Importance of Competition Policy in Reducing Poverty in Kenya

A.    INTRODUCTION

1.      Competition is pivotal to market operations and fosters innovations as well as growth and productivity which help in creating wealth and thereby reduce poverty. However, markets are not always efficient and uncompetitive markets are always those that matter most to the poor. This article outlines the direct and indirect as well as often complex connections between competition policy, competition, private sector development, poverty reduction and growth. The existence and linkages of these aspects in the developing or middle income world context is often under recognized.

2.      The Competition Authority of Kenya has a very important role to foster efficiency in the economy by ensuring enforcement and advocacy of competition law with the goal of reducing poverty and promoting economic efficiency as well as growth.

3.      While anti-competitive conduct by entities is a sign of weak competition, indecorous public policies and the power of vested interests to hinder necessary reforms may be considered important. A holistic approach is therefore important to identify where competition is weak and that is where departments like consumer protection and enforcement come in handy. Mergers and Acquisition and Buyer Power departments help identify gaps in the market that need to be addressed to regulate anti-competitive practices whether through complaints made to the authority by consumers or the authority conducts investigations ex proprio motu.

B.     COMPETITION POLICY AND GROWTH

4.      Competitive markets enable proper utilization of a nation’s resources in the production of goods and services. Evidence from theoretical and empirical research over the last few years shows that there are productive and efficiency gains which are derived from competition¹. Competition gives firms continuing motivations to make production and distribution efficient, adopt better technology as well as innovate. These sources of productivity improvement lead to growth and poverty reduction².

5.      The strength of competition is likely to affect the competitiveness of a country in terms of the country’s exports ability to compete globally and imports not destroying local products. A competitive environment in the domestic markets plays a very important role in international integration of industries. Intense fair competition is therefore a very important ingredient for high productivity. This is made possible by market-vigilant regulators.

6.      However, growth and lower prices alone do not always result into poverty eradication. Even in nations with growing economies and competitive markets for essential goods and services, the distribution of income may still result into some individuals living below the poverty line and in relative poverty. Therefore, other policies such as tax, trade and anti-corruption are critical in fighting poverty (OECD, 2013).

^7.                For more innovation see Cook et al (2007). P. 26 and P. 311

^8.                Innovation and competition are some of the strongest influencers of productivity as indicated in Dollar and Kraay (2001) in a World Bank report.

C.    COMPETITION POLICY AND POVERTY REDUCTION

9.      The poor interact with the economy in various ways. The state must take responsibility of assisting the markets function effectively for the poor so that they can have more choice and encourage innovation as well as provide goods and services at the least cost possible.

10.  The highest number of the poor is mostly farmers and small entrepreneurs. These groups are likely to benefit more if entry and exit barriers are minimized, if they can access quality inputs at fair prices and sell output on fair terms (OECD, 2013).

11.  Most of the poor individuals are the major recipients of government-funded services. Bid-rigging³ for government funded infrastructure and services is a common phenomenon and it reduces what the people can get from the budget allocation. For instance, instead five new hospitals only four are constructed. An appropriate competition policy seeks to address such gaps (OECD, 2008).

12.  Competition policy and law enforcement helps poor consumers and producers by breaking up cartels, exposing dominant firms that engage in anti-competitive practices and reducing barriers to entry and exit thereby enabling small firms survive in a market where they otherwise would not have survived. Additionally, entry helps the poor not only by putting pressure to reduce prices but also by creating more employment and business opportunities (OECD, 2013).

13.  It is therefore the recommendation of this paper that the authority should continue being vigilant in the Kenyan market and promote competition law enforcement and advocacy. This in turn leads to the ripple benefits of a better life for Wanjiku.

^3.  For more information on Kenya’s policy on collusive tendering/ bid-rigging visit https://www.cak.go.ke/images/docs/Restrictive-Trade-Practices-Guidelines.pdf

REFERENCES

Organization for Economic Co-Operation Development (OECD) (2013). Policy Roundtables: Competition and Poverty Reduction. Retrieved from https://www.oecd.org/daf/competition/competition-and-poverty-reduction2013.pdf

Organization for Economic Co-Operation Development (OECD) (2008). Why is competition important for growth and poverty reduction? VII Global forum on international investment. Retrieved from https://www.oecd.org/investment/globalforum/40315399.pdf