Columnists

Clamp down harder on price fixing

Wednesday September 20 2023

Operations inside the Devki Steel Mills Limited. FILE PHOTO | NMG

Recent imposition of a historic fine of Sh338 million on nine Kenyan steel manufacturers for fiddling with prices by the competition watchdog was pivotal on several fronts.

Firstly, it represents a significant stride forward in safeguarding the interests of the Kenyan consumer, who has been battling the high cost of living and runaway inflation for several years.

This case raises questions regarding what proportion of the prevailing high commodity prices are caused by market dynamics, and what is artificially influenced by illegal commercial alliances.

Secondly, the intervention comes at a time when the government is aggressively implementing its ambitious affordable housing programme.

For the construction of houses to be reasonably priced, inputs need to be competitively sourced. This rationale also applies to steel-reliant infrastructure projects being undertaken across the country.

Intervention by the Competition Authority of Kenya (CAK) is also a timely reminder of the role regulators should play in ensuring markets operate freely, and that consumers, including the government as a big spender on public services, get value for money.

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Article 46 of the Constitution of Kenya outlines consumer rights and requires that Parliament enacts legislation that provides for their protection and observation by public and private entities. It is on this basis that the Parliament enacted the Competition Act, establishing the CAK.

The agency is empowered to, among others, investigate and sanction practices by businesses that fulfil their profiteering motives through replacing competition with collusion, including fixing prices and creating artificial product shortages that raise prices. After all, cooperation is less expensive than competition.

When announcing its penalty decision, the CAK noted that for homeowners, steel products such as pipes, beans and sheets account for about 20 percent of the total cost of constructing a house.

This puts into sharp focus the pain home builders have endured over the last few years with the ever-rising cost of steel products forcing many to pause or abandon projects.

Many home builders supplement construction loans with alternative funding to complete the projects. If you factor in the cost of these loans you easily conceptualise the financial pressure that comes with fulfilling the dream of “sleeping under your own roof.”

The popular explanation for the high steel costs, including by the very manufacturers mentioned in the steel cartel investigation, has variously been attributed to the disruption of supply chains due to the Covid-19 pandemic, the ongoing Russia-Ukraine war, and the high cost of fuel.

It was then a sharp punch in the gut for consumers when it was laid bare that in fact “steel firms illegally colluded on prices and margins, output strategies, and other trading parameters,” according to CAK.

Data from the Construction Input Price Indices of 2022, compiled by the KNBS, shows that the price of steel and reinforced bars rose by 89 percent between December 2019 and June 2022.

Prices only decreased by nine percent and three percent in the 3rd and 4th quarter of 2022, respectively.

We can correctly infer that the amount of wealth transferred from hard-up Kenyans by the steel firms, from when the CAK commenced investigations into the sector (August 2020) to the issuance of the decision (August 2023) is immense.

It was, therefore, somewhat underwhelming for me when I saw the penalties imposed. The fines seem to be a small fraction of the offending firms’ annual turnover if you were to make assumptions based on the maximum 10 percent penalty allowable by the Competition Act.

The agency should, going forward, penalise the maximum allowable amount and only cede ground where the amount sought would demonstrably bankrupt a company.

It is also imperative that the CAK ensures that offending companies do not revert to their behaviour once investigations are concluded and penalties are paid.

Stringent compliance checks should be conducted and the findings made public. This is not asking too much of the watchdog, as the law instructs it to do exactly that.

This will continue reassuring the public that the goods and services they are consuming are value for money.

The writer is a data protection lawyer who writes on legal and policy issues. 

TWITTER: @jgmbugua