"Capacity Building on Competition Policy in Select Countries of "Capacity Building on Competition Policy in Select Countries of Eastern and Southern Africa (7Up3 Project)"Eastern and Southern Africa (7Up3 Project)"

THE CASE OF UGANDATHE CASE OF UGANDA

Competition Policy, Private Sector Development and Poverty

Reduction in Africa- An International Conference

Presented by

Shaban R. Sserunkuma29-30, March 2007, Mauritius

Organised byConsumer Unity and Trust Society (CUTS) International

Co-hosted byMinistry of Industry, Small & Medium Enterprises, Commerce & Cooperatives,

Government of Mauritius

Road mapRoad map

• OverviewOverview

• Key socio-economic Key socio-economic indicatorsindicators

• BackgroundBackground

• Policy and institutional Policy and institutional contextcontext

• Competition LawCompetition Law– History & status quoHistory & status quo– Objectives, scope & coverageObjectives, scope & coverage– Other issuesOther issues

• Sectoral approachesSectoral approaches

• Competition perception Competition perception survey findingssurvey findings

• ConclusionsConclusions

Sights of Uganda

Overview

•The market economy is still in its infancy, characterised by inexistence of enabling frameworks or the existence of inadequate and/, or archaic policies and laws (Cases: SOG, Consumer protection, food safety, IP etc).

•The emergence of competition in the marketplace has largely been as a result of government direct involvement intervention (import substitution, etc. ).

•There is market concentration in several sectors of the economy, particularly in financial services (insurance), manufacturing (mainly food processing) and beverages among others.

•A monopolistic competitive dispensation prevails in several sectors, i.e. very many buyers, many sellers, minimum difference in nature of products and number of barriers to entry or exit.

POLITICS & GEOGRAPHY

Geographical neighbours Kenya, Tanzania, Sudan, DRC, Rwanda

Administrative system, structure Decentralised system with central government retaining role of policymaking, supervision and admin. Units - 76 districts

Area 241,038 sq km (93,072 sq miles)

Life expectancy 45 years (men), 47 years (women) – UN

Population/ Density/ Population distribution

27 million/ 126 persons per KM2 82% rural, 18% urban

System of government ‘No party’ movement system, transiting to multiparty democracy after 2006 elections.

Key socio-economic indicators

SOCIAL & HISTORICAL POINTERS

Historical background Former British protectorate, stable before independence but chaotic afterwards (turmoil, unrest, economic decline)

Major languages English (official), Kiswahili, Ganda

Major religions Christianity, Islam

Number of phone lines 1,040,127 mobile, 71,056 fixed (5% penetration) – UCC, Nov. 2004

Access to electricity 5% of population (250,000 connections - ERA)

Access to clean water 60% (national), 55% rural – 2004 (DWD)

Literacy rate 69.9%

Adult HIV prevalence 7% (MoH, 2005)

Prevalence of poverty 38% (MoFPED, 2004)

Available HEP capacity 315mw (April 2005- ERA); reduced to 200mw at of 2005 and to a crisis 170mw in January 2006

Population growth / fertility rate 3.4% PA / 6.8 children per woman

ECONOMICS & TRADE

Main exports Coffee, Fish and fish products, tea, tobacco, cotton, maize (corn), beans (MoFPED)

Monetary unit Uganda shilling

Exchange rate $1=sh1,800; є1=2,200; £1=3,200

GDP per Capita US $240 (MoFPED, 2005)

Integration, trade arrangement Member of EAC, COMESA, WTO, OIC, ESA, IGAD

Major taxes Income tax (including corporate tax), withholding tax and rental income tax; value added tax (VAT); excise duty on certain products and sales tax. Imported goods attract import duty and import commission. (Source: MoFPED)

Total External debt stock US$ 4.3billion [10% GDP] (2003/04 – MoFPED)

Inflation 7.0% (March 2004 – MoFPED)

Tax revenue 12% of GDP (MoFPED)

• Uganda’s economy until very recently has been highly regulated.Uganda’s economy until very recently has been highly regulated.

• The majority of firms in Uganda are small family controlled The majority of firms in Uganda are small family controlled entities, making the need for an enforceable competition regime entities, making the need for an enforceable competition regime hard to implementhard to implement

• Involvement of the state in business still exists to some extent Involvement of the state in business still exists to some extent (telecom, power, milk processing, etc).(telecom, power, milk processing, etc).

