PREVAILING COMPETITION REGIME IN ETHIOPIA

1. PREVAILING COMPETITION REGIME IN ETHIOPIA PRESENTED BY SEIFU ALI Feb 14,2008 BOTSWANA-GABORANE

2. Overview • Where Ethiopia Located II. Its Economic Environment and competition Evaluation • The Economy is characterized by :- • Poverty • Increasing population pressure and deteriorating Environment. • High level of public ownership and government intervention. • Importance of agriculture (43%of GDP) and increasingly, service sectors (46%) in the economy, with a comparatively small industrial sector (12.7%) • Small, formal private sector and large informal sector. • Dependence on imports for manufactured goods.

3. The Economy of Ethiopia is dominantly agrarian, but overtime it went through series of stern economic reform based on market oriented. • Price deregulation. • Elimination of subsidies. • Privatization of public entities. • The liberalization of trade and investment has introduced major changes in the economy during the last couple of years. • Stunning and impressive economic growth with annual average of 10.7% in GDP since 2004. • After 2005/06 election crisis, the government concentrate on policy formulation and monitoring, aiming at boosting the macro economy through:- • Reducing government involvement in business • Encouraging private sector led economic development through • Privatization • Liberalization • Deregulation.

4. However, there are still areas where strong regulation and control imposed:- • Land. • Nationalized urban houses • Confiscated industries (small and medium) • Above all, the past few years have seen a growing rate of overall inflation Led by persistently high food price inflation. • Pushed overall inflation in to double-digit figure 16.7% [consumer price index (CPI) Nov, 2006] • The present inflation rate is far higher than the interest rate offered on savings. • Everyone’s savings are decreasing in real value and all have an interest in spending their savings now rather than later. (Money supply in the Economy.) • IMF made the suggestion that the central Bank should increase the incentive to save. Very recently the Bank took measure of increasing deposit rate from 3% to 4% • The continuation of the present rate of inflation contributes to keeping the rural poor marginalized. • What use are new roads, phones or electricity, if the intended users cannot pay for them?

5. III. Competition legislation • The government issued a trade practice proclamation (No 329/2003) to promote competition in the domestic markets. • Objective • Securing a fair competitive process through the prevention and elimination of anticompetitive and unfair trade practices. • Safeguarding the interest of consumers through the prevention and elimination of any restraints on the efficient supply and distribution of goods and services.

6. IV. Institution and competencies • The Investigate commission established in 2004 under the ministry of trade and Industry (MOTI) directly accountable for Domestic trade department. • The commission required to receive and investigate complaints submitted by aggrieved parties, and suggests measures in line with the legislation for addressing these complaints. • Major duties and responsibilities:- • Commission investigate cases involving unfair trade practices and passes verdicts to be approved by the ministry. • So far out of 66 cases under investigation the commission has given final verdict on 33.

7. The commission has the power:- • To compel any person to submit information and documents necessary for carrying out of commission duties. • To take administrative measures and/or pronounce penalty decision on any complaints submitted to it. • To delegate parts of its powers and duties to the secretariat to the extent necessary to efficiently discharging its responsibilities.

8. IV. Issues not addressed by the proclamation and drawbacks • Issues related to merger and Acquisition, takeovers and other forms of conglomerations at domestic, regional and international level, which could lead the monopoly power in production and service. • to the market share percentage. • to self-initiative investigation. • to competition tribunal and adjudicatory role is missing. • to the authorization of regional councils to implement the unfair trade practice proclamation is not clearly delineated. • Issue related to independence of the commission is not clearly defined. • Any administrative measures and/or penalty decisions shall be executed after obtaining approval of the minister in writing.

9. The minister may approve, amend or remand for review any decision of administrative measures and penalties submitted to him. • Recently the minister declined to approve the verdict the trade practice investigation commission gave on five businessmen accused of hoarding. • Issues related to verdict of the commission don’t explicitly stated the redressing or compensation level of the victim’s competitive position to be reinstated. • Issues related to the proclamation provides the right of consumer association to be a mamber of the commission. Still the selection or assignment is not yet executed. • Issues related to the maximum and minimum limit of commission’s member don’t clearly stated. As the result, nebulous parliamentary procedures and voting in majority rule.

