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State of Competition Regime in Ghana Country Research Report Presented at the Interim Review Meeting Banjul, The Gambia PowerPoint Presentation
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State of Competition Regime in Ghana Country Research Report Presented at the Interim Review Meeting Banjul, The Gambia July 29-30, 2009. Outline. Introduction Privatisation & Regulatory Reforms Nature of Competition Sectoral Policies Existing Anti-Competitive Practices & Distortions

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State of Competition Regime in GhanaCountry Research ReportPresented at the Interim Review MeetingBanjul, The GambiaJuly 29-30, 2009

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Outline

  • Introduction
  • Privatisation & Regulatory Reforms
  • Nature of Competition
  • Sectoral Policies
  • Existing Anti-Competitive Practices & Distortions
    • Some Evidence and Suspicions
  • Perceptions regarding competition concerns
  • Conclusion
introduction
Introduction
  • Just a little over a year ago, Ghana embarked on the second leg of its centenary of independence and democracy, announcing bold objectives that included an accelerated GDP growth rate of 8% in 2009 and 10% before 2015 and achievement of middle-income status of US$1000 dollars per capita by 2015.
  • In the five decades since her independence from British rule in 1957, Ghana has gone through different cycles of growth, marked by poor economic performance and military coup d’états through to the 1980s.
  • National economic policies during this period were often devoid of market principles, and characterised by frequent price and income controls.
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At best, the economy managed to muddle through, with low productivity, high and volatile prices, an overvalued currency and high interest rates and abysmal growth.

  • The return to multiparty democracy and constitutional rule in the early 1990s marked the beginning of an unprecedented economic and political stabilisation process.
  • Together with high commodity prices (especially for gold and cocoa) and a set of important market reforms, an enabling environment for the private sector growth began to emerge.
  • Under such improved macroeconomic and political environment, Ghana has been enjoying a period of relatively strong economic performance over the past few years.
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Despite tremendous gains achieved in the past decade some policy and development challenges still remain to be overcome.
  • Firstly, there are serious infrastructural gaps noticeable in the water, energy, roads and sanitation sectors.
  • Secondly, the production and export base of the Ghanaian economy still remains relatively narrow, exposing the vulnerability of the economy to external shocks.
  • The economy has traditionally been dominated by agriculture. In 2006, agriculture contributed 39.3% of GDP, with services contributing 32.9% and industry 27.8%.
  • By 2007, share of agric. sector had dropped to 38%, and then further to 34% in 2008.
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Yet, agriculture productivity has been low.

  • Evidence of a weakening manufacturing sector as domestic markets are now flooded with imports at highly competitive prices.
  • Financial sector shows some level of competition but clear suspicions of anti-competitive practices abound.
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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).

Govt 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 agriculture (cocoa), electricity, water, 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.
  • 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 (World Bank’s Ease of Doing Business Report).
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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, including:

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

nature of competition in ghana
Nature of Competition in Ghana
  • Interest in promoting competition in developing countries has increased over the past decade.
  • 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.
  • 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.
  • However, manufacturers contend that the country’s tariff structure places local producers at a competitive disadvantage compared to imports from other countries.
sectoral policies
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.
telecom sector
Telecom Sector

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

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

Mobile phone subscriptions continue to dominate total subscriptions, rising by over 70% from 2,655,000 in 2005 to 4,678,505 in 2006 and further increasing by 63% to 7,604,053 in 2007 and by 49% to 11,302,647 in 2008.

There are 4 major networks dominating the mobile phone industry.

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

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

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The past few years have seen a phenomenal growth in the Ghanaian banking sector (currently there are 24 licensed banks & 127 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.
  • 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% 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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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.

Price –fixing & Excessive pricing e.g. Ghacem, the major player in the industry, has long been suspected of price-fixing.

Collusion e.g. suspicion that firms involved in the food sector whether as sellers or manufacturers are in collusion over recent price rises.

