By Eric James & Memuna Forna
In a recent article, Africa was described as the ‘last bastion of anti-competitive business practices’. At the rate that Sierra Leone is going, we will be left holding the flag. There is a very good Draft Competition Bill that has been gathering dust in the Law Officers Department for years, and we are all paying the price for an insufficiently regulated private sector that is hamstrung by cartels, price-fixing, and the inevitable market inefficiencies.
Sierra Leone’s straitened circumstances have been half a century in the making, but the present government has the opportunity to deliver relatively quick and genuinely sustainable solutions to some of the most immediate economic problems – many of our social problems too – by implementing Competition (Antitrust) Laws, and at the same time introducing a package of measures to boost the competitiveness of the domestic private sector.
Sierra Leone describes itself as a liberal market. This means that consumers have the right to expect businesses to compete for customers by acting as rivals – offering say, lower prices or better goods and services than the competition. When they agree to set the same price for their goods or services, it means the customer is forced to buy at that price. Take this fictional example: Two suppliers of cement in Sierra Leone are engaged in tough competition, undercutting each other to attract customers. One day, the manager at one company calls the other and says: “Both our profits are declining because we have been lowering prices to drive traffic away from each other – why don’t we agree on a price to charge customers so we can both be sure to make a profit?” The other manager agrees, and both the companies raise prices from Le 40,000 to Le 50,000. Given no other options, consumers are forced to buy their cement at Le 50,000.
This is called price fixing and it hurts the consumer by invariably raising prices. In around 150 countries it is against the law. Sierra Leone is one of the remaining few countries that still allow it. Anti-competitive practices to gain an unfair advantage in the market can take other forms – abuse of monopoly or dominance, predatory-pricing etc.
As well as raising prices, these practices have contributed to the limited development of the private sector. We should have an economy powered by creative and progressive small and medium enterprises, taking advantage of the opportunities being promoted so readily to foreign investors. Instead, we have an economy largely characterised by unproductive businesses that do not develop skills, encourage innovation or develop the domestic market.
On the other hand, well-designed competition law and effective enforcement also protects the consumer’s interests, promotes growth and employment while making economies more flexible and innovative. It creates possibilities for us to have our own business champions, removes barriers that protect entrenched elites and reduces opportunities for corruption.
The UK’s Office of Fair Trading explains it thus: Competition is a crucial factor in driving economic growth. First, it places pressure on firms to increase their efficiency. Second, it ensures that more productive firms increase their market share at the expense of the less productive. These lower productivity firms may then exit the market, to be replaced by higher productivity firms. Third, in the presence of competition, firms will aim to innovate to gain a cost advantage, to differentiate their products, or to bring new products to the market place.
Past attempts to progress a draft Competition Act have been met with limited success. In his speech at the opening of the 5th Parliament however, President Bio hinted at his government’s willingness to address the situation, saying: “My administration will promote a competitive, fast-growing and liberal economy led by the private sector.” With the President’s support behind the proposed Act and the Minister of Trade and Industry’s leadership, it could be passed and the Commission set up within 12 months.
The second part of the strategy – a package of measures aimed specifically at boosting the domestic private sector, such as aggressively enforcing the Local Content Agency Act 2016, access to finance for local businesses, support for women-owned businesses etc will have to be taken into consideration.
While they might seem to contradict the spirit of genuine competition between businesses, they are in fact intended to level the playing field and are a necessary response to distortions in our domestic private sector created, not just by decades of anti-competitive behaviour, but also by other structural inequalities in the system. The Local Content Act for example is intended to better integrate the domestic private sector with foreign investments, and allows them to compete with foreign firms that have more experience and better access to capital. Support measures aimed at women recognise that inequality makes it harder for them to access finance, win contracts or own land. Recognising and nurturing firms that have the potential to reduce the cost of living in Sierra Leone by producing locally or introducing much needed efficiency into the system, should also be part of the plan.
In the final analysis we need the Ministry of Trade and Industry to spearhead measures that will encourage businesses to make their profits, not simply by raising prices, but by being more efficient, offering better goods and services than their competitors or seeking new markets. Over half of Sierra Leoneans live in poverty and a recent survey by the Institute of Governance Reform, showed that a shortage of food and the rising prices of commodities are two of the country’s greatest worries. Against this backdrop, creating competitive pressure which obliges firms to improve their productivity, reduce wastage and keep down prices, must become a government priority.
- Eric James is the Managing Director of James International LTD, a leading Sierra Leonean Third Party Logistics Provider.
- Memuna Forna is the Founder and Editor of Insight Magazine (www.insight.sl), Sierra Leone’s first business and investment magazine.