matters brought before it and to the application for authorisations can be appealed against to the High Court within thirty days.
The competition law deals directly with the interests of consumers. It provides a means of promoting fair competition by protecting consumer’s right, especially the right to full or accurate information when purchasing goods and services. It provides a safety net in markets were vigorous competition might tempt some businesses to cut corners to gain a competitive advantage e.g. by making misleading claims about a product’s value, quality, place of origin or impact on the environment.
154 The Securities Act of 1994, provides for Introduction the establishment of stock exchanges and rules and procedures of stock The advent of economic and political markets, while the Pensions and liberalisation in Zambia dating from Insurance Act of 1996 provides for 1991, has witnessed the adoption of regulation of insurance companies as three inter-related major policy reforms, well as pension funds. Other Acts such which include the liberalization of the as the Energy Act, Export Processing economy, promotion of private sector Zones Act, and Communications Act participation, and the enactment of have also come into existence, modern legislation. A new industrial liberalising the specific sectors and policy is founded on the tripod of establishing appropriate institutions for deregulation, commercialisation and the regulation of the sectors. privatisation. Other pieces of legislation were To achieve this, it was necessary to have amended and these included the in place appropriate legislation and Companies Act, Copyright Act, the establishment of institutional and Banking and Financial Services Act and regulatory frameworks. This meant that the Standards Act to name a few. some new legislation had to be enacted, while some old laws needed to be It is clear from these sweeping changes amended and/or updated in line with the in the regulatory framework of the new economic order. economy and the establishment of statutory bodies that the economic focus Some of the new legislation that came of Zambia has changed from the into force included the Privatisation Act command government control economy of 1992, which provided for the to a more liberal, free market economy. privatisation and commercialisation of state owned enterprises; and also provided for the establishment of the Zambia Privatisation Agency and defined the functions of the Agency. 1.0 Zambia’s Position In Southern In September 1993, the Parliament of Africa Zambia enacted the Investment Act (1993), which amended the earlier Zambia is a Southern African landlocked Investment Act (1991). This is an Act to country whose neighbours are: provide for the legal framework for investment in Zambia, and in particular • Zimbabwe and Botswana to the to constitute and foster the Investment South Centre. The Act further provides • Angola to the West and Namibia to procedures for evaluating applications the South-West; for investment licences and also • Malawi to the East and Mozambique provides for investment guarantees, tax to the South-East incentives and other allowances.
155 • Democratic Republic of Congo to the North and Tanzania to the North East. 1.1 Zambia’s Economy at a Glance
The Southern Africa sub-region itself In the first decade after independence comprises six (6) landlocked countries, (1964-73) Zambia followed a namely: Botswana, Zimbabwe, Lesotho, development policy of import Swaziland, Zambia and Malawi and five substituting industrialization, and (5) maritime countries namely: Angola, nationalization of enterprises. This was Namibia, Tanzania, Mozambique and supported by the abundant mining South Africa. The sub-region represents revenues which contributed half of GDP a potential market of over 120 million and almost all export earnings. people. Zambia lies 15 degree South However, from 1973 Zambia begun to and 30 degrees East on a plateau experience a massive deterioration in between 915 to 1500 metres above sea terms of trade, collapsing copper prices level. The total country area (land and and soaring oil prices - and significant water) is approximately 752,614 square internal mismanagement. The situation kilometres, roughly three times the size was further aggravated by drought. of the United Kingdom (UK) or Texas Zambia believed that the shocks were State in the United States of America temporary, and would be reversed, and (USA). therefore, undertook huge external borrowings (which peaked in 1985) to Zambia enjoys a reasonably good avoid having to restructure the economy. climate and topography for agricultural Exchange and trade controls were investment and comfort. The climate is strengthened as the foreign exchange marked by a seasonal rhythm with shortages became more severe. summer falling between August and October and winter between May and However, external lending dried up as July. The rainy season occurs between commercial lenders realized that November and March. Temperature Zambia's capacity to repay debt was ranges between 10 degrees Celsius in seriously compromised. Debt repayment winter and 30 degrees Celsius in problems quickly emerged. A state led summer. industrialization was no longer affordable. Policies to support the
diversification of the economy in favor The population in Zambia (2000) is of the agriculture sector, which had been about 10.7 million of which about 55% analyzed and debated since' is urban. Lusaka, the capital city, independence - but which had not begun accounts for more than 1.7 million - were now urgent. During the 1980s, people while the Copperbelt towns have some sporadic policy reform efforts a combined population of about 1.7 were made. But there were many million people. Ndola, the second largest setbacks and reversals; too little reform city in Zambia, accounts for more than a occurred and came too late. From 1985 quarter of the population on the to 1989 public enterprise losses were Copperbelt. Annual population growth estimated at USD 455 million. A rate for the country from the year 2000 is breakdown in dialogue and support from in the region of 1.3%. the donor community in the mid/late 80's
156 compounded the economic problems. Non-traditional exports have been growing over the years and contributed about 39 percent to GDP. These exports, By the time of political transition in made up of different products from 1991, the new Government faced a different sectors amounted to US$400 daunting task. Huge budget deficits, million in 2003. The increased exports largely due to the state owned are as a result of increased agricultural enterprises, were financed by printing production and export capacities of money and borrowing on the local coffee, tobacco, cotton yarn, and copper market, leading to galloping inflation cables. and excessively high interest rates.
Private sector investment remained depressed. Zambia had already faced Other principal non-traditional exports two decades of steady declines in per include: capita income, (US $900 in, 1970, US$ • 600 in 1980 and US$ 450 in 1990). Primary agricultural products (paprika, etc) • Fresh fruits and vegetables Mining has traditionally been central to • Building materials the Zambian economy. However in • Semi-precious stones 2003, the picture changed dramatically, • Timber and wood products with mining being relegated to fifth • Animal products and processed place and accounting for only 8% of foods Gross Domestic Product (GDP). This • decline was due to the overall decline in Cut flowers • the production of Copper, Cobalt and Textiles • Coal, lead and Zinc. However mining is Sugar still the largest foreign exchange earner • Electricity for the Country. Wholesale and retail ranked highest at 15% of GDP in 2003 The country’s currency is the Kwacha (due to trade liberalisation). (1Kwacha – 100 ngwee). Currently, the currency exchange rate has been stable Agriculture has grown steadily to attain about one (1) US$ to Five Thousand second largest contribution to GDP in (5000) Kwacha. 2003 with 15%. The contribution of the manufacturing sector to total GDP has The GDP has recorded a steady growth been third largest at 10.9%, while Real since 1999, reaching a peak of 5.2% in Estate and Business Services have 2001. It dropped to about 4.8% in 2002, increased steadily registering a fourth and was estimated at about 5% for 2003 largest contribution to GDP at 9.5%. and 5.5% in 2004. Main imports include crude oil, chemicals and machinery. The United Kingdom (UK), South Africa, Malawi, 1.2 Economic Policies Supporting Germany, Zimbabwe, Italy, Burundi, Investment in Zambia Zaire, Tanzania, Holland and Japan are some of the Zambia’s main trading The adoption of economic liberalisation partners. has witnessed the adoption of three key inter-related economic policy thrusts
157 under the Structural Adjustment been dominated by two realities: first a Programme (SAP). These are: secular decline in the price of copper since its peak in 1973, and second a • Deregulation corresponding decline in Zambian per • Commercialisation; and capita income. The privatization • Privatisation program was begun in 1988/89, but it took on greater vigor after 1991 when the declining government budget could not provide the investment capital 1.2.1 Deregulation needed to enable profitable companies to
grow; neither could it finance the losses Deregulation meant that quantity of those which were not profitable. licensing, statutory protection of Privatization of these enterprises was parastatals monopolies and barriers to therefore the only available option for entry to the Zambian market had to be their survival. This was the dominant removed. The Zambian industry has reason for the privatization decision. been subjected, henceforth, to a tougher and more comprehensive application of This was also the economic context for market forces. Almost all entry barriers the privatization program launched in to markets have been removed through 1992, which gravely threatened the appropriate legislation and policy survival of the enterprises. The context guidelines. was similar to that seen in Eastern Europe, where economies were painfully 1.2.2 Commercialisation transformed from a socialist system to a market economy. In all cases, the The economic policy thrust of transition costs are huge but Zambia's commercialisation has two main situation was uniquely difficult and objectives. At macro-level, it has painful because revenues from copper, entailed reduction of public expenditure its key domestic resource, were also and removal of subsidies from rapidly declining. parastatals. At micro-level, this is a preference for consumer sovereignty as The privatization program was clearly a opposed to central or local government 'damage control' exercise, undertaken allocation of resources. Parastatals and during a period of extreme economic quasi-government enterprises had stress in an effort to enable enterprises to wastefully devoted resources to survive. As will be seen further below, maintaining services at higher costs for almost all of the enterprises which were which, in some cases, there was privatized after 1991 survived and now questionable demand. This, in turn, employ about 39,000 people in the ossified both the set of services provided formal sector, after having reduced their and the technologies used to the ultimate excessive workforce. New investment in disadvantage of the final consumer. these enterprises since privatization amounts to about US$990 million. This is a promising outcome considering the 1.2.3 Privatisation general difficulties experienced in the economy over the privatization period. Zambia's economic development has
158 Consumer Buying Corporation (ZCBC) The passing of the Privatization Act in stores, had to close down. 1992 and the subsequent establishment of the Zambia Privatization Agency Since then, some 254 state-owned (ZPA) reflected the Government's entities (including mining) have been acceptance that the heavy burden placed privatized, the bulk through a relatively on the Government's budget by the state- transparent and competitive tendering owned enterprises was unsustainable and process. Although initially slow, that their survival could not be assured privatizations peaked in 1996 when 125 unless they were placed in private hands. transactions were completed. Some of The bulk of the enterprises, numbering the enterprises - 12 in all- had to be around 150 (which were later split into liquidated at the time of privatization as individual operating entities for there were no buyers willing to subsequent privatization), were insolvent resuscitate them. There are currently and many were technically bankrupt, three remaining state enterprises for being plagued by over-employment and which negotiations for privatization have operational inefficiencies. Creditors been completed (including Zambia were threatening loss-making enterprises Railways) and a further 23 are being with receiverships, and some 38 prepared for some form of private sector enterprises had already been forced into involvement (including state monopolies liquidation before the privatization namely: Zambia National Commercial program was launched, including United Bank (ZANACO), Zambia Milling, United Bus Company of Telecommunications Company Limited Zambia and Zambia Airways. Even (ZAMTEL), Zambia Electricity Supply enterprises with simple trading Corporation Limited (ZESCO), and operations, such as National Import and INDENI Petroleum Refinery Company Export Corporation (NIEC) and Zambia Limited / TAZAMA Pipelines Limited).
Mode of Privatisation
Value of Transactions Mode of No. of Privatized ZMK US$ SAR Privatization Units Competitive Tender 180 21,799 372 28 Liquidated 12 0 0 0 Pre-emptive Rights 43 689 44 0 MBOs 18 1,914 9 0 Floatation 1 0 0 0 Total 254 24,402 425 28
Most of the sales in number terms were to Zambians, and these were mainly in the smaller-scale trading, service and agriculture sectors.
Ownership
159 Transaction Values (million) Ownership No. of Units ZMK US$ SAR Foreign 83 2,816 39 28 Zambian 28 0 368 0 Joint 143 21,587 18 0 Total 254 24,403 425 28
The "bigger-ticket" state-owned enterprises in mining, energy, manufacturing and agro- based activities were sold to foreigners, mostly through joint ventures with Zambians.
The number of privatized entities that • Adopting flexible foreign exchange have closed down is relatively small. policies and phasing out price Only 19 have failed since privatization, controls and government quantity with 12 of these now being resuscitated licensing and promulgated tariffs so by new private sector interests. This that key resource allocation decisions means that at least 235 of the 254 are the domain of the market place. entities privatized to date are still (In January 1994, government operating, a surprisingly strong showing repealed the Exchange Control Act); in light of the economic difficulties facing Zambia. • Formation of capital and money markets e.g. the Lusaka Stock Exchange (LuSE); 1.3 Specific Economic Policy Measures • Liberalisation of the export and import regime; and Against this background, the government has put in place specific • Reviewing of all business related economic measures including: legislation in favour of private sector development such as the Zambia • Limiting the growth of money Privatisation Act (1992) and supply in order to arrest inflation and Investment Act of 1993. The provide stable economic conditions Investment Act provides substantial for investments; incentives and statutory protection to investors such as the right to • Liberalising and freeing interest repatriate profits and dividends in rates; addition to customs duty and income tax concessions. In a bid to reduce red tape and bureaucracy, an • Reducing the budget deficit to Investment Centre has been prevent the “crowding out” of the established under the Investment Act private sector by the public sector to serve as a one-stop facility for and imposing market disciplines investment licences and incentive upon the public sector by removal of applications. subsidies;
160 2.0 Performance And Competitiveness banking sector, insurance, transport Of The Industrial Sector services, communication and consultancy services.
Scott and Lodge (1985) define national There is a close correlation among these competitiveness as the ability of national sectors. The performance of one states to produce, distribute and service automatically affects the others. For goods in the international economy in example, the good performance in the competition with goods and services agricultural sector in the 1999/2000 produced in other countries, and to do so season contributed to a corresponding in a way that earns a rising standard of good performance in the manufacturing living. sector in the year 2000.
The competitiveness of the Zambian According to the 2004 Budget Speech, industry as stated before has been agriculture value added grew by 5% in influenced largely by economic reforms 2003. Its share of aggregate domestic embarked upon in 1992, which saw the output increased to 15% from about shifting of the industrial and commercial 12.1% in 2003 making it the second policy from import substitution, largest contributor to GDP. Positive protectionism and heavy public sector growth was registered in maize, tobacco, involvement to the promotion of an open cotton and paprika. There was no liberalised market economy. The reference made to livestock production reduction of trade tariffs, however, where the major constraint continued to opened Zambian companies to foreign be Foot and Mouth Disease, East Coast competition before they had the chance Fever and Contagious Bovine to re-tool and upgrade equipment. This Pleuropneumonia (CBPP) in the led to a shift in demand from local to Southern and Western provinces, which foreign cheaper products. The delay in account for 70% of Zambia’s cattle privatizing Zambia Consolidated Copper population. Mines (ZCCM) for instance affected the sector’s performance as most companies particularly on the Copperbelt, were The manufacturing sector is the third established primarily to supply ZCCM. largest contributor to GDP averaging Regional conflicts have also hindered around 10-11% and employing 47,782 efforts to explore the export potential in people in 2000, which has been the the region. average for the period 1997-2000. There were 1,049 registered manufacturing The industrial sector in the context of firms in 1999. The composition of the this paper comprises agriculture, manufacturing sector includes food, manufacturing and related commercial beverages and tobacco, textiles and services. Agriculture relates to economic leather, wood and wood products, paper activities leading to the production of and paper products, chemicals and crops and livestock. Manufacturing is pharmaceuticals, non-metallic mineral the commercial transformation of raw products, basic metal products and materials into semi-finished and finished fabricated metal products as well as products. Commercial services on the other manufacturing. other hand include among others the
161 The performance of the manufacturing agro-processing sub-sector has seen sector showed steady growth in 2000 some companies close down some of registering a 13.4% growth. The good their production lines. Amanita closed performance in the sector in 2000 was the wheat processing plant in Lusaka and attributed to maturity in the private were planning to close oilseed sector, increased domestic demand for processing citing stiff competition from manufactured goods, good agricultural Malaysian “OKI” cooking oil, opting to season and fiscal incentives. The import crude and finished cooking oil increase in demand for manufactured and wheat flour. National Milling goods is attributed to the revival of Corporation had also opted to import mining activities following the sale of wheat flour rather than processing local ZCCM assets. Impressive growth was wheat. recorded in basic metal products (23%), food beverages and tobacco (19.6%), It has been generally observed that those non-metallic mineral products (11.4%), industries that depend on raw materials fabricated metal products (8.1%), and other inputs imported outside the chemical, rubber and plastics (6.5%), Common Market for Eastern and textiles and leather (4.2%). Negative Southern Africa (COMESA) and target performance was however, recorded in the local market have had problems the wood and wood products, paper and surviving in the liberalised market paper products and other manufacturing. environment. The COMESA Free Trade
Area is expected to benefit firms According to the 2004 budget, sourcing inputs from within COMESA manufacturing value added in 2003 where duty on raw materials is zero- increased by 6.3 percent. The growth rated. This measure is expected to reduce continues to be represented by the food, production costs thereby making locally beverages and tobacco sectors with produced products competitive. textiles and leather sub-sectors also According to the 2000 Economic Report, registering positive growth. The strong 50% of manufacturing inputs in correlation between agriculture Zambian firms are procured from production and agro-processing is outside COMESA. represented by the positive results shown by the food sub-sector. Other factors that have been cited as The good performance recorded between having adversely affected manufacturing 2000 and 2003 in the manufacturing firms in Zambia include high transport sector should be seen against a costs, obsolete machinery, background of economic hardships communication and energy costs, high brought about by the restructuring in the interest rates, lack of development period 1991 – 2001. finance, unfair trade practices by some COMESA member states, poor Among examples of companies that economic infrastructure, high taxes and closed before 2000, are Reckitt and lack of capacity to enforce quality Colman, Dunlop, Mansa Batteries, assurance and standards. Distorted duty Kapiri Glass and most of the clothing structure, lack of a strategic plan and factories. In the more recent past, the vision and shortage of critical raw
162 materials also contribute to Zambia’s liberalisation of trade as a substitute for uncompetitiveness both locally and domestic competition law. The common abroad. We shall refer to these economic example given is that of Asian countries growth constraints later in the text. which have no competition laws but are fully developed. The current trend is Clearly, firms can meet the challenges of however that countries such as Hong competition by identifying new Kong, Japan and South Korea have in opportunities, including innovations so the last decade introduced major as to effectively exploit these measures that include competition law opportunities. Further, they can principles. minimize marketing and technology development costs through networking It is further argued that competition law and forging ties with other firms. In limits the ability of the least developed order to facilitate this, there is need for a country governments to introduce pro- coherent policy environment which links development industrial policy and macro-economic and sectoral policies prevents firms from achieving the with firm level efforts to attain and economies of scale necessary to compete maintain competitiveness. More with the developed country multinational importantly, there is need for a corporations. Competition law is seen as systematic approach to facilitating a danger to competitiveness. competitiveness. Competition law is also seen to limit the ability of domestic firms to become internationally competitive because it 3.0 The Need For A Competition makes it difficult to coordinate their Law And Policy In Zambia business policies and strategies with domestic rivals by agreement. This There is a strong argument opposed to argument as we shall observe later, has the development and enforcement of been frequently advanced against the competition law in the least developed inclusion of merger regulation in a countries like Zambia. It is argued that developing country’s Competition Laws. the scarce, skilled labour required for the effective enforcement of competition While there is now a general consensus law is vastly disproportionate to its on the need for a competition law and proven positive impact on economic policy for developing countries like development. Most, if not all, of the least Zambia, three inter-related issues are developed countries have embarked on a being increasingly recognised: liberalised industrial policy regime where private corporate sector is • Competition policy needs may differ strongly encouraged. Trade liberalisation according to level of economic is sufficient, along with other moves development of a nation. towards deregulation, to create a competitive domestic market. • Competition law is just one of the Liberalisation of international trade is various public policies that infringes relatively simple to implement and does on the competitive environment of not require expenditure of scarce skills. an economy. Consequently, the In essence this argument regards linkages between various policy
163 initiatives and their combined effect The Zambian economy of today has on competition, efficiency and been experiencing both the external growth need to be understood before pressure of competition and internal identifying the key parameters of limits of growth. The country’s competition policy and the scope of dependence and strong trading links with competition law. South Africa’s economy has a significant effect on the local market. • The institutional legal framework is Under these conditions the adoption of a critical for the efficacy of national competition law and policy has competition law. become necessary. If Zambia’s economic productivity is to continue In fact the foregoing considerations increasing so that the nation can suggest that in making the case for an maintain its competitive edge, adopting a effective competition law, it is important national competition law is the pressing to stress that the design of competition task at hand. It is expected that the law has to take appropriate account of Commission through its enforcement of Zambia’s level of development and the competition law and policy will continue long-term objective of the country’s to search for and find solutions to economic policy. As part of this problems confronting the Zambian document, it shall become vital to focus economy such as the current concerns in on the key competition issues facing or sectors dominated by private likely to face the Zambian economy, monopolies. such as impact of public monopolies as well as private ones in pre and post- From the foregoing, it is necessary that liberalisation, over and/or under Zambia establishes an effective regulation of main economic sectors, competition law regime in order to size of the economy and its ensure that the benefits of liberalisation import/export dependence, as well as the and market reform are not undermined development of a competition culture. or completely lost due to the establishment of private anti-competitive Zambia has realised that competition restraints in the place of former policy and industrial/trade policy should institutional distortions of competition. serve complementary roles in creating an In fact, competition policy itself is an environment that promotes growth and important element of a successful productivity on the one hand, and free industrial strategy since it opens up and fair competition on the other. It is markets and places appropriate pressures not a question of one replacing the other. on producers to become more efficient. Competition law and policy is also In addition, the existence of a important as it allows the country to competition policy enhances a country’s create conditions conducive to credibility and attracts foreign direct productivity enhancement, ensures the investment since, from the perspective of sound development of domestic industry prospective investors; it helps to create a and restricts abuses of dominant stable and predictable environment. positions by large companies, including multinationals.
164 4.0 developing public awareness contribute to the discussion were and government support for thwarted by the organisers. competition enforcement It was clear from discussions with In Zambia, the implementation of Ministry officials that there was lack of competition law has not received the understanding of the interrelationship of necessary support from the government competition, economic growth and policy makers. There has been great poverty reduction. The Commission was reluctance by government to act upon determined to participate at this the advice of the Commission. This is symposium, as it believes that the despite the Commission availing competitive environment within which government with competition opinions firms make decisions on production, on various sectors. The opinions and distribution and investment is directly recommendations to policy makers are linked to enterprise productivity, and not effectively observed due to thus to growth and poverty reduction. discretionary policy making by government institutions. The Ministry of Commerce, Trade and Industry despite being the parent The government is not bound by the ministry under which the Commission decisions or recommendations of the operates, has shown instances of Commission. This is unlike the disregard to the existence or the role of Competition Law of Malawi which the Commission. For example, the contains a specific provision which Commission, despite attempts to attend, binds government to the decisions of the was deliberately not invited to the competition authority. In Zambia, there Government – Private Sector are several instances; the Commission is Development Forum. generally left out from participation at public forums where key economic These are not the only instances where issues are discussed. Sometimes this is the government has not involved or as a result of general ignorance of the consulted with the Commission. There is role of competition policy in economic generally lack of support and development by the concerned understanding of competition policy by government officers. government. Consequently, it has not been possible for the Commission to A recent case in point was the failure to participate by its own right or by request invite the Commission to an economic of government in the formulation of symposium where the government was high-level policy. The Commission has holding the mid-term review of Poverty to enhance its role of ‘competition Reduction Growth Facility. The Ministry advocacy’ in all government institutions. of Finance and Economic Development The effective enforcement of who were hosting the meeting invited competition policy will be more most of the institutions involved in the effective if there exists in other formulation and economic management government institutions policy makers of the country. The Commission was not who understand and support the concept invited and attempts to attend and of competition policy. There is need for a systematic consultation between
165 government and the Commission. To policies which harm the competitive this end, a provision that would make the process and reduce economic efficiency. Commission part of the consulting mechanism within government would be Competition law and policy are among extremely helpful. several economic tools the government through its policy makers may utilize in The first priority in a paradigm shift the economic management of the toward national competition policy is the country. Given the above paradigm, the incorporation of the competition emerging challenge for policy makers in principle into all aspects of the Zambian Zambia at present, is to ensure that government’s policy formulation. First, regulatory reform and the all the processes involved in policy- implementation of competition policy making, implementation, legislation and are complementary strategies for the enforcement should be imbued with the attainment of competitiveness and competition principles. It should not be economic growth. The existence of a limited to economic policy. Because coherent and consistent mechanism to education, culture and public welfare regulate competition constitutes a involve social policies that support the necessary condition for companies to economic system, all these areas should achieve increased levels of be examined from the perspective of competitiveness. The country’s competition. This would necessarily economic reforms should aim at require that the competition principle be realising the efficient operation of the applied at both local and central Zambian economy by removing government levels. obstacles to free and fair competition in the market and ensuring the sound Second, all government institutions in operation of the market mechanism. Zambia should be equipped with the competition principles so that they can It is also expected that the government make their own competition policy should accept that a well designed, decisions. It is unrealistic to expect the competition policy should be accorded a Commission to enforce the broad central place in economic framework concept of competition policy at each policies. An effective competitive policy and every stage of policy legislation and prevents artificial barriers to entry and practice. Unless the relevant government facilitates market access. It complements agency is pro-active in adopting the other policies, particularly trade competition perspective, their policies liberalisation, and domestic and are more likely to cause market international market integration. It is inefficiencies. evident that the continued absence or ineffective application of competition Thirdly, the shift to national competition law and policy in Zambia might in itself policy requires an institutional pose a barrier to entry. As we have framework to ensure that competition is already stated, while free trade is applied in all of government process. important, it is equally clear that it is not This requires the identification of laws, sufficient to ensure competition – it must regulations and other government be supplemented by an active competition policy.
166 understand and support the concept of Having a national competition policy competition policy. If any of these indicates a country has an economic stakeholders does not understand the system based on the competition benefits that are typically associated paradigm. Competition principles are an with greater competition, or if they are integral part of how a government runs sceptical about the prospects for those the country. As with all reforms, benefits to materialise within an however, resistance is inevitable. Those acceptable timeframe, the process of who enjoy the benefits of government transitioning to a competitive market protection and support fret about the may be difficult and characterised by possibility of losing privileges if a regressive periods along the way. national competition policy is adopted. This is, of course, precisely why gaining public support and forming a national 5.0 A Comprehensive National consensus is a prerequisite for pursuing a Competition Policy national competition policy.
It is evident from government, non- Competition policy is sometimes governmental organisations and equated with the traditional competition companies that the Commission’s law or trade practice laws of a country. achievements in its efforts to build a However, many other policies affect competition culture in Zambia is likely competition. A comprehensive to be slow and tenuous at best unless competition policy thus includes all stakeholders understand the benefits of government policies – both those that competition. The stakeholders should be restrict as well as promote competition. at least aware of some of the important It extends well beyond traditional links between competition policy and competition law. other important economic policy areas, and believe that greater competition in There are several pieces of legislation in the economy will in fact add to the Zambia, which will require review, improvement of the well being of the amendments and repeal to give way to Zambian people. an effective enforcement of competition law. At the moment, institutional The responses coming from the restraints are likely to continue to have a Commission’s dealings with key policy far greater distorting impact on makers still exhibit great ignorance on competition in addition to private the subject matter of competition law restraints. This is in part because and policy and lack of interest to learn distortions of competition brought about about it. There is both insufficient by laws and regulations and other knowledge from government officials institutional restraints typically exist in and uncertainty among businesses. basic infrastructure industries such as Given such an audience, it is important telecommunication, electricity, banking, that the key stakeholders who include water services and a broad range of politicians, public servants, the business professional services. and legal communities, sectoral and other regulators, academics and the press Accordingly, a legislative audit in the area of competition policy requires to be
167 done in Zambia by way of a review of in existence. What is required is to the extent to which competition may be enhance the performance of these distorted by laws, regulations, supply institutions. A spectrum of competition management schemes, licensing policy in existence include: international regimes, procurement policies, and regional trade, intellectual property, investment restrictions, product foreign ownership and investment, tax; standards and other institutional small business, stock exchange, public mechanisms. and private ownership, licensing; contracting out, tender and public A comprehensive competition policy procurement rules, and a range of other includes: policies.
• Prohibition of anti competitive It is worth noting that some of the above conduct (traditional competition policies have a very direct effect on laws) competition, whilst others affect the • Liberal international trade policies general economic environment and the • Free movement of all factors of general climate of competition of the production (labour, capital etc) country, e.g. foreign ownership and across internal borders investment restrictions. • Removing government regulation that unjustifiably limits competition Where does the Commission fit into this e.g. Legislated entry barriers of all picture? The Commission mainly kinds, professional licenses, regulates conduct in market. It prohibits minimum price laws, restrictions on anti-competitive agreements, abuse of advertising. market power, anticompetitive vertical • The reform of inappropriate trade restraints, resale price monopoly structures, especially maintenance, certain kinds of boycotts those created by governments etc. • Appropriate access to essential facilities Competition law only has a limited direct effect on market structure. Merger • A level playing field for all control policy has a substantial effect on participants, including competitive the structure of a market. The divestiture neutrality for government businesses powers can be applied by the and an absence of state subsidies that Commission, and this was done in the distort competition. takeover of Zambia Bottlers PLC by • Separation of industry regulation Zambian Breweries PLC. Sometimes the from industry operations, e.g. application of competition law to anti- Dominant firms should not set competitive conduct may have structural technical standards for new entrants. effects. Nevertheless, the impact of
competition law on key structural In Zambia there already exists a legal variables, e.g. entry and the number of framework for competition law and players in a market is often relatively regulatory laws. The necessary laws and small. In particular traditional institutions, which affect the competition policy does not override administration and enforcement of anti-competitive laws and regulations competition law and policy, are already
168 e.g. laws that restrict entry into a the other companies especially the particular industry. This is not to say that multinationals in the region, they need competition law is not a vital element in special treatment. a comprehensive competition policy. The Government’s main task can thus be seen as the establishment of a more 6.0 A Strategy For favourable environment within an active Competitiveness In The policy approach. A favourable Manufacturing Sector environment must not be confused with one, which simply ensures higher profits The existence of a coherent and for local companies. One would say that consistent mechanism to regulate negative real interest rates, downward competition constitutes a necessary wage trends and subsidized energy condition for companies to achieve prices favour company profitability. But increased levels of competitiveness. The these cannot be considered suitable Commission aims to realise the efficient elements of a favourable environment, operation of the Zambian economy by which is sustainable in macro-economic, monitoring, controlling and prohibiting social or environmental terms. acts or behaviour which are likely to adversely affect competition and fair- An active policy approach would be the trading in Zambia. elimination of a restrictive environment, including price liberalisation and macro- Notwithstanding this recognition, the economic stabilization; the elimination reality is that most of the manufacturers of protectionist trade policies and in the country do not share a common arbitrary and unclear trade and industrial and full understanding of the importance policies; the removal of market of competition law and policy. This may monopolies; the modernisation of the be because there seem to be deep-rooted civil service. fears among some manufacturers that local firms could be overpowered by It is necessary to observe that the foreign counterparts when competition existence of a free market system by laws and policies are effectively itself can be seen as a necessary but not enforced. While it is widely a sufficient precondition for national and acknowledged that domestic international competitiveness. competition, enhanced by competition Government intervention itself is not law and policy, would contribute to the simply to be condemned. It is the way it growth of the national economy, they is carried out that matters. It can be an fear that competition with foreign firms essential ingredient of the achievement would also be facilitated, which might of comparative advantages or, hamper the development of local firms. ultimately, international competitiveness in the long run. It has become evident that Zambian companies cannot compete effectively in However, under present Zambian the region. Equals have to be treated conditions, it is evident that complete equally and unequals, unequally. Since freedom of trade would not be desirable. the domestic companies are unequal to Even if international trade serves to
169 sharpen competition in the domestic for purposes of positioning in a specific market in terms of price, quality and segment of the market. This is to say incentives towards innovation and the that what defines their competitiveness development of new products and is the greater or lesser capability to production processes, individual satisfy consumer needs. countries like in the case of Zambia might not be ready for it. Thus, although This capability can be achieved through barriers to trade sheltering particular improvements in the productivity of domestic industries may have anti- companies, reflecting itself through competitive effects on national markets, lower prices or better quality of the they may provide domestic firms with products or services offered. This, in the the time needed to increase their ability end, allows companies to expand their to compete internationally. Protection of markets and/or achieve better results. In domestic industries can therefore be an the long term, the principal factor that important component of a growth- promotes competitivity is the enhancing trade policy. Consequently, productivity and efficiency of the the government will continue giving the companies. necessary protection of course without undermining the liberalisation process. In order to enable companies to compete successfully on a macro economically, Market failure is the major reason socially and environmentally sustainable justifying Zambia’s protection of its basis, there is need for government domestic industry. Zambia does not and/or the firms themselves to provide to possess efficient financial institutions companies the elements needed to face and this makes it difficult to draw competition on open markets. The savings from the traditional sector to protection of competition is seen as finance investment in manufacturing. crucial to the protection of consumers’ Low initial profits are always an obstacle interest and the efficient allocation of for long-term investment. Many resources. Policy reasons for protecting investments as we shall observe cannot competition are thus considered to be taken unless the government supports include improving consumer value and the infant industry. choice, providing incentives to innovate and invest, and making Zambian companies more attractive in the global 7.0 Competitivity Of Zambian market. All these goals usually are Companies thought to be best achieved through:
Competitivity is the capability that • Improvement of the physical, companies have to satisfy the different economic and social infrastructure to needs of the consumer, be it final or support production intermediate. Zambian companies will • Create or innovate the technology for be more competitive in the market if the transformation of the raw they can reduce their prices in relation to materials their competitors, if they are capable of • Differentiate its product from the offering a better quality product or if companies they are able to differentiate themselves
170 • Improve their distribution and sales 8.0 Constraints To The systems Competitiveness Of The • Intensify the learning process i.e. Zambian Industrial Sector quality circles • Skilled human resources • Promotion of improved 8.1 Geographical position entrepreneurial capacity. (landlocked) resulting in high transport costs Some of these elements could be developed through collaboration Zambia is a landlocked country covering between the public and private sector, an area of 752,614 sq.km. It shares and some by strengthening relations borders with Malawi, Zimbabwe, between the educational and research Tanzania, Mozambique, Botswana, institutions and production activities. Namibia, Democratic Republic of Congo and Angola. Zambia continues to use the It is now accepted that the international road and railway network as the main competitiveness of domestic firms is modes of transport for its imports and more likely to be enhanced than exports through neighbouring countries undermined by the existence of vigorous to the ports of Dar Es Salaam in competition in home markets, in that the Tanzania, Durban in South Africa and to exposure to competition domestically a lesser extent Walvis Bay in Namibia. assists firms in upgrading their products Government has realised the importance and marketing techniques and adapting of opening other routes to the sea. This quickly to changing market conditions. is why there is need to complete the Chipata-Mchinji Railway, which will Whereas it is not the intention of this link Zambia to the ports of Nacala and document to examine the concept of Beira in Mozambique. These ports are ‘national competitiveness’ further, it currently under-utilised and yet they must be stressed that it is companies, and could be the most direct and economical not nations, which compete, and thus an routes to the sea. The planned bridge economically successful country is one across the Zambezi to link Zambia by which hosts many internationally road to Walvis Bay on the west coast in competitive firms. This is to some extent Namibia has been completed with the attributable to the economic growth seen help of the German Government and was in South Africa, Kenya and Zimbabwe. commissioned in May 2004. Seaports on The majority of multinational companies the west coast would shorten the in the region are housed in these distance covered by vessels from the countries. Such firms are able to create Americas and Europe. and sustain competitive advantage against the world’s top competitors in a Government has realised that lack of particular field and to do that they need well-organised and coordinated transport to attain a high and rising level of in a land-locked country can be a serious productivity. retarding factor to development as it increases transaction costs for business. In Zambia, inland transport (rail/road) is by far the most expensive. Inadequate
171 and poorly maintained secondary and as an expensive input in the production tertiary transport networks undermine processes. national efforts to engage in regional and international trade. Moreover, Zambia The high price of fuel largely composed by virtue of being a landlocked country of government taxes and levies has also is at an acute disadvantage. For example, been cited as one of the major factors the price quotes for a container shipment contributing to uncompetitiveness. The from United States reveal that the cost of excise duty on fuel is considered to be shipment to Namibia shall be far much too high. less to the cost of shipment to Zambia via Namibia – a landlocked ‘penalty’. There is need for government to analyse the alleged inefficiencies in the electricity supply, telecommunications 8.2 High energy (electricity and fuel) and water supply and launch long-term costs measures to deal with them.
There has been an outcry from the manufacturing sector alleging that electricity tariffs in Zambia are very high and have contributed to the high production costs making Zambian 8.3 Bureaucratic and Excessive products uncompetitive locally and Licensing Requirements abroad. However, statistics show that except for Malawi (2 cents/kWh) The current practice, rules and Zambia has one of the lowest tariffs in regulations are based on the the region at 3.4 Cents/kWh compared misconception that the right to do with Zimbabwe (4.3 Cents/kWh), South business is a privilege conferred by the Africa (4.7 Cents/kWh), Mauritius (12.4 state. An enterprise may require up to six Cents/KWh), Botswana (5.5 Cents/kWh) different types of licenses for it to and Kenya (9.2 Cents/kWh). commence business. Further, most of these licenses require to be renewed In spite of the tariff structure in the annually at great expense to the investor. region, the manufacturing and The bureaucracy involved in the agricultural sectors in particular still procedures for applying and renewing claim to have been hurt by the high the licenses is not only time consuming electricity tariffs. However, it may be i.e. up to seven days to register a that high production costs generally company, but is also undefined. contribute to uncompetitiveness. The low-income levels also make electricity It has become imperative that the appear to be expensive. The obsolete government should take audit of the machinery still being employed by various licenses required under the industry is inefficient in the usage of various legislations. The government electricity. The low-income levels and should eliminate all out-dated licenses obsolete machinery may have and/or review unwanted systems, contributed to electricity being perceived procedures or licensing requirements. The scope of licenses should be confined
172 to regulatory areas of specific public obstacles to the ability of firms to interest i.e. environmental protection, innovate. public health and safety, consumer protection etc. Acquiring technological capabilities is
not an automatic process in response to 8.4 Undeveloped Road, Rail network market signals. It is a costly and and other infrastructure invariably time-consuming process very much dependent on country-specific factors that influence the ease and cost of The lack of competition in supporting the upgrading process and the time it sectors limit the capacity of Zambian will take. Since new technology and firms to adapt and meet challenges of ideas are at the heart of innovation, international competition. In particular, which is the key source of dynamic high transport costs feed into import and competitiveness, intellectual property export prices. With increased becomes a primary asset of the firm and competition facing firms to adapt to just- plays a major role in competitive in-time production and management strategy. systems, flexibility, speed and reliability regarding the delivery of goods have assumed significant strategic importance Zambian firms are furthermore and are a key source of dynamic disadvantaged not only by a lack of competitiveness. For instance, because domestic suppliers but also by the means of unreliable and infrequent transport available to get their products to services or the lack of third-party markets. Numerous impediments prevent logistics providers who can efficiently investments in technology, human handle small shipments, inventory resource and improvements in the holdings in the manufacturing sector in efficiency with which resources are used Zambia are two to five times higher than throughout the economy. Moreover, in South Africa. It is estimated that competition in the transport and cutting inventory levels in half could communications sector, the financial reduce unit costs (and free up scarce sector and the insurance sector, key capital) of production by over 20% per supporting sectors for producers and cent. exporters, is limited if not totally absent.
8.5 Poor and Inadequate Economic 8.6 Weak Private Sector Support Infrastructure
The government has recognised the The competitiveness of Zambian firms is private sector as the engine for growth severely constrained by poor and and as such it requires strengthening. inadequate economic infrastructure. The Coming out of a state-dominated lack of technological infrastructure, in economic environment, the private terms of tertiary institutions and business sector is somewhat still asserting its development services, and problems position and role in the economy. with access to technology are major
173 Private sector support includes provision private sector investment has been 16% of development finance, capital markets of GDP and in Tanzania 19% of the and support to business associations. GDP. This support has been weak in Zambia. Development finance has not been The labour laws requiring mandatory forthcoming since the Development termination benefit of as much as 60 Bank of Zambia ran into problems. Even months of pay for 20 years of service in though the Development Bank of Zambia has been a major constraint for Zambia has been recapitalised it still private investment entry. The rules cannot satisfy demand, as its balance surrounding retrenchment regulations sheet is weak. The only source of still remain unclear. This has raised finance has been the commercial banks, expectations of retrenched workers and which have been charging high interest has also raised contingent liabilities for rates currently standing at 30% per government. But the worst part is that annum having dropped from 47% in they raise many doubts in the minds of 2003. This kind of finance is not suitable potential investors in Zambia’s for long-term investment and export pre- infrastructure. It is essential that the financing. retrenchment rules be clarified and the necessary legislation be reviewed. The Lusaka Stock Exchange has been in operation since 1994 but only 13 In addition, because of a thin financial companies are listed with another 10 sector and macro economic difficulties, quoted. A few companies have been able the private sector has to borrow at very to utilise it as a source of capital. This high interest rates. low utilisation could be attributed to the poor incentives for doing so and also due There has also been criticism from the to limited knowledge about the workings private sector in Zambia that of a stock exchange by most firms in government has concentrated on foreign Zambia. It could also be because investors at the expense of local institutional investment guidelines do investors. not exist 10 years after the establishment of the stock exchange. Existing business associations in Zambia are still 8.7 Insufficient Private-Public Sector financially weak probably due to little Interface understanding of their benefits by industry. Several economic reports on Zambia have observed that the present The private sector has continued to institutional set-up does not provide for complain about the unfavourable effective dialogue between government investment climate. The private and the private sector or within the investment that comprises of both the private sector. The liberalisation process Zambians and foreigners has stayed has witnessed several initiatives by below 6% of GDP over the last five government where the private sector has years. This does not augur well if we been invited to discussions to map-out compare with other COMESA member the economic path of the country. states. For instance, in Uganda the Although the efforts of government
174 seem to have achieved results, there is The corporate tax in Zambia ranges from still a lot of effort required into this area. 15% for the agricultural sector, 35% for It is important to ensure that the non-agricultural incomes and up to 45% government is fully aware of the needs for commercial banks. Manufacturing of foreign and local investors and able to firms would like to pay lower taxes so respond to them, and that foreign that enough funds are left in firms for re- enterprises understand the policy investment and declaration of dividends. objectives of government and feed into Returns on investments and ability to the design of new policies. pay dividends are prime movers of private sector investment. There are currently several trade associations which are actively involved Those in agro-processing and gemstone as advocates or lobbyist before sub-sectors have been requesting government bodies. However, there has government for the same treatment given been general disquiet among indigenous to agricultural companies. The basis of Zambian businessmen. This disquiet has the argument is that agricultural arisen because the foreign businessmen processors have critical links with based in Zambia have appeared to be agricultural firms in that they provide more vocal than Zambians in lobbying market for farm produce, which would both the government and foreign donors. otherwise go to waste without them. Consequently, the Zambian businessmen Processors also add value to agricultural have over the years attempted to form produce while others such as stock feed splinter trade associations representing producers provide vital inputs for the indigenous Zambian business. Their livestock sector. Gemstone producers efforts have been thwarted and accused also need to be considered for a tax cut by some opposing groups of being so that they are left with sufficient funds racial. This is unfortunate, as the to procure equipment and also to problem appears to have some encourage them to register with considerable merit. authorities and use transparent channels for marketing their products. The government should establish an effective forum for continuous interactions with the main constituents of the private sector including the small- scale sector. This can be a major step in improving the foreign investment climate.
8.8 High Taxes
The principal taxes in Zambia are income tax, customs and excise duty and the value added tax.
175
THE CURRENT TAX REGIME IN ZAMBIA: 2004
1 PROPERTY TRANSFER TAX . 2005 2204 % % Rate of tax 3 3 2 PLANT AND EQUIPMENT FOR USE IN . FARMING AND TOURIST ENTERPRISES 2005 2004 Farm plant and equipment 50% 50% Tourism 50% 50% 3 FACTORY PLANT . Wear and tear 5% per annum on the Straight line basis FACTORY BUILDINGS Wear and tear 5% per annum on the Straight line basis Initial and investment allowance 10% on cost in year of acquisition only
4 COMPANIES – TAX RATES . FINANCIAL YEARS ENDING ON 1st April 2004 – 1st April 2003 ANY DATE BETWEEN 31st March 2005 – 31st March 2004 TYPE OF INCOME RATES OF TAX % Farming 15 15 Rural manufacturing business 30* 30 Manufacturing and others 35 35 - Turnover K200 million 3 35 and below 35 35 Banks-income up to K250 45 45 million 15 15 - Excess Income Fertilizer manufacturing 33 33 Companies listed on Lusaka 33 - Stock Exchange: - 13 15 - Manufacturing and others 13 15 - Banks - Agricultural sector 28 - - Non-traditional exports
176 - Company with more than 33% shares taken up by 15 15 Zambians 25 25 Rates for 2005 available in the year of listing only Export of non-traditional products Mining *First five years of operations Foreign resident companies which trade in Zambia through a 35 35 branch 5 WITHHOLDING TAX RATES OF TAX % . Dividends declared 15* Note 1 Rent Interest - Individuals 15 Note 2 - Others Note 1 Management and Consultancy 25 Note 1 fees 15* Note 1 Royalties 15* Foreign road haulage contractors 15* Commission to non-employees Entertainers and sports persons 15 1. Rates are lower for residents of some treaty 15 countries 2. Interest and dividends 15 paid by mining companies are subject to 10% withholding tax 3. The withholding tax is the final tax
6 VALUE ADDED TAX . Standard rate 17.5% Registration level K200 million p.a. achieved or likely to be achieved NOTES: 1. Excludes a trust. 2. The deduction for pension contributions is an amount which is the lesser of K180000 or 15% of taxable income (before this deduction).
177 sometimes directly to COMESA. 8.9 Reliance on imported raw However, it has been difficult to prove materials and other inputs, most these allegations. The option is therefore of which originate outside the to enforce legislation where proof is not Common Market for Eastern and a requirement. Southern African (COMESA) countries 8.11 Distorted Duty and Tariff Due to traditional bonds with the West Structures on raw materials and and South Africa, most Zambian firms intermediate goods, which have continued to procure their inputs disadvantages local producers in from outside COMESA, thus subjecting some sectors themselves to import duties which they would not otherwise pay if they The current tariff structure has been imported from COMESA-FTA. It is also simplified into a four-tier 0%, 5%, 15% true that some of the raw materials and and 25%. There has also been critical inputs such as concentrates are progressive reduction of duty on not available in COMESA. At national imported inputs whereby raw materials level priority should be given to attract 0% - 5%, intermediate goods utilisation of local raw materials but 15%, and finished products 25%. The there are limitations in this area. distortion is that some raw materials may Zambian firms will continue for quite be goods, which have been fully some time to rely on importation of raw processed ready for consumption and are materials. for that reason classified under 15% or
25% duty thereby hurting those 8.10 Rampant Incidences of Dumping industries using them as inputs. The and Subsidization Ministry of Commerce, Trade and Industry has been working together with the Ministry of Finance and Economic With the implementation of the Development on a reclassification of COMESA Free Trade Area, some goods and many products have been companies have complained that some reclassified. COMESA member states are taking advantage of the liberal policies Zambia is pursuing and are dumping goods in Zambia. Dumping refers to the practice 8.12 Lack of incentives to encourage of pricing goods at a lower price than firms to target the export markets their value in the country of origin. Subsidizing in this sense could be in the Export growth can be an indicator of form of government in the exporting competitiveness. For successful country giving cash incentives to economies, a key inducement to effect exporting firms to make up for the price the restructuring process and stimulate difference between the price in the home learning and international country and the landed price in the target competitiveness is the exposure of market. Reports of such practices have domestic firms to international markets been made to governments and through export promotion.