Anti-competitive practices – some evidence

anti competitive practices some evidence
Anti-competitive practices – some evidence
  • Cartels e.g. dominance of some firms in the sale of rough diamonds.
  • False advertisement e.g. unfair practice is prevalent in the pharmaceuticals industry, particularly with regards to herbal medicines.
  • Trademark violation e.g. music and video industry but also Chinese accused by players in the textile & clothing sector
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There are reports of a failed attempt at a take over of CAL Bank bringing to the fore, the effect of sections 34 and 35 of the Banking Act, 2004 (Act 673) (See Lawfields Business Law Bulletin, 2006).

The Central Bank is empowered to give prior approval of an intended acquisition or disposal of ‘significant shares’ in a licensed bank, i.e. 10% or more of the capital or voting rights of a bank, or a level of shareholding which makes it possible to exercise a significant influence over the management of the bank.

The BoG must be notified of the impending transaction within 3 months of the intended transaction, and its prior approval must be obtained, with the objective of preserving sound and prudent management of banks.

Anti-competitive practices – some evidence

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In the particular matter, the First City Monument Bank (FCM) of Nigeria sought to acquire the shares of the IFC and Prince Al Waleed (16.7% & 10.8%) respectively) in CAL Bank whose shares had been trading on the GSE since 2004.

Since FCM had previously acquired 8.2% of CAL Bank shares, acquisition of the additional shares would have resulted in it becoming the single largest shareholder in CAL Bank.

The regulator, BoG, chose to exercise its discretion to disapprove the intended purchase.

Anti-competitive practices – some evidence

perceptions regarding competition concerns
PERCEPTIONS REGARDING COMPETITION CONCERNS
  • Assessment of Level of Competition
  • Assessment of Enforcement Issues
  • Competition Culture and Public Awareness
table 1 perception of most frequent anti competitive practices
Table 1: Perception of most frequent anti-competitive practices

Majority of respondents (58%) have quite frequently encountered anti-competitive practices

assessment of enforcement issues
ASSESSMENT OF ENFORCEMENT ISSUES
  • Majority (58%) had no knowledge of rules or laws to check anti-competitive behaviour.
  • Majority (63%) had no knowledge of agencies put in place to administer such rules or laws.
  • On enforcement issues, again the majority (64%) do not know if any action is taken in instances where the rules are violated.
  • 41% of respondents are of the view that no actions are taken because the laws are not enforced whilst others attribute this to agencies not having enough clout to punish offenders.
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Others believe that corruption and the influence of strong lobbies make taking action less appealing for agencies.

  • On issues regarding state owned monopolies, majority (89%) acknowledged their existence and were of the opinion that these institutions indulged in anti- competitive practices such as exclusive dealing and price discrimination tops the list.
  • Generally, majority of respondents (82%) perceive that competition issues are not well understood in Ghana.
  • The main reason being the lack of publicity on competition issues and lack of political will.
  • Nonetheless, awareness of competition issues is perceived to be high among businesses and low among consumers
competition culture and public awareness
COMPETITION CULTURE AND PUBLIC AWARENESS

Fig 4: Awareness on competition issues among key groups

role of media
Role of Media

Fig 5: How competition issues are perceived to be reported

  • 36 percent of respondents agreed to report anti-competitive cases to the media houses, and 24 percent would inform local authorities or traditional leaders.
  • Competition issues are not reported because there is no institutional framework to handle such issues.
  • Others believe that the media are more interested in sensational news items and therefore are less likely to report them.
  • Journalists may lack the training needed to appreciate competition issues, however, business correspondents are sometimes able to highlight some anti-competitive practices
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Conclusion (Perception survey)

  • In conclusion, respondents are of the opinion that the government should play a key role in ensuring the setting up a Competition Authority to protect consumers and producers.
  • Also regulators need to be fully equipped to enforce laws and legislation which they are charged with.
  • There is also the need for more advocacies on the negative effects of anti-competitive practices on the economy and especially on consumer welfare.
conclusion overall
Conclusion (Overall)
  • 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.
  • Competition law in Ghana could play an important role in tackling some abuses of market power, especially by domestic intermediaries or domestic subsidiaries of MNCs and ultimately protecting consumers.
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Thank You!

For further information or clarification please contact us by email.

Dr. Charles Ackah (cackah@isser.ug.edu.gh)

Ama Pokuaa Fenny (amafenny@yahoo.co.uk)

Dela Tsikata (delkwa@yahoo.com)