10. VI. Anticompetitive practices • We have a market that is characterized by an extreme market anomalies. we try to mention some of the conspicuous events as a glimpse:- i) Soaring price of oil has been shivers the macro economic position of Ethiopia, Just like other non-oil producing countries. • The oil price is indeed a formidable challenge for Ethiopia. • It is significantly becoming susceptible to global oil price movement and terms of trade shocks. • All fuel products are imported by the state petroleum enterprise - Ethiopian Petroleum Enterprise (EPE).

11. The heavily regulated sector is immune from these international price shocks only due to the massive subsidies provided by the federal government. • Estimated to cost over 100, million dollars a year • The contributing factor for the budget deficit and negative balance of trade is both an increase in the volume and value of imported oil. • The volume has increased to a record high 720,000 tons last fiscal year. • While the national oil expenditure that was 3oo million dollar in 2003/04, rise to 700 million dollar in 2005/06. • Importing one billion dollars in petroleum products last Ethiopian fiscal year ate up about 87% of the foreign exchange currency reserves. • Government continue attempting to foot the bill and control the supply of these crucial input, it is not sustainable.

12. The better option is to allow private businesses into the sector, regulated as they can be. • Private companies have the flexibility to quickly react to market signal and capture demand to make profit . • Liberalization of this crucial input is a pivotal issue. • It is important that the government recognize the limitation it has in continuing to directly subsidies oil pumped into gas stations. • Liberalization of the market does not necessarily mean leaving behind the low-income groups that benefit from cheap fuel. • Targeted subsidy programme that benefit the poor through gas used for household cooking needs. • Continue to subsidies private vehicles is not effective.

13. ii) still today there is no progress in monopoly Endeavour of political party favored business (party statals) • The prevailing government has its own large business enterprises in the economy. • The enterprise now a days has an imminent position to exercise monopolies in the whole national economy. • As long as there is no legislative and other regulatory measures to curb the concentration of production or exchange, it is likely that these entities reach in a position of being monopoly. • Monopolies imports and distribution of fertilizer, some agricultural imputes, iron and steels, etc.

14. iii) The recent price hike of bubbly beverage have made by the factory which control 70-75% of the local drought market. • BGI-Ethiopia is a French company-one of the prominent brewery company producer of Castel, Bati and St.George draught beers. • The company produces 65,000 to 70,000 hectoliters of St-George draught beer every month. • As the result of the price adjustment made by this company, the rest four brewery companies in the country have made the price adjustment at almost exactly the same price at the same time. • They used to sell 30 liters of draught for birr 150 (USD 15.31) the same amount now goes for Birr 190 (USD 19.39) • The synchronically of the price increases being instituted by major beer makers has brewed suspicion that the factories have collaborated like cartel.

15. VII. Concluding observations and future scenario • Ensuring competition is just a means to achieve efficient allocation of resources in an economy. • Maximizing consumer welfare • Competition policy and law empirically evidenced that reduce and eliminate market anomalies and protect consumers from deception. • Its applicability in developing countries like Ethiopia is very complex and intricate in nature. • The country’s Investigation commission in all sphere of its activities capitalize to safeguard and protect the basic rights of the consumers. • The right to basic needs • The right to choice etc.

16. The commission much more is needed to secure fair competitive process through. • Prevention and elimination of any restraints and unfair trade practices. • The proclamation 329/2003 should be mulled over according to the existing dynamic and vibrant nature of the global economy. • The resource limitation inadequate staffing and skill are the major factors to come up the commission to be not effective and well-organized institution to shoulder these responsibilities. • It is indispensable and imperative to review the unclear and ambiguous clauses stipulated in the proclamation that hamper its progress. • The government organized think-tank group from different stockholders excluding the consumer representative and starting the revision programme.

17. The revised draft proclamation may have the following features:- • Institutional independence and insulation from external interference. • Well-designed administrative mechanism. • Clear separation of investigation of anticompetitive behavior from the application of competition legislation, prosecution and adjudicative functions. • Proactive advocacy function. • Self-initiative and autonomous investigation practices • Enactments that ensure the consumer protection and welfare.

18. Thank You!!!