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State of Competition Regime in Ghana Preliminary Country Paper National Reference Group meeting (NRG I) September 19, 2008 La Palm Royal, Accra PowerPoint PPT Presentation


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State of Competition Regime in Ghana Preliminary Country Paper National Reference Group meeting (NRG I) September 19, 2008 La Palm Royal, Accra. Outline. Background Privatisation & Regulatory Reforms Nature of Competition Sectoral Policies Anti-Competitive Practices

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State of Competition Regime in Ghana Preliminary Country Paper National Reference Group meeting (NRG I) September 19, 2008 La Palm Royal, Accra

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State of Competition Regime in GhanaPreliminary Country PaperNational Reference Group meeting (NRG I)September 19, 2008La Palm Royal, Accra


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Outline

  • Background

  • Privatisation & Regulatory Reforms

  • Nature of Competition

  • Sectoral Policies

  • Anti-Competitive Practices

    • Some Evidence and Suspicions


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Background

  • In the five decades of its independence from British rule, Ghana has gone through different cycles of growth, mostly marked by poor economic performance.

  • The high degree of optimism that swept through the nation in the days leading to, and up till, independence began to fade as early as the mid-1960s.

  • The economic situation was further compounded by military coup d’etats, creating an enormous political instability through to the mid-1980s.

  • Consequently, national economic policies adopted during this period were either not well-thought out, or so short-lived that it made very little impact.

  • At best, the economy seemed to be “muddling through” during this period.


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Background

  • A vicious cycle of bad policy to poor economic performance seemed to be completed by the late 1970s:

  • high prices led to high interest rates, driving up the cost of investment and exacerbating the poor economic conditions.

  • Under such unfavorable investment climate, would-be investors and government officials found it more profitable to engage in rent-seeking and other corrupt activities.

  • The return to multi-party democracy and constitutional rule began an economic and political stabilization process never seen before in the post-colonial era

  • Growth has become steady and appreciable

  • Significant progress in reducing poverty has occurred; from 51.7% in 1992 to 39.6% in 1999 and 28.5% in 2006


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Background

  • However, significant challenges still remain

  • The agricultural sector still employs about 60% of the labour force, and contributes 35% to GDP

  • Recent data also reveals a clear evidence of a weakening manufacturing sector as domestic markets are now flooded with imports at highly competitive prices – the result of about two decades of a more liberalized trade regime

  • And although the financial sector has never been this competitive, leading to significant reduction in lending rates, access to credit still remain beyond the reach of the average entrepreneur.


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Economic Performance


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Sectoral contributions to GDP


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Sectoral contributions to GDP (average 1970-2005)


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By the mid-eighties, the government of Ghana was engaged in all sectors of the economy (about 350 state-owned enterprises).

Apart from owning development corporations in all ten regions, it wholly owned several enterprises in the manufacturing, mining and services sectors, and had gone into joint ventures with many other private firms and persons.

It also owned several boards and commissions, which were performing services in competition with or which could have been easily provided by the private sector.

The SOE reform agenda entailed two principal components: divestiture, which involved transfer of ownership of assets or management of enterprises to the private sector; and liberalisation, which implied exposing enterprises to more competition.

By end of 2000 nearly 300 SOEs had been privatized and by end of 2003 18 more had been divested.

Despite ongoing privatization, state-owned enterprises continue to play a significant role in the economy, notably in the electricity, petroleum, and transport sub sectors.

Privatization


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Regulatory Reforms

  • The introduction of private involvement in the public sector necessitated the setting up of independent institutions to oversee and ensure competition, efficiency, affordable pricing and quality of services.

  • These institutions were formed as part of the reforms within the public sector and mandated to perform functions that include policy-making, commercial operations and regulations.

  • Ghana has been able to create a workable framework to regulate all aspects of the economy.

  • All regulatory bodies have been mandated to maintain high standards and protect the interests of both producers and consumers.

  • Regulatory bodies gradually moving from licensing services to ensuring compliance with the maximum standard for quality of service delivery.

  • Noticeable improvements in the areas to do with business but bottlenecks in many other sectors.


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Ease of Doing Business in Ghana


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Ghana lacks a comprehensive consumer protection law.

There is no centralized consumer protection law and/or policy in Ghana.

What exists currently is a group of public institutions mandated to oversee specific aspects of consumer protection.

These institutions included:

Ghana Standards Board (GSB)

Food and Drugs Board (FDB)

Public Utilities Regulatory Commission (PURC)

National Communications Authority (NCA)

Environmental Protection Agency (EPA).

Consumer Protection Policy


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Nature of Competition in Ghana

  • Interest in promoting competition in developing countries has increased over the past decade.

