Questions and Challenges for Competition Advocates

1. Questions and Challenges for Competition Advocates Frederic Jenny Professor of Economics, ESSEC Chair , OECD Competition Committee Promoting a Healthy Competition Culture in Sub-Saharan Africa Gaborone, Botswana, 14-15 February 2008

2. Questions Raised Yesterday • Is Our Glass Half Empty or Half Full ? • Can Competition Fail Us ? • Are We the Center of the World ? • Should We Have a Monopoly on Competition Law ? • What If We Are A Small Fish in a Big Pond ? • How Can We Make the Deaf Listen ?

3. Issues to be addressed • 1) Where Were We Ten Years Ago? • (Is Our Glass Half Empty or Half Full ?) • 2) Need for Market Institutions • (Can Competition Fail Us?) • 3) Competition Law Enforcement and Competition Policy • (Are We the Center of the World?) • 4) Relationship Between Competition Authorities and Sectoral Regulators (Should We Have a Monopoly on Competition Law?) • Trade and Competition • (What If We Are A Small Fish in a Big Pond?) • Competition Advocacy Toward Public Officials • (How Can We Make the Deaf Listen?) • 7) Conclusion

4. Where Were We Ten Years Ago ? (Is Our Glass Half Empty or Half Full ?)

5. 64 New Competition Laws in the Last Decade (1996-2006) • 1996 Hungary, Zimbabwe, Panama, Romania, Costa Rica, Guatemala, Mercosur ....7 • 1997 Netherlands, Denmark, Faroe Islands, Turkey,………………...........................4 • 1998 Bulgaria, Gabon, Cameroon, Malawi, South Africa, Bulgaria............................6 • 1999 Belgium, Indonesia, Thailand, Slovenia, Saint Vincent…...…………………...5 • 2000 Armenia, Morocco, Lithuania, Moldova, Uruguay, Cape Verde, Fiji, Uruguay…………………………………………………………………………...8 • 2001 Slovakia, Ukraine, Kazakhstan, Saint Lucia, Antigua and Barbuda.…………..5 • Austria, Azerbaidjan, Latvia, Barbados, Papua New Guinea...............................5 • 2003 Albania, Algeria, Mauritius, Namibia, Tanzania, Ethiopia, Bosnia, Herzegovina……………………………………………………………………….7 • 2004 Jordan, Laos, Saudi Arabia, Vietnam, Jersey, Luxembourg, Singapore, El Salvador, Paraguay............……………………………………………………….9 • 2005 Serbia, Macedonia, Honduras, Egypt, El Salvador.……………………………5 • 2006 Montenegro, Nicaragua, Colombia…………………………………………….3

6. Competition Law Revisions in 44 Countries • 1997 Cameroon, Ivory Coast, Azerbaidjan ……………………….3 • 1998 Estonia, UK………….………………………… ………………………..2 • 1999 Cyprus ………………………………… ……………………………….1 • 2000 Poland, Denmark, Brazil …………… …………………………………….3 • 2001 Burkina Faso, Estonia, Malta,Ukraine, Argentina..……………..………….5 • India, Ireland, UK, …………….………..………………………...……… 3 • 2003 Albania,Portugal, Bulgaria, Croatia, Chile ……………………………........5 • 2004 Czech Republic, Finland, Latvia, Norway, Slovenia, Chile, Venezuela .......7 • Turkey, Bosnia Herzegovina, Portugal, Argentina, Brazil, Peru, • Uruguay, Andean Community…………………………………………………... 8 • 2006 Kazakhstan, Austria, Belgium, Russia, Turkey,Mexico...…………………6 • 2007 Spain……..…………………………………………………………………1

7. 17 Countries in the Process of Adopting a Competition Law Bolivia Cambodia China Dominican Republic Ecuador Ghana, Guyana, Hong Kong Lesotho Mozambique Nigeria Swaziland Togo, Trinidad and Tobago United Arab Emirates Yemen

8. 2) Can Competition Fail Us ?

