UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENTVOLUNTARY PEER REVIEW ON   COMPETITION POLICY:         KENYA            ...
NoteUNCTAD serves as the focal point within the United Nations Secretariat for all matters related toCompetition Policy. U...
AcknowledgementsUNCTAD’s Peer Review reports were prepared by a team led by Mr. Philippe Brusick, Head of theCompetition a...
TABLE OF CONTENTSACRONYMS....................................................................................................
4.4.7 Cement sector..........................................................................................................
ACRONYMSAct        :   The Restrictive Trade Practices, Monopolies and Price Control               Act, Chapter 504 of the...
INTRODUCTIONThis report was prepared by George K Lipimile, Executive Director, Zambia CompetitionCommission, and Edward Wh...
EXECUTIVE SUMMARY                                        Kenya does not have a consumer protection                        ...
2
was that the       rural   societies   became                                                        underdeveloped.1: CON...
merchant banks established in the                The colonial regime further supported the     country, foreign ownership ...
Kenya like other independent states in the                expectation of the middle class, organizedregion found that its ...
the main industrial corporations which                 Government control over the economy wasdominated the economy and tu...
trade policy and investment regimes. The               In 1982, a Working Party on Governmentreforms also emphasized the i...
Renewed Growth”, which articulated the need            Kenya. Other natural monopoly companiesfor a market-driven economy....
Box 1                      Chronology of economic developments in KenyaPeriod                                             ...
10
2: SUBSTANTIVE ISSUES: CONTENT                            services. There are no turnover thresholds.OF THE COMPETITION LA...
The enumeration of restrictive trade practices          association members are free to follow the(in section 6) includes ...
Box 2                                            Price fixingFollowing complaints about high insurance premiums, particula...
These restrictive trade practices are essentially        inferred that successful execution of theagreements between two o...
regional or urban market. A second scenario             such orders have been made since the Actinvolves a situation in wh...
competition concerns. The Commissionrecommended that the merger be approved oncondition that the acquirer retained theexis...
Box 3                                            Merger ControlPremier Food Industries Limited applied to the Monopolies a...
An order made by the Minister may approveor reject the application or it may approve theapplication on condition that cert...
The Act provides for four enforcement3:    INSTITUTIONAL  ISSUES:                           institutions namely: the Offic...
Box 4COMPETITION ENFORCEMENT INSTITUTIONS            HIGH COURT OF            KENYA            RESTRICTIVE TRADE          ...
3.2 Office of the Minister of FinanceThe Act gives the overall powers to administerand enforce competition law and policy ...
Box: 5 - THE FINANCIAL STANDARD                                             Tuesday 4 September 2001                      ...
There are specific provisions in the Act which           comparable public administrative bodies in thebestow certain powe...
Box 6                        Best practice features of a competition authority   •   Independent, insulated from political...
elaborated when we later consider theenforcement procedures and practices.The Ministry of Finance plays a veryimportant po...
Box 7                         Structure of the Commission                                Minister of Finance and          ...
3.4 The Restrictive        Trade     Practices         Minister under section 31, the merger orTribunal (RTPT)            ...
