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NEWS & CURRENT AFFAIRS

The Nairobian

Cartels, trade barriers cost Kenya's economy Sh22 billion annually

Business

By Dominic Omondi | Dec 10, 2015

Market distortions due to anti-competitive behaviours and regulations are denying the economy Sh22 billion annually, according to the findings of a new report by the World Bank’s investment arm - International Finance Corporation (IFC).

The report which was commissioned by the Competition Authority of Kenya (CAK) following an earlier directive by President Uhuru Kenyatta also found that addressing the barriers to competition will reduce the country’s poverty prevalence by 1.3 per cent in the first year alone.

*Treasury Cabinet Secretary Henry Rotich (left) with Competition Authority of Kenya Director General Wang'ombe Kariuki during the launch of the World Bank report.* (FILE PHOTO/ STANDARD)

Treasury Cabinet Secretary Henry Rotich noted that the Government has done a lot to encourage competitiveness by progressively opening up the market by removing non-justifiable regulations and empowering the Competition Authority of Kenya to effectively enforce the competition law.

“We view the report as a key reference point as we continue implanting initiatives aimed at realisation Vision 2030,” explained Rotich adding that the Government will be guided by the report to increase business competitiveness.

The report, titled Unlocking Growth Potential in Kenya: Dismantling Regulatory Obstacles to Competition, looked at such sectors as agriculture, electronic communications, insurance, electricity, professional services, in particular legal and architectural services, and air transport.

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In agriculture, the report was critical of the Government’s intervention in the sector through provision of subsidized inputs, price controls, and establishment of funds for producers. According to the report, this only benefits a few large players and creates inefficiency.

In electronic communications, the report finds that consumers have no freedom of choice due to inter-operability challenges. The report recommends the Communication Authority of Kenya (CA) to re-assess the level of porting fees and automate the procedure for number portability to further open up the sector.

As far as spectrum allocation is concerned, the report finds a lack of level playing field and high barriers of entry into the sub-sector as major obstacle to the industry growth. Flagged as a high priority sub-sector, the report calls for the establishment of “market-based rules to assign spectrum and prevent distortions in the competitive environment.”

Spectrum allocation has been one of the hot-button issues in the on-going fight for dominance for telecommunication sector between two of the country’s mobile providers - Safaricom and Airtel Kenya.

As expected, the report found little if any competition in the electricity generation sub-sector with the industry characterized by high barriers to entry, unequal playing field and consumers being denied choice.

The report took issues with restriction of entry of foreigner into the legal and architectural sectors. It also called for the scrapping of minimum fees for professional services, especially legal and architectural services and constraints on advertising practices.

CAK Director General Wang’ombe Kariuki reckoned that enforcement of the report would be done within a year. Rotich who unveiled the report asked the regulator to make recommendations that he could factor in the 2016/17 Budget.

Compared to the average of the Sub-Saharan Africa countries, Kenya ranks lower in terms of factors that contribute to a more efficient goods market. The reports attributes this to “burdensome” red-tapes.

The report also found Kenya to have high barriers to trade which impede competitiveness.

The release of the report coincided with the World Competition Day, which was declared by the United Nations in 1980.