178 Zambia needs to increase foreign allowing contaminated products and exchange earnings in order to pay for disease entering the country. The imports and to stabilize the exchange problems of CBPP and Foot and Mouth rate. When copper production and prices disease in Western and Southern were good in the 70s and 80s, Zambia Provinces and the large grain borer are did not need to borrow to pay for her cases in point. imports primarily because the Kwacha was very strong. This is no longer the case as can be evidenced from the 8.14 Weak Government support staggering foreign debt and high and systems unstable exchange rate. This makes it difficult for industry to plan as planning There is still considerable ‘red tape’ in for Kwacha cover is rendered the government delivery of services impossible. Kwacha prices of imported system which requires to be addressed. inputs continue to rise making Zambian This is in most cases attributed to a high products uncompetitive. There is need turnover of staff (e.g. MCTI) which in therefore to encourage firms to produce turn impacts negatively on institutional for the export market and especially that memory, lack of computerised system to COMESA, SADC and AGOA have retain vital data, the required opened new opportunities that were coordination among different never there before. government institutions to address cross cutting issues. The most affected areas requiring attention are: 8.13 Influx of imported products due to liberalization, which may lead • Land titling; is cumbersome and up to transmission of plant, animal to now can take to over one year. and human diseases • Residence and work permits: these are surrounded by uncertainty and The liberalization of trade means that no wider discretional powers to the licences are required to import or export issuing authority. goods and services. The license system was used as a means of controlling what The red tape related to the above issues goods should be traded in under given introduced an unnecessary element of conditions. With liberalization, licensing risk for investors when first investing or is basically abolished thereby weakening expanding. A written policy on work government’s ability to check goods permits (and associated rights for being traded in. This is the desirable residence permits) that is attractive to situation in international trade being investors should be developed. As championed by the World Trade regards land titling, the land system Organisation (WT0). The COMESA should permit a sensible land market to FTA is a building block for the ideals of develop in which investors and other free trade. requiring land are able to freely acquire or purchase and encumber titles from The liberalization of trade has led to an others and put the land to improved influx of imports and in the absence of commercial use. proper import inspection, may end up
179 9.0 Competition And Regulation regulatory functions for such aspects as reference tariffs, revenue caps, access 9.1 Improving Market Conduct and arrangements, ring fencing requirements, Competition Enhancing record keeping and service standards. Regulation Much of the Commission’s work revolves around the administration of The Commission has a diverse and regulations and laws. However, industry active role in the various reform codes of conduct are also important in processes set in motion to enhance or providing some of the framework for introduce competition in key sectors of market reforms. Recognizing this and the economy. This role complements its the contribution of codes to increasing core investigation and enforcement awareness of the Competition and Fair functions. Reforms often have different Trading Act, the Commission is an objectives, some purely economic or active participant in their development. efficiency driven, others to do with quality or service and facilitating The Commission recognises that market innovation. For example, section 6(g) of reforms, privatisation and deregulation the Act requires the Commission to can result in risks and costs for users of cooperate with and assist any association public utilities as well as efficiency, or body of persons to develop and price and service quality gains. It will promote the observance of standards of continue to follow progress in the reform conduct for the purpose of ensuring agenda to identify the potential for compliance with the provisions of the adverse side effects on competition and Act. Because of the complexity of consumer interests and will work to issues, the Commission is often asked to promote the objectives of the Act in become involved in matters that go market reforms. beyond the strict application of the Competition principles. The The inevitable result of any competition Commission views this as entirely is a winner and loser. Maintaining appropriate. To improve market conduct, market stability requires a social policy it must consider the full range of that provides a safety net for the latter. competition, social, equity and public Attempts to protect the socially interest issues and have the opportunity disadvantaged, however, can sometimes to influence these aspects of market be at odds with principles of equity. reforms. Such quandaries are not insurmountable, though as long as policies of equal or Reform processes and accompanying similar importance are reconciled by changes to markets have resulted in way of compromise and combination. various new formal regulatory roles for the Commission. These flow from legislation, decisions of the Government, 9.2 The Interface Between the public business reform and privatisation. Commission and Regulatory For example in the emerging national Bodies markets for gas, electricity, telecommunications and airports, the There is already a significant debate in Sector Regulator has been given specific Zambia as to the most appropriate
180 framework for administering economic, Closely connected to this issue is the technical and competition regulation. ‘vertical’ dimension of the question of Economic regulation involves directly government organisation, concerning the controlling or specifying production delegation of responsibility and the technologies, eligible providers (granting autonomy of the regulation and the and policing licenses), terms of sale Commission. Acknowledging the (output process and terms of access) and necessary trade-offs between standard marketing practices competition policy considerations on the (advertising). Technical regulation one hand, and other policy involves setting and enforcing product considerations on the other, to what and process standards designed to deal extent shall it be possible, and, indeed, with safety, environment and switching desirable, that the Commission be given cost, externalities, as well as the discretionary decision making power? allocation of publicly owned or controlled resources. Competition Where does regulation fit in? In regulation involves the adoption, principle, there is really no clear interpretation and enforcement of the distinction between ‘competition policy’ framework and rules that ensure markets on the one hand and ‘regulation’ on the are as efficiently ‘self regulating’ as other. The overall policy objective in possible. It also prevents firms from both cases is to further the efficient use concluding anti-competitive agreements, of economic resources. Regulation is abusing dominant positions and carrying typically viewed as aiming to alleviate out anti-competitive mergers. market imperfections by substituting regulatory measures for the working of The debate seeks to pursue the question market forces. In the view of of where to place the responsibility for competition policy, market forces are competition policy in public utilities instruments that may be improved upon such as electricity, water services, by strengthening competitive conditions. communication, transport, telecommunications, banking and Regulation may, of course, serve a insurance industries, to mention a few. number of legitimate objectives such as This question has two dimensions. The environmental safety or income ‘horizontal’ dimension concerns the redistribution goals which may seem as relationship between the Commission lying outside the field of competition and other government institutions with policy. However, the way in which these similar or overlapping responsibilities. objectives are pursued may have effects In particular, those authorities on competition and to that extent these responsible for the regulation of specific elements of regulation cannot be industries. The industry regulators often excluded from consideration as part of a have broad responsibilities that include comprehensive competition policy. competition policy consideration. It is therefore necessary when enforcing Regulated sectors are becoming an competition law to make clear the increasingly important part of division of labour between the competition policy. Zambia has specific Commission and the industry regulators. sector regulators in the Banking, Energy, Telecommunication, Water and
181 Sanitation, Insurance etc. It is often in regulator and avoids confusion for these sectors that market power is consumers and the business community. strongest. The processes of deregulation and privatisation has created industry Much regulation in Zambia involves structures in which there are powerful restricting entry into industries, setting dominant incumbent firms at the outset minimum or maximum prices and of the process. So powerful may their imposing obligations in an anti- position be that reliance on traditional competitive manner, thus, at the most competition law may be insufficient and general level, regulation may be seen as may need to be complemented by sometimes being an integral part of various forms of regulation designed to competition policy, sometimes as protect or bring about greater complementing it, and sometimes as competition and to curb the abuse of conflicting with it. market power.
Zambia has a general competition law 9.3 Concurrent Jurisdiction that applies across all industries and is administered by a single competition Although the Commission has primary authority, the Zambia Competition responsibility for the day-to-day Commission. It has found this approach enforcement of the Act, the enforcement workable as it promotes consistency, of competition in a number of industries certainty and fairness in the application may be carried out by the sector of competition law. However, this regulator concurrently with the approach recognises that there may be Commission. advantages in having industry-specific Most of the statutes establishing sector competition regulation in industries regulators provide for concurrent characterised by complex technology or jurisdiction between the Commission having natural monopoly or other special and sector specific regulators. This has elements. The industry specific resulted into concerns expressed by regulator in this case complements rather industry players who argue that than replaces general competition law. concurrent jurisdiction with the Commission on matters affecting the With this ‘division of labour’ between respective sectors may lead to various regulators, there is potential for uncertainty. some degree of overlap of functions between the competition authority, It was recognised from discussions with which administers competition regulatory officials in Zambia that there regulation across all sectors of the is a need for some kind of economic economy, and those technical and regulation that shall extend beyond the economic regulators that operate within usual bounds of the competition specific industries. For this reason, there legislation. The question of how to are special provisions in the legislation allocate tasks and responsibilities for establishing specific technical regulators competition and regulation policies falls which minimise uncertainty regarding under the more general issue of the the jurisdiction of each particular optimal organisation of government. The jurisdictional boundary between the
182 Commission and regulators in promoting competition varies from sector to sector, depending on the statute creating the regulatory institution. The major question to consider is whether the statute creating the sector regulator gives power to the regulator to deal with competition matters. If the answer is ‘yes’ then we have a situation of concurrent jurisdiction. That is, both the sector regulator and the competition authority shall administer or enforce concurrently, competition in that given sector. This is the case of the telecommunication and the energy sector. If the statute is silent or does not give any powers to the sector regulator to administer and/or enforce competition, then the Commission shall be responsible for competition in the given sector. This is the case of the water and sanitation sector. Consequently, for concurrent jurisdiction to materialise, there ought to be an enabling provision in the relevant statute.
For a number of industries, the enforcement of the Competition and Fair Trading Act is carried out by the sector regulator concurrently with the Executive Director of the Zambia Competition Commission. The industry sectors where a regulator has concurrent powers with the Executive Director of the Zambia Competition Commission are:
183
In general, an agreement or conduct competition objectives. More which relates to a specific industry importantly, it is clear that the proper sector of a regulator will be dealt with by facilitation of concurrent jurisdiction the respective regulator, although in requires cooperation between the sector some cases the Executive Director of the regulators and the Commission. For Zambia Competition Commission will instance, the Banking and Financial also involve himself with such a case. Services Act has a provision which Consequently, both the regulator and the allows for the required flexibility, an Executive Director of the Zambia example of the cooperation alluded to. Competition Commission may seek intervention in the same case. The concerned regulator and the Executive 9.4 Pensions And Insurance Director will always consult with each Authority other before acting on a case where it appears that they may have concurrent jurisdiction. The general principal will The Pensions and Insurance Authority be that a case will be dealt with by regulates and supervises the pensions whichever of the two is best placed to do industry in Zambia. Prior to the so. The factors considered in enactment of the Pension Scheme determining who deals with the matter Regulation Act 1996, there was no include sectoral knowledge of a specific pension legislation. Most regulator, any recent experience in pension schemes sought approval of the dealing with any of the undertakings or Commissioner of Taxes under the similar issues. Income Tax Act ultimately for the purposes of obtaining some tax relief if Although Zambia has a short history of they complied with certain provisions of the regulatory regime, it has become the Act. necessary to address the need for coherence and integration in the The Pension Scheme Regulation Act Zambian regulatory framework, which 1996 seeks to ensure that pension has remained fragmented and often schemes are managed in accordance with contradictory. Furthermore, a need to financially sound and actuarially clearly differentiate types of regulation accepted principles and practices with has emerged. Both the Commission and the major objective being to ensure that sector regulators, despite having the interests of scheme members are not concurrent jurisdiction in certain sectors, at risk and the safety of their accrued need to develop approaches and benefits is guaranteed. Accordingly, strategies in dealing with broad issues pension funds that are managed in a affecting regulation in the country. The financially sound manner are a recipe for pursuit of competition should be fully the growth of an economy if the finances compatible with other public policy are invested in a well-functioning goals. There is need to establish financial market. mechanisms to balance these other public policy objectives alongside
184 The Act applies to all occupational insurance companies doing business in pension schemes including the Public Zambia. Among these was the Zambia Service Pensions Fund and the Local State Insurance Corporation (ZSIC) as Authority Superannuation Fund. It does the only indigenous insurer. ZSIC was not, however, apply to the National established in 1968 as a state owned Pension Scheme under the National company. Pension Scheme Authority (NAPSA). The rest of the insurance companies in the market were foreign owned and were Establishment mostly based either in Europe or South Africa. Their operations in Zambia were limited to branch offices only. The The Authority was established in insurance industry was regulated, by the February 1997 and derives its mandate Registrar of Insurance at the Ministry of from the Pension Scheme Regulation Finance, under the Insurance Act of Act No. 28 of 1996 and the Insurance 1968. Act No. 27 of 1997.
Under the current legislation however, In 1971 the insurance industry was the authority does not exist as a separate nationalized in line with the sweeping legal entity but exists as Office the economic changes that had began in Registrar of Pensions and Insurance, 1968. This left the industry with only which is an agency of the Ministry of one insurance company ZSIC, and one Finance and National Planning. insurance broking company, the Zambia National Insurance Brokers (ZNIB). The office nevertheless enjoys ZNIB was established as a subsidiary of operational autonomy. ZSIC.
As far back as the late 1980s the Background to Establishment of PIA Government of Zambia was already holding consultations on liberalizing the insurance market again. The budget Insurance and pension business in speech by the Finance Minister in 1989 Zambia dates back into the pre- had spelt out some of the government’s independence period. However, the intentions to liberalise the insurance regulatory framework is not as old. market.
Legislation to regulate the conduct of The change of Government in 1990 and insurance activities in Zambia can be more liberal approach to economic traced back to the Insurance Act of 1968. management that followed led to quick Pensions activities were generally re-organization of the insurance market unregulated until the enactment of the and the national economy as a whole. Pension Scheme Regulation Act in 1996.
The proliferation of insurance and At nationalization of the insurance pension business houses precipitated a industry in 1971 there were at least 26 need for establishment of a regulatory
185 authority. The government with the (i) Registration of pension schemes, support of various bilateral and insurance companies and other multilateral partners embarked on related entities. working out the necessary regulatory framework. (ii) Formulation and enforcement of In 1996 the Pension Scheme Regulation standards regarding the conduct of was enacted to establish the office of the pension and insurance business. Registrar of Pensions and Insurance. This also set the statutes for regulating (iii)Development of the pensions and pensions business in Zambia for the first insurance industry. time. (iv) Conduct education campaigns and Prior to regulation by the Pensions and sensitization programmes for Insurance Authority most pension stakeholders to increase awareness of schemes merely sought approval of the the importance of saving through Commissioner of Taxes under the pensions. Income Tax Act for the purposes of obtaining some tax relief. (v) Advise government on pension related issues affecting the country. The Pensions and Insurance Authority was established in February 1997 to (vi) Advise government on adequate supervise pensions and insurance insurance protection of national activities in Zambia. The office of the assets and properties. Registrar of Pensions and Insurance administers both the pension Schemes Regulation Act of 1996 and the 9.5 National Water Supply And Insurance Act of 1997. Sanitation Council
It is worth noting that though the Background Authority enjoys operational autonomy, it does not exist as a separate legal The Government of the Republic of entity. It is established as an agency of Zambian has commercialised water the Ministry of Finance and National supply and sanitation service provision Planning. and devolved the responsibility to the local authorities and the private sector. Functions of PIA Various options for private sector participation have been given within the confines of the law. Realising that water The Authority was established to protect supply and sanitation service provision the interests of pension scheme members is a natural monopoly the government and insurance policy holders. The has established the National Water functions of the Pensions and Insurance Supply and Sanitation Council Authority include the following: (NWASCO) under the Water Supply and Sanitation Act of 1997 to regulate all water and sanitation services provider in
186 the country for improved efficiency and 5. Human Resource Development sustainability. leading to more effective institutions. 6. The use of Technologies more This major policy shift by the appropriate to local conditions. government is as a result of many years 7. Increased Government priority and of failure to provide a good and adequate budget spending to the sector. service to the Zambian people. The poor services have been a result of many It is hoped that the benefits of improved problems including a multiplicity of efficiency in the management of water organizations serving the sector without services will accrue to consumers in a clear allocation of responsibilities; terms of quality and assured services at inadequate financial resources to meet affordable costs. the costs of extending coverage and operation and maintenance; shortage of In order to achieve this new policy qualified and experienced manpower; direction new techniques and and poor operation and maintenance of instruments for regulating the water facilities. As a result of these problems providers are required. NWASCO will more than 30% of urban and 65% of regulate all aspects of the water supply rural communities have no access to safe and sanitation in both public and private and adequate water while more than institutions. 45% and 70% of urban and rural communities respectively have no access The issues of water affect a wide to adequate sanitary facilities. These spectrum of stakeholders and the figures are way below the international independence and representation of averages. These problems have been regulatory institution is important, hence analysed and largely point to weaknesses all key stakeholders from government in legislative, institutional and ministries, the private and consumer organizational set-up of the sector. groups are represented on NWASCO.
In order to reverse the situation the Policy Framework government of Zambia set out in 1994 to reorganize the sector and defined policy The Zambia government adopted the sector principles as follows: National Water Policy in 1994, which clearly stated that the regulatory and 1. Separation of water resource executive functions of water supply and management from water supply and sanitation services must be separated. sanitation. The executive functions take account of 2. Separation of regulatory and infrastructural development, operation, executive functions. maintenance and management of water 3. Devolution of authority to Local supply and sanitation services. Authorities and private enterprises. Regulatory functions comprise licensing 4. Achievement of full cost recovery service providers, defining the service for the water supply and sanitation area and standards for a utility, services through user charges in the determining allowable adjustments in long run. water supply and sewerage tariffs, monitor service standards, customer
187 protection, imposing sanctions for performance and penalising defaulters failure to meet agreed standards, etc. for negligence.
NWASCO having been newly The Water Supply and Sanitation Act, established and regulation being a new 1997 gives powers to the Council to concept in the industry is not fully direct service providers to carry out appreciated by most stakeholders, hence water supply and sanitation services in this treatise to highlight its mandate, compliance with the Act; to take such benefits and role in sector development. actions as may be necessary to enable government to comply with international The Mandate – Legal and Institutional agreements to which government is part; Framework and to submit such information as may be necessary to enable the Council to The National Water Supply and monitor the performance of providers. Sanitation Act has been established under the Water Supply and Sanitation Functions of NWASCO Act No. 28 of 1997. It is a statutory body with a Board (Council) of fourteen The functions of NWASCO are clearly whose membership by institution is outlined in section four (4) of the Water enshrined in the Act with the Supply and Sanitation Act. NWASCO nominations from these institutions has been mandated to do all such things having to be adopted by Cabinet through as are necessary to regulate the provision the Ministry of Energy and Water of water supply and sanitation services. Development. The Council is The functions could be subdivided into represented by seven key government three: advisory, regulatory and support ministries and eight private institutions to sector development. Specifically the or individuals that have a direct functions of NWASCO are:- consumer interest in service provision. The Council is responsible to the (a) advise the Government on water government through the Minister of supply and sanitation matters; as Energy and Water Development. It related to the policy to improve submits annual reports to the Minister efficiency, accessibility and for presentation to Parliament. sustainability of service delivery by the providers. It will also advise on The chief mandate of the Regulator the policy changes for increased and NWASCO is outlined in the aim or long most optimal investments in water title of the Act: that is, to ensure and sanitation infrastructure. efficiency and sustainability of water (b) advise local authorities on supply and sanitation service provision. commercially viable institutional In seeking to attain this goal, NWASCO arrangements for the provision of therefore concerns itself with the setting water supply and sanitation services; of quality and service standards, For the local authorities that have not regulating the levels of capital yet established CU’s, NWASCO will expenditure associated with meeting advise on the most viable these standards, evaluating efficiency institutional setup and support their levels; giving incentives for improved establishment process. In cases
188 where local authorities that have service levels will be agreed upon either on their own or have gone into with each provider and new targets joint venture to establish commercial set during the review period. The utilities need to look at other options implementation for adherence to of institutional setup, NWASCO will these standards and guidelines will advise on the best options. be monitored by NWASCO and defaulting providers will be liable for prosecution on conviction. (c) license utilities and other service providers as well as other activities relating to the provision of water; (f) advise utilities and other service The service standards and terms of providers on procedures for handling running the water supply and complaints from consumers; sewerage services within an agreed NWASCO with its wide knowledge area for providers will be elaborated from other parts of the region and the in the license. It will elaborate the world on good customer relations obligations of the providers to the will prepare guidelines to help the consumers as well as the regulator. providers. Some of this information While the management of the water will be made in form of reference companies is the responsibility of the material. Board and the management team, NWASCO will have to ensure that (g) Disseminate information to whatever management system is put consumers on matters relating to in place increases efficiency and water supply and sanitation services; does not unnecessarily increase NWASCO will keep the consumers costs. informed of who the service provider is and the service boundaries; the cost recovery strategies and the need (d) develop sector guidelines, establish for all who receive a service to pay and enforce standards:- for it and being vigilant in stopping The guidelines and standards developed vandalism as it is a cost that by NWASCO will be to foster consumers pay for; consumers’ improvements in service delivery by responsibilities and rights and the providers. NWASCO will ensure obligations of the providers. In improved efficiency and access to addition, NWASCO will update the water and sewerage services by all consumers on the problems, the within the service boundaries. benchmarks and progress achieved by utilities through the annual utility performance report. (e) NWASCO regulates both the technical and economic aspects of Instruments for Regulating water supply and sanitation service provision and hence will develop and The Water Supply and Sanitation Act enforce guideline and standards for gives NWASCO powers to ensure that all aspects of service provision. The service providers comply with all the guidelines and standards will form a requirements of the law aimed at key part of the license. Minimum improving the efficiency and
189 accessibility to water supply and compliant on any aspects of the law sanitation services. NWASCO has relating to the provision of water within the provisions of the law four supply and sanitation. Failure to main ways to ensure that this objective is perform or deliver services to agreed achieved:- standards after two notices would result in penalties being enforced as a) Licence process: All persons giving provided for in the Act. Though this water supply and sanitation services is a last resort NWASCO will not to others besides the person’s own hesitate to use it to ensure use shall not operate except under compliance the authority of a licence issued by d) Publicity: NWASCO will publicise NWASCO. In order for a provider the ratings of providers according to to be issued a licence they have to performance in the Annual Utility comply with certain minimum Performance Report. This requirements and agree to abide by transparency should coerce providers them and the law. Failure to comply to improve for fear of bad publicity. or meet these minimum requirements could result in NWASCO’s refusal The Set up of the Regulator to issue a licence to a provider. There cannot be a transfer or amendment of Autonomy a licence without prior approval of NWASCO, but such approval shall The Act gives powers to the Council to not be unreasonably held. This regulate water supply and sanitation allows NWASCO to regulate service provision without interference. monopolistic practices. Providers Where a provider is aggrieved with the who have been issued with licences decision of the Council, he can seek but continually neglect to observe recourse from Ministry of Energy and the requirements may have the Water Development and if not satisfied licence suspended. could go to the High Court. b) NWASCO will set guidelines and standards on tariff setting, The water supply and sanitation sector investment, business planning, and functions are spread across several minimum service standards. The Government ministries and providers will have to follow the set organisations. Its regulatory function guidelines from NWASCO and go should therefore give all stakeholders an through a negotiation process before opportunity to participate in the decision implementation. The providers will making process. Besides representation have to show improvement in their on the Council stakeholders will have performance before any tariff opportunities to contribute during the increment can be agreed to by consultative fora on various issues of NWASCO in order to avoid passing water supply and sanitation. on their inefficiencies to the consumers. The major source of financing of the c) Enforcement notices and Penalties: regulatory work comes from the licence Enforcement notices will be issued fees levied on providers. A licence to all providers who are non- application fee is charged to go towards
190 the processing of the licenses and a 9.6 Energy Regulation Board monthly licence fee of between 0.6 and 1.0% is charged to support the regulatory work. The government has Background been giving grants to the institution in the set-up stage, which should cease once NWASCO becomes financially Rationale self-sustaining.
The Cost of Regulating In 1994, The Government of the Republic of Zambia (GRZ) promulgated The provision of water supply and the National Energy Policy (NEP). The sanitation services is a natural monopoly objective of the NEP with respect to being run on commercial basis. The electricity is to increase accessibility and quality of the service and the pricing developing the most cost effective sites therefore need to be regulated to protect for the domestic and export market. The the consumers from exploitation. Left to NEP sets a number of policy measures themselves providers would want to including; restructuring of the electricity operate in financially lucrative areas industry, improving accessibility to only. In addition, investment in water electricity, promoting electrification of and sanitation infrastructure need to be productive areas and social institutions, encouraged and monitored. The water and developing hydro power generating companies need to be monitored for potential. To achieve these objectives, monopolistic behaviour. the government’s main strategy is to open up the power industry to the private sector, thus abolishing the statutory Non-commercial Providers monopoly of the state-owned utility, ZESCO Limited. The Water Supply and Sanitation Acts requires that anybody who provides The NEP also sets the institutional water supply and sanitation services to framework under which these policy any other persons be licensed whether measures would be implemented. The for profit or otherwise. There are policy defines the roles of the Ministry institutional providers such as ZESCO in of Energy and Water Development Namalundu and Zambia Sugar in (MEWD), the Department of Energy and Nakambala who provide the service as a recommends the establishment of the fringe benefit. They too need to be sector regulator namely, the Energy licensed for the purpose of monitoring Regulation Board (ERB). One of the the quality of service provided and recommended functions of the ERB in ensure that they do not provide poor the NEP is to regulate against standards since the consumers do not monopolistic tendencies of energy pay for it directly. undertakings. In 1998, the government launched the Framework and Package of Incentives (FPI) for private sector participation in hydropower generation and transmission development. The FPI, among other things, established the
191 Office for Promoting Private Power in Zambia. In other words, the Board Investment (OPPPI) within the MEWD. acts as a referee to ensure that there The OPPPI is responsible for promoting are no barriers to entry, all players in the FPI, soliciting and evaluating the market are fairly treated and rules proposals, negotiation and award of that promote competition wherever contracts, and finalizing implementation possible are set so as to improve and power purchase agreements. efficiency in production and provision of energy. The ERB was established, as a statutory board, under section 3 of the Energy In order to achieve effective regulation, Regulation Act, CAP 436 of 1995 of the promote private sector investment and Laws of the Republic of Zambia. The improve efficiency in the electricity ERB is the independent regulator of the market, the need for restructuring the entire energy sector in Zambia market to allow competitive components (comprising of electricity, petroleum, of the market to freely and fairly and new and renewable energy sources). compete, while keeping regulation to Although the Energy Regulation Act monopolistic components cannot be over was passed in 1995, the ERB only came emphasized. into existence in 1997 after the appointment of four Board Members Functions of the Board (one full-time and three part-time) by the Minister of Energy and Water Development. The functions of the The overriding objectives of the Energy Board that would be relevant to Regulation Board shall: restructuring the electricity market include: (a) monitor the efficiency and
performance of undertakings, having • Monitoring of efficiency and regard to the purposes for which they performance of energy undertakings. were established; The objective of this function is to
promote rational and efficient (b) receive and investigate complaints allocation of scarce resources in from consumers on price adjustments production and provision of energy, made, or services provided, by any thereby contributing to improving undertaking, and regulate such national welfare. It is also meant to adjustments and services by the protect consumers from unfair attachment of appropriate conditions practices and pricing by energy to licenses held by undertakings; undertakings that may have market
power, and (c) receive and investigate complaints concerning the location or • Monitoring the levels and structures construction of any common carrier of competition within the energy or any energy or fuel facility or sector with a view to promoting installation or the carrying out of any competition and free entry in the works by any undertaking, and energy industry for persons that meet regulate such location and requirements for operating business construction by the attachment of
192 appropriate conditions to licenses of the Laws of Zambia to assume the held by undertakings; regulatory functions of the telecommunications industry, which had (d) in conjunction with the Zambia been, until 1st June 1994, performed by Competition Commission established the Posts and Telecommunications by the Competition and Fair Trading Corporation Limited. Act, monitor the levels and structures of competition within the energy Objectives sector with a view to promoting competition and accessibility to any The Telecommunications Act confers company or individual who meets upon the Communications Authority the the basic requirements for operating mandate to supervise and regulate the as a business in Zambia; provision of telecommunication goods, services and products, to promote (e) in conjunction with the Zambia competition and to ensure that the Standards Bureau established by the benefits of this sector accrue to the Standards Act, design standard with citizens of Zambia and its economy. In regard to the quality, safety and addition, the Authority is mandated reliability of supply of energy and under the Radiocommunications Act fuels; chapter 169 to administer the radio frequency spectrum in Zambia.
(f) in conjunction with other Functions of the Authority Government agencies, formulate
measures to minimize the The Authority is mandated to supervise environmental impact of the and promote the provision of production and supply of energy and telecommunication goods and services the production, transportation, throughout Zambia and to: storage and use of fuels and enforce
such measures by the attachment of (a) take reasonable steps to extend the appropriate conditions to licenses provision, throughout all urban and held by undertakings; and rural areas of Zambia of such
telecommunication services, to (g) make recommendations to the satisfy all reasonable demand for Minister as to the measures to be them including, in particular taken through regulations to be made emergency services, public call under this Act. boxes, directory information services and machine services. 9.7 Communications Authority (b) Promote the interests of consumers, purchasers and other users of Introduction telecommunication services (including in particular those who are disabled or of pension able age) Communications Authority was in respect of the prices charged, the established pursuant to section 3 of the quality and variety of such services. Telecommunications Act, Chapter 469
193 The policy framework and licensing (c) Promote and maintain competition structure are intended to achieve among among persons engaged therein. other things the following goals:
(d) Exercise general control and • The introduction of competition in supervision of radio communications all segments of the and radio communication services. telecommunications sector, as appropriate. The implementation of (e) Promote research into and the national telecom development development and use of new programs that entice participants to techniques in telecommunications implement sub-economic services and radio communication services. and rewards them for doing so.
(f) Encourage major investors in and • The establishment of a regulatory users of telecommunications. system that implements policy through incentive, rather than (g) Promote the provision of coercive methods. international transit services by persons providing Communications Authority will initiate telecommunications services in programs for national Zambia. telecommunications development and will focus on the expansion of service (h) Enable persons providing access to residential as well as business telecommunications services in customers. Parallel special emphasis will Zambia to compete effectively in the be placed on providing basic services to provision of such services outside un-served or underserved segments of Zambia; and the Zambian population including rural areas and economically depressed urban (i) Enable persons producing areas. telecommunications apparatus in Zambia to compete both inside and For this purpose, Communications outside Zambia. Authority is in the process of creating a Rural Telecommunications Development Policy Framework Fund (RTDF) that will be used to provide seed funding for development In accordance with the mandate of the projects in these areas. The RTDF will Communications Authority as provided be financed in part from operating fees under the Telecommunication and paid by service providers. Radiocommunications Acts the Board of st Regulators approved with effect from 1 Upon careful evaluation and deliberate September 1996, a policy framework judgments of the merits of various and licensing structure designed to approaches to achieving the above, provide a fair, transparent and Communications Authority has predictable regulatory environment in determined that the introduction of Zambia. appropriate levels of Competition in the telecommunications sector will provide
194 the broadest benefits to the people of Communications Authority intends to Zambia and its government, as well as implement the spirit and substance of the provide the most appropriate advanced principal of equal treatment of all service telecom infrastructure for the providers. To that end, Communications development of its economy. Authority will issue licenses for telecom services based on guidelines and To accomplish these goals, and as a licensing regimes that will ensure a level prerequisite for the establishment of a playing field. transparent regulatory environment,
10.0 Zambia Competition Commission
Institutional Framework
Section 4 of the Competition and Fair Trading Act:
(1) There is hereby established the Zambia Competition Commission which shall be a body corporate with perpetual succession and a common seal, capable of suing and being sued in its corporate name and with power, subject to the provisions of this Act, to do all such acts and things as a body corporate may by law do or perform.
(2) The provisions of the Schedule shall apply as to the constitution of the Commission and otherwise in relation thereto.
The Zambia Competition Commission (hereinafter referred to as “The It is the only national agency given the Commission”) is an autonomous key responsibility to deal generally with statutory authority established under competition matters and is responsible Section 4 of the Competition and Fair for enforcing the competition provisions Trading Act (hereinafter referred to as of the Competition and Fair Trading Act. “The Act”). It falls under the auspices of The Commission’s consumer protection the Ministry of Commerce, Trade and work complements that of several other Industry for its general policy direction. statutes that administer consumer rules It is established as a body corporate with and laws. The Government is perpetual succession, capable of suing considering the desirability of enacting a and being sued in it’s corporate name. comprehensive consumer law.
195 10.1 Functions of the Commission
Section 6
(1) It shall be the function of the Council to monitor, control and prohibit acts or behaviour which are likely to adversely affect competition and fair-trading in Zambia.
(2) Without limiting the generality of subsection (1), the functions of the Council shall be- (a) to carry out, on its own initiative or at the request of any person investigations in relation to the conduct of business, including abuse of a dominant position, so as to determine whether any enterprise is carrying on anti-competitive trade practices and the extent of such practices, if any; (b) carry out investigations on its own initiative or at the request of any person who may be adversely affected by a proposed merger; (c) to take such actions as it considers necessary or expedient to prevent or redress the creation of a merger or the abuse of a dominant position by any enterprise; (d) to provide persons engaged in business with information regarding their rights and duties under this Act; (e) to provide information for the guidance of consumers regarding their rights under this Act; (f) to undertake studies and make available to the public reports regarding the operation of the Act; (g) to co-operate with and assist any association or body of persons to develop and promote the observance of standards of conduct for the purpose of ensuring compliance with the provisions of this Act; and (h) to do all such acts and things as are necessary, incidental or conducive to the better carrying out of its functions under this Act.
The above functions empower the Commission to commence investigations 10.2 Organisation of Work on its own, receive complaints and above all to carry out the competition The organisation of work of the advocacy work. The Commission Commission is largely influenced by recommends to the Board what action legislative change, global influences and should be taken. The functions above are marketplace dynamics which continue to the guiding principles of the operations change its operating environment. This of the commission. All the work of the has made the nature of the Commission is centred on these Commission’s work unpredictable. functions and every action would have to follow these provisions as a guide. The Commission’s establishment is in itself a product of this climate of change – in particular the domestic and
196 international pressures for markets 10.3 Sources of complaints and generally being governed by competitive inquiries rather than explicit regulation. The volatility of the present market requires Complaints and inquiries are received flexibility in the determination of from a wide variety of sources: priorities. Essentially, the Commission is ‘event driven’, reacting to the market • Consumers or customers (most place and developing strategies to pre- common) empt and hence prevent market failure. • Competitors (most common) The Commission’s primary • Referrals from other government responsibility is to secure compliance agencies with the Competition and Fair Trading • Politicians Act, by means of persuasion, education • Media reports or advertising and litigation. monitored by the Commission staff.
The Commission relies heavily on Forms of complaint and inquiry are: complaints and inquiries to identify breaches of the Act and to provide the • information and evidence needed to By telephone (most common) • successfully pursue these. Adequate Written complaints • information must be obtained to Off the street determine if there has been a breach of • From ministries. the Act and to assess if it meets the Commission’s priorities.
ANNUAL CASE- LOAD
120 104 100 80 81 80 67 64 Number of 60 52 cases 40
20
0 1998 1999 2000 2001 2002 2003 Years
Note: Ever since the Commission embarked on its public awareness campaign in 2002, there
197 has been a drastic increase in a number of cases reported to the Commission as indicated by the figure for 2003.
As a result of the foregoing, the 10.4 Advice and responses Commission’s role in securing compliance with the Competition and Complaints will fall into one of these Fair Trading Act shall focus on four (4) categories: parameters:
• Breach of the Act is evident • Enforcement and investigation • Breach of the Act is evident but not • Mergers likely to meet the Commission’s • Authorisation/Adjudication priorities • Small business • Referral to another agency or Ministry
The Competition and Fair Trading Act does not empower the Commission staff to provide legal advice. Commission staff may only advise if the conduct described indicates a possible breach of the Act and it the Commission is likely to be interested in investigating the matter.
Complainants are told whether or not:
• The alleged conduct is likely to breach the Act; and • If it is likely to meet the Commission priorities
The Act, under Section 6 provides for the various activities that the Commission is required to undertake. These activities are aimed at regulating, monitoring, controlling and preventing acts or behaviour, which are likely to adversely affect competition and fair- trading in Zambia. The Act further sets out specific provisions to deal with anti- competitive issues in Part III of the Act.
198 CASES OF ANTI - COMPETITIVE CONDUCT HANDLED UNDER THE COMPETITION & FAIR TRADING ACT (1998 - 2003)
137 140
120
100
80 Number of cases handled 60
40 27 29 29 18 20 20 14
0 1998 1999 2000 2001 2002 2003 1998-2003 Section 7
Note: The number of anti-competitive cases being reported is dependent on the business activities taking place in the economy.
11.0 Enforcement And Wider responsibilities and growing Investigations public expectations of the Commission’s ability to deliver, underscore the The Commission has since its importance of securing speedy resolution establishment received many complaints of matters – where possible without and inquiries and this has continued to resort to litigation. The available ‘tools’ increase, as its operations become in addition to litigation are varied – known to the public. The Commission administrative settlement, adjudication, has continued to analyse these promotion of self-regulation, compliance complaints for trends and emerging programs, information and liaison. problems. These may affect its priorities. Frequently, the most appropriate Recurring issues include many matters response to a particular market problem under Section 12, reflecting in particular, is a combination of these tools in an a disappointing tendency for familiar integrated strategy. For example, forms of misleading and deceptive completed litigation invariably triggers business conduct to emerge in new information and liaison activities to markets (e.g. utilities, maximise its deterrent and educative telecommunications, health and effect. electronic commerce).
199 11.1 Conduct of Investigations In broad terms, the Commission’s selection of enforcement actions is Investigations necessarily centre on the influenced by whether a particular matter search for evidence of a breach, involves: regardless of whether subsequent action involves litigation or some alternative • apparent or blatant disregard of the strategy. The Commission has published law; detailed guidelines on its powers to seek • a history of previous contraventions information and updates them regularly. of the law, including overseas Resource constraints demand cost contraventions; effective remedies and processes. • significant public detriment and/or a significant number of complaints; The Commission has established a ‘fast • the potential for action to have track’ strategy to stop offending conduct worthwhile educative or deterrent quickly and cost effectively and achieve effect; satisfactory outcomes for consumers. • a significant new market issue; and These strategies are particularly • a likely outcome that would justify appropriate for breaches of Section 12 of the use of the resources. the Act. The ‘fast track’ process will normally begin with a letter of demand or verbal complaint, setting out the 11.3 Specific Enforcement Priorities alleged breaches of the Act and remedial action. Common requirements are The Commission cannot pursue all cessation of the conduct, corrective matters referred to it and many do not advertising, recompense to consumers or fall under the Act or are better handled businesses for losses and the by other agencies. They may also not be establishment of a trade practices Commission priorities and, if this is the compliance program. case, it will advise complainants.
11.2 Selection of matters The specific priorities and selection criteria the Commission will apply to: The Commission shall necessarily be selective in its choice of enforcement • anti-competitive conduct; actions. It must give priority to action • consumer protection; that is likely to have the greatest positive • mergers; influence on compliance generally and, • small business issues; and where possible, will achieve redress or • adjudication. compensation for interests adversely affected. The Commission shall not take litigation action unless it believes there is a breach of the law or likely breach appropriate for pursuance by a public agency.
200 12.0 The Institutional Framework
The institutional framework comprises of three key institutions namely:
MINISTER
CHAIRMAN AND BOARD OF COMMISSIONERS
EXECUTIVE DIRECTOR
AND THE COMMISSION SECRETARIAT
publish in the Gazette. Exemptions 12.1 The Minister and exceptions from the application of competition law is one of the The office of the Minister is defined in controversial areas in the the Act, and it refers to the Minister of implementation of competition laws Commerce, Trade and Industry. The Act in many countries. To avoid a provides specific functions for the situation where the Minister Minister: succumbs to political pressure and gives unwarranted exceptions, which • The Minister shall, under may hurt other market players or Regulation1 (2), appoint members of even the consumer, there is need for the Board of Commissioners after transparency in the manner the receiving nominations from their Minister may grant such exemptions. respective institutions. The requirement for publishing in the gazette makes the process open • The Minister shall determine to public scrutiny. allowances to be paid to the Members of the Commission • In relation to the funds of the (Regulation 3). Commission, Regulation 11 states that one source of its finances is the • On matters pertaining to the non- ones to “be appropriated by application of the Act, Section 3(h) parliament for the purposes of the of the Act specifies that the Minister Commission.” As a public institution may exempt a business or activity established by an Act of Parliament from the application of the Act and and drawing its finances from the
201 general government budget, the • Section 13(2) allows the Minister Commission has a duty to spend its upon recommendations of the finances within certain government Commission, by statutory regulations and also account for the instrument, to make regulations expenditures of the funds allocated. prescribing the particulars to be This establishes a link between the furnished to the Commission for the Commission and the Ministry of purpose of authorizing any act, Commerce and Industry under whose which is not prohibited out rightly by budget provisions the Commission the Act. falls.
• Section 17 states that the Minister • The Commission is required under may, on the advise of the Regulation 14 to submit to the Minister, a report concerning its Commission, make regulations for activities of the previous year as carrying into effect the provisions of soon as practicable, but not later than the Act, including anything to be six months after the end of the prescribed under the Act advise, financial year in this case 30th June. forms required for the purpose of the Act and fees payable in respect of
any services provided by the • The Minister under Regulation 14(3) Commission. is required to submit the annual
report of the Commission to the
National Assembly for approval
before it is published. Therefore, the
Minister shall be well informed of
the contents of the annual report to
be able to support it in the National
Assembly.
Section 17
The Commission may, with the approval of the Minister, by statutory instrument, make regulations governing- (a) anything which under this Act is required or permitted to be prescribed; (b) any forms necessary or expedient for purposes of this Act; (c) any fees payable in respect of any service provided by the Commission; or (d) such other matters as are necessary or expedient for the better carrying out of the purposes of this Act.
202 making. It provides the necessary key 12.2 Board of Commissioners linkages with government, industry and civil society. The Board of Commissioners is the adjudicating body of the Commission. It The Act does not specify any special is the decision making body of the qualifications for appointment to the Commission and its decisions can only Board, although it would appear from be appealed against in the Court of Law. the current composition that knowledge The Board is free from political or experience in industry, commerce, influence on its decisions and has economics, law, labour or consumer significant degree of independence from protection is required. other arms of government. Members of the Board, known as The Board is given powers to appoint Commissioners, are drawn from Trade the Executive Director and other key and Professional Associations. staff of the Commission. - A representative of the Law The Board of Commissioners carries out Association of Zambia both the policy and adjudicator - A representative of the Zambia functions. In its adjudication functions, Federation of Employers the Board: - A representative of the Zambia Congress of Trade Unions - A representative of the Economics • issues determination on any conduct prescribed under Part III of the Act; Association of Zambia - A representative of the Zambia • adjudicate on any matter that may, in Institute of Chartered Accountants terms of the Act be considered by it - A representative of the Engineering and make any order as provided for Institution of Zambia under the Act; - A representative of the Zambia • make any ruling or order necessary Association of Chambers of or incidental to the performance4 of Commerce and Industry its functions in terms of the Act. - A representative of the Zambia Association of Manufacturers - A representative of the Zambia 12.3 Composition of the Board of Bureau of Standards Commissioners - Two persons representing Consumer Interest and appointed by the The composition of the Board of the Minister Commission is broad based. It consists of persons from government and non- The Government is represented by: governmental organizations (NGOs). All prominent trade and professional - A representative from the Ministry associations in the country are of Commerce, Trade and Industry represented on the Board. This was a - A representative from the Ministry deliberate policy by government to allow of Finance and Economic maximum participation in decision- Development
203 matter and it has been agreed that in the The Act also provides for the terms of next review of the Act, the ‘rights of appointment, remuneration, removal of defense’ in favour of firms involved in members, resignation, and validity of administrative proceedings before the determinations. Board should include for instance:
All members of the Commission are (i) the right for parties to proceedings nominated by their respective under the Act to have access to the Institutions and formally appointed by Board and to be informed of the the Minister of Commerce, Trade and objections of the authority to their Industry. The Board members serve for conduct, a period of three (3) years. They appoint, among themselves, a Chairman (ii) the right for such parties to express and Vice Chairman. their views within a fair and equitable procedure in advance of an The Board meets as often as necessary adverse decision addressed to them, or expedient for discharge of its business. The Board has also powers to (iii)the right to be notified of a reasoned invite any person whose presence is in final decision detailing the grounds its opinion desirable, to attend and to on which such decision is based. participate in the deliberation of a meeting of the Board. However, the inclusion of the principles of ‘procedural fairness’ and Members of the Board under Regulation ‘transparency’ requirements should take 6 are further required to disclose into account or consider the costs and personal interest in any matter before the benefits of doing so. Board for consideration in which matter the member may have direct or indirect interest. 12.4 Appointment and Powers of the Executive Director The Act under Regulation 5 further provides for the establishment of committees to perform any functions of Regulation 7 and 8 of the Act provides the Board or any function the Board for the creation of the Commission’s might deem necessary. Secretariat. The Secretariat shall consist of the Executive Director and his/her There has been some dissatisfaction staff. from the public who are claiming that the current decision-making procedure The Commission is headed by the by the Board of Commissioners does not Executive Director who is its Chief guarantee procedural fairness, since the Administrator. The Commission is the parties to the matter do not enjoy the administrative authority charged with the ‘rights to defense’ i.e. there is no primary enforcement of the Competition requirement for the parties to appeal and Fair Trading Act. before the Board to defend their position. The Board has considered the The Executive Director is appointed by the Board of Commissioners. This is a
204 key position in the establishment of the premises and seizure and for inspection Competition Commission. The position of documents. The Executive Director provides a strong, decisive and visible can carry out all necessary investigations leadership capable of promoting into undertakings, having regard to any impartiality and objectivity. special features of a particular case. Sometimes, this will be done in the form The enforcement and implementation of of a dawn raid; on other occasions, it the Act is vested in the Executive will provide the parties with advance Director. The Executive Director has the warning of its intended visit. primary responsibility for conducting initial inquiries into possible monopoly situations and anti-competitive practices. In practical terms, such enquiries are carried out by the Executive Director’s staff in the Commission. This work typically involves responding to complaints by a company’s competitors or customers and carrying out informal research into markets where competition problems are thought or alleged to be present. The Executive Director has a further role to play in the implementation and subsequent monitoring of any undertakings, which may be given to remedy competition problems. The Act, under Section 14, bestows upon the staff of the Commission and the Executive Director, wide powers of investigation, search of
Section 14
(1) Where the Executive Director or any officer has reasonable cause to believe that an offence under this Act or any regulations made hereunder has been or is being committed, he may seek from a court a warrant granting-
(a) authority to enter any premises; (b) access to, or production of, any books, accounts or other documents relating to the trade or business of any person and the taking of copies of any such books, accounts or other documents: Provided that any books, accounts or other documents produced shall be returned forthwith if they are found to be irrelevant. (2) In the exercise of the powers contained in subsection (1), the Executive Director or other officer of the Council may be accompanied or assisted by any such police officers as he thinks necessary to assist him to enter into or upon any premises.