9. Market failure: the grain market in Ethiopia

10. The Case of the Ethiopian Grain Market:A Short History (I) 1984: Nearly a million people die in a famine • Late 80’s: International relief agencies pressure the government • to pull out of the grain market in favor of the private sector. • They also come up with a two-prongued solution that involves: • boosting production through the dissemination of new tilling • techniques, the distribution of high-quality seeds and fertilizers • 2) building an early warning network The Ethiopian grain harvest goes from 7 million tons in the 80’s to 11 million tons in the 1990’s and more than 13 million tons in the bumper years of 2000 and 2001. 2002: International donors rush more than 1.5 million tons of food aid into starving Ethiopia, while great stretches of fertile land in the drought-resistant wheat and corn belt are lying fallow or being underworked.

11. The Case of the Ethiopian Grain Market:from Abundance to Crisis (II) 2000-2001: Bumper harvest of 13 million tons of grain in Ethiopia Feb 2001: The monthly report of the Ethiopia Network on Food Security states that certain supplies accumulating in the bigger markets (for grain) are driving prices below farmer’s expectations and may discourage farmers for the next production season » Mid 2001:A 220 pounds bag of corn that could go for $10 in good times is getting as little as about $2 (less than half the standard production cost).

12. The Case of the Ethiopian Grain Market:The Seeds of the 2002 Famine (III) « I know that when I cut the size of my farm, I’m contributing to the food shortage » says Bulbula Tulle, a commercial farmer and grain trader in Ethiopia’s western highlands,  « but at least I am not losing money ». In 2001 he planted 2700 acres of corn, reaped one of his best yields ever and lost nearly $200.000 because prices fell below his costs for labour, seeds, fertilizers and fuel. The next year, to reduce his costs and his exposure to the market he planted about 1500 acres. The rest of his land has gone to grass and is feeding grazing cows rather than hungry people.Meanwhile, more than 1.5 million tons of food aid has been rushed into the country by international donors »

13. The Case of the Ethiopian Grain Market:The Seeds of the 2002 Famine (IV) The grain traders (…) were also having problems.  «  I go to the bank to get money to build a warehouse. The bank says I need collateral. I have no collateral, so I get no money » says Yoseph Yilak, the general manager of an Addis Abeba grain traders association ».« I’d like to have a truck to take the grain to the places of the country that need food » Mr Yilak says. But I need collateral to buy a truck too » « I’d like to have a truck to take the grain to the places of the country that need food » Mr Yilak says. But I need collateral to buy a truck too »

14. The Case of the Ethiopian Grain Market:The Seeds of the 2002 Famine (V) What went wrong ? Peasant farmers and commercial operators were caught without a safety net between withdrawn government intervention and the incomplete free-market system « (In the 1990’s), the government, under pressure from international lenders and aid donors was pulling out of the grain markets in favor of an underfunded and inexperienced private sector. However, little provision was made to support this fledgling free market with storage facilities, transport and financing ».

15. The Case of the Ethiopian Grain Market:The Seeds of the 2002 Famine (VI) «  In more developed farming markets (…), storage facilities would allow grain to be held until price improved and crops could be sold on a futures market. Loans might be guaranteed by the government and farmers protected by crop insurance. Ethiopia’s farmers had none of this ». « The banks and agencies that had extended credit to pay for seed and fertilizer were clamoring for their money. Many farmers defaulted on these loans or were forced to sell their cattle to make the payment (…) ».

16. Famine in Ethiopia « Fighting famine inside Ethiopia means providing not only emergency food but also programs to help people emerge from destitution. Rural Ethiopians need more market for their crops and better roads to be able to move their products. (…) International donors are much readier to ship grain than to attack difficult, long term development projects ». International Herald Tribune July 30 2003

17. Remembering the pre-conditions for a market economy • Market Institutions • Correction for Asymetry of Information • -Rule of Law • - Well Defined and Enforceable Property Rights

18. 3) Competition Law Enforcement and Competition Policy

19. Relationship between Competition law Enforcement and Competition Policy Trade liberalisation International competition Rule of law Elimination of Corruption Competition Law enforcement: Good Institutional Design Relationship with courts Advocacy function Development of a Competition Culture Deregulation (RIAs Management of the transition) Privatization (inefficient SOEs) Sectoral regulations Relationship with sectoral regulators)

20. 4) Should We Have a Monopoly on Competition Law ?

