Roger Nellist Investment Climate Team Department for International Development, London

1. Competition Policy, Private Sector Development and Poverty Reduction Capacity Building on Competition Policy in Select Countries of Eastern and Southern Africa (7Up3)International PerspectivesMauritius, 29 March, 2007 Roger Nellist Investment Climate Team Department for International Development, London

2. Themes • Nature of competition • Competition links with poverty reduction • Competitive pressures and growth • Investment Climate and Growth • CP, PSD and PR - evidence and research challenges • Impediments to competition • Competition Assessment Framework • Challenges in implementing CP • Conclusions

3. Nature of Competition • Competition is vital for the functioning of a modern market economy • Competition, vs. fair competition • Competition is a process and not an ‘equilibrium event’; it is not automatic; and needs to be nurtured, promoted and protected

4. Competition Links with Poverty Reduction Think of people (poor) as: • Consumers • Employed • Entrepreneurs • Recipients of government-funded services

5. Links with Poverty Reduction • Direct benefits - fair competition enhances consumer welfare (prices, choice, standards?); essential private goods and services consumed by poor. • Indirect benefits through: - general growth enhancements; - access to sustainable livelihoods in formal sector (shared growth); • Publicly provided infrastructure and services (Govt procurement arrangements, and bid rigging)

6. Competition abuses hurt consumers • CUTS 7-Up3 identified: Unfair trade practices, collective price fixing, entry barriers, market sharing and bid rigging • Cartels: basic commodities - Bangladesh (e.g. rice, sugar, potatoes); drinking water - Lao PDR; brick making –Nepal • Predatory pricing of beverages - Vietnam • Bid-rigging: e.g. school construction- China; water pipes- Nepal; road construction and bridge building-Japan; infrastructure construction- Vietnam • Transport cartels – e.g. Bangladesh, Nepal and India • International cartels e.g. vitamins • Mergers reducing cement producer competition – India • Evenett/Jenny research on Africa

7. Competition – the growth story • Level playing field for domestic SMEs (firms and jobs, globalisation) • Free entry and exit - innovation, technology, productivity • Intermediate inputs • Investment climate (consistent competition framework helps investor confidence, as part of good regulatory regime) • Growth (Inv + Productivity push out the PPF) NB: Competition Policy is complementary to privatisation and de-regulation reforms

8. More Competitive Pressure, More Innovation • Firm-level surveys confirm the importance of competitive pressure for incentives to innovative and increase productivity Source: WDR, 2005

9. Private Investment Has Grown Faster in Countries with Better Investment Climates Source: WDR, 2005 Average 1984-2000 based on International Country Risk Guide’s index of “Investment Profile”

10. Quote “If each Indian state could attain the best practice in India in terms of regulation and infrastructure, the economy should grow about two percentage points faster.” Investment Climate Assessment (ICA) of India, World Bank, 2002

11. Roots of Growth and Poverty Reduction to be Found in Improving Investment Climate WDR2005: Investment climate reforms in, for example China, India, and Uganda,have been associated with: • Dramatic increase in private investment/GDP • Dramatic fall in poverty

12. Competition Policy, PSD and Poverty reduction • Assembling the evidence: - What are we examining? - Theoretical, anecdotal, empirical? • Research challenges: - attribution (CP reforms often part of a package) - paucity of data for DCs - timing of benefits

13. Assessing the state of Competition Recognise: • Public sector as well as private sector impediments to competition; • Political/economy as well as technical, legal and economic impediments - vested interests (institutional, commercial, individuals)

14. DFID’s Competition Assessment Framework (2007) • How to select sectors and markets for assessment • How to analyse competition: - Identify the relevant markets and the competitors - Examine the market structure - Consider vested interests - Look for barriers to entry - Look for signs of anti-competitive conduct by firms - Ascertain if other government policies or institutions limit competition • Draw conclusions

15. Competition Studies of Key Sectors in India: 2006-2007 • Manufacturing • State Policies: Passenger Transportation in six states • Pesticides and Cement • Road goods Transport: Mumbai region • Energy • Telecommunications • Food Grains: three eastern states • Tea Auctions • Cartels • Bilateral Treaties • Competition authority-Regulator interface • Enterprise Compliance Guidelines

16. Possible Further Competition Studies in India: 2007-2008 • Pharmaceuticals • Railways • Gas downstream • Mining • Manufacturing (high impact industries) • Insurance • Health and Education • Banking • Fertilisers • Subsidies • Standards • The public Sector and procurement • The legal system • Property rights • Domestic barriers to trade

17. Challenges in implementing Competition Policy • CP is at a ‘crossroads’ • Conflict with other policy objectives? • Persistence of natural monopolies and tension with sector-specific regulators • Resistance from vested interests • Lack of political will and independence • Small (vulnerable?) DC markets • Capacity constraints

18. Conclusions • Fair competition matters - for sustaining growth and poverty reduction • It matters in Africa!! • Need pro-market commitment from top • Need bottom-up advocacy • Appropriate policies, laws, institutions • Adequate financial and human resources • Operational independence • Beware of vested interests, block reforms • Assess and address the real impediments to competition • Must deal with some structural issues (e.g. relationship with sector regulators)