S07 ATR March 2020 Report - Moin (private sector competition)_ATR - New Master Template 2016 17/02/2020 15:55 Page 20
ANALYSIS | REPORT
Fostering a more competitive business climate in the new decade Economist Moin Siddiqi says that further work needs to be done to make sub-Saharan African countries more competitive on par with other emerging markets and achieve optimal growth potential.
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hriving market economies are underpinned by competitive forces, which ensure the most efficient allocation of resources, thereby boosting efficiency gains. Empirical studies indicate a positive correlation between open competition and a firm’s dynamics resulting in higher investment, productivity growth and greater innovation (technological capability) – the essential criteria to bolster the competitiveness of domestic industry to compete in global markets. Competitive systems having proper government regulations enhance economic growth and welfare through lower prices of consumer items, services and raw materials, thus increasing disposable incomes and job opportunities as firms expand. Conversely, consumer welfare and longer-term growth suffer where market distortions exist – reflected in discriminatory practices, unfair pricing and rent extraction imposed by monopolies (i.e. dominant firms) in crucial sectors. Looking at the state of product market competition in sub-Saharan Africa (SSA), the region ranks significantly low on the World Economic Forum’s (WEF) local competition intensity index. More than 70 per cent of African countries rank among the bottom half of economies globally in terms of domestic and foreign competition indicators (see Table 1). High trade barriers mainly account for minimum foreign competition, while market domination by a few large firms, plus various regulatory barriers to entry, hinder domestic competition.
Table 1: Local competitiveness intensity index on selected African countries 2019 rankings (1-141) economies
Angola Botswana Cameroon Cote d'Ivoire Ethiopia Gabon Ghana Kenya Mauritius Nigeria Senegal South Africa Rwanda
Product market competition # 137 97 86 99 136 129 80 72 51 84 79 70 48
Trade openness / 127 78 123 83 124 132 89 103 6 102 104 77 94
Business dynamism ~ 138 104 112 84 131 128 102 51 38 79 99 60 46
* Defined as the set of institutions, policies and factors influencing the level of productivity. # Distortive effects of taxes and subsidies on competition and market domination by a few business groups and the extent of competition in services - mainly network sector (telecoms, utilities, postal, transport, engineering and retail business). / Prevalence of non-tariff barriers (e.g. health and product standards, technical and labelling requirements) that limit the ability of imported goods to compete in domestic markets, trade tariffs applied by a customs authority on imported goods and border clearance efficiency. ~ The cost and time to start a business and other administrative formalities. Source: The Global Competitiveness Report 2019.
reforms were undertaken by some African countries, which entailed the transfer of production from stateowned enterprises (SOEs) to private firms and reduction of price controls, as well as partial trade liberalisation, followed by financial liberalisation in the 1990s. Market deregulation, chiefly in telecoms,
De-monopolising markets During the 1980s, product market
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National competitiveness * 136 91 123 118 126 119 111 95 52 116 114 60 100
AFRICAN REVIEW OF BUSINESS AND TECHNOLOGY | MARCH 2020
electricity and agriculture were initiated as part of economic restructuring in early to mid-2000s. The reform momentum has stalled in the last decade, with SOEs still dominating many SSA markets, especially in the utilities and transportation sectors. According to the OECD-World Bank Product
Trade barriers in sub-Saharan Africa (tariffs and non-tariff) have declined significantly over the last two decades ”
Market Regulations database, Kenya, Senegal and South Africa were highly restrictive in terms of access to network and services sectors, while some two-thirds of SSA countries surveyed by the World Bank (2016) reported considerable price controls. Trade barriers in SSA (tariffs and non-tariff) have declined significantly over the last two decades, but remain quite high compared to emerging-anddeveloping (E&D) regions. Such barriers limit open competition from foreign goods and indirectly affect domestic efficiency by restricting the availability of intermediate inputs or making them more costly for local manufacturers.
Consumer welfare The lack of competition has wider socio-economic costs, reflected in higher prices of essential items and lower private consumption. A global comparison of pricing levels indicates that prices for most goods/services are on average one-fifth higher in Africa than in other regions at a similar level of development. These include food/beverages, clothes/footwear and medicines – items carrying a bigger weight in the consumption basket of low-andmiddle-income households. Low product market competition also hurts African manufacturers since prices for intermediate inputs used in production, such as raw materials, machinery/ equipment and utilities (electricity and water) are significantly higher relative to other E&D regions. The World Bank estimated that cement prices are, on average, around183 per cent higher in Africa than the world prices.
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