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Competition Policy and Private Sector Development in

Mauritius

by

Reshma PeerunUniversity of Mauritius

29 March 2007

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What is Competition Policy?

Competition Policy encompasses governmental measures that affect the behaviour of enterprises and the structure of industry.

It has different objectives in different countries but in most economies it aims at promoting competition by discouraging anti-competitive behaviour.

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Freedom of trade, freedom of choice, access to markets and achievement of economic efficiency to maximise consumer welfare are commonly expressed objectives.

Economic theory demonstrates that welfare is greatest when there is ‘perfect competition’.i.e allocative and productive efficiency.

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Benefits of Competition PolicyCompetition can bring significant advantages to consumers as well as businesses. For consumers competition implies lower prices and improved services. Businesses are consumers too. They purchase products of other firms as their inputs and the price and quality of these inputs partly determine their own competitiveness and profits.

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For businesses, competition policy means fairness. It acts against anti-competitive practices that can drive efficient and well-run companies out of business.Liberalisation of trade has exposed domestic goods and service industries to competition from abroad. However, there can also be unfair competition from foreign producers.

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Concerns about Competition Policy from Businesses

Competition Policy undermines the objectives of industrial policy- Not necessarily

Competition can act as a spur for all firms to improve their competitiveness by developing new products or employing new processes without reducing the number of players in the market.

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Competition Policy holds back technological development- Not necessarily.

Competition law could exempt classes of technical collaboration policies as in the EU

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Competition Policy allows foreign firms to come in and undermine domestic firms- Not necessarily…

- Government can introduce competition law whilst limiting the entry of foreign firms into the market.

- Competition policy can also beneficial in regulating the behaviour of foreign firms that are allowed to enter the market

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Competition Policy prevents domestic firms from attaining sufficient scale to compete in international markets- Partly true but…

Competition authorities can assess the benefits of a merger in terms of efficiency, economies of scale, use of technology etc.

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Market Concentration in Mauritius A notable feature of the Mauritian economy is the concentration of economic powers in the hands of a small number of enterprise groups, most of them family-controlled.

The operations of those large, extensively diversified companies have a pervasive influence on the commercial and industrial development of the island.

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Two important aspects of the local market are: its smallness in terms of demand and the fact that importers face high cost of freight and transport given our far distance from major international markets.It is to be noted that it is relatively easy for firms to enter many private sector activities in Mauritius especially those operations, which are small-scale and labour-intensive.

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With significant reforms of the external tariff regimes, local producers are facing more and more competition from imported substitutes.

Several key economic reforms introduced over the years have helped to foster stronger competition in the domestic market. These include:

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- the liberalisation of current account and capital account transactions has encouraged the entry of overseas-owned companies into several activities such as construction, grocery, wholesaling and retailing.

- the number of goods subject to government regulation of maximum prices or maximum permissible mark-up has declined.

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- the State Trading Corporation (STC) has become a direct competitor of private sector enterprises by diversifying its activities into other commodities besides the imports of petrol and cement.

-strong brand preferences on the part of some consumers favouring imported products.

- the risk that a new entrant will come into the market may also force an existing monopoly to maintain its efficiency and avoid raising prices.

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Market Concentration and Restrictive Business Practices in Mauritius in 1995

Public utilities including telecommunications, electricity (excluding generation), radio and television broadcasting and air transport (airlines and airports operations);Manufacture of beer, tobacco products, flour, fertilizer, pharmaceutical products, edible oils, livestock feed, paint, soft drinks and poultry.

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Import and distribution of cement (the sole private importer and distributor is a consortium of local and foreign investors),

the importation of petroleum products (monopoly of the State Trading Corporation);

Services such as commercial banking, equipment leasing and car rental and duty free shopping.

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Views of Businesses on Competition Policy

93 per cent of firms which participated in the survey agree that anti-competitive practices are widespread in Mauritian markets.

The three most prevalent anti-competitive practices identified by the private sector were:

-Market sharing

-Exclusive dealing

-Entry barrier

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The three sectors that were mostly affected by such practices as per the business sector are:-Consumer goods-Construction-Manufacturing70 per cent of the respondents from private sector agree that some of such practices originate outside the country. On the other hand, consumers allocate the practices as 56 percent overseas and around 44 percent home-based.

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75% of the business sample agree that existing rules , regulations and laws are not sufficient to check anticompetitive practices prevalent in Mauritius.

Moreover, above 85 % of the private and public sector and above 70 % of consumers are in favour of introducing a more comprehensive law on anticompetitive practices.

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90% think that the Competition Act should focus on economic efficiency and only 10% believe that the law should also consider other socio-economic issues as well.Indeed about 68% of businesses believe that state-owned monopolies indulge in anticompetitive practices.35% of the private sector believe that the law should not apply to all.

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Who should be exempted from the law?

0

10

20

30

40

50

60

70

80

Cons Private Govt

SMEs

SOEs

P.utilities

Imp/Exp

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CA: Autonomous or Under Ministry?

0

10

20

30

40

50

60

70

80

CONS PRIVATE GOVT

Auto

Under Min

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What kind of powers should the CA have?

Consumer

(%)

Private (%)

Government

(%)

Both adjucative and investigative

38.4 18.6 36.7

Investigative only with adjucative vested in separate authority

45.3 39.5 38.8

Investigative only with adjucative vested in court

14.7 41.9 24.5

Other 1.6 - -

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60% of businesses surveyed believe that the Competition Authority should also deal with unfair trade practices.

67 % of the private sector prefer some sectoral regulators for the utilities sector against 23% who prefer many regulators.

However they prefer the CA to have power over those sectoral regulators(53%) rather than coordinating with them(14%).

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38% agree that the law should prescribe criminalisation offences to all cases against 60% who argue that criminalisation imposed for certain offences only and 2% say that there should be no criminalisation.

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0

10

20

30

40

50

60

70

80

CONS PRIVATE GOVT

YES

NO

Should there be exemption to criminalisation based on public interest

grounds?

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68% of the sample agree that the CA should involve different stakeholder groups in its functioning including advocacy people and they prefer it to be done through a structured consultative committee(73%) rather than through occasional hearing (27%).

65 percent of business sample believe that government should introduce price controls on commodities where there is a lack of competition.

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About 60 % of the sample advocate for a regional approach towards competition policy.

Only 14 % of the business sector view government policy as insignificantly pro-competitive towards FDI.

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In the 2006 budget speech, the government recognizes that the existing framework for doing business and its incentive system works against democratizing the economy and competitiveness because the tariff, tax and labour laws favour large firms over SMEs, discriminate against new entrants in favour of the established firms.

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Except for a limited number of activities such as gambling and liquor sales, new measures will be introduced to allow entrepreneurs especially micro-enterprises and SMEs to start new activities within three working days compared to at least 46 days currently and sometimes up to two years.

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The measures indicate that the government is trying to harmonise investment in different sectors by creating a level playing field and as such promoting free and fair competition in investment across sectors and industries.

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THANK YOU