Why Nigerian Economy Needs a Competition Policy and Law

Sahara Reporters, January 28, 2014

By Leonard Ugbajah

The NCP can bring in a second wave of economic reforms, and fortunately there is a national consensus on this

The 5th of December of every year has been proposed as World Competition Day, a proposal which has been adopted and is been observed by a few countries and organisations around the world. This World Competition Day has been proposed and is promoted by CUTS international, a civil society organisation engaged in research, advocacy and capacity building on consumer related issues around the world. As the participating countries and organisations around the world marked the day with different activities aimed at raising awareness on the harmful effects of anti-competitive structures and practices in the economy, it is important for us to, once again, harp on the urgent need for a competition policy and law in Nigeria. The initiative to enact a competition law for Nigeria is as old as the fourth republic.

Two separate processes were initiated by the Federal Ministry of Commerce and Industry (Now Federal Ministry of Industry, Trade and Investment) and the Bureau of Public Enterprises (BPE) respectively. Both government agencies produced draft bills for onward transmission to the National Assembly. The journey has indeed been a tortuous one featuring turf fighting among the government agencies at some point and lack of political support at other point. The result is that after over a decade of having the first bill on competition law in Nigeria, we are yet to have a competition law in our statute books.

Why do we need a competition policy and law in Nigeria? The need for competition in the market for goods and services is one which has attained the status of conventional wisdom among producers and consumers alike. One doesn’t need to be an economist to understand that where there are numerous sellers or producers servicing the needs of buyers for a particular product or services, each of the seller or producers tend to adopt strategies that would endear them to the buyers. In other words, the producers or sellers compete with one another for the patronage of the consumers. This competition can be in the form of lower prices, better quality products, and other value added services.

Let me illustrate the value of competition in the market with this experience which every reader could relate with. I once lived in a neighbourhood where we had one grocery shop down the street. The ‘shop’ which stood in the place of the gatehouse in that particular house had an opening on the wall through which the attendant (basically the house owner’s wife and children) would attend to any customer that came calling. Most times, one would rush to the grocery shop to make an urgent purchase but would find no one within sight. The entire family could be inside the house while none is paying attention to the shop. It was quite frustrating to stand and try to get the attention of any person inside the house.

This state of affairs continued until two other shops – better stocked – sprang up on the same street each a few meters away on either side of the existing shop. These new shops were run by people who were really serious about their businesses. I couldn’t help observing that it was just a matter of time before the owner of the usually abandoned shop rose to the competition. She had one of her daughters stationed almost permanently in the shop and the girl would even greet one respectfully as one walked past the shop! That was the force of competition – changing the attitude of a business owner towards the customers. This goes to illustrate the veracity of the saying that “in a free market economy (read: in a market where there is competition), the consumer is the king”.

Bringing the illustration to a larger plane, one hardly needs to recount the revolution that the liberalisation of the telecom sector has wrought not just in Nigeria but world over. In terms of access to, cost and variety of services available to average person today, there is no basis to compare with the days of NITEL fixed land lines or the analogue cellular phones popularly known as “nought-nine-nought”. With the removal of NITEL monopoly and the introduction of competition from the GSM operators, we saw the advent of what has continued today as a fierce competition among the operators to win more or maintain their existing subscribers. We still recall how MTN and ECONET (now Airtel) started with prohibitive prices for handsets and phone lines with cost of calls per minute hanging around 50 Naira. We also witnessed how Glo Mobile came into the market and introduced the “per second billing” which made it cheaper to call. Then Etisalat came with mouth watering bonuses. Not to mention Starcoms, Multilinks, Visafone, etc. Today, in spite of the prevalence of poor quality of services across all the operators, we have recorded a giant leap from where we used to be in terms of access to, cost and variety of telecom services we enjoy.

Similarly, before the advent of the private television and radio broadcast houses, NTA, Radio Nigeria and other government owned television and radio houses were the only sources of news and tv/radio entertainment for Nigerians. Then, came DBN, AIT/RayPower, Channels Television, etc. The cable stations and pay tv also showed up in the industry. The result is increased variety for consumers, improved programming across platforms, etc. The narrative is not different in other sectors – aviation (remember when it used to be only Nigerian Airways? Then Okada Air?), etc. The outcome is the same – where there are two or more suppliers of a particular good or services, the market responds to consumer needs whether in terms of lower prices, quality or variety of goods and services. Where there is only one supplier or few suppliers servicing a relatively large market with little or no possibility of a new supplier coming on board (high entry barriers), then the supplier becomes king and the consumers become worse off.

