19 Jun
Written by 

What Holds Effective Business Competition Back?

A free market economic system has been taken as a paradigm exposition for organizing and streamlining the relationship between state, private property owners and the community. Taking markets as a panacea to some of the gigantic problems that have bound the communities, such as production and distribution problems of goods and services to the community and consumers, the system got its apogee and acclamation after World War II. Before that, the theoretical base related with free market economic system was laid, in 18th century America.

Adam Smith, often called "the Father of Modern Economics", elucidated his economic thoughts in his seminal book - "An Inquiry Into The Nature And Causes Of The Wealth Of Nations". Here, he said that competition between the market actors is a driving force for harvesting the bounty of free market economic systems.

As such, the system is grounded on the simple rule - the demand and supply of goods and service is Pareto efficient enough to determine the price, quality and quantity of goods. Hence, competition between producers, wholesalers and retailers of goods and service has a huge force for determining the benefit accrued to the consumers. That is why some intellectuals enunciated the fact that 'as constitution is a sin qua non to the democratic state, competition between market actors is a magna carta to a free market economic system'.

The EPRDF-led government, after taking on some soul-searching endevours, has made some policy and strategic decisions related to the type of economic line it wants to follow, after 1991. The main theme of the economic journey that the government took is to have a vibrant and robust market-oriented economic system.

To do this, fiscal and monetary policy of the state has been reshuffled in a way that achieves that same objective. Among fiscal and economic policies and strategies that a government took were devaluing the currency, liberalising the market, lifting custom duties and so on.

Taking these policy and strategic decisions cannot by itself result in a vibrant and robust free market economic systems. There is a need to have a coherent competition policy and law. These ought to be based on the practical appraisal of the market and the relationship of market actors of the country, as well as the economic and industrial policy of the country.

But until now, Ethiopia has no documented or codified comprehensive competition policy. This does not mean that there is no policy directives related to competition matters. The country's "Industrial Sector Policy and Strategy' has bestowed one chapter related to the policy choice on issues of market competition.

As this policy clearly stipulates, the road to a free market economic system can only be realized when the market is exposed to competition. To achieve the policy direction and choice of the state, it enacted various laws, with the main purpose of realizing the free market system.

The Ethiopian Commercial Code has some provisions related to competitive behaviors. The provisions are archaic, because the Commercial Code was enacted in 1953, and they are not enough to govern the relationship of market actors.

That is why the government enacted a detailed law in 2003 - the trade practice proclamation. This law has a gap in enforcement, however, for the institution which is empowered - the Trade Practice Investigation Commission - lacked appropriate institutional makeup to achieve what it was organised to do.

Additionally, the issue of consumers was not appropriately entertained. Hence, it was amended in 2010 by the Trade Practice & Consumer Protection Proclamation.

The main objectives of the amended proclamation were to realise transparency and accountability in the market, to make the trade relationship competitive and to protect the interest of consumers. This law has spelt out some of the anti-competitive trade practices, such as abuse of dominance, mergers, collusion and unfair marketing practices. Traders who transgress the provision of the proclamation will be punished by fines and rigorous imprisonment of up to 25 years.

Ethiopian markets witness many anti-competitive and unfair trade practices that hinder the emulsification of a vibrant and robust free market system. Our market has been infected with horizontal or vertical positioning to fix the prices of goods and services, monopoly, oligopoly, cutting prices below production costs, distributing goods that do not show expiry date tag, hoarding and changing the origin country of goods.

There are many factors contributing to the practice of these unlawful practices by traders. The lack of strong regulatory mechanisms, both at federal and regional levels, has created a fertile ground for traders to get away with their unlawful activities.

The Trade Practice & Consumer Protection Authority - one of the responsible organs in implementing trade practice and consumer protection law - is at its infant stage. This hinders it to coordinate some of the regulatory organs to work on competition matters.

In tandem with this, the perceptions of regulatory agencies, such as trade bureaus - both in regional and chartered cities - have not reached a stage that helps it to achieve its objectives.

Moreover, the Authority's adjudicative tribunal was not operational, for judges were not assigned to it. Now, the judges to the tribunal have been appointed by the Prime Minister and they are entertaining anti-competitive trade practice and consumer issues.

In addition, the length of the market transaction has exacerbated the negative impact of anti-competitive trade practice in the market. Parties who do not add any value to the goods and services - namely brokers, and the artificial chain of transaction built between producers and consumers - has reduced competition.

The rationale behind this problem lies on the alarmingly archaic status of information distribution system of goods and services in the country. This helps brokers or middlemen to put excessive prices on goods and services.

To unravel this problem, the government has organised cooperatives and commodity exchanges. However, the problem is not solved.

Equally, the lack of a competitive culture in our country has created a big wall in realizing a free market economic system. Sometimes, trading is taken as a deceiving endeavor in which traders can benefit from selling unhealthy goods and services.

Concomitantly, the way consumers respond to the unfair trade practices of traders contributed to far flung unfair trade practices. Consumers are not adamant enough to assert their interests in the markets.

Even when the government is taking bold measures to realize a strong free market economic system in the country, three issues needs strict consideration for having strong competition regime. Sectors that have a major and minor contribution for competition matters should have a comprehensive blueprint to help them coordinate their activities in a seamless manner.

To nurture competition culture in the community, advocacy activities ought to be carried out in a planned manner. Although the Authority has embarked on advocacy activities, it could not do it by itself. Media outlets and other stakeholders ought to join the effort of mainstreaming trade competition issues in their activities and give a voice to it.

Of course, traders who transgress the trade practice and consumer protection law should be sanctioned proportional to the harm they inflict on other traders and the market. To do so, the adjudicative tribunal ought to be strengthened.

Tesfaye Niway

The blogger is currently a presiding Judge at the Adjudicative Tribunal of the Ethiopian Trade Practice and Consumer Protection Authority. Before becoming a judge the blogger has served Oromia Justice Sector Professionals Training and Legal Research Institute as a Legal Researcher. You can reach the blogger at [email protected]