• Policy options that hurt competition like ill-enforced public Policy options that hurt competition like ill-enforced public procurement and selective and inequitable provision of subsidies procurement and selective and inequitable provision of subsidies to some businesses and industry to some businesses and industry

• Multinationals are making in-roads into the major production Multinationals are making in-roads into the major production sectors of the economy as well as provision of basic servicessectors of the economy as well as provision of basic services

• One can hardly speak of an institutional framework, rather of a One can hardly speak of an institutional framework, rather of a series of sectoral arrangements series of sectoral arrangements

• Competition has been dealt with usually in the context of other Competition has been dealt with usually in the context of other legislations and not directlylegislations and not directly

Background

• Development policy: Poverty Eradication Action Development policy: Poverty Eradication Action Plan (PEAP)Plan (PEAP)

• Industrial PolicyIndustrial Policy

• Trade policyTrade policy

• Regulatory PolicyRegulatory Policy

• Investment policyInvestment policy

• Government procurement policyGovernment procurement policy

• Labour policyLabour policy

• SMEs PolicySMEs Policy

• Consumer Policy Consumer Policy

Policy and institutional context

• Uganda neither has a law nor a policy on competition Uganda neither has a law nor a policy on competition regulationregulation

• Today we have a draft law in place, to be known as the Today we have a draft law in place, to be known as the Competition Act, and it seeks to:Competition Act, and it seeks to:– create, encourage and protect competition; create, encourage and protect competition;

– encourage investments; encourage investments;

– strengthen the efficiency of production and distribution strengthen the efficiency of production and distribution of goods and services, and; of goods and services, and;

– protect and promote social welfare of consumers in protect and promote social welfare of consumers in Uganda.Uganda.

COMPETITION LAW

• Government’s unwritten policy has been to wind down both access and economic regulations as and when competition becomes sufficiently strong

• Sector regulatory bodies are largely instituted to perform their Sector regulatory bodies are largely instituted to perform their traditional ‘policing’ roles in a bid to persuade the private traditional ‘policing’ roles in a bid to persuade the private sector, i.e. prospective investors, that the government was sector, i.e. prospective investors, that the government was

committed to making the transition.committed to making the transition.

• Divestiture of tens of formerly state-owned enterprises, some Divestiture of tens of formerly state-owned enterprises, some with immense powers in the marketplace and therefore a with immense powers in the marketplace and therefore a threat to smaller competitors as well as consumer welfare.threat to smaller competitors as well as consumer welfare.

History and Status quo

In addition to dealing with structural, stranded cost and universal In addition to dealing with structural, stranded cost and universal service issues, five other broad areas have been given attention: service issues, five other broad areas have been given attention:

• Competition protection - controlling anti-competitive conduct and Competition protection - controlling anti-competitive conduct and mergers;mergers;

• Access regulation - ensuring non-discriminatory access to Access regulation - ensuring non-discriminatory access to necessary inputs, e.g. network infrastructures;necessary inputs, e.g. network infrastructures;

• Economic regulation - adopting cost-based measures to control Economic regulation - adopting cost-based measures to control monopoly pricing; monopoly pricing;

• Technical regulation - setting and monitoring standards so as to Technical regulation - setting and monitoring standards so as to assure compatibility and to address set concerns, e.g. assure compatibility and to address set concerns, e.g. environmental protection concerns.environmental protection concerns.

• Consumer Protection – Setting and monitoring standards and Consumer Protection – Setting and monitoring standards and benchmarks against which consumers would be protected.benchmarks against which consumers would be protected.

Objectives, scope and coverage

• Fostering and sustaining competition in the Fostering and sustaining competition in the Ugandan market;Ugandan market;

• Protect consumer interests;Protect consumer interests;

• Safeguarding the freedom of economic action of Safeguarding the freedom of economic action of various market participants;various market participants;

• To prevent practices which limit access to markets To prevent practices which limit access to markets or otherwise unduly restrain competition, affecting or otherwise unduly restrain competition, affecting domestic or international trade or economic domestic or international trade or economic development and to establish regulatory body, the development and to establish regulatory body, the Uganda Competition Commission.;Uganda Competition Commission.;

Objectives, scope and coverage cont’d

• Horizontal restraintsHorizontal restraints• Vertical restraintsVertical restraints• Dominant market positionDominant market position• Mergers and acquisitions (M&As)Mergers and acquisitions (M&As)• Cross-boarder abusesCross-boarder abuses

Other CharacteristicsOther Characteristics• No civil court to entertain business No civil court to entertain business

before the commission including High before the commission including High court?court?

