Malawi Competition Regime

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

2. Outline of the presentation • Study Methodology • Social Economic Indicators • Policies Affecting Competition • Nature of the Market • Competition and Consumer Protection Laws • Competition Commission and Consumer Protection Council • Stakeholder views on: • Anti-competition practices • Legal and administrative framework • Conclusions and recommendations

3. Study Methodology • Type of study: Desk research and primary data collection using qualitative and quantitative data collection tools. • Desk research benefited from ‘Why is a competition policy necessary for Malawi’ by CUTS-CAMA; PCP presented to NRG1; official documents; and economic data from RBM and GoM • The primary data was collected on perceptions using a pre-coded questionnaire and open-ended key informants interviews in pre-selected sectors: power (ESCOM, NECO and Energy Department), telecommunications (MACRA), pharmaceuticals (CMS and Pharmacy, Medicines and Poisons Board of Malawi ) and financial services (Economic affairs -Treasury). • MEPD, PERMU, MIPA and MCCI covered all sectors. Economic affairs of Treasury also covered all sectors • Out of over 100 respondents visited (excluding those e-mailed), only 50 responded. See next slide

5. Study areas • Structure of various markets (nature of competition and prevalence of anti-competitive practices); • Level of local firms’ competitiveness; • Existing or potential entry barriers; • Market concentration in various markets/sectors; • Sector-specific regulation vis-à-vis level of competition in power, pharmaceutical, financial and telecommunications sectors; • Stakeholder knowledge and views on competition and consumer protection • Institutional analysis of the Commission and Council (relationship to each other and similar COMESA bodies)

6. Key Socio-economic Indicators

7. Economic structure and performance • The country has a weak economic structure and requires a genuine structural transformation. This is despite the adoption of SAPs since 1981 • In 2004, 39% of GDP was generated from Agriculture. Manufacturing was 14% and has been declining from a high of 18% achieved in 1995 • Distribution has filled the gap created by the shrinking manufacturing sector. Its share has increased from 13% in 1994 to 22% since 1995 • GDP growth has rarely been stable • Figure 1 depicts the story visually

9. Historical perspective of competition in Malawi • Import-substitution drive forced government to protect manufacturing infants and the consumers using external tariffs and price controls. • SAPs opened up borders and freed markets in the quest to promote competition, force efficiency and deliver benefits to the consumer. • Some competition, some unfair, came in some markets. • Structural and administrative bottlenecks, poor economic management, allegations of corruption and non-competitive practices all conspired against increased private investment in the economy. • In markets where competition came from imports, ‘stunted manufacturing infants’ slowly died. • Consumers became vulnerable to unfair trading practices as well as unjustifiable price increases in markets controlled by monopolies or oligopolies • Privatisation of SOEs has helped a little.

10. Social and economic policies affecting competition • Under SAPs, MTI/MCI was forced to become a private sector facilitator instead of being a regulator • 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. • Latest development policies include the MPRS and MEGS. These are being updated into a Malawi Growth and Development Strategy (MGDS) • Some of the policies were followed by legislation, e.g. Competition and Fair Trading, the Consumer Protection and Public Procurement Acts • The Public Procurement Act requires competitive tendering for purchases of goods and services to promote competition among suppliers. It however favours Malawi SMEs

11. Nature of market – size of the market • The Malawi economy is small; nominal GDP averaged less than US$2billion over the 2000-2004 period. • In per capita terms, the average is less than US$200 per annum • This income includes value-added estimated for non-monetarised economic activities (subsistence production of goods and services, gathering and housing) • This presents no major prospects for competition

12. Nature of market – structure • Govt-led import substitution through the set up of state-owned or affiliated conglomerates effectively reduced prospects for competition • Privatisation has introduced some competition in some sectors • The manufacturing sector is still under-developed with limited competition, diversification and inter- and intra-industry linkages. It is still import-substitution orientation yet with heavy dependencycy on imported raw materials and intermediaries • Associations, set up with Government urging, dominate all sectors with good numbers of players and informal ‘gentlemen’s agreements’ oligopolistic sectors • Associations and collusions characterise most of the markets in Malawi

13. Nature of market – competition by sector • There is competition in the consumer goods, edible oils, soaps and household and non-durable goods markets facilitated by imports • There is limited market competition in the franchise dominated sub-sectors (sugar, beer, soft drinks and motor vehicle and genuine spares sales) despite market liberalisation • Utilities face no competition. Competition in electricity is still not in sight. The sale of MTL is expected to bring competition in the telecommunications sector • The financial, meat processing and diary sectors have competition thanks to privatisation although it has benefited the sugar sector

