Consumer Protection Policy Progress towards a Competition Act Sectoral Policies

1. State of Competition Regime in GhanaCountry Research Report National Reference Group Meeting (NRG II)November 3, 2009Alisa Hotel, Accra

2. Outline • Consumer Protection Policy • Progress towards a Competition Act • Sectoral Policies • Competition and Sector Regulation • Existing Anti-Competitive Practices & Distortions • Some Evidence and Suspicions • Perceptions regarding competition concerns • Competition Issues in the Agriculture Sector

3. 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. These institutions included: 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

4. Progress towards a Competition Act • The Government is in the process of developing a Bill on competition law. • Three draft Bills have been prepared before; the Trade Practices Draft Bill, drafted in 1993 and the Draft Competition and Fair Trade Practices Bill in 2004, all which could not be developed into an Act of Parliament. We do not know what happened to the third one? • The key question: Why has it been so difficult to put a Competition Act into law?

5. Sectoral Policies • Energy • Water • Telecom • Financial Services

6. 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.

7. 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.

8. 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

9. 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

10. 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 percent 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).

11. Competition and Sector Regulation • Interviews were conducted with key stakeholders in select sectors. Some key findings were: • Although these institutions were independent by law from the related ministry, they were not independent in the nomination of their chief executives; the President was the one who appointed (and dismissed) the chief executive in most cases. • Only a few of the regulatory agencies were financially independent (most notably the NCA) and most were funded through government subvention. The agencies noted that there was ample room for political interference in major decisions, such as the awarding of licences.

12. Competition and Sector Regulation • With regard to the level of competition in the sectors, there was variation. In some sectors, like utilities, there was little competition with some monopolies being present; in sectors like communications, however, there was significant competition. • The regulatory agencies generally have a policy of no tolerance of anti-competitive practices but not all are equipped with provisions for punishing such behaviour. • Key Result: Sector regulators also empowered to administer competition in their sectors and to deal with anti-competitive practices but not all are equipped with provisions for punishing such behaviour.

13. 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

14. 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

15. 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

16. 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

17. PERCEPTIONS REGARDING COMPETITION CONCERNS • Assessment of Level of Competition • Assessment of Enforcement Issues • Competition Culture and Public Awareness

18. Assessment of Level of Competition

19. Figure 1: Assessment of competition in key sectors, 2009

20. Fig 2: Sectors characterised by monopolies

21. Table 1: Perception of most frequent anti-competitive practices Majority of respondents (58%) have quite frequently encountered anti-competitive practices

22. 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. • 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 come tops in the list.

23. COMPETITION CULTURE AND PUBLIC AWARENESS Fig 4: Awareness on competition issues among key groups • 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

24. Role of Media Fig 5: How competition issues are perceived to be reported • Assuming they encounter any anti-competitive practice, 36 percent of respondents agreed to report such 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. • Journalist may lack the training needed to appreciate competition issues, however business correspondents are sometimes able to highlight some anti-competitive practices

25. Some Key Conclusions (Perception survey) • There is a perceived severe lack of awareness of competition issues and regulations in Ghana. • There is a general perception that there is a lack of publicity on competition issues and lack of political will to have competition laws established. • Competition issues not regularly reported in the media, and the level of awareness of competition issues by journalists not perceived to be high.

26. Competition issues in the agriculture sector • There is no price competition among LBCs with respect to the price they pay to the farmers. Why? • Why are LBCs unable to export directly to the international market in competition with Cocobod and dilute its monopoly? • Due to absence of weight standards, loaders in the informal sector have emerged who are extremely powerful in weight disputes, getting high fees as commission. Is this for the best?

27. 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.

28. 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.

29. 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)