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PREVAILING COMPETITION REGIME
IN ETHIOPIA
PRESENTED BY
SEIFU ALI
Feb 14,2008
BOTSWANA-GABORANE
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I.
Overview
Where Ethiopia Located
II. Its Economic Environment and competition
Evaluation
- The Economy is characterized by :-
Poverty
Increasing population pressure and deteriorating Environment.
High level of public ownership and government intervention.
Importance of agriculture (43%of GDP) and increasingly, service
sectors (46%) in the economy, with a comparatively small industrial
sector (12.7%)
- Small, formal private sector and large informal sector.
- Dependence on imports for manufactured goods.
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The Economy of Ethiopia is dominantly agrarian,
but overtime it went through series of stern
economic reform based on market oriented.
Price deregulation.
Elimination of subsidies.
Privatization of public entities.
The liberalization of trade and investment has introduced
major changes in the economy during the last couple of
years.
Stunning and impressive economic growth with annual
average of 10.7% in GDP since 2004.
After 2005/06 election crisis, the government
concentrate on policy formulation and
monitoring, aiming at boosting the macro
economy through:Reducing government involvement in business
Encouraging private sector led economic development
through
Privatization
Liberalization
Deregulation.
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However, there are still areas where strong regulation and
control imposed:Land.
Nationalized urban houses
Confiscated industries (small and medium)
Above all, the past few years have seen a growing rate of
overall inflation Led by persistently high food price inflation.
Pushed overall inflation in to double-digit figure 16.7% [consumer
price index (CPI) Nov, 2006]
The present inflation rate is far higher than the interest rate
offered on savings.
Everyone’s savings are decreasing in real value and all have an
interest in spending their savings now rather than later. (Money
supply in the Economy.)
IMF made the suggestion that the central Bank should
increase the incentive to save. Very recently the Bank took
measure of increasing deposit rate from 3% to 4%
The continuation of the present rate of inflation contributes
to keeping the rural poor marginalized.
What use are new roads, phones or electricity, if the
intended users cannot pay for them?
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III. Competition legislation
The government issued a trade
practice proclamation (No 329/2003)
to promote competition in the
domestic markets.
Objective
Securing a fair competitive process through
the prevention and elimination of
anticompetitive and unfair trade practices.
Safeguarding the interest of consumers
through the prevention and elimination of any
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restraints on the efficient supply and
distribution of goods and services.
IV. Institution and competencies
The Investigate commission established in
2004 under the ministry of trade and
Industry (MOTI) directly accountable for
Domestic trade department.
The commission required to receive and
investigate complaints submitted by
aggrieved parties, and suggests measures
in line with the legislation for addressing
these complaints.
Major duties and responsibilities:Commission investigate cases involving unfair trade
practices and passes verdicts to be approved by the
ministry.
So far out of 66 cases under investigation the
commission has given final verdict on 33.
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The commission has the power:To compel any person to submit
information and documents necessary
for carrying out of commission duties.
To take administrative measures
and/or pronounce penalty decision on
any complaints submitted to it.
To delegate parts of its powers and
duties to the secretariat to the extent
necessary to efficiently discharging its
responsibilities.
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IV. Issues not addressed by the
proclamation and drawbacks
Issues related to merger and Acquisition,
takeovers and other forms of conglomerations at
domestic, regional and international level, which
could lead the monopoly power in production and
service.
to the market share percentage.
to self-initiative investigation.
to competition tribunal and adjudicatory role is missing.
to the authorization of regional councils to implement the
unfair trade practice proclamation is not clearly delineated.
Issue related to independence of the commission
is not clearly defined.
Any administrative measures and/or penalty decisions shall
be executed after obtaining approval of the minister in
writing.
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The minister may approve, amend or remand for
review any decision of administrative measures
and penalties submitted to him.
Recently the minister declined to approve the verdict the
trade practice investigation commission gave on five
businessmen accused of hoarding.
Issues related to verdict of the commission don’t
explicitly stated the redressing or compensation
level of the victim’s competitive position to be
reinstated.
Issues related to the proclamation provides the
right of consumer association to be a mamber of
the commission. Still the selection or assignment
is not yet executed.
Issues related to the maximum and minimum
limit of commission’s member don’t clearly
stated. As the result, nebulous parliamentary
procedures and voting in majority rule.