205
Under his powers of investigation, the Executive Director can, with a Court 12.5 Secretariat warrant, examine books and other business records of the parties, take The Secretariat staff is appointed by the copies or extracts from the books and Board of Commissioners through the business records of parties, ask for oral relevant committee of the Board explanations on the spot and enter any established under Section 14, premises belonging to the undertaking responsible for the recruitment and staff concerned. There is no express right in welfare. The Executive Director, Law to have a Lawyer present for such through the Commission’s staff meetings, although normally the Conditions of Service is given powers, Commission will allow a limited time to with the approval of the Board, to elapse for the parties to acquire legal appoint such other officers and staff as representation. may be necessary for the exercise and performance of the functions of the Although the Commission must specify Commission. the subject matter and purpose for its investigations, it does not have to The Secretariat offers the technical identify in advance the information it is competence of the Commission. There is seeking. It can require the undertaking nothing that will undermine the standing concerned to provide all the necessary and reputation of the Commission more information and documentation in its rapidly than persistent displays by the possession. Secretariat of technical incompetence.
Indeed, the less competent the The Commission can call for the Commission, the more likely it is to assistance of the Police, where an deploy it’s powers in a ‘gate-keeping’ undertaking refuses to co-operate with and bureaucratic manner. officers of the Commission. Moreover, failure on the part of an undertaking being investigated to produce relevant In practice, it is the secretariat that documents to the Commission can investigates alleged contraventions of render it liable to fines or imprisonment. the Act and it decides whether and what form of enforcement action should be Private enforcement of the Act is also undertaken. Accordingly, the secretariat generally possible, i.e. individuals and has considerable discretion as to what corporations with an economic interest sort of matters are placed before the or individuals who have suffered a Board for adjudication. The secretariat personal loss can take action under the also plays a crucial role in administering Act and may be entitled to certain the allowable acts under section 13 of remedies. the Act.
In order to maintain and enhance technical competence, the Commission has been able to attract and retain quality
206 staff from the private and public sector Lawyers are also required and important by paying competitive salaries. Given both to ensure the proper application of the inevitable disparities between private the competition law within the country’s and public sector salaries, the constitutional and legal framework and Commission will have to accept that it is to present the Commission’s cases in the reputation or standing of the court, when required. Other experts Commission among the ranks of include statisticians, personnel and professional lawyers and economists that computer experts and technical experts will determine it’s ability to attract in particular industries or sectors, quality professional staff. The emphasis depending upon the workload of the has been less on retaining staff but more Commission. Alternatively, in one case, on ensuring that high quality staff are some experts were acquired from constantly attracted to the Commission. independents on a contractual basis. The quality staff should be attracted to the Commission not because of salaries The management structure of the or the prospects of lifetime employment Commission is modelled on the type of but rather because the Commission executive functions that the Act has offers a stimulating working allotted to the Commission. In this environment, one in which they will be regard, the tasks can be grouped as able to hone their skills and reputation. follows: In this regard, the Commission has developed training programmes for its • Controlling, regulating and staff which are funded and managed to a prohibition of anti-competitive greater extent by UNCTAD. practices. • Assessment and authorisation of The Secretariat of the Commission is mergers and takeovers. provided for under Section 19 of the Act. • Enforcement and administration of A vital aspect in the formation of the competition law and policy. Secretariat is the provision of an • Management and the administration adequate number of qualified experts to function of the Commission. staff the office. The Commission has employed two types of experts: Economists and Lawyers. Competition policy is grounded in economic analysis of complex economic situations. Correct decisions in competition enforcement require at least a basic understanding of microeconomics. The office staff include an adequate number of expert economists who are consulted in the decision making process on most matters.
207 12.6 The Organisational Chart (2004)
Executive Director
Director Director Director Director Mergers & Enforcement & Consumer Finance Acquisitions Compliance Welfare & Education & Corporate Services
Chief Legal Counsel Policy & Chief Accountant Manager- Economist Research Economist Support Officer Services
Senior Legal Senior Assistant IT & Library Economist Counsel Economist Accountant Officer
Economist Public Relations Economist Assistant
Administrative 2 x Receptionist/ Assistant Divisional Secretary Secretaries
Records Clerk / Driver
Office Orderly
208 It is difficult to define the degree of 13.0 The Autonomous Status Of autonomy of the Competition The Commission Commission. Moreover, autonomy can be interpreted in legal, political and For maximum effectiveness and economic as well as in factual terms. impartiality, the Commission enjoys a The autonomy of the Commission is significant degree of autonomy from important in order to shield its decisions other organs of government. Although from outside interventions. the Commission is established within the Ministry of Commerce Trade and The appointment and the actual Industry, there is still room for the composition of the Board of Commission to enjoy a significant Commissioners are closely related to the degree of autonomy as opposed to question of the autonomy of the independence. Further, it should be Competition Commission. appreciated that the Commission does not operate in a political vacuum. It is It is important that the Commission is for the Commission to establish its functionally and operationally independence and ‘parochial’ political independent from government. If this concerns should not play a role in the independence is not achieved or competition analysis process. This is so, compromised, both in fact and in the because the Commission, like in most perception of the community, then the countries, is essentially a Government Commission will be or be seen to be institution with delegated authority, influenced by the politics of the day and through an Act of Parliament, to therefore subject to other political administer and enforce a government agendas. Without independence, the economic programme namely, Commission may lack credibility and competition law and policy. both the public and the business community will not have the requisite The autonomy of the Commission is degree of faith that their complaints or assured, inter alia, by the procedures of problems will be dealt with on the basis appointing the members of the Board of sound competition principles alone. and by the eligibility criteria used in Without this element of trust, the result their selection. The autonomy of the may be a sceptical public and an Commission is further achieved by the ineffective Commission. Commission’s decisions which are based upon sound competition principles, not Consequently, the composition of the political expediencies, and that the Board should inspire confidence and Executive Director’s appointment and respect in society. It is important to removal is governed by the Board as appoint members who command respect opposed to government. The Executive and who can uphold the autonomy of the Director is an employee of the Commission. Commission not the Government; hence, the government cannot remove him In principle, the current structure of the easily. Commission promises to be the most effective enforcement mechanism. Independence gives the Commission a
209 single-minded focus on promoting from a “narrow concept of economic competition. By divorcing the efficiency” to a broad public interest Commission from government bodies approach. It is important to note that the that oppose or are indifferent to reform, Zambian Competition Law does not independence provides a sturdier refer directly to the promotion of public platform for challenging government interest. This has always been referred impediments to competition. to as an anomaly to be rectified in the next review of the Law. The Preamble In practice, one should not underestimate of the Competition and Fair Trading Act the problems associated with creating a states its objectives as follows:- new “independent” government institution. This is particularly true - to encourage competition in the where the Commission has assumed an economy by prohibiting anti- institutional form, such as an competitive trade practices; independent regulatory authority, that - to regulate monopolies and lacks a predecessor in the structure of concentration of economic power; government. In no case can one - to protect consumer welfare; reasonably expect existing government - to strengthen the efficiency of bodies to cede power willingly to the production and distribution of goods Commission. Given this expected and services; friction, the inherent fragility of a new - to secure the best possible conditions institution should be taken into account for the freedom of trade; and in deciding the enforcement agenda of - to expand the base of the Commission. This will require entrepreneurship. government support and commitment. It is evident from the above objectives that the major concern of government in 14.0 The Stated Objectives Of the enactment of the competition law Competition Law And Policy was to mitigate the possible negative effects of privatization. Privatization of The stated objectives of Competition public companies was the main priority Law and Policy reflect some key of government in the liberalization concerns of the given country. The economic reforms. The government was development needs of Zambia can be cognisant of the fact that the public said to be reflected in the objectives of monopoly could transform itself into a the competition law. At the most basic private monopoly. Consequently, the level, a core objective of competition objective of the competition law was to policy in most countries having such address the negative effects of post policy is to maintain a healthy degree of privatization. rivalry among firms in markets for goods and services. In Zambia, however, the It was also evident that the government goal of maintaining inter-firm rivalry is was concerned with the entrenched also linked to broader economic and concentration of economic power to few social policy objectives. Whereas this companies and lack of liberal trade may be true for developed countries, policies. It was the government’s desire most developing countries have moved to open up the economy to more actors
210 including participation by Zambians for profit or not, must have regard to the themselves. competition law.
The government had further recognized There are various legal and economic that an active competition policy reasons why it is necessary that remains a key guarantor to economic competition law and policy should be of efficiency and consumer welfare and uniform application. The general contributes to greater availability to the principle in all competition laws is that consumer of a broader range of products all persons or enterprises are equally and services at lower prices. An open subject to the competition law, without competitive environment also fosters discrimination. This is because firms or innovation and efficiency, thereby enterprises engaged in the same or contributing to overall competitiveness similar business activities should be of producers. By promoting optimal subject to the same set of legal principles allocation of resources, competition and standards in order to ensure fairness, policy contributes to economic growth equality and non-discriminatory and development and supports other treatment under the competition law. objectives of macro economic policies. Such an approach, as we shall see later results in greater predictability and consistency in the interpretation and 15.0 Application Of The Act application of the Act, and fosters “due process” under the Act. The matter of exclusion from the application and scope of competition law The economic reasons relate to the is of great importance from both a interdependent nature of economic competition and a trade perspective. It activities conducted in different markets must be understood that the introduction and the promotion of allocative of competition law in a least developed efficiency. Exemptions from the country like Zambia will obviously be application of the Competition met with great resistance. Competition Regulations in one sector may was and is still regarded as a World perpetuate or induce distortions that can Bank conditionality as opposed to an affect the efficiency of economic activity accepted ‘home grown’ economic conducted in other sectors hence, the policy. In order to gather consensus and need to implement and apply the same acceptability for the introduction of set of competition regulations in the competition legislation, it was necessary market. to introduce certain sectoral exclusions and exemptions. The importance for a uniform application of competition rules is The Act applies to all enterprises in fundamental to the effective relation to all their commercial implementation of competition rules in transactions regarding goods and the country. The advantages include: services. All businesses, whether trading as companies, partnerships, state • The protection and promotion of the corporations, cooperatives, trade competition process throughout the associations or sole traders and whether country to safeguard against
211 misallocation of resources and of factors depending on the desire of inefficiency, which adversely affect government. the economic development in the country and the welfare of the While ‘best practice’ advice suggests citizens. Exemption of particular that competition law and policy should businesses, sector of apply to all sectors and firms in the business/industry or kinds of conduct economy engaged in commercial has potential to induce misallocation, economic activity, in practice various inefficiency and disadvantage to types of exemptions and exclusions are consumers. granted for social, economic, and political reasons. • Exemption from competition law can be discriminatory and The existence of exceptions from inequitable as between market competition law is an important factor operators. Hence, competitive that can limit their overall effectives. market conduct rules should apply However, this does not necessarily imply uniformly to all businesses or mean the weakening of the irrespective of whether they are enforcement of the Act in the country. public, private, foreign, domestic, Such exemptions and exclusion corporate, big, small or otherwise. In provisions are necessary for furthering this way, the rules will be fair, be the objectives of the Act. The seen to be fair and avoid giving competition rules are based on the privileged positions to those not fundamental principle that any conduct subject to the competitive conduct which has a purpose of substantially rules; and lessening competition in the relevant market should be prohibited, while • The efficiency justification for recognising that, in certain uniform application of competitive circumstances full competition may not market rules in the country is deliver the most desired outcome. Not particularly important in view of the all agreements that perceptibly restrict recent globalisation of the markets. competition are prohibited. The law The country is under pressure not recognises that some objectives of the only to increase intra-state trade but different institutions and certain also to improve its international transactions in the market may not competitiveness so as to increase its always be met by the operation of the share of the world markets for goods competitive markets. To secure such and services originating from the objectives, exemptions and exclusions country. In this regard, exemptions from the application of the Act are should be subjected to the closest available. scrutiny under the approved criteria before authorisation. There are basically two major categories of exceptions and exemptions: The existence of exceptions and exemptions from the application of (1) Explicit Exemptions: These are competition law is attributable to a range given in Legislation or Regulation; and
212 (2) Implicit Exemptions: These are when the application of competition law is displaced by industry – specific regulatory regimes or other manifestations of state ownership or direction.
Thus, banking, communication, water and sanitation, energy and electricity are further governed by their own law as regards the application of the competition law because they have specific sector regulatory framework. As mentioned earlier, they have concurrent jurisdiction power to enforce competition.
Explicit Exemptions
Section 3
Nothing in this Act shall apply to:
) Activities of employees for their own reasonable protection as employees; ) Arrangements for collective bargaining on behalf of employers and employees for the purpose of fixing terms and conditions of employment; ) Activities of Trade Unions and other Associations directed at advancing the terms and conditions of employment of their members; ) The entering into an agreement in so far as it contains a provision relating to the use, licence or assignment of rights under or existing by a virtue of, any copyright, patent or trademark; ) Any act done to give effect to a provision of an agreement referred to in Paragraph (a); Activities expressly approved or required under a treaty or agreement to which the Republic of Zambia is a party; ) Activities of professional associations designated to develop or enforce professional standards reasonably necessary for the protection of the public; and ) Such business or activity as the Minister may, by Statutory Instrument, specify.
The exclusion provision contained in any activity done in the specified section 3 of the Act entails that the excluded sector shall not be challenged specified sector of the economy is in any way under the Act. completely excluded from the overall application of the Act. In other words,
213 The basic thrust of these exclusions is to prevent exploitation of labour. The facilitate the legitimate exchange of employment exemption seeks also to information, reduce risk, counter balance ensure that industrial laws rather than the uneven bargaining or economic competition laws deal with any disputes power, permit co-operation and foster about employment conditions. innovation so that markets can function better and more efficiently. The third exclusion has the effect of The exclusions provided under the Act making the whole privatisation process include the following exemptions: of state enterprises not subject to competition law. This is so, because in all or most of the sale agreements, the 15.1 The Explicit Exclusions state through the Ministry of Finance and National Planning is the other party. Section 3 of the Act provides for sectors The state enterprises were majority that are entirely excluded from the owned by government. application of Competition Act. These specific sectors are provided under the The fourth exclusion covers professional Act as follows: occupations such as lawyers, physicians and accountants to ensure qualified and • “Arrangements for collective ethical services. The exclusion is aimed bargaining on behalf of employers at protecting the consumer from the and employees for the purpose of potential exploitation, which would arise fixing terms and conditions of in the absence of regulations. There is no employment; requirement under the Competition Act • Activities of trade unions and other for the notification of professional associations directed at advancing bodies to, and designation by, the the terms and conditions of Commission. employment of their members; • Activities or agreements to which the The fifth exclusion is in relation to the government is a party; existence and grant of intellectual • Activities of professional property rights. The exclusion in relation associations designed to develop or to intellectual property rights is aimed at enforce professional standards striking a fair and justifiable ‘balance’ reasonably necessary for the between the competing claims of those protection of the public interest”; and who have developed intellectual • Matters related to the existence and property and those who need to have grant of intellectual property rights. benefits of it. The provision expressly exempts from the application of the The first two explicit exclusions above exclusive rights inherent in intellectual focus mainly on the activities involving property protection granted by the collective bargaining between the respective legislations, which are employer and the employee. The considered to justify restrictions that exclusion aims at counter-balancing the would otherwise be subject to controls. superior economic power and bargaining The protection and the conferring of position most firms or employers have statutory monopoly rights over patents, vis-à-vis individual workers, and to trademarks and copyright are needed in
214 the country. Such protection has positive 15.3 The ‘Rule of Reason’ Exemption effects in the national economy of the country as it creates incentives for Upon the face meaning of the words: inventive activity and encourages “Any category of agreements, decisions technological advancement for the and concerted practices which have as benefit of the people. their object the prevention, restriction or distortion of competition to an appreciable extent in Zambia or in any 15.2 The De Minimis Exemption substantial part of it are declared anti- competitive trade practices and are It is important to address the de minimis hereby prohibited”, in section 7(1) of the doctrine vis-à-vis the application of the Act, every contract for purchase or sale, Act. Under this doctrine an agreement every partnership, every merger, every that has only a small effect on joint venture arrangement and indeed the competition in the relevant market may vast majority of everyday commercial be regarded as ‘de minimis’ and, as contracts would be unlawful, since they such, outside the scope of section 7(1) of all involve some restraint of trade. the Act. There must be an ‘appreciable’ effect upon competition. Exemptions apply to specific business arrangements or practices that, although There is a condition that the restriction prima facie anti-competitive or of competition and the possible effect on potentially so, are deemed in particular competition should be noticeable. De circumstances to enhance efficiency minimis exemptions are those which are and/or strengthen competition. This is granted for transactions involving firms the case of vertical arrangements and with turnover or market share below the certain mergers. Such arrangements or stipulated threshold, which are not practices may, alternatively, be considered to affect competition considered to have negative effects with significantly enough to make it respect to competition and, therefore necessary for the law to be made shall be subjected to a case-by-case applicable to them or to be applied by analysis to determine whether or not them. A good example is that of the they are prohibited. application of competition rules to small and medium sized enterprises. Although The ‘Rule of Reason’ treatment of a the Act contains no express provisions practice means that the legality of the regarding SMEs, they may receive practice is evaluated with reference to its favourable treatment de facto because economic effects in the relevant markets. they fall below the thresholds over This approach is used when evaluating which certain procedures or prohibitions the prohibitions relating to vertical are applied or because their activities are restraints, which are contained in section assessed as having a de minimis effect 7(2) of the Act. Although vertical upon competition. arrangements put restrictions on the firm’s ability to compete freely, they may be exempted on account that the detriments resulting from the conduct, including the lessening of competition,
215 are outweighed by public benefits. Most half of the total goods of any of the common vertical restraints dealt description hat are produced, with in this manner include exclusive supplied or distributed throughout dealing conduct (restrictions on a firm’s Zambia or any substantial part of choice of buyers or suppliers), exclusive Zambia; or territories (restrictions on the firm’s choice of location), tying arrangements (b) provides or otherwise controls not (restrictions on the source of suppliers less than one-half of the services that for particular inputs used by firms), and are rendered in Zambia or any resale price maintenance (restriction on substantial part thereof; the price to be charged by downstream firms). In practice, the definition of “Monopoly
Undertaking” has led to the capturing of 15.4 Definitions a broader number of transactions in the market especially, takeovers and mergers. This is because of the Apart from the above exemptions, it is Oligopolistic nature of the Zambian also important to refer to Part 1 of the market where there is almost single firm Act which comprises of definitions. It is dominance in any given sector. important to appreciate definitions given in the Act as they play an important role in the interpretation and application of Consumer includes any person: the law. The following definitions of key concepts are found in the Act. The definition of manufacturing is given as: (a) who purchases or offers to purchase “transforming, on a commercial scale, goods otherwise than for the purpose raw materials into finished or semi- of resale but does not include a finished products, and includes the person who purchases any goods for assembling of inputs into finished or the purpose of using them in the semi-finished products but does not production and manufacture of any include mining.” It is important at this other goods or articles for sale. moment to appreciate the importance of (b) To whom a service is rendered; the mining sector to the economy of Zambia. This exclusion most probably Consumer: means any person who reflects the country’s desire to pave way purchases goods or services to the smooth privatisation of the mining sector without being caught into the Distribution includes any act by which legal competition complications. goods are sold or services supplied for consideration.
Monopoly Undertaking: means a dominant undertaking or an undertaking Distributor: means a person who which together with not more than two engages in distribution; independent undertakings: Manufacturing: means transforming, on (a) produces, supplies, distributes or a commercial scale raw materials into otherwise controls not less than one finished or semi-finished products, and
216 includes the assembling of inputs into The Prohibitions finished or semi-finished products but does not include mining; There are several prohibitions under the Competition and Fair Trading act.
Service: includes the sale of goods where the goods are sold in conjunction 16.1 Section 7 Prohibition with the rendering of a service
Supply: in relation to goods, includes “Any category of agreements, decisions supply or re-supply by way of sale, and concerted practices which have as exchange, lease, hire or hire purchase. their object the prevention, restriction or distortion of competition to an Trade Practice: means any practice appreciable extent in Zambia or in any related to the carrying on of any trade substantive part of it are declared anti- and includes anything done or proposed competitive trade practices and are to be done by any person which affects hereby prohibited.” or is likely to affect the method of trading of any trader or class of traders Terms used in the Section 7 Prohibition or the production, supply or price in the course of trade of any goods, whether Zambia is a common law country. real or personal, or of any service. Consequently, the legal interpretation of the various terms used in the law can be adopted from other common law 16.0 The Main Elements Of countries especially the United Kingdom Competition Law and Australia, which in turn have also adopted the European Court decision.
The common law countries’ Part III of the Act defines the framework interpretation in the absence of the for the operation of the competition Zambian court is persuasive. The rules. The main elements of competition Commission’s approach has been to law are found under Part III of the Act borrow the interpretation given to these and include:- terms in as far as there is no related
decision by the Zambian courts. The - Section 7(1) Prohibitions of Anti- legal concepts and terms used under competitive trade practices Section Seven (7) are as follows: - Section 7(2) Prohibition of Abuse of
a Dominant position - Section 8 Merger/Takeover control “Agreement” regulation - Section 9 Prohibition of horizontal restrains Agreement has a wide meaning and - Section 10 Prohibition of anti- covers agreements whether legally competitive trade practices by enforceable or not, written or oral; it associations includes so-called “gentlemen’s - Section 12 unfair trading agreements”. There does not have to be a physical meeting of the parties for an agreement to be reached: an exchange
217 of letters or telephone calls may suffice recommendations. A decision may be a if a consensus is arrived at as to the resolution of the management committee action each party will, or will not, take. of an association or of the action of the The fact that a party may have played members in some respect. Trade only a limited part in the setting up of associations have on several occasions the agreement, or may not be fully received advice from the Commission to committed to its implementation, or desist from making decisions affecting participated only under pressure from their members with anti-competitive other parties does not mean that it is not effects. party to the agreement. “Concerted Practice” “To an appreciable extent in Zambia” The Section 7 prohibition applies to There is an implied condition that the concerted practices as well as to restriction of competition and the agreements. The boundary between the possible effort on trade should be two concepts is imprecise. The key noticeable. The Commission has tried to difference is that a concerted practice reduce the uncertainty surrounding this may exist where there is informal de minimis rule. cooperation without any formal agreement or decision. An agreement will infringe the Section 7 prohibition only if it has as its object or In considering if a concerted practice effect an appreciable prevention, exists, the Commission has to make an restriction or distortion of competition in economic assessment of the relevant Zambia. Any agreement, which does not market and two main elements will need have an appreciable effect on to be established. competition in Zambia, should not be notified to the Commission. The The existence of positive contacts Commission takes the view that an between the parties, and secondly, the agreement will generally have no contact has the object or effect of appreciable effect on competition if the changing the market behaviour of the parties’ combined share of the relevant Undertakings in a way, which may not market does not exceed 50 percent, be dictated by market forces. although there will be circumstances in which this is not the case. The Section 7 The following are examples of factors prohibition applies only if the agreement which the Commission may consider in is, or is intended to be implemented in establishing if a concerted practice Zambia – this includes any part of exists: Zambia where an agreement operates or is intended to operate. • Whether the parties knowingly enter into practical cooperation; “Decision” • Whether behaviour in the markets is influenced as a result of direct or A decision may cover the constitution or indirect contact between rules of an association, decisions, which Undertakings; are binding on its members and • Whether parallel behaviour is a
218 result of contact between is necessary to find that those factors are undertakings which leads to present which show that competition has conditions of competition which in fact been prevented or restricted or do not correspond to normal distorted to an appreciable extent. Any conditions of the market; agreement between undertakings might • The structure of the relevant be said to restrict competition to some market and the nature of the degree, in that it restricts the freedom of product involved; action of the parties. The competition in • The number of undertakings in the question must be understood within the market, and where there are only a actual context in the absence of the few undertakings whether they agreement in dispute. It will assess the have similar cost structures and effect of an agreement on competition in outputs. Zambia or a part of it, by examining it in its market and economic context. “Have as their object the Prevention, Restriction or Distortion of We foresee a problem with the wording Competition” of Section 7(1). It shall be difficult to establish that an entity acted for The Section 7 prohibition applies where prohibited objective. Consequently, the the object or effect of the agreement is to Commission shall propose amendments prevent, restrict or distort competition to the legislation to require an effects within Zambia. To be caught, test rather than requiring proof of arrangements must have ‘as their object’ improper objective. the prohibited effects on competition. It
16.2 Abuse of Dominant Position and Vertical Restraints
Section 7(2)
Subject to the provisions of subsection (1), enterprises shall refrain from the following acts or behavior if through abuse or acquisition of a dominant position of market power, they limit access to markets or otherwise unduly restrain competition, or have or are likely to have adverse effect on trade or the economy in general.
The Zambian Competition Law contains these sectors were formerly a preserve of the concept of ‘single firm dominance’ government. After the privatization of and ‘joint dominance’, which involves the public enterprises, the monopoly multiple firms. In Zambia, most key positions still continued under private economic sectors are still subject to ownership. Consequently, dominant single dominance. This is historical, as positions by firms are a common
219 phenomenon on the Zambia market. The market structure is such that it will be • They limit access to markets, or difficult to expect easy entry of other • Otherwise unduly restrain firms in these sectors. The single competition, or dominance characterizing sectors will • Have or are likely to have an remain for a long time. adverse effect on trade or the economy in general.” Section 7(2) prohibits conduct by ‘enterprises’, which amounts to abuse or The Act, under Section 7(2) is concerned acquisition of a dominant position. It is not with the fact that a firm is dominant, therefore possible for the behavior of but rather the abuse of that dominant two or more independent undertakings position. Holding a dominant position jointly to be an abuse of a collective jointly, a monopoly or a position of dominant position. substantial market power is generally not abusive. To find joint dominance, the Commission has to find some kind of The prohibition addresses the abuse of economic link between undertakings dominant position, not its existence which enables them to present simpliciter. Not all agreements which themselves to act together on a particular have a restrictive effect on competition market, independently of their are prohibited by the law. Equally, competitors, their customers, and market dominance is not in itself consumers; parallel behavior alone is not unlawful under section 7(2). The legal sufficient. This link might take the form provision endeavours to establish a of some kind of agreement or license, or system of workable competition to a common trade association, or some maintain a choice for consumers, other factor-giving rise to a connection purchases and suppliers, and to ensure between the undertakings which allows that market entry remain unhindered by them to adopt a common policy on the anti-competitive practices while at the market. same time supply and demand are allowed to operate freely, so ensuring The above concepts under competition that pries at which goods are sold in the policy are variously called ‘abuse of marketplace are competitive. dominant position’ or ‘monopolisation’ or ‘misuse of market power’ or other The Commission has demonstrated similar terms. Specifically, Section 7(2) through its decisions that, irrespective of of the Zambian Competition and Fair how undertakings become dominant, Trading Act prohibits conduct by one or such undertakings have a special more firms that amounts to the abuse of responsibility not to allow their conduct a dominant position in a market in to impair genuine undistorted Zambia, or a part thereof. competition within the market. Assessing whether conduct amounts to a “Enterprises shall refrain from the breach of Section 7(2) thus involves two following acts or behavior if, through distinct issues: abuse or acquisition of a dominant position or market power:
220 • Whether an undertaking is dominant; (ii) Barriers to Entry and If entry barriers are low, then this may • If it is, whether it is abusing that prevent the undertaking concerned from dominant position. enjoying market power. Entry barriers may be divided into three categories:
16.2.1 The Assessment of Dominance Absolute advantages – which may include regulatory barriers to entry. An undertaking may be dominant if it Intellectual Property Rights – include has substantial power in the relevant preferential access to important inputs. market. It is now accepted that a dominant position is a position of Strategic Advantages – Advantage economic strength enjoyed by an which an undertaking enjoys by virtue to undertaking which enables it to prevent being first on the market, or by tying-up effective competition being maintained distribution with exclusive distribution on the relevant market by affording it the contracts and predatory behavior. This is power to behave to an appreciable extent common in Zambia, as most of the firms independently of it’s competitors, enjoy single dominance position. customers and ultimately of consumers. (iii) Other Constraints Determining whether a firm has a The other principal constraint is a strong dominant position is done with reference buyer power, as the market power of to a defined market. That is, the firm undertaking will be reduced it their has a dominant position or is a customers are large and enjoy a stronger monopoly or has power only in respect bargaining position than they do. to a market. It is therefore necessary to look at factors such as market shares, In assessing whether there is dominance, barriers to entry and other constraints. the Commission considers whether and to what extent an undertaking will face (i) Market Share constraints on its ability to behave Market share alone does not determine independently. Those constraints might dominance and has to be assessed in the be: context of general market conditions, e.g. it is necessary to consider the market • Existing competitors according to share of competitors and whether shares their strength in the market; this may change overtime. However, the be shown by market shares Competition and Fair Trading Act defines a monopoly undertaking as “a • Potential competitors: This may be dominant undertaking or an undertaking shown by a lack of significant entry which, together with not more than two barriers and the existence of other independent undertakings controls not takings which might easily enter the less than 50% of the total goods and market; and services supplied, distributed in Zambia, or any substantial part thereof.” • Other constraints such as strong buyer-power from the undertakings customers (which may include
221 distributors, processors and commercial users) A conduct for which there is an objective justification is not regarded as an abuse even if it does restrict 16.2.2 What constitutes abuse? competition. It will be necessary for a
dominant undertaking to show that the The Commission’s approach to the behaviour is proportionate to the concept of abuse is by determining justification. Further, conduct which whether an undertaking in a dominant stems from superior efficiency of an position has made use of the undertaking is not an abuse – the opportunities arising out of its dominant purpose of competition policy is to position in such a way as to reap trading benefits which it would not have reaped encourage, not to penalize, efficiency. if there had been normal and sufficiently effective competition. 16.2.3 The Commission’s Approach to Vertical Restraints
Practices, which may not otherwise be It is generally accepted by the restrictive of competition, may be Commission that restriction in vertical abusive in a highly concentrated market agreements are unlikely to harm since undertakings in a dominant competition unless they have a position have to discharge the burden of significant foreclosure effect. proof that their dominance does not have the effect of impeding effective Foreclosure is only likely if one of the competition in the relevant market. parties to the agreement has substantial market power or there exists a large Section 7(2) contains a non-exclusive network of similar agreements between list of abusive practices, when an undertakings, which collectively possess undertaking’s behaviour might be substantial market power. regarded as crossing the line into abuse of dominant position. Thus, if a party with a high market share in a particular product (Zambian The Act lists broad categories of Breweries – beer) agrees to supply that business behaviour within which beer exclusively to another (Shoprite), particular examples of abusive conduct this may foreclose access to clear beer are most likely to be found rather than by Shoprite’s competitors. However, if specifically prohibited business Zambian Breweries does not have practices. Conduct may be abusive market power, then Shoprite’s when, through the effects of conduct on competitors are not harmed by the the competitive process, it adversely exclusive arrangement as they easily will affects consumers directly (through the be able to obtain the same product prices charged, for example) or elsewhere. indirectly (e.g. conduct which raises or enhances entry barriers or increases Vertical arrangements generally refer to competitors’ costs). However, an abuse agreements between undertakings can be exempted because it produces operating at different stages of the benefits. production and marketing chain.
222 Examples of activities at different levels efficiency gains (i.e. removal of pricing of the production or distribution chain distortions, optimised investment levels include supplying raw materials, and avoidance of transaction costs) that manufacturing, wholesaling and must be offset against alleged anti- retailing. An agreement between a sugar competitive consequences. The difficulty supplier (Zambia Sugar PLC) and a in evaluating these types of retail (Shoprite) would be an example of arrangements lies also in the fact that, a vertical agreement between while they arguably put restrictions on undertakings operating at different levels the firm’s ability to compete freely, they of the production and distribution chain. may at the same time be efficiency Such arrangements as we shall observe enhancing. The later claim will be later are also dealt with as possible explored in greater detail herein below. instances of abuse of dominant position under a ‘rule of reason’ or ‘case-by-case’ The Commission has taken the view that approach. vertical restrictions usually are regulated best under the prohibition of abuse of Once more, it is important to note that dominant position rather than the section vertical agreements do not generally 7(1) prohibition which applies to give rise to competition concerns unless restrictive agreements generally. The Act one or more of the undertakings under section 7(2) gives examples of involved possesses market power on the conduct, which may amount to abuse of relevant market or the agreement forms a dominant position: part of a network of similar agreements. Predatory behaviour – (S. 7(2)(a)) The main examples of vertical Discriminatory pricing or other terms of arrangements include exclusive dealing conditions – (S. 7(2)(b)) (restriction on a firm’s choice of buyers Exclusive dealing – (S. 7(2)(c)) or suppliers), exclusive territories Tie-in sales and bundling – (S. 7(2)(d)) (restriction on the firm’s choice of Quantity forcing – (S. 7 (2)(e)) location), tying arrangements (restrictions on the source of suppliers This list is not exhaustive, others are: for particular inputs used by firms), and resale price maintenance (restriction on Reciprocal exclusivity the price to be charged by downstream Resale price maintenance firms). Territorial restraint Full-line forcing The subject of vertical restraints is Transfer pricing controversial because most of the Premium offers or Loyalty rebates examples given above entail claims of
223 RESTRICTIVE BUSINESS PRACTICES
137 140
12 4
116 120
100
80 Number of cases handled 60 47
40
20 8 3
0 Sect ion 7 Sect ion 8 Sect ion 9 Sect ion 10 Sect ion 11 Sect ion 12 Sections
Note: For Sections 9, 10 & 11 the number of cases handled are few, as most of the conducts falling within these sections are also captured under Sections 7, 8 & 12
The important issue is whether the It will be necessary for a dominant firm dominant undertaking is using its to show that the behavior is dominant position in an abusive way. proportionate to the justification. This may occur if it uses practices Further, conduct which stems from different from those normally adopted in superior efficiency of a firm is not an the course of competition in the market, abuse, for the purpose of competition with the effect of restricting the degree policy is to encourage, not to penalise, of competition, which it faces, or efficiency. exploiting its market position unjustifiably.
It is not possible to obtain an exemption from the prohibition against abuse of dominant position. However, a conduct for which there is an objective justification is not regarded as an abuse even if it appears to restrict competition.
224 16.2.4 Predation
Section 7(2) (a)
Predatory behavior towards competition including the use of cost pricing to eliminate competitors.
Predatory pricing is a situation in which the predator, already a dominant firm, The fact that an undertaking is being run sets its prices so low for a sufficient at a loss is not in itself an infringement period of time that its competitors leave of the Act. The Commission will inquire the market and others are deterred from whether this has an anti-competitive entering. Assuming that the predator and effect. The key issues, which the its victims are equally efficient firms, Commission has to consider, are the this implies that the predator as well as undertaking’s costs, the intentions of the its victims has incurred losses and that undertakings, and the feasibility of the these losses are significant. For the strategy, i.e. whether the undertaking predation to be rational, there must be would be able to recoup losses by some expectation that the present losses charging excessive prices in the future. (or forgone profits), like in any investment, will be made up by future A South African multinational, gains. This in turn implies that the firm Metpress, was found to have abused its has some reasonable expectation of dominant position in a beer distribution gaining exploitable market power market by reducing its prices with the following the predatory episode, and that objective of driving out of business its profits of this later period will be competitors in the market in which sufficiently great to warrant incurring Metpress held a dominant position. The losses or foregoing present profits. The Commission in its decision emphasized concept of predatory behaviour implies that the selective nature of the price cuts, that some method exists for the predator and the circumstances in which they to outlast its victims, whether through were made, amounted to ‘loss leader’ greater cash reserves, better financing or tactics making it impossible for he much cross-subsidization from other markets smaller distributor competitor in the or other products. market place to stay in business.
225 16.2.5 Price Discrimination
Section 7(2) (b)
Discriminatory pricing and discrimination, in terms and conditions, in the supply or purchase of goods or services, including by means of pricing policies in transactions between affiliated enterprises which overcharge or undercharge for goods or services purchased or supplied as compared with prices for similar or comparable transactions outside the affiliated enterprises.
Price discrimination involves applying different conditions (normally different prices) to equivalent transactions: It can take two basic forms: -
The charging of different prices to different customers, or categories of customers, for the same product-where the differences in prices do not reflect the quantity, quality or any other characteristics of the items supplied.
The charging of the same prices to different customers, or categories of customers, even though the cost of supplying the product where different.
The Commission has received a good number of complaints alleging price discrimination. These have been stopped immediately the Commission starts its inquiries. However, the discrimination has been done on account of nationality, kith and kin’ relationships etc.
226
Allegations of Predatory Pricing Conduct against Metpress Zambia Limited t/a Metro Wholesalers
Introduction and Relevant Background On 8th June, 2001, the Official agents of the Zambian Breweries lodged a complaint, with the Commission alleging that MetPress Zambia Limited, t/a Metro Wholesalers was wholesaling the Zambian Breweries “Mosi” and “Castle” clear beers at prices lower than the manufacturer’s i.e. predatory pricing. This conduct was allegedly pushing members out of business. It was observed that the firm was actually taking over business in various parts of Lusaka. The complainants alleged further that the local distributors did not have the financial power to compete with such pricing strategies from Metro. Metro is part of the Metro Cash and Curry, which operates in at least 15 countries.
The conduct by Metro appeared to be in breach of Section 7(2)(a) of the Competition and Fair Trading (the Act), which requires enterprises to refrain from predatory behaviour towards competition including the use of cost pricing to eliminate competitors.
Findings Metro was a new entrant in the market and was growing at a fast rate aided by its below- cost pricing (which was used an a market penetration strategy). It purchased its clear beer from Zambian Breweries as other distributors did. However, it appeared their selling price was below the purchase price and their appeared to be no objective justification for the conduct. Zambian Breweries confirmed that they had no unique “trade arrangement” with Metro. The selling price from Zambian Breweries was uniform.
Commission Decision The Commission considered that while Metro was not a dominant player, its pricing strategies had an effect on the smaller distributors, hence the intervention. Although the Competition and Fair Trading Act provides that any form of price resale maintenance is anti-competitive it was in this situation found to be special to justify its continuity. A resale price maintenance was proposed (the “minimum price”) to avoid future breaches.
As noted already, the business relies heavily on volume sales and small disparities in price can and do have significant effects on other players. The favourable credit period awarded to Metro by Zambian Breweries was ordered to be discontinued and or be extended to all the other distributors.
Source – Zambia Competition Commission
227 16.2.6 Exclusive Dealing
Section 7(2) (c)
Making the supply of goods or services dependant upon the acceptance of restrictions on the distribution or manufacture of competing or other goods.
A producer supplies distributors and guarantees not to supply other distributors in a given region. The Commission has intervened in several cases involving unjustified exclusive distribution arrangements, mostly in the beer sector, sugar, energy and services The Commission had determined that the exclusive supply agreements of the type entered into by breweries and the
poultry firms with their respective retail outlets, affected trade for the purposes of section 7(1) if market analysis shows that the overall effect of the agreements is to shut off a substantial proportion of the market from other suppliers, and if, in view of the dominant market position of these companies and the duration of the agreement, they contribute significantly to the effect of foreclosure.
228
Box 9: Exclusive Dealing Arrangements between Hybrid Poultry Farm and Galaunia Farms Limited
During investigations into alleged cartel activities in the poultry industry in Zambia in 1998, the Commission became aware that there existed restrictive business arrangements involving Hybrid Poultry Farm (HPF – a day old chicks rearer with 60% market share then), Galunia Holdings Limited (GH – a commercial chicken broiler rearer), and Tamba Chicks (Tamba – a day old chicks rearer with 30% market share then). ZCC advised the parties to notify the said exclusive agreements as required under the Competition and Fair Trading Act Cap 417 of laws of Zambia. At the time, parallel investigations were launched on the sale of Tamba Chicks. GH management was interviewed.
During the investigations it was revealed that in the sale of Mariandale Farm, which specialises in the raising of Day Old Chicks (DOC) into table birds, HPF required GH to only purchase DOC from itself. Further, GH was also required to consider HPF’s right of first refusal should it intend to resell Mariandale Farm. GH was also not allowed to raise any type of poultry, at the farm, apart from broiler chickens, including the provision not to go into business of a chicken hatchery. The parties also agreed that GH should be accorded the right of first refusal should HPF intend to sell some of its shares and that HPF should be given the first right of refusal to participate in an out-growers scheme should GH come up with one. The ZCC noted that the parties to this transaction are the two leading players in the poultry sector’s upstream (HPF) and downstream (GH) sub sectors. HPF is the dominant producer of DOC in Zambia with a 60% market share. GH with its Mariandale and Diamondale Farms has an uptake of 48,000 DOC per week and hence the largest buyer in the poultry sector.
The exclusive dealing arrangements appear to have been over and above the offers each party made and hence the considerations made by the other. The excesses hinge on the ulterior motives of the parties in as far as the poultry sector is concerned. The parties seem to have taken advantage of their dominant market positions upstream and downstream – where each party was dominant. The parties were, both by motive and concerted practices, foreclosing competition both in the DOC, table birds (broiler) and frozen chicken.
These practices were in direct contravention of Section 7 of the Act and have the tenets of distractive cartel behaviour. The Board of Commissioners found all the exclusive dealing provisions in the sale and purchase agreements by the parties, anti-competitive and nullified them.
Source – Zambia Competition Commission
229 16.2.7 Tie-in Sales and Bundling
Section 7(2) (d)
Making the supply of particular goods or services dependant upon the purchase of other goods or services from the supplier to the consignee.
Producers force purchases to buy goods precluded from making his own they do not want as a condition to sell transport arrangements (which may be them those they do want, or force cheaper and convenient) and forced to resellers or wholesalers to hold more use the transport provided by the seller goods than they wish or need. The (in most cases unjustifiably costly). In Commission has stopped instances of some other cases, distributors have been tie-in sales and bundling, more coerced through the costing and pricing especially where the sellers had systems which are unfavourable when unjustifiably included in the sale price the distributor opts to provide his own the transportation costs. The buyer is transportation system.
16.2.8 Quantity Forcing
Section 7(2) (e)
Imposing restrictions where or to whom or in what form or quantities goods supplied or other goods may be sold or exported.
A supplier requires distributors, for crucial factor is whether the agreement access to any product, to carry all of the has the object or effect of preventing, suppliers’ products. This is done mostly restricting or distorting competition. by offering lucrative discounts to buyers who buy or sell certain minimum quantities. This is imposed upon the 16.3 Merger Control Regulation distributors of beer i.e. those who sale above agreed targets. The Zambian merger control regime is primarily governed by the Act. This It should be emphasized that the establishes a procedure for merger provisions in the Act on vertical control involving the Commission, the restraints are illustrative only; there may Board of Commissioners and the High be many other types of agreement that Court. The Act gives the responsibility will fall within the provision. Equally, for investigating mergers to the some types of agreements listed may not Commission and the ultimate decision fall within the prohibition in the about whether a merger should be particular circumstances of the case. The blocked, cleared, or cleared subject to
230 conditions to the Board. were highly concentrated prior to the commencement of the liberalization The Zambia Competition Law is one of process and because of privatisation, those which require pre-merger which has resulted in a single leading or notification, that is, notification of intent dominate firm. to merge in advance of consummation. The merger control provision is very Post privatisation mergers or important in the implementation of acquisitions involving new and competition law and policy especially in potentially more efficient competitors transition or developing economies. have continued to raise competition This is so in Zambia, where the markets concerns.
Section 8
(1) Any person who, in the absence of authority from the Commission, whether as a principal or agent and whether by himself or his agent, participates in effecting- (a) a merger between two or more independent enterprises engaged in manufacturing or distributing substantially similar goods or providing substantially similar services; (b) a takeover of one or more such enterprises by another enterprise;
Shall be guilty of an offence and shall be liable, upon conviction, to a fine not exceeding ten million Kwacha or imprisonment not exceeding five years or to both.
(2) No merger or takeover made in contravention of subsection (1) shall have any legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable.
The merger regulation is an important others are legal and do not need to be element of any law aiming to preserve authorised. levels of competition. Mergers can lessen competition, potentially providing Outright prohibition applies to any increased scope for price rises or merger or take-over, which has the collusive behaviour and lessening object of preventing, restricting or dynamic factors such as the rate of distorting competition “to an appreciable innovation. These possible detriments extent in Zambia or any substantial part provide the rationale for government of it,” (s.7 (1)). It is also an offence, intervention in the area of mergers or under sub-section 8(1), to effect a takeovers. merger between two or more enterprises engaged in manufacturing or distributing substantially similar goods or services Some mergers and takeovers are (horizontal mergers). The illegality also prohibited outright by the Competition applies to take-overs of one or more and Fair Trading Act. Others can be such enterprises. authorised by the Commission and
231 assets or the creation of a joint venture The prohibition of horizontal mergers is may also give rise to a merger situation. qualified by the fact that the The Act’s provisions apply to mergers Commission is empowered to authorise that are proposed or in contemplation. such a merger where it considers such action appropriate. The criteria that the Commission will take into account in determining whether to authorise a horizontal merger or take over are outlined later.
Business enterprises contemplating a merger with, or the acquisition of, an enterprise producing substantially similar goods or services are advised to consult the Commission at the earliest opportunity and must complete the necessary application form in advance of the acquisition or mergers if they wish to obtain authorisation.
Where the proposed merger or acquisition involves firms which are engaged in manufacturing or distributing dissimilar goods or dissimilar services, an application for authorisation is not needed. Thus, many vertical and conglomerate mergers or acquisitions are legal, unless it can be shown that they are intended to restrict or distort competition.
16.3.1 What is a Merger?
The Competition and Fair Trading Act does not define the term ‘merger’.
Consequently, the Commission view a
‘merger situation’ to be very wide and covers several different kinds of transactions and arrangements. A company that buys or proposes to buy a majority shareholding or a significant minority shareholding in another company provides the most obvious example, but the transfer or pooling of
232 Different Merger Situations
(i) Acquisitions of Sole Control: where one undertaking acquires more than 50% of the voting capital of another, or where a minority shareholding is so large compared to all the others that it would be likely to achieve a majority in the shareholders’ meeting; (ii) Acquisition of Joint Control: where two or more undertakings must reach agreement in determining the commercial policy of the entity in question, examples include where two parent companies of a joint venture share equally the voting rights in a joint venture, or where two parent companies have unequal rights, or where there are more than two parents, but the minority shareholder(s) are able to veto decisions which are essential for the strategic commercial behaviour of the joint venture, or where there is a legally binding agreement between the shareholders on the common exercise of voting rights, or where in exceptional cases the common interests of the shareholders are so strong that they would not act against each other in exercising their rights in relations to the joint venture; (iii) Transition from Joint to Sole Control: where a joint venture partner acquires the other partner’s interest in the venture; (iv) Division of a Business: where a joint venture is dissolved and each of the partners acquire sole control of businesses in respect of which they had had joint control before; (v) Acquisition of Assets: where assets, such as branded products or licenses, are acquired provided the assets constitute a business to which a market turnover can be clearly attributed.
