Boosting Competition in African Markets Can Lift Half a Million People out of Poverty

The World Bank

An African man working in a corn field. Photo supplied

WASHINGTON, July 27, 2016— Boosting competition in consumer markets and key input sectors can help African countries grow faster and alleviate poverty, according to a report launched today by the World Bank Group and the African Competition Forum (ACF).

The report, Breaking Down Barriers, finds that reducing the prices of basic food staples by just 10%, as a result of tackling cartels and improving regulations that limit competition in food markets, could lift nearly half a million people in Kenya, South Africa and Zambia alone out of poverty and save households in these countries over US$700 million a year.

At the same time, fundamental market reforms to increase competition in key sectors is critical for competitiveness and economic growth. For example, if countries like Ethiopia, Ghana, Zambia and others were to reform their professional services markets, this could generate nearly half a percentage point in GDP growth from industries which use these services intensively. For a country like Zambia, which had 1.7% GDP growth in 2015, this can be significant. The report also suggests that the impact would be even larger if fundamental reforms were implemented in other services such as electricity, telecommunications, and transport which have higher spillover potential across economies.

“Strengthened competition policy in Africa not only encourages sustainable economic growth and competitiveness across the continent by creating firms and industries that are more productive, it directly impacts poverty by encouraging firms to deliver the best deals to consumers – particularly the poor -- protecting them from paying higher prices for essential goods and services,” said Anabel Gonzalez, Senior Director of the World Bank Group’s Trade & Competitiveness Global Practice.

Sub-Saharan and North African countries have relatively low levels of competition. More than 70% of African countries rank in the bottom half of countries globally on the perceived intensity of local competition and on the existence of fundamentals for market-based competition.

The lack of competition hurts consumer welfare in the region—especially for the poorest. In many African cities the prices of staple foods including white rice, white sugar, frozen chicken, bread, butter, flour, milk, potatoes and eggs are at least 24 percent higher than in the rest of the world, even after taking into account demand and transport costs.

Input markets in Africa also face barriers to competition, according to the report, curbing Africa’s competitiveness. In the telecommunications sector for instance, in the 27 African countries studied in Breaking Down Barriers, more than 50% of the mobile market is held by a single firm. Research from Africa has shown that entry of an additional telecom operator leads to a 57% increase in mobile subscriptions, which can have knock-on effects on the economy’s productivity.

The report provides a special focus on competition enforcement and effective market regulatory environments in cement, fertilizer and telecommunications– sectors that are key to construction and agriculture competitiveness, and to the welfare of less well-off households. For example, in the cement sector, it finds that competition law enforcement, removal of non-tariff barriers, and pro-competition rules to enable entry in limestone and clinker production could save African consumers around $2.5 billion each year.

“There have been a notable number of countries adopting competition laws in Africa, and this bodes well for growth and development. However, while the benefits of competition are already clearly observable in Africa, there is still considerable effort required to ensure effective implementation of competition laws and policies across the continent. Collaboration among competition authorities in Africa, bilaterally and through the Africa Competition Forum, and with development partners is key to facilitate capacity building of younger authorities, systematize information on competition challenges and opportunities, and address cross-border competition issues that affect the region,” noted Tembinkosi Bonakele, Chairperson of the African Competition Forum and Commissioner of the South Africa Competition Commission.

As well as showcasing the benefits of competition in particular sectors, the report highlights Africa’s important progress by creating more effective competition authorities and regulators, and outlines areas of focus to encourage vigorous competition in key markets in the region. The number of African countries or regional blocs with competition laws has jumped from 13 to 32 in the last 15 years. Competition authorities operate in 25 of those jurisdictions. However, the report suggests that there is room to prioritize resources and use the powers and tools available more effectively to continue raising the relevance of competition policy within the broader development agenda in Africa.