Simon Kolawole: Deregulation, monopoly and change

by Simon Kolawole

So the fuel price hike strike flopped? Well, President Muhammadu Buhari may have just received a blank cheque from Nigerians to go on with this major surgery on the economy. This is the first time in my life that I have witnessed a fuel price increase that did not lead to popular resistance. I can’t really explain it. Is this a sign that Nigerians trust Buhari more than their previous leaders? If so, let me then add that it is a golden opportunity for him to finally do the needful. And I hasten to tell Buhari: That which thou doest, do it quickly. He must go ahead to reform the petroleum industry, open up the economy and attract the much-needed investments.

I have often spoken of the need to roll out incentives to attract investors. Today, I want to discuss the importance of a good legal framework to engender competition. We need an anti-trust law to curtail monopolistic behaviours. For us to attract serious investments, especially foreign, there must be a conscious effort to develop and promote fair, efficient and competitive markets — and protect the rights of consumers. We hardly take matters of this nature seriously in Nigeria, but globally investors look at these details in making up their minds. No investor wants to go to a market where they will be unfairly muscled out. Openness and fairness are key attractions.

If we really want to open up the economy for the inflow of billions of dollars in direct investment, to create jobs, to benefit from diffusion of technology, we can no longer run away from doing things according to global best practices. We are not an Island. We must realise that several countries are contesting for investors’ attention and they will take rational, not emotional, decisions in choosing their destination. If Nigeria is not competitive enough, if the environment is not business-friendly enough, they will go to saner climates. It is encouraging that Buhari is finally becoming flexible. He is now open to deregulation, and it is a matter of time before the FX market is sanitised.

Fair enough, there is already an anti-trust bill before the National Assembly — after years of agitation and dilly-dallying. It is called the Federal Competition and Consumer Protection Bill, 2015. If this bill is passed, the Consumer Protection Act will be repealed. The Federal Competition and Consumer Protection Commission (FCCPC) will be established. The Competition and Consumer Protection Tribunal (CCPT) will also be set up. The Consumer Protection Council (CPC) will be abolished. The stated aim is to “prohibit restrictive business practices which prevent, restrict or distort competition or constitute an abuse of a dominant position of market power in Nigeria”.

I have gone through the bill. I am not an authority on anti-trust matters, of course, but I think I like most of what I saw. Without a doubt, the law is desirable in a modern economy. The motive must be very clear: to promote economic growth, to protect the consumer and to boost investor confidence. The law must, therefore, not be constructed in a way that will water down competition by protecting inefficient and indolent competitors. As Robert Bork, the famous American anti-trust thinker, would say, the primary focus of anti-trust laws should be on consumer welfare rather than “insuring” competition just for the fun of it.

Bork’s argument was that fostering competition within an industry has a natural tendency to help many poorly run companies to continue in business simply for the sake of competition — to the detriment of both consumers and society. Bork’s position was once considered ridiculous, but it has influenced the US Supreme Court’s approach to anti-trust laws since the 1970s. At the end of the day, the consumer is king and the interest of the consumer should be the ultimate driving force for every anti-trust legislation. In treating this bill, therefore, Nigerian lawmakers must be well guided in phrasing the provisions so that the law doesn’t become counterproductive.

Now to my take. Section 89 of the bill is quite mysterious. It grants the president the power to fix prices “to facilitate competition”. This provision alone is enough to damage the confidence of would-be investors. Why would I pour my investments into a business and the president would have the power to determine the price? I want to assume whoever inserted this provision was reading some 19th century text book. Investors have often complained that agreements in Nigeria are not worth the paper on which they are written — one administration comes and nullifies the one signed by the preceding administration. And now the president will start fixing prices? Come on!

I am worried by Section 27 (3) which empowers FCCPC to, on the basis of mere suspicion that “an act will be committed”, search, seize and disrupt businesses. This is open to abuse, especially in a country where government officials are power-drunk. If this provision is to be retained, there should be a requirement for a court warrant. Meanwhile, Section 83 (1) allows “any person or body corporate” to request for a monopoly investigation. I bet there will be frivolous petitions and unwarranted searches and seizures. I can file a petition to undermine a rival. I shouldn’t go scot-free if my petition turns out to be malicious. There should be penalties for unfounded petitions.