Source: Richard Whish, Competition Law, 4th Ed, Butterworths, London, 2001, p.746- 748
16.3.2 The Zambia Nexus productive assets, or preponderance of sales) has outside its national The merger provision of the Act only boundaries.” applies if at least one of the enterprises is carried on in Zambia or by, or under the The Act does not define when an control of, a body corporate incorporated enterprise is considered to be carried on in Zambia. “When a transaction has a in Zambia. It appears, however, that a significant anti-competitive effect on the foreign company with a Zambian local economy in any given jurisdiction, subsidiary will be considered to carry on the local competition authority has a business in Zambia for these purposes. legitimate interest in reviewing the Thus, the Commission considers that a transaction and imposing a remedy merger between two foreign companies notwithstanding the fact that the may still quality for investigation where transaction’s centre of gravity (whether either company controls any enterprise determined by reference to the which is carried on or incorporated in nationality of the parties, location of Zambia.
233 the relevant industry, in order to The situation is still less clear if the determine the potential market place foreign company trades with Zambia but effect of the merger. In most cases it will has no office or subsidiary in Zambia. In not be an adversarial process but one of this situation, we can borrow from the consultation as no offence has been Zambian tax statutes which make a committed and parties will often seek the distinction between carrying on business Commission's informal opinion well ‘in’ and ‘with’ Zambia e.g. a Zambian before proceeding with a merger or established enterprise whose trading takeover proposal. links with Zambia comprise the sale of goods to customers located in Zambia One can distinguish between three would not be regarded as carrying on fundamental types of mergers, namely: business in Zambia, provided that it did horizontal, vertical and conglomerate not negotiate or conclude the sale mergers. The markets in which the contract in Zambia. parties to the merger are engaged have to be identified. Plainly, it is where markets directly overlap – in a ‘horizontal 16.3.3 The Basic Criteria merger’ – that there is the most obvious possibility that there will be a reduction In considering whether to grant in competition. But competition issues authorisation to a proposed merger, may also arise where the merger takeover or any other form of involves markets that are “vertically acquisition, the Commission's main linked” (affecting different stages of the concern will be to ensure that the merger production or supply of the same goods or takeover will not result in a or services). Where there is no overlap substantial lessening of competition in or connection between the markets of the any market in Zambia or a substantial parties to the merger, there is little part of it. likelihood that the merger will adversely affect competition in those markets. However, mergers may be one means of achieving efficiencies, particularly Under the Act, the Commission is where increased exposure to global responsible for conducting investigation markets is placing pressure on domestic either on its own initiative or following firms to reduce costs, improve quality notification by the parties, into any and service and innovate in order to potential merger situation qualifying for become more competitive in those investigation. A merger situation that markets. Efficiency issues are relevant qualifies for investigation must generally both for assessing the impact of a merger meet the following criteria: on competition and for assessing the overall public benefit that would flow • Two or more enterprises (that is, from a merger. business activities of any kind) must cease to be distinct or there must be Further, when considering a proposed arrangements in progress or in merger or takeover, the Commission will contemplation which will lead to usually approach it on the basis of a enterprises ceasing to be distinct; consultative process with the parties and
234 • At least one of the enterprise must be certainty for merging parties and the carried on in Zambia or under the Commission through the use of objective control of a body corporate measures (based on revenue or other incorporated in Zambia (which financial statement data) rather than the means that a merger between two current non-objective criteria (i.e. market foreign companies may still qualify shares, which require both the definition for investigation if either of them of relevant markets and estimation of controls any enterprise which is competitors’ sales. Further, a provision carried on in Zambia or by a should be inserted which empowers the Zambian company). Commission to request parties to notify a non-notifiable merger where it appears • The enterprises which cease to be to the Commission that the proposed distinct must supply or acquire goods merger is likely to substantially prevent or services of a similar kind and or lessen competition. It may also be must together supply or acquire at necessary to bring in a provision which least 50% of all those goods or shall empower the Commission to object services supplied in Zambia or a to a measure on public interest criteria. substantial part of it.
• The enterprises must be engaged in manufacturing or distribution of substantially similar services.
At the end of its investigation, the Commission ultimately will produce a report advising either that the merger should be cleared or that remedial action should be taken. It is up to the Board to decide whether to allow the merger to proceed.
The Commission on several instances has been challenged on the need to notify a merger. The argument by the lawyers is that the Act does not compel the parties to notify where they think there is no likelihood to breach section 7 of the Act.
There is need to clear the controversy on the need to notify mergers. The Commission has now recommended reviewing the merger control provision. There is need to introduce clear notification threshold which foster
235 MERGERS & ACQUISITIONS CASES HANDLED UNDER THE COMPETITION & FAIR TRADING ACT (1998 -2003)
34 35 31 30
25 22 21 Number 20 16 of cases 15 13
10
5
0 1998 1999 2000 2001 2002 2003
Section 8
Note: The number of Mergers & Acquisitions cases is depended on the business activities taking place in an economy in a particular year
16.3.4 The Competition Assessment (d) the degree of countervailing power in the market; In assessing the implications for (e) the likelihood that the acquisition competition of different mergers, the would result in the acquirer being Commission does not adopt a rigid or able to significantly and sustainably mechanistic approach. No two cases are increase prices or profit margins; identical and weight is given to various (f) the extent to which substitutes are factors according to the circumstances. available in the market or are likely Nevertheless every assessment always to be available in the market; follows a similar basic pattern. (g) the dynamic characteristics of the market, including growth, innovation In determining whether the acquisition and product differentiation; would have the effect, or be likely to (h) the likelihood that the acquisition have the effect of substantially lessening would result in the removal from the competition in a market, the following market of a vigorous and effective matters must be taken into account: competitor; (a) the actual and potential level of (i) the nature and extent of vertical import competition in the market; integration in the market. (b) the height of barriers to entry to the 16.3.5 The Commission’s Process for market; Evaluating Mergers (c) the level of concentration in the market;
236 The Commission has adopted a five-step process that it uses to evaluate mergers.
1. Defining the market
This frequently is a subject of disagreement between the Commission and parties to the transaction, with the Commission tending to adopt a narrower rather than broader definition of markets.
Two factors have to be taken into account in market;
(a) the product dimension is determined by products that are close substitutes for each other. When purchases or users look on one product as a possible substitute for another, both products are normally seen as forming part of the same market, in which case the producers will be in competition with each other. Substitutability itself depends upon such things as:
• Characteristics of the products themselves; • Brand loyalty; • The case with which a switch could be made.
(b) Geographic dimension – is often defined as Zambia as a whole, it can be narrower or wider than that. The limits are determined by how rapidly customers in any particular area will switch between local suppliers and those based elsewhere if there is a change in the relative prices charged by the two groups. The regional market dimension has started to play a role as a result of several initiatives enhancing regional economic integration.
237
The Takeover of Chilanga Cement by Lafarge of France
The Commonwealth Development Corporation (CDC) and the Pan African Cement (PAC) notified the Commission under Section 8 of the Act to sell their 50.1% shareholding in the Chilanga Cement PLC to Lafarge SA of France pursuant to a Sale and Purchase Agreement entered into by the parties on the 4th December 2000. The Commission first rejected the transaction because Lafarge had failed to show how the transaction was to produce benefits to the economy. Lafarge did not also give undertakings that guarantied continued operation of the Chilanga Cement plants in the presence of fears Lafarge using Chilanga Cement as a raw material source with supply of cement in Zambia coming from outside. Chilanga Cement is the only cement producer in Zambia, with substantial upstream and downstream integrations to SMMEs
The Board of Commissioners reviewed the second submission from Lafarge and conditionally authorised the transaction after Lafarge gave substantive Undertakings to the Commission, which included the parties committing the following:
• To increase production at Ndola to 85% capacity utilisation within the next 3 years of date of this Undertaking. • To supply cement to Burundi at an ex-works price no higher than Mbeya’s ex- works price for the Burundi or Great Lakes Regional market. • Recognising the fact that Chilanga has capacity constraints, the supply of cement will be on a priority basis as follows: the first priority will be the local market, particularly on the Copperbelt, the second will be DRC and third priority will be Burundi for Ndola works.
• While in pursuit of its corporate goals, Lafarge and Chilanga Cement PLC will endeavour to be compliant with the Competition and Fair Trading Act, CAP 417 of the laws of Zambia and implement a compliance programme under the management of a senior executive at both works as the Compliance Officer. • Not to use methods of price announcements which have the effect of price fixing. • Not to operate exclusive distribution contracts without notification with the Zambia Competition Commission. • That within 3 months of the signing of this Undertaking, develop for consideration by the Commission, a Trade Practices Program.
Further, Lafarge was to make a mandatory share offer to the minority shareholders who would want to sell their shares, in accordance with the stock exchange regulations.
Source: Zambia Competition Commission
238 2. Market shares and concentration the case. The relevant boundaries of the analysis safe harbour are expressed in form of threshold. The combined market share of the merging companies provides an Thresholds: The Act has set two important indicator of whether a thresholds, one to deal with the situation horizontal merger creates or increases of unilateral market power (i.e. single market power. But other relevant factors firm dominance) and the other to deal are the size of the increment to market with the situation of concentrated share produced by the merger, and the markets, where there may be combined number of competitors that remain and or oligopoly market power. The their market shares. In general, the thresholds are set so that the higher the merging companies’ market Commission would look at mergers, share and the fewer their remaining which have: competitors the more probable it is that the Commission would view the merger • Unilateral market power: the merged as adversely affecting competition, firm has more than 50% of the either because it would give the market; and companies a dominant position in the market or because it could result in a • Combined market power: a dominant handful of firms with similar market undertaking which together with share (an oligopoly) between whom more than two independent competition might be muted. undertakings have more than 50% of Assessment of the likely strength of the market. competition between the remaining firms in a market after a merger takes place is always a crucial consideration. The fact that a merger might breach these threshold does not automatically The Commission generally has no mean that the Commission will oppose concerns about mergers in the merger. The Commission will tend to unconcentrated markets or mergers look at the merger more critically in between small participants in a relevant these circumstances. It will then examine market. It has two ‘safe harbours’. the transaction under the criteria of Should a merger fall within one of these section 7(1) (substantially lessening ‘safe harbours’, the Commission will competition) referred to earlier, and generally not consider it a problem section 7(2) (dominance test). merger, although this may not always be
239
The Takeover of Cadbury Schweppes by Zambia Bottlers Ltd
Introduction and Relevant Background The Coca-Cola Company (TCCC) and Cadbury Schweppes (CS) Plc signed an agreement for the purchase by TCCC of the CS commercial beverages brands and the trademarks outside the United States, continental Western Europe and a few other countries. In Zambia, TCCC lodged a notification under Section 8 of the Act to acquire Cadbury Schweppes Zambia (CSZ) Limited. TCCC produces carbonated soft drinks in Zambia, while Cadbury Schweppes produced both carbonated and non-carbonated drinks, as well as clear beer (whisky black).
Major Findings TCCC had a 92% market share in carbonated soft drinks in Zambia, while CSZ had 8%. Their products are almost perfect substitutes. Imports of competing products are negligible and are mainly done by Kazuma Enterprises on a niche market basis, including Pepsi products from Namibia. The takeover of Cadbury Schweppes brands in Zambia by TCCC was to effectively eliminate competition and any possible entry into the carbonated soft drinks market in Zambia, especially that ownership and or authorised use of patents and know-how are key to success in the sector. However, Cadbury Schweppes Plc had not made substantial investments in Zambia and had only awarded the Zambian operation a franchise to use its trademark and beverage brands. The Zambia operation needed re-capitalisation. The parties submitted that TCCC would infuse its expertise in the beverage sector and assist CSZ achieve efficiencies. Third party concerns were raised regarding the concentration of economic power in TCCC in Zambia as well as the future of Goldspot in Ndola, which is an SME with a TCCC franchise for secondary brands.
Commission Decision There existed entry barriers in the carbonated soft drinks market in Zambia, even before the notification of this transaction. In Zambia, the transaction entailed elimination of a vigorous competitor by TCCC and consolidation of TCCC market power and likely abuse of the same in relation to distributors and retailers. However, CSZ required recapitalisation. CS had already sold the brands to TCCC and CSZ did not have the franchise to produce the brands. Closure of CSZ would have had worse effects on both the social and economic spheres in the country. The transaction was authorised with conditions, which included the following: TCCC was to cease operation of any exclusive dealing and territorial restraint arrangements in Zambia; TCCC shall not fix prices or excessively advertise the recommended price; TCCC and cooperating bottlers in Zambia would continue to comply with the provisions of the Competition and Fair trading Act.
Source: Zambia Competition Commission
240
3. Import Competition If it can be shown that imports sufficiently constrain the domestic Merger factor requires the Commission competitors, the Commission may to consider the actual and potential level conclude that the merger does not of the import competition in the market. substantially lessen competition. The In an open and landlocked economy Commission often states that it may not such as Zambia, the importance of oppose a merger in a market with more giving special consideration to the role than 15-20% imports. However, the of actual and potential import Commission has not always followed competition in considering the likely this rule of thumb, and often needs effect of a merger on competition is convincing that there will be no effect on widely recognised. The last decade has competition. Any argument for potential seen the gradual reduction of import competition provided by imports must tariffs and dismantling of quantitative be strong. constraints on imports which previously protected much of the country’s 4. Entry Barriers manufacturing industry. The most important of the other factors The assessment of actual and potential that the Commission’s assessment import competition needs to be invariably takes into account is the undertaken with are:- possible existence of barriers to entering • Information that domestic suppliers the particular market under review. The are consistently inhibited in their effects of a merger must be assessed in a pricing by the pricing of actual or dynamic context. The Commission does potential imports. not focus solely on current market shares and market structure. The impact of a • The extent to which imports are merger on competition is likely to be independent of domestic suppliers or affected by the case with which other the extent they are brought in order suppliers can enter the market. Where the licence of the merging firms entry is easy for potential competitors, a and/or other domestic suppliers. high market share will not give lasting market power. • Tariff levels and non-tariff barriers to trade. Entry barriers clearly exist in any situation where a new entrant would • Information about the availability have to spend heavily in order to and potential availability and establish itself in a market and where influence of import in different parts that expenditure could not be recovered of Zambia. if it later decided or was forced to withdraw. Such costs include R & D, • Changes to tariff levels and other advertising or the need to invest in forms of protection which are likely specialized assets – in production, to occur over the next two or three distribution or other essential facilities. years. Even where any such costs are largely
241 recoverable, there can be other barriers. firm to increase (decrease) prices may be For example, established firms may constrained and the likelihood of a control the necessary inputs, know-how substantial lessening of competition and technology, including patents and diminished. other intellectual property rights. Legal and regulatory requirements, such as the 16.3.6 Pre-notification of a Merger to need to obtain special approvals and the Commission licences, may also create entry barriers.
The Commission should be able to There is no express requirement to notify oppose efforts by government ministries, merger to the Commission which qualify often acting at the behest of incumbent for investigation. Accordingly, the state-owned enterprises, to withhold parties often will make a notification of approvals for new entrants or their merger to the Commission in order discriminate in favour of incumbent to obtain the required authorisation suppliers that are not efficient market under section 8 of the Act or to obtain players. Government denials of licenses legal certainty. and permits can be powerful barriers to new competition. It is common for If a merger requires authorisation and is national and local officials to sometimes not authorised by the Commission, the withhold necessary approvals form parties take the risk that the said merger private entrepreneurs because the market may not have any legal effect in Zambia, in question “contains too many firms” or and no rights or obligations imposed on suffers from “excess capacity”. This was the participating parties by any a case of where an investor in agreement in respect of the merger shall telecommunication had his application be legally enforceable. for a license pending because the government through the sector regulator The Commission may investigate the was not sure of issuing such a license. merger on its own initiative, either as a result of monitoring the press for merger In considering the likely effect of entry announcements or of a third party barriers, the Commission takes full drawing the transaction to its attention. account of the experience of any firms that have entered or withdrawn from the market in question in recent years and of that market’s rate of growth or decline.
5. Countervailing power
Merger assessment requires the
Commission to consider the degree of countervailing power in the market.
Countervailing power exists where a supplier (buyer) faces a buyer (supplier) with market power or a credible threat of vertical integration or direct importing. In such cases, the ability of the merged
242 16.4 Horizontal Agreements
Section 9 Prohibition
Section 9
(1) It shall be an offence for enterprises engaged on the market in rival or potentially rival activities to engage in the practices appearing in sub-section (2) where such practices limit access to markets or otherwise unduly restrain competition
Provided that this subsection shall not apply where enterprises are dealing with each other in the context of a common entity wherein they are under common control or where they are otherwise not able to act independently of each other.
(2) This section applied to formal, informal, written and unwritten agreements and arrangements.
(3) For the purposes of subsection (1), the following are prohibited:
(a) trade agreements fixing prices between persons engaged in the business of selling goods or services, which agreements hinder or prevent the sale or supply or purchase of goods or services between persons, or limit or restrict the terms and conditions of sale or supply or purchase between persons engaged in the sale of purchased goods or services; (b) collusive tendering; (c) market or customer allocation agreements; (d) subject to the Coffee Act, 1989, allocation by quota as to sales and production; (e) collective action to enforce arrangements; (f) concerted refusals to supply goods and services to potential purchasers; or (g) collective denials of access to an arrangement or association which is crucial to competition.
The prohibition deals with horizontal inefficiencies, and rent seeking. These agreements. Horizontal arrangements arrangements unlike vertical restraints refer to implicit or explicit arrangements are out-rightly prohibited under the Act; between firms competing with identical they cannot be authorised by the or similar products in the same market. Commission. The Act specifically Such arrangements serve no purpose prohibits the following trade agreements: other than to shift surplus from consumers to producers, at the cost of • Price fixing dead-weight losses, organisational • Collusive tendering
243 • Market or customer allocation holding company and its subsidiary • Sales/production quotas hence, the transaction was not • Refusal to supply investigated or assessed by the • Collective denials of access to an Commission. Enterprises captured have arrangement or association, which is to be independent of each other. crucial to competition. Secondly, the Commission will look at the impact or effects the practice has The Commission has defined a number had, or is likely to have in the particular of instances where restrictive agreements relevant product or geographic market. or arrangements fall outside the scope of Thirdly, the level of the free flow of the the application of section 9. process of competition is considered. The effects would either be seen through First, there has to be an agreement a complaint from a competitor, a between economically independent consumer or from the Commission’s undertakings. Where one party has no own observations. commercial autonomy vis-à-vis another, it is treated as part of the same economic grouping and therefore not subject to section 9, although if it is in a dominant position section 7(2) may apply. Thus, depending upon the circumstances of the case, an agreement between a parent and its subsidiary or between two companies which are under the control of a third party will not be prohibited by the Act if the subsidiary has no real freedom to determine its course of action on the market and, despite having separate legal personality, enjoys no economic independence.
The Commission has not intervened in several transactions involving a holding company and its subsidiaries. This was in case of the notification of the restructuring of shares in the Anglo- American Group of Companies, the internal share transfer in Madison Insurance Company, and the sale of 9.8% shareholding in Metal Fabricators of Zambia (ZAMEFA) Limited to Erabus BV of the Netherlands. The Commission determined that the relationship of the parties was that of a
244
The Restructuring of shares in the Anglo-American Corporation Group of Companies
On 30th December 2002, the Commission received a notification for the proposed restructuring of the Anglo-American Group of Companies (Anglo-American). Anglo- American operating in Zambia as Zamanglo Industrial Corporation Limited (ZAMIC) applied for necessary approval from the Zambia Competition Commission in accordance with section 8 of the Act.
In the proposed restructuring, ZAMIC’s 26.4% shareholding in Boart Longyear Zambia Limited (Boart Zambia), comprising 76,724,023 shares of K1 each, were to be transferred to Boart Longyear International BV of the Netherlands (Boart Netherlands). In order to comply with the Companies Act, which requires that a limited company must have at least two members, one share will be held by a nominal shareholder, namely Boart Zambia. Boart Netherlands will therefore own 99% of shares in Boart Zambia.
ZAMIC’s 6.25% shareholding in Afrope Zambia Limited (Afrope), comprising 3,774,000 shares of K1 each, were to be transferred to Boart Zambia which will entail Boart Zambia owning 12.5% of shareholding in Afrope Zambia. Because the restructuring was within the same Anglo-American group, there were no likely structural-market effects as a result of this transactin. Further, there was no concerted practice within the meaning of section 7 of the Act. The Board granted full authorisation to the transaction.
Secondly, where an agreement does not produce an appreciable extent on competition in Zambia, section 9 shall not apply.
The agreements referred in section 9 apply to formal, informal, written and unwritten agreements and arrangements. These anti-competitive practices are out- rightly prohibited by the Act. The case of the oil marketing companies illustrate the typical operation of a cartel in the fuel sector. Although the Commission did not at the end of its investigation prosecute the companies involved, the publicity which was given to the case and a threat to prosecute was sufficient to stop the practices.
245
The alleged Collusion and Price Fixing Cartel in the Petroleum Sector by Oil Marketing Companies (OMCs)
There was a fire incident at the Indeni Petroleum Refinery in May 1999 in Ndola, Zambia. Following this incident, the Government of the Republic of Zambia (GRZ) issued a statutory instrument no. 119 of 1999, which reduced the customs duty on imported petroleum products from 25% to 5%. Consequently, the Energy Regulation Board (ERB) issued licences for the importation of petroleum products to nine (9) OMCs, namely BP, Caltex, Mobil, Agip, Total, Jovenna, Engen, Ody’s and Agro-fuel. Following the resumption of production at Indeni, the government of the republic of Zambia issued Statutory Instrument (SI) No. 54 of 2001 that reinstated the 25 % import duty on all petroleum products effective 18th May 2001. On 29th may, 2001 the ERB received a joint written complaint from the OMCs about the effects of the S.I. on their business. On receipt of the letter from the OMCs, the ERB brought to the attention of the government through the Ministry of Energy and Water Development (MEWD) the concerns raised by the OMCs. The Ministry in turn assured the OMCs that it would take up their concerns on customs duty to relevant authorities. However, while the government was in the process of holding consultations with all stakeholders, the OMCs unilaterally increased the prices of petroleum products on 30th May 2001.
On 31st May 2001, ERB wrote to all OMCs individually directing them to revert to the old prices. The OMCs responded by asking for a meeting on 1st June 2001. Consequently, on 1st June 2001, the ERB held a meeting with OMCs. The OMCs stated that they would maintain the new prices for the next three weeks to recover anticipated losses. The ERB informed them that the directive to revert to the old prices while their complaint was being looked into remained in force. After the meeting, the OMCs responded through a joint letter informing the ERB that the new prices would remain in effect for four to six weeks thereby continuing to defy the directive given by the ERB. The ERB then responded to the joint letter individually restating that the directive remained in force.
The ERB Board Chairman further reiterated this directive during a press conference on 1st June 2001. During the press conference, he directed the OMCs to reduce the fuel prices to original levels or risk having their licenses suspended or revoked. By Monday 4th June 2001 none of the OMCs had complied with the ERB order. In order to address this act of defiance from the OMCs, the ERB held consultations with ZCC. The two institutions reviewed the conduct of the OMCs.
The investigations conclusively determined that the OMCs were acting collusively in conduct of their businesses as evidenced through their spokesman’s letters to the ERB several times. The ERB had cautioned the OMCs but they defied it. The motive has been clearly to prevent competition amongst themselves and especially, price competition. During the period January to May, 2001 it was demonstrated that price competition was possible in Zambia but was short-lived as the big players on the market managed to put it off through predatory pricing to the point when it hurt all OMCs.
246 Cartel conduct was perpetrated under the leadership of BP and Caltex and the ultimate aim was to prevent competition amongst the OMCs.
Recommendations All the OMCs, more especially BP, Caltex and Total, should be prosecuted under the Competition and Fair Trading Act for price fixing. There is evidence to show that: (i) there was an agreement on price increases; (ii) there was an agreement on a standard formula according to which prices will be computed; (iii) there was an agreement to adhere to published prices; (iv) there was an agreement to use a uniform price as the starting point for negotiations; (v) there was an agreement not to sell unless agreed-on price terms are met.
It was recommended that the trade association by the OMC serviced by Caltex should be abolished. The evidence induced so far shows that this association provides a forum for cartel activities. The association facilitates information sharing, adopting particular contracting or pricing practices that make it easier for a cartel to operate of for the OMCs which are in an oligopolistic market to avoid competing with each other, even without any explicit cartel agreement.
Source: Zambia Competition Commission
Agreement Fixing Prices: Price fixing is available where the agreement directly among the most common forms of or indirectly has the object or effect of restrictive business practices and fixing recommended resale prices. irrespective of whether it involves goods or services, is considered in many Zambia has a history of price controls. countries, Zambia included, as illegal The legislation on price control entailed per se. Price fixing can occur at any level government fixing prices of all in the production and distribution commodities. This was made possible as process. It may involve agreements with most of the major manufacturing respect to prices of primary goals, companies and retailers were intermediary inputs or finished products. government owned. The legislation on It may also involve agreements relating price control was repealed in 1992 and to specific forms of price computation, the Department of Price Control was including the granting of discounts and abolished the same year. rebates, drawing up of price lists and variations there from, and exchange of The culture of fixing prices has remained price information. with the people. There is a strong belief that if government does not intervene in Importantly, however, it would appear the pricing of commodities, the the prohibition does not apply to businessman will charge exploitative agreements which fix resale prices. prices. Companies such as the Zambian Thus, the prohibition may not be Breweries and the Coca-Cola Company
247 have responded by excessive advertising National Tender Board, which is an of the recommended prices, which has autonomous institution dealing with the effect of price fixing. Further, due to public procurement. Further, most of the the oligopolistic nature of the markets in cases of collusive tendering border on the banking, fuel, and cellular phones the offences of corruption. Hence, the providers, the actors have managed to Corrupt Practices Act which is enforced collude on price without agreements. by the Anti-Corruption Commission plays a major role. Collusive Tendering: In such a scheme, the buyer who invites competitive offers The Commission has always referred to or quotations through a tendering the Zambia National Tender Board procedure, will receive offers solely complaints relating to tender procedures, from members of the cartel, who have especially where public institutions are secretly arranged among themselves as involved. to which enterprise will make the lowest offer. The other cartel members will Restraints on Production or Sales: either decline to participate in the tender Market sharing arrangements are devised or they will make fake offers, called on the basis of quantity allocations. “cover bids”. Often those who know Such restrictions are often applied in they are not going to be awarded the sectors where there is surplus capacity or contract simply inflate their price in where the object is to raise prices. order to make a less interesting offer. Under such schemes, enterprises frequently agree to limit supplies to a However, things get complicated for the proportion of their previous sales. In cartel when an outsider (non-member) order to enforce this, a pooling makes a genuinely competitive offer. In arrangement is often made whereby that case, the only solution for the cartel enterprises selling in excess of their is to lower their offer price as much as quota are required to compensate other necessary for the outsider to be kept out. members, who maybe selling less than This may include making offers at a loss, their agreed quotas, by making payments which are usually financed through to the pool. reserves put aside each time the cartel is awarded a contract, precisely with the Concerted Refusal to Purchase or aim of combating outsiders. Supply: Concerted refusal to purchaser or to supply is one of most common means employed to coerce those who are Given this, collusive tendering is not members of a group to follow a inherently anti-competitive, since it prescribed course of action Group contravenes the very purpose of inviting boycotts may be horizontal, where cartel tenders, which is to procure goods or members may agree among themselves services on the most favourable prices not to sell to or buy from certain and conditions. customers or vertical, where parties at different levels of production and The cases of collusive tendering are distribution stages refuse to deal with a comprehensively dealt with by the third party, normally a competitor of one legislation establishing the Zambia of them.
248 16.5 Anti-Competitive Practices by Manufacturing Association of Zambia Trade Associations (MAZ) in the manufacturing sector, the Zambia Association of Chambers of The Commission is cognisant of the fact Commerce which is an umbrella body that trade associations are expected to representing business interests of the carry out many legitimate, positive private sector etc. functions, such as advocating to its members about technological and other The Commission is, however, wary of advances in the industry, identifying the fact that trade associations can potential problems with services, provide a forum for cartel activities, and facilitating training on legal and other the trade associations themselves may be administrative issues, and acting as involved in anti-competitive activities. advocates and lobbyist before To address this situation, the Act government bodies. specifically prohibits:
There are several trade associations (i) unjustified exclusion of a potential representing different sectors in Zambia. member from a trade association, For instance, there is the United Taxis and and Transport Association (UTTA) in the passenger transport sector, the (ii) recommendation to the trade Zambia National Union of Farmers association members on prices to be (ZNUF) in the agriculture sector, the charged or terms of sale.
Section 10
The following practices conducted by or on behalf of a trade association are declared to be anti-competitive trade practices:
(a) unjustifiable exclusion from a trade association of any person carrying on or intending to carry on in good faith the trade in relation to which the association is formed; or (b) making of recommendations, directly or indirectly, by a trade association, to its members or to any class of its members which relate to-
(i) the prices charged or to be charged by such members or any such class of members or to the margins included or to be included in the prices or to the pricing formula used or to be used in the calculation of those prices; or (ii) the terms of sale (including discount, credit, delivery, and product and service guarantee terms) of such member or any class of members and which directly affects prices or profit margins included in the pricing formula.
The Commission has on several recommend to their members prices to instances encountered resistance from be charged. There are always public trade associations from stopping them to interest issues which justify the setting
249 of minimum floor price for agricultural price especially maize which is a staple Further, anti-competitive concerns arose for Zambians. There has also been an from the passenger transport association. outcry from the public to regulate public The association was recommending transport fares. In both instances, the passenger fares to be charged by its public and government have observed members who were bus operators. The the exploitative tendencies by the recommended bus fares which were businessmen due to the high demand exorbitant attracted an outcry from the experienced in the said sectors. public. The Road Traffic Commission, a government department which regulates In the case of the pricing of maize, the the sector, reacted by fixing the sector has continued to experience the maximum fares on all routes. The presence of middlemen who buy maize Commission found itself with two from the farmers at very low prices and institutions intervening in the market sell to the millers at exorbitant prices. through fixing the fares. Whereas it was This has resulted into very high prices easy to stop the practice by the trade for the final commodity, maize-meal, association, there were policy which is sold to the public. The producer contradictions when it came to the Road who is the farmer in this instance is Traffic Commission. being exploited with a very low price for his commodity and, the consumer is It was found that actually the forced to pay a higher price to the miller. Commissioner of the Road Traffic Commission had legal powers to The Zambia National Farmers regulate bus fares. Consequently, the Association has in this instance lobbied Commission was precluded from government to regulate the floor price exercising its powers to stop the for maize. This is because the practice. The Commission wrote to the association cannot in itself set up the Commissioner of the Road Traffic floor price of maize to be charged by its Commission to exercise caution by members for fear of violating the Act. taking into account competition concerns The government through the section 3 when exercising his bus fares regulatory exemption has continued to intervene in powers. this sector.
Section 186 (b) of the Roads and Road Traffic Act
If it shall appear to the Commissioner from any information given to him by a concession holder under the provisions section 179 or from any representations made to him by any person that -
(b) any of the fares charged or proposed to be charged for the carriage of passengers on any service provided or proposed to be provided under or by virtue of any concession is unreasonable.
250 The law under section 10(b) further The Commission has not dealt with addresses common situations by many cases of anti-competitive practices associations where they collectively by trade associations. The case, which deny an enterprise access to an continues to come up more often, association, which is crucial to involves the United Taxis and Transport competition. Members of professional Association (UTTA). This association and commercial associations is common represents the providers of passenger in the production and sale of goods and transport. On several instances the services. Such associations usually have association has fixed transport fares for certain rules of admission and under its members contrary to Section 10 of normal circumstances those who meet the Act. such requirements are allowed membership. However, admission rules The Commission has always intervened can be drawn up in such a manner as to through the sector regulator, the Road exclude certain potential competitors Traffic Commissioner to stop the either by discriminating against them or implementation of the uniform price by acting as a closed shop. Collective the association members. denial of access to an arrangement may also take the form of denying access to facility that is necessary in order to compete effectively in the market.
16.6 Authorisation of Allowable Acts
Section 13
(1) The Commission may authorise any act which is not prohibited outright by this Act, that is, an act which is not necessarily illegal unless abused if that act is considered by the Commission as being consistent with the objectives of this Act. (2) The Minister may, on the recommendations of the Commission, by statutory instrument, make regulations prescribing the particulars to be furnished to the Commission for the purposes of subsection (1).
Part III of the Competition and Fair The Act, however, recognises that some Trading Act is based on the fundamental objectives of our society may not always principle that any conduct which has the be met by the operation of the purpose of substantially lessening competitive markets. To secure such competition in the market should be objectives, exemption from the prohibited, while recognising that, in application of the Act are available. The certain circumstances full competition adjudication (Authorisation and may not deliver the most desirable Notification) procedures under section outcome. 13(1) of the Act provide for the exemptions. It is important to note that
251 the adjudication procedures apply only market and of the individual to specific parts of the Competition and circumstances of the case, including the Fair Trading Act. For example, they do economic effects and any views received not apply to any of the consumer from third parties. protection provisions under section 12 of Anyone who wishes to take part in an the Act and cartel behaviour under anti-competitive conduct may apply to section 9 of the Act. the Commission on the basis that he can satisfy the Commission that the benefit To spare people the process of to the public of the particular conduct undergoing an investigation by the outweighs the detriment to the public Commission or risking an action being caused by any likely lessening of brought on by a third party, the act competition. provides a mechanism for authorization by which the Commission may grant Authorisation is granted on the grounds immunity from legal proceedings for that conduct has no effect of certain arrangements or conduct that substantially lessening competition. may otherwise contravene the Act. The Depending on the arrangement or outcome provides a greater degree of conduct in question, the Commission business certainty, important when a must be satisfied that the arrangement major investigation decision or other results in a benefit to the public that market initiatives are proposed. outweighs any anti-competitive effect, or that the conduct results in such a net There is no express statutory benefit to the public that it should be requirement to notify agreements or allowed. conduct to the Commission. It is for the parties to an agreement or conduct Although the Commission has on several themselves to take on the responsibility occasions taken into account public of ensuring that their agreements and interest arguments, it is still doubtful conduct are lawful and to decide whether whether there is any legal basis. It is notification is appropriate in any hoped that the position shall be made particular case. more clear in the forthcoming law review. Nevertheless, economic Notification is usually made for efficiency considerations have continued guidance or for a decision. Notification to play a major role in competition to the Commission is necessary if a analysis. decision is sought granting an individual exemption. Guidance may indicate The Commission’s practice is to subject whether or not the agreement or conduct the authorisation process to a very public would be likely to infringe the relevant process and is not granted lightly nor prohibition. very often. It if were, the aims of the legislation could be undermined. More A decision may be that the agreement or common is the authorisation of anti- conduct is (i) outside the relevant competitive agreements and exclusive prohibition, or (ii) that it is prohibited, or dealings, and such behaviour that is (iii) that it is exempt. The decision prohibited per se but that does not lessen entails an assessment of the relevant competition substantially.
252 business certainty and provides an Authorisation differs from the exemption appropriate framework for provisions under section 3 of the Act. In accountability. the latter circumstances, certain conduct is declared as a matter of law to be The Commission is not able to re-open a outside the scope of competition law. case once guidance or a decision has (Please see discussion, supra, regarding been given unless it has reasonable Zambia’s section 3). However, the grounds for believing that there has been authorisation process requires that there material change in circumstances or it be an affirmative showing by the party has reasonable suspicion that materially seeking authorisation that the activity at incomplete, misleading or false issue produces benefits which outweigh information has been given. any negative competitive impact. Certain types of conduct referred to In other words, whereas the underlying under Section 9(3) of the Act (horizontal rationale is the same for both exemption restraints) are inherently anti- and authorisation, i.e. there is competitive. The Commission is not overwhelming social benefit by allowing likely to grant immunity from a particular practice, exclusion presumes prosecution in respect of such conduct. that such a benefit exists whereas with They types of restrictive business regard to authorisation that benefit has to practices mentioned in Section 7 (2) of be demonstrated. Additionally, exclusion the Act (vertical restraints) may not be is done at the legislative level whilst anti-competitive depending on the authorisation is assessed via an precise circumstance of each case, and administrative process. negative clearance for such conduct under Section 13 is possible. As stated before, the authorisation process is an administrative one. To minimise any chance of abuse, it is 17.0 Competition Policy And required that this process be fair, Consumer Welfare transparent and equitable to all applicants. Also, given the dynamic Unlike other Competition Authorities, in nature of market conditions, the Zambia, the Commission has also the assessment process is periodically legal mandate to deal with matters reviewed and any authorisation granted pertaining to consumer welfare. Firstly, is subject to review. you will observe that there is a large number of consumer organisations, both It must be stressed that for the governmental and non-governmental, authorisation programme to be efficient, business interests, enforcement bodies there must not be undue delay between and other interested parties, which are submission of the application for active in the field of Consumer Affairs. authorisation and the ultimate On the Board of the Commission, there determination by the Commission. In are two representatives from the national addition, the process should be open to non-governmental consumer the public, flexible and responsive and associations. fair to all parties. This results in greater
253
Section 12
A person shall not-
(a) withhold or destroy producer or consumer goods, or render unserviceable or destroy the means of production and distribution of such goods, whether directly or indirectly, with the aim of bringing about a price increase; (b) exclude liability for defective goods; (c) in connection with the supply of goods or services, make any warranty- (i) limited to a particular geographic area or sales point; (ii) falsely represent that products are of a particular style, model or origin; (iii) falsely represent that the goods are new or of specified age; or (iv) represent that products or services have any sponsorship, approval, performance and quality characteristics, components materials, accessories, uses or benefits which they do not have.
(d) engage in conduct that is likely to mislead the public as to the nature, price, availability, characteristics, suitability for a given purpose, quantity or quality of any products or services; or (e) supply any product which is likely to cause injury to health or physical harm to consumers, when properly used, or which does not comply with a consumer safety standard which has been prescribed under any law.
The Commission has identified what delivery costs) or for which the seller work on consumer affairs it should is liable (such as taxes payable by engage in, and how it should allocate the seller and associated with the use resources between different types of of the good or service that the activities. It has also developed a consumer will have to pay prior to strategy aimed at providing the various the transaction being complete); and bodies with guidance on how they might • Representations that disclose part of be affected by the work undertaken by the full price but not the full price or the Commission. total cost. Experience has shown that most of the (ii) Quantity; consumer complaints arise from the (iii)Standard, quality, value, grade, following: composition, style or model (iv) History (including whether goods are (i) Price – this includes: new or second hand), previous use or • Misrepresentation about ‘discounts’ date of manufacture, place of origin, or ‘price reductions’ manufacturing process; • The non-disclosure of non-avoidable (v) The existence, exclusion or effect of costs to the consumer over which the any condition, warranty, guarantee, seller has control (such as mandatory right or remedy.
254 importance to: The Commission’s work links the competition and consumer protection • Misleading or deceptive conduct and issues leading to an overall increase in claims in relation to: consumer sovereignty. The Commission - Price will continue to select its consumer - Health protection priorities according to - Safety whether or not: - Country of origin - Technology industries; and • The conduct in question is national; - Electronic commerce; • Significant consumer detriment is - Product liability and product involved; standard • A significant new market issue, for - Major consumer and business scams example, resulting from economic or - Issues arising from globalisation of technological change, has arisen. markets and new technology; and - Debt collection practices The Commission will attach particular
CONSUMER VIOLATIONS
120 116
100
80
Number of 60 cases handled
40 34
22 20 20 17 11 12
0 1998 1999 2000 2001 2002 2003 1998 - 2003 Section 12
Note: The general upward trend in consumer cases is due consumers and traders being aware of their obligations under the Act.
The Commission's strategy has taken consumer welfare in the longer term, into account the need to work effectively subject to protecting the interests of with those other bodies. This strategy by vulnerable consumers, by:- the Commission aims to help maximise
255 - empowering consumers through have mushroomed as a result of the job information and redress; losses which followed the privatisation - protecting them by preventing abuse; of the parastatal sector, these have failed and to meet the standard of an organised - promoting competitive and modern industry. Further, the presence responsible supply of foreign firms has not made possible the growth of a modern small-scale The Commission recognises the fact sector. The Small Enterprises that, in general, consumers are the best Development Board which is charged judges of their own interests: with promoting SMEs has continued to consequently, it is for them to make face lukewarm support from government choices for themselves, based on those and is plugged into serious financial interests and accordingly to their own crisis. values. The Commission has an important role While direct intervention by the in fostering a fair and competitive Commission may be necessary when operating environment for small things go wrong, the main thrust should business. Small business issues be directed at empowering consumers to permeate all of its work. The Small look after themselves. The main tool Business Program goal is to enhance the needed to enable them to do this is economic welfare of small businesses information. Consequently, the essential through education about, and part of the Commission's work is to enforcement of, the Competition and promote the availability of information, Fair Trading Act. The objectives of the either by encouraging others to provide Act specifically address the it, or by doing do itself. enhancement of the small business: “To expand the base of entrepreneurship”. It is always evident that where there is Consequently, the Commission has over effective competition and sufficient its existence directed its efforts to: information for consumers, dishonest traders cannot thrive. It is in this regard • Educate small businesses about that because of imperfect markets, that rights and obligations under the Act regulation sometimes is necessary to • Promote small businesses aspects of ensure that consumers are adequately Commission activities; and protected. The Commission also in a • Enforce the Act in relation to small way provides an effective and accessible business activity – with the redress mechanism, which forms an awareness that a small business can essential element of good consumer be both a business operator and protection. consumer of goods and services.
In particular, attention will be paid to: Small Business • Franchising; There is a paucity of industrial • Misuse of market power entrepreneurship in Zambia. Though • Other forms of unconscionability or there are many micro enterprises which economic duress;
256 • Major business scams; and strategies. The principal objectives of the • Commercial retail tenancies. Commission’s guidance and information activities are to:
18.0 Competition Advocacy And • increase knowledge of rights and Compliance obligations under the Act, • increase public understanding of the Under Section 6 of the Act, the Commission’s procedures and Commission is empowered to carryout policies, competition advocacy work. The • contribute more generally to public Commission achieves transparency awareness of competition regulation through a range of different mechanisms issues to enhance the development of and places a high priority on its a competition culture. information, compliance and media
Advocacy Functions of the Commission
Section 6(d): To provide persons engaged in business with information regarding their rights and duties under this Act. Section 6(3): To provide information for the guidance of consumers regarding their rights under this Act. Section 6(f): To undertake studies and make available to the public reports regarding the operation of the Act. Section 6(g): To cooperate with and assist any association or body of persons to develop and promote the observance of standards of conduct for the purpose of ensuring compliance with the provisions of this Act.
Competition advocacy refers to those existence of a ‘competition culture’ activities conducted by the Commission within the country is vital to the success related to the promotion of a competitive of the Commission and ultimately to the environment for economic activities by effectiveness of the competition law. means of a non-enforcement mechanism, The Commission has, over the years, mainly through it’s relationship with employed various means for promoting other governmental entities and by of competition policy within the country. increasing public awareness of the benefits of competition. In a society faced with diminishing resources, voluntary compliance Since it’s establishment, the becomes an increasingly important Commission has continued to face a activity in the Commission’s overall formidable but highly important task in enforcement of non-compliance of building awareness and support for business related laws has a much more competition policy among the public and severe impact on the overall economy within the business community. The than other laws. This is particularly true
257 of some laws like the competition law, C. Market Interventions where it forms part of the government’s D. A Comprehensive National basic economic framework policy. To Competition Policy the Commission, compliance with the E. A Guide to Merger Control legislation includes activities covering Regulation investigations and enforcement. F. A Guide to Notification of Mergers However, the Commission’s approach and Acquisitions has been to focus on compliance G. Trade Agreements: A Guide for activities that are voluntary and those Traders activities that are mainly non-coercive. H. ZCC Its Functions and Objectives I. Consumer Legislation and Consumer The Commission’s compliance and Rights information strategy includes educating and informing the public through the use Both the advocacy and compliance of media releases, press articles and activities have included: interviews, speeches, publications and guidelines, maintaining a comprehensive • providing as much information as and up-to-date internet website possible about the Competition (www.zcc.com.zm), and having effective Commission liaison programs with all the District Councils in the country. • educating the consumer and business communities about the competition law – the meaning and purpose of The website contains a detailed range of it’s provisions and the procedures information including an overview of the through which the law is enforced. role and functions of the Commission, the legislation that it administers, copies • Developing public support for of press releases and speeches, electronic competition enforcement, by copies of the majority of the demonstrating how consumers and commission’s publications, contact the country at large benefit from a information and details of the strong competition policy. Commission’s decisions. • Fostering the developing of The Commission generally issues about competition expertise outside the 50 press releases every year. The commission – in the legal, education, Executive Director and senior staff business and governmental deliver about two speeches every month institutions. to a wide range of audiences. The Commission produces a wide range of As previously stated, the power of the publications, including an annual report Commission to engage in advocacy is on the Commission’s activities. There explicitly provided for under Section 6 are currently the following publications: of the Act. Advocacy, as the term implies, is an effort at education and A. Lodging in a Complaint and Redress persuasion rather than an exercise of law B. Consumer Beware. A Guide for enforcement powers. Targets of Consumers competition advocacy have included
258 other ministries, independent regulatory • Monitoring compliance, and bodies, parliament, etc. The Commission • Responding to non-compliance understands that competition enforcement will be more effective if The above, has been successfully there exists outside the agency, a implemented by utilising the following business community whose members tools to publicise compliance and understand and support the concept of advocacy activities: the competition policy. It’s members should include private lawyers whose (a) Mass Media practice in the competition and • Press bulletins regulatory arenas, academics with • Electronic media (radio and TV) expertise in business and economics, • Website consumer organizations responsible for protection of consumer interests, (b) Official politicians who are interested in market- • Annual Report on the commission’s oriented reforms and the business activities community itself. • Guidelines
• Publications of decisions taken The Commission has a very broad range of stakeholders, all of which have very (c) Selective different information requirements. It is • Seminars/workshops therefore important that the • Commission’s information and Presentations by the Executive compliance strategy be sufficiently Director • diverse that it meets the needs of all of Interviews its constituents. This issue is exacerbated • Articles in specialized journals in Zambia by its immense geographic, • Newsletters economic and cultural diversity. The • Business meetings Commission’s advocacy and compliance activities have over the years focused on: (d) Studies • Discussion papers • Encouraging compliance, • Study groups • Facilitating compliance, • Survey reports
19.0 Handling Of Confidential Information
Prohibition of publication or disclose of information to unauthorised persons
No person shall, without the consent in writing given by or on behalf of the Commission publish or disclose to any person, otherwise than in the course of his duties, the contents of any document, communication or information which relates to and which has come to his knowledge in the course of his duties under this Act.