The aim of competition policy and law is not just to ensure that there are many suppliers in the market for particular goods and services but to ensure that such suppliers play according to a set of rules that would make it difficult for any of the suppliers or the suppliers as a group to lessen or eliminate competition in the market. In other words, competition policy and law realises that the mere presence of many suppliers does not automatically result in a competitive market. This is because one of the suppliers may have the market power to undercut the other suppliers and make it difficult for them to operate in the market or out-rightly force them to close shops, and then the powerful supplier would turn to the consumers to milk them dry. This is what competition experts call abuse of market power. Similarly, all the suppliers or most of them can come together and agree to carry on their business in such a way that they maintain artificially high prices in other to maximise their profit. They can agree to fix prices or allocate market territories to themselves or take turns to “win” the bid for contracts. These are anti-competitive agreements. The business motive of making profit can be overstretched by unscrupulous firms to the disadvantage of the hapless consumers in the absence of effective regulation. This is where competition law steps in to define the way and manner firms can behave to ensure that competition is maintained. We shall examine the different types of anti-competitive practices in detail.

While competition policy provides the overall framework for ensuring that the economy is free from market distortions resulting from anti-competitive structures and conducts, competition law is one of the tools for achieving this objective. A competition policy seeks to mainstream the virtue of competition into all the relevant policy areas such as trade and industrial policy, investment policy, macro-economic policy, privatisation and deregulation policy, etc. It represents a government’s deliberate effort to safeguard the proper functioning of the economy in a competitive manner. Competition law embodies a set of rules that defines acceptable market structures and practices and imposes sanctions for violation of such. Competition law is also known as antitrust law and is usually implemented by an independent body/authority created for that purpose.

So, what does competition law prohibit? Competition law addresses issues relating to market structure and market conduct, behaviour or practices by firms. Market structure speaks about the level of concentration (the number of firms) in the particular market, the ease with which a new firm can enter the market and the substitutability of the products or services in that market. Competition law usually frowns at highly concentrated markets, i.e, markets having one supplier/firm (monopoly) or having few suppliers/firms.(oligopoly), especially when the possibility of new suppliers entering the market if very slim and the products or services do not have close substitutes. What happens in this type of market is that the suppliers are able to determine the supply, set the price and put other unfair conditions on the consumers. We can be sure that no consumer likes to be caught-up in a market where s/he has no choice! In Nigeria, we used to have government monopolies on telecommunications (NITEL) and power (NEPA).

Similarly, when there are very few suppliers/firms in a particular market in comparison to the number of buyers, these firms can decide to gang up and form a ‘cartel’. They determine the output, the price, who sells where, etc. This is more so, when it would be difficult for a new firm to enter the market. Even when they don’t outrightly collude by forming a cartel, they can still afford to operate as monopolists for the sheer reason that the demand for their products or services is huge and the consumers cannot but patronise them. They have little or no incentives to compete among themselves. Worse still, these few firms can go as far as making it difficult for any new supplier to come into the market. For example, even though the Nigerian Communications Commission (NCC) set out the rules for interconnection among the telecom companies, there were still allegations by later entrants that the early comers (especially MTN) was making it difficult for them to interconnect. In fact, up until this day, the NCC keeps reviewing the guidelines and the price for interconnection just to ensure that the dominant firms do not make it difficult for the smaller ones to interconnect and compete. Imagine where it is left to say MTN or GLO to determine whether they would interconnect Etisalat and at what price!

What we are seeing here is that there is a strong correlation between the structure of the market and the conduct of the firms/suppliers in the market. Some of the conducts or practices that a competition law prohibits and punishes include: one, abuse of dominant position of market power (a firm can abuse its dominant position in one or more of the following ways: price fixing, limiting output, tied selling, resale price maintenance, refusal to deal, etc). Two, collusion among firms to lessen or eliminate competition. Collusion is said to be horizontal when it is between or among firms in the same level of the supply chain (e.g between or among suppliers of a particular finished product or a service) who should ordinarily be competitors. Collusion can also be between the seller of the finished product or a service and the supplier of the inputs needed in making the finished product or providing the service (e.g firm B who is a manufacturer of a product in competition with firm B can enter into an agreement with firm C who is the supplier of the raw material to ensure that firm B does not get the raw material). Cartels are classified as collusive agreements.

Another aspect of collusive practice that would be of utmost important to competition law in Nigeria is the issue of bid-rigging in public procurement. Apart from corruption in the public procurement process, another likely reason why government contracts are usually over-priced could be because the contractors agree among themselves to bid at artificially high prices with the understanding that one contractor would bid slightly lower to win the contract and then it goes round in turns. This practice known also known as collusive tendering has been discovered and punished in different parts of the world. The third thing competition law is concerned about is regulation of mergers and acquisitions. The primary aim of a competition law in regulating mergers and acquisitions is to guard against concentration of market power. That is, to ensure that there is no reduction or elimination of competition in the particular market as a result of the competing firms merging with or acquiring one another. So, a competition law will set the rules that would determine whether a merger or acquisition would be permitted or not.

The Author is an Abuja-based Legal Practitioner and Advocate for Regulatory Reforms. He also serves as the Nigerian Resident Representative of CUTS International (an International NGO involved in research, advocacy and capacity building on trade, competition and consumer protection laws and policies www.cuts-international.org). E-mail him at basileajuris@yahoo.com. Follow him on Twitter @lennyugb

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