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Creating competitive markets

Ryan Hahn's picture

It is a matter of debate whether governments should play an active role in stimulating industrial upgrading. But it strikes me as highly unlikely that an activist role for government has much benefit for products low on the value chain. A new policy note from ODI on four product markets in five developing countries seems to bear this out. The market for sugar is a particular object of abuse:

...the state is heavily involved in the sugar industry in some countries, including Bangladesh, Kenya and Viet Nam. In all three countries, however, the state-led sugar industries exhibit low productivity and poor performance, and the use of obsolete technology and inefficient farming methods mean poor cane yields and sugar outputs. All three are struggling to compete and survive in the face of competition from sugar that is either privately produced or imported. They need substantial levels of costly government subsidisation, which is unlikely to be sustainable in the long run, thus jeopardising many livelihoods.

In stark contrast, Zambia, which has a private sector-led sugar industry, produces the highest amounts of sugar per hectare of the five countries, (three times higher than Viet Nam which is the next most efficient country).

The five data points don't add up to an econometric study, but the case-study approach employed by ODI provides a much more granular understanding of the political economy issues involved. And it's very hard to ignore the huge difference in sugar prices between Zambia and the other countries. Much more on competition policy is available in ODI's comprehensive 107-page report, plus related case studies for each of the countries covered in the report.

Comments

Submitted by Peter D'Souza on
Another particularly interesting finding worth highlighting from this ODI study, which was funded by DFID, was in the cement sector. Competition among smaller firms in 2 countries trumped potentially substantial economies of scale for the larger, more concentrated firms in the other 3 countries in delivering lower prices. This illustrates the strong incentives competitive markets provide reducing prices and efficient production.

Submitted by Ben Richardson on
I think it should be noted that the ODI report does contain some criticism of Zambia's sugar industry, and in this way private sector development also. It argues that the industry is essentially a monopoly and that the dominant company Illovo has been able to artificially inflate consumer prices and restrict competitors entering the market. My own research found that the company has also lowered its tax contributions to the Zambian government and that many of its social development projects are in fact funded by aid donors. See here for download: http://www.sucre-ethique.org/?lang=en Rather than pitting private ownership against public ownership, I think it is more productive in development terms to think in terms of scale. Promoting small-scale industry limits the capture of government policy and allows poorer producers to set up in business.

Submitted by GS RADJOU on
I think creating competitive market is about shaping business functions and organizational design, with one purpose in mind to adapt to the business environment. See Michael Porter for the share values and the shareholder. value. If there is no investment, one cannot break the poverty cycle chain i.e. no investment --> no resource --> weak people --> no resource --> no investment.

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