Recently, I had an interesting conversation which made me realise that I live in an echo chamber. It is rare that I come across someone, who thinks Competition Law is inappropriate in Africa. But, that is exactly what happened lately, and it was an illuminating conversation. Of course, I disagreed. In fact, I disagreed so much that I decided to write a blogpost about it.
I won’t name the person, but, it is relevant to note that the person is an African Lawyer, with experience advising domestic and international companies on Competition Law compliance, in particular, merger control. For that reason, I think it is important to seriously contend with this position, because it is a clear obstacle to the proper implementation of Competition Law if, deep down, our Lawyers, who are supposed to facilitate compliance, do not think it is appropriate.
For context, Competition Law is the area of law that makes sure markets stay competitive, so that consumers benefit from lower prices, more innovation, and better quality products. It does so by preventing anticompetitive agreements (that is, price fixing or market divisions amongst competitors), abuses of dominance (that is, predatory pricing or excessive pricing), and mergers which lessen competition in a relevant market. Nigeria, like many other African countries, has a Competition Act: the Federal Competition and Consumer Protection Act 2018, which has provisions that focus on these practices. The Act also established the Federal Competition and Consumer Protection Commission, and the Competition and Consumer Protection Tribunal to enforce the provisions.
So, against that backdrop, you can view this blogpost as a defence of Competition Law, and a reminder of why we need it in Africa.
The First Argument
Let us start with the first argument the person made:
“African countries are not ready to enforce Competition Law, because it is already difficult to do business, so, we should not bother foreign multinationals with yet another layer of regulation that might dissuade their participation in our markets. If companies have space to grow, we can have economic development. On the contrary, if we have too many players in our markets, we reduce the return on investment, and that disincentivises multinationals from entering our markets”.
Some valid points, but, I have three counterarguments.
In Defence of Competition
First, I must the address the notion that competition is somehow bad for business. This is simply not true. Competition is good for businesses; it helps them perform better. When companies are worried that they will be outcompeted, they are more likely to innovate and make better products. Without competitive constraints, businesses get complacent.
There are many studies which show that competition increases innovation. However, this story is somewhat mixed. The exact relationship is an inverted-U curve.
As you increase competition, innovation increases. Up to a certain point. After this point, further increases in competition reduces the level of innovation. This is presumably because more players reduce the profit to be made, and therefore, there are lower returns from innovating.
I have a problem with this explanation, though. It assumes that the size of the market is fixed. It makes sense if there are, for example, only 100 consumers of a particular product. If you have one player selling that product, there is less innovation. Two or three players? More innovation. But then, six, seven, or eight players? Then, the theory predicts that innovation might begin to drop. However, what might actually happen is that, the players innovate to find a new way to expand their offering to more consumers than the initial 100 consumers. Expanding to a new region, or making the product more accessible, or changing the production method to reduce the price. The point here is that, innovation can be a continuous process caused by more competition.
Second, competition encourages foreign investment.
Let me unpack this. Competition is meritocratic. When markets are competitive, players can only participate and become profitable, if they deserve, warrant, or merit that status by producing goods and services that consumers value. In European Competition Law, we are seeing the development of a new test for anticompetitive practices known as, ‘competition on the merits’. When a conduct deviates from competition on the merits, it is anticompetitive. Of course, there are issues with this test, but, what it illustrates is the relationship between competition and meritocracy.
How does this affect foreign investment? If foreign companies can see that markets are competitive, that the government is not favouring particular players, they are more likely to enter because their goods and services will be given a fair chance to reach consumers. As long as the foreign player can make a valuable offering to consumers, they can get more returns on their investment, than if the market was immune to the forces of consumer demand, aka the antithesis of a competitive market. After all, why would you enter a market where a dominant domestic player is allowed to engage in exclusionary practices?
Third, it is inappropriate to only focus on how Competition Law affects businesses, when determining whether Competition Law is appropriate for a country. No doubt, it affects business, as shown in my two preceding arguments. But, perhaps, the main reason why Competition Law is so important in Africa, is because it can help the poorest and most vulnerable.
Flour companies might conspire to fix the price of bags of flour, which would cause bread to be significantly more expensive. Filling stations could cause an artificial shortage, to increase the price of fuel. Drug manufacturers, could excessively price crucial drugs that vulnerable patients need. Cement companies could form a cartel, to make it significantly more expensive to build affordable housing. Dominant supermarkets could impose unfair discounts on their suppliers, who are mostly small-scale farmers. These practices––all real examples from the continent, by the way––involve a transfer of wealth from the poor and vulnerable to the wealthiest, and Competition Law can certainly intervene.
The Second Argument
During the conversation, I decided to probe into why the person had this stance, what experiences had shaped and informed their worldview. After all, you can’t persuade someone without really understanding why they think what they think, what they are worried about, etc. This revealed the second argument that the person made:
“My clients have been short-changed by competition interventions. One was forced to divest a significant portion of their business. Another had to alter a profitable business model, that was deemed anticompetitive. Soon after, the company began to struggle, so it had to close down many branches, leading to job losses.”
Naturally, I am more sympathetic to this argument. Nevertheless, I still disagree with the conclusion, that we do not need Competition Law.My disagreement is rooted in the fact that bad or suboptimal Competition Law enforcement, which this person was essentially referring to, does not vitiate the need for Competition Law. A competition authority can make mistakes, but that does not mean that markets would not benefit from more competition. Much in the same way that Judges can make bad decisions, they might not understand the law properly, they might even be biased, but that does not mean that we should not have courts. What it means is that we should have better courts, and in the context of Competition Law, we should have better and more sophisticated competition authorities. And, one way that we, as Lawyers, can do this, is to improve our understanding of Competition Law and hold our authorities accountable.
I could go on and on defending Competition Law, but let me stop here. Hopefully, you are now well-equipped to debunk some of these arguments if you ever encounter them. But, if I haven’t done enough to convince you that competition law is important in Africa, please, feel free to reach out to let me know what I have missed. And, I promise not to turn that conversation into a blogpost.