EA consumers victims of monopolies and cartels

 7 February 2015

Allan Olingo

Consumers in East Africa could be paying more for products because of the limited jurisdiction of competition watchdogs preventing them from reining in firms that are accused of misbehaviour.

Investigations into abuse of dominance in East Africa have typically been limited to national boundaries and the countries’ competition authorities, says a report by the Centre for Competition, Regulation and Economic Development (CCRED).

The report says there is abuse of dominance by near monopoly industry players, cartel conduct that cuts across borders and high pricing due to exclusive agreements. Firms such as Safaricom, Multichoice Kenya through their DSTV brand, SABMiller, Kenya Breweries and Tanzania Breweries have been accused of engaging in anti-competitive behaviour.

In November last year, the Common Market for Eastern and Southern Africa’s Competition Commission and the World Bank’s Business Climate Programme admitted that  anti-competitive behaviour in some sectors has led to the region’s citizens paying higher prices for goods and services than the rest of the world.

The World Bank head of business climate for Eastern and Southern Africa Catherine Masinde said prices for some products are six times higher than in comparable markets outside Africa.

“We have observed that these uncompetitive tendencies are keeping global investors away, thus stifling effective competition. The transport sector is closed except to a few players and this creates cartel-like behaviour resulting in high transportation costs and therefore high cost of goods,” Ms Masinde said.

Comesa’s Competition Commission (CCC), the bloc’s watchdog, said cross-border mergers and acquisitions control policies will see firms abide by best practice and hence benefit consumers.

The Commission’s chief executive officer, George Lipimile said that the CCC is playing its role as a one-stop shop for the assessment of cross-border transactions, thereby reducing the cost of doing business.

“We are banking on mergers and acquisitions as a driver of opening up the market to players. Mergers, if well managed and monitored, will eventually benefit the consumers by expanding markets, encouraging innovation and allowing companies to become more efficient,” Mr Lipimile said.

Comesa is also working with competition authorities to rein in poor industry practices; it relies on these bodies to provide data and also put its recommendation into effect.

“The Commission has taken the initiative to establish co-operation frameworks with member states’ national competition authorities in the implementation of the regulations in order to promote convergence in consumer protection and competition law enforcement within the Comesa region,” Mr Lipimile said.

The Commission’s head of mergers and acquisitions, Willard Mwemba, said Comesa only deals with filings involving companies with a minimum annual turnover of $5 million whose merger is likely to have a material effect on competition and where one of them has operations in at least two member countries.

“Mergers that fall outside that threshold are handled by the respective national competition authorities. The same also applies to complaints about firms that are brought to us,” Mr Mwemba said.

East Africa does not have a regional competition authority; the EAC Competition Act, which was enacted in 2006, has yet to become operational. The Act sought to establish an EAC Competition Authority with powers to scrutinise mergers and acquisitions with cross-border effects before approval, and deal with any other matters relating to competition within the region.

In October 2014, Tanzania admitted that there were a number of challenges that need be addressed in its laws and regulations regarding fair competition and the protection of consumers.

The merger of East African Breweries and South African Breweries in 2010 was a case in point. Despite the merger reducing competition in the region, the competition authorities in Kenya and Tanzania were unable to act simply because the deal involved cross-border transactions and the East Africa Competition Authority was not in place. The two competition authorities were allowed by law to handle national cases only.

Shadrack Nkelebe, the head of advocacy at the Fair Competition Commission in Tanzania, said the country’s laws prohibit anti-competitive agreements, price fixing, collusion in the sale of certain commodities and joint tender syndicates.

“Our law is clear on abuse of dominance, predatory and margin squeezing. The law does not allow mergers and acquisitions that will create a monopoly and weaken competition,” he said.

The report highlights the concentration of economic power in Tanzania, with some companies in its beer and cement industries dominating the market.

Stephen Mutoro, the chief executive of Consumer Federation of Kenya said cross-border activities involving mergers, cartels and abuses of dominance have the potential to eliminate weaker domestic trading partners. 

“Anti-competitive practices that have a cross-border effect can adversely affect trade flows, thereby undermining benefits that would otherwise be delivered by an open market. We are lucky to have a competition authority, but we still see some of these tendencies by major firms in the region. This has resulted in high prices,” Mr Mutoro said.

Kenya’s pharmaceutical industry, pay TV market and mobile money sector have been accused of abetting anti-competitive tendencies, with consumers paying more than they should for products in these sectors.

Francis Kariuki, the director general of the Competition Authority of Kenya (CAK), said in the two years the organisation has been in operation, they have regulated the market and firms now conduct their businesses in a fair manner.

“We have seen a reduction in the abuse of dominant positions in the market, predatory strategies, market segmentation and collusive agreements that would have been to the disadvantage of new and existing entrants as well as consumers,” Mr Kariuki said.

Kenya and Tanzania have called for the implementation of the EAC Act. Uganda, Rwanda and Burundi are yet to create competition agencies. Rwanda has a law, but it is yet to be implemented. Burundi also came up with an Act, but it has never been operationalised. Uganda has had a Bill pending since 2006.

“There have been challenges in how Comesa is dealing with some merger regimes within the region. However, we have seen some progress because we have now a guideline and framework on our interactions with Comesa,” Mr Kariuki said.

Recently, CAK investigated Safaricom for charging unregistered users of its mobile money platform M-Pesa high fees, and allegedly threatening agents who offer rival products. 

This was after competitor Airtel filed a complaint with the CAK to force Safaricom to remove the exclusive arrangements that it held with agents in its network, arguing that by charging twice the amount for mobile cash transfers to Airtel customers than it charged for Safaricom-to-Safaricom transactions, Safaricom was abusing its dominant position in terms of subscribers and mobile money transfer services. CAK ordered Safaricom to open up its M-Pesa agent network to rival mobile money firms.

CAK is currently carrying out investigations into the pay TV market, agricultural, insurance and the carbonated soft drinks sectors.