259
Regulation 9 of the Act provides for the from the public on confidentiality prohibition of publication or disclosure grounds. Applicants and interested of information by unauthorized persons. parties who lodge submissions There is need to provide comprehensive containing confidential information access to information to the public, should clearly mark that information as while of course making provision for the such and ask that it be excluded from the protection of confidential information. register. This was the case during the assessment of the application by La Underlying the basic premise of farge for the takeover of Chilanga Regulation 9 is the important need for Cement PLC. the Commission to be able to protect confidential information provided to it If a request for confidentiality if made during the course of its investigations. If subsequent to the submission being the Commission was not able to protect placed on the public file, it will be such information, it would seriously removed pending consideration of the jeopardise its ability to collect such request. Administratively, the information in the first place, therefore Commission, upon request may be undermining its ability to conduct required to exclude from the public thorough investigation of the facts of a particulars of: case. • A secret formula or process; The Commission has been strict with the need for maintaining confidentiality. A • The cash consideration offered for critical element of building trust the acquisition of shares in the amongst the corporate community is the capital of a body corporate as ability to maintain confidentiality. This requested during the sale of Indeni applies to all information provided to the Oil Refinery to Total (Zambia) Commission that contains business Limited or assets of a person; and secrets. It also extends to investigations and reviews where the Commission has • The current costs of manufacturing, pledged to maintain confidentiality of process or marketing goods and the process (for example, this would services include a commitment by the Commission not to make public, the The Commission may also exclude from information of a proposed merger, until the public any documents or submissions a particular date or event has occurred or parts of them if it is satisfied that it is such as the public announcement of a desirable to do so because of the merger by the merging parties) confidential nature of their content. The description of the conduct for which Submissions of applicants and interested authorization is sought will not be parties may contain sensitive confidential. information that they wish to be kept confidential. Under the common law, The Act in order to enhance the legal principles, it is a requirement for confidentiality requirement, provides for the Commission to exclude information both a penalty of a fine and/or a criminal
260 sanction of three years for any person inquiries, which will necessarily involve who knowingly contravenes the disclosing the nature, but not the detail confidentiality requirement or having or the financial terms of the proposed information which to his knowledge has merger or takeover. been published or disclosed in contravention of the confidentiality The Act under Regulation 9 requires the requirement. officers of the Commission not to disclose information they have acquired However, Regulation 10 of the Act through the course of their duties under provides for immunity to action or the Act. If the client believes that his proceedings against the staff or interests would be harmed is any of the representatives of the Commission for or information you are asked to supply in respect of any act done or omitted to were to be published or otherwise be done in good faith in the exercise or divulged to other parties, the client purported exercise of his functions under should submit this information this Act. separately with each page clearly marked “Business Secrets”. You should also Regulation 9 of the Act controls officers give reasons why this information as regards the use of information they should not be divulged or published. obtain by virtue of the office. Their powers under the Competition and Fair If confidentiality is granted, the relevant Trading Act are covered by an materials shall be placed on a separate Obligation of Professional Secrecy. file. Only the Commission, it’s advisors, consultants and its staff will have access Moreover, any information the to that material. The Commission will Commission obtains must be used use that material when reaching its exclusively for the purpose of the decision. When the Commission denies investigation for which it was acquired, a request for confidentiality, the party although the Commission can who made the submission has to request legitimately initiate an investigation the return of the material. If a request is prompted by the information acquired made for the return of the materials, the accidentally in the course of a previous Commission will return it, destroy all investigation. copies of the submission for which confidentiality is claimed and not use The Commission and its staff will not that material when reaching its decision. disclose to any persons, information about the proposed merger. However, if the Commission considers that the 20.0 Funds Of The Commission merger or takeover is likely to have anti- competitive effects it will usually be Regulation 11 of the Act specifies the assisted by market place inquiries. To Commission’s sources of funding as: facilitate those inquiries and to determine the outcome of the • moneys appropriated by Parliament authorization applicants as speedily as for the purposes of the Commission; possible, the Commission will seek the • grants and donations paid to the applicant’s consent to such market Commission;
261 • any moneys that vests or accrue to broadly defined as a means by which the Commission. compliance with part III of the Act is encouraged and achieved. A broad and In practice, the Commission’s budget generalised review of al the activities solely depends on money appropriated to that could conceivably be encompassed it by government. The Commission also within the broad definition of receives money through lodgement and enforcement is not pursued. Rather, we application fees. This source of income shall focus on three specific areas of has been insignificant. The Commission competition law enforcement, which does not currently sell its publications. since the Commission became The publications are given free as part of operational have been the subject of the awareness and advocacy programme. public disquiet.
The Commission’s principal tools for 21.0 The Commission’s enforcing the Act, especially Part V, can Enforcement Tools be divided into three categories:
The vision of a flourishing, competitive • Litigation economy will remain nothing more than • Simple administrative resolutions; a mere aspiration, however, if and competition law is not effectively • Decisions of the Board of the enforced. Any regulatory regime has at Commissioners least two components: a body of regulation and an enforcement regime. The above tools have different legal and Effective regulation depends on the functional characteristics, and vary in effective operation of both components. severity, their reliance on suasion or As Pengilley has observed: “the life coercion, degree or formality and in the blood of the Act is enforcement. If the publicity of process which accompanies court process cannot deliver efficient and their use. effective enforcement, the Act becomes somewhat pointless”. 21.1 Litigation It is vitally important for an emerging competition law regime, like in Zambia, In its enforcement role, the Commission to generate institutional confidence. has power to take civil or criminal action Business and Government needs to be for penalties against parties for assured that a regime of competition law violations of part III of the Act, pursuant adjudication is effective and fair in to section 16 of the Act. The generating economic benefits for Commission, however, has no powers to consumers and society. An essential impose penalties or take any other element of a stable and effective action, that role is left to the courts. competition law regime is an effective enforcement regime.
For the purpose of the report, ‘enforcement’ of competition law is
262
Section 16
(1) Any person who- (a) contravenes or fails to comply with any provisions of this Act or any regulations made hereunder, or any directive or order lawfully given, or any requirement lawfully imposed under this Act or any regulations made hereunder, for which no penalty is provided; (b) omits or refuses- (i) to furnish any information when required to do so by a notice sent by the Commission; or (ii) to produce any documents when required to do so by a notice sent by the Commission: or (c) knowingly furnishes any false information to the Commission; shall be guilty of an offence and shall be liable upon conviction to a fine not exceeding ten million Kwacha or imprisonment for a term not exceeding five years or to both.
(2) If the offence is committed by a body corporate, every director and officer of such body corporate, or if the body of persons is a firm, every partner of that firm, shall be guilty of that offence provided that such director, officer or partner shall be guilty of the offence if he proves on a balance of probability that such offence was committed without his knowledge or consent, or that he exercised all due diligence to prevent the commission of the offence.
Litigation against alleged contraveners constitutes the most formal and legally Although the Commission will normally coercive way for the Commission to look to avoid costly and lengthy seek to secure compliance with the Act. litigation, lawsuits remain a major focus Successful litigations results in court because of the broad effects of court orders against the respondent, and may decisions, including deterrence publicity, typically include a declaration that the punishment, authoritative statements on respondent has contravened the Act, the seriousness of breaches and injunctions restraining the respondent clarification of points of law. from engaging in unlawful conduct of the kind complained of, and under Litigation has not up to now been used Section 14 of the Act, the imposition of by the Commission. This is because of pecuniary penalties and jail sentence. In the severity of its consequences and its terms of legal severity and coercive resource intensive nature. The use of force, degree or publicity and financial competition advocacy has been the cost to the respondent, litigation major focus by the Commission. although not yet used, is the most powerful tool in the Commission’s direct enforcement armoury.
263 21.2 Simple Administrative 21.3 Decisions of the Board of Resolution Commissioners
The least severe way the Commission As an enforcement tool, Board decisions resolves complaints of alleged are legally binding on the party they are contraventions of the Act is by simple addressed. When the Board makes a administrative resolution. Such decision after the determination of the resolutions may include accepting case, the party shall be legally required assurances from the suspect firm to to abide by the obligations. cease the conduct or otherwise modify Contravention of the Board decision its commercial behaviour in the desired entitles the Commission to bring court manner. Such resolutions lack formal proceedings against the contravener. legal enforceability, although they may provide relevant evidence in proceedings The acceptance of the Board decision against the firm if subsequent does not generally involve the same enforcement litigation ensues. degree of publicity or expense which is typically associated with litigation. Administrative resolutions, rather than Section 14 of the Act allows any person litigation comprise the most frequently who is aggrieved by a finding of the used method of resolving complaints. Commission may within thirty (30) days They attract minimal, if any, publicity appeal to the High Court. and constitute the least costly way for the Commission to seek compliance with the Act. Administrative resolutions are 21.4 Existence and Practical generally arrived at after a process of Availability of Private Rights of dialogue and inquiry between the Action Commission and the party the subject of the complaint. This is particularly The Act does not contain any express important not only for dealing with anti- right to bring private civil actions for competitive practices complaints, but breach of pat III prohibitions of the Act. more so with the fast-track desk for Under common law, which is applicable consumer welfare complaints. in Zambia, third parties can seek injunctive relief against breaches of the Despite their informality, administrative Act and are thought to be able to claim resolutions have nonetheless been damages for losses sustained as a result effective in preventing future of such breaches. contraventions, particularly when the firm involved has displayed a high As the legislation is still untested, it is degree of co-operation with the difficult at this stage to estimate the Commission and demonstrated a genuine extent to which third parties will seek to commitment to future compliance. The use the rights. In parallel, or by way of informality and relatively inexpensive alternative, it is also possible to nature of administrative resolutions complain to the Commission and request means they may also resolve complaints that it investigate the agreement or quickly. conduct in question and, where appropriate, seek measures requiring
264 termination or modification of the may have complained to the agreement or conduct. Commission that the conduct of a business competitor amounted to a breach of section 7(1) and 7(2) of the 22.0 Challenging Commission Act. Decisions Before The High Court In each case the Commission may have rejected the complaint and may also There may be occasions on which a have granted an exemption to the company feels aggrieved because a company in respect of the conduct of complaint to the Commission about the which complaint has been made. Such conduct of another company has been decisions of the Commission may be rejected. For instance, a retailer may challenged under section 14 of the Act have been refused access to a selective before the High Court, provided that the distribution network on grounds which complainant company has been directly his lawyers advise the retailer are and adversely affected by the conduct of inadequate. In some cases, a company which complaint has been made.
Section 15
Any person aggrieved by a decision of the Commission made under this Act or under any regulations made hereunder may, within thirty days after the date on which a notice of that decision is served on him, appeal to the High Court subject to a further appeal to the Supreme Court.
In order to secure the option of a judicial preliminary assessment of the challenge to the Commission’s competition implications of the conduct. determinations in such cases, a company The assessment will be made from the would be well advised to challenge the information submitted with the decision formally before the High Court notification or available within the within thirty (30) days from the time the Commission. If necessary, low-key Commission’s decision is communicated market inquiries may also be undertaken. to them. The Act does not provide for an Notifications submitted to the opportunity to petition to file an appeal Commission for consideration will out of the thirty days. Consequently, an normally include: opportunity to appeal may be lost forever, if the thirty day deadline is not - a description of the goods adhered to. and services, the subject of the notification and their users
23.0 Assessment Of A Notification - a summary of the conduct that may or would constitute the Upon receipt of a notification of a practise which contravenes the conduct under Part III of the Act, the Act. Commission will usually make a
265 - comments on the market should be made within 90 days of receipt (including definition, of the application. Authorization is a competitors, market shares, level public process allowing for the views of of imports, barriers to entry); the interested parties to be considered and providing a window for the public - comments on the likely input. The procedure is flexible, with the effect on the competition onus being on the applicant to satisfy the appropriate test.
24.0 Timetable For Decisions On The Commission has recognised the Authorizations need to impose in the next law review legal deadlines on how long an The Commission recognizes that the investigation should take. It is accepted business community is anxious to avoid that undue delays hurts parties who may delay in obtaining regulatory approval be harmed by the conduct at issue and for planned merger or takeovers. Such creates uncertainty, ultimately imposing delay can mean a loss of business unwarranted costs on the subjects of the opportunity as it may permit other investigations. bidders to make a higher offer for the target enterprise. The Act does not In addressing the concept of timeliness, provide for or stipulate time limits in the Commission shall take into account which the Commission is required to the need for sufficient flexibility so as to carry out its work. Accordingly, the reflect the reality that some competition Commission will establish in the next matters are more complex and take law review, indicative time-tables which longer to investigate and resolve than would allow most merger proposals to others. Similarly, some competition be authorized promptly and major matters require expeditious review, and a complex mergers to be investigated lengthy investigation may, in and of thoroughly within a reasonable period. itself, force an outcome. For example, if the Commission does not reach a In its assessment work, mergers and decision on a merger in a timely fashion, takeovers, which are unlikely to have the delay can delay an otherwise anti-competitive consequences and are legitimate deal. below the concentration thresholds will be authorized by the Commission within 7 days of the receipt of the formal 25.0 The Role Of The Judiciary In application. Major complex mergers Competition Law And Policy may involve extensive market inquiries, Enforcement but a decision on the authorization application is normally arrived at within The effectiveness of the competition law 3 months of the receipt of the in addressing anti-competitive practices application. depends on the actual degree of enforcement action by the Commission Major complex mergers may involve and the role of the Courts or the extensive market inquiries, but a judiciary in the enforcement of the decision on the authorization application competition law. The law under section
266 16(1) stipulates offences and penalties Article 91 (3) of the Constitution of for persons who contravene or fail to Zambia states that “the judicature shall comply with the provisions of the law or be autonomous and shall be any regulations made there under, or any administered in accordance with the person who omits or refuses to furnish provisions of an act of Parliament.” The any information or produce any Judicature Administration Act Chapter document required by the Commission. 24 of the Laws of Zambia grants the Judiciary administrative autonomy Enforcement issues represent the main including the power to recruit personnel difficulty in introducing competition and manage its financial resources. law. The available enforcement capabilities and approaches must dictate the substantive approach of the law. It Composition of the Judiciary would be counter productive to introduce a sophisticated piece of The Judiciary in Zambia consists of the legislation that would be difficult or following courts: impossible to implement by the competition authority. However, (a) The Supreme Court; establishing an efficient enforcement (b) The High Court; agency capable of implementing (c) The Subordinate Courts (also known sophisticated competition legislation as Magistrate Courts); and should be seen as a long-term objective. (d) The Local Courts Even the competition authorities of developed countries have many years to perfect their enforcement capabilities. The Supreme Court
The Supreme Court is established under 26.0 Judiciary System In Zambia Article 92(1) of the Constitution. It is the final court of appeal in both civil and The word “judiciary” in its strict criminal matters. It is composed of the meaning refers to the “judges of a state Chief Justice, Deputy Chief Justice and collectively.” It is often used seven Supreme Court Judges. All the interchangeably with “judicature,” a Judges of the Supreme Court are wider term embracing both the appointed by the President subject to institution (the courts) and the persons ratification by the National Assembly. (the Judges) who compose it. In this All Judges enjoy security of tenure and paper the work “judiciary” is used to may vacate office on attaining the age of refer to judges collectively. In Zambia, sixty-five years or for misconduct. the Judiciary is recognised as one of the three branches of Government. The other two branches are the Executive The High Court Legislature and Parliament (National Assembly). It is also a well-settled legal Article 94 of the Constitution establishes principal that the Judiciary in the the High Court of Zambia whose discharge of its functions is independent operations are governed by the High of the other branches of Government. Court Act Chapter 50 of the Laws of
267 Zambia. The High Court has unlimited and original jurisdiction to hear and determine any civil or criminal matter. It The nature of the alleged violation of also determines appeals in civil and the law criminal cases from the subordinate courts. The judges of the High Court are Only disputes of a legal nature may be appointed by the President on the advice adjudicated by the Zambian courts. A of the Judicial Service Commission. The dispute is of a legal nature if it affects a appointment is subject to ratification by person’s legal rights or relations. The the National Assembly. matter in dispute must affect a party’s recognised legal rights, either proprietary, personal or jurisdictional The Subordinate Courts rights. The dispute may involve a breach of a statutory right or duty, breach of a The Subordinate Courts also known as contract, personal injury, damage to the Magistrate Courts are established by reputation or to property etc. Chapter 45 of the Laws of Zambia which also provides for their jurisdiction. In Zambia, judicial power, unlike Magistrates preside over the Subordinate political or administrative power, is not Courts. There are two classes of self-activating. It cannot be exerted at magistrates: professional (with law the instance of the court itself but only at degree qualification) and lay magistrates that of a person asserting a legal right. (without law degree qualifications). The judiciary is not given the initiative Magistrate Courts have jurisdiction in which the political and administrative civil and criminal matters except for organs possess to originate action. It cases where the High Court has original cannot undertake to conduct adhering jurisdiction. into any matter, but must wait until a person interested in the matter comes The Local Courts along to ask for it’s intervention.
At the base of the Zambian Judicial A case affecting the legal rights of a system are the local courts, which are person may, however, be brought before presided over by local court justices. the judiciary even though it does not Local courts deal with customary law involve opposing parties. The cases. Appeals from local courts lie to adjudication of the court may be given in the magistrates court where the cases are proceedings inter parties or ex parte. heard anew (de novo) since local courts are not courts of record. The application of the law
The Duty of Adjudication The judiciary has the responsibility of administering justice in cases brought The Zambian judiciary, acting through before it. The administration of justice the various courts of law, has the entails the power to determine responsibility of determining alleged authoritatively (i.e. conclusively) the violation of the law in cases properly facts and the law relevant to the dispute. brought before it. The decision arrived at by the court by
268 the application of the relevant law to the (iii)the ascertainment of facts in issue by facts, and which, by declaring the rights means of evidence given on oath or in question, finally disposes of the whole affirmation by the parties, and other dispute. witnesses whose attendance upon the court’s summons is compulsory; The Interest of the Parties to the dispute (iv) the submission of argument on the facts and on the law by or on behalf It is not enough that a violation of the of the parties; law has been committed. A person making the allegation must be able to (v) a binding decision which disposes of show that the violation has injuriously the whole matter by a finding upon affected his legal rights or relations by the facts and an application to the the infliction of actual harm or a threat facts so found of the law as of it. But even when injury or the threat interpreted by the court. of it has occurred, a question may arise whether a particular complainant among The available remedies the several persons affected by the injury or threat is the appropriate person to The final determination by the judiciary raise the ultimate issue in the case, or of a dispute binds the parties in the whether the timing of the action is dispute. The successful party may premature or otherwise inopportune. invoke the judiciary’s power to enforce compliance with or obedience in the The Procedure of the Court decision. In the ordinary course of discharging its functions the judiciary The procedure of the judiciary in Zambia may give a judgement requiring an is characterised by the following award of process or execution to carry it attributes: into effect. There are, however, other instances where a decision of the (i) absence of bias, i.e. a court of law is judiciary may stop short of giving a required to be free of bias or even an judgement requiring an award or appearance of bias, which means in conviction for offences and the practical terms that a judge should be imposition of punishments. It may independent of the disputants in the simply ascertain and declare an existing case, and should have no interests of right. his own in the subject matter of the dispute; The Role of the Judiciary in Competition and Fair Trading Cases (i) openness, i.e. proceedings must be in public, unless the interests of justice The role of the judiciary in respect of or other public interest dictates competition and fair trading cases is the otherwise; determination of alleged violation of the Competition and Fair Trading Act. A (ii) the presentation of their case by the natural or legal person may bring a civil parties to the dispute; suit to seek the court’s intervention in respect of any act done or omitted to be
269 done by the Zambia Competition (c) omits or refuses – Commission or any other person (i) to furnish any information when purporting to act in accordance with any required by the Commission to do right or duty derived from any provision so; or of the Competition and Fair Trading Act. (ii) to produce any document when The civil suit may take the form of required to do so by a notice sent by judicial review of the act or omission the Commission; or complained of. In this regard, Section 15 (d) knowingly furnishes any false of the Act provides that any person information to the Commission.” aggrieved by a decision of the Commission made under the Act or A person found guilty of any of the under any regulations made in offences is liable upon conviction to a accordance with the Act may, within fine not exceeding one hundred thousand thirty days after the date on which a penalty units or imprisonment for a term notice of the decision is served on him, not exceeding five years or to both. appeal to the High Court subject to a further appeal to the Supreme Court. If any of the offences is committed by a body corporate, every director and Conversely, the Commission is not officer of such body corporate, or if the precluded from seeking the court’s body of persons is a firm, every partner intervention in a dispute involving the of that firm is guilty of the offence application of the provisions of the Act. unless the offence was committed It may, for example, seek a declaratory without his/her knowledge or consent, or judgement confirming its duties, powers that he exercised all due diligence to or rights under the Act. prevent the Commission of the offence.” The judiciary in Zambia can play an In addition to the determination of important role in ensuring Competition disputes in civil proceedings involving and Fair Trading by effectively and the enforcement of the provisions of the efficiently enforcing the provisions of Act, the judiciary may also be called to the Competition and Fair Trading Act in adjudicate over disputes concerning both civil and criminal proceedings. violations which constitute criminal However, the challenge still remains in offences. The enforcing of the provisions the provision of adequate training of the Act by the court through penal opportunities in the area of competition sanctions is provided under Section 16 law for judges, prosecutors and officers of the Act which provides as follows: of the Zambia Competition Commission. Training will not only enable the various “16(1) Any person who – institutions concerned to achieve good (b) contravenes or fails to comply with results but also to identify weakness in any provision of this Act or any the existing law and provide suggestions regulations made hereunder, or any for possible reform. directive or order lawfully given, or any requirement lawfully imposed 27.0 Sanctions And Remedies under this Act or regulations made hereunder, for which no penalty is provided: The Commission has at its disposal an array of remedies and sanctions that it
270 can impose as circumstances warrant. Unless the Commission has adequate Private individuals (third party) may also powers to redress competition harm that take action under the Competition Act to results from violations of the obtain remedies against anti-competitive competition law and to prevent conduct. recurrences of those violations, the law will quickly become ineffective. However, private actions may not be as
frequent in Zambia as compared to say, If prohibited behaviour is detected by the United States of America. The reason is Commission, it will play a role that incentives for pursuing cases analogous to that of police. In an event privately are less strong since, under the of an appeal by an aggrieved party, the cost rules, the loser of a case must pay Commission shall be required to prove the cost of the winning side. its case in Court and, if so, can win penalties and remedies from the Court. Actions under the Competition Act will
b taken in the High Court of Zambia or a The legal system in Zambia provides for commercial court (when established) various penalties and remedies for with specific competition law expertise. breaches of the law, including:
The objectives of the proposed national • penalties (civil) fines competition law suggest that action • injunctions taken in response to an alleged • damages contravention should be designed to • divestiture in relation to mergers; serve one or more of the following and purposes: • various ancillary orders such as rescission and variation of contracts, (i) to compensate a person or business orders for specific performance of who has suffered loss or damage as a contracts etc. result of the contravention of the national competition law; Zambia, for instance, has criminal sanctions for hard-core contraventions (ii) to undo the effects of the such as cartels. This is the case in the contravention; USA and the OECD recommendations. (iii)to prevent a future contravention of Civil penalties are available and have the act, both immediately and in the same advantages, in terms of the longer term, and to promote and evidentiary tests (the burden of proof is encourage community-wide the civil one of balance of probabilities) compliance with the national and a far more economic underpinning. competition law; and
It has become acceptable to most (iv) to provide deterrence and, as a countries that criminal sanctions and secondary or incidental outcome, imprisonment should be an additional retribution. option available for offences under the Act.
271 Broadly, these purposes address both the • the need for business to have immediate issue, that is, the specific reasonable certainty about the contravention and its effects, and the requirements for compliance with, or longer term implications of non- authorisation under, the Act. compliance on the competitive processes in the markets. There is now a need to appoint a consultant or a committee to examine the Most responses to contraventions, operations of the Commission, the whether they involve the Commission or suitability of the Act and the not, will have as a purpose the appropriateness of the competition prevention of further contraventions. policy whether they: Many are also likely to seek compensation for persons who have • inappropriately impede the ability of suffered loss or damage as a result of the Zambian industry to compete locally contravention. and internationally;
• provide an appropriate balance of 28.0 Conclusion power between competing businesses, and in particular It has become evident that the current businesses competing with or dealing Act shall require a comprehensive with businesses that have larger review. The Board of Commissioners market concentration of power i.e. have on several occasions stated that it S.A. Breweries, Chilanga Cement, was timely to review some key Illovo Sugar; provisions of the competition law in view of the significant structural • promote competitive trading which economic reforms that are occurring in benefits consumers in terms of Zambia that impact on the services and price; competitiveness of Zambian businesses, economic development and affect • provide adequate protection for the consumer interests. commercial affairs and reputation of individuals and co-operations; In calling for the review, the Board made reference to: • allow businesses to readily exercise their rights and obligations under the • Zambian businesses being new Act, consistent with certainty, increasingly faced with regional transparency and accountability; global competition; • are flexible and responsive to the • the fact that excessive market transitional needs of our local concentration and power can be used industries undergoing, or our by businesses, especially foreign communities affected by, the multinationals, to damage structural economic reforms; competitors; and In the review process, the Consultant or the Committee shall be guided by the
272 core principles of transparency, non- discrimination and procedural fairness. The core principles are the key factors that influence the development of effective competition regulatory structures, and if any one of them is neglected, it may well result in a competition regime that lacks substance, public acceptance or that is difficult or impossible to enforce.
273 Annex 1: Competition Sector Regulation Laws in Zambia
Statute Regulatory Body Enabling Competition Provision The Communications s.5(2)(c) “To promote and maintain Telecommunications Authority : competition among persons Act, Cap 469 (CA) engaged in commercial activities for or in connection with the provision of telecommunication services, and promote efficiency and economy on the part of persons so engaged.”
s.5(2)(h) “To enable persons : producing telecommunication apparatus in Zambia to compete effectively in the supply of such apparatus both inside and outside Zambia.” The Energy Regulation Energy Regulation s.5(1)(f): “In conjunction with the Act, Cap 436 Board Zambia Competition (ERB) Commission established under the Competition and Fair Trading Act –
274 (i) investigate and monitor the levels and structures of competition within the energy sector with a view to promoting competition and accessibility to any company or individual who meets the basic requirement for operating as a business in Zambia, and develop and implement appropriate rules to promote competition in the energy sector.” Banking and Financial Bank of Zambia s.42: The provisions of this part Services Act, Cap 21 are in addition to, and do not limit the operation of any other law in force for the promotion of competition and free trade. The Water Supply and National Water and R. The Council shall consist Sanitation Act, 1997 Sanitation Council 2(1)(n) of the following members Cap 239 (NWASCO) appointed by the Minister: “a representative of the Zambia Competition Commission” The Pensions and Pensions and Insurance No enabling provision Insurance Act Authority (PIA) The Privatisation Act, Zambia Privatisation s.8(2): “ensure that monopolies Cap 386 Agency (ZPA) are not created in the process of privatization.”
275
276
ZIMABABWE This paper reviews and analyses competition policy and law in ∗ Alex Kubab Zimbabwe. The review will cover the following areas: Section 1: Introduction (i) the development and implementation of competition policy and law in Zimbabwe formally adopted competition Zimbabwe; policy in 1996 with the enactment of its competition law, the Competition Act, (ii) an outline of anti-competitive 1996 (No.7 of 1996). The broad practices prohibited or controlled objectives of the law as outlined in the under the Competition Act, an preamble to the Act are: analysis of key decisions taken by the Competition Commission on the • to promote and maintain competition practices, and an assessment of in the economy of Zimbabwe; sanctions provided for under the Act; • to establish a competition authority and to provide for its functions; (iii)an examination of consumer • to provide for the prevention and protection mechanisms in the control of restrictive practices, the Competition Act and in other regulation of mergers, the prevention regulations; and control of monopoly situations and the prohibition of unfair business (iv) consideration of the adjudicative practices; and processes employed by Zimbabwean • to provide for matters connected competition authorities; and with or incidental to the above. (v) other issues related to the In adopting competition policy and law, implementation of competition Zimbabwe became the fifth country in policy and law in Zimbabwe. southern and eastern Africa after South Africa, Kenya, Tanzania and Zambia. The review draws heavily on various The practical implementation of the law studies and papers on competition in since 1998 led in 2001 to substantial Zimbabwe undertaken by various amendments to the Competition Act consultants, academics and officials of under the Competition Amendment Act, the Competition Commission itself. 2001 (No.29 of 2001). The Amendment Internal Zimbabwe Government position Act not only broadened the papers and memoranda on the Commission’s merger control activities establishment of a competition authority and strengthened its investigative in the country were also studied, and powers, but also gave the Commission interviews were held with some of those additional functions in the field of trade Government officials involved in the (tariffs) policy and of price monitoring. formulation of the competition policy and the drafting of the law. Competition cases handled by the Competition ∗ Executive Director, Zimbabwe Competition Commission since its establishment were and Tariff Commission.
277 also analysed against the relevant provisions of the Competition Act.
278
Section 2: Zimbabwe also inherited a country Development Of Competition Policy manifested by a high degree of racial And Law In Zimbabwe inequality in which a small white population (about 5% of total population at Independence) owned nearly half of Background agricultural land and dominated the industrial and service sectors. Upon attaining Independence in April 1980, Zimbabwe inherited from the In addressing the new economic policy white-controlled regime of Rhodesia a issues confronting it, the new relatively advanced and diversified Government of Zimbabwe was therefore economy despite the fact that the country faced with many needs and realisations, had been under international economic some of which were in conflict with sanctions for the previous fifteen years. each other. These included: The economy was however also highly regulated and controlled in response to (i) the need to meet the aspirations for the economic sanctions. better living standards of the previously disadvantaged black The backbone of the economy was the population; commercial farming sector, which (ii) the desire to reduce foreign influence produced for both the domestic and over the economy and to introduce export markets a wide range of crops socialism; and livestock products such as tobacco, (iii)the realisation that the existing maize, coffee, tea, sugar, cotton and economic structure was strong and beef. Agriculture contributed about 12% should be sustained in order to of the country’s Gross Domestic Product provide the necessary resources for (GDP) and produced over a quarter of the required social policies; the country’s exports. The (iv) the need to honour the obligations on manufacturing sector contributed nearly land ownership that it undertook at 25% of GDP and produced over 7 000 the pre-Independence negotiations; different products. The sector was also and highly diversified with strong sub- (v) the need for direct State participation sectors in metal products, clothing and in economic activities. footwear, chemicals, food and drink. The mining sector contributed about The Government of Zimbabwe 10% of GDP and was an important maintained during the 1980s the highly foreign exchange earner from exports. regulated and controlled economic The wide range of minerals produced system that it inherited from the former included asbestos, chrome, coal, gold Rhodesian regime, but for completely and nickel. The other important sector different reasons. For the Rhodesian was the financial services sector, which regime faced with crippling international included commercial banks, merchant economic sanctions, the system was banks, building societies, insurance necessary to direct scarce foreign companies and a thriving Stock currency and other resources to those Exchange. private sector companies that were
279 involved in sanctions busting and in the and to stop business exploiting country’s import-substitution industrial the workers. policy. The system was therefore used to protect business, particularly big • The foreign exchange allocation business capable of sustaining the mechanism, put into place in order to country under economic sanctions. The preserve scarce foreign exchange and new Zimbabwe on the other hand was to ensure best use of the available highly suspicious of business, which was foreign exchange, was informally then white-dominated, and used the used as Government’s leverage regulatory system to limit the ability of against business practices felt to be business to capture monopoly and exploitative. oligopoly rents. • Public enterprises were created, or Regulatory policies pursued by the new formed in conjunction with existing Government among other objectives to private companies, in the industrial limit restrictive business practices and and commercial sectors to counter control the exercise of market power by and limit the ability of monopolies monopolies and oligopolies included the and oligopolies to abuse their use of price controls, the fixing of dominant positions. While all minimum wages, the foreign exchange sectors were targeted, emphasis was allocation mechanism, and the creation placed on the manufacturing, of public enterprises: distribution, trading and financial services sectors because of their consumer connotations. • Price controls were extensively used to limit the ability of firms
in monopoly or dominant The above sowed the seed and laid the positions to exercise market ground for the formulation of power by charging consumers competition policy in Zimbabwe. The high monopoly prices. Even need for such a policy was heightened though price controls had with Zimbabwe’s adoption in 1992 of an numerous other anti-competitive Economic Structural Adjustment effects, their use was effective in Programme (ESAP). ESAP called for countering the exploitative the establishment of a “monopolies practices of firms in dominant commission” to monitor competitiveness positions. and regulate restrictive business practices in the economy. The issue of • Labour regulations fixed restrictive business practices in minimum wages and salaries and Zimbabwe was of great concern to the limited the ability of firms to Government, and there was also a dismiss workers, and were also growing concern within the business used for equitable allocative community that there was a lack of purposes. Again, the objective competition in Zimbabwe domestically was redistribution of rents from and that the country’s industries were big business to the previously not competitive internationally. disadvantaged black population,
280 Formulation of Competition Policy absence of a regulatory body the end result will probably be lower output An Inter-Ministerial Committee on the levels and higher prices for those Monopolies Commission under the products which enjoy a truly chairmanship of the then Ministry of monopolistic market. The following are Industry and Commerce was established the issues among others, which a study by the Government to work on the team will have to address: formulation of competition policy in Zimbabwe. Other members of the 1. Defining a Monopoly Committee included the then Ministry of Finance, Economic Planning and We have to establish the ground rules of Development, the Zimbabwe Investment what constitutes a pure monopoly. Centre, the Department of Customs and There may be only one producer of a the Reserve Bank of Zimbabwe. good but it may be incorrect to describe the company as a monopoly because In a May 1991 minute to the then there are substitute products. The Permanent Secretary for Finance, definition of what a product is and how Economic Planning and Development, far we are willing to consider substitutes the then Permanent Secretary for will be important in the application of Industry and Commerce clearly spelt out the rules. This should therefore be the need for the establishment of a explicitly determined. ‘Monopolies Commission’ as follows: 2. Monopoly Power “I am writing to seek your concurrence in having the necessary expertise There are known cases of dominant price engaged for the establishment of a leadership in Zimbabwe, i.e. the largest Monopolies Commission. firm sets a price and the others proceed to agree to it. An example of that, prior Background to controls, was petrol. There are other forms of collusion which result in a As you know, monopolistic conditions in monopoly situation even though there the Zimbabwe market are the result may be more than one producer. We either of Government granting a need an appropriate legal framework and parastatal the sole rights to a product, practical guidelines to deal with this franchising or the size of the market issue. which restricts competitors from entry. In the case of parastatals, Cabinet in 3. Pricing Goals essence controls the prices the monopolies can charge with the stated As direct price controls are removed principle of allowing them to break there is a need to establish guidelines for even. Until now Government has determining pricing decisions. In the controlled the potential monopolistic case of monopolies the impact of various tendencies of other firms through the pricing methods (cost plus mark-up, price control mechanism. As we lift average or marginal cost pricing) need to price controls, monopolies will tend to be examined so the Commission has improve their profit picture. In the clear directions on how to set prices.
281 forward to do the study. I would suggest 4. Price Determination we move expeditiously”.
There is need to establish a mechanism whereby monopoly prices are regulated. In June 1991, the Ministry of Industry In some countries the Monopoly and Commerce approached the British Commission would not act until a and German Governments for technical monopolist had set prices. The assistance in connection with the Commission then review those prices establishment of a ‘Monopolies (by holding hearings) to decide on their Commission’. A similar request was appropriateness. In still some cases sent to the United States Agency for (particularly for public utilities) the International Development (USAID). corporation would have to apply to the From the three approaches, the response Commission for any rate change. Given of USAID in August 1991 was prompt the definition of monopoly to be and the quickest. The Agency submitted decided, it is necessary to establish the three different proposals on the most appropriate approach to pricing. undertaking of the study on competition Such issues as how costs and the policy in Zimbabwe, and the one from appropriate rate of return on capital as Implementing Policy Change (IPC) led well as the capital base to be used in by Management Systems International such computations, have to be fully (MSI) was selected by the Inter- explored. Ministerial Committee on the Monopolies Commission. 5. Any Other Pertinent Issues During the same period in November The approach we envisage is in two 1991, the Friedrich Naumann stages. First, we need a team to study Foundation of German and the the Zimbabwe situation in light of the Indigenous Business Development above issues. Their report should take, Centre (a local black empowerment say, 4 months to complete and should group) organised a workshop on provide information on what exactly are “Competition and Economic the current monopoly areas and how best Development in Zimbabwe”. The to deal with them while maintaining workshop was attended by efficiency. The personnel required is a representatives from a number of team of three experts in regulation of Government Ministries, the Parliament industry. of Zimbabwe, business organisations, the University of Zimbabwe, the This report, when approved, should be Consumer Council of Zimbabwe and the basis for constituting the some parastatal organisations. Commission’s terms of reference, scope Competition experts from the German of work and operational method as well Federal Cartel Office, the Sweden as preparing the necessary legal Competition Ombudsman and the framework. Because of its importance Kenyan Monopolies and Prices we would retain the right to ask for a Commission were also invited. The proposal submission from the team put workshop confirmed the need for competition policy and law in Zimbabwe
282 implemented by an independent competition authority. In conducting the study, the Study Team held meetings in Zimbabwe with The IPC Study of Monopolies and members of the Government, the private Competition Policy in Zimbabwe was sector and academia. In addition, carried out between January and March selected interviews on competition 1992. The Study Team was comprised policy and restrictive business practices of: (i) Mr Antony Davis (Team Leader), regulation were conducted in the United Competition Specialist (Abt Associates); States, the United Kingdom and (ii) Dr Clive Gray, Restrictive Business Switzerland. A literature search was Practices Regulation Specialist (Harvard also conducted to facilitate the team Institute for International Development); drawing upon the competition policy (iii) Dr David Gordon, Political experience of other countries. Economist (Abt Associates); (iv) Prof William Kovacic, Legal/Judicial The Study Team presented its final Specialist (George Mason University report to the Inter-Ministerial Committee School of Law); Dr Eugenia West, on the Monopolies Commission in Business Economist (consultant); (v) Mr September 1992. Its main findings on David Hatendi, Economics Specialist the degree of competition in the (Merchant Bank of Central Africa, Zimbabwean economy are summarised Zimbabwe); and (vi) Mr Andrew in Box 1 below. Chataika, Economics Specialist (Merchant Bank of Central Africa, Zimbabwe). The objectives of the study were to:
- assess and analyse industrial concentration, restrictive business practices (RBPs) and regulation in Zimbabwe, and the impact of ESAP (Economic Structural Adjustment Programme) on RBPs and their regulation
- identify and analyse worldwide experiences with regulating RBPs, especially within the context of simultaneously introducing structural adjustment programs, so as to draw implications for Zimbabwe
- recommend policy actions and institutional, legislative and procedural options to regulate market power and RBPs in Zimbabwe.
283 Box 1: Main IPC Study Findings on Degree of Competition in Zimbabwe in 1992
(a) The manufacturing sector in Zimbabwe is highly concentrated. Of the 7 000 plus items produced in Zimbabwe, half of the items were produced by only one producer. Approximately 80% of all items were produced by three firms or less.
Analysis of the four-firm concentration ratio (CR4): 45 industrial sectors, or nearly 80% of all sectors, had concentration ratios equal to or in excess of 75%, a level which is considered highly concentrated or oligopolistic; 12 industrial sectors, or over a fifth of all sectors, had concentration ratios of 100%, indicating that there were four firms or less in the entire industry; only 7 sectors had concentration ratios less than 50%.
Analysis using the Herfindahl index further indicated the high degree of concentration. In Zimbabwe, of the 57 industrial sectors, 46 had indices above 1,800 (considered as highly concentrated and likely to be uncompetitive), and 49 above 1,000 (fairly concentrated and potentially uncompetitive). Five industries were pure monopolies with a Herfindahl index value of 10,000.
In addition, many major industrial groups had close relations with each other, either through direct equity holdings or through cross-directorships, indicating further concentration of ownership and/or control. A large number of commercial and services sectors were also dominated by parastatals, which had the sole right to provide a given good or service, or were placed in a “privileged” position.
(b) There had been significant barriers to entry in Zimbabwe in the past. These had served to increase or maintain high levels of industrial concentration, preclude entry by other firms, and had furthered the creation of uncompetitive market structures which served to increase prices and restrain output to the detriment of consumers. These barriers had taken many forms:
Government-erected barriers: these had included an extensive system of price controls, strict labour market regulations, foreign exchange controls and trade policy, and direct ownership of sectors of the economy through public enterprises;
Industry structure barriers: such as limited supplies of raw materials, economies of scale and scope, and product differentiation and brand loyalty;
Business practices: such as price fixing, collusive tendering, tied sales, and allocation of market and customers.
The Study Team concluded that “while industrial concentration and high barriers the combination of a high degree of of entry does not automatically lead to
284 abuse of market power by monopolists and oligopolists, the scope for exercising Regulations and controls are moreover such power exists. There is some needed during the ESAP period in order evidence and good reason to believe that to guide the economy’s transition to a RBPs are extensive in Zimbabwe”. market-oriented one. The regulations and controls will be complementary to The recommendation of the Study Team Zimbabwe’s efforts to protect consumer included the adoption of competition welfare, promote economic efficiency policy and law in Zimbabwe and the and competitiveness and to expand the creation of a competition authority to entrepreneurial base. administer that policy and law. Dimensions and Principles of In a Memorandum to Cabinet Competition Policy Committee on Development on the Establishment of a Monopolies An effective competition policy is Commission, the then Minister of necessary to create a competitive Industry and Commerce in October 1992 economic structure. Its main focus in recommended the adoption of the IPC general and in the context of the Study and its findings. In that economic structural adjustment Memorandum, the Minister made a programme should be to: number of key policy statements on the form of competition policy that • ensure that government policy Zimbabwe should adopt, including the reform and regulations that following: positively impact on competition and competitiveness are well designed “Need for Competition Policy and fully implemented; • provide a code of conduct for Although it is agreed that the Economic business which clearly establishes Structural Adjustment Programme the rules of the game; through trade liberalisation, price • alter market structure through decontrol, domestic deregulation and appropriate monopoly, mergers and public sector enterprise/parastatal reform acquisition regulations; will address and remove some of the • promote innovation; factors that have protected monopolies, • facilitate new entries; encouraged restrictive business practices • stimulate export performance; and that hampered competition, monopolistic • enhance consumer sovereignty. tendencies and RBPs will persist beyond
1995. There will therefore need to be In formulating an effective competition regulated and controlled. It is policy some key issues should always be imperative to note that although ESAP borne in mind. It is important to note will open up the economy even the that the aim of competition policy is to relatively open trade systems and protect the process of competition and market-based economies (e.g. USA, UK, not individual competitors and hence the Germany) still have enforcement need to reduce barriers to entry and agencies, laws and regulations to control RBPs without discrimination. Public monopolies and RBPs. sector enterprises should be governed by
285 the same competition regulations and policies. The existence of a monopoly The underlying principles of the or oligopoly does not necessarily mean proposed legislation were drafted by the that harm is being done to the market. Ministry of Industry and Commerce with However, it is the abuse of market power the assistance of two seconded that is harmful. For any competition competition law experts from the United policy to succeed, transparency and States of America – one from the impartiality are crucial and it should be Federal Trade Commission and the other shielded from the influence or special an academic. The draft borrowed interests. Furthermore the competition heavily from the South African policy should be designed in such a way competition legislation, with influence that it is not static.” from the British and American practices. The draft produced was submitted to the The Government’s adoption of the IPC Attorney General’s Office for legal Study led to the formation of an drafting in July 1993. independent ‘Competition Council Committee of Zimbabwe’. The In a February 1994 minute to the Committee was led by a Parliamentarian Director of Legal Drafting in the and included experts from Zimtrade, Attorney General’s Office, the Ministry Zimconsult, Consumer Council of of Industry and Commerce responded as Zimbabwe and Air Zimbabwe, with follows to the first draft Competition Bill observers from USAID and the prepared by that Office: Friedrich-Naumann Foundation. The objective of the Committee was to “This Ministry prefers the new body to follow up, select and implement the be called the Competition Commission. recommendations of the study of the We would like to stress that the Monopolies and Competition Policy in Competition Commission should be an Zimbabwe. independent/ autonomous body although funded by Government. In order to preserve that autonomy we feel that The Legislative Process there should be no secondment of staff from Ministries to the Commission … Following the approval by Cabinet of the There is a need for dedicated staff within establishment of a “Monopolies the Competition Commission. In any Commission”, work begun on the case, there is too much reference to the drafting of the appropriate legislation. Minister in the draft Bill which does not In the process, study visits were made to auger well for autonomy. This is why the Federal Trade Commission and the we think the Commissioners must be Anti-Trust Division of the U.S. Presidential appointees. Department of Justice, and to the Monopolies and Mergers Commission With regards to appeals on the and the Office of Fair Trading in the Competition Commission’s decisions, it United Kingdom, as well as the then is recommended that such appeals be Competition Board of South Africa. dealt with by a higher court than the Competition. Kenya and Zambia were Administrative Court. We envisage an also consulted in the process. administrative court arrangement within
286 the Competition Commission as the first f) agreements with suppliers or appellate tier before the Commissioners customers relating to the terms of themselves. We feel that within the purchase, sale, or resale of goods Commission itself there should be clear such as resale price maintenance, separation between the investigative and conditional sales, exclusive supply, adjudicative functions such that the exclusive dealing and partial or investigative division is concerned with complete refusal to deal under making the evidence available without normal commercial terms. the possibility to influence the outcome of the Commission’s decisions. We "Let me deal with some of the specific would stress that in handling issues highlighted in your letter, limiting investigations both lawyers and myself to those where we hold views economists should be involved, the latter different from yours. I have already assisting attorneys with economic dealt with the issue of the name and the analysis of the practices being composition of the Commission … investigated". While the Commission may not be fully fledged on day one we feel that it should With regard to representation of business have its own budget, separate from that people, consumer groups and other of the Ministry". interested parties on the Competition Commission we feel that the President in While the Director of Fair Trading is consultation with the relevant Minister important to the Commission we do not chooses Commissioners from as wide a agree that he be called “Director of Fair cross-section of society as possible … Trading” as if he would have a role in On the proposed list of scheduled unfair ensuring fair trading. He is not involved trade practices we propose additional in investigations as is the case with the unfair trade practices to include the Director of Fair Trading in the United following:- Kingdom legislation. It should be clear that he would only be concerned with a) any form or agreement of market administrative, financial and other division by competitors such as are support functions for the Commission. market restriction and discriminatory pricing according to type of "It might be important to highlight the customers fact that the debate at the Cabinet b) any form or agreements of price Committee on Development was part of fixing and or output quotas the process of institutional evolution. c) any form of collusive agreements Therefore to a large extent we have to be among competitors which reduces or guided by the final position adopted by eliminates competition among them Cabinet. For instance while it had been d) agreements among competitors to suggested that the Attorney General’s unreasonably exclude competitors Office be “enhanced” so that its officers from outside the group such as are assigned to the Commission we coordinated predatory pricing believe that this would not give the e) unreasonable exclusion by a necessary autonomy. This is why we dominant firm such as through feel that the Commission should have its unilateral predatory pricing own dedicated staff who would develop
287 and concentrate expertise in one heavily lobbied against the passing of organisation as specialist attorneys on the Bill in Parliament. Their fears were competition promotion and trade that the new competition authority restricting issues. would disband monopolies or unbundle conglomerate companies. They argued It might be worth your while to bear in that Zimbabwe with its relatively small mind the British experience where it is economy did not need competition not a legal requirement to get policy and law, and saw a competition authorisation for mergers before the authority as yet another unnecessary event. The possibility exists for the regulatory body. Even in the public Monopolies and Mergers Commission’s sector there was some disquiet over the opinion to be sought. Our understanding inclusion under competition jurisdiction is that the British legislation defines of parastatal organisations with public what might turn out to be monopolistic monopolies in certain economic or restrictive trade practices. The critical activities. determination of whether a particular merger is injurious to the public interest The Confederation of Zimbabwe defined very widely follows from an Industries (CZI) and the Zimbabwe actual investigation. It can be argued Congress of Trade Unions (ZCTU) in that this amounts to light regulation that particular submitted to Government does not inhibit business activity, written comments on the draft allowing entrepreneurs to take the risk of Competition Bill. The CZI generally felt later prohibition. The other side of that the Bill was a most positive course is that later dismantling of a contribution to the economic interests of merger is costly. Our suggestion at this Zimbabwe, and contained enough stage is that it is better to incur costs flexibility to play a major role in the later than to seek prior authorisation as economic system of Zimbabwe. The long as the rules of the game are clear. Confederation noted that by producing the Bill, the Government was We hope you can now proceed further acknowledging a number of fundamental with the drafting as the matter is urgent economic principles as follows, which …”. the new legislation would seek to give effect:
The Competition Bill that was drafted by • that competition plays a central role the Attorney General’s Office underwent in the operation of a free market a long-winded consultative process economic system and that the system involving major stakeholders. A number is a valid one; of seminars and workshops were held in this regard. Big business, particularly • that competition is the means by those companies enjoying monopolies or which Government can ensure the near monopolies in industries such as optimum division of labour, beer brewing and cigarette productivity in the economy, the manufacturing, were very much against satisfaction of demand and the the introduction of competition policy preservation of the private enterprise and law in Zimbabwe and therefore system;
288 imperative to remove in the medium • that competition is a means by which term, all legislation concerned with unemployment can be cured and price and wage controls. general economic development enhanced; The specific comments by the CZI and ZCTU on the draft Competition Bill are • that small to medium sized summarised in Table 1 below. enterprises and the informal sector should be ‘nurtured’ and not ‘persecuted’ and competition law is a vehicle for achieving this objective;
• that established business enjoy, to an appreciable degree, a substantial measure of protection from competition through regulations or the lack of an appropriate legislative framework in the sphere of competition;
• that competition should be maintained at a ‘workable level’ in recognition of the fact that the guiding principle is not ‘as much competition as possible’ but rather ‘as much efficient competition as possible’;
• that the de minimis rule should apply in order to ensure that anti- competitive practices are not prohibited if the enterprises involved are weak and therefore unlikely to restrict or distort competition or to affect commerce in any significant manner;
• that the way to fight inflation is by competition-induced cost reduction and not price controls thus making it
289 Table 1: CZI And ZCTU Comments On Draft Competition Bill
CZI (Business) Comments ZCTU (Labour) Comments
• Short and appropriate title of the Bill. No comments Short Title and • However, while appreciated that Bill Preamble a move in the right direction at that stage of Zimbabwe’s development, its weakness may lie in addressing too many issues in one piece of legislation.