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
Succession process among africa owned business kenya 1
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  1. 1. UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENTVOLUNTARY PEER REVIEW ON COMPETITION POLICY: KENYA UNITED NATIONS New York and Geneva, 2005
  2. 2. NoteUNCTAD serves as the focal point within the United Nations Secretariat for all matters related toCompetition Policy. UNCTAD seeks to further the understanding of the nature of Competition Lawand Policy and its contribution to development and to create an enabling environment for an efficientfunctioning of markets. UNCTADs work is carried out through intergovernmental deliberations,Capacity-Building activities, policy advice, seminars, workshops, and conferences.Symbols of United Nations documents are composed of capital letters combined with figures.Mention of such a symbol indicates a reference to a United Nations document.The designations employed and the presentation of the material in this publication do not imply theexpression of any opinion whatsoever on the part of the Secretariat of the United Nations concerningthe legal status of any country, territory, city or area, or of its authorities, or concerning thedelimitation of its frontiers or boundaries.Material in this publication may be freely quoted or reprinted, but acknowledgement is requested,together with a reference to the document number. A copy of the publication containing thequotation or reprint should be sent to the UNCTAD secretariat. UNCTAD/DITC/CLP/2005/6 ii
  3. 3. AcknowledgementsUNCTAD’s Peer Review reports were prepared by a team led by Mr. Philippe Brusick, Head of theCompetition and Consumer Policies Branch, UNCTAD and coordinated by Mr. Hassan Qaqaya,Chief of Capacity-Building and Advisory Services of the same Branch. This report was prepared byMr. Edward Whitehorn, former Head of Competition Affairs Branch at the Office of theTelecommunications Authority in Hong Kong and Mr. George Lipimile, Executive Director, ZambiaCompetition Commission. The team consisted of Ms. Elizabeth Gachuiri who assisted in gatheringinformation and provided useful comments and suggestions on the report. Mr. Pascal Garde and Ms.Mispa Ewene were in charge of the logistical aspects of the finalization and publication of thisreport. We would like to acknowledge the valuable assistance and cooperation received from Mr.Peter Njoroge, Commissioner and his colleagues of the Kenyan Monopolies and Prices Commissionduring the preparation of this report. iii
  4. 4. TABLE OF CONTENTSACRONYMS.....................................................................................................................................................................VIEXECUTIVE SUMMARY ................................................................................................................................................ 11: CONTEXT AND HISTORY ......................................................................................................................................... 3 1.1 COLONIAL RULE IN KENYA......................................................................................................................................... 3 1.2 STATE INTERVENTION AFTER INDEPENDENCE: THE ISSUES ........................................................................................ 4 1.3 ECONOMIC REFORMS................................................................................................................................................... 62: SUBSTANTIVE ISSUES: CONTENT OF THE COMPETITION LAW............................................................... 11 2.1 RESTRICTIVE TRADE PRACTICES ............................................................................................................................... 11 2.2 COLLUSIVE TENDERING ............................................................................................................................................ 14 2.3 MONOPOLIES AND CONCENTRATIONS OF ECONOMIC POWER ..................................................................................... 14 2.4 CONTROL OF MERGERS AND TAKEOVERS .................................................................................................................. 153: INSTITUTIONAL ISSUES: ENFORCEMENT STRUCTURES AND PRACTICES .......................................... 19 3.1 COMPETITION POLICY INSTITUTIONS ......................................................................................................................... 19 3.2 OFFICE OF THE MINISTER OF FINANCE ...................................................................................................................... 21 3.3 OFFICE OF THE COMMISSIONER OF MONOPOLIES AND PRICES .................................................................................. 24 3.4 THE RESTRICTIVE TRADE PRACTICES TRIBUNAL (RTPT)......................................................................................... 27 3.5 THE HIGH COURT OF KENYA .................................................................................................................................... 27 3.6 COMPETITION LAW ENFORCEMENT: PROCEDURE AND PRACTICE ............................................................................. 28 3.7 RESTRICTIVE TRADE PRACTICES ............................................................................................................................... 28 3.8 CONTROL OF UNWARRANTED CONCENTRATIONS OF ECONOMIC POWER.................................................................... 31 3.9 CONTROL OF MERGERS AND TAKEOVERS .................................................................................................................. 33 3.10 OTHER ENFORCEMENT METHODS ............................................................................................................................ 35 3.10.1 Administrative resolution ............................................................................................................................... 35 3.10.2 Judicial system ............................................................................................................................................... 