21. A Complex Relationship Between Sectoral Regulation and Competition : • a) Regulation aims to facilitate the emergence of competition • ex: Indivisibilities: network industries (telecom, electricity, rail transportation); • Economic transition (privatizations, public service concessions); • b) Regulation aims to limit competition (through restrictions in freedom of entry or installation or restriction on economic freedom) • ex: Externalities (pharmacies, waste disposal); • Systemic risks (banking sector); • Asymetry of information (professions); • c) Regulation aims to « improve » performance • ex: Public service concessions • ex: Audiovisual sector

22. Regulation in transition industries Introducing competition in sectors previously dominated by state owned or heavily regulated vertically integrated firms and protecting consumers from supracompetitive pricing are difficult tasks.requiring a very broad range of expertise and experience. In addition to dealing with structural, stranded cost and universal service issues, four tasks typically need careful attention during and after the transition from government ownership or heavy regulation to much greater reliance on market forces: 1. “competition protection” - controlling anti-competitive conduct and mergers; 2. “access regulation” - ensuring non-discriminatory access to necessary inputs, especially network infrastructures; 3. “economic regulation” - adopting cost based measures to control monopoly pricing; and 4. “technical regulation” - setting and monitoring standards to assure compatibility and to address privacy, safety, and environmental protection concerns.

23. Relationship between competition authoritiesand sectoral regulators No unique model - across countries (example: New Zealand, Australia, United Kingdom, France) - across industries (ex: Electricity and Telecommunications) - across time (ex: 1995 Telecom Act in the United States) European Model: Mandate driven division of labor between competition authorities and sectoral regulators

24. OECD roundtable on the relationship between regulators and competition authorities • If competition protection is separated from access and economic regulation, co-operation and coordination are vitally needed to avoid inconsistent, investment discouraging application of the two sets of policies. The country submissions revealed a large variety of ways to do this ranging from informal cooperation, to rights to make submissions, and on to legally required consultation. If informal co-operation does not work particularly well, it may be wise to reserve certain functions, such as defining markets or determining whether or not a company enjoys market power, to the competition agency. An alternative might be to give a degree of general oversight power to the competition office.

25. OECD roundtable on the relationship between regulators and competition authorities • Whenever access and economic regulation functions are located outside the competition agency, that agency should be extensively involved in any periodic reviews of whether such regulation is justified by continued market power. Competition agencies should be better placed than regulators to decide this question and should have less self-interest in unnecessarily continuing regulation. It follows that they should play an important role in administering any sun-setting provisions. It is noteworthy that in a small number of countries, regulators are statutorily required to forbear regulating once a sector is sufficiently competitive, and competition agencies are involved in determining whether that threshold has been met.

26. 5) Trade and Competition

27. Lafarge to buy Egypt's Orascom Cement PARIS, Dec. 10 2007(UPI) -- Lafarge SA, the world's biggest cement maker, said Monday it would buy the cement division of Egypt's Orascom Construction Industries SAE for $13 billion.  The purchase of the Middle East's biggest publicly traded cement maker will add 45 million tons of production in fast-growing emerging markets by 2010, pushing Lafarge's total capacity to 260 million tons, Lafarge said. Lafarge said it expected 65 percent of earnings before interest, tax, depreciation and amortization to come from emerging markets by 2010, compared with 45 percent now.

28. Cairo , December 2000-2002

29. Mergers in the Egyptian Cement Industry1 • Because of extensive merger activity in the wake of privatization, only six companies (Egyptian, foreign and joint ventures) control the Egyptian cement market. The first three account for 70% of total production. • Suez Cement Company bought Tourah Cement Co and now accounts for 31% of Egyptian cement production. • -Lafarge, a French company, which owned the Beny Sueif Co, bought the Blue Circle Co which produces 75.6% of the cement in • Alexandria. It now produces 25% of the Egyptian cement and is • trying to buy The Helwan Cement Co. • Cemex, a Mexican company bought 90% of Assyut Cement and • accounts for 14% of the Egyptian cement market. • -Simbura Company, a Portuguese firm, absorbed El Amreya Company and is seeking to buy a share the Helwa Cement Co. • - • From « Competition Policy and Law in Egypt »,by Heba Nassar, presented at the Expert • group on Competition Laws and Policies: Identification of Common Ground in ESCWA Member • Countries Abu Dhabi 28-30 January 2002 F.Jenny