  • Despite differences, developing countries are generally characterised by lower degrees of market competition than their industrialised country counterparts.

  • The interest has particularly resulted from the failures of economic reforms in the 1980s, that overly relied on trade liberalisation to promote domestic market competition.

  • One general conclusion was that trade liberalisation did not do the whole job – it did not guarantee by itself a desirable level of competition in an economy, and correspondingly did not achieve all it was expected to in terms of increasing productive efficiency and competitiveness in international markets.

  • The idea that trade liberalisation would improve domestic competition has led to a reassessment that indicates that success in trade and liberalisation is itself dependent on establishing a competitive domestic market environment.


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Recent influx of cheaper food and textile imports from China has created a lot of competition in the market.

Some production plants have closed down because of their inability to cut production costs to enable them stay in the markets.

Government has been supporting domestic private enterprises with financial incentives to make them more competitive.

However, manufacturers contend that the country’s tariff structure places local producers at a competitive disadvantage compared to imports from other countries.

In recent times, there have been several efforts by the government to enhance the capacity and competence of Ghanaian firms through the ff:

provision of micro credit

venture capital and export credit

business support and training.

Nature of Competition in Ghana


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Sectoral Policies

  • Energy

  • Water

  • Telecom

  • Financial Services


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Energy

  • Ghana's energy sector is dominated by state-owned enterprises.

  • Transmission and distribution of electricity are under state monopoly.

  • Although Ghana is a net exporter of electrical energy in most years, low water levels at the Volta dam frequently lead to supply shortages and electricity cuts.

  • The Energy Commission is in charge of technical standards and licensing of electricity utilities.

  • The Public Utilities Regulatory Commission (PURC) is responsible for competition regulation and quality of service monitoring.

  • There has been no significant privatisation programme to date.

  • A previous government subsidy of electricity has been drastically slashed in the past year with consequent increases in electricity tariffs by more than 100 percent.


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Water

  • There are only 350,000 domestic connections for the roughly seven million people in Ghana with access to drinking water.

  • A high % of urban consumers depend on water tankers for their drinking water supply.

  • The sector is regulated by the PURC whose key tasks include:

    • protecting the interest of consumers and providers of utility services

    • promoting fair competition among public utilities

    • receiving and investigating complaints and settling disputes between consumers and the public utility

  • Ghana Water Company Limited (GWCL) is responsible for the production of potable water in Ghana

  • Aqua Vitens Rand Limited (a joint Dutch and South African company) is responsible for the distribution and management of GWCL.

  • Aqua Vitens has recently come under fire due to the acute water shortage in the Accra-Tema areas and other parts of the country.


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Water

  • Consumers pay rates far in excess of those who rely on water from the piped system.

  • E.g. Water from the piped system is charged at 0.6 Ghana Cedis per 1000 litres; water tankers charge approximately 13.5 Ghana cedis for the same volume of water

  • Given the problems of price fixing by water tankers, the PURC could establish a pricing schedule for water tanker trucks, with small adjustments permitted to reflect varying costs of servicing different communities.


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Telecom Sector

Ghana led the way in telecommunications liberalization and deregulation in Africa when it privatized Ghana Telecom in 1996.

Reforms have been stalled so far, leaving the door open for anti-competitive practices by operators.

Although there is still significant scope for improvement, Ghana has made huge progress in telecommunications services over the past decade or so.

Significant effort has been made to stimulate competition and scale economies.

In 1997, for example, WESTEL, originally owned by the GNPC, was floated in an IPO, awarded a second network operator licence, and granted a 5-year duopoly on basic telecommunications services alongside Ghana Telecom, to allow for greater competition and improved efficiency.


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Telecom

  • Reaction to the news that UK-based Vodafone has finally secured a deal with the Government of Ghana to annex 70% stake in state-owned Ghana Telecom has been mixed.

  • Furthermore, in a bid to support private sector activity in the day-to-day provision of connectivity solutions, Govt is developing a National Fibre Communications Backbone Infrastructure network to facilitate open-access broadband activity.

  • The NCA is the regulatory body in charge of the telecom sector and its main objectives include:

    • promotion of fair competition among persons engaged in the provision of communication services;

    • protection of operators and consumers from unfair conduct from other operators, with regards to the quality of communications services; and

    • protection of consumer interest


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The past few years have seen a phenomenal growth in the Ghanaian banking sector (currently there are 24 licensed banks & 125 rural banks and numerous NBFIs).

The overall regulatory body is the Bank of Ghana (BoG) and one of its key roles is ensuring that there is fair competition among banks in Ghana.