35 3.10.3 Sanctions and remedies .................................................................................................................................. 35 3.10.4 Fines and imprisonment ................................................................................................................................. 36 3.10.5 Penalties and offences.................................................................................................................................... 36 3.10.6 Imprisonment.................................................................................................................................................. 37 3.10.7 Procedure for remedies under the Act............................................................................................................ 37 3.10.8 Persons who suffer loss or damage................................................................................................................ 37 3.10.9 Availability of private rights of action............................................................................................................ 38 3.11 INVESTIGATIVE TOOLS ............................................................................................................................................ 38 3.11.1 Obtaining information, documents and evidence ........................................................................................... 38 3.12 INTERNATIONAL ISSUES IN COMPETITION LAW ENFORCEMENT ............................................................................... 38 3.13 AGENCY RESOURCES, CASELOAD, PRIORITIES AND MANAGEMENT.......................................................................... 39 3.13.1 Funding of the competition authority ............................................................................................................. 39 3.13.2 Management................................................................................................................................................... 40 3.13.3 Constraints ..................................................................................................................................................... 41 3.13.4 Case priority and handling............................................................................................................................. 424: CASEWORK, EXEMPTIONS AND SECTOR-SPECIFIC REGULATION......................................................... 43 4.1 CASEWORK REVIEW .................................................................................................................................................. 43 4.2 EXEMPTIONS FROM THE COMPETITION LAW .............................................................................................................. 43 4.3 SECTOR-SPECIFIC REGULATION ................................................................................................................................. 44 4.4 SECTOR STUDIES ....................................................................................................................................................... 46 4.4.1 Small-scale tea sector....................................................................................................................................... 46 4.4.2 Coffee sector..................................................................................................................................................... 46 4.4.3 Sugar sector ..................................................................................................................................................... 47 4.4.4 Petroleum sector .............................................................................................................................................. 47 4.4.5 Alcoholic beverages sector............................................................................................................................... 48 4.4.6 Carbonated soft drinks sector .......................................................................................................................... 48 iv
  5. 5. 4.4.7 Cement sector................................................................................................................................................... 49 4.4.8 Electronic media sector.................................................................................................................................... 495: CONSUMER PROTECTION ISSUES ...................................................................................................................... 53 5.1 THE PROTECTION OF CONSUMER INTERESTS: ITS RELEVANCE TO KENYA .................................................................. 53 5.2 DIFFERENT APPROACHES IN THE REGION AND ELSEWHERE: CONSUMER PROTECTION ............................................... 53 5.3 IMPORTANCE OF INCLUDING CERTAIN CONSUMER PROTECTION PROVISIONS IN THE NATIONAL COMPETITION LAW .. 536: COMPETITION ADVOCACY................................................................................................................................... 55 6.1 ADVOCACY AND AWARENESS BUILDING ................................................................................................................... 56 6.2 HELPING TO BUILD CAPACITY OF KENYA’S COMPETITION INSTITUTION .................................................................... 57 6.3 COMPETITION POLICY AND POVERTY REDUCTION ..................................................................................................... 577: FINDINGS AND POSSIBLE POLICY OPTIONS ................................................................................................... 59 7.1 OVERVIEW ................................................................................................................................................................ 59 7.2 POLICY OPTIONS FOR CONSIDERATION ...................................................................................................................... 