30. Competition Increases in the Domestic and Export Markets1 « The fierce race to secure a place in the market was a challenge to newcomers particularly because of the economic slowdown. The newly established firms began lowering the price of their goods, sometimes selling them at the break-even point to ensure a market share and meet the financial obligations of the loans they took out to establish themselves. The presence of small players, helped by a network of wholesalers is the leading factor since, unlike in the public sector era, distributors now deal with any cement company which gives them a good bargain » The Egyptian Cement Company started exporting its production to the Spanish Canary Islands at much lower prices than that offered by Cemex, the Mexican cement producer with a majority stake in Assiut Cement  1) Al Ahram, December 19 2002 F.Jenny

31. Retaliation Against the Newcomers1 According to Azzam Abdel-Azeem, head of the marketing department at the National Cement Company and Maged Nezar, head of Suez Cement sales department, « Cemex and other foreign companies retaliated by pushing local prices to their lowest levels to prevent local companies from exporting by burdening them with losses » (Cemex denies the allegation) « An anonymous source (…) asserted that Egyptian Cement Company has lowered the volume of its shipments to the Canary Islands by 75% as a reaction to the local price war. » «  We cannot control the practices of foreign companies, Abdel-Azeem said. « being the affiliates of international cement heavyweights, they can afford losses for one or two years till they achieve their aim in the market » 1) Al Ahram, December 19 2002 F.Jenny

32. From Price Competition to Price Fixing (December 2002) 1 « Representatives of almost all local cement producers met last week and set a price range for cement of between LE167 and LE176 a ton. Just hours before the meeting, the price had fallen to an exceptionally low LE 125 a ton. The drop had caused serious worry among cement producers, pushing traded cement shares over the edge and rendering the sector less appealing to foreign investors. » « Cement company representatives discussed other solutions in the meeting. « We could agree on another plan to fix market share for different cement companies according to their production capacities », Said Maged Nezar, head of Suez Cement sales departement. While Nezar agrees that such agreements would violate market forces, he believes they would be better than the price wars (…) » 1) Al Ahram, December 19 2002 F.Jenny

33. Cause for Concern Interview of Mr Collomb CEO Lafarge,Les Echos, June 10 2002 Question: your group has given high priority to emerging markets; has this policy been successful? Answer:Absolutely, in 2001 more than 40% of the cement profits (of Lafarge) were realized in emerging markets and we have roughly multiplied by 2 the share of Asia in our activities. This strategy has also given very good results in South Africa, Jordan, Morocco, Honduras, Venezuela, Brazil, Chile. Question: Globally, is the evolution of prices favorable for Lafarge? Answer: In 2001 and 2002, in most countries, maybe except in Germany, prices have moved favorably for Lafarge; this is true, in particular, in certain emerging economies where prices were abnormally low because of local operators who did not have a sufficiently realistic appraisal of the necessary profit level. F.Jenny

34. 3) Dar es Salam, Nairobi, Kampala 2001-2002

35. Cement production in Uganda Hima Cement Company ( owned by Bamburi Cement, part of the Lafarge group since 1999. Current production 250.000 Tons annually; market share 55%). Tororo Cement, independent, market share 45%

36. Cement production in Kenya Bamburi Cement (owned by Lafarge; market share 60%) East African Portland Cement Ltd ( used to be owned by Blue Circle and became part of the Lafarge group when Lafarge merged with Blue Circle; market share 34%) Athi River Mining ( partly owned by Bamburi Cement; market share 6%)

37. Cement production in Tanzania Mbeya Cement ( bought by Lafarge in 1998; production is doubled in 1998-2001. Current production: 220.000 Tons, market share 44%) Tanga Cement Company ( belongs to the Holcim Group, market share 18%) Tanzania Portland Cement Company ( belongs to the Heildelberger group, market share 38%)

