Malawi Competition Regime

1. Malawi Competition Regime Country Paper By M G Tsoka Centre for Social Research

2. Outline • Introduction • Policies related to competition • Competition and Consumer Protection Laws • Competition Commission and Consumer Protection Council • Nature of the Market • Government commitment • Implementation of policies and laws • Budgeting for C & CP • Conclusions

3. Introduction • Competition studies in Malawi are very rare • So far only CUTS supported competition and consumer protection studies (C&CP) • Government interest drives research • Public interest also drives research • Both are conspicuously absent and the presentation will show the side of the Government • There has been no serious resource flow for C&CP by both government and donors in Malawi • USAID funded CAMA, a consumer rights body that also worked together with CUTS to conduct the first ever competition study • No choice but use findings from the CUTS-supported studies • Has some updates on few areas

4. Competition Policies • Following inefficient import substitution, Government introduced a host of competition enhancing policies namely (i) investment promotion (ii) integrated trade and industry (iii) micro and small enterprise (iv) micro finance policies and ultimately (v) competition. • The Public Procurement Act promotes competition among suppliers to public sector institutions • Some policies were followed by legislation, e.g. Competition and Fair Trading, the Consumer Protection and Public Procurement Acts • Government has also launched the Malawi Growth and Development Strategy (MGDS) to replace MPRS and MEGS and any other

5. MGDS and C&CP • Described as an overarching operational medium-term strategy for Malawi • Said to build on MEGS which has C&CP yet silent on the role of CA &CPA • Recognises lack of competition in energy (monopoly) and road transport (association-created) • Provides for public-private partnership in energy generation and supply but none for road transport • MGDS does not provide for competition in general and consumer protection

6. Nature of the market (1) • The Malawi economy is small; GDP averaged less than US$2 billion over the 2000-2004 period; US$2043 in 2006. • In per capita terms, the average is less than US$200 per annum; US$160 in 2006 • This income includes value-added estimated for non-monetarised economic activities • This may limit number of players in some sectors

7. Nature of the market (2) • SOE and state supported enterprises effectively reduced prospects for competition although privatisation has introduced some competition • The manufacturing sector is still inward-looking and has limited competition, diversification and inter- and intra-industry linkages despite years of reforms and privatisation • Associations choke competition in various sectors through price fixing and market sharing, among others • Government seem to dislike some of them despite urging for their formation originally mainly for orderly engagement • Collusions, even outside associations, exist as the few players in sectors reach ‘gentlemen agreements’

8. Sector state of competition • There is limited market competition in the franchise dominated sub-sectors (beer, soft drinks and motor vehicle and genuine spares sales) • Utilities face no competition. The sale of the sole telecom company is expected to bring competition but is still not there • There two mobile phone companies with some competition; mainly focusing on service differentiation but eventually matching • The financial, meat processing and diary sectors have competition thanks to privatisation • Privatisation has not benefited the sugar sector • Foreign firms offer competition in consumer goods, edible oils, soaps and household and non-durable goods markets through imports

9. Market concentration • In sugar, soft drinks, beer and biscuits manufacturing there is virtually one owner in each • In telecommunications there are only two owners and one of them (recently privatised) owns ground and mobile phone companies in a three-company sector • This state of affairs is common in many others only that the consequences of high concentration are eased by imports

10. Local firms competitiveness • No major study has been done • However, the shrinking manufacturing sector is a possible sign of lack of competitiveness • Local firms blame it on unfair competition and unsupportive business environment • Analysts put the blame on firms’ inefficiencies and use of obsolete technology, high import content in inputs and high interest rates

11. Regulation, C and CP • The pharmaceutical sector is regulated but regulation impedes competition. Number of players and applicants is healthy. • The financial sector is adequately regulated and monitored. Regulations may not have caused entry failure but Competition may be hampered by ‘established’ players. RBM de-licensed one CB in 2006 • The power sector is undergoing sectoral reforms. Malawi Energy Regulatory Authority has just been formed. Hopefully PPP in power follows soon • The telecommunications sector is regulated. • Its regulatory body has been plagued by government-opposition wrangles. It is yet to provide a license to a third mobile phone operator, three or so years after application

12. Barriers to entry • There are no serious administrative and legislative entry barriers • Minimum capital requirements are some entry barriers in the financial sector • Speed of company registration is a possible entry barrier in Malawi despite efforts to shorten the period • Lack of a sea shore and quality of human resources are ‘natural’ barriers for export-oriented enterprises

13. Legislation on competition • Government enacted the Competition and Fair Trading Act in 1998 and provides for a competition authority including its powers and functions. • The law covers critical issues of dominant firm, collusions and price fixing associations, mergers and acquisition and monopolies and oligopolies • It does not adequately deal with cross-border trade-related anti-competitive practices like informal trade and dumping

14. CP legislation • Consumer Protection Act was enacted in 2003 - provides for a Consumer Protection Council • The law covers most of the key consumer protection issues including seeking compensation for the affected consumers • The council’s functions are comprehensive but its powers are limited even in investigation. • The Council is yet to be established

15. Govt commitment to C&CP • Policies and laws exist for C&CP • CA members appointed in 2005 • MGDS not friendly to C&CP – not even mentioned as strategies for poverty reduction • Budgets have not provided for a fully-fledged CA secretariat since 2005 • CPA councilors not yet appointed • Attendance of country competition meetings and workshops very poor except the Chair and some members of the CA

16. Conclusions • ACPs exist in Malawi. They have evolved depending on policy and legislative environment • Most of them owe their existence to poor economic policies adopted after independence and most of them owe their continued existence to the absence of an effective CA and CPA • Malawi has policies and legislation for C&CP but lacks the will to implement them by the setting up of functioning CA and CPA • Possible reason: Low priority accorded to C&CP by Government

17. Thanks a lot for your kind attention