Somalia must stem anti-competitive behaviours

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By Ayan Abdi Diriye

Similarly, taming the Telco sector in Somalia and opening up the cross network links as well as removing the anticompetitive barriers will go a long way in improving services and lowering costs.

After outlining her foreign policy to boost trade and diplomatic relations with the neighbouring countries, Somalia has a task to work on its competition policies to boost internal trade.

The move which helps to check how dominant businesses conduct their affairs in relation to other players is a key tool for the country’s economic agenda according to World Bank reports.

World Bank Senior Economist, Trade and Competition Unit Tania Begazo said the need to address Trade and Competitiveness Global Practice is a crucial component for growing economies like Somalia.

“Collusion practices like price-fixing cartels, market sharing, self-regulations that limit competition have led to high cost of commodities, lowered sales volumes and slowed growth in many economies. It is very important that the government uses every available tool to see how competition is monitored to avoid skewed benefits to certain players at the expense of other players and the consumers,” MsBegazo said.

The global lender estimate that bad market behaviours by dominant players inflate the cost of commodities by at least 20 per cent, translating to pain for the consumers.

The trend is said to spill over into the service industry like transportation, telecommunications, energy and professional services inflating costs as well as suppressing the lower income groups in particular.

The telecommunications sector which is a key driver in the modern economic trends is said to be most affected with giant players locking out any links between them and suppressing upcoming ones.

In Somalia for example, customers are subjected to anticompetitive behaviours in the Telco sector. One is not able to call across network, unable to carry out money transfer across the players and are forced to align many other products offered by the Telco firms to crucial services like mobile banking and money transfer.

One such player is the Hormuud Telecom. The company which started in 2002 now offers over 13 mobile-telephone related products apart from being a major player in the banking and money remittances services in Somalia.

With over 80 per cent of mobile service subscribers using her services, the provider has made all possible ways to lock in the customers through the provision of other essential services like power supply as well as money transfer.

“Even when you have one of their services and you fail to take up their mobile lines, then you are locked out of the integrated services essentially compelling you to subscribe to Hormuud mobile services. It is quite frustrating but we have no choice because it then becomes quiet tough to access essential services without the line,” said one of the subscribers based in Mogadishu.

Hormuud also provide internet services and mobile phone on rent with the restrictive practices giving an edge over other struggling Telcos in the country.

“Collusion practices like price-fixing cartels, market sharing, self-regulations that limit competition have led to high cost of commodities, lowered sales volumes and slowed growth in many economies. It is very important that the government uses every available tool to see how competition is monitored to avoid skewed benefits to certain players at the expense of other players and the consumers,” World Bank Senior Economist, MsBegazo.

The World Bank says weak government competition policies including those that allow for legal framework that limits entry or affects firms’ capacity to compete enable such firms to work against the very consumers they serve.

Such rules that restrict entry of competitors or failure by governments to reinforce dominance, rules that facilitate collusion, control of markets variables, and discriminatory treatment in favour of certain firms are responsible for market distortions usually to the disadvantage of both consumers and governments.

Such practices championed by giant firms like Hormuud telecom are responsible for higher spending for poor households and higher spending for the government.

Somalia is not an isolated case though, World Bank says that the level of competition in African markets is lower than expected given Gross Domestic Product levels. Many countries in the continent are said to register one firm with more than 50 per cent market share in key sectors including telecommunications.

An interesting research done in South Africa in 2014 revealed that there is a huge potential annual consumer savings from removing anticompetitive overcharges on cement under different competitive benchmarks, based on 2014 cement consumption.

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In Kenya, the establishment of an Anti-competitive Authority helped resolve a stalemate where a dominant mobile telephone company had restricted its money transfer agents from offering services of the competitor in their shops.

Safaricom was ordered to remove the restrictions that prohibited M-pesa agent from offering Airtel money or Orange money excluding those seeking the services from the agents who have a huge network across the country.

As a result of the removal there was a nine per cent fall in agent exclusivity in the mobile financial services (MSF) market compared to 2013 and 11 per cent points fall in Safaricom’s share of agents relative to its competitors.

Consequently, there was an increased income for small and medium MFS agents recording a  10 per cent  rise in the profitability of agents overall and 45 per cent  increase in rural areas showing how removal of restrictive market behaviours have a ripple effect in the market with the government and the smaller players reaping the biggest benefits.

Similarly, taming the Telco sector in Somalia and opening up the cross network links as well as removing the anticompetitive barriers will go a long way in improving services and lowering costs.

The risk of price fixing by the big players will also lead to increased earnings for the government which needs the revenues to support the economic renaissance. More investors are likely to be attracted and competition is going to lower costs of services in Somalia.

The World Bank also estimated that slight removal of restrictive product market regulations in service sectors (including professional services like legal services, telecom) has an   increase of GDP growth of a country by 0.39 per cent.

The wave of competition intervention measures will have even wider positive impacts in other sectors like food and transport services which the country needs as the population continues to grow with urbanization.

Energy services, money transfer services and other utility services are also in urgent need for such interventions to stem restrictive behaviours known to skew the market in favour of dominant players. Will Somalia listen to the voice calling for her key bait in attracting investments and making goods and services cheaper?