• Establishment of competition fundEstablishment of competition fund

Objectives, scope and coverage cont’d

Regional integration and competition policy/lawRegional integration and competition policy/law

• Comesa Competition policy and lawComesa Competition policy and law

• EAC Competition policy/ LawEAC Competition policy/ Law

Consumer protection policy/ LawConsumer protection policy/ Law

• Gives a broad set of options for defence, Gives a broad set of options for defence, promotion, enforcement of consumer rights promotion, enforcement of consumer rights including individual, collective, mediation, including individual, collective, mediation, negotiation, arbitration or litigation.negotiation, arbitration or litigation.

Other issues

Deregulation to check anti-competitive Deregulation to check anti-competitive activities and actions of unethical firms and activities and actions of unethical firms and persons that could be injurious to the persons that could be injurious to the economyeconomy

Utilities: Communications SectorUtilities: Communications Sector • The passage of the Communications The passage of the Communications

Act 1997Act 1997 and subsequently, unbundling of and subsequently, unbundling of State monopoly UP&TC led to major State monopoly UP&TC led to major changes:changes:

• 2 Network Operators (MTN, UTL)2 Network Operators (MTN, UTL)• One service provider (Celtel Uganda)One service provider (Celtel Uganda)• One new kid on the block (HITS Telecom)One new kid on the block (HITS Telecom)• One prospect (Warid Telecom)One prospect (Warid Telecom)

SECTORAL APPROACHES

• Price wars – predatory pricing;Price wars – predatory pricing;• Trans-regional network operations for Trans-regional network operations for

celtel and through agreements for celtel and through agreements for MTN, Vodafone and Safaricom;MTN, Vodafone and Safaricom;

• Expanded coverage;Expanded coverage;• Policy incoherence – secret pacts Policy incoherence – secret pacts

between UTL, MTN and government between UTL, MTN and government for exclusivity operations, later for exclusivity operations, later curiously quashed.curiously quashed.

Consequences, Outcomes

• Carried out to gauge the baseline status of Carried out to gauge the baseline status of Uganda on market competition;Uganda on market competition;

• Conducted in November-December 2005 Conducted in November-December 2005 Covered public-private sector and civil Covered public-private sector and civil society organisations as well individual society organisations as well individual customers;customers;

• A total of 100 respondents: institutions A total of 100 respondents: institutions (80%) and individual consumers (20%) were (80%) and individual consumers (20%) were sampled and their respective responses sampled and their respective responses logged.logged.

COMPETITION PERCEPTION SURVEY

The samples for the survey were, save for The samples for the survey were, save for consumers, pre-selected from five consumers, pre-selected from five stakeholder categories to wit: stakeholder categories to wit:

• Consumers (COs); Consumers (COs); • Businesses/business support organisations Businesses/business support organisations

(BUSO); (BUSO); • Research and Academic Institutions (RAI); Research and Academic Institutions (RAI); • Law, Policymakers and Regulatory bodies Law, Policymakers and Regulatory bodies

(LPR), and;(LPR), and;• Civil Society Organisations (CSOs). Civil Society Organisations (CSOs).

COMPETITION PERCEPTION SURVEY CONT’D

Awareness and Awareness and impact impact

• Knowledge about Knowledge about competition issues competition issues is relatively is relatively appallingly low, appallingly low, even among the even among the elite and educated elite and educated - an indictment of - an indictment of low business and low business and economic literacy economic literacy in the country.in the country.

SURVEY FINDINGS

Respondents' Knowlege

0

10

20

30

40

50

60

1 2 3 4 5

Category

%ag

e

CON BUSO

RAI

CSO LPR

Prevalence of ACPs Prevalence of ACPs

• CON - (collective price fixing, price CON - (collective price fixing, price discrimination and resale price maintenance);discrimination and resale price maintenance);

• BUSO - (bid rigging, unfair trade practices, Entry BUSO - (bid rigging, unfair trade practices, Entry barrier) barrier)

• RAI (Collective price fixing, price discrimination, RAI (Collective price fixing, price discrimination, entry barrier). entry barrier).

• CSOs (Bid rigging, unfair trade practices and CSOs (Bid rigging, unfair trade practices and entry barrier); entry barrier);

• LPR (price discrimination, unfair trade practices LPR (price discrimination, unfair trade practices and bid rigging).and bid rigging).

SURVEY FINDINGS CONT’D

SURVEY FINDINGS CONT’D

Most affected Most affected sectorssectors

• AgricultureAgriculture

• Trade Trade

• ServicesServicesExtent of ACPsExtent of ACPs

• AgricultureAgriculture

• Trade Trade

• ServicesServices

Extent of ACPs(Do they originate from out of country?)

0102030405060708090

1 2 3 4 5

Category

%ag

e

CON

BUSO

RAI

CSO

LPR