Reducing price of staple foods by 10pc could lift 500,000 out of poverty, save consumers Sh71Bn million a year, says WBG

 

Reducing the price of staple foods by 10 per cent could lift nearly half a million people out of poverty in Kenya, South Africa and Zambia, a new report has confirmed.

The analysis, a product of the World Bank Group and the African Competition Forum, ‘Breaking Down Barriers’, estimates the gains from tackling anticompetitive practices and reforming policies to enable competition.

It indicates that reducing the prices of food staples by just 10 per cent by tackling cartels and improving regulations that limit competition in food markets could lift 500,000 people in Kenya, South Africa, and Zambia out of poverty and save consumers more than $700 million (Sh71 billion) a year.

“African countries have much to gain by encouraging open and competitive markets, particularly as a means to spur sustainable economic growth and alleviate poverty. Yet in reality, many markets have low levels of competition,” states the research.

It comes at a time when more than 70 per cent of African countries rank in the bottom half of countries globally on the perceived intensity of local competition and on the existence of fundamentals for market-based competition.

Retail prices for 10 key consumer goods – white rice, white flour, butter and milk among them — are at least 24 per cent higher in African cities than in other main cities around the world. While these higher prices affect all consumers, the poor are hit the hardest.

The data has stated that cartels — agreements among competitors to fix prices, limit production or rig bids — are a serious cause of low competition levels in African countries and have been found to affect products in a variety of sectors, including fertilizers, food, pharmaceuticals, construction materials, and construction services. Evidence reveals that consumers pay 49 per cent more on average when firms enter into these agreements.

“There have been a notable number of countries adopting competition laws in Africa, and this bodes well for growth and development. However, while the benefits of competition are already clearly observable in Africa, there is still considerable effort required to ensure effective implementation of competition laws and policies across the continent,” notes Tembinkosi Bonakele, Chairperson of the African Competition Forum headquartered in South Africa.

In addition to explaining the costs of low levels of competition, Breaking Down Barriers highlights the important progress many African countries are making in improving competition policies. For instance, the number of countries and economic communities like EAC, COMESA and ECOWAS with competition laws has nearly tripled in 15 years. There are now 25 functional competition authorities in Africa and budgets for those authorities increased by 39 per cent between 2009 and 2014.

“In the past few years, several countries have stepped up their enforcement capacity and implementation of competition laws. Egypt, Kenya, South Africa and Zambia have taken recent actions to block uncompetitive agreements in a variety of sectors,” explains Martha Martinez Licetti, the report’s co-author and Lead Economist for the Trade & Competitiveness Global Practice at the World Bank Group.

“Looking to the future, there is a need to prioritize resources and use the powers and tools available to competition authorities more effectively in order to continue raising the relevance of competition policy within the broader development agenda,” she added.

 

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