Malawi Competition Regime

1. Malawi Competition Regime Notes for the Country Paper

2. Some preliminary remarks • 7UP3 project will be undertaken by the Centre for Social Research (CSR) – a research arm of the faculty of social science in the University of Malawi • CSR is enthused to be part of this regional project because it is in line with its mandate and strategic plan • So far, there has been little work done in this area. This project gives CSR a chance to add a new dimension to its profile

3. General background • Some groundbreaking work on the PCP areas was done by CAMA and CUTS. The work was published by CUTS in 2003 under the title “Spine Chilling Experiences of Anti-Competitive Practices in Malawi” • CUTS has continued to follow events in Malawi which enabled produce some updates on Malawi • With my spine chilled, I was unable to match their work in so short a period • Their work will form the basis for the Malawi’s Study as some attempt will be done to update some of the areas • The following slides provide some notes for the PCP

4. Social, political and economic history • Malawi became a British Protectorate in 1891, politically independent in 1964, a republic in 1966, one party-state in 1971 • A referendum in 1993 did away with the one-party system and a new republican constitution was adopted in 1995 • Multiparty general elections have been held three times since then (1994, 1999 and 2004) • Central Government dominates public administration. Low priority is given to local government. Local Government elections were held only once in 2000. None are in insight • Judicial system functions fairly well and independently especially since the new constitution although it is poorly funded to deal with cases expeditiously • Traditional leadership still play major roles in the Malawi in both public and justice administration • Economic management since SAPs has leaned more towards the market – exposing domestic firms to fair and unfair competition and consumers to the benefits and ills of free marketing • Malawi is yet to gain full economic independence. She is very poor.

5. Some more facts about Malawi • Malawi lies at the end of the Great Rift Valley and is sandwiched between Mozambique (SE), Tanzania (NE) and Zambia (West) • It sits on 119 thousand sq km and accommodates a rising population (1.9%) of just over 12m in 2005; 65% of which are classified as poor • Agriculture is her mainstay – it accounts for over 35% of GDP and gives something to do for 80% of the labour force • Unemployment ‘does not exist’ on the assumption that the unemployed have the (hard?) choice of being self-employed as subsistence farmers • Some more facts on the following table

7. Economic structure and performance • The country has a weak economic structure and requires a genuine structural transformation. This is despite the adoption of SAPs since 1981 • In 2004, 39% of GDP was generated from Agriculture. Manufacturing was 14% and has been declining from a high of 18% achieved in 1995 • Distribution has filled the gap created by the shrinking manufacturing sector. Its share has increased from 13% up to 1994 and 22% since 1995 • GDP growth has rarely been stable • Figures 1 and 2 depict the story visually

10. Historical perspective of competition in Malawi • The import-substitution policies in the years up to 1980 forced government to protect the infant and the vulnerable consumer • High import duties and price controls were the tools. Competition was not encouraged and inefficiency characterised the Malawi’s economy • SAPs opened borders and freed markets in the quest to promote competition, force efficiency and deliver benefits of the consumer. • However, no genuine competition came. What came instead were slow death of ‘manufacturing infants’ caused by fair and dumped imports and consumer exploitation by SAP-freed monopolies/oligopolies as the small local market and concessions restricted entry • Some competition has been witnessed in imports-covered sectors. Privatisation has not helped either.

11. Social and economic policies affecting competition • As part of the reforms under SAPs, the Ministry of Trade and Industry turned from being a regulator into a facilitator of competition • Further, Malawi introduced a host of competition enhancing policies namely (i) investment promotion (ii) integrated trade and industry (iii) micro and small enterprise (iv) micro finance policies and ultimately (v) competition and fair trading. • Most of the key policies have been underlined by legislation. The critical ones being the competition and fair trading and the Consumer Protection Acts • Government (GCU) and public enterprises procurement policies also require competitive tendering for purchases of goods and services to promote competition among suppliers

12. Nature of market • Relatively, there is competition in the consumer goods, edible oils, soaps and household durable goods markets. In these sectors, domestic production is supplemented by imports • There are certain sectors that have limited competition like the sugar, beer and soft drinks, motor vehicle genuine spares despite market liberalisation • Naturally, utilities face no competition. Competition in the distribution of utilities is still not in sight • In some sectors like financial services and insurance there is some market concentration although there is some improvement especially in the retail banking • Serious ‘investigations’ are required to understand the continued limited competition and exploitation of the consumer, especially in the rural areas

13. Competitiveness of local firms • Uncompetitiveness of local firms is evidenced by the closure of manufacturing firms, shrinking manufacturing sector and blossoming distribution sector, in terms of their value-added • Local firms point at ‘the deaths of their friends’ and loudly call for protection against what they consider unfair competition. • Dumping (and not fair imports) is blamed for local firms’ struggles and closures • Further, high import content of the locally produced products make local firms uncompetitive • Literature review or primary critical analysis is required in this area to establish some credible explanation

14. Barriers to entry • There are no restrictive legislative barriers • There are very few administrative barriers in some sectors where concessions are granted to attract investors • There are natural barriers for foreign investors – landlockedness, quality of human resources especially semi-skilled, size of the economy (poverty) • Alleged corruption and misuse of donor funds has not helped in the attraction of investors and donors • Further, poor economic management fuelled inflation and too high interest rates. There was virtually no investment by both domestic and foreign investors • All these have acted as barriers to entry

15. Legislation on competition • Government enacted the Competition and Fair Trading Act in 2000 • The law has most of the necessary provisions • The law has adequately dealt with the dominant firm, collusions and price fixing associations, mergers and acquisition and monopolies and oligopolies • Its has provided for a competition authority • It is not as comprehensive as the competition policy. It doesn’t deal with dumping adequately. • What is more spine chilling is that five years have gone without the ‘teeth of the Act’ (the Competition Commission) with lack of planning and resources as possible excuses

16. Consumer Protection Legislation • A very good Consumer Protection Act was enacted in 2003 and it provided for the establishment of Consumer Protection Council • The Council would protect consumers from a host of unfair trading practices and seek compensation • The law covers most of the key consumer protection issues although local firms are not featured as consumers. • However, serious or more ‘holes’ could only be uncovered during implementation. • Unfortunately, the Council is yet to be established. • We are hopeful that the new government, led by former COMESA ED, will pick up the issue

17. Some concluding remarks • Policies and legislation for the promotion of competition and protecting consumers exist in Malawi • What are missing are the Competition Commission and Consumer Protection Council both of which have been provided for in the Malawi Laws • Lack of implementation is the biggest plague in Malawi. Apparently competition and consumer protection are never been priorities • This project will try to find reasons why these two related issues are given low priority • This project will show that the civil society is still interested

18. Thanks very much for your attention MG Tsoka, CSR, UNIMA, Zomba, Malawi The end