62 7.2.1 Replace the Restrictive Trade Practices, Monopolies and Price Control Act with a modern competition law 62 7.2.2 The Monopolies and Prices Commission to be become an autonomous competition authority....................... 62 7.2.3 Competition authority to have a formal advocacy role .................................................................................... 62 7.2.4 Sectoral regimes to be brought within the competition law framework ........................................................... 63 7.2.5 Merger control thresholds and time frames for review to be introduced ......................................................... 63 7.2.6 Consumer protection provisions to be added to the law .................................................................................. 63CONCLUSIONS ............................................................................................................................................................... 64REFERENCES ................................................................................................................................................................. 65 v
  6. 6. ACRONYMSAct : The Restrictive Trade Practices, Monopolies and Price Control Act, Chapter 504 of the Laws of KenyaCommission : Monopolies and Prices CommissionCCK : Communications Commission of KenyaCOMESA : Common Market for Eastern and Southern AfricaEAC : East African CommunityOECD : Organisation for Economic Co-operation and DevelopmentUNCTAD : United Nations Conference on Trade and DevelopmentWTO : World Trade Organization vi
  7. 7. INTRODUCTIONThis report was prepared by George K Lipimile, Executive Director, Zambia CompetitionCommission, and Edward Whitehorn, a Consultant on International Competition Policy, at therequest of UNCTAD. The report is intended to provide a peer review assessment of the work of theKenyan Monopolies and Prices Commission for presentation at the Fifth United Nations Conferenceto Review All Aspects of the Set of Multilaterally Agreed Equitable Principles and Rules for theControl of Restrictive Business Practices to be held in November 2005.The authors have benefited from discussions with the Commissioner and staff of the KenyanMonopolies and Prices Commission and with a wide range of stakeholders in Kenya. The reportdraws on reports prepared for UNCTAD, the World Bank and the OECD, as well as existingliterature on Kenyan competition policy. vii
  8. 8. EXECUTIVE SUMMARY Kenya does not have a consumer protection law in place, and consideration should now beIn the 1980s the Kenyan economy started to given to including such measures in a newmove away from a price control regime with competition law. There are advantages insignificant state intervention towards a market combining consumer protection work witheconomy. The Government recognized the competition policy enforcement, not leastneed to introduce a competition law and the because it allows the competition authority toRestrictive Trade Practices, Monopolies and achieve visible results and to raise its profile inPrice Control Act came into force in 1989. It the community.was intended to be a transitional measure andhas now become outdated. The Commission’s advocacy activities have been limited in scope. This is a seriousThe Act provides for the control of restrictive disadvantage given the importance oftrade practices, collusive tendering, competition advocacy work, particularly in amonopolies and concentrations of economic developing country context, and the lack of apower and for the control of mergers and competition culture in Kenya. Thetakeovers (as well as price control measures Commission should promote the link betweenwhich are no longer used). However, there is competition policy and poverty reduction.no reference to abuse of a dominant position.There is a wide-ranging exemption which The report concludes with policy options forexcludes regulated sectors of the economy consideration. These include replacing thefrom the scope of the competition law. The current Act with a modern competition lawinvestigation of possible contraventions of the and transforming the Commission into anAct is the responsibility of the Monopolies and autonomous competition authority. ThePrices Commission which forms part of the Commission should also be given a formalMinistry of Finance. Decisions on particular competition advocacy role. The regulation ofcases are taken by the Minister. His decisions specific sectors should be brought within thecan be appealed to the Restrictive Trade scope of the competition regime and thePractices Tribunal and from there to the High relationship between the sector-specificCourt. regulators and the Commission should be clarified. Thresholds for merger control shouldThe Commission has 33 staff, 22 of whom are be introduced together with timeframes for thein professional grades. The professional staff review process. Consideration should also beare well qualified, many holding Master’s given to incorporating consumer protectiondegrees in law or economics. The caseload of provisions in the new competition law.the Commission has been relatively light sinceits inception, with 15 restrictive trade practicescases and 22 merger cases handled in 2004.Most restrictive trade practices cases areterminated without a formal publisheddecision and consequently very few consentagreements or orders have been made sincethe Act came into force. The Commissionneeds further capacity building, particularly inthe area of enforcement and case handling.There are many sector-specific regulators inKenya, some of whom have responsibility forcompetition issues. However, it is not clearhow technical regulation of these sectorsrelates to competition issues which arise in thesector. 1
  9. 9. 2
