The cement industry in Africa is one of the sectors that would benefit from stronger competition policies, which can help strengthen the economy by preventing anti-competitive behavior and collusive price-fixing.
Photo by Simon Davis / DFID — U.K. Department of International Development
What determines whether a country is able to reap the benefits of deepening regional integration and the related increases in trade, cross-border investment and economic opportunities from participating in global value chains? One of the key points in this timely discussion is ensuring that the gains from integration are not nullified by anticompetitive business practices or distortive government interventions. As economies become more interconnected, it will become ever more important to allow all businesses to compete on a level playing field. Some African economies, for example, have not benefited as expected, in part because of the continued existence of barriers to competition in domestic markets.
These concerns lie at the heart of a new publication developed by the World Bank Group in partnership with the African Competition Forum (ACF). The report explores competition issues that affect the performance of key markets in Africa, and it reviews the status of competition policy and its implementation across the continent. It is the first report to take a broad regional perspective on competition issues – and the first to be built on a partnership between the World Bank Group and a regional network of government agencies and ministries responsible for competition.
Among its findings, the report shows that reforms in input sectors, such as professional services, can boost the export competitiveness of downstream firms that use those inputs intensively. However, in many cases, trade is restricted when governments impose non-tariff barriers, including product standards or testing regimes that are more restrictive than necessary, which prevent the entry of new, lower-cost products. This is the case with fertilizer markets in both East and West Africa. Even when such non-tariff barriers are removed, it is important to prevent anti-competitive behavior, such as collusive price-fixing and market-allocation agreements among competitors – as was seen in the case of cement in South Africa, Namibia and Botswana.
The report also highlights that, in some sectors in Africa, the same firms operate in many countries and some firms may locate themselves in areas that allow them to supply markets across borders. These factors hold potential efficiencies – for example, where it leads to economies of scale – but it also makes it vital to view competition dynamics through a regional lens as well as a national one.
Discussions of who mankind is usually begin with stories of small bands of hunter-gatherers roaming the savannah and struggling for survival under the African sun, of great feats of strength at the Olympics, or of monumental hurdles overcome to land on the moon. They do not usually start like this: hundreds gather in a Mediterranean city to schmooze and discuss the fate of millions of others. But this event is a quintessential story of who we are as human beings. The World Humanitarian Summit demonstrates the very human characteristics of cooperation and competition.
Michael Tomasello, Director at the Max Planck Institute for Evolutionary Anthropology in Germany and author of Why We Cooperate, has explored the distinctiveness of human nature for decades. He and his colleagues suggest that one of the defining characteristics of humans is that we cooperate. Many species, from ants to dolphins and primates, cooperate in the wild, but Tomasello has identified a special form of cooperation that is truly human. In his view, humans alone are capable of shared intentionality—the ability to intuitively understand what another person is thinking and act toward a common goal.
Women in a grain market in Kota, Rajasthan.
Strengthening competition policy is an under-acknowledged but potentially cost-effective way to boost the incomes of the poor. Greater competition between firms has the potential to boost growth through its impact on productivity, and it is increasingly acknowledged as a driver of welfare in the long term.
Despite that fact, competition reforms are notoriously difficult to implement. One of the reasons is opposition from interested groups that stand to lose out from these reforms in the short term – and a frequent lack of evidence or voice on the side of those who could gain from the direct effects of more competition.
What is the evidence on the direct impact of competition on the poorest in society, and what do we still need to learn?
A recent review of the evidence by the World Bank Group (WBG) seeks to answer these questions. The review follows two basic ideas. First: Competition policy has the greatest impact on the poor when it is applied to sectors in which the poor are most engaged as consumers, producers and employees. Second: Competition policy should have a progressive impact on welfare distribution in sectors where less-well-off households are more engaged relative to richer households.
Several sectors stand out as being particularly important here.
- Food products and non-alcoholic beverages are by far the most important sector for poor consumers in terms of their share of the consumption basket. They also make up a relatively higher proportion of the consumption basket of the least-well-off households. (See Figure 1, below. Source: WBG computations based on household survey data.)
- The retail sector is also important for consumers as the final segment of the food and beverages value chain. It is also a significant employer of the poor.
- Services such as transport and telecommunications play an important dynamic role in combatting poverty and reducing inequality. Better informed and more mobile consumers are more able to switch suppliers, thus moderating suppliers' market power. Services are also an important input for entrepreneurs.
- Other agri-inputs, such as fertilizer and seed, are key for the incomes of small agricultural producers.
Despite the persistent low-growth environment, the benefits of the digital era are within our grasp to help reignite the growth engine.
Digital trade is the fastest-growing component of trade, and 4.4 billion people globally are yet to come online. In the first quarter of 2015 and in major U.S. cities, an average of 46 percent of all total paid car rides were through Uber. In Kenya, the digital payment system creates additional income for more than 80,000 small business owners. The Chinese e-commerce sector has created 10 million jobs. The Internet of Things, self-driving cars and 3-D printing have now arrived as part of the so-called Fourth Industrial Revolution.
These benefits will materialize faster if competitive dynamics allow and drive innovation. Disruptive innovation has a great potential to shake up markets, increase productivity and bring benefits to consumers. And yet, if there are government-imposed rules that close markets and unjustifiably protect incumbents from such competing new solutions, these benefits do not materialize. Cities around the world have blocked Uber from offering services. The debate on President Obama’s Executive Order to boost competition has centered around a pending decision by the communications regulator on whether to open the market for TV cable set-top boxes to allow for competition.
