The Pitfalls of Competition Without a Competition Law

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PERSPECTIVE 

By Leonard Otuonye Ugbajah

As the discourse on the recent deregulation (or is it hike in price) of premium motor spirit (PMS), otherwise called petrol rages, it is pertinent to pay more attention to the finer policy issues that would ultimately determine the impact of market reforms in that sector and all other sectors. One of such important policy issues is the need for an appropriate regulatory framework to ensure that markets deliver optimally to the citizens and the economy as a whole. At the core of this regulatory framework is competition law. The government has continued to use the argument of the virtue of private sector competition as a stabilizing factor both on the price and availability of the product. While it is true that an open market may result in more firms going into the market and the possibility of competition reducing price overtime, this scenario is not a given. It is dependent on the ability of the government to monitor the market and apply the right sanctions for abuse of the process of competition in the market. Failure to do this would result in some other types of monsters that would defeat the expected gains of deregulation. In the absence of the right kind of regulatory framework (i.e a competition law) to address market abuses, the recent move by the Nigerian government in deregulating the market for PMS (fuel) amounts to fueling competition in the absence of a competition law. The problem is that like fire, competition can be either a positive or a negative force in absence of boundaries or purpose.

Since market reforms involve having a number of private firms operating in a given market, this creates the need for the firms to compete for market share and profit within the market. To this end, it is conceivable that where the conditions permit, private firms can adopt unethical or abusive practices in order to make as much profit as possible. For example, nothing stops the few importers of PMS from coming together to agree at a price at which they would sell their products to the members of the public. They can also agree to manipulate supply in such a way that pump prices are not reflective of economic cost of importation and distribution. This foregoing scenario is typical of a cartel arrangement. The evil of cartel arrangements lies in the fact that suppliers can manipulate the market in such a way that consumer are meant to pay much higher for poor quality products or services.

Another conceivable abuse in the market for PMS is where a firm – especially a dominant one – that owns the facilities for landing, storage or distribution of the product denies other firms access to these facilities or demands unreasonable costs for access to these facilities. What this means is that the dominant firm is effectively undermining competition in that market and would keep on determining price and output. Similarly, a dominant firm or group of firms that feels threatened by the entry of more firms into the market can decide to push the new entrants out by selling below the cost of supplying the products in what competition law experts call predatory pricing. The idea is to run the new entrants or even existing competitors out of the market and then assume the status of a monopoly. Beyond the economic consequence of these abusive conducts, there are also the socio-political consequences because instability of supply or high cost of basic needs usually leads to civil unrest and sometimes mass revolt leading to change in government. Furthermore, if private firms decide to use their economic power to pursue a political agenda, they can thwart the course of democracy and popular participation in governance. This leads to a situation of “state capture” by private business interests. These pernicious economic, social and political consequences of unbridled concentration of economic power in few hands is at the heart of the history of competition (or antitrust) law as championed by the Americans from the 19th Century.

The goal of competition law is to set the rules that would ensure that competition is protected in the market. It prohibits conducts and even market structures that restrict or eliminate competition in the market. Competition law prohibits such conducts as collusion by firms to fix prices, allocate markets, boycott a supplier or buyer, etc. It also frowns against the abuse of dominance by a dominant firm through predatory pricing, denying smaller firms access to critical facilities, requiring distributors to boycott the products of other suppliers, etc. Competition law takes exception to mergers and acquisitions where the aim or the likely result of such would be to lessen or eliminate competition in the market.

Placing the foregoing in the context of the deregulation of the market for PMS and the likely abuses that may arise in the market, one can only say that it is unfortunate that Nigeria lacks this critical tool for market regulation. The several attempts, since the inception of the fourth republic, to enact a competition law in Nigeria have been unsuccessful due to a myriad of reasons ranging from lack of appreciation of the import of the law on the part of the politicians to the alleged subversive acts of vested interests, and the lack of unanimity among different government agencies on the orientation of the law. The last administration sent in a bill on competition and consumer protection to the National Assembly but the timing was bad – about three months before the general elections.

Just like the saying about the idea whose time has come, there is currently a remarkable commitment on the part of the leadership of both chambers of the National Assembly to give the country a competition law at this time. To underscore this commitment, the Senate has listed this bill as one of their priority bills in the legislative agenda. This bill also featured prominently in the review of regulatory framework for doing business in Nigeria commissioned by the President of the Senate and presented and deliberated upon by stakeholders at the first round of the National Assembly Business Environment Roundtable (NASSBER) in March of this year. At the moment, there are a few bills on competition law before both chambers of the National Assembly.

While stakeholders are rallying around the version tagged Federal Competition and Consumer Protection (FCCP) Bill, efforts are also underway to harmonise this with other versions. Under the FCCP Bill, the existing Consumer Protection Council (CPC) would be subsumed under the new Federal Competition and Consumer Protection Council. The Bill also repeals the existing Consumer protection Council Act and contains improved provisions for the protection of consumer rights in Nigeria.

No market reform can truly deliver value to the citizens/consumers without the appropriate regulatory framework to check abuses and unethical practices in the market. This is the whole essence of the FCCP Bill. At the end of the day, it is the consumers that benefit the most as there are guaranteed of variety of suppliers and products to choose from, competitive prices, and continuous improvement in quality. Business (especially SMEs) would also benefit from access to markets and business opportunities, access to inputs at reasonable prices, incentive to innovate, etc. The country as a whole benefits from elimination of waste in allocation of resources since resources would flow to the most productive sectors, reduction in the cost of infrastructure and other social goods through competitive procurement processes, etc. Specifically in the market for PMS, a proper enforcement of competition law would ensure that importers, distributors, tank farm owners, truck owners and drivers, etc do not collude to manipulate the market for their selfish gains. It is, therefore, important that every concerned citizen lends a voice to the demand that the National Assembly passes the competition bill before it. Join the conversation on Twitter and Facebook using the hashtag #YesToCompetitionBill

  • Ugbajah is the Resident Rep of CUTS International in Nigeria and Adviser to the Private Sector Coalition on Competition Law in Nigeria