Competition in the banking sector is becoming increasingly stiff, particularly with the recent entry of a number of Nigerian banks such as Guaranty Trust Bank, Zenith Bank and United Bank for Africa.

Not surprisingly, the degree of market concentration, as measured by assets of the top five banks, has fallen steadily – from 77.6% in March 2000 to less than 55% in 2008 (Stanley, 2008).

This is much lower than in South Africa, where the top five banks have a concentration ratio of more than 80% but is higher than the SSA average.

Financial Services Sector


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Financial Services Sector

  • However, there are several reasons to question the extent to which banks actually compete. Although bank concentration appears to be moderate by regional standards, the dominant state owned bank (GCB) enjoys a substantial market power, with 20 percent of total deposits and 44 percent of total branches—a situation that may influence price setting among banks and distort competition.

  • Profitability indicators suggest that, despite high overhead costs (7 percent to average assets but substantially higher than the SSA of 5.7%) and sizable provisioning, Ghanaian banks’ pretax returns on assets and equity are among the highest in SSA—a situation that reflects very wide interest margins (Buchs & Mathisen, 2005).


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Financial Services Sector

  • In 2003, the three largest commercial banks accounted for 55 percent of total assets of the banking sector, which is relatively moderate compared with other countries in the region.

  • Yet, about 25 percent of total assets and 20 percent of deposits were held by a single state owned commercial bank (GCB).

  • The banking penetration ratio, at one bank branch per 54,000 inhabitants, was relatively high, but formal banking reached only 5 percent of the population and the coverage varied widely.

  • This reflects the fact that 35 percent of bank branches are in the greater Accra region even though this region represents less than 13 percent of the country’s population (Buchs & Mathisen, 2005).


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Ghana does not have legislation on anti-competitive practices although a bill has been under consideration for several years.

Anti-competitive practices include price fixing, market sharing, bid rigging, exclusive dealing, tied selling, misuse of dominant market positions and unfair trading practices.

They also deny the consumer the wider benefits that competition can bring (such as lower prices, higher quality and more choice).

Likely to have detrimental long term effects on growth and employment.

Ghana does not have legislation on anti-competitive practices although a bill has been under consideration for several years.

The Ministry of Trade, Industry, Private Sector Development and President's Special Initiatives (PSIs) however oversees all trade dealings and practises including unfair trade practises.

Anti-competitive practices – Some evidence


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Price-fixing in Cement Industry

  • Ghacem, the major player in the industry, has long been suspected of price-fixing.

  • Prices of cement range from 5.6 to 10 Ghana Cedis

  • But calculations commissioned by the Auditor-General suggest that it can be retailed at less than 4.6 Ghana Cedis.

  • Furthermore, Scancem, the owners of Ghacem, have been found on at least two occasions in ten years to be involved in price fixing in Europe, lending credence to the suspicion.

  • The government appears helpless in the face of the allegations with very little action being taken


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Collusion by food companies

  • Many of us suspect that firms involved in the food sector whether as sellers or manufacturers are in collusion over recent price rises.

  • Many food companies have, in recent months, increased consumer prices, as commodity costs soar all over the world.

  • However, some allege that the price rises by for e.g. Uniliver were higher than the increase in raw materials.


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Indian firm cracks Israeli-controlled cartel in Ghana

Publication: The Ghanaian Chronicle

Date: Wednesday, October 1 2003

  • An Indian company has broken what appeared to be cartel dominating sales of rough diamonds in the Ghanaian rough diamond sector.

  • According to the newspaper, the cartel was broken at a tender which took place on August 28, when Balaji Diamonds, an Indian company, was successful with its offer to buy diamonds offered by the Ghana Consolidated Diamond Company (GCDC) at a floor price of $30.24 per carat.

  • In so doing, it beat out the price offered by an Israeli company, DWS Diamonds, which had offered $28.10.


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Conclusion

  • Market concentration enhances the power of multinational corporations to dictate their terms, compounding the difficulties of commodity-reliant developing countries.

  • There is at least circumstantial evidence to indicate that anti-competitive trade practices are on the increase related to market concentration and increased buyer power among the TNCs.

  • Given the situation, policy must play a role in ensuring that levels of market concentration in local and international markets need to be tackled to ensure that the MNCs cannot abuse their market power and extract unfair profits

  • National competition law in developing countries could play an important role in tackling some abuses of market power, especially by domestic intermediaries or domestic subsidiaries of MNCs.

  • However, this is not an easy task, unfortunately, because most developing countries lack the institutional and human capacity to enforce such a competition policy.


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Thank You!

For further information or clarification please contact us by email.

Dr. Charles Ackah ([email protected])

Ama Pokuaa Fenny ([email protected])

Dela Tsikata ([email protected])


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