Definitions such as ‘substantial market Need for more concrete Definitions control’ require greater precision in order guidelines in the definition to avoid problems of interpretation. of such terms as ‘controlling interest’, ‘monopoly situation’, restrictive practice’ and ‘substantial market control’.
No comments Provisions should be made Application to the effect that the Competition Act shall not regulate Trade Unions.
Establishment • Commission functions of encouraging • The President should of Competition and promoting competition appear to appoint members to the Commission be in contradiction to the other Commission from lists functions of preventing restrictive submitted to him practices and monopoly situations through the Minister of (experience in small developing Industry and Commerce countries shown that unrestrained by various interest attempts to promote internal groups, e.g. the Trade competition by restricting size of Unions, commerce, the companies have resulted in professions, the uneconomic small producers. Consumer Council of • Provisions that clearly state that the Zimbabwe, etc. – Commission should not be subject to essential if the direction or control of any other autonomy of the person or authority in the exercise of Commission is to be its functions very important since credible. they confer an independent status on • Appointed members of the Commission. the Commission should • Desirable to circumscribe the elect their own
290 President’s discretion in making Chairman and Vice appointments to the Commission by Chairman. inserting a clause to the effect that the • The Commission should President should appoint Commission be obligated to meet members from lists submitted to him much more frequently by organised industry, commerce, the than the provided for professions, the Consumer Council six meetings a year and other appropriate institutions – given the wide range of this would avoid possibility of purely its obligations. political appointments being made. • The Commission should • Not necessary for the President also be serviced by a appointing Chairman and Vice professional full-time Chairman of the Commission – Secretariat if it is to Commission members should appoint discharge its obligations their own presiding officers. well. • Infrequency of meetings of Commission (at least six times each year) hardly adequate if Commission to carry out its functions effectively.
Director of • Commission should fix the terms of Director of the Commission Commission employment of the Director without should be given specific need to formally involve the Minister. powers to initiate • Director of Commission should have investigations into routine more discretionary powers than issues – substantive merely performing certain functions investigations into mergers, conferred on him by the Commission. takeovers and monopolies should however remain the exclusive domain of the Commission.
Funding of Commission by the State No comments Financial naturally weakens its independence – “he Provisions who pays the piper calls the tune”.
Investigations • Director of Commission, and not the • Principle of publishing of Restrictive Commission, should be given notices in the Gazette Practics, discretion of instituting investigations and newspapers of Mergers and – Commission should only be Commission’s intention Monopoly required to deal with more important to undertake Situations matters of monopoly situations or investigations an with matters referred to them by honourable one because Director. the greater publicity the • Commission’s powers of more chances there are investigating restrictive practices and of interested people mergers which might occur in the getting notice to make
291 future not desirable – great difficulty written representions to and inconvenience likely to the the Commission. experienced if investigations into • Provisions that allow intentions of future courses of Commission to prohibit conduct are allowed. certain economic • Requirement for Commission to activities pending publish notices in the Gazette or investigation basically newspapers on its intentions to grant Commission undertake investigations not desirable power to issue because enterprises would be provisions injuctions – unnecessarily exposed to public important to note that scrutiny, ridicule or even boycott such orders can cause before any facts are established. severe prejudice not • Commission’s powers to issue only to the proprietor of temporary orders prohibiting certain the affected firm in acts of parties being investigated terms of loss of before the conclusion of the production but can also investigation quite in order. result in staff • Provisions providing for Commission retrenchments and loss to negotiate with any person with of livelihood. view to ensuring discontinuance of any anti-competitive practice very good – the provisions should constitute the first line of approach of the Commission. • Commission powers to issue orders aimed at regulating the price of any commodity or service highly undesirable – the Commission would only become yet another authority empowered to control prices of goods and commodities in addition to the Minister of Industry and Commerce under the Control of Goods Act. • Pre-merger notification provisions not necessary in view of criminal penalties imposed for engaging in anti-competitive practices and also in view of provisions permitting merging parties to seek authorisation. • Provisions on authorisation of restrictive practices and mergers very good and necessary – since the provisions allows a person to seek authorisation for a proposed merger or for entering into an agreement or
292 arrangement or engage in a practice which he considers may be prohibited, they obviates need for the Commission to investigate intentions or future courses of action. • Fixed figure penalties for infringing competition law much too low – fines based on gross turnover of the business (say 25%) would be a more appropriate deterrence.
Public Interest The definition of ‘public interest’ quite The definition of ‘public Considerations wide and therefore a workable one – the interest’ adequate. guidelines determining public interest adequate enough to assist Commission to determine limits of its operations or dermacate line between practices that should and should not be prohibited.
No comments While making Commission Appeals decisions appealable to the Administrative Court slightly better than to the High Court, a special Tribunal should be established to deal initially with appeals from the Commission.
293 was gazetted and came into force on 31 While some views and comments made May 2002. by organised business and the labour movement on the early drafts of the Competition Bill were taken on board in the final draft that was presented to Parliament, others were not incorporated as analysed in the following Section 3 of this paper. It should be noted that in view of different interests of various stakeholders, some of them conflicting, a lot of compromises were made in the consultative process. For example, the idea of establishing a ‘Monopolies and Mergers Commission’ aimed at dominant companies was dropped for the establishment of a more broad based Competition Commission. While the principle that all economic activities in Zimbabwe should come under competition legislation, the qualification was made that activities of statutory bodies that are expressly authorised by other Acts of Parliament should be exempted.
The wide consultations and compromises made on the Bill made it possible for its smooth passage through Parliament in 1996.
The coming into operation of the Competition Act, 1996 on 9 February 1998 was fixed by the President through Statutory Instrument 21A of 1998 (Date of Commencement: Competition Act, 1996) that appeared in the Supplement to the Zimbabwean Government Gazette Extraordinary of 6th February 1998. The Competition Act, 1996 (No.7 of 1996) was amended in 2001 after three years of practical implementation in order to widen and strengthen its scope and application. The relevant Competition Amendment Act, 2001 (No.29 of 2001)
294 (a) the purchase or lease of the shares or Section 3 assets of a competitor, supplier, Major Elements Of Zimbabwe’s customer or other person; Competition Law (b) the amalgamation or combination with a competitor, supplier, customer Zimbabwe’s competition legislation, the or other person; or Competition Act, 1996 (as amended by (c) any means other than as specified in the Competition Amendment Act, 2001) paragraph (a) or (b)”. is in nine parts, whose main provisions are analysed below. The analysis will The above definition of ‘merger’ is an also include other related consumer amended version brought about by the protection legislation such as the Competition Amendment Act, 2001. It Consumer Contracts Act and the Small improves upon the original definition in Claims Court Act. the Competition Act, 1996 by including in the definition not only horizontal and vertical mergers but also conglomerate Part I: Preliminary mergers, as well as by covering all other possible business combinations. The This Part cites in section 1 the short title Commission had spent considerable time (i.e., the Competition Act, 1996) and and resources in arguing and trying to provides for the coming into operation of convince the business community that the Act on a date fixed by the President business combinations such as joint by statutory instrument (i.e., 9 February ventures and strategic alliances have the 1998 through Statutory Instrument 21A same effect as ‘pure’ mergers and should of 1998). therefore be examined as mergers for their possible competitive effects. The Part also interprets and defines in section 2 some of the terms used in the The term ‘controlling interest’ in relation Act and provides in section 3 for its to any undertaking is defined as to mean application. “any interest which enables the holder thereof to exercise, directly or indirectly, (a) Interpretation any control whatsoever over the activities or assets of the undertaking”, In section 2(1), the term ‘merger’ is and in relation to any asset to mean “any defined as to mean: interest which enables the holder thereof to exercise, directly or indirectly, any “[T]he direct or indirect acquisition or control whatsoever over the asset”. establishment or a controlling interest by one or more persons in the whole or part The term ‘restrictive practice’ is defined of the business of a competitors, in the Act as to mean: supplier, customer or other person whether that controlling interest is “(a) any agreement, arrangement or achieved as a result of – understanding, whether enforceable or not, between two or more persons; or
295 (b) any business practice or method of The definition of ‘restrictive practice’ trading; or covers virtually all the anti-competitive practices that are prevalent in (c) any deliberate act or omission on the Zimbabwe. The restrictive practice of part of any person, whether acting tied or conditional selling was independently or in concert with any specifically included in the definition by other person; or the Competition Amendment Act, 2001 because it was becoming prevalent and (d) any situation arising out of the gaining notoriety as evidenced by the activities of any person or class of increasing number of complaints persons; received by the Commission of such practices by the business community in which restricts competition directly or attempts to take advantage of shortages indirectly to a material degree, in that it of basic commodities on the market. has or is likely to have any one or more The definition also incorporates the de of the following effects – minimis rule by providing that the conduct must materially restrict (i) restricting the production or competition to fall under the definition distribution of any commodity or of ‘restrictive practice’. It further service; provides that restrictive practices should (ii) limiting the facilities available for generally be considered using the ‘rule the production or distribution of any of reason’ principle. commodity or service; (iii)enhancing or maintaining the price The Competition Amendment Act, 2001 of any commodity or service; introduced a new section 2(3) which (iv) preventing the production or provides that an agreement, arrangement distribution of any commodity or or understanding to engage in a service by the most efficient or restrictive practice is presumed to exist economical means; between two or more persons if (a) any (v) preventing or retarding the one of them owns a substantial development or introduction of shareholding, interest or similar right in technical improvements in regard to the other or they have at least one any commodity or service; director in common; and (b) any (vi) preventing or restricting the entry combination of them is involved in such into any market of persons producing restrictive practice. This was in or distributing any commodity or response to the prevalence of cross- service; directorships in Zimbabwe which were (vii) preventing or retarding the resulting in companies acting as de facto expansion of the existing market for cartels. any commodity or service or the development of new markets ‘Monopoly situation’ is simply defined therefore; as to mean “a situation in which a single (viii) limiting the commodity or person exercises, or two or more persons service available due to tied or with substantial economic connection conditional selling”. exercise substantial market control over any commodity or service”. Section
296 2(2) of the Act provides that a person attract fines and/or prison sentences, has substantial market control over a which are now referred to in the commodity or service if: Amendment Act as ‘unfair business practices’. • being a producer or distributor of the commodity or service, he has the New definitions arising from the power, either by himself or in Competition Amendment Act, 2001 concert with other persons with include that of ‘tied or conditional whom he has a substantial economic selling’ as to mean “any situation where connection, profitably to raise or the sale of one commodity or service is maintain the price of the commodity conditional on the purchase of another or service above competitive levels commodity or service”. for a substantial time within Zimbabwe or any substantial part of (b) Application Zimbabwe; or The application provisions of section 3 • being a purchaser or user of the of the Act read as follows: commodity or service, he has the power, either by himself or in “(1) This Act applies to all economic concert with other persons with activities within or having an effect whom he has a substantial economic within the Republic of Zimbabwe but connection, profitably to lower or shall not be construed so as to – maintain the price of the commodity or service below competitive levels (a) limit any right acquired under – for a substantial time within Zimbabwe or any substantial part of (i) the Plant Breeders Rights Act Zimbabwe. [Chapter 115]; or (ii) the Copyright Act [Chapter 200]; or The Competition Amendment Act, 2001 (iii)the Industrial Designs Act [Chapter redefined the term ‘unfair trade practice’ 201]; or as to mean: (a) the dumping of imported (iv) the Patents Act [Chapter 202]; or commodities; (b) the granting of a (v) the Trade Marks Act [Chapter 203]; bounty or subsidy with respect to imported commodities; and (c) any other except to the extent that such a right is practice in relation to the importation of used for the purpose of enhancing or commodities or services or the sale of maintaining prices or any other imported commodities or the provision consideration in a manner contemplated of an imported service where such in the definition of ‘restrictive practice’ practice is declared to be unfair by the in section two; or Minister responsible for industry and international trade. The redefined term (b) preventing trade unions or other therefore refers to trade policy representatives of employees from malpractices as opposed to the original protecting their members’ interests definition that referred to those more by negotiating and concluding serious competition policy restrictive agreements and other arrangements practices that are criminal offences and with employers or representatives of
297 employers in terms of the Labour Commission over the examination of Relations Act, 1985 (No.16 of 1985). mergers in the banking and insurance sectors. (2) Except in so far as criminal liability is concerned, this Act shall bind Secondly, while Zimbabwe’s the State to the extent that the State is competition legislation adopts the concerned in the manufacture and general principle that the law should be a distribution of commodities. general law of general application, i.e., it should apply to all sectors and to all (3) Where a statutory body economic agents engaged in the established to regulate the activities of commercial production and supply of any person or class of persons authorises goods and services, it also recognises a merger between two or more such that certain exemptions and exclusions persons, such body shall, unless the from the application of the law are enactment establishing it expressly necessary in circumstances where full provides otherwise, apply to the and unhindered competition may not Commission in terms of this Act for the deliver the most desired outcome of final authorisation of the merger.”. competition policy. As such, intellectual property rights are exempted from the The above provisions are important in application of the Act, but only in as far the application of competition law and as they are not used as anti-competitive implementation of competition policy in restrictive practices. Union and other Zimbabwe in two significant ways. collective bargaining activities are also Firstly, competition law in Zimbabwe excluded from the application of the Act applies to all economic activities, even in recognition of the fact that individual to those activities undertaken by the workers are mostly in weaker positions Government and other statutory bodies than their employers in negotiating (parastatal organisations). This was conditions of service. made absolutely by the Competition Amendment, 2001. In addition to Part II: Competition and Tariff making it clear that the Act applies to Commission “all economic activities”, the Amendment Act repealed the previous Part II of the Act provides for the provisions of section 3(3) that had establishment and functions of the exempted from the application of the Act Commission, as well as the appointment, those activities of statutory bodies that terms and conditions of office of were authorised by other enactments. members of the Commission. It also The Amendment Act went on farther to provides for the conduct of business of give the Commission primary and the Commission. It further provides for overriding authority on mergers and the appointment and functions of the acquisitions over other statutory bodies. Commission’s Director. Before the amendments, such sector regulators as the Registrar of Banks and Establishment of Commission Financial Institutions and the Insurance Regulatory Authority used to have concurrent jurisdiction with the Section 4 of the Act establishes the Competition and Tariff Commission as a
298 body corporate capable of suing and “so far as possible all interested groups being sued in its corporate name. The and classes of persons, including Competition Amendment Act, 2001 consumers, are represented on the changed the Commission’s name from Commission”. A person shall not be ‘Industry and Trade Competition appointed as a member of the Commission’ in order to accommodate Commission if he or she (i) is not a the Commission’s merger with the Tariff citizen or resident of Zimbabwe; (ii) has Commission. been declared insolvent or bankrupt; or (iii) has been convicted of an offence involving fraud or dishonesty and It is provided for in section 6 of the Act sentenced to a term of imprisonment. that the Commission should “consist of Members of Parliament are also not not fewer than five and not more that ten qualified for appointment as a member members appointed by the Minister in of the Commission. consultation with the President”. The appointment of members of the Commission members hold office for Commission by the Minister was periods not exceeding three years but are provided for by the Competition eligible for reappointment upon Amendment Act, 2001. Before that, the expiration of their terms of office. At President was the only authority on the the expiry of his term of office, a appointment of Commissioners. It is not member of the Commission can continue clear why the change was made since it to hold office until he has been re- technically weakens the independence of appointed or his successor has been the Commissioners. The reason might appointed, provided that a member shall have been that the appointment of not continue to hold office after the Commissioners, particularly replacement expiry of his term of office for a period Commissioners, by the President often exceeding six months. A member of the took long. For example, of the original Commission can resign from the five members of the former Competition Commission after giving one-month Commission in 1998, there were only notice. The Minister may also require a three by the time of the merger with the member to vacate his office, or may Tariff Commission in 2002 since the two suspend a member, on clearly defined who had resigned had not been replaced grounds. The relevant provisions of even though the first resignation was two section 10 of the Act read as follows: years before. For two years the
Commission was therefore technically “(1) The Minister may require a operating without its statutory quorum. member to vacate his office if the
member – Section 6 of the Act further provides that persons appointed as Commission (a) has been guilty of improper conduct members should be “chosen for their as a member or guilty of conduct that ability and experience in industry, is prejudicial to the interests or commerce or administration or their reputation of the Commission; or professional qualifications or their (b) has failed to comply with any suitability otherwise for appointment”. condition of his office fixed by the It is also provided that in selecting such persons, the Minister should ensure that
299 President in terms of subsection (3) The Minister is required to designate one of section eight78; or of the appointed members of the (c) is mentally or physically incapable Commission to be the chairman of the of efficiently performing his Commission and another to be the vice- functions as a member. chairman. The Minister may also “at any time for good cause” terminate the (2) The Minister, on the appointment of the chairman or the vice- recommendation of the Commission, chairman and designate other members may require a member to vacate his to those positions. office if the Minister is satisfied that the member has been absent without Section 13(1) of the Act provides that the permission of the Commission the Commission should meet at least six from three consecutive meetings of times in each financial year but may the Commission, of which the convene special meetings at any time. member was given not less than Section 14(1) empowers the seven days’ notice, and that there Commission to establish committees for was no just cause for the member’s the better exercise of its functions absence. “provided that the vesting of any function in a committee shall not divest (3) The Minister - the Commission of that function, and the Commission may amend or rescind any (a) may suspend from office a member decision of the committee in the exercise against whom criminal proceedings of that function.” While non-members have been instituted in respect of an of the Commission may be appointed to offence for which a sentence of the Commission’s committees, they are imprisonment without the option of a not eligible to chair the committees. fine may have been imposed; and (b) shall suspend from office a member Members of the Commission and its who has been sentenced by a court to committees are required to disclose imprisonment without the option of a certain connections and interests. The fine, whether or not any portion has relevant provisions of section 16 of the been suspended, pending Act read as follows: determination of the question
whether the member is to vacate his “(1) If a member of the Commission office; or of a committee or a spouse of such
a member- and while the member is so suspended he shall not exercise any functions or be (a) knowingly acquires or holds a direct entitled to any remuneration as a or indirect pecuniary interest in a member.” company or association of persons –
(i) whose conduct is the subject of an investigation or order under this Act; 78 Subsection (3) of section eight read as follows: or “Subject to this Part, a member shall hold office (ii) which is applying or negotiating for on such terms and conditions as the President a contract with the Commission; may fix for members generally”.
300 “(a) to encourage and promote or competition in all sectors of the economy; and (b) tenders for or acquires or holds a direct or indirect pecuniary interest (b) to reduce barriers to entry into any in a contract with the Commission; sector of the economy or to any form or of economic activity; and
(c) owns immovable property or a right (c) to investigate, discourage and in immovable property or a direct or prevent restrictive practices; and indirect pecuniary interest in a company or association of persons (d) to study trends towards increased which results in his private interests economic concentration, with a view coming or appearing to come into to the investigation of monopoly conflict with his functions as a situations and the prevention of such member of the Commission or of the situations, where they are contrary to committee, as the case may be; the public interest; and the member shall forthwith disclose the (e) to advise the Minister in regard to – fact to the Commission or the committee, as the case may be. (i) all aspects of economic competition, including entrepreneurial activities (2) A member referred to in subsection carried on by institutions directly or (1) shall take no part in the indirectly controlled by the State; consideration or discussion of, or and vote on, any question before the (ii) the formulation, co-ordination, Commission or the committee, as the implementation and administration case may be, which relates to any of Government policy in regard to investigation, order, contract, right, economic competition; immovable property or interest referred to in that subsection. and
(3) Any person who contravenes (f) to provide information to interested subsection (1) or (2) shall be guilty persons on current policy with regard of an offence and liable to a fine not to restrictive practices, acquisitions exceeding two thousand dollars or to and monopoly situations, to serve as imprisonment for a period not guidelines for the benefit of those exceeding three months or to both persons; and such fine and such imprisonment.”. (g) subject to Part IVB to undertake Operational Functions of Commission investigations and make reports to the Minister relating to tariff charges, unfair trade practices and the The operational functions of the provision of assistance or protection Commission are provided for in section to local industry; and 5(1) of the Act as follows:
301 (h) to monitor prices, costs and profits in remedies under certain competition cases any industry or business that the handled by the Competition Commission Minister directs the Commission to required import tariff adjustments monitor, and to report its findings to handled by the Tariff Commission. the Minister; and Possible conflicts between competition policy and trade (tariffs) policy were (i) to perform any other functions that however noted, particularly in cases may be conferred or imposed on it where the need to protect local industry by this Act or any other enactment.” through high import tariffs conflicted with the need to counteract monopolistic While most of the Commission’s supplies on the local market with import functions above are standard competition competition. functions, those related to tariffs and price monitoring have links with the The merger of the Competition Government’s other economic policies Commission and Tariff Commission was and are new additions under the consummated in July 2002 with the Competition Amendment Act, 2001. amendment of the Competition Act, 1996 and the repeal of the Tariff The functions to “undertake Commission Act [Chapter 14:29]. The investigations and make reports to the experiment of combining the Minister relating to tariff charges, unfair implementation of the two sets of trade practices and the provision of complementary but yet sometimes assistance or protection to local conflicting policies under one authority industry” were inherited from the seem to be working, and has not yet defunct Tariff Commission following the produced any serious adverse effects on merger with that Commission. Even either policies. though the merger of the Competition Commission and Tariff Commission was The added functions of price monitoring directed by the Government with the are more controversial. It will be noted primary objective of cutting its costs of from Section 2 above that the need to funding the operations of the two fight and control commodity price Commissions under the policy guidance distortions under monopolistic of the Ministry of Industry and conditions was one of the primary International Trade, the Competition movers of competition policy in Commission did not object to the merger Zimbabwe on the part of the since it did not see any serious Government. To the Government, the contradictions between its functions and exploitative practices of monopolies those of the Tariff Commission. Instead, were leading to high commodities prices it saw some complementarities in the on the local market. With the functions as competition policy interacts dismantling of formal price controls more and more with trade policy. It also under the country’s Economic Structural saw the opportunity of using trade policy Adjustment Programme, Government measures to advance competition viewed competition law’s prohibition of objectives and to ensure that trade policy anti-competitive practices arising from does not harm competition. In abuse of dominant positions as a vehicle particular, there was a realisation that to control prices, when the need arose.
302 On the other hand, the private business practice” to include a business practice sector saw and expected competition or method of trading which restricts policy and law to effectively end the era competition in that it has or is likely to of price controls. have the effect of enhancing or maintaining the price of any commodity Commencing in 2000, there was a or service. The same section also sudden spate of increases in prices of defines the term “unfair business basic commodities in Zimbabwe, which practices” as meaning a restrictive Government felt was unwarranted and practice or any conduct specified in the not based on economic considerations. First Schedule to the Act. The following While the economy was shrinking and are some of the unfair business practices inflation rising, the rapid increase in specified in the First Schedule to the prices of some of the basic commodities Act: (i) failing or refusing to distribute was not commensurate with the any commodity to another person unless economic downturn. The fact that the the other person distributes the price increases coincided with General commodity at a specified price or at a Elections led Government to conclude price which is not less than a specified that the increases were more political minimum price; and (ii) collusive than economic. Serious consideration arrangements or agreements between was therefore given to introducing price producers or distributors of a similar controls, and the Government saw the commodity or service to distribute the country’s competition law as the most commodity or service at a particular effective legislation to do so. price or within a particular range of prices. The Government’s preference was not price monitoring but that the The manipulation of prices of Commission should directly be involved commodities and services therefore in controlling prices of basic amounts to a restrictive practice or an commodities. The Commission strongly unfair business practice in respect of resisted moves to turn it into a price which the Commission can carry out an control authority since that could have investigation in terms of section 28 of contradicted its basic competition the Act. While an investigation is objectives. The Commission’s views underway in terms of section 28, the were that instead of resorting to formal Commission may prohibit or stay any price controls under its authority, the restrictive practice pending the outcome present provisions of the Competition of the investigation. After an Act, 1996 should be used to monitor investigation if the Commission is prices and to take the necessary satisfied that a restrictive practice exists corrective measures if distortionary or may come into existence, it may issue prices are a result of anti-competitive an order in respect of that restrictive practices. In this regard, it was noted practice regulating the price at which that one of the functions of the any person named in the order may Commission as outlined in section 5 of charge for any commodity or service the Act is “to investigate, discourage and (provided however that the Commission prevent restrictive practices”. Section 2 should not make any such order unless it of the Act defines the term “restrictive is satisfied that the price being charged
303 by the person concerned is essential to the maintenance of the restrictive practice to which the order relates). While the Commission has powers under the Competition Act to investigate prices, such powers may however only be exercised insofar as the pricing has the effect of restricting competition. Unless there is reason to believe or it is proved that the pricing amounts to a restrictive practice or unfair trade practice, the Commission has no power to investigate or give any order in respect of any price increase. Also under the Act, the Commission has no powers to: (i) call upon business organisations to justify price increases on receipt of a complaint by consumers or on its own initiative; (ii) vet proposed price increases of business organisations placed under price surveillance and, where it is desirable to do so, regulate the price which may be charged for commodities or services supplied by those organisation; and (iii) generally monitor prices vis a vis the costs and profits of business organisations.
For the effective performance of its new price monitoring functions, the
Commission agreed with the Ministry of
Industry and International Trade, and the
Consumer Council of Zimbabwe that was strongly lobbying for the introduction of price controls, on a Price
Monitoring Mechanism shown in Box 2 below:
304 Box 2: Price Monitoring Mechanism
(a) It shall be the function of the Competition Commission “to monitor prices, costs and profits in any industry or business that the Minister of Industry and International Trade directs the Commission to monitor, and to report its findings to the Minister” as provided for in the Competition Amendment Act, 2001.
(b) If from the price monitoring exercise the Commission discovers that a case of excessive pricing is related to a restrictive or unfair business practice, or any other anti-competitive practice, it shall forthwith investigate the practice in accordance with the provisions of the Competition Act and take the necessary remedial action, and advise the Minister accordingly.
(c) If the Commission finds from its price monitoring exercise no serious competition concerns in the high prices of the concerned commodity or product, the matter shall be referred to the Consumer Council of Zimbabwe to hold an inquiry into the matter and to report to the Minister the results of such an inquiry. All the major stakeholders such as the relevant business associations and the labour movement shall actively participate in inquiries held by the Consumer Council on matters related to commodity prices.
(d) The Government through the Ministry of Industry and International Trade shall make final determinations on commodity prices on the basis of inquiries held by the Consumer Council of Zimbabwe.
305 The structure of the agreed Price Monitoring Mechanism is shown in Figure 1 below.
Figure 1: Structure of Price Monitoring Mechanism
Goods/Service Placed Under Surveillance
Competition Commission Investigates
Competition Concerns Other Concerns Identified Identified
Invoke provisions of the Refer to Consumer Council to Competition Act and take hold inquiry and report with necessary remedial action; recommendations to the Advise Minister of Industry and Minister of Industry and International Trade International Trade
Minister makes final determination
306 The Commission has made it known that A declared organisation cannot raise the it intends to perform its additional price price of a declared product beyond its monitoring functions along the same peak price of the previous 12 months lines as the Australian Competition & unless it fulfils the requirements of the Consumer Commission (ACCC) Act. The maximum penalty for an administers Australia’s Prices individual is $11 000 and for a Surveillance Act. The ACCC’s corporation $55 000. administration of the Prices Surveillance Act is best described by the ACCC itself The declared organisation has to notify as follows:79 the Commission of a proposed price rise and the terms and conditions of supply. “The Prices Surveillance Act The prohibition on supply ceases if:
The Prices Surveillance Act enables the • the Commission advises it does not Commission to examine the prices of object to the proposed increase; or selected goods and services in the • the declared organisation agrees to Australian economy. implement a lower price specified by the Commission; or The three pricing functions • the prescribed period – initially 21 assigned to the Commission are: days – expires.
• to vet the proposed price rises of any The Commission has the option of business organisations placed under recommending an inquiry – and an prices surveillance; extension of the prohibition on a price • to hold inquiries into pricing rise – to the minister in cases where the practices and related matters, and to outcome of the prices surveillance report the findings to the responsible procedure is perceived to be Commonwealth Minister; and unsatisfactory. • to monitor the prices, costs and profits of an industry or business and The Commission maintains a public to report the results to the minister. register of surveillance matters showing price notifications, the Commission’s deliberations, the outcome and the Prices surveillance reasons for the outcome.
The minister determines which organisations, goods or services should Inquiries be subjected to prices surveillance. These are formally ‘declared’. In cases The minister determines the subject where an organisation is specified, the of a Commission inquiry. The minister must nominate how long the Commission has to give widespread declaration must remain in effect. and reasonable notice of the inquiry and widespread and reasonable notice of the inquiry and serve individual notices on any 79 ACCC Journal, Issue 37: November – December 2001
307 organisations specially identified in exercise of its functions under this Act the minister’s directions. the Commission shall not be subject to the direction or control of any other During the period of the inquiry, an person or authority”. organisation that has been served with the notice cannot raise its price beyond Other Administrative Functions of its peak price of the previous 12 months Commission unless it fulfils the requirements of the Act. The maximum penalty for an For the better exercise of its operational individual is $11 000 and for a functions, section 5(2) of the Act gives corporation $55 000. However, the the Commission “power to do or cause Commission can authorise interim price to be done, either by itself or through its increases. agents, all or any of the things set out in the Second Schedule, either absolutely A report of the Commission’s findings or conditionally and either solely or and recommendations is submitted t the jointly with others”. Commission minister and a copy is sent to any powers set out in the Second Schedule to notified organisation on the same day. the Act include powers to acquire Any notified organisation has to advise premises and other property necessary or the Commission of its proposed prices convenient for the exercise of its within 14 days of receiving a copy of the functions, and to employ such persons as report. It could be fined $1 000 if it fails are necessary for carrying out its to do so. The Commission has to make functions and conducting its affairs. public those prices within another 14 days. The Commission’s powers set out in the
Second Schedule to the Act are standard Monitoring powers given to almost all statutory bodies in Zimbabwe.
The Commission can monitor the prices, The Commission is also required under costs and profits of an industry or section 22 of the Act to submit to the business. The minister determines Minister as soon as is practicable after which industries or businesses are the end of each financial year a report on monitored and how often the all its activities during the year ended on Commission should report. The report is that date. In turn, the Minister should submitted to the minister and copies are lay that report before Parliament. In sent to the monitored organisations on addition to the annual report, the the same day. Inquiry and monitoring Minister may require from the reports are to be made available to the Commission any other reports on its public as soon as possible after they operations and activities. have been submitted to the minister.”. Policy Directions to Commission Section 5(3) of the Act entrenches the independence of the Commission in the Under section 18(1) of the Act, the performance of its functions. The Minister may give the Commission section provides that “in the lawful “such general directions relating to the
308 policy the Commission is to observe in The Competition Amendment Act, 2001 the exercise of its functions as the made provision for the appointment of at Minister considers to be necessary in the least two Assistant Directors to assist the national interest”. However before Director in the performance of his giving the Commission such policy functions, one of whom should be directions, he is required to first inform responsible for tariffs and the other for the Commission in writing of the competition. proposed direction to enable the Commission to give its views on the proposal. Part III: Financial Provisions Relating to Commission Since the effective coming into operation of the Commission in 1998, no Section 23 of the Act provides that funds Ministerial policy directions in terms of of the Commission consist of: section 18(1) of the Act have been given. “(a) moneys payable to the Appointment and Functions of Director Commission from moneys appropriated for the purpose by Act Section 17(1) of the Act provides for the of Parliament; appointment of a Director “who shall be responsible for administering the (a1) fees payable to the Commission Commission’s affairs, funds and in terms of the Act; and property and for performing any other functions that may be conferred or (b) any other moneys that may vest in or imposed upon him or under this Act or accrue to the Commission, whether that the Commission may delegate or in terms of this Act or otherwise.”. assign to him”. The delegated or assigned functions of the Director may Government appropriations are by far however be revoked by the Commission the largest source of the Commission’s at any time, and shall not preclude the funds. During the Commission’s 2003 exercise of the functions by the financial year ended 31st December Commission itself. 2004, such appropriations constituted [ %] of the funds utilised by the The terms and conditions of the Commission during that year. Fees Director’s appointment are fixed by the payable to the Commission include Commission with the approval of the merger notification fees, authorisation Minister. Members of the Commission fees and [ ]. They also penalty fees are not eligible for appointment as the for not notifying mergers or proceeding Director. The Director’s appointment is to implement mergers without the terminated if he (i) becomes a Member approval of the Commission. Merger of Parliament; and (ii) is no longer fees as a source of the Commission’s ordinarily resident in Zimbabwe, has funds are expected to rival, or even been declared insolvent or bankrupt, or overtake, Government appropriations has been convicted of an imprisonable with the increase in the Commission’s offence. merger activities. The Commission is also authorised to invest moneys not
309 immediately required by it “in such manner as the Minister, acting on the (a) into any restrictive practice which the advice of the Minister responsible for Commission has reason to believe finance, may direct”. exists or may come into existence;
(b) in order to ascertain – The Commission is required under section 24 of the Act to “ensure that (i) whether any merger has been, is proper accounts and other records being or is proposed to be made; relating to such accounts are kept in (ii) the nature and extent of any respect of all the Commission’s controlling interest that is held or activities, funds and property, including may be acquired in any merger or such particular accounts and records as proposed merger; the Minister may direct”. At the end of each financial year, the Commission is (c) into any type of business agreement, required to prepare and submit to the arrangement, understanding or Minister a statement of accounts in method of trading which, in the respect of that financial year. The opinion of the Commission, is being statement of accounts must be audited in or may be adopted for the purpose of terms of the provisions of the Audit and or in connection with the creation or Exchequer Act [Chapter 168]. maintenance of a restrictive practice;
Part IV: Investigation and (d) into any monopoly situation which Prevention of Restrictive the Commission has reason to Practices, Mergers and believe exists or may come into Monopoly Situations existence.”
In terms of section 28(2) the Part IV of the Act contains provisions Commission is however required before related to the investigation of restrictive embarking on an investigation to publish practices, mergers and monopoly notices in the Government Gazette and situations. It also contains provisions on in national and/or community the treatment of anti-competitive newspapers stating the nature of the agreements and arrangements, and of proposed investigation and calling upon dominance and its abuse. any interested party who wishes to do so to submit to the Commission written Investigations representations in regard to the subject matter of the proposed investigation. These provisions had serious practical Section 28(1) of the Act on Commission limitations and problems. They not only powers to investigate restrictive required the Commission to publicly practices, mergers and monopoly announce its intensions to undertake situations provides as follows: investigations before even commencing the investigation, a practice that “Subject to this Act, the Commission seriously constrained its investigations may make such investigation as it into cartels and concerted agreements, considers necessary –
310 but also publicly indicted suspected • Any witness who, after having been companies before the establishment of sworn, gives false evidence before prima facie cases against them. the commissioners concerning the subject-matter of the inquiry, The Competition Amendment Act, 2001 knowing such evidence to be false or solved the above problems by making not knowing or believing it to be provision for the undertaking by the true, shall be deemed guilty of Commission’s investigation officers perjury and may be punished without public notice of preliminary accordingly. investigations before the undertaking of full-scale investigations. • Any person whose conduct is the subject of inquiry … or who is in any In undertaking full-scale investigations way implicated or concerned in the into restrictive practices, mergers and matter under inquiry, is entitled to be monopoly situations, the Commission represented by a legal practitioner at has powers conferred under the the whole of the inquiry, and any Commissions of Inquiry Act [Chapter other person who may consider it 10:07]. The following are the main desirable that he should be so relevant elements of that Act: represented may, by leave of the commission, be represented in the • Inquiries should be held in public, same manner. but the commissioners are nevertheless entitled to exclude any The Commission is also required under particular person or persons for the section 28(4) of the Competition Act to preservation of order, for the due ensure that rules of natural justice are conduct of the inquiry or for any observed in the conduct of its other reason. investigations by taking “all reasonable steps to ensure that every person whose • Commissioners may make such rules interests are likely to be affected by the for their own guidance and the outcome of the investigation is given an conduct and management of adequate opportunity to make proceedings before them and the representations in the matter”. hours and times and places for their sittings as they may from time to Section 29(1) of the Act gives the time think fit, and may from time to Commission wide powers to stay time adjourn for such time and to restrictive practices or mergers pending such place as they think fit. the completion of its investigation. The relevant provisions read as follows: • Commissioners have powers to summon witnesses, to cause the oath “At any time after publishing a notice in to be administered to them, to terms of subsection (2) of section examine them and to call for the twenty-eight in regard to any production of books, plans and investigation, the Commission may documents. publish a notice doing either or both the following –
311 (a) prohibiting or staying any restrictive practice or merger that is the subject Section 30 of the Act provides that the of the investigation; Commission can at any time during the (b) directing that any action be taken course of its investigations negotiate the which, in the Commission’s opinion, termination or discontinuation of will prevent or stay any restrictive identified restrictive practices, anti- practice or merger that is the subject competitive mergers or monopoly of the investigation; situations. The relevant provisions of section 30 read as follows: pending the outcome of the investigation.” “(1) The Commission may at any time negotiate with any person with a Notices made in terms of the above view to making an arrangement which, provisions remain in force until the in the Commission’s opinion, will – completion of the Commission’s investigation into the concerned matter(a) ensure the discontinuance of any or for at least a period of six months restrictive practice which exists or may from the date of its publication in the come into existence; or Government Gazette. While it is not(b) terminate, prevent or alter any merger or necessary for the Commission to notify monopoly situation which exists or may or receive representation from any come into existence; person before publishing a notice in terms of section 29(1) if it is its opinion whether or not the Commission has that to do so would unduly delay the embarked on an investigation into the publication of the notice or defeat its restrictive practice, merger or monopoly purpose, it is required in terms of section situation concerned. 29(6) to provide without delay a written statement of its reasons for having (2) Where the Commission has made published such a notice upon being an arrangement after negotiations under requested for such a statement by “any subsection (1), it may embody the party to the restrictive practice or merger arrangement in an order.” to which the notice relates, or any other person, where the statement is requested Commission Orders for the purpose of any judicial review or other legal proceedings instituted in Orders made by the Commission in regard to the notice”. relation to identified restrictive practices,
anti-competitive mergers and monopoly It is a criminal offence to contravene or situations that are contrary to public fail to comply with the provisions of a interest are provided for under section 31 notice made in terms of section 29(1). of the Act, and are summarised in the Such contravention or failure attracts a Box 3 below. fine or imprisonment or both such fine and imprisonment.
312 Box 3: Summary of Commission Orders
Orders in terms of section 31(1) Orders in terms of section 31(2) against Restrictive Practices against Anti-competitive Mergers or Monopoly Situations (a) Prohibiting any person named in the order, or any class of persons, (a) Declaring it to be unlawful, from engaging in the restrictive except to such extent and in such practice or from pursuing any other circumstances as may be provided by course of conduct which is specified or under the order, to make or to carry in the order and which, in the out any agreement or arrangement Commission’s opinion, is similar in which is specified in the order and form and effect to the restrictive which, in the Commission’s opinion, practice. will lead to or maintain the merger or monopoly situation. (b) Requiring any party to the restrictive practice to terminate the (b) In the case of a monopoly restrictive practice, either wholly or to situation, requiring any person who such extent as may be specified in the exercises control over the business or order, within such time as is specified economic activity concerned to take therein. such steps as are specified in the order to terminate the monopoly situation (c) Requiring any person named in within such time as is specified in the the order, or any class of persons, to order. publish a list of prices, or otherwise notify prices, with or without such (c) Prohibiting or restricting the further information as may be acquisition by any person named in specified in the order. the order of the whole or part of any undertaking or assets, or the doing by (d) Regulating the price which any that person of anything which will or person named in the order may charge may result in such an acquisition, if for any commodity or service the acquisition is likely, in the (provided that the Commission shall Commission’s opinion, to lead to a not make any such order unless it is merger or monopoly situation. satisfied that the price being charged by the person concerned is essential to (d) Requiring any person to take the maintenance of the restrictive steps to secure the dissolution of any practice to which the order relates). organisation, whether corporate or unincorporated, or the termination of (e) Prohibiting any person named in any association, where the the order, or any class of persons, Commission is satisfied that the from notifying persons supplying any person is concerned in or a party to commodity or service or a price the merger or monopoly situation. recommended or suggested as appropriate to be charged by those (e) Requiring that, if any merger
313 persons. takes place or any monopoly situation exists, any party thereto who is named (f) Generally, making such provision in the order shall observe such as, in the opinion of the Commission, prohibitions or restrictions in regard is reasonably necessary to terminate to the manner in which he carries on the restrictive practices or alleviate its business as are specified in the order. effects. (f) Generally, making such provision as, in the opinion of the Commission, is reasonably necessary to terminate or prevent the merger or monopoly situation, as the case may be, or alleviate its effects.