Section 73.2 says for the purpose of assessing market dominance, account shall be taken in particular of (e) legal or factual barriers to market entry by other undertakings. I honestly don’t understand what “factual barrier” means. It is open to arbitrary interpretation. Possessing better equipment or more capital may be seen as “factual barriers to entry”.  This must be properly defined to avoid unintended meanings. Section 73.2(g) is also subject to arbitrary interpretation. It says: for the purpose of assessing market dominance, account shall be taken in particular of its or their ability to shift supply or demand to other goods or services.“Shifting” must be unambiguously defined.

I am also not very comfortable that FCCPC will have an in-house tribunal, according to Section 39. The danger is that the commission will be three-in-one: legislature, executive and judiciary. That’s terribly dangerous. Let the courts do their job. Also, I can sense an attempt to build yet another layer of bureaucracy in the provision of section 17q empowering the commission to cause “all imported goods to be registered for traceability whenever the need arises”. Given the fact that so many agencies are already doing this — NAFDAC and SON, to name a few — we may be further hampering the ease of doing business in Nigeria. This provision serves no useful purpose.

I would say government agencies should work together in exchanging information, particularly with the aid of technology, rather than an unnecessary duplication and further narrowing of bureaucratic bottlenecks. This is worsened by Section 18 which empowers FCCPC to determine and enforce standards outside of those already enforced by regulatory bodies such as NAFDAC, SON and COREN. Issues of jurisdiction will always arise, and what about the sheer size of the bureaucracy that will be needed by FCCPC to enforce standards across all sectors and all businesses? It would make better sense, I think, if the commission works with the specialised agencies.

Finally, can there be reasonable exemptions to anti-trust in areas of need — just as we have “pioneer status” incentives for “missionary” investors? Business-friendly countries such as Singapore have laid-out procedure for companies to request for exemptions or guidance from the regulator. The Nigerian bill provides something close under Section 73.3 that an undertaking “shall not be treated as abusing a dominant position if its conduct (a) contributes to the improvement of production or distribution of goods or services or the promotion of technological or economic progress, while allowing consumers a fair share of the resulting benefit”. Quite an important proviso.

As Bork would argue, the consumer should be the ultimate beneficiary of anti-monopoly laws. But investors should also be encouraged to take the plunge. President Buhari must take more than a passing interest in this anti-trust bill. He should make his own inputs to help open up the economy to competition. That way, he can expect reasonable outcomes from the deregulation of the oil industry, the reform of the power sector, and, broadly speaking, the diversification of the economy. This way, he can attract investors and ensure the fulfilment of his campaign promise of creating millions of jobs. Many Nigerians are eagerly awaiting change.

AND FOUR OTHER THINGS…

THE CHIBOK CHILD

While Nigerians were celebrating the escape (rescue?) of Chibok schoolgirl, Amina Ali Nkeki, from the Boko Haram gulag, one statistic was depressing me: her mother had 13 children and only two survived. This again brings to the fore the troubling issue of infant mortality in Africa — often attributed to witchcraft. With good antenatal care, immunisation and understanding of genotype mismatch, we can save millions of infants from avoidable deaths in our generation. Infant mortality is very prevalent in rural areas and among the urban poor. Governments must redouble commitment and effort to delete this tragic statistic from among us. Heartbreaking.

CAMPAIGN FINANCE

PDP has asked Buhari to probe his own campaign funds. Interesting proposition. We have heard the dirty details of the billions that went into the PDP campaign, but we are yet to hear of how APC financed its own electioneering, which was equally expansive and very sophisticated. The Buhari I know can actually probe the source of his campaign funds — which may put many of his ministers and APC governors in danger of Kuje prisons — but, theoretically, he will only do so if he doesn’t want a second term. Realistically, APC finance will only be probed by a different government. Logical.

GLOATING GAME

Even though I don’t support any political party, I nonetheless find it absolutely ridiculous that PDP is gloating over the state of the economy under APC. Agreed, APC has over-promised and under-delivered, but it was not as if PDP set the world alight while they were in power. They were there for 16 years and if they had addressed power and refineries alone, our economy would not be this miserable. At some point, oil sold for averagely $100, yet we could not build robust FX reserves to absorb future economic shocks because of too many leakages in the system. Shame.

HOME TRUTH

May I please advise the new apostles of deregulation to stop saying competition will bring down pump prices the same way it did in the telecoms sector? Is that a joke? Crude oil constitutes over 80% of the cost of pump prices of petroleum products. If oil moves from $50 to $60 per barrel, how on earth will competition reduce the pump price of petrol from N145 to N100 per litre? Let’s stop repeating the marketing deceit of yesteryear. Stop lying to the children. Deregulation is good — and I support it — but the truth is always a better weapon. Trust.

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