38. The East Africa Cement Producers Association In 2001 « The East Africa Cement Producers Association » (EACPA) is created. It includes cement producers of Tanzania (Mbeya Cement and Tanga Cement Company), Uganda ( Hima Cement and Tororo Cement) and Kenya ( Athi River Mining Limited, Bamburi Cement Limited and East African Portland Cement limited). Together these companies have a market share of 62% in Tanzania, 100% in Uganda and 100% in Kenya. According to an offical publication of the French Ministry of Finance, the object of EACPA is to promote East African Cement Industry and to lobby East African governements so that they will take appropriate measures to fight cement imports from Egypt.

39. East Africa, December 2007 Lafarge cement plants in Kenya and Uganda are veritable cash cows with record margins and amazing growth opportunities: the region’s average yearly consumption of cement is 70 kilos per capita, compared to average yearly world consumption of 350 kilos per capita. Bruno Lafont, Lafarge CEO, wants emerging countries’ share of its turnover to increase from 50% to 60% by 2010. As captain of his team, he doesn’t hesitate to play super sales rep. For example, in Uganda, when a new production line was lauched at the Hima cement works, the guest of honor, President Yoweri Muzeveni, was greeted by the CEO dressed in a blue blazer, an orange safety vest and a hard hat L’ExpansionLafarge : une foi africaine en béton Chloé Hoorman ,1 février 2008

40. Uganda, December 2007 More than once Bruno Lafont had to swallow his pride to obtain a permit to exploit another limestone quarry and increase the size of his plant. But the rewards are obvious. With booming demand (+ 11% in 2007) and high price levels ($160 per ton), Uganda is a very lucrative niche market for Lafarge, which enjoys a 30-35% margin there, greatly surpassing the group’s average rate (under 25% in its cement sector). L’ExpansionLafarge : une foi africaine en béton Chloé Hoorman ,1 février 2008

41. Nairobi, December 2007 The government’s offensive should focus primarily on customs duties. These duties are so high that they block cement imports from countries with low production costs. But a significant decrease in these taxes could change that situation. « We are getting ready for it by launching new products, such as ready mix concrete and by adjusting our costs”, explains Michel Puchercos. L’ExpansionLafarge : une foi africaine en béton Chloé Hoorman ,1 février 2008

42. Nairobi, December 2007 In spite of a more open political situation, navigating Kenyan political and governmental waters is also a challenge. Recently the Kenyan government has tried to organize competition to make prices decrease ($120 per ton). In Nairobi, government authorities have given permits to three cement producers to set up production at the same site. « We hope that market growth will absorb this overcapacity and that we will be able to maintain our prices and margins », comments Michel Puchercos. However, this is a rare situation : « With only three major cement companies, Kenya has a mildly competitive market, according to a sector analyst. As a result, producers discreetly agree to divide up territory and avoid head-on competition. »

43. 4) Rabat, 2004

44. La concurrence dans le secteur du ciment au Maroc L’ouverture du marché (encore fortement protégé) au commerce international a décliné suite à la privatisation et la restructuration du secteur. Quatre grandes entreprises produisent du ciment au Maroc : Lafarge Ciments, sous filiale de Lafarge France et de l’ONA, a quatre usines et une part de marché de 41% Ciments du Maroc, contrôlée par le groupe italien Italcementi, a trois usines et une part de marché de 28% Holcim, filiale du groupe Suisse du même nom, a deux usines et une part de marché de 22% Asment Témara, controlée par le groupe Partuguais Cimprom, a une usine et une part de marché de 9%

