By Mihe Gaomab II
COMPETITION that once thrived amongst businesses is dying.
Globally there is anecdotal evidence that there are too many supersized firms, excessively large and unnaturally profitable companies across food, manufacturing, commercial and trading sectors.
The mergers and acquisitions landscape that used to be permitted by regulation have created monopolies and oligopolies and monopolistically competing businesses that are not only highly market concentrative but are also able to exert anti-competitive practices that allow the squashing of consumer protection to the detriment of the consumer.
It is proven in competition economics that the lifeblood of a dynamic economy is competition and “economic democracy” thrives where competition is unhindered and the consumer is protected. Therefore competition erosion would be a momentous and dynamic tragedy to get any market economy going.
Competition in any market is necessary for healing market problems and fosters innovation by nudging businesses to constantly improve, bringing in new equipment and producing products which are competitive and offering a wide range of choice for consumers.
The competitive dynamics ensure that new firms come into the market and prosper if they perform well in the marketplace and less efficient firms become unprofitable and are forced out or close down. These have implications for the industrialisation and small business development efforts in an economy and industrial growth in general.
But latest trends show that competition is dying globally and in Africa. In the past decade, the changing business landscape through mergers and takeovers in the economies has been pervasive because mergers inadvertently reduce the number of market players in any economy.
This trend is evidently and abundantly clear for the future where computers and the internet will be the rule.
Superficially, there’s ample corroborating evidence that Facebook, Google, Microsoft, Apple and some other tech firms are massive and have dominant market positions in their chosen fields.
Google — to take one obvious example — has about 90 percent of the Internet search market if not in USA but certainly in the world. At the same time, entrepreneurship, venture capital, angle investors and small business development and the occurrence of business start-ups are dropping worldwide.
A number of studies indicate that economic consolidation — fewer firms, companies or business providing goods and services — is occurring in many industries. The best-known report came in 2016 from President Barack Obama’s Council of Economic Advisers. Noting that: “Competition may be decreasing in many economic sectors. When there is little or no competition, consumers are made worse off if a firm uses its market power to raise prices, lower quality for consumers, or block entry by entrepreneurs”.
So, it seems, the economy is increasingly ruled by older and more mature firms. The reduced competition dynamics are particularly concerning in Africa as Multinational Companies (MNCs) are causing cross border anti-competitive practices in Africa such as price abuse, dominance abuse and restrictive cartels and collusive behaviour. The end result is consumers ultimately suffer due to constrained choice of goods and excessively higher prices.
Just what has caused this unsettled development on competition erosion in the world? The trend of economic consolidation or erosion of competition can best be explained by consolidated corporate power, higher income and wealth inequality, consumerist society, declining entrepreneurship and business dynamism, and slow economic and productivity growth.
These global factors thus have implications on globalisation as well since reduced competition entailed fewer trade, more protectionist policies which are not only political but becoming economically motivated.
The need for a globalised world with more outward oriented policies that fosters trade and investment is not only conducive for the Fourth Industrial Revolution but can only be good for competition.
This point was further accentuated by President Hage Geingob at his recent World Investment Forum at UNCTAD in which a cooperative globalised world order approach can only be good for a flourishing global competition environment, which would entail more trade, more investment, more industrial capabilities, less prices and wider choice of goods and services for the consumers.
Closer to home in Africa and indeed in Namibia, economic consolidation is taking place at an unprecedented level where corporate and economic concentration dictates market behaviour and private sector development. This does not bode well for affordable prices and an inflationary environment which is currently lower in Namibia.
The propensity of higher prices, which have implications on the consumers and a possible future inflationary increases in 2019, would have adverse economic implications not only for the consumer but for general level of price increases of basic foodstuffs. The explanation could be that at almost every key stage of the basic food system, one or two firms alone control 40 percent or more of the market, a level above which these companies have the power to drive up prices for consumers and reduce their rate of innovation and efficient production of basic foodstuffs which should be affordable to all consumers and its citizens.
It is therefore important that competition should flourish for the benefit of the consumer. In a competition environment, usually companies compete on price or cause market dominance abuse. The companies do this by managing its cost of producing a product and the cost of distributing this product to the market which becomes a crucial factor in competition. When there is competition, firms will usually try and beat their competitors on price and they do this by reducing the cost of production and distribution.
Thus competition encourages firms to find alternative cheaper ways of production and distribution. But through such actions, they become dominant and behave in a fashion that would be collusive and monopolistic thus causing unfair competition levelling field to other businesses.
The lessons learned from the necessity of promoting competition is that price and dominance abuse due to eroded competitive dynamics in an economy can lead to frustration of free competition, misallocation of resources and inefficient production and distribution outcomes.
An industry or an economy which is not competing is not likely to be successful on the African and international markets because when faced with fierce competition from competitive markets, they would not have any competitive and comparative advantage. Hence it’s important that the market players do not only compete with each other for them to actually enjoy price reductions for the sake of the consumer, but also to avoid any collusive and cartel conduct that frustrates other competitors that could lead to consumer welfare loss and inefficient production and distribution outcomes for the markets and its businesses.
This would reduce any disincentive on the death of competition globally and particularly in Africa.
Heinrich Mihe Gaomab is the Executive Director of the African Development Bank Group and served as a Founding CEO of the Namibian Competition Commission. This article is written in his personal capacity.
Confidente. Lifting the Lid. Copyright © 2015