Conscious of such challenges, forward-looking competition authorities around the world are advocating several measures that will allow consumers and businesses to benefit from disruptive innovations and new business models. A new World Bank Group publication on competition advocacy tools highlights examples of successful initiatives to promote pro-competitive regulatory reform in markets subject to disruptive innovations.
Many of the World Bank Group’s client countries face a difficult challenge – and the White House recently put this issue at the top of the agenda, too: How can policymakers increase competition to support continued growth of the economy? In a global low-growth environment, developing and advanced economies alike are looking for new ways to boost productivity and innovation. A global panel of Ministers agreed at a recent Spring Meetings event that market competition is pivotal in finding a solution.
When firms collude to fix prices or divide markets, thus harming consumers and reducing competitiveness in their sector and the broader economy, independent competition authorities can fine and therefore deter such illegal conduct. When governments set up rules that reinforce the market power of a dominant firm or that allow such illegal conduct, then competition authorities can rarely demand that those rules be changed – even though the effects on prices, service quality or the availability of products can be just as severe. If champions of competition seek to promote more pro-competition government interventions in markets, they must rely on competition advocacy.
Last Thursday in Singapore, Klaus Tilmes, Director of the Trade and Competitiveness (T&C) Global Practice of the World Bank Group, and Andreas Mundt, Chair of the International Competition Network (ICN), presented awards to the winners of the 2015-2016 Competition Advocacy Contest – a joint WBG and ICN initiative – at the ICN Annual Conference.
A new World Bank Group publication, launched by T&C on April 15, showcases the results of the 2014-2015 Competition Advocacy Contest, sharing the lessons that have been learned about effective advocacy and discussing innovative ways of adapting to new competition challenges. Previous rounds of the contest have shown how the notable impact of competition advocacy can change mindsets.
Our newest publication highlights the tools that competition authorities have developed to overcome the practical challenges, political-economy constraints and emerging trends that affect competition advocacy.
Why do women tend to make less money and occupy fewer management positions than men? Do social influences affect the competitive spirits – or lack thereof – women? Or could it be that women are simply less competitive than men?
With support from the National Science Foundation, Uri Gneezy Kenneth L. Leonard, and John A. List, set out to test assumptions about biologically based competitiveness in two of the most culturally different places on the planet: the ultra-patriarchal Masai tribe of Tanzania and the matrilineal Khasi people of northeast India. The researchers conducted experiments in both environments to see what they could unearth regarding the competitive spirit of women across extremely different societies that held women in diametrically opposite roles.
To start the new year, I've designed a 10-question game to recap some of the major findings of our flagship report, “Competitive Cities for Jobs and Growth: What, Who and How.”
The report, which was launched at at a World Bank conference in Washington on December 10, 2015, has been gaining wide recognition in the news media. Positive coverage has included analyses in Citylab (edited by urbanologist Richard Florida) and in Citiscope (edited by urbanologist Neal Peirce), as well as an essay in The Huffington Post by Marcelo Giugale, senior economic advisor in the World Bank Group's practice group on Equitable Growth, Finance and Institutions (EFI).
This short 3-minute game features many of the central themes of the Competitive Cities initiative. Please click on this link – http://sgiz.mobi/s3/The-Competitive-Cities-Game – to start the game.
For more information about the Competitive Cities initiative at the World Bank, please visit: http://www.worldbank.org/en/topic/trade/publication/competitive-cities-a...
- Urban Policies
- urban policy
- sustainable urbanization
- Private Sector Development
- Private sector competitiveness
- Competitiveness Policy
- Competitive Sectors
- Competitive Industries
- Law and Regulation
- Urban Development
- Private Sector Development
- Sustainable Communities
Greater competition is crucial for creating better jobs, although there may be short term tradeoffs.
Job creation on a massive scale is crucial for sustainably ending extreme poverty and building shared prosperity in every economy. And robust and competitive markets are crucial for creating jobs. Yet the question of whether competition boosts or destroys jobs is one that policymakers often shy away from.
It was thus valuable to have that question as a central point of discussion for competition authorities and policymakers from almost 100 countries – from both developed and developing economies – who recently gathered in Paris for the 14th OECD Global Forum on Competition (GFC).
According to World Bank Group estimates the global economy must create 600 million new jobs by the year 2027 – with 90 percent of those jobs being created in the private sector – just to hold employment rates constant, given current demographic trends.
Yet the need goes further than simply the creation of jobs: to promote shared prosperity, one of the urgent priorities – for economies large and small – is the creation of better jobs. This is where competition policy can play a critical role.
Competition helps drive labor toward more productive employment: first, by improving firm-level productivity, and second, by driving the allocation of labor to more productive firms within an industry.
Moreover: Making markets more open to foreign competition drives labor to sectors with higher productivity – or, at least, with higher productivity growth. Making jobs more productive, in turn, generally increases the wages they command.
That’s in addition to cross-country evidence on the impact of competition policy on the growth of Total Factor Productivity and GDP, and the fact that growth tends not to occur without creating jobs. Thus there’s compelling evidence that – far from being a job killer, as skeptics might fear – competition (over the long term) has the potential to create both more jobs and better jobs.
The key question then becomes whether such long-term benefits must be achieved at the expense of short-term negative shocks to employment – especially in sectors of the economy that may experience sudden increases in the level of competition.
Progress toward better jobs is driven partly by the disappearance of low-productivity jobs, as well as the creation of more productive jobs in the short run. Competition encourages that dynamic through firm entry and exit, along with a reduction in “labor hoarding” in firms that have previously enjoyed strong market power.