Policy confusion distorts competition

There is an examinable claim that Kenyan consumers do not get the best value for their money and suffer from the comfortable position that monopolies in the private and public sectors enjoy.

This implies that competition law and policy are not helping consumers.

Some monopolies are the result of economic policy decisions made soon after independence. And it is evident that even well-meaning policies of five decades ago continue to have effects even after the country embraced economic liberalisation in the mid-1990s. At the time, the most compelling idea was to prepare state corporations for privatisation to create efficiencies and save resources.

This diagnosis was partially right because state corporations comprised a substantial part of the overall output but many were poorly managed.

For as long as the privatisation programme remains in first gear, the release of entrepreneurial flair to expand productivity will be limited.

PRIVATISATION

It has been almost a decade since the last privatisation and public divestiture project was completed. And this ought to be seen against the background of state-owned firms that suffer from permanent mismanagement or those missing the opportunities to establish themselves in a dynamic market. 

While reform is imperative, the bigger impediment is that the decision making on privatisation involves difficult political discourse to release monopolies, contributing towards higher prices, lower quality products and no variety for household and industrial consumers. Given that total public spending was close to 30 per cent of the gross domestic product this financial year, it is clear that the public sector is large for the income level.

Despite the big role of government in total spending, the private sector remains the largest economic actor when the consumption is pooled among households and firms.

The two constitute a larger portion of public spending than the government and have an interest in economic rivalry and competition in the production of goods and services.

Firms that benefit greatly from their monopoly status would not be keen on having greater competition. Rivalry in the private sector is not only a matter of public interest, but also sound economic policy. 

COMPETITION

And yet the quest for enhanced competition is undermined by policy choices. A few examples illustrate this problem. Kenya has about six cement making plants that provide jobs and essential goods for households and firms.

Yet the government has direct interest in these firms and is conflicted in its roles as a profit chaser and a guardian of competition.

One indicator that the corporate interest dominates is the degree of tariff protection for the cement firms.

Based on average prices in the last quarter of last year, the working Kenyan required at least 1.5 days of income to afford a bag of cement.

This ratio is too high even for a country of Kenya’s income level and suggests that cement manufacturers are price gouging and keeping uncompetitive firms afloat.

It is no wonder that the quality of wall and floor surfaces in the rural areas is poor and that the collapse of storied buildings in towns is due to inadequate use of concrete and steel reinforcements. 

INJURIES

Lack of competition has consequences in the market, but also leads to deaths and injuries. An overview of the telecommunications industry reveals that whereas the Competition Authority has not made a finding of firm dominance, the regulatory arrangements are troubling. Due to its part ownership by the government, the competitors of Safaricom Limited are placed in a disadvantageous position.

No less than the Treasury Secretary and the Cabinet Secretary for Information and Communication are represented on the board of directors.

It is difficult to convince a dispassionate policy observer that on account of this access to policy makers, the firm is unable to influence their views on critical issues of competition and technical regulation.

The firm is also constrained in its decision making because it always appears to be a beneficiary of regulatory decisions and reversals made by the CS and the Communications Authority of Kenya. This situation of direct linkages to policy offices through board membership seriously undermines both perceptions of and effective competition in the sector. The government must let successful firms compete.

Mr Owino is the CEO of the Institute of Economic Affairs – Kenya. [email protected]