45. La concurrence dans le secteur du ciment au Maroc Il y a peu de concurrence en raison de la répartition géographique des usines, de la similarité des prix des différents producteurs : «  Certaines des personnes interrogées considèrent que les producteurs sont en entente, se répartissent les marchés et fixent les prix à des niveaux sans commune mesure avec leurs coûts de production ». Les négociants reçoivent des prix conseillés qu’ils tendent à respecter scrupuleusement. Le prix du ciment au Maroc, de l’ordre de $ 80 par tonne, est environ le double du prix du ciment Egyptien ou Turque. L’organisation professionnelle des producteurs de ciment (APC) fait valoir que le prix du ciment est élevé à cause du prix de l’énergie , lui-même élevé. Pourtant les producteurs de ciment ne semblent pas inquiets du démantèlement prochain des barrières tarifaires. Ils accroissent même leurs capacité de production. 1) Competition, Efficiency and Competition Policy in the Mena region,Khalid Sekhat, Femise, July 2005

46. 5) Douala, 2006

47. Le ministre, Cimencam et le ciment importé I (…) Cimencam (les Cimenteries du Cameroun) qui contrôle ce marché depuis des décennies (…) est décidée à maintenir son monopole sur le secteur de la cimenterie. (…) le Cicb (Complexe industriel pour la construction et le bâtiment), un démembrement du groupe Afrique construction, tente d’entrer sur le marché en faisant des importations d’Asie et d’Europe. Le 30 janvier 2006 le directeur général de la Cimencam dénonce au ministre de l’industrie l’importation par Cicb de 9.700 tonnes de ciment en provenance de Longkou en Chine. Il “remercie” le ministre de faire confirmer par ses services compétents le “ caractère frauduleux ” de l’importation. Le Ministre de l’industrie, Charles Sale, impose le 23 février 2006 à Cicb une amende de 48.000.000 de francs CFA pour importation sans respect des normes relatives à l’étiquetage des emballages du ciment Portland ordinaire de type 42,5R. Il invite le Pdg de la société Cicb à “une réunion élargie aux opérateurs de la filière, dont le but est de trouver une solution au problème que pose l’importation des ciments à l’industrie locale. ” Léopold CHENDJOU,Le Messager, 13 mars 2006, Douala,Cameroun

48. Le Ministre, Cimencam et le Ciment Importé II La réunion s’est tenue le 3 mars 2006 Selon un participant “ On a vu le ministre sous la pression de Cimencam prendre clairement position en faveur de l’interdiction des importations de ciment au Cameroun. Une prise de position qui a choqué tous les participants à cette rencontre. N’eût été un petit message adressé d’une manière furtive à l’oreille du ministre par un de ses proches collaborateurs, M. Salé aurait décidé séance tenante de l’interdiction d’importation du ciment au Cameroun. ” « D’aucuns l’accusent même de recevoir régulièrement, en guise de don, du ciment (de la Cimencam) par le truchement d’un neveu à Belabo (vrai ou faux ?) Selon un responsable en service à la délégation provinciale du littoral du ministère de l’Industrie, la condamnation de la société Cicb au paiement d’une amende de 48.000.000 F CFA infligée par le ministère ne repose sur aucune base légale. Le consommateur Camerounais sera toujours obligé de débourser 83.000 Francs CFA la T. de ciment (CPJ 325), trois, voire quatre fois plus cher que les prix pratiqués sur le ciment importé. » Léopold CHENDJOU,Le Messager 13 mars 2006 Douala,Cameroun

49. 6) Lusaka, 2000

50. Anticompetitive merger: cement industry in Zambia On December 4th 2000 (CDC) and Pan African Cement (PAC) announced their intention to sell their 50.1 per cent shareholding in the Chilanga Cement PLC, the sole producer of cement in Zambia with substantial upstream and downstream integrations to SMEs, to Lafarge SA. Information gathered by the Commission pointed to the fact that with Lafarge (who also owns plants in neighbouring countries of Tanzania, Malawi and Zimbabwe), Chilanga Cement appeared to be engaged in production and pricing strategies that made Zambian export cement less competitive compared to cement from the plant in Mbeya, Tanzania. Chilanga Cement wanted to divide the regional market (through market allocation and territorial restrictions) whereby Zambian exports would be targeted to the DR Congo, while the Burundi and Rwandese markets were to be supplied from its Tanzanian plant. Such conduct was likely to make the Zambian plant less competitive by restricting its production capacity. 1) OECD Anticompetitive Merger in the Cement Industry in Zambia, October 2004