  10. 10. was that the rural societies became underdeveloped.1: CONTEXT AND HISTORY European and Asian minorities came to settle1.1 Colonial rule in Kenya in Kenya during colonial rule. While the former monopolized managerial, professionalKenya’s colonial experience – short as it was – and skilled artisan occupations, the lattertransformed the country in a fundamental controlled much of the country’s middle-rangemanner. From a backward region with a very retail commerce. Both groups were deeplygood climate but few other natural advantages, committed to a private enterprise economy,Kenya underwent a greater change than most although at the same time few of them wereAfrican countries. prepared in 1963 to take out Kenyan citizenship or to invest in long-term projectsThe pre-independence history of Kenya’s essential to the development of the economy.economy can be divided into three phases:pre-colonial subsistence farming, the period of This process could only be set in motion andconsolidation of the extraction of labour and sustained by the establishment of politicalthe penetration of settler farming, and the control and this was achieved by directestablishment of indigenous entrepreneurs. colonial administration. An institutionalThe first phase was marked by stagnation, the framework was created which ensured that thesecond by the steady dislocation of African needs and interests of the settler communityagriculture and traditional social structures, were met and safeguarded under the colonialand the third by the rapid re-organization of rule.the economy. The dominance of agriculture in The colonial administration set up thethe economy, and the presence of a small but mechanisms for the imposition of taxes andassertive settler community led to the the need for cash incomes, the restriction onemergence of European and capitalist land use and limits on the scope for earningdomination with the political, economic and cash outside of wage employment. The growthsocial characteristics of an underdeveloped of cash economy opportunities for commercecolonial settler society.1 Agriculture was at the were largely reserved for European settlers.centre of the colonial capitalist system. Colonial class relations were established inColonialism moulded the developing Kenyan this manner. There was a steady enlargementeconomy in distinctive ways. Although most of a European settler community withof the country continued to be occupied by ownership of the means of production inAfrican peasant farmers, land was also mostly agricultural, in administration and inalienated to settlers. Alienation led both to trading. The majority of Africans wereagricultural production being dominated by peasants or wage earners. The characteristicssettler farmers and to serious land shortages of the pre-independence economy were asamong the African tribes. Agricultural follows:enclaves were developed at the expense of the 1. As agriculture dominated the economy,rural African populations and their mode of the whole system was subordinated toproduction.2 The link between the settlers and its requirements. Being an exportthe African population lay in the need for industry which required only labourcheap labour which could only be obtained by and capital to operate there was noextruding migrant workers from what was at intrinsic reason for agriculture tofirst a moderately self-sufficient subsistence become an engine for growth for theeconomy. The consequence of this process economy as a whole. 2. Although capital investment was considerably high and supported mostly by British commercial and 3
  11. 11. merchant banks established in the The colonial regime further supported the country, foreign ownership and the creation of institutions specifically designed to backwardness of the economy meant safeguard and deliver benefits to the settler that financial benefit did not accrue to community. These included state agencies to the country. There was very little control (and sometimes subsidize) national productive re-investment within Kenya economic activities, such as the Maize Board, during the colonial period. Wheat Board, Dairy Board, Tea Board, Meat3. The agricultural sector was a Commission, Pyrethrum Board, etc., as well as substantially self-contained enclave producers’ organizations established to with few linkages with the rest of the interact with the government in the interest of economy. Basic supplies of their constituents, such as the Kenya Farmers’ implements and manufactured goods Association and the Kenya Cooperative were especially from United Kingdom. Creameries. Even after independence, these There was no necessary spill over of public institutions were maintained and private productive activity to the rest of the associations or cooperatives which were country, as might have been the case mostly dominated at the time by the white with a manufacturing industry. settlers, were converted into quasi-public4. Not only did profits leave the country bodies. This phenomenon was carried over to but also much of the savings and the early post-independence era where the salaries of the expatriate community. government also expanded its involvement in As a result there was only a small productive activities through the establishment internal market for manufactured of new state owned enterprises and goods and higher priced foods. At joint/private ventures in manufacturing and independence, manufacturing commerce. constituted only 7 per cent of GDP. The external orientation of consumption by short-term contract 1.2 State intervention after independence: settler administration staff created a the issues pattern for the settler population, and it The character of the post-colonial state in was an important function of the Kenya can only be understood in relation to colonial administration to facilitate the the country’s colonial history. Although importation of goods and externalizing colonialisation was of a relatively short of financial assets. duration the effect of that experience was overwhelming, especially on the economy.5. African workers, unlike workers in The dominance of foreign capital and the industrialized manufacturing countries, settlers came to set the terms on which the were not consumers of the goods they country’s resources would be used thereafter produced. The realization of even, to a considerable extent, after production did not depend on internal independence. consuming power. Hence, the labour power of the workers could be Kenya attained its independence from Great exploited more, the only limit being Britain in 1963. Unlike other independent the replacement of labour by the African countries in the region, Kenya did not extrusion of new workers from the follow the strict path of ‘African socialism’ in indigenous economy. Thus, the the same way as its neighbour, Tanzania. The maximum extraction of surplus value new Kenyan Government agreed with the was possible as long as the colonial African nationalist economic policies, but social and political conditions opted for a mixed economy that was market remained. based, supportive of the already existing private sector (European settlers), and open to foreign investment. 4
