Get rid of cartels to grow economically, says World Bank

African countries must break up cartels dominating the food and construction sectors if they are to enable systematic growth that benefits most of their people, says a new report.

The World Bank study, Breaking Down Barriers, finds that reducing the prices of basic food staples by just 10 per cent, as a result of tackling cartels and improving laws that limit competition in markets, could lift nearly half a million people in Kenya, South Africa and Zambia alone out of poverty and save households in these countries over $700 million a year.

Lack of competition hurts consumer welfare especially for the poorest. In many African cities, the prices of staples including white rice, white sugar, frozen chicken, bread, butter, flour, milk, potatoes and eggs are at least 24 per cent higher than in the rest of the world, even after taking into account demand and transport costs.

Ending cartels and boosting competition in consumer markets will both help growth and alleviate poverty, according to the World Bank and the African Competition Forum (ACF), which produced the report.

At the same time, the report warns that fundamental market reforms to increase competition in key sectors is critical for competitiveness and economic growth.

It also suggests that the impact would be even larger if fundamental changes were implemented in other services such as electricity, telecommunications and transport.

“Strengthened competition policy in Africa not only encourages sustainable economic growth and competitiveness across the continent by creating firms and industries that are more productive, it directly impacts poverty by encouraging firms to deliver the best deals to consumers – particularly the poor - protecting them from paying higher prices for essential goods and services,” said Anabel Gonzalez, senior director of the World Bank Group’s Trade & Competitiveness Global Practice.

Sub-Saharan and North African countries have relatively low levels of competition.

More than 70 per cent of African countries rank in the bottom half of States globally on the perceived intensity of local rivalry and on the existence of fundamentals for market-based competition.