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VI. Anticompetitive practices
We have a market that is characterized by an
extreme market anomalies. we try to mention
some of the conspicuous events as a glimpse:i) Soaring price of oil has been shivers
the macro economic position of
Ethiopia, Just like other non-oil
producing countries.
– The oil price is indeed a formidable challenge for Ethiopia.
– It is significantly becoming susceptible to global oil price
movement and terms of trade shocks.
All fuel products are imported by the state
petroleum enterprise - Ethiopian Petroleum
Enterprise (EPE).
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The heavily regulated sector is immune
from these international price shocks only
due to the massive subsidies provided by
the federal government.
– Estimated to cost over 100, million dollars a year
The contributing factor for the budget
deficit and negative balance of trade is
both an increase in the volume and value
of imported oil.
– The volume has increased to a record high 720,000 tons
last fiscal year.
– While the national oil expenditure that was 3oo million
dollar in 2003/04, rise to 700 million dollar in 2005/06.
– Importing one billion dollars in petroleum products last
Ethiopian fiscal year ate up about 87% of the foreign
exchange currency reserves.
– Government continue attempting to foot the bill and
control the supply of these crucial input, it is not
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sustainable.
– The better option is to allow private businesses
into the sector, regulated as they can be.
– Private companies have the flexibility to quickly
react to market signal and capture demand to
make profit .
– Liberalization of this crucial input is a pivotal issue.
– It is important that the government recognize the
limitation it has in continuing to directly subsidies
oil pumped into gas stations.
– Liberalization of the market does not necessarily
mean leaving behind the low-income groups that
benefit from cheap fuel.
– Targeted subsidy programme that benefit the poor
through gas used for household cooking needs.
– Continue to subsidies private vehicles is not
effective.
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ii) still today there is no progress in
monopoly Endeavour of political party
favored business (party statals)
– The prevailing government has its own large
business enterprises in the economy.
– The enterprise now a days has an imminent
position to exercise monopolies in the whole
national economy.
– As long as there is no legislative and other
regulatory measures to curb the concentration of
production or exchange, it is likely that these
entities reach in a position of being monopoly.
– Monopolies imports and distribution of fertilizer,
some agricultural imputes, iron and steels, etc.
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iii) The recent price hike of bubbly beverage
have made by the factory which control
70-75% of the local drought market.
– BGI-Ethiopia is a French company-one of the prominent
brewery company producer of Castel, Bati and
St.George draught beers.
– The company produces 65,000 to 70,000 hectoliters of
St-George draught beer every month.
– As the result of the price adjustment made by this
company, the rest four brewery companies in the
country have made the price adjustment at almost
exactly the same price at the same time.
– They used to sell 30 liters of draught for birr 150 (USD
15.31) the same amount now goes for Birr 190 (USD
19.39)
– The synchronically of the price increases being instituted
by major beer makers has brewed suspicion that the
factories have collaborated like cartel.
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VII. Concluding observations and
future scenario
Ensuring competition is just a means to achieve
efficient allocation of resources in an economy.
Maximizing consumer welfare
Competition policy and law empirically evidenced
that reduce and eliminate market anomalies and
protect consumers from deception.
Its applicability in developing countries like
Ethiopia is very complex and intricate in nature.
The country’s Investigation commission in all
sphere of its activities capitalize to safeguard and
protect the basic rights of the consumers.
The right to basic needs
The right to choice etc.
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The commission much more is needed to
secure fair competitive process through.
– Prevention and elimination of any restraints and unfair
trade practices.
The proclamation 329/2003 should be
mulled over according to the existing
dynamic and vibrant nature of the global
economy.
– The resource limitation inadequate staffing and skill are
the major factors to come up the commission to be not
effective and well-organized institution to shoulder
these responsibilities.
– It is indispensable and imperative to review the unclear
and ambiguous clauses stipulated in the proclamation
that hamper its progress.
The government organized think-tank
group from different stockholders
excluding the consumer representative
and starting the revision programme.
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– The revised draft proclamation may have the following
features:-
Institutional independence and insulation
from external interference.
Well-designed administrative mechanism.
Clear separation of investigation of
anticompetitive behavior from the
application of competition legislation,
prosecution and adjudicative functions.
Proactive advocacy function.
Self-initiative and autonomous
investigation practices
Enactments that ensure the consumer
protection and welfare.
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Thank You!!!
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