Section 31(3) of the Act further provides situation is or will be contrary to the that Commission orders made in respect public interest, the Commission shall of an anti-competitive merger or take into account everything it considers monopoly situation may provide for any relevant in the circumstances, and shall of the following matters: have regard to the desirability of –
• the transfer or vesting of property, (a) maintaining and promoting effective rights, liabilities or obligations; competition between persons • the adjustment of contracts, whether producing or distributing by their discharge or the reduction of commodities and services in any liability or obligation or Zimbabwe; and otherwise; (b) promoting the interests of • the creation, allotment, surrender or consumers, purchasers and other cancellation of any shares, stocks or users of commodities and services in securities; Zimbabwe, in regard to the prices, • the formation or winding up of any quality and variety of such undertaking or the amendment of the commodities and services; and memorandum or articles of (c) promoting, through competition, the association or any other instrument reduction of costs and the regulating the business of any development of new techniques and undertaking. new commodities, and of facilitating the entry of new competitors into Section 32 outlines factors that the existing markets.” Commission must consider when making orders. The relevant provisions The Act is mainly concerned over abuse read as follows: of dominant positions, rather than on the existence of dominance. Section 32(2) “(1) In determining for the purposes provides that the Commission should of section thirty-one, whether or not any regard a restrictive practice as contrary restrictive practice, merger or monopoly to the public interest if it is engaged in
314 by a person with substantial market discourage competition to a material control over the commodity or service to degree in any business, trade or which the practice relates. In applying industry and is not likely to do so. the rule of reason approach, a restrictive practice can be considered as not Section 32 (3) provides that restrictive contrary to the public interest in any of practices that are unfair business the following situations: practices (i.e. those that are specified in the First Schedule to the Act) are • the restrictive practice is reasonably absolutely contrary to the public interest. necessary, having regard to the To a certain extent, these practices are character of the commodity or per se prohibited under the Act. service to which it applies, to protect consumers or users of the In terms of section 32(4) mergers are commodity or service, or the general regarded as contrary to the public public, against injury or harm; interest if the Commission is satisfied • termination of the restrictive practice that the merger “has lessened would deny to consumers or users of substantially or is likely to lessen the commodity or service to which substantially the degree of competition the restrictive practice applies, other in Zimbabwe or any substantial part of specific and substantial benefits or Zimbabwe, or has resulted or is likely to advantages enjoyed or likely to be result in a monopoly situation which is enjoyed by them, whether by virtue or will be contrary to the public of the restrictive practice itself or by interest”. The Competition Amendment virtue of any arrangement or Act, 2001 made provision for the operation resulting therefrom; following factors to be considered by the • termination of the restrictive practice Commission in determining whether or would be likely to have a serious and not a merger is likely to substantially persistently adverse effect on the prevent or lessen competition: general level of unemployment in any area in which a substantial • the actual and potential level of proportion of the business, trade or import competition in the market; industry to which the restrictive • the ease of entry into the market, practice relates is situated; including tariff and regulatory • termination of the restrictive practice barriers; would be likely to cause a substantial • the level, trends of concentration and reduction in the volume or earnings history of collusion in the market; of any export business or trade of • the degree of countervailing power Zimbabwe; in the market; • the restrictive practice is reasonably • the likelihood that the acquisition required to maintain an authorised would result in the merged parties practice or any other restrictive having market power; practice which, in the Commission’s • the dynamic characteristics of the opinion, is not contrary to the public market including growth, innovation interest; and product differentiation; • the restrictive practice does not • the nature and extent of vertical directly or indirectly restrict or integration in the market;
315 • whether the business or part of the monopoly situation and who business of a party to the merger or exercises complete or substantial proposed merger has failed or is control over the distribution of the likely to fail; commodity or service; or (ii) to a • whether the merger will result in the person who is not a party to the removal of efficient competition. monopoly situation and who exercises complete or substantial Monopoly situations are regarded in control over the market for the terms of section 32(5) as contrary to the commodity or service; public interest unless the Commission is • termination or prevention of the satisfied as to any one or more of the monopoly situation would be likely following: to have a serious and persistently adverse effect on the general level of • the monopoly situation, through employment in any area in which a economies of scale or for other substantial proportion of the reasons, has resulted in or is likely to business, trade or industry to which result in a more efficient use of the monopoly situation relates is resources in any business, trade or situated; industry than would be the case if the • termination or prevention of the monopoly situation did not exist; monopoly situation would be likely • the monopoly situation is or is likely to cause a substantial reduction in the to be necessary for the production, volume or earnings of any export supply or distribution of any business or trade of Zimbabwe. commodity or service in Zimbabwe, regard being had on the one hand to The following provisions of section 33 the resources necessary to produce, of the Act deal with the enforcement of supply or distribute the commodity orders made by the Commission: or service and, on the other hand, to the size of the Zimbabwean market “(1) The Commission or any person for that commodity or service; in whose favour or for whose benefit an • termination or prevention of the order has been made may lodge a copy monopoly situation would deny to of the order, certified by the Director or consumers or users of any a person authorised by the Director, with commodity or service, other specific – and substantial benefits or advantages enjoyed or likely to be (a) the Registrar of the High Court; or enjoyed by them, whether by virtue (b) the clerk of any magistrates court of the monopoly situation itself or by which would have had jurisdiction to virtue of any arrangement or make the order had the matter been operation resulting therefrom; determined by it; • the monopoly situation is or is likely to be reasonably necessary to enable and the Registrar or clerk shall forthwith the parties to it to negotiate fair record the order as a judgment of the terms for the distribution of a High Court or the magistrates court, as commodity or service: (i) from a the case may be. person who is not a party to the
316 (2) An order that has been recorded The following are the Gazette notices under subsection (1) shall, for the that the Commission published in terms purposes of enforcement, have the effect of the repealed section 34 of the Act: of civil judgment of the High Court or the magistrates court concerned, as the • Statutory Instrument 63A of 2000: case may be.” Competition (Notification of Mergers) (Health Care Industry) Part IVA: Notifiable Mergers Notice, 2000 • Statutory Instrument 177 of 2000: Part IVA is a new part added by the Competition (Notification of Competition Amendment Act, 2001. Mergers) (Financial Services) The part deals with notifiable mergers. Notice, 2000 • Statutory Instrument 226 of 2000: The original section 34 of the Act that Competition (Notification of was repealed by the Amendment Act Mergers) (Telecommunication provided for pre-merger notification of Services) Notice, 2000 mergers and acquisitions, but only “if • Statutory Instrument 323 of 2001: the Commission is satisfied that any Competition (Notification of class of merger, if carried out, is likely to Mergers) (Retail Chain Store reduce competition to a material extent Services) Notice, 2001 in Zimbabwe or any part of Zimbabwe, • Statutory Instrument 351 of 2001: the Commission may publish a notice in Competition (Notification of the Gazette requiring the parties to any Mergers) (Tourist Facility) Notice, such merger to obtain the Commission’s 2001. approval before concluding the merger”. The onus was therefore on the The amended section 34(1) of the Act Commission to identify those classes of provides for the prescription of mergers that were likely to be anti- thresholds of combined annual turnover competitive and to gazette notices or assets in Zimbabwe, either in general requiring such mergers to be notified to or in relation to specific industries, at it before being consummated. While the above which mergers should be notified Commission identified some likely anti- to the Commission. In July 2002, the competitive classes of mergers that Commission gazetted under Statutory required pre-merger notification, the task Instrument 195 of 2002 the Competition was beyond the resources of the (Notifiable Merger Thresholds) Commission and it is mostly likely that a Regulations, 2002 which prescribed the number of other harmful mergers slipped merger notification thresholds either as through the Commission’s net. The (i) the combined annual turnover in provisions of the repealed section 34 of Zimbabwe of the merging parties at a the Act were also limited in that they did value of Z$500 million or more; or (ii) not specifically provide penalties for the combined assets in Zimbabwe of the contravention gazetted pre-merger merging parties at a value of Z$500 notification notices. million or more.
Section 34(3) also provides that the Commission may however require
317 parties to a ‘non-notifiable’ merger (i.e., provided for in section 34A(5) of the one with a value below the prescribed Act, and these are the following: threshold) to notify that merger if it appears to the Commission that the • the nature, duration, gravity and merger is likely to substantially prevent extent of the contravention; or lessen competition or is likely to be • any loss or damage suffered as a contrary to public interest. result of the contravention; • the behaviour of the parties The new section 34A of the Act provides concerned; that a party to a notifiable merger must • the market circumstances in which notify the Commission in writing and in the contravention took place; a prescribed form of the proposed • the level of profit derived from the merger within thirty days of either the contravention; conclusion of the merger agreement • the degree to which the parties have between the merging parties or the co-operated with the Commission; acquisition by any one of the parties to and that merger of a controlling interest in • whether the parties have previously another. The prescription of a merger been found in contravention of the notification fee is provided in the Act, Competition Act. and this has been prescribed in the
Competition (Notification of The Commission may institute civil Mergers)(Amendment) Regulations, proceedings for the recovery of any 2004 (No.1) that were gazetted in penalty imposed for failure to notify a January 2004 as Statutory Instrument 11 notifiable merger or proceeding to of 2004 at 0.05% of the combined implement a merger without the annual turnover or combined value of approval of the Commission. assets in Zimbabwe of the merging parties, whichever is higher (the current Part IVB: Investigation of Tariff merger notification fees were increased Charges and Related Unfair Trade from the 0.01% of the combined annual Practices turnover or combined value of assets of the merging parties prescribed in the Part IVB is another new part that was Competition (Notification of Mergers) added by the Competition Amendment Regulations, 2002 that were gazetted in Act, 2001 to provide for the handling of October 2002 as Statutory Instrument the Commission’s new tariffs functions. 270 of 2002 in order to take account of
Zimbabwe’s high inflation rate). Section 34C(1) of the Act gives the
Commission powers to undertake Failure to notify a notifiable or investigations into tariff charges and proceeding to implement the merger related unfair trade practices. The without the approval of the Commission relevant provisions read as follows: attracts a penalty not exceeding 10% of either or both of the merging parties’ “Subject to this Act, the Commission annual turnover in Zimbabwe. Factors may make such investigation as it which the Commission must consider in considers necessary – determining an appropriate penalty are
318 (a) into any tariff charge or any matter (f) into any practice in connection with related thereto, which the the importation of commodities or Commission has reason to believe is services or the sale of imported causing or threatens to cause commodities or services for the detriment to local industry; purpose of determining whether it should be declared an unfair trade (b) in order to ascertain whether any practice …”. tariff charge needs to be revised and the extent of any such revision, for The term ‘tariff charge’ is defined in this the purpose of providing assistance Part as to mean “any duty, tax or charge or protection to local industry and levied by the State in connection with additionally, or alternatively, commodities or services imported into or redressing any imbalance in trade exported from Zimbabwe”, while the between Zimbabwe and any other term ‘unfair trade practice’ is defined as country; to mean “(a) the dumping of imported commodities as described in subsection (c) into any application for assistance or (1) of section 90 of the Customs and protection to local industry; Excise Act [Chapter 23:02]; (b) the granting of a bounty or subsidy with (d) into any complaint that, as a result of respect to imported commodities within the importation, actual or the meaning of section 92 of the prospective, of any goods - Customs and Excise Act [Chapter 23:02]; (c) any other practice in relation (i) detriment has been, or will be, to the importation of commodities or caused or threatened to an services or the sale of imported established local industry; or commodities or the provision of an (ii) the establishment or expansion of imported service where such practice is local industry has been, or will be, declared to be unfair …”. detrimentally affected; Section 34C(3) provides that upon where the commodities concerned – completion of an investigation into tariff charges or unfair trade practices, the A. are or may be found to have been Commission must make a report of its dumped as described in subsection findings and recommendations to the (1) of section 90 of the Customs and Minister responsible for industry and Excise Act [Chapter 23:02]; or international trade. In turn, the Minister B. are goods in respect of which a must do any one of the following: bounty or subsidy has been or will be granted within the meaning of • refer the matter to the Minister subsection (1) of section 92 of the responsible for finance in terms of Customs and Excise Act [Chapter subsection (4) of section 90, section 23:02]; 91 or subsection (2) of section 92 of the Customs and Excise Act (e) into any complaint of an unfair trade [Chapter 23:02]; practice; • by notice in the Gazette, declare any practice in relation to the importation
319 of commodities and services or the which he considers may be prohibited, sale of imported commodities and restricted or otherwise affected by this services to be an unfair trade Act shall apply to the Commission for its practice; authorisation of such agreement, • recommend that the Minister arrangement, practice or conduct. responsible for finance impose, abolish or amend any tariff charge to (2) An application under subsection the extent that he is empowered by (1) shall be made in such form and law to do so; manner as may be prescribed and shall • take such other action in connection be accompanied by the prescribed fee, if with the report as he thinks fit. any, and such information and particulars as may be prescribed or as It will be noted that unlike the the Commission may reasonably Commission’s competition operations in require.” which it has full decision-making autonomy, the Commission only has The Act also provides in section 35(3) recommendatory authority in its tariffs that “any person who, in or for the operations. The reasons are that the purposes of an application under administration of tariffs has wide subsection (1), makes a statement which implications in the implementation of he knows to be false or misleading or trade policy under the Ministry of does not believe on reasonable grounds Industry and International Trade, and of to be true, shall be guilty of an offence fiscal policy under the Ministry of and liable to a fine … or to Finance. imprisonment for a period not exceeding one year or to both such fine and such imprisonment”. Part V: Authorisation of Restrictive Practices, Mergers and Other Upon receiving an authorisation Conduct application, the Commission is required to publish a notice in the Government Part V of the Act deals with the Gazette and in the national or relevant authorisation on application of restrictive community newspapers stating the practices, mergers and other anti- nature of the authorisation being sought competitive conduct. It is therefore the and calling upon any interested parties to ‘exemptions’ clause of the Act. submit to the Commission written representations in regard to the Section 35 of the Act provides that: authorisation being sought. The Commission however need not publish “(1) Any person who proposes to – notices for authorisations of mergers if it considers that publication of such (a) enter into, carry out or otherwise notices may prejudice the parties to the give effect to any agreement or merger and is not likely to produce arrangement; or representations or information that (b) engage in any practice or conduct; would materially assist the Commission in its determination of the application.
320 Section 36(2) provides that: Part VI: Appeals
“After conducting such investigation as Appeals against any decisions of the it considers necessary into any Commission are made to the application under section thirty-five, and Administrative Court. The relevant taking into account any representations provisions of sections 40 and 41 of the received in response to the relevant Act read as follows: notice published under subsection (1), the Commission shall either – “40. (1) Any person who is aggrieved by a decision of the (a) grant the authorisation sought by the Commission under Part IV or V may applicant, subject to such terms and appeal against it to the conditions as the Commission thinks Administrative Court. appropriate, if the Commission is satisfied that the agreement, (2) An appeal under subsection (1) shall arrangement, practice or conduct be made within such period and in concerned is not contrary to the such form and manner as may be public interest; or prescribed in rules made under the (b) refuse to grant the authorisation Administrative Court Act, 1979 sought by the applicant, if the (No.39 of 1979). Commission is not satisfied as provided in paragraph (a).” 41. (1) For the purpose of hearing any appeal under this Act, the Section 37 provides that as long as the Administrative Court shall consist of authorisation granted by the Commission a President of the Administrative is in force “nothing in this Act shall Court and two assessors appointed prevent the person to whom it was by the President of the granted from entering into, carrying out Administrative Court from the list of or otherwise giving effect to the persons referred to in subsection (2). agreement or arrangement to which the authorisation relates, or engaging in the practice or conduct to which the (2) The Presidents of the Administrative authorisation relates, as the case may Court, with the approval of the Chief be.” Justice and the Minister, shall draw up a list of names of not fewer than The Commission is required under ten persons who have ability and section 39 of the Act to keep a register experience in commerce, industry, of applications for authorisation it agriculture or administration or who receives and its decisions on those have professional qualifications and applications. The register should be kept are otherwise suitable for open to inspection by members of the appointment as assessors, but who public. are not members of the Public Service.”
321 Part VII: General The following are the specified unfair business practices that are provided for The last Part VII of the Act contains in the First Schedule to the Act: general provisions, such as on unfair business practices, private right of • misleading advertising action, investigative activities, • false bargains confidentiality and exemption from • distribution of commodities or liability, and prescriptive regulations. services above the advertised price • undue refusal to distribute Unfair Business Practices commodities or services • bid-rigging Section 42(1) of the Act declares • collusive arrangements between restrictive practices specified in the First competitors Schedule to the Act as unfair business • predatory pricing practices, and section 42(2) provides for • resale price maintenance the addition or deletion of specified • exclusive dealing. unfair business practices. The relevant provisions read as follows: The last three practices (i.e., predatory pricing, resale price maintenance and “(1) The acts or omissions specified exclusive dealing) were added to the list in the First Schedule shall be unfair under the Competition Amendment Act, business practices for the purposes of 2001. this Act. Section 42(3) makes it a criminal (2) The Minister, on the offence, which attracts a fine and/or recommendation of the Commission, imprisonment, to engage in an unfair may by statutory instrument amend the business practice. Section 43 further First Schedule - provides as follows:
(a) by adding any restrictive practice “Any agreement, arrangement, thereto, where the Minister is undertaking, act or omission which – satisfied that the restrictive practice concerned, if engaged in by any (a) constitutes an unfair business undertaking, would be unfair or practice or which is entered into in deceptive and contrary to the public furtherance of an unfair business interest; practice; or (b) by altering any provision therein; (b) is entered into in contravention of (c) by deleting any provision therefrom; this Act of any order or notice under this Act; Provided that no such amendment shall have the effect of rendering criminal shall be void with effect from the date on anything done or omitted before the date which the conduct concerned became an of commencement of the amendment”. unfair business practice or the order or notice concerned was made or issued, as the case may be”.
322 Private Right of Action (a) any business agreement which he may at any time have entered into Section 44 provides the private right of with any other person, or in which he action under the Act. The relevant may at any time have been provisions read as follows: concerned; and (b) any arrangement or understanding to “(1) Any person who suffers injury, which he or his business or industry loss or harm as a result of any may at any time have been a party; agreement, arrangement, undertaking, and act or omission referred to in section (c) any interest which he or his business forty-three may recover damages, by or industry may at any time have proceedings in a court of competent acquired in any other business, jurisdiction, from every person undertaking or asset. responsible for the agreement, arrangement, undertaking, act or (2) Any person who, when required omission. to furnish the Commission with information under subsection (1) - (2) Subsection (1) shall not limit any person’s remedy under any other law for (a) fails or refuses to do so; or injury, loss or harm that has been or may (b) furnishes the Commission with be occasioned to him by any agreement, information which he knows to be arrangement, undertaking, act or false or does not believe on omission referred in section forty-three.” reasonable grounds to be true;
Investigative Activities shall be guilty of an offence and liable to a fine not exceeding five thousand dollars or to imprisonment for a period Section 45 gives the Commission the not exceeding six months or to both such necessary powers to gather information fine and such imprisonment.” in the course of its investigative activities. The relevant provisions read Section 45(3) however provides that as follows: “nothing in this section shall be
construed as requiring any person to “(1) Subject to subsection (3), for the disclose information that he could not be purpose of investigating and detecting required to disclose when giving restrictive practices and monopoly evidence in a court of law”. situations, the Commission may serve a Information that one is not required to written notice on any person engaged in disclose in a Zimbabwean court of law any business or industry requiring him to includes: (i) client-to-attorney furnish the Commission, within such information; (ii) spouse-spouse reasonable period or at such reasonable information; (iii) self-incriminating intervals as the Commission may specify information; and (iv) information in in the notice, with information regarding public interest (e.g. of a national security his business or operations, including nature). information as to –
323 The designation by the Director of any is necessary to exercise them for the employee of the Commission, or any prevention, investigation or detection of other member of the Public Service, as an offence … or for the obtaining of an investigating officer for the purposes evidence relating to such an offence.” of the requirements of the Act is provided for in section 46. Confidentiality and Exemption from Liability Section 47(1) gives the Commission powers of entry and inspection. The Section 48 provides for secrecy to be relevant provisions read as follows: observed in the conduct of the Commission’s business. The relevant “Subject to subsection (2), an provisions read as follows: investigating officer may at all reasonable times – “(1) The Director and every member of the Commission or of a committee (a) enter any premises in or on which thereof, and every investigating officer there is reasonably suspected to be and other person appointed or employed any book, record or document under this Act shall not disclose to any relating to any restrictive practice or person, except in the performance of his unfair trade practice or any actual or functions under this Act or when potential merger or monopoly required to do so by any law, any situation; and information which he may have acquired (b) require any person upon the premises in the course of his duties in relation to – the financial or business affairs of any (i) to disclose all information at his person, undertaking or business. disposal; and
(ii) to produce any book, record or (2) Any person who contravenes document or copy thereof or extract subsection (1) shall be guilty of an therefrom; offence and liable to a fine not exceeding
(c) make copies of or take extracts from ten thousand dollars or to imprisonment any book, record or document for a period not exceeding one year or to referred to in paragraph (b).” both such fine and such imprisonment.”
The Commission’s powers of entry and A new section 49A added under the inspection can however only be Competition Amendment Act, 2001 exercised with the consent of the owner however exempts the Commission from or person in charge of the premises certain liability. The provisions of the concerned. The relevant provisions of section read as follows: section 47(2) read as follows:
“No liability shall attach to the “The powers of entry and inspection Commission, employee or agent thereof conferred by subsection (1) shall not be for any loss or damage sustained by any exercised except with the consent of the person as a result of the bona fide owner or person in charge of the exercise or performance by the premises concerned, or where there are Commission, employee or agent thereof reasonable grounds for believing that it of any power or duty conferred or
324 imposed upon the Commission by this • Competition (Authorisation of Act: Mergers) Regulations, 1999, gazetted as Statutory Instrument 295 of 1999, that prescribed the merger Provided that the provisions of this notification form; section shall not be construed as to • prevent any person from recovering Competition (Authorisation of compensation for any such loss, injury Mergers)(Amendment) Regulations, or damage caused by negligence or 1999 (No.1), gazetted in October breach of contract”. 1999 as Statutory Instrument 372 of 1999, that amended the prescribed merger notification form; Regulations • Competition (Notifiable Merger Thresholds) Regulations, 2002, Section 50 of the Act provides for the gazetted in July 2002 as Statutory promulgation of regulations necessary Instrument 195 of 2002, that for the effective execution of the prescribed the merger notification provisions of the Act. The relevant thresholds of combined annual provisions read as follows: turnover or assets in Zimbabwe of the merging parties, and the method “(1) The Minister, after consultation of calculation of the annual turnover with the Commission, may by regulation and assets; • prescribe anything which by this Act is Competition (Notification of required or permitted to be prescribed or Mergers) Regulations, 2002, which, in his opinion, is necessary or gazetted in October 2002 as convenient to be prescribed for carrying Statutory Instrument 270 of 2002, out or giving effect to this Act. that prescribed the merger notification fee of 0.01% of (2) Regulations made under combined annual turnover or assets subsection (1) may provide for - of the merging parties, and the merger notification form; (a) the procedure to be followed in • Competition (Notification of investigations carried out by the Mergers)(Amendment) Regulations, Commission; 2004 (No.1), gazetted in January (b) the form of notices, orders, 2004 as Statutory Instrument 11 of applications and authorisations made 2004, that amended the merger or issued under this Act; notification fee to 0.05% of the (c) fees and charges for any information combined annual turnover or assets given, authorisation granted or any of the merging parties other thing made or done under this Act.” Consumer Protection Provisions
Regulations made so far under the While the Competition Act does not provisions of section 50 include the have a Part or Section that is specifically following: devoted to consumer protection, it does have a number of provisions on
325 consumer welfare and protection that are displayed for sale, or expressed on the scattered in its various Parts. wrapper or container of such an article, shall be deemed to have been made in Three of the unfair business practices an advertisement. specified in the First Schedule to the Act are directly related to consumer False Bargains protection. These are: (i) misleading advertising; (ii) false bargains; and (iii) Advertising any commodity or distribution of commodities or services service for distribution at a price – above advertised price. The practices are described in the First Schedule as (a) which is represented in the follows: advertisement to be a bargain price; or “Misleading advertising (b) which is so represented in the advertisement as to lead a person (1) For the purposes or in the course who reads, hears or sees the of any trade or business, publishing an advertisement to the reasonable advertisement – belief that it is a bargain price;
(a) containing a representation which the if the distributor of the commodity or publisher knows or ought to know is service does not intend to distribute it at false or misleading in a material that price, or has no reasonable grounds respect; or for believing that he can do so, for a (b) containing a statement, warranty or period that is, and in quantities that are, guarantee as to the performance, reasonable in relation to the nature of the efficacy or length of life of any commodity or service concerned and the commodity, which statement, nature and size of the distributor’s warranty or guarantee the publisher undertaking. knows or ought to know is not based on an adequate or proper test thereof; Distribution of Commodities or Services or above Advertised Price (c) containing a statement, warranty or guarantee that any service is or will (1) Having advertised any be of a particular kind, standard, commodity or service for distribution at quality or quantity, or that it is a particular price, distributing it, during supplied by any particular person or the period and in the market to which the by a person of a particular trade, advertisement relates, at a higher price qualification or skill, which than that advertised. statement, warranty or guarantee the
publisher knows or ought to know is (2) Subparagraph (1) shall not apply untrue. in any case where -
(2) For the purposes of subparagraph (a) the advertisement prominently stated (1), a representation, statement, that the price of the commodity or warranty or guarantee expressed on or service concerned was subject to attached to an article offered or error or alteration without notice; or
326 practices include: (i) requiring any (b) the advertisement was immediately person named in the order to publish followed by another advertisement a list of prices, or otherwise notify correcting the price mentioned in the prices; (ii) regulating the price which first advertisement. any person named in the order may charge for any commodity or service (3) For the purposes of subparagraph (provided that the Commission (1), the market to which an should not make any such order advertisement relates is the market to unless it is satisfied that the price which it could reasonably be expected to being charged by the person reach, unless the advertisement defines concerned is essential to the its market specifically by reference to a maintenance of the restrictive particular area, store, outlet or practice to which the order relates); otherwise.” and (iii) prohibiting any person named in the order from notifying The fact that the above anti-consumer persons supplying any commodity or welfare practices are classified as unfair service of a price recommended or business practices shows that the suggested as appropriate to be Government of Zimbabwe considers charged by those persons. them as serious restrictive practices that should be subject to criminal sanctions. • Factors considered by the Commission when making orders in It should also be noted that in Zimbabwe terms of section 32 include the protection against high product and promotion of “the interests of commodity prices, or arbitrary charging consumers, purchasers and other of such prices, by business concerns is users of commodities and services in one of the greatest needs of consumers. Zimbabwe, in regard to the prices, This is because of the structure of the quality and variety of such market, which is dominated by public commodities and services” as one of monopolies and private oligopolies. It is the determinants of whether or not therefore no wonder that consumer any restrictive practice, merger or protection provisions in other Parts of monopoly situation is or will be the Competition Act are almost all contrary to the public interest. As related to pricing of goods and services. such, the Commission does not The following are some of those regard a restrictive practice as provisions: contrary to the public interest if:
• The definition of ‘restrictive - that restrictive practice is reasonably practice’ in section 2 includes as one necessary, having regard to the of the effects that determine a character of the commodity or restrictive practice the “enhancing or service to which it applies, to protect maintaining the price of any consumers or users of the commodity commodity of service”. or service, or the general public, against injury or harm • Orders made by the Commission in - the termination of the restrictive terms of section 31 against restrictive practice would deny to consumers or
327 users of the commodity or service to which the restrictive practice applies, other specific and substantial benefits or advantages enjoyed or likely to be enjoyed by them, whether by virtue of the restrictive practice itself or by virtue of any arrangement or operation resulting therefrom.
The Commission also does not regard a monopoly situation (or merger) as contrary to the public interest if “the termination or prevention of the monopoly situation (or merger) would deny to consumers or users of any commodity or service other specific and substantial benefits or advantages enjoyed or likely to be enjoyed by them, whether by virtue of the monopoly situation itself or by virtue of any arrangement or operation resulting therefrom”.
328 on competition cases, as well as to Section 4: consider other issues related to the Institutional Arrangements operations of the Commission. The Board also hold special meetings, such The competition authority of Zimbabwe as public and stakeholder hearings. has two principal arms – the Board of Commissioners and the Directorate. The For the better exercise of its functions, authority is autonomous and totally the Board has established five standing independent and does not report to, or Committees, namely: (i) the Mergers & refer its decisions to, any other authority Acquisitions Committee; (ii) the in Zimbabwe80. Restrictive Practices Committee; (iii) the Legal & Enforcement Committee; (iv) The Board of Commissioners the Tariffs Committee and (v) the Audit & Administration Committee. Members Members of the Commission constitute of the Committees are presently all the Commission’s governing Board. Members of the Commission. The The first Board of Commissioners, Board’s Committees meet more often as whose members were appointed by the and when required. President on part-time basis in February 1998, comprised four lawyers and one The Directorate economist. That Board was chaired by a sitting Judge of the High Court of The Commission has a Directorate Zimbabwe, and its vice-chairman was headed by the Director. The Directorate another lawyer. has a small staff complement of professional and administrative support staff. All the professional staff are The present Board of Commissioners University graduates with varied has the full statutory complement of ten qualifications in economics, law, members, also appointed on a part-time accounts and business administration. basis with effect from 1 July 2001. It is chaired by a prominent Industrialist with The Directorate has two divisions, each strong economics qualifications. Other headed by an Assistant Director, one members have diverse qualifications in department headed by a Manager and the fields of economics, law, accounts one unit: (i) the Competition Division; and business administration and are all (ii) the Tariffs Division; (iii) the senior executives in various sectors such Administration & Finance Department; as banking, legal practice, financial and (iv) the Legal & Enforcement Unit. services and the parastatal sector. The Competition Division has two sections – the Restrictive Practices The Board of Commissioners hold its Sections and the Mergers & Acquisitions regular meetings once every two months Section. Figure 2 below shows the to adjudicate and make determinations organisational structure of the Directorate. 80 The tariffs authority part of the Competition & Tariff Commission however only has recommendatory powers and refers its decisions to the Minister responsible for industry and international trade.
329
Figure 2: Directorate’s Organisational Structure
DIRECTOR
Competition Tariffs Division Division
Administration & Finance Department Legal & Enforcement Unit Restrictive Mergers & Investigations Tariffs Practices Acquisitions Section Policy Section Section Section
The Director has established a number of section 5 of the Act81. The Act therefore committees to assist him in managing does not specifically provide for a and administering the affairs and separation of the Commission’s operations of the Commission. One of investigative and adjudicative functions. the committees is the Competition Operations Committee that critically The problems arising from the Act’s considers reports on competition apparent oversight in providing for an investigations and/or studies made by effective separation of the Commission’s individual members of the Competition investigative and adjudicative functions Division’s professional. The committee arose soon after the coming into meets once a week. All the Directorate’s operation of the Commission in 1998 professional staff can attend and when the Board of Commissioners participate at the committee’s meetings. decided to undertake before the appointment of the Director and the Separation of Functions establishment of the Directorate investigations into monopolistic and The Board of Commissioners, as comprised of the appointed members of 81 The Director of the Commission does have the Commission, is the major institution some statutory functions in terms of section 17 recognised under the Competition Act to of the Competition Act, 1996 but these mainly relate to administering the Commission’s affairs, perform the Commission’s statutory funds and property, with any other functions functions provided for in terms of delegated to him by the Board of Commissioners.
330 restrictive practices of producers of basic commodities such as maize meal, bread and cooking oil, as well as into the procurement of oil by the National Oil Company of Zimbabwe (NOCZIM). The investigations had to be suspended at stakeholder hearings stage when the Board of Commissioners realised that it neither had the time (being composed of part-time members) nor the expertise to gather and analyse the multitude of information on the matters under investigation.
Soon after the appointment of the Director towards the end of 1998, the Board of Commissioner delegated to the Director its investigative functions to leave the Board to concentrate on considering and making determinations on the findings of the Directorate’s investigations. The Board has also delegated to the Director powers of considering and giving negative clearances on practices that do not substantially reduce competition in Zimbabwe and therefore are not in breach of the provisions of the Competition Act.
Figure 3 below shows the current working relationship between the Directorate and the Board of Commissioners aimed at effective a clear separation of functions between the two institutions.
331 Diagram 3: Working Relationship Between Directorate and Board of Commissioners
C Administrative Court O Appeal against Commission decisions M
P • Public or Stakeholder Board of Commissioners Hearings L (through relevant Board • Determination
A Recommendations I
N Preliminary investigations and initial examination A • Complaint • Merger notification • N Authorisation application Directorate • Negative Negative Clearances T clearance request S COMMISSION
332
unfounded allegations or alleged Section 5: practices not in breach of the Act using Handling Of Competition Cases the de minimus rule. Some cases are closed in terms of section 30 of the The Commission’s major sources of Competition Act following negotiations competition cases are complaints from on the discontinuation or termination of the business community and the general the identified anti-competitive practices. public, competition concerns picked Only a few cases are presently from the newspapers or identified from proceeding to the full-scale investigation the Commission’s own sectoral studies, stage requiring public notices and public and referrals from Government or stakeholder hearings because of their Ministries and other sector regulators. serious effect on competition in Zimbabwe. As a general rule, cases Procedures Followed involving unfair business practices prohibited in terms of section 42 of the Upon receiving a competition complaint Act, and those involving other serious or identifying a competition concern abuse of dominant positions, proceed to related to a restrictive practice, the the full-scale investigation stage. Commission’s Directorate undertakes a preliminary investigation into the The examination of mergers and allegation in order to identify and assess acquisitions is more elaborate. Merger the competition concerns involved application forms have to be filled by the and/or to establish a prima facie case for merging parties. The forms request a full-scale investigation in terms of information on all aspects of the merger section 28 of the Competition Act. The transaction, including: (i) financial investigations undertaken involve information on the merging parties; (ii) information gathering and interviews details of the ownership and control of with major stakeholders (competitors, the merging parties; (iii) timing, plans customers, suppliers, public policy and motives of the merger; and (iv) makers, etc.) and analysis of the details of markets involved. Additional information gathered. Before information is obtained from submission with appropriate submissions and interviews with the recommendations to the relevant relevant stakeholders. Other Committee of the Commission, and competition authorities are also ultimately to the full Commission for consulted on their similar experiences. determination, draft reports on the Where necessary, consumer surveys on preliminary investigations undertaken the relevant market are undertaken. In are thoroughly considered and debated cases involving mergers of industrial by the Directorate’s Operations concerns, factory visits are made to the Committee. merging parties’ premises.
A number of cases are dropped at the Draft reports on the merger preliminary investigations stage for examinations are first discussed and various reasons, such as lack of evidence debated within the Directorate’s to support the allegations made, Operations Committee before being
333 submitted to the relevant Commission the tobacco industry, the chemicals Committee and ultimately to the full industry, the cement industry, the coal Commission for final decision. industry, the beverages industry and the textile industry. Following the coming into force of the Competition Amendment Act, 2001 with The following are brief outlines of some its broadened merger control provisions, of the major cases handled by the the Commission adopted its Merger Commission over the years. Control Guidelines Rules, which are reproduced in Appendix II. The Mergers and Acquisitions guidelines cover various aspects in the Commission’s merger processes, such as Of the many cases of mergers and merger notification requirements, merger acquisitions that the Commission has examination proceedings and examined since its coming into consideration of mergers. operation, five have been selected for analysis in this review because of their None of the Commission’s decisions regional implications and/or clarity in have so far been challenged in the showing how the provisions of the Administrative Court, or any other law Competition Act were used in coming up court in Zimbabwe. The Commission with the relevant decisions. therefore has no case law upon which to base its interpretation of the Competition (a) Rothmans of Pall Mall/ British Act, and has to largely rely on the American Tobacco Merger interpretation of its Legal & Enforcement Committee. It however In January 1999, British American sometimes uses other countries’ case Tobacco Plc of the United Kingdom laws, particularly those with similar announced that it had reached an competition laws to Zimbabwe’s, but agreement with the shareholders of purely for persuasive purposes. Rothmans International, Compagnie Financiere Richemont AG of Cases Handled Switzerland and Rembrandt Group Limited of South Africa to merge their The Commission effectively started international tobacco businesses. investigating competition cases in Subsequent to the completion of the January 1999 following the appointment international merger between British of the Director and the first group of the American Tobacco Plc and Rothmans Directorate’s professional staff. Since International, Rothmans of Pall Mall then, the Commission has handled over (Zimbabwe) Limited in September 1999 200 different competition cases, of applied to the Competition Commission which about 60% involved restrictive in terms of section 35 of the Competition and unfair trade practices and the Act, 1996 for authorisation to acquire remaining 40% were mergers and the entire issued share capital of British acquisitions. Industries and sectors American Tobacco Zimbabwe Limited. investigated have included the financial services sector, the health care sector, The merging parties gave as one of the the telecommunication services sector, reasons to merge the declining market
334 for cigarettes in Zimbabwe. It was of foreign currency through exports, and presented that the Zimbabwean the stabilisation of product prices on the manufactured cigarette market had local market. The failing firm defense declined to such an extent that it was no put forward by the merging parties was longer big enough for the continued also considered a strong point in this viability of two manufacturers as connection. evidenced by the poor performance of British American Tobacco Zimbabwe The Commission therefore authorised Limited in its financial year ended 31 the merger with certain conditions aimed December 1998. at alleviating the adverse effects of the monopoly situation created. The
The case was evaluated as a horizontal conditions related to the disposal of merger as defined in section 2 of the surplus cigarette making equipment to Competition Act. The examination of third parties interested to enter the the proposed merger was based on Zimbabwean cigarette making industry information supplied by the merging and constant surveillance by the Competition Commission of future parties, stakeholders (major customers, cigarette price increases, with price rises input suppliers and other tobacco needing the Commission’s justification, manufacturers) and relevant associations while the monopoly situation created in the tobacco industry. A cigarette remains in existence. consumption survey was also conducted in both urban and rural areas of Zimbabwe and this was an important The above conditions were fully met. source of information on product The merged party disposed of its surplus substitutability, brand loyalty, cigarette making equipment to a third consumption patterns and smoking party, Cut Rag Processors (Pvt) habits. The survey assisted the Limited, which went on to introduce a Commission in identifying the relevant new Remington Gold cigarette brand in product market under investigation as effective competition with the merged manufactured cigarettes. The merging party. With the coming into operation of parties had submitted that the relevant Cut Rag Processors (Pvt) Limited, the product market included all types of cigarette price surveillance condition tobaccos including snuff and untreated imposed on the merged party fell away tobacco leaf smoked as “roll-your-own” after only two price increase exercises. cigarettes. (b) Coca-Cola Company/ Cadbury-
The Commission noted that although the Schweppes Merger merger would result in a creation of a monopoly situation in the relevant In December 1998 Cadbury Schweppes market (i.e. the manufactured cigarette Plc of the United Kingdom sold to The market), it had other public interest Coca Cola Company of the United States of America its commercial beverage benefits. Section 32(5) of the brands outside the United States, Competition Act includes as such Continental Western Europe and certain benefits the creation of greater other territories worldwide. In economies of scale resulting in more December 2000 The Coca Cola efficient use of resources, the generation
335 Company submitted to the Competition proposed merger will not create a Commission in terms of section 35 of monopoly situation in the relevant the Competition Act a merger market, which is highly contestable, nor application for authorisation of its will it lessen actual competition in the proposed acquisition in Zimbabwe of soft drinks bottling and distribution beverage brands owned by Cadbury industry. It was also found that the Schweppes Plc. proposed merger had considerable public interest benefits in the form of
generation of foreign currency from the The brands acquisition transaction was continued export of local beverage evaluated as a horizontal merger as brands such as the Mazoe brand, creation defined in section 2 of the Competition Act. The examination of the transaction of employment, more efficient use of was largely based on information resources and continued availability of supplied by the merging parties Schweppes brands on the market. themselves. Additional information was Stakeholder concerns were however obtained from other stakeholders in the expressed and noted on the fate of Cadbury Schweppes’ Zimbabwean local beverage industry (franchised bottling plant and local beverage brands, bottlers, competitors, raw material as well as of the local suppliers of inputs suppliers, etc). Other competition into Schweppes’ local beverage brands. authorities that had also considered the transaction in terms of their countries’ The Commission therefore authorised competition legislation (i.e., the the transaction subject to the following Australian Competition & Consumer conditions: Commission, the Zambian Competition Commission and the Competition Commission of South Africa) were also (i) that The Coca Cola Company consulted. A small beverage undertake to purchase Schweppes consumption survey covering some Zimbabwe Limited as a going urban and rural centres of Zimbabwe concern and to establish an was conducted in order to obtain appropriate shareholding structure information on product substitutability. (to include indigenous shareholders) to oversee the operations of the new
company to be formed; The Commission identified from a consumer survey undertaken that the (ii) that The Coca Cola Company relevant product market as ‘ready to drink’ soft drinks of a carbonated and undertake to maintain the local Mazoe Calypso non-carbonated nature (The Coca Cola and brands on the Company had submitted that the relevant Zimbabwean market and develop product was all beverages, including tea them into regional brands with wider and coffee, and even bottled water). In circulation; and that market the merging parties’ pre- (iii)that The Coca Cola Company merger market shares were 76.9% (Coca undertake to promote and develop Cola brands) and 12.5% (Cadbury Zimbabwean suppliers and supplies Schweppes brands) resulting in a with respect to the raw materials combined post-merger market share of 89.4%. It was however found that the
336 necessary to produce the finished Competition Commission of such product brands. discovery.
An Undertaking to the above effect was signed between the Competition (d) The Coca Cola Company will Commission and The Coca Cola endeavour to negotiate and complete Company in May 2001. Specifically, the purchase documents for the Undertaking provided, inter alia, as brand and bottler transactions within follows: 60 days from the completion of all necessary due diligence.
Acquisition and Operation of Schweppes Zimbabwe Limited (e) After the date of execution, The Coca Cola Company will operate the business of Schweppes Zimbabwe (a) Competition Commission approves Limited as a going concern, the brand transaction conditioned consistent with The Coca Cola upon the acquisition by The Coca Company’s general commercial Cola Company of all the shares of practices. Schweppes Zimbabwe Limited or the
bottling business of Schweppes Zimbabwe. Failure by Cadbury Local Investment Schweppes and The Coca Cola Company to complete the bottler transaction will nullify the approval (a) The Coca Cola Company undertakes of the brand transaction. to carry out its local investment plan by offering investment opportunities in Schweppes Zimbabwe Limited by (b) Cadbury Schweppes and The Coca way of either issuing new shares in Cola Company will complete the Schweppes Zimbabwe Limited or the brand and bottler transactions sale of The Coca Cola Company’s simultaneously. shares in Schweppes Zimbabwe Limited to empowerment
(indigenisation) groups in (c) The Coca Cola Company will Zimbabwe. The Coca Cola endeavour to complete all necessary Company will operate Schweppes due diligence in connection with the Zimbabwe Limited for a period of bottler transaction within 60 days approximately 24 months before from Date of Signature. If, during offering investment opportunities to the due diligence investigation, The local investors. After 24 months, Coca Cola Company discovers The Coca Cola Company will offer a information it believes would majority of its shareholding to local prevent any of the transactions investors. described herein from being
consummated, The Coca Cola Company will notify the (b) With 2 years after completion of such investment referred to above,
337 The Coca Cola Company plans to dispose of additional and/or In conformity with the conditional remaining shares in Schweppes approval of the merger, The Coca Cola Zimbabwe Limited to other Company acquired and modernised the empowerment (indigenisation) bottling plant of Schweppes Zimbabwe groups of Zimbabwean investors. Limited before disposing it to an indigenous Zimbabwean company, Maintenance of Certain Brands Fidelity Life Asset Management Company (Pvt) Limited (FLAM).
(a) The Coca Cola Company undertakes (c) Dairibord/ Lyons Zimbabwe to maintain the Mazoe and Calypso Merger brands within the Zimbabwean market in their present formulation. In April 2001 Dairibord Zimbabwe In addition, during the 2 year period Limited applied to the Competition following the date of execution, The Commission in terms of section 35 of Coca Cola Company will develop the Competition Act for the the Mazoe and Calypso brands into Commission’s authorisation of its regional brands with wider acquisition of the business and assets of distribution. Lyons Zimbabwe (Pvt) Limited, including the trade marks and other intellectual property rights used in that (b) The Coca Cola Company shall not enterprise. The failing firm argument dispose of the Mazoe and Calypso was put forward as the major reason for brands by sale or otherwise without the merger since Lyons Zimbabwe had express approval of the Competition been losing money over the years. The Commission. other reasons given for the merger were increased efficiencies resulting from the merged company sharing costs by (c) The Coca Cola Company agree to combining and consolidating their maintain the registration of the production and manufacturing bases and trademarks for the Mazoe and the strategic positioning of the merged Calypso brands within Zimbabwe, in enterprise as a stronger competitor in accordance with generally applicable regional and international markets. laws and regulations. The case was examined as a conglomerate merger. The Commission Suppliers identified ice cream and non-alcoholic beverages as the relevant market since it The Coca Cola Company will promote is in these areas that the products of the and develop Zimbabwean suppliers with merging companies overlapped. It was respect to the raw materials necessary to found that the merger would not create a produce the finished product brands monopoly situation in the relevant distributed by Schweppes Zimbabwe market because of the existence of other Limited. players in the market. For example, the merged company’s share of the hand-
338 held ice cream market was found to be increase its cement investments in the less than 65%. While it was found that Southern African region in the face of the merger would create a dominant stiff competition from Lafarge S.A. of player in the ice cream market in the France, which had recently acquired form of Dairibord/Lyons Maid, the Blue Circle Industries’ cement plants in Commission was of the opinion that Zambia, Tanzania, Malawi and dominance per se is not anti-competitive Zimbabwe. but its abuse, and that neither Dairibord nor Lyons Zimbabwe has a recent The Commission examined the history of having abused its dominant transaction as a horizontal merger as position in that market. The defined in the Competition Act. The Commission also accepted the efficiency analysis of the merger was largely based reasons given for the merger and found on information supplied by the merging other public interest benefits arising parties themselves in the relevant from the merger in the form of application form and from a presentation employment creation, foreign currency made at the Commission’s offices, as generation and localisation of the control well as from interviews held with their of Lyons Zimbabwe (Pvt) Limited, officials. Porthold’s cement plant in which will continue operating as a Bulawayo and limestone quarries in separate company after the merger. Colleen Bawn, where it makes its clinker, were also visited to get the feel The Commission therefore of cement manufacturing operations. unconditionally authorised the merger in Views of other cement manufacturers in terms of section 36 of the Competition Zimbabwe were obtained, as well as Act. those of other stakeholders such as construction companies and other major
(d) Pretoria Portland Cement/ cement users. Consultations were also Unicem Merger held with South Africa’s competition authority. In August 2001, Pretoria Portland Cement Company Limited (PPC), a It was found that the merger did not change the structure of the cement leading cement manufacturer industry in Zimbabwe. Porthold incorporated in the Republic of South remained the leading player with about Africa, filed an application with the 50% share of the market, followed by Commission in terms of section 35 of Circle Cement (28%), Sino-Zimbabwe the Competition Act for authorisation to (15%) and ZimCement (7%). The acquire the entire issued share capital of merger therefore did not create a Portland Holdings Limited (Porthold or monopoly situation nor did it lessen the Unicem), the leading cement degree of competition in Zimbabwe manufacturer in Zimbabwe. Anglo since PPC was then not a participant in American Corporation, the largest shareholder of Porthold, wanted to re- the Zimbabwean cement market. PPC focus its operations on its core business was only stepping into the shoes of activities (principally mining) and was Anglo American Corporation. The disposing of its non-core investments. Commission also accepted the efficiency PPC on the other hand wanted to reasons given for the merger and found
339 other public interest benefits arising (e) Strategis Insurance Company/ from the transaction such as: (i) Central African Insurance Brokers additional efficiencies in production; (ii) Merger introduction of a wider range of cement products; (iii) significant inflows of In May 2001, the Commission picked up foreign currency into Zimbabwe from from the newspapers that a company PPC’s plant modernisation programme; called Strategis Insurance Zimbabwe and (iv) promotion and maintenance of (Pvt) Limited was acquiring another effective competition in Zimbabwe and existing company called Central African the region. Insurance Brokers (Pvt) Limited. The Commission brought to the attention of One concern raised from stakeholder the merging parties the existence of submissions however was the possibility Statutory Instrument 177 of 2000 and that PPC, or any other company that advised that to proceed accordingly. could subsequently acquire Porthold Statutory Instrument 177 of 2000 from PPC, could close down the provides that “parties to any merger of Zimbabwean plant and supply cement undertaking that provide financial from South Africa given the surplus services shall obtain the Commission’s capacity existing in the South African approval before concluding the merger”. cement market. ‘Financial service’ is defined in the Statutory Instrument to include “the The Commission therefore authorised carrying on in Zimbabwe of insurance the merger on two conditions, that: business as defined in the Insurance Act [Chapter 24:07]”. (i) PPC should honour its commitment to maintain Porthold and continue This was the first time that the the production of cement in Commission used its investigative Zimbabwe; and powers under section 28 of the (ii) should PPC in future decide to Commission Act to examine a merger, dispose of Porthold by sale or instead of using the provisions of section otherwise, such disposal should be 35 or 34 of the Act. The reason was that subject to the condition that Porthold because the merging parties disagreed will be maintained and continue with the Commission that the transaction producing cement in Zimbabwe, and was a merger and therefore subject to the that PPC should inform and consult provisions of Statutory Instrument 177 the Commission of any such disposal of 2000 (Competition (Notification of before proceeding. Mergers) (Financial Services) Notice, 2000. The conditional authorisation of the merger was accepted by PPC and was The merging parties submitted that embodied in a written Undertaking Statutory Instrument 177 of 2000 did not between that company and the apply to their transaction because of a Commission. number of reasons, including that the transaction was not a merger since “each company will retain its separate identity”, that “brokerage is a
340 complimentary business to an insurance market, the merged party only had a 1% company as opposed to a competing share of the market in the short-term business and there is therefore no insurance portion and 2.5% in the question of any competition as between insurance broking portion. None of the two such organisations”, and that merged parties’ competitors felt “Central African Insurance Brokers is a threatened by the merger. An analysis of broker falling within the definition of the likely unilateral effects and ‘Insurance Broker’ in the Insurance Act coordinated interaction effects of the as opposed to falling within the merger showed that the merged parties definition of the term ‘Insurance were not likely, nor was it in a position, Business’ as contemplated in Statutory to adversely competition in the relevant Instrument 177 of 2000 and defined in market because of their relatively small the Insurance Act”. sizes in that market.
