Transcript BOTSWANA COMPETITION BILL
ANTI-COMPETITIVE AND ANTI CORRUPTION ACTS BIRDS OF A FEATHER ?
by
Thula Kaira - CEO
Presentation to the Zambian Anti-Corruption Commission/DCEC Gaborone Thursday, 6th June 2013
PRESENTATION OUTLINE
1. Introduction 2. Why we should protect competition 3. Principles of Competition Policy 4. Botswana’s Competition Act 5. How we operate 6. Competition Policy & Corruption 7. Birds of a feather…?
1. INTRODUCTION
The Government of Botswana through its Cabinet adopted the National Competition Policy for Botswana in July 2005 The Policy was preceded by an Economic Mapping Survey (2002) that noted high levels of unemployment, increasing dominance of foreign firms in Botswana’s economy, etc
Arising from the Policy, the Government through its Parliament enacted the Competition Act in 2009 whose objectives in its preamble are to:
• Establish the Competition Authority • Outline its mandate • Regulate competition in the economy
This is not unique to Botswana as such exist in over 130 countries, including BRICS, USA, EU, Egypt, Israel, Japan, Mauritius, Namibia, Zambia, Zimbabwe , etc
4
THE COMPETITION AUTHORITY IS A Govt Agency Accountable to Govt through the Minister Guided By Other over-arching National Policies
2. WHY PROTECT COMPETITION?
UN SET of Principles & Rules on Competition
… States, in their control of restrictive business practices, should ensure treatment of enterprises which is fair, equitable, on the same basis to all enterprises, and in accordance with established procedures of law. The laws and regulations should be publicly and readily available
Monopoly markets are slow to innovate and adapt to new ways of doing business A National Competition policy will assist the Government and all its agents to ensure fair business opportunities for both foreign and local firms. Competition policy & law provides a set of rules and principles that are not based on privilege but conducive to and responsive to leveled-ground or fair competition
3. PRINCIPLES OF COMPETITION POLICY
Transparency Procedural fairness Non Discrimina tion
9
The WTO is a multilateral trade organisation that has recommended a fair, transparent and non discriminatory multilateral trading system
Botswana is a member of the WTO and has voluntarily promulgated rules of fostering fair competition in the domestic economy through the Competition Act
Implementation of such a law has to adhere to the best international principles of transparency, non-discrimination and procedural fairness
10
4. BOTSWANA’S COMPETITION ACT
1. Private Commercial enterprises The Law applies to: 2. The State’s commercial activities
11
ELEMENTS OF THE COMPETITION ACT OF BOTSWANA VERTICAL AGREEMENTS : - Resale Price
Maintenance
CARTELS : - Price-Fixing
- Bid Rigging/ Collusion - Market/ Customer Allocation
ABUSE OF DOMINANCE : - Excessive
Pricing - Predatory Pricing - Territorial Restraints - Tied Selling
MERGERS -
Acquisitions -Takeovers Amalga mations
Vertical Agreements
These are agreements that businesses have from the production/supply source through logistics, wholesale/warehouse, retail ending up with the consumer
What contracts, conditions, agreements, arrangements, practices are in place to move a product from manufacturing to retailing? Long-term exclusive supply contracts effectively close out new entry
Transparent, fair, non-discriminatory?
13
CASE EXAMPLE Vertical Agreement
Medical Aid Funders (MAFs) have entered into some form of arrangements with the Medical Service Providers (MSPs) such as dentists, gynaecologists, paediatricians etc on how much MAFs will pay for services rendered by MSPs to consumers (patients)
Patients pay high monthly subscriptions to MAFs but MSPs still claim extra payments from patients – invoicing system blurred
Is the system pro or anti-competitive?
14
Horizontal Agreements (HAs)
HAs are any manner of formally or informally coordinated common market behaviour by competitors eg banks agreeing to have uniform bank charges or bakers agreeing to sale bread at the same price
HAs constitute the most serious offences in anti-trust and attract huge fines in RSA, USA and Europe. Record cement cartel fine of US$1 billion in India
They create ‘unfair-profits’ for the crooks
15
CASE EXAMPLE of Horizontal Agreement
A group of car repair garages in Gaborone have allegedly conspired not to compete on price and so, they provide collusive quotes to insurance companies (bid rigging/collusive tendering)
They assist each other when requested with ‘cover prices’ high above the normal charges
Is this pro- or anti-competitive?
