bangladesh enterprise institute competition scenario in bangladesh iftekar ahmed, senior research...

Bangladesh Enterprise Institute

Competition Scenario in Bangladesh

Iftekar Ahmed, Senior Research Fellow, BEI August 16, 2005


Bangladesh - At a Glance

1993-94 2003-04

Population 120 m 136 m

GDP $ 26 b $55.1 b

GDP (growth rate) 4.1% 5.5%

GDP (per capita) $224 $421Poverty (<$1/day) -- 47 m (36%)

Poverty 71 m (59%) 68 m (50%)

(national poverty line)


• Impressive achievements in economic and social development

• Steady economic growth, stable domestic debt, interest and exchange rate

• Per capita GDP in the 1990s rose three times faster than 1980s.

• Poverty reduced by 9% in the 1990s• Gender parity in primary education, lower

fertility rate, near universal primary school enrollment

Country Achievements


Explaining these achievements

• Macro-stability and opening of the economy

• Private sector development

• Remittances

• Development of the rural economy and rural infrastructure

• Capable network of NGOs and micro-finance


Needs to achieve higher growth

• Increases in investment levels and productivity• Reduce anti-export bias and open the economy to

foreign trade• Diversify the economy, both manufacturing and

agriculture• Improve the investment climate (infrastructure,

regulatory burden, corruption, access to finance, law and order) to promote domestic and foreign investment

• Create more accountable and responsive service delivery to sustain and accelerate gains in human development


0%10%20%30%40%50%

Most Prevalent Anti-Competitive Practices in Bangladesh


Market Structure

• Industrial Policy– Investment allowed in all sectors except four– Directives on saturated markets

• Who decides market saturation?

• Privatization Policy– Active stance to transfer ownership and

management from state to private sector

• FDI– Liberalization of capital controls


Trade Policy

• Liberalization of trade regime• Reduction in import restrictions

– 1989: 135 HS code banned– 2002: 5 HS code banned

• Reduction in the number of tariff slabs and import duties

• Legal provision for anti-dumping


• Government Procurement– General Perception

• Bid rigging: 36% of the total respondents • Are some companies favored?

– Public Procurement Regulation 2003– Optimize efficiency in procurement– Promote competition among contractors– Promote fairness in the procurement process– Contribute improved business climate in Bangladesh– Procedures are needed to implement


Market Concentration

• Pharmaceutical Sector• Top 5 companies control around 50% of market share

• Toiletries– Toilet soap

• Top 2 companies control around 50% of market share

– Laundry soap and detergent• Top company controls over 60% of market share

• Tobacco• Top company controls around 50% of market share


Financial Sector- Banks• 4 NCBs

– 3,496 branches– 45.6% assets and 50.3% industry deposits

• 30 Private Banks and 10 foreign banks– 36.2% and 6.8% assets– 36.8% and 7.0% deposits

• Non-performing loans, inefficient and overstaffed • Capital Adequacy Requirements higher• Requirements to publish interest rates• Interest rate convergence


Financial Sector - Insurance

• Private insurance companies licensed through Chief Controller of Insurance

• Dominated by public sector– Sadaran Bima (general insurance)– Jiban Bima (life insurance)

• No foreign insurance company

• Private insurers required to reinsure 50% through Sadaran Bima


Power

• Dominated by public sector

• Only private sector involvement in generation with long-term power purchase agreements

• Recently established Bangladesh Energy Regulatory Commission which will be the independent regulatory body and set policies to "promote competition"


Telecommunication

• BTTB enjoys monopoly in fixed lines (95%)• 5 mobile operators• Weak interconnections between mobile and

BTTB• No restrictions in equity shareholding by foreign

investors• Bangladesh Telecommunications Regulatory

Commission established in 2002


Transportation

• Ports– The Port Act 1908 and Port Rules 1966

• Railways– Private Operators: Are they regulated?

• Road Transportation– Cost three-times to that for similar distances

in India


Anti-competitive Practices in Bangladesh

• No well-organized evidence on anti-competition behavior of business enterprises is available

• Further detailed studies are required • Transport Sector

– Bus operators threatened for reducing fare

• Health Sector– Private Clinics and Physicians; Diagnostic

Centers


Competition Law/Policy in Bangladesh

• No Competition Policy• Monopolies and Restrictive Trade Practice

(Control and Prevention) Ordinance, 1970• Has not been implemented but still valid• Ordinance prohibits

– Undue concentration of individual economic power

– Unreasonable monopoly power– Unreasonable restrictive trade practices


MRTP Ordinance 1970

• Relevant phrases are not properly explained

• Provides for the creation of a Monopoly Control Authority to enforce the provisions of the Ordinance, but was never constituted

• Never been implemented• If revived, needs amendments• Need for a new law


Profile of Respondents

29%

33%

38%

Policy Makers

BusinessCommunity

Consumers


Understanding of Competition

0%20%40%60%80%

Firmscompetitingwith each

other

Optimalutilization ofresources

IncreasedEfficiency

IncreasedConsumerprotection

BC

CC

PM


Reaction to Anti-competitive practicesBusiness Community

0%

10%

20%

30%

40%

50%

Negotiate Talk toother

businesspeers

Match themove

Ignore Complainto gov

Complainto business


Reaction to Anti-competitive practicesConsumers

0%10%20%30%40%50%

Arg

ue a

ndde

al

no d

eal

and/

or g

ow

ithan

othe

r

Com

plai

nto

busi

ness

orgs

Igno

re a

nd d

eal

Com

plai

n to

Gov

t.


Awareness of rules/laws/regulations to check anticompetitive practices in

percentage

0%10%

20%30%

40%50%

60%

BC CC PM

Yes No Do not know


Objectives of such a law in percentage

0%

20%

40%60%

80%

100%

BC CC PM

26 31 23

In percentage Regulate business enterprises

In percentage Promote business eff iciency

In percentage Promote business eff iciency

In percentage Promote consumer w elfare

In percentage Do not know


Nature of the implementation mechanism or competition

authority

0%20%40%60%80%

100%120%

BC CC PM

In percentage Autonomous and independent

In percentage Under ministry or department

In percentage Any other


Nature of the power of CA

0%

20%

40%

60%

80%

100%

Bot

hin

vest

igat

ive

Onl

yin

vest

igat

ive

Don

'tkn

ow/c

anno

t

BC CC PM


The Way Forward

• Bangladesh needs a competition law• Competition law is important for the

continuation of the process of economic liberalization

• Major Challenges– Need a New Law?– Create a Competition Authority– Awareness and capacity building on

competition issues

bangladesh enterprise institute competition scenario in bangladesh iftekar ahmed, senior research...

Documents

percentage firms competiting

increased efficiency83b

increased efficiency50bw

competition scenario

rural economy

bgdp growth rate

investment levels

primary education