14. Nature of market – concentration • There are a number of ownership concentrated markets in sugar, soft drinks, beer and biscuits • Illovo dominates the sugar sub-sector, Southern Bottlers produces Carlsberg and Coca-cola products while Bowler Limited is the sole owner of traditional beer manufacturing outfits • Universal Industries is ‘biscuits ‘R’ us’ in Malawi • There is some market concentration in the telecommunications as Celtel and MTL are the major players with MTL being the sole operator in ground phones and owner of MTN • Sunbird runs a major hotel chain with little competition

15. Competitiveness of local firms • The shrinking manufacturing sector (scaling down and closures) are possible signs of local firms’ lack of competitiveness in the face of trade liberalisation with its blossoming informal trade • Local firms blame it on unfair competition • Commentators point at local firms’ inefficiencies and use of obsolete technology • There are others factors, though, like high import content, transport costs and Government’s poor fiscal management with its attendant private sector crowding out effect - high cost of borrowing and foreign exchange

16. Barriers to entry • There are no serious administrative and legislative entry barriers • There are some entry barriers in financial services but very little in manufacturing. These take the form of minimum capital requirements and franchises • There are natural barriers – landlockedness, quality of human resources and size of the economy (poverty) • Further, poor macroeconomic environment caused by poor economic management

17. Legislation on competition • Government enacted the Competition and Fair Trading Act in 1998 • The law has most of the necessary provisions as envisaged in the policy • The law has adequately dealt with the 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 • The law provides for a competition authority

18. Consumer Protection Legislation • A Consumer Protection Act was enacted in 2003 • It provides for the establishment of Consumer Protection Council • The Council would protect consumers from a host of unfair trading practices and seek compensation • The law covers most of the key consumer protection issues although local firms are not featured as consumers. • The council’s functions are comprehensive but its powers are limited even in investigation. • The Council is yet to be established.

19. Stakeholder Perceptions on ACPs • The majority said ACPs are prevalent (44% significantly and 32% moderately) • 74% said ACPs significantly affect consumers • 52% said collective price fixing is the commonest ACP in many sectors • Market sharing and price discrimination were mentioned as well • 30% said distribution is the sector most affected by ACPs. Professional services is the least affected sector • ACPs are said to be prevalent at both national and local levels • 54% said ACPs originate from outside the country • These perceptions are not hugely biased by sectors of origin of respondents

20. Stakeholder Knowledge of the competition law (1) • Most of the respondents had little knowledge of the policies and laws on competition and consumer protection • As many as 80% said ‘don’t know’ or ‘no’ when asked if there are laws against ACPs. • Even those that said ‘yes’ did not correctly point out that very little is done when violations are done due to the absence of the CA. • Stakeholders want a legal framework that focuses on efficiency and consumer welfare (73%) covering all enterprises and activities (92%) • 80% said the law should have extra-territorial powers to deal cross-border ACPs

21. Stakeholder Knowledge of the competition law (2) • On total ban on ACPs, 40% said ‘yes for all’, 22% said ‘yes for some’ and 15% said ‘yes but exempted for efficiency gains’ and 18% said ‘no,only if it harms public interest’ • 56% said businesses focus on profit only while 30% said they also focus on consumer welfare • 20% said ‘yes’, 17.5% said ‘no’ and 63% said ‘no idea’ to providing for leniency programme and whistle-blower protection • 82% agreed that firms with dominant powers should be monitored • 45% said all mergers & acquisitions should be reviewed while 40% said only major ones should be

22. Stakeholder Views on a CA • 67% said CAMA provide justice to consumers while only one respondent mentioned MTPSD & another MEJN. CFTC was not mentioned at all • 58% said the CA should be autonomous while 35% said it should be under ministry/department • 40% said it should have investigative and adjudicative, 38% said only investigative and 17% said neither powers • 65% said the CA should have power over sectoral regulators and 38% said the CA should coordinate them • 90% said the CA should cover both competition and consumer protection • 90% said the CA should involve stakeholders through a consultative committee (75%) or use occasional hearing (17%)

23. Selected sectoral analysis • The pharmaceutical sector is regulated but there is no evidence that the regulation impedes competition. Number of players is healthy • The financial sector is adequately regulated and monitored. Capital requirements limits entry to a small extent. Regulations have not caused entry failure so far. Competition is, apparently, hampered by dominant players • The power sector is undergoing sectoral reforms. Introduction of regulatory bodies following legal reviews is yet to introduce competition in the sector. Progress is too slow • The telecommunications sector is regulated. Apparently, the regulatory body has been slower than expected in introducing competition in the sector. The fate of the license for the third cell phone operator is a case in point. The sale of the parastatal (MTL) is expected to good for competition

24. 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 • Policies and legislation for the promotion of competition and protecting consumers’ welfare exist in Malawi. What is missing is implementation; the setting up of functioning CA and CPC already provided for • There is evidence that government does not prioritise the promotion of competition and consumer protection; snail pace implementation is one such evidence • Businesses are not aware of CFTA. Awareness is needed

25. Thanks very much for your attention