16
Abuse of Dominance/Monopolisation
Abuse of dominance provisions are directed at enterprises which are larger in a market, which in Botswana is any firm with at least 25% market share
The law prescribes conduct that dominant firms cannot engage in as the effect is more severe in a market esp. for SMEs
It is important to ensure that markets have as many players as possible to provide a competitive market system
17
CASE EXAMPLE on Abuse
Exploitative/excessive pricing is one form of abuse by a market player. At the Competition Authority, an IT tender produced a monopoly technical winner at P5.8 million
UNDP (the funders) questioned what kind of IT infrastructure CA needed at P5.8m and requested we verify the pricing of our needs or readvertise tender
Renegotiations resulted into a P2.4 million
18
Mergers and Acquisitions
Mergers, takeovers, amalgamations or combination of ownership into multiple controlled and/or single firm under same hands is a way of reducing the number of players in a market, reducing competition/ choice and increasing market dominance
Most competition laws thus have provisions to ensure that there is an inquiry and assessment before a proposed merger or takeover is effected in a market
19
CASE EXAMPLE of Mergers and Acquisitions
G4S is the dominant player in the private security business in Botswana, with an estimated market share of over 60%. It attempted to takeover a small player with less than 5% market share (Shield Security)
The CA refused to authorise the takeover as it was going to increase G4S dominance; reduce competition; and reduce consumer choice (price, service, etc)
20
5. HOW WE OPERATE
• CA initiates an investigation on its own or after a
complaint
• CA can summon persons to produce evidence • CA can search business premises after obtaining a
court warrant
• CA can seek assistance of police, DCEC, PPADB, etc • CA can appoint adhoc inspectors • CA can cooperate with foreign CAs • Competition Commission (CC) makes final
decisions (except on mergers/takeovers)
21
The Judicial Process Court of Appeal High Court Competition Commission Competition Authority
22
6. COMPETITION POLICY & CORRUPTION
Competition policy and law deals with both the public and the private sector While the corruption law does extend to deal with persons directly, competition law in Botswana deals with the corporate entity – thus fines are meted not to persons, but to firms Competition & corruption in public service are intertwined through ‘rent-seeking’
23
Rent Seeking is spending resources in order to gain by increasing one's share of existing wealth, instead of trying to create wealth. The net effect of rent-seeking is to reduce total social wealth, because resources are spent and no new wealth is created. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity. SOURCE: Conybeare, John A. C. (1982). “The Rent-Seeking State & Revenue Diversification,” World Politics, 35(1): 25-42 http://en.wikipedia.org/wiki/Rent-seeking
24
In our society, rent-seeking reduces competition and breeds corruption the moment competition is frustrated/reduced
Rent seeking is higher where there are limited opportunities for growth/ wealth creation A lax public officer who is a sole decider or has discretionary authority in a key process may create a loophole for rent-seeking activities e.g., use of agents in immigration or customs clearance
25
Concepts related to ‘rent-seeking’ that may reduce competition and breed corruption are:
Lobbying for tariffs to be imposed on imported products to protect local competitors
Introduction & processing on import permits
Regulatory capture
State-capture by strong interest groups who may influence policy & funding pertains
26
The economist’s natural approach to corruption control is to appeal to the concept of competition as it is argued that bribes are harder to sustain where perfect competition prevails…a way to reduce corruption is to introduce competition at the level of the official receiving bribes: When a bureaucrat dispense a scarce benefit, the existence of competing officials to reapply in case of being asked for a bribe will bid down the equilibrium amount of competition
SOURCE: Rose-Ackerman, Susan. Corruption: A study of political economy. New York: Academic Press, 1978 (as quoted by Alberto Ades and Rafael Di Tella, Rents, Competition and Corruption, The American Economic Review, Vol. 89, Issue 4 (Sep., 1999), 982-993 http://www.people.hbs.edu/rditella/papers/AER Rents%26Corruption.pdf
27
An economic system based on the rule of law and fair competition can only function well, if trust accompanies contracts, i.e. if economic actors can calculate risks and probabilities attached to events and outcomes in the future. A high intensity of corruption induces an additional uncertainty and hence not only affects distortion of competition.
28
Also, in a corrupt society, pressure groups might try to prevent enactment of a law that could control as much as restrict their own activities.
Hypothesis... A high level of corruption reduces the probability of enactment of a competition law.
SOURCE: Factors accounting for the enactment of a competition law – an empirical analysis, Report by Franz Kronthaler, Johannes Stephan, September 2005, Halle Institute for Economic Research 29
Where monopoly/oligopoly control a market, the State may wish to engage private companies to perform specific tasks or public works or provide services. To the extent that only a very small number of companies can practically carry out the work, the ground is fertile for corrupt practices (such as overcharging, providing low quality work or delivering the work late). Such a condition obtains, eg, in defence projects
SOURCE: United Nations CRIME PREVENTION AND CRIMINAL JUSTICE DIVISION, United Nations action
against CORRUPTION and BRIBERY, September 1997 http://www.uncjin.org/Documents/corrupt.htm
30
7. BIRDS OF A FEATHER…?
Both competition and anti-corruption policies relate to good economic governance and curbing ‘unholy’ advantage Both lead to loss of competitiveness in an economy as unworthy people gain in commerce and industry Information sharing and assistance in investigations by enforcement agencies should thus be a national interest issue Formalisation of cooperation through MoUs
31
KE A LEBOGA…
FOR FURTHER INFORMATION:
Thula Kaira - CEO Competition Authority Plot 50664, Fairgrounds Private Bag 00101 Gaborone, BOTSWANA Tel: +267 393 4278 Fax: +267 312 1013
EMAIL: [email protected]
WEBSITE: www.competitionauthority.co.bw
FACEBOOK: Competition Authority – Botswana TWITTER: @CompetitionBots