CAK targets industry cartels with new competition law
What you need to know:
Strong buyer power can arise when a small clique of businesses, which are critical in the supply chain, have a high bargaining power over their suppliers who provide almost similar items and are therefore dispensable.
Banks have particularly been criticised for being slow in transferring benefits of an improved economic environment to investors through lower lending rates, choosing instead to take actions that protect their profits.
The competition watchdog is pushing for the enactment of a new law that empowers it to slap heavy fines on and break up industry associations with cartel-like behaviour. The Competition Authority of Kenya (CAK) has, through a new Bill, included trade associations on the list of entities known as ‘undertakings’ that it regulates, alongside individuals, trusts, and companies.
“Undertaking means any business activity intended to be carried out for gain or reward by any individual, body corporate, incorporated body of persons, trade associations or a trust in the production, supply and distribution of goods or provision of any services,” the Competition Amendment Bill (2016) says.
The exclusion of trade associations from this provision has over the years emboldened some industry cartels to resist the regulator’s warnings against anti-competitive behaviour, arguing that there is no law to supervise and penalise them.
National Assembly Majority Leader Aden Duale tabled the proposed law in Parliament last Tuesday.
Some powerful trade bodies, especially those in the agricultural and financial services sectors, have used the legal lacuna to frustrate any efforts to regulate their practices.
Many have argued that the associations do not make direct sales, rendering the CAK incapable of fining them (a maximum of 10 per cent of revenue) as it does companies or individuals involved in anti-competitive behaviour.
The proposed changes to the law come in the wake of sustained, but often unsubstantiated, allegations that key sectors of the Kenyan economy are under the firm control of price-fixing cartels.
The amendments offer some hope for relief to consumers, who have been paying high prices for financial services and agricultural produce arising from rules set by their associations.
Wang’ombe Kariuki, the CAK director-general, said that while trade associations do not directly deal in goods or services, some hold immense control over their members and therefore impact the market, sometimes negatively.
“The fact that these associations were not clearly captured in the law, made it difficult for our officers to fine those who are found contravening the law,” he said.
The resistance against regulation by trade associations came to the fore last year when some of them failed to furnish the regulator with information requested during a special compliance programme seeking to stop cartel-like practices.
Treasury secretary Henry Rotich acknowledged the challenge when reading his Budget Statement in June, stating that this happens because the law has not made compliance mandatory.
A separate clause in the new Bill is now seeking to introduce obligation during investigations initiated either by the Cabinet Secretary or the competition watchdog.
Trade bodies are often seen to cultivate anti-competitive business environments by prescribing geographic trading blocs for members, maximum market shares and minimum and maximum prices for goods and services offered.
They also recommend pricing formulas and terms of sale such as discount, credit, delivery as well as product and service guarantee terms to members. The list of financial services sector associations at the risk of being affected by the new law includes the Kenya Bankers Association (KBA), the Association of Kenya Reinsurers, the Association of Kenya Insurers and the Kenya Forex Bureaus Association.
The Cereal Millers Association, the East African Tea Trade Association, the Kenya Coffee Traders Association and the Agrochemicals Association of Kenya are also on the regulator’s watchlist.
Banks criticised
Banks have particularly been criticised for being slow in transferring benefits of an improved economic environment to investors through lower lending rates, choosing instead to take actions that protect their profits.
The Competition Amendment Bill (2016) is also seeking to rein in businesses that hold extreme “buyer power” in the supply chain, negatively impacting competition.
Strong buyer power can arise when a small clique of businesses, which are critical in the supply chain, have a high bargaining power over their suppliers who provide almost similar items and are therefore dispensable.
Such businesses can convince suppliers to lower prices or improve quality but may not be keen on reciprocating the good gesture to suppliers by, for instance, honouring their invoices for goods delivered on time.
This clause in the proposed amendments places Kenya’s leading supermarkets in the CAK’s crosshairs.
Kenya’s top three retailers — Nakumatt, Tuskys and Naivas — owed manufacturers Sh8 billion by end of September last year, with some of the payments dating back to early 2014.
Late payment of invoices to small businesses has stifled growth of Kenyan enterprises, leaving them with cash-flow challenges and forcing them to rely on costly bank loans, cut jobs and in some cases go bankrupt.
“Buyer power is not necessarily dominance but the buyer may be critical to the entire chain that misuse of his position ends up distorting competition in the sector,” said Mr Kariuki.
If the Bill is passed, consumers will directly complain to the CAK for investigations, a shift from the present scenario where complaints must be filed through consumer lobby groups.
The CAK will also be empowered to institute independent investigations into alleged consumer rights violations, as opposed to waiting for consumer lobby groups to arbitrate before being enjoined in the matter.
The new Bill is also proposing to give the CAK powers to fine parties found to have used misleading information to gain approval during a merger of two or more entities.
