CONTRIBUTION OF COMPETITION TO GROWTH AND POVERTY REDUCTION.

1. CONTRIBUTION OF COMPETITION TO GROWTH AND POVERTY REDUCTION. George K. Lipimile Senior Advisor UNCTAD

2. DEFINITION OF POVERTY • Income perspective: A person is poor if his/her income falls below a defined moneymetric poverty line, e.g. $ 1 a day. • Basic needs perspective: A person is poor if he/she falls short of the material requirements for minimal acceptable fulfilment of human needs. This concept goes beyond the lack of income. • Capability perspective: A person is poor if he/she lacks certain basic capabilities to function, e.g. food, clothing and shelter. (Zambia Poverty Reduction Strategy Paper – PRSP -2002)

3. What is Competition? Competition occurs when two or more firms are pursuing the same objective at the same time In a healthy market economy companies compete with each other to gain the purchase of the consumer Competition then leads to: greater efficiency fair prices Innovation

4. COMPETITION AND GROWTH • Competition is a process of rivalry (not just the number of sellers/concentration) • Rivalry can take many forms – in price and quality (short term), new processes and products (long term) • Competition forces firms to strive for improved efficiency and to respond to changing market conditions • No part of market is sheltered or unexplored • Prices reflect efficient level of costs, diversity of products offered, plenty of innovation • Obverse of competition is market power/market failure

5. COMPETITION AND GROWTH Competitive markets provide a strong incentive for achieving economic efficiency. Market forces ensure that goods that the consumer wants are produced in the quantities they want, using the most efficient production methods and marketed and distributed to the consumers who wish to purchase them in the most efficient means possible. Competitive market forces ensure that there is efficient levels of investment in discovering new production technologies, new production processes and new products. In other words, competive markets promote economic efficiency.

6. COMPETITION AND POVERTY REDUCTION • Competition is central to the operation of markets, and fosters innovation, production and growth, all of which create wealth and reduce poverty. • Many African countries now prioritise growth in their national poverty reduction strategies. Because effective competition is a drive of productivity, competition policy should be an essential component of any propoor growth strategy.(DFID Briefing – 2007)

7. COMPETITION AND POVERTY REDUCTION • Most Competition Laws address Poverty eradication issues  through the application of the public interest/benefit principle. • The public interest test allows Competition Authorities to take into account socia – economic issues in competition assessment. • For example, mergers can be ollowed if they demonstrate a public benefit – a common feature in developing countries.

8. COMPETITION AND POVERTY REDUCTION • Competition Act of Malawi:A merger shall be regarded advantageous to Malawi it is likely to increase employment, lower prices to consumers, increase technological advancement. • Competition Acts of Zambia, Swaziland, Namibia, Mauritious etc:Competition Authority may authorise an act which on balance the public benefits outweigh the anticompetitive effects.

9. COMPETITION AND POVERTY REDUCTION • Need to create a competitive environment. • Note that competition is about the competition of firms or enterprises not member states. • Its is firms (who are the contestants) that drive the process of competition • « Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organisation of production » (UK White Paper – 2001) • Innovation – the route out of poverty (DFID – CRC Policy Brief, 2004)

10. COMPETITION AND POVERTY REDUCTION A process of competition law is intended to protect the process of competition by: • Preventing firms from entering into agreements which have the effect of restricting competition, either between themselves or between them and third parties, and which do not have any beneficial features; • Controlling attempts by monopolists or firms with market power to abuse their position and prevent new competition emerging; • Ensuring that workable competition is maintained in oligopolistic industries; • Preventing mergers which may concentrate the market and diminish the competitive pressures within it.

11. COMPETITION AND POVERTY REDUCTION. Empirical reports from Zambia and Zimbabwe with over ten years experience of Competition Law and Policy Enfoncement. CONTACT: • Mr. Thula Kaira, Executive Director, Zambia Competition Commission, zcomp @zamtel.zm • Mr Alexander Kububa, Competition and Tariff Commission of Zimbabwe, compcomm@mweb.co.zw

12. Intervention through Conditional Approval of Mergers • Study findings that mergers conditionally approved by Commission generated considerable competition benefits: • monopoly situation eliminated in cigarette manufacturing industry; • market exits prevented in number of industries and sectors (electrical appliances industry, health services sector, explosives manufacturing industry, etc.); and • vertical restraints and conditional trading removed in number of industries and sectors (roofing tiles industry, health services sector, electronics industry, etc.) 12

13. Conditional Approval of Mergers (2) • Specific socio-economic benefits realised from the mergers included: • Employment Creation and/or Protection: • 294 new jobs created in cigarette manufacturing industry, and 130 in the beverages industry • additional jobs also created in the health services sector • many more jobs saved from resuscitation of ailing firms in various industries and sectors • Export Earnings: • new export-oriented firm created in cigarette manufacturing industry from conditions put on approval of a merger in that industry • local beverages brands turned into regional brands now being exported to four different regional markets 13

14. Conditional Approval of Mergers (3) • Continued Availability of Commodities: • local beverages and cigarette brands prevented from exiting the market • closure of local cement plant prevented • Indigenisation and Localisation of Economic Activity: • mergers in cigarette manufacturing industry and petroleum distribution industry approved on condition that excess plant and equipment should be sold to indigenous entrepreneurs • Promotion of Foreign Direct Investment: • mergers in beverages industry, cement industry and timber processing industry approved on condition that foreign acquiring parties make substantial investments in the local operations. 14

15. BENEFITS OF COMPETITION IN ZAMBIA • Intervention by the the Competition Authority led to the creation or presenvation of jobs. -The abolishment of the exclusive dealership agreements in the beverage and soft drinks sector opened the industry to employment in the informal sector; -In the Dairy sector a monopoly company was directed to purchase milk from the small diary farmers, hence providing a market; -The monopoly Retailer(Shoprite of South Africa) was directed to purchase farm produce from the small scale farmers as against importing.

16. PROCOMPETITION INTERVENTION IN ZAMBIA • The Commission negotiated a set of incentives with Government on behalf of a dominant company in the beer sector which was threatening to exit the market in a city called Ndola – promoted the growing of millet to small farmers. • Commission negotiations led to a new cement plant in Lusaka with higher production capacities.

17. PROCOMPETITION INTERVENTION IN ZAMBIA • The Commission held discussions with government which resulted in lowering entry barries in the passeger transport business e.g. reduced duties, lift of restrictions on routes,relaxed licencing system. • The Commission held discussions with the multinationals in the tabacco, cottonand poultry sectors aimed at streamlining the contract out-grower schemes focusing on the pricing system so that the peasant farmers can benefit fron good prices of their crop. thank you …