The Commission did not agree with the The Commission therefore closed the merging parties’ interpretation of both case on the grounds that the merger the Competition Act and Statutory raised no serious competition concerns. Instrument 177 of 2000 but at that stage, the parties had already consummated the (f) Proposed Merger of Colcom merger and the pre-merger notification Holdings and Cattle Company Holdings provisions of section 34 of the Act, Limited under which Statutory Instrument 177 of 2000 was enacted, were therefore no In July 2003, Colcom Holdings Limited, longer applicable. The Commission a meat processing company, notified in therefore had no option but to invoke the terms of section 34A of the Competition provisions of section 28 to examine the Act its proposed merger with the Cattle merger. Company Holdings Limited to create a new holding company called CC The examination of the merger itself was Holdings. a simple and straightforward affair. Notices were published in the Colcom Holdings controlled a number of Government Gazette and national subsidiary companies in the meat newspapers calling upon interested processing company, such as Colcom parties and persons to submit to the Foods (with abbatoirs in Harare and Commission written representations on Bulawayo, factor in Harare that the matter. Additional evidence was produced fresh pork, bacons, fresh also collected from various stakeholders sausages, pies and canned meats, and in the insurance business (mainly, the wholesale distribution centres all over merged parties’ competitors, the relevant the country), Danmeats, a recent sector regulator and the relevant acquisition, (involved in the manufacture associations). of hams, bacon and cooked sausages, and the processing of cold meats), Triple From the evidence collected, the relevant C Pigs (a joint venture with another market was identified as the provision of company called CC Sales Auctions short-term insurance and insurance involved in breeding and rearing pigs) broking services in Zimbabwe. In that and Freddy Hirsch (a manufacturer and
341 supplier of natural sausage casings). also noted with concern. It was The Cattle Company Holdings also had a therefore felt that there was a high number of subsidiary companies, such as likelihood that the merged entity could CC Sales Auctions (that handled cattle engage in the following anti-competitive auctions throughout the country, and practices: involved in semen sales), Montana Meats (involved in the slaughter of cattle • manipulating prices in the meat and retailing of beef in Harare and industry, and unilaterally raising Gweru), Livestock Trading (that them to levels not related to market operated cattle feedlots and supplied forces; slaughter cattle to Montana Meats) and • foreclosing the supply to cattle to Savanna Leather (that processed hides to competitors; and wet blue state for export, and also • preventing new entrants or creating exported beef). barriers to entry into the relevant markets. The relevant product and functional markets were identified as the supply of The Commission therefore made it a pigs and cattle for slaughter and the condition that the merging parties should supply and distribution of pork and beef. divest from the cattle auctioneering In the slaughter pigs market, Colcom business if the merger was to be Holdings was found to be dominant with approved. The merging parties did not a 60% market share. The company was accept the approval condition and also dominant in the bacon (90%), hams abandoned the transaction. (90%) and cooked meats/polonies (50%) markets. On the other hand, the Cattle Company Holdings was dominant in the Restrictive and Unfair Business slaughter cattle market, a dominance that Practices was strengthened by its acquisition (not notified to the Commission because it The five cases of restrictive practices was then not compulsory to notify analysed in this review are only a mergers) of its main competitor, fraction of the number of cases handled Zimstock Sales. by the Commission. The five have been specifically selected because they are All the stakeholders approached by the representative of the way the Commission on the proposed merger Commission interprets and implements expressed competition concerns over the the Competition Act. merger. The Commission’s own analysis of the merger also identified a (a) Investigation into Allegations of number of competition concerns. The Restrictive and Unfair Trade Practices in issue of joint dominance to be created by the Cement Distribution Industry the merging parties in the supply of beasts for slaughter was of particular In December 1998, the Competition concern. Past attempts by both merging Commission commenced a preliminary parties to eliminate effective competition investigation into various allegations of in their respective relevant markets by restrictive and unfair trade practices in acquiring their closest competitors were the cement industry, which were leading
342 to shortages and excessive prices of • bundling or tying of cement sales to cement on the local Zimbabwean Circle Cement’s commercial market. The allegations came from transport services complaints made to the Commission by • refusal by both Unicem and Circle the cement trade and the general public, Cement to supply cement for the as well as from newspaper reports. construction of a potential competitor’s plant (the Sino-IDC Four companies were involved in the cement plant) or attempting to rise production and distribution of cement in the potential competitor’s entry costs Zimbabwe: (i) Portland Holdings • collusive and cartel-like behaviour Limited (Unicem) of Bulawayo; (ii) between Unicem and Circle Cement. Circle Cement Limited of Harare; (iii) Zimbabwe Cement Company (Pvt) Over forty different companies and Limited (ZimCement) of Norton; and organisations (comprising cement (iv) Techniks (Pvt) Limited of Gweru. merchants, construction companies, Only Unicem and Circle Cement were local authorities and government involved at all stages of cement departments) situated all over Zimbabwe production, from the quarrying of gave oral and written evidence during limestone to the final product. The other the investigation. Decisions made by two companies were more involved in other countries’ competition authorities blending operations. A new cement on similar cases were also analysed for manufacturing plant, under a joint guidance. venture between China and the Industrial Development Corporation (IDC), was The evidence gathered confirmed some nearing completion in Lalapanzi. The of the allegations levelled against cement industry was found to be highly Unicem and Circle Cement, and others concentrated, with a Herfindahl- which came up during the course of the Hirschman Index (HHI) of 4602. The investigation, such as: (i) restricting the two largest players in the industry distribution of cement; (ii) enhancing or (Unicem and Circle Cement) controlled maintaining the price of cement; and (iii) a combined market share of over 90%. supporting or promoting the distribution of cement by inefficient and The preliminary investigation uneconomical means. No evidence was established a prima facie case for a full- found to support the allegations of: (i) scale investigation into the matter in prevention or restriction of entry into the terms of section 28 of the Competition cement industry; (ii) undue refusal to Act. At that stage, evidence gathered distribute cement; and (iii) collusive pointed to the following: arrangements between the cement producers. With regards allegations of • vertical restraints in the delivery of collusion between Unicem and Circle cement between Unicem and two Cement, it was found that the fact that downstream companies in Harare Unicem was a more efficient producer and Bulawayo than Circle Cement was clearly reflected • discriminatory distribution of cement in that company’s lower retail prices on by both Unicem and Circle Cement the market. It was also found that even though the two companies had natural
343 markets in the northern and southern Herfindahl Index) concentration index in parts of the countries because of high excess of 8,000. Nesbitt Brewery was a transport costs of distributing their new entrant into the clear beer market products, the companies’ products were challenging the long-standing monopoly sold in either of their ‘natural’ markets. position of National Breweries, which held a market share of 90%. National The Commission therefore ordered Breweries has a national distribution Unicem and Circle Cement in terms of network while Nesbitt Brewery only section 31 of the Competition Act to operates in Chiredzi. The investigations discontinue and terminate the identified further revealed that the National restrictive practices. Breweries had ran a beer promotion in Chiredzi from May 1999 to April 2000 The Commission’s investigation also when the Competition Commission identified other public interest concerns started gathering information on the in the distribution of cement on the local case. The promotion included free Zimbabwean market, such as lack of snacks and T-shirts, lucky-draw tickets, transparency in the distribution of the free beers and substantial price product, lack of distribution outlets in reductions. The promotion was only remote rural areas, high import duties on held in Chiredzi where Nesbitt Brewery cement raw materials and discriminatory is based and sells the bulk of its beer. sales tax regime in favour of large The National Breweries retail prices for buyers. The Commission made its beer in Chiredzi during the promotion appropriate recommendations to the period where below its normal landed relevant authorities and parties on the prices in that town. alleviation of the concerns.
The Commission found the alleged (b) Preliminary Investigations into practices to be predatory within the Allegations of Predatory Pricing in the terms of section 2 of the Competition Clear Beer Brewing and Distribution Act. Although National Breweries Industry stopped the practices as soon as they became aware that the Competition In December 1999, Nesbitt Brewery Commission was investigating them, the (Pvt) Limited of Chiredzi complained to Commission made them to formally the Competition Commission that undertake that they would desist from National Breweries Limited was future practices aimed at driving Nesbitt engaged in predatory pricing, having Brewery out of the market. drastically reduced the price of its clear beer in Chiredzi to levels that were unprofitable, with the intention of (c) Preliminary Investigations into driving Nesbitt Brewery out of the Allegations of Restrictive Practices in market. the Pork Products Industry
In January 2000, the Competition The investigations conducted by the Commission received a complaint from Commission revealed that the clear beer a whistle-blower in the local pork industry in Zimbabwe is highly products industry alleging restrictive concentrated with an HHI (Hirschman- practices in Colcom Foods Limited’s
344 Export Contract with pig producers. It was alleged that the contract restricted In October 2001, the Commission pig producers to selling their entire received a complaint from British production of pigs to Colcom. American Tobacco Zimbabwe (Holding) Limited (BAT Zimbabwe) that a new
entrant into the Zimbabwean cigarette Investigations found that Colcom Foods manufacturing industry, Cut Rag Limited is a dominant player in the pork Processors (Pvt) Limited (see merger products market, processing about 70% analysis at 5.2.1. (a) above), was of the national herd of pigs. It was also engaging in restrictive and unfair trade found that while its Export Contract with practices in the distribution of its new pig producers was restrictive in nature, Remington Gold the producers are free to enter into such cigarette brands by not a contract with Colcom Foods and have printing on its cigarette packs the correct several other less restrictive options health warning clause that was agreed open to them in their business dealings with the Ministry of Health and Child with Colcom Foods or other processors. Welfare. The Ministry approved health warning clause was agreed in 1995 with It was further found that the Export the then two local cigarette Contract is meant to ensure production manufacturers. It read, “Smoking May of export quality pigs in accordance with Be Hazardous To Health”. Cut Rag international requirements. Processors’ new warning was stronger and read, “Tobacco Seriously Damages The Commission concluded that the Health: Underage Consumption restrictive nature of Colcom Foods’ Prohibited”. Export Contract with pig producers is reasonable in order to maintain quality At the initial stages of the Commission’s pig hers, maintain export preliminary investigation into BAT competitiveness and ensure a reasonable Zimbabwe’s complaint, Cut Rag return on assistance given to pig Processors submitted a counter- producers by Colcom Foods. It was also complaint to the Commission that BAT noted that the Export Contract is only Zimbabwe was attempting to drive it one of other options to pig producers in from the market by enticing retailers to marketing their animals and appears remove Cut Rag Processors’ products reasonably flexible. It was recognised from the shelves on the strength of a that market dominance in itself is not written directive to Cut Rag Processors anti-competitive but its abuse. The case from the Minister of Health and Child was therefore closed after Colcom Foods Welfare to do so pending its conformity were advised to amend some provisions to the agreed cigarette health warning of the Export Contract to make it less clause. restrictive. Colcom Foods agreed to make the advised amendments. The two complaints were investigated as ‘restrictive practices’ as defined in (d) Preliminary Investigations into section 2 of the Competition Act. The Allegations of Restrictive and Unfair alleged practices of Cut Rag Processors Trade Practices in the Cigarette were treated as misleading advertising Distribution Industry (an unfair trade practice while those of
345 BAT Zimbabwe were treated as abuse of warning clauses. The Zimbabwean dominant position (predatory behaviour). Ministry of Health and Child Welfare was also interviewed on its cigarette Background to the case was that the health warning policy. Since there was merger in 2000 of the then Rothmans of no dispute over the relevant market Pall Mall (Zimbabwe) Limited and the under investigation, which was then British American Tobacco identified as the distribution of (Zimbabwe) Limited to form BAT manufactured cigarettes on the local Zimbabwe created a virtual monopoly in Zimbabwean market, the Commission the local manufactured cigarette did not undertake a consumer survey. industry. The merger was however conditionally authorised by the The Commission found that the relevant Commission because of its other market was highly concentrated, with a efficiency and public interest benefits. Herfindahl-Hirschman Index (HHI) of One of the conditions was that the 9224. BAT Zimbabwe dominated the merged company’s surplus cigarette market with a market share of about making equipment should be sold by 96%. Cut Rag Processors’ market share tender to a third party interested in was about 2.5% and imports took up the entering the local cigarette remaining 1.5%. It was also found that manufacturing industry. The merged while BAT Zimbabwe failed to provide company’s surplus equipment was evidence to support their claims that Cut ultimately acquired by Cut Rag Rag Processors’ new cigarette health Processors who launched its new warning was misleading and harming ‘Remington Gold’ cigarette brands in their business, Cut Rag Processors August 2001. It should however be supplied a lot of evidence showing that noted that even though BAT Zimbabwe their health warning clause was not a agreed to the equipment disposal misrepresentation of facts and was condition attached to the authorisation of indeed a requirement in most its merger, it was reluctant to sell the international markets. The fact that equipment to Cut Rag Processors (or to cigarette smoking seriously damages any other company), preferring to scrap health was confirmed by BAT’s own it instead. The Chief Executive of that parent on its website. Evidence was also company at one time during the given that BAT Zimbabwe itself was Commission’s examination of the distributing on the local market imported merger commented that he should “not cigarettes with a different and stronger be expected to assist in the formation of health-warning clause than the one it a competitor”. agreed with the Ministry of Health in 1995. On the other hand, the alleged In investigating the restrictive practices practices of BAT Zimbabwe were found case, the Commission obtained oral and to be anti-competitive in that they had written evidence on the matter from the the effect of driving Cut Rag Processors two complainants-cum-respondents. out of the relevant market. The Valuable information was also obtained seriousness of the predatory actions of from the internet on the international BAT Zimbabwe against Cut Rag practices and corporate policies of processors was compounded by the fact BAT’s parent company on health that BAT Zimbabwe was the dominant
346 firm on the market. It was also seen as a following a preliminary probe into the subtle way of BAT Zimbabwe trying to matter that established a prima facie case nullify the Commission’s conditional for such an investigation. authorisation in 2000 of the Rothmans/BAT merger. The allegations of restrictive practices that were brought to the attention of the The Commission concluded that while Commission included the following: the complaint by BAT Zimbabwe against Cut Rag Processors had no merit • that Wankie Colliery Company in terms of the Competition Act, that of Limited (WCC), the country’s sole Cut Rag Processors raised serious coal producer, was putting barriers to competition concerns in that BAT entry into the coal distribution Zimbabwe was trying to thwart industry and was not applying its competition from a new and weaker requirements for appointment as a entrant in the market. The case against Coal Merchant in a fair and Cut Rag Processors was therefore transparent manner; closed. With regards the case against • that WCC was unfairly allocating BAT Zimbabwe, the Commission agreed coal, particularly the popular to invoke the provisions of section 30 of ‘washed peas’ grade, amongst the the Competition Act and negotiate with appointed Coal Merchants; BAT Zimbabwe appropriate • that WCC was abusing its monopoly arrangements that ensured the position in the supply of coal on the discontinuation of that company’s local market by arbitrarily imposing identified restrictive practices before exorbitant coal price increases; and embarking on a full-scale investigation • that bottlenecks in the transportation in terms of section 28 of the Competition of coal from the Colliery by rail, Act into the matter, should such which is the most economical negotiations fail to produce the required method of coal transportation, were results. The negotiations were contributing to the shortage of the successfully concluded. The product on the local market. Commission also agreed to ‘censure’ the Ministry of Health and Child Welfare As is all section 28 investigations, over that Ministry’s directive to have notices were published in the Cut Rag Processors’ products removed Government Gazette and in all the major from the market. national newspapers announcing the commencement of the investigation and (e) Investigation into Allegations of calling on interested persons or parties to Restrictive and Unfair Trade Practices in submit written representations on the the Coal Industry matter. Public hearings were also held on the matter. A total eleven companies In January 2001, the Commission and organisations submitted written embarked on a full-scale investigation in representations on the matter, and terms of section 28 of the Competition sixteen gave oral evidence at the public Act into allegations of restrictive and hearings. unfair trade practices in the distribution of coal on the local Zimbabwean market
347 The investigation identified a lot of plant at the Colliery would go a long problems in the supply and pricing of way in alleviating the acute shortage coal in Zimbabwe. While all the on the local market of the popular problems identified were found to have ‘washed peas’ coal grade; serious competition implications, its was also fund that their causes were both of a (vi) most of the problems in the local micro and macro nature, with the coal industry could be adequately negative macro-economic fundamentals addressed if that industry was currently in force in Zimbabwe being the included under the proposed major cause of the problems. The Zimbabwe Energy Regulatory investigation’s specific findings were Commission. that: Based on the findings of its (i) WCC allowed the bad blood that was investigation, the Commission: created between its management and that of one of the applicants to (a) made the following orders in become Coal Merchant, a small terms of section 31(1) of the company called RAE (Pvt) Limited, Competition Act, 1996: to influence its partial treatment and determination of RAE (Pvt) (i) that WCC should resume and Limited’s application; complete within thirty days its consideration of RAE (Pvt) (ii) the zoning provisions in WCC’s Limited’s application for Memorandum of Agreement with its appointment as a Coal Merchant on appointed Coal Merchants, which the basis of its Requirements for limit the merchants to certain Appointment as Coal Merchant geographic areas (but which had already submitted to RAE (Pvt) since been removed) created an anti- Limited, and that the results of the competitive market-sharing cartel in such consideration, and full reasons the coal distribution industry; of the decision taken, should be communicated to the Commission (iii)WCC was abusing its monopoly before being implemented; and position in the local coal industry by engaging in conditional selling of its (ii) that WCC disengages itself from the popular ‘washed peas’ coal grade in restrictive practice of selling any of order to move its other less popular its grades of coal on condition that coal grades; the buyer also purchase any other grades of coal; (iv) save for the conditional selling of its ‘washed peas’ coal grade, WCC was (b) requested WCC in terms of section not engaged in other anti-competitive 30(1) of the Act to give an practices associated with abuse of Undertaking that is will not re- monopoly position; introduce market-sharing provisions in its Memorandum of Agreement (v) the investment made by WCC in a with appointed Coal Merchants or new coal crushing and screening any other coal merchants, and to
348 continue discussing with other • small sugar exporters are being stakeholders the identified problems discriminated against in the in the distribution of coal with a allocation of Zimbabwe’s sugar view to reaching amicable solutions export quotas for the European to those problems; Union (EU) and the United States of America (USA); (c) made recommendations to the • small sugar exporters are being Ministry of Mines and Energy that offered different ex-factory prices of the coal industry should be included sugar for different export markets; under the proposed Zimbabwe and Energy Regulatory Commission, and • the existence of a monopoly in the that the Competition Commission distribution of sugar is resulting in should be consulted on competition the excessive pricing of the issues in the establishment of that commodity on the domestic market. regulatory authority. Notices announcing the commencement (f) Investigation into Allegations of of the investigation and calling upon Restrictive Practices in the Zimbabwean interested persons and parties to submit Sugar Industry written representations on the matter were published in the Government The Commission in March 2002 Gazette and the major national resolved to undertake a full-scale newspapers in July 2002. The investigation in terms of section 28 of investigation’s Stakeholder Hearings the Competition Act, 1996 into were held in Harare in August 2002. allegations of restrictive and unfair business practices in the sugar supply A total of ten written representations and distribution industry of Zimbabwe. were submitted on the matter. These The resolution to undertake the came from the major players in the sugar investigation followed preliminary industry (Zimbabwe Sugar Sales (Pvt) investigations into the industry that Limited, ZSR Corporation Limited, established a prima facie case for such Triangle Limited and Zimbabwe Sugar an investigation. Association), some industrial users of sugar (Schweppes Zimbabwe Limited), A sugar trading company called and sugar traders and consumers Frontline Marketing Services (Pvt) (Matabeleland Registered Traders Limited had complained through the Association, Odzani Trading Company Ministry of Finance and Economic and individuals). Twelve companies and Development that: organizations gave oral evidence at the investigation’s Stakeholder Hearings. • the role and involvement of ZSR These were the complainants (Frontline Corporation Limited, a major Marketing (Pvt) Limited and other exporter of sugar, in the process of commodity brokers), large industrial issuing sugar export permits to other users of sugar (Cairns Foods Limited sugar exporters who are its potential and Delta Corporation), consumer competitors on the export market representatives (the Consumer Council was restrictive and anti-competitive; of Zimbabwe), the respondents (Hippo
349 Valley Estates Limited, Triangle Valley Estates and Triangle Limited on Limited, Zimbabwe Sugar Sales (Pvt) one hand and ZSR Corporation Limited Limited, ZSR Corporation Limited and on the other hand on the distribution of Zimbabwe Sugar Association) and sector refined and SunSweet brown sugars on regulators (the Ministry of Industry and the domestic market through a International Trade and the Ministry of subsidiary company of ZSR Corporation Lands, Agriculture and Rural Limited, Sugar Distributors. Resettlement). The horizontal agreement or The allegations of anti-competitive arrangement between Hippo Valley practices in the sugar industry were Estates Limited and Triangle Limited to treated as ‘restrictive practices’ as supply raw sugar to Zimbabwe Sugar defined in terms of section 2 of the Sales at uniform prices and terms Competition Act, 1996. The however has an allowable efficiency competition analysis under the defense under the Competition Act in investigation was split into anti- that the arrangement is meant to ensure competitive agreements and/or abuse of equitable returns to both the two millers dominant position. and the cane growers from the sale of the processed product. The vertical Regarding anti-competitive agreements, arrangements between Hippo Valley the horizontal agreement or arrangement Estates Limited and Triangle Limited between Hippo Valley Estates Limited and ZSR Corporation Limited on the and Triangle Limited to supply raw distribution of refined and Sunsweet sugar to Zimbabwe Sugar Sales at brown sugars on the domestic market uniform prices and terms was found to also has an efficiency defense element in constitute a collusive arrangement that ZSR Corporation Limited has a between competitors, which is prima country-wide distribution network which facie illegal under the Competition would be costly to duplicate. Act82. The relationship between Hippo Valley Estates Limited and Triangle Regarding dominance and its abuse, both Limited on one hand and Zimbabwe Zimbabwe Sugar Sales (Pvt) Limited Sugar Sales on the other hand, under and ZSR Corporation Limited were which Zimbabwe Sugar Sales has the found to be in dominant positions in exclusive right to sell the millers’ raw their respective sectors. It was however sugar on both the local and export only ZSR Corporation Limited that was markets, was however also found to be a found to be abusing its dominance in the vertical restraint to competition, so was domestic sugar distribution sector by the vertical relationship between Hippo engaging in exclusionary behaviour aimed at suppressing competition from
82 It was nevertheless noted that Hippo Valley new entrants. and Triangle Limited do not actually sell raw sugar to Zimbabwe Sugar Sales. The structure of Even though the vertical integration in that arrangement was that Zimbabwe Sugar Sales the sugar industry, under which most (which is owned 50/50 by the mills) was the players in the industry are linked to one appointed raw sugar sales agent for the two producers. Zimbabwe Sugar Sales sold the bulk another through interlocking of its raw sugar to a single domestic customer, directorships, was found to have some ZSR Corporation.
350 competition concerns linked to Having fully investigated the allegations horizontal and/or vertical agreements of restrictive and unfair business and arrangements, it also served a practices in the sugar industry and number of important public interests examined evidence submitted on the such as: matter, the Commission took the following remedial actions to promote • safeguarding the interests of small competition in the industry and to cane growers by ensuring that they prevent and control the identified get fair and equitable returns from restrictive practices in the industry: the sale of raw sugar on the domestic and export markets; • the Commission indicated its • cushioning sugar producers from the preparedness to formally accept the unstable and low prices of sugar on vertical integration in the sugar the world market; industry on condition that the • enabling the country to meet its industry introduces new entrants and preferential sugar export quotas, allows fair competition in the which earns the country valuable distribution of refined sugars on the foreign currency; and domestic and export markets; • enabling sugar to be marketed on the domestic market at prices which • the Commission recommended that cushions consumers in rural areas the Ministry of Industry and from high transport costs and International Trade urgently reviews unscrupulous traders. the Sugar Production Control Act in line with developments and advances The regulatory framework in the sugar made in the sugar industry, and that industry was found to be governed by an the Commission should be consulted old and obsolete Sugar Production in the review exercise in order to Control Act, 1964. The Act, which was ensure that the new provisions of that enacted when the intention then was to Act are not anti-competitive; and curtail sugar production in response to international calls reduce over- • the Commission also recommended production of sugar on the world market, that the Ministry of Industry and was no longer addressing the current International Trade take over from needs to increase local production of the Zimbabwe Sugar Association the sugar in order to meet increased demand functions of issuing ‘Blue on domestic and regional markets. The Certificates’ required for monitoring Act was also highly anti-competitive the export of sugar as an interim since it over-protected traditional players measure while serious consideration in the sugar industry and discourages is given by the same Ministry to new entrants. It also gave too much establish an independent sector power to the Zimbabwe Sugar regulator in the sugar industry. Association, an association of traditional players that does not represent all the The above remedial actions were fully players in the industry. accepted and implemented by all concerned parties.
351 The use by the Commission of the probability that the merging parties Herfindahl-Hirschman Index (HHI) in could abuse their joint dominance in that measuring market concentration is only operation. for guidance purposes. The Commission is aware that HHI was specifically While tolerating dominant companies, designed for developed economies such the Commission has also been conscious as that of the United States of America, of the need to encourage and facilitate and that its applicability in developing new entrants in concentrated industries economies like Zimbabwe’s is limited. and to prevent exits from markets. In most cases, the four-firm Again the Rothmans/BAT merger is a concentration ratio (CR4) is also used to point in case in which the Commission collaborate the findings of the HHI. In facilitated the entry of Cut Rag the final analysis however, the Processors (Pvt) Limited into the Commission looks at the situation on the cigarette manufacturing industry by ground on each particular competition making it a condition of its approval of case, such as the actual number of that merger that the merged party should competing firms, the type of business dispose of its surplus cigarette making being considered, economies of scale equipment to an independent third party. and entry barriers. The Commission’s conditional approval of the Coca-Cola/Cadbury-Schweppes An analysis of the competition decisions merger also prevented exit from the made so far by the Commission show beverages industry of Schweppes that the Commission is not concerned Zimbabwe Limited and facilitated over the existence of dominance itself FLAM’s entry into that industry. but over the abuse of dominant positions, or the exercise of market The Commission has also been cautious power. This is clearly shown in cases of not being used to protect individual such as the Pork Products Case and the companies to the detriment of the Coal Distribution Case in which the competition process. A good example of practices of dominant firms were found this is found in the Cigarettes not to be anti-competitive, and in cases Distribution Case. The Commission not such as the Clear Beer Distribution Case only dismissed the complaint by BAT and Cigarette Distribution Case in which Zimbabwe against Cut Rag Processors the Commission was prepared to come as a baseless attempt of getting heavily on the dominant companies’ protection against its competitor but exclusionary practices. On one hand, the instead took action against the Commission has allowed certain mergers complainant’s anti-competitive such as the Rothmans/BAT merger and practices. the Coca-Cola/Cadbury-Schweppes merger which while creating dominant The Commission has allowed certain companies the dominance was not seen mergers with substantial pro-competition as causing serious competition concerns, elements and public interests to proceed while on the other hand, it ordered even though such combinations increase divestiture of a key operation in the economic concentration. For example, it proposed Colcom Holdings/Cattle allowed the Commercial Union Company merger on the grounds of high Insurance/General Accident Insurance
352 merger (not outlined above) because of also highlighted the need for the its countervailing effect in the short-term business community to comply with the insurance sector on an earlier merger provisions of the Competition Act. The between Zimnat Insurance and Lion of findings of the investigations have also Zimbabwe Insurance, which was enabled the Commission to advocate consummated before the effective Government to include competition coming into operations of the provisions in a number of new Competition Commission. It also legislation. authorised the Dairibord/ Lyons Zimbabwe merger because of its many efficiency elements and the localisation of the control of Lyons Zimbabwe (Pvt) Limited.
The treatment of multinational mergers by the Commission is also worth noting. The problem of developing countries like Zimbabwe with relatively small markets influencing large multinational mergers such as the Rothmans/BAT merger and Coca-Cola/Cadbury- Schweppes merger is currently under discussions in organisations such as the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organisation (WTO) and far from being resolved. The Commission’s position has been to examine the competitive effects on the Zimbabwean market of such mergers the same way it examines any other local mergers. The Commission has also taken an opportunity of these mergers to promote direct foreign investment and other pro- competitive practices through its conditional approval of the mergers.
On the whole, the Competition Commission’s handling of competition cases has gone a long way in promoting competition in the Zimbabwean economy. The investigations held have not only exposed serious restrictive and unfair trade practices in some industries and economic sectors, leading to the elimination of such practices, but have
353 Monopoly situation is dealt with in a Section 6: number of provisions of the Competition Proposed Amendments To The Act, such as (i) section 2, which defines Competition Act the term ‘monopoly situation’; (ii) section 28, which empowers the While the Competition Amendment Act, Commission to conduct investigations 2001 went a long way in modifying into monopoly situations; and (iii) some provisions of the Competition Act, section 31, which authorises the 1996 in line with practical requirements, Commission to issue orders against the Commission in its ongoing monopoly situations that are contrary to implementation of the Act keep on public interest. identifying other provisions of the Act that need to be amended. In this regard, The present provisions of the Act the Directorate of the Commission has however do not state the factors the need already proposed to the Board of to be assessed in determining the Commissioners amendments related to substantial prevention or lessening of the definition of ‘controlling interest’, competition by monopoly situations. the treatment of monopoly situations, the The wrong impression is therefore given appointment of Vice Chairman of the that all monopoly situations are per se Commission, the investigative and harmful to competition, while a ‘rule of adjudicative functions of the reason’ approach aimed at identifying Commission, ‘rule of reason’ and per se possible abuse of dominance is more prohibitions, and control of suitable in considering such situations. conglomerates. The proposed amendments are aimed at Definition of ‘Controlling Interest’ clarifying the treatment of monopoly situations using the ‘rule of reason’ The definition of the term ‘controlling approach. interest’ in the Competition Act, which simply states that the term means any Appointment of Vice Chairman interest which enables the holder of the interest to exercise any control over the Both the Chairman and Vice Chairman activities or assets of an undertaking, has of the Commission are appointed by the been criticised by the business Minister in accordance with the community for its vagueness and provisions of the Competition Act. ambiguity. While the current Chairman was re- appointed in 2002, his vice has since not The proposed amendment to the been appointed. The absence of a definition of ‘controlling interest’ is substantive vice chairman is making it therefore aimed at clearly illustrating difficult for the Commission to situations of control, e.g. in terms of effectively operate during the absence or percentage shareholding in an otherwise unavailability of the undertaking or in terms of voting power. Chairman.
Treatment of Monopoly Situations It is therefore proposed that members of the Commission elect from amongst
354 themselves the vice chairman of the Commission in order to speed up the • undertaking investigations into appointment of such a key member of complaints of anti-competitive the Commission. practices and conduct, mergers and acquisitions, and monopoly Investigative and Adjudicative Functions situations; • making determinations on the While the Commission has gone some application or breach of the way in separating its investigative provisions of the Act; functions from its adjudicative functions • considering and making by delegating to the Director some of the recommendations on applications for investigative functions, there are still authorisations of restrictive some grey areas which need to be practices; clarified. For example, while it is clear • giving negative clearances on that the Directorate is responsible for practices exempted under the Act; undertaking preliminary investigations, • negotiating and concluding its role in the undertaking of full-scale undertakings and consent investigations requiring public or agreements; stakeholder hearings is not clear. As a • administering the Commission’s result, the Directorate serves as the affairs, funds and property. Board of Commissioners’ secretariat in such investigations, thereby also being (c) The Directorate should consist of involved in the Commission’s permanent staff. While the Director adjudicative functions. and the Assistant Director should be appointed by the Board of The delegated investigative functions of Commissioners, the other members the Director are also not specifically of staff should be appointed by the enshrined in the Competition Act and Director. can therefore be taken back any time. (d) The Board of Commissioners The following are therefore the proposed should have the following primary amendments to the Competition Act that responsibilities: are aimed at effectively separating the Commission’s investigative and • adjudicating on anti-competitive adjudicative functions: practices and conduct, and monopoly
situations and taking appropriate (a) The Act should specifically make remedial action as provided for in the provision for two distinct operating Act; arms of the Commission: (i) a • approving, with or without Directorate with investigative conditions, or prohibiting mergers functions; and (ii) a Board of and acquisitions; Commissioners with adjudicative • granting or refusing authorisations of functions. restrictive practices;
• (b) The Directorate should have the hearing appeals against, or following primary responsibilities: reviewing, decisions of the Directorate that may be referred to it.
355 have rule of reason connotations. For The proposals are also that the Board of example, the description of the unfair Commissioners should have at least business practice of collusive three full-time members, and a small arrangements between competitors, secretariat of its own, to enable it to which are generally per se prohibited in perform its full adjudicative functions. many jurisdictions, has a clear ‘rule of reason’ proviso that they can be allowed ‘Rule of Reason’ and Per Se Prohibitions if “bona fide intended solely to improve standards of quality or service in regard The Competition Act, 1996 effectively to the production or distribution of the does not provide for per se prohibitions, commodity or service concerned”. i.e. declaring any anti-competitive practice or conduct illegal without The proposed amendments are therefore attempting to evaluate the anti- to clearly ‘rule of reason’ and per se competitive effects of the practice or prohibitions in the Act. conduct against any of its pro- competitive features. In the Act, all anti- Control of Conglomerates competitive practices and conduct are grouped under the term ‘restrictive Serious concern has been raised in some practice’. The definition of restrictive quarters of the Zimbabwean business practice in terms of section 2 of the Act community that some companies were makes it clear that only those restrictive becoming too big in such a small practices that materially restrict country with a shrinking economy. competition are prohibited under the Similar concerns were also being Act. This automatically introduces a expressed in Government circles83. ‘rule of reason’ approach before Appeals were therefore increasingly declaring any restrictive practice as being made to the Commission to prohibited under the Act. control conglomerates.
However, certain restrictive practices, The Commission looked at the matter that are termed ‘unfair business from the point of view of dominance and practices’ in the Act, are illegal practices its possible abuse to see whether the in terms of section 42 of the Act, and the perceived threat from conglomerates intention was that these should be the could not be addressed from the present Act’s per se prohibitions. Declaring provisions of the Competition Act, 1996. unfair business practices such as It was noted that the essence of collusive arrangements and resale price dominance is the power to behave maintenance in the Act as per se independently of competitive pressures. prohibitions confirms with practices in many other jurisdictions. The The Commission concluded that instead complication is that this not only of controlling firm sizes and being contradicts the spirit of the ‘rule of reason’ approach in the definition of the 83 term ‘restrictive practice’ in the Act, but Government concerns over the emergence of strong conglomerates resulted in the recent (early also that the description in the Act of 2004) creation of a new Department of Anti- some of the unfair business practices Corruption and Anti-Monopolies in the President’s Office.
356 concerned over dominance per se, it is abuse of dominance that should cause competition concerns. In this regard, it was noted that the present provisions of the Competition Act adequately addressed the issue of abuse of dominant positions. However, what seems to be missing from the Act is some form of market share thresholds for defining dominance, which could trigger off the assessment of their competitive effects.
357 however been found not to have been Section 7: substantiated as the competition Conclusion authority’s merger control activities are now of its most effective in addressing The implementation of competition law competition concerns and promoting and policy in Zimbabwe is still in its investment and new entrants. infancy. The competition authority has however learnt a lot from the experience Challenges facing the competition gained so far in the implementation of authority are many. They include the the law and policy, and has taken great Commission’s new functions of tariffs strides in promoting competition and and price monitoring, and the building a culture of competition in establishment of a new Department of Zimbabwe. In this regard, it is worth Anti-Corruption and Anti-Monopolies in noting that of the private sector the President’s Office. With the support monopolies that existed in 1992 at the and assistance of organisations like the time of the IPC Study of Monopolies and United Nations Conference on Trade and Competition Policy in Zimbabwe Development, these challenges are virtually none exist now, largely due to however not insurmountable. the efforts of the competition authority in facilitating new business entrants and fighting exclusionary practices of dominant companies.
The competition authority’s implementation of competition law and policy has also enabled the authority to identify shortcomings in the law and to propose the necessary amendments. It is an interesting fact that some of the amendments to the Act proposed, and being proposed, by the competition authority on the basis of the practical experience gained from its implementation of the law address concerns expressed by the private sector during the formulation of the competition policy and law in the 1990s. Such amendments include the separation of the investigative and adjudicative functions of the Commission, and the need for greater precision in the definition of ‘controlling interest’. Other concerns of the private sector, such as those on pre-merger notification, have
358 Annex I
STRUCTURE OF THE PRICE MONITORING MECHANISM
Goods/Service Placed Under Surveillance
Competition Commission Investigates
Competition Other Concerns
Invoke provisions of the Refer to Consumer Council Competition Act and take to hold Enquiry and necessary remedial action; recommend and report to the Advise Minister of Minister of Industry and Industry and International International Trade Trade
Minister reports to Tripartite Negotiating Forum Committee
Tripartite Negotiating Forum makes final decision based on inquiries held
359 Appendix II
the Commission in terms of section 14 of the Act; MERGER CONTROL GUIDELINES RULES “International Accounting Standards” (or “I.A.S.”) means the standard set by These guidelines are produced to inform the International Accounting Standards interested parties on the law governing Association from time to time, and mergers and acquisitions in Zimbabwe. adopted by the Zimbabwe Public The guidelines are however not a Accountants and Auditors Board; substitute for the Competition Act, 1996 (No.7 of 1996), the Competition “Merger Notice” means a Amendment Act, 2001 (No.29 of 2001) notification of a merger or acquisition; and related regulations. Readers may need to seek their own legal advice on “target firm” means a firm: (i) as a result the application of the law. of a merger, the whole or part of whose business shall be directly or indirectly 1. Short Title controlled by an acquiring firm; (ii) as a result of a merger, shall directly or These guidelines may be cited as indirectly transfer direct or indirect the ‘Merger Control Guidelines’. control of the whole or part of its business to an acquiring firm. 2. Interpretation 3. Scope and Application In these Guidelines unless the context indicates otherwise: (1) These Guidelines cover both ‘notifiable’ and ‘non-notifiable’ “Act” means the Competition mergers: Act, 1996 (No.7 of 1996) as amended; (a) a ‘notifiable merger’ is a merger or “acquiring firm” means a firm: (i) as a proposed merger with a value at or result of a merger, which directly or above the prescribed threshold indirectly acquire, or establish direct or indicated in sub-Rule (2) below; indirect control over the whole or part of (b) a ‘non-notifiable merger’ is a merger the business of another firm; (ii) that has or proposed merger with a value direct or indirect control over the whole below the prescribed threshold or part of the business of a firm indicated in sub-Rule (2). contemplated in (i); (2) The threshold for a notifiable “Commission” means the Competition merger applies to any party whose and Tariff Commission established by combined annual turnover in, into or section 4 of the Act; from Zimbabwe of the acquiring firm and the target firm is valued at or more “Committee” means the Mergers & than Z$500 million, or whose combined Acquisitions Committee established by assets in Zimbabwe of the acquiring firm
360 and the target firm is valued at or more total assets, and copies of relevant than Z$500 million. annual or other financial reports; (e) details of the organisational structure (3) The annual turnover and assets of of the merging firms and of affiliated a firm at any time will be calculated in firms, and details of significant terms of the International Accounting ownership interests; Standards (I.A.S.) and based on the (f) description of the products or firm’s income statement and balance services supplied by each of the sheet as at the end of the immediate merging firms; previous financial year. (g) description of the relevant markets served by each of the merging firms 4. Merger Notification and their shares in each of the Requirements markets; (h) reasons for the merger and its (1) Parties to a notifiable merger expected benefits; must notify the Commission of that (i) annual reports and financial merger by filing a Merger Notice in statements of the merging firms and Form CTC: Merger.1 in triplicate within internal documents analysing the thirty (30) days of the conclusion merger prepared for corporate between the merging parties of the decision-makers. memorandum of agreement to merge or of the acquisition by any one of the (3) The Commission will assign parties to that merger of a controlling distinctive case numbers to each Merger interest in the other party. Notice and must ensure that every document subsequently filed in respect (2) A Merger Notice filed in terms of of the same proceedings is marked with sub-Rule (1) above must include the the same case number. following basic information: (4) A person who files any document (a) names and addresses of the firms in terms of this Rule must provide to the involved in the transaction; Commission the following details on (b) description of the transaction, for that person: example: (i) whether the transaction is a ‘true merger’ (i.e., a fusion (a) legal name; between two or more enterprises (b) physical address for service; and whereby the identity of one or more (c) telephone number(s) or other is lost and the result is a single electronic addresses (e-mail address, enterprise), acquisition of assets or facsimile transmission number(s)). shares, joint venture, etc.; (ii) value of assets or shares acquired; and (iii) If the person who files the document is a copies of any relevant documents company or corporate body, the name relating to the transaction, such as and address of the individual authorised the merger agreement; to deal with the Commission on behalf (c) timing of the transaction; of the person filing the document must (d) financial information on the merging be provided to the Commission. firms, including sales or turnover and
361 (5) Notification of a notifiable merger must be accompanied by a fee (a) Stage One calculated at 0.05% of the combined annual turnover or combined value of The initial stage of the merger assets in Zimbabwe of the merging examination begins on the working day parties, whichever is higher. following the date on which a merger notification is filed, and the examination (6) The fee payment in respect of a must take a maximum of 30 (thirty) days merger notification may be payable by: subject to the Commission having received from the merging parties all the (a) a cheque or money order in payment necessary information required to make of that fee delivered to the such an examination. If the information Commission; or supplied with the notification is (b) a direct deposit or an electronic incomplete, the examination period transfer of funds in the amount of begins on the day following the receipt that fee to the account of the of the complete information. Commission. At this stage, the Committee, must make (7) The Commission may require a determination whether the merger parties to a non-notifiable merger to raises any competition concerns. Where notify the merger to the Commission by the Committee determines that the filing a Merger Notice in Form CTC: merger does not raise serious Merger.2 in triplicate if it appears to the competition concerns and is not contrary Commission that the merger is likely to to public interest, the examination shall substantially prevent or lessen be closed and the merging parties shall competition or is likely to be contrary to accordingly be informed in writing. public interest in Zimbabwe. (b) Stage Two No fee shall be payable for filing a Merger Notice for a non-notifiable The second stage begins when the merger. Committee finds that the merger raises serious competition concerns or is (8) The Commission strongly contrary to public interest, and a encourages the merging parties to make thorough examination of the merger is pre-notification presentations on the therefore required. proposed merger transactions for the Commission’s non-binding opinion on This stage must take a maximum of 60 the transaction. (sixty) days, which can be extended by the Commission for a further period of 5. Merger Examination Proceedings 30 (thirty) days. The reasons for the extension must be given in writing to the (1) Upon being notified of a parties to the merger. proposed merger in terms of Rule 4(1), the Commission will examine and (2) The Commission will endeavour consider the proposed merger with all to consider mergers notified in terms of due expedition in two stages as follows: Rule 4(8) within 60 (sixty) days, which
362 period may be extended by the (viii) whether the business or part of Commission by a further 30 (thirty) the business of a party to the merger days. or proposed merger has failed or likely to fail; (3) At any time during a merger (ix) whether the merger will result in the examination the Commission may removal of efficient competition. request additional information from a party to a merger, or require a party to a (2) If it appears that the merger is merger to provide additional likely to substantially prevent or lessen information. competition in Zimbabwe or any part of Zimbabwe, the Commission will then A request for additional information determine whether the merger is likely to made under this sub-Rule shall not result result in any technological efficiency or in the suspension of the merger other pro-competitive gain which will be examination periods provided for in sub- greater than and offset the effects of any Rules (1) and (2) above. prevention or lessening of competition that my result or is likely to result from 6. Consideration of Mergers the merger and would not likely be obtained if the merger is prevented. (1) In considering a merger, the Commission initially determines The Commission will also determine whether or not the merger is likely to whether the merger can or cannot be substantially prevent or lessen justified on public interest grounds. competition in Zimbabwe or any part of Zimbabwe by assessing the following (3) In determining whether a merger factors: is or will be contrary to the public interest, the Commission takes into (i) the actual and potential level of account everything that it considers import competition in the relevant necessary and relevant in the market; circumstances and shall have regard to (ii) the ease of entry into the market, the desirability of: including tariff and regulatory barriers; (i) maintaining and promoting effective (iii)the level, trends of concentration and competition between persons producing history of collusion in the market; or distributing commodities and services (iv) the degree of countervailing power in Zimbabwe; in the market; (iii)promoting the interests of (v) the likelihood that the merger would consumers, purchasers and other result in the merged party having users in Zimbabwe in regard to the market power; prices, quality and variety of (vi) the dynamic characteristics of the commodities and services; and market including growth, innovation (iv) promoting through competition, the and product differentiation; reduction of costs and the (vii) the nature and extent of vertical development of new commodities, integration in the market; and facilitating the entry of new competitors into existing markets.
363 merger. In this regard, the Commission (4) In determining whether or not to may approve the merger either approve any merger, the Commission conditionally or unconditionally, or may investigates the merger, or undertakes a prohibit the merger. public inquiry, to ascertain any competition or public interest concerns Conditional approvals of mergers should for the purposes of determining whether include remedies aimed at alleviating the or not to approve any merger. In its competition concerns identified during investigation, or inquiry, the the investigation and review. Such Commission is obliged to ensure that the remedies may be structural or rules commonly known as the rules of behavioural. Structural remedies often natural justice are duly observed and , in entails divestiture (e.g. sale of some particular, takes all reasonable steps to parts of a multi-product firm in order to ensure that every person whose interests reduce its market power in a specific are likely to be affected by the outcome market). Behavioural remedies require a of the merger determination is given an commitment on the part of the merged adequate opportunity to make entity to behave or not to behave in a representations on the merger. particular way (e.g. obligations not to increase quantity produced above a (5) The Commission’s merger certain level, or not to raise prices above analytical process covers the following a certain level, or to supply certain areas: customers).
(i) market definition and description (7) All decisions made by the (product market definition, Commission on merger notifications geographic market definition, must be communicated in writing to the functional market definition, firms parties to the merger as soon as they are that participate in the relevant made. market, market shares and concentration levels); (8) The Commission may amend or (ii) potential adverse competitive effects revoke any merger approval if the (lessening of competition through Commission establishes that the coordinated interaction or through approval was granted on the basis of unilateral effects); information that was false or misleading, (iii)market entry analysis (entry or that there has been a breach of any alternatives, timeliness of entry, terms or conditions subject to which the likelihood of entry, sufficiency of approval was granted. entry); (iv) identification of possible 7. Abandonment of Merger efficiencies; and (v) failure and exiting assets (the (1) The acquiring firm may at any ‘failing firm’ principle). point during the examination of the merger transaction notify the (6) After the investigation and Commission in writing that it has examination of the proposed merger, the abandoned the transaction and has no Commission will make a decision on the intention to implement it.
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(2) Upon the filing of the merger abandonment notice:
(a) the parties to the merger will remain in the same position as if the merger had never been notified; and (b) the merger notification fee paid in respect of that merger, if any, will be forfeited to the Commission.
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