  12. 12. Kenya like other independent states in the expectation of the middle class, organizedregion found that its political capacity was not labour, the peasantry and the masses generally.matched by economic power and that it was Soon after independence the Kenyanindeed firmly in the grip of neo-colonialism. Government began a large-scale programmeThe need for a strong control authority was not of state intervention seeing this as anonly politically convenient but a natural extension of the independence struggle. In theconsequence of the economic policies of the first ten years, the large injection ofcolonial government, which ruled the country investment capital aimed at diversification,prior to independence. The nature of the coupled with the deliberate generation ofchallenge from a foreign-owned economy was demand to stimulate the economy reform,governed by the monopoly character of brought in another dimension in the creationcolonial capitalism which gave exclusive of a large public sector which the Governmentpowers to branches of large transnational claimed as one of its major achievements. As acorporations in various sectors of the result of these measures non-Kenyans wereeconomy. displaced from the commanding heights of theAt independence, the government began to economy and opportunities were opened upstrengthen its own powers, particularly those for individual Kenyan businessmen byof the President, the ruling party, cabinet and restricting certain sectors to nationals. Thethe state apparatus as a whole. In the early government claimed that its moderate policiespost-independence years economic policy in the early years were meant to placate themaking was managed by the Cabinet expatriate community and foreignEconomic Sub-Committee. The state, as a corporations.result, became a considerable force and, until While the interventions of the state in thenot too long ago, was no mere theoretical economy were meant to advance the interestsconstruct, nor a mere ‘relation’, but had a of Kenyans individually and as a nation, theconcrete reality at every level, political, form of that intervention had some relevanceadministrative and managerial. to the outcome. The state intervention took aThe government had since realized that apart form which opened the way to thefrom political independence, there was need to displacement of foreign capital and personnelachieve economic power or economic by largely state controlled and mannedsovereignty. Nationalism was not yet a spent companies with a residual area for Kenyanforce and the government set about resorting private business. The measures led to theto state interventions of all kinds to increase its emergence of a kind of mixed economy with ahold over the national economy. This involved large state sector consisting of the majorthe enhancement of the participation of the industrial enterprises. Proportionally, the stateKenyans in economic life and economic gained command of massive resources whichbenefits while reducing the role of the former seemed to be capable of becoming the enginecolonialists, resident Asians and multinational for industrial growth and all-roundcorporations. The nature of state intervention development.was generally governed by three factors: At each step, the government interventionsFirstly, it was a ‘national’ response to what gave expression to the desire to overcome thewas termed as the foreign exploitation of frustrations of a government intent on pressingmultinational corporations and expatriate ahead with expanding the economy throughowners generally. Secondly, in the virtual industrialization but limited and constrainedabsence of indigenous entrepreneurs, the by the fact that foreign ownership of the major‘national’ initiative was taken by local means of production led in an entirelyKenyans whose only instrument was the state. different direction. Measures were introducedFinally, the government had to act in order to to address the central issue of how the statebe seen to be fulfilling the independence bureaucracy was to establish state control over 5
  13. 13. the main industrial corporations which Government control over the economy wasdominated the economy and turn them into also strengthened through the regulatoryquasi-government bodies, or parastatals. Thus framework and the steady expansion ofthe measures of state intervention were partly controls on domestic prices, interest rates,designed to displace foreign interest thereby foreign exchange controls, imports andstrengthening its own base in the economy. exports. Some of these controls were introduced in response to a rapid succession ofAnother most prominent form of state economic shocks that adversely affectedintervention in the Kenyan economy was price Kenya’s economic situation and prospects,control and other related consumer subsidies. including the capital flight witnessed by theThe use of price controls and consumer country and the industrialization strategysubsidies was seen as a form of social wage adopted by the country in the 1970s. The otherand as a mechanism of redistribution. It was severe shocks which adversely affectedseen as an expression of ‘welfare economics’, Kenya’s economic situation and prospectswhereby the government sought to respond to include the boom-and-bust cycle in coffee anddemands from the mass of the people for tea prices in 1976-1979, and the break-up ofbetter living conditions. The policy of price the East African Community (EAC) in 1977.control was entrenched into the economicsystem of Kenya by the enactment of the PriceControl Ordinance of 1956 renamed the Price 1.3 Economic reformsControl Act of 1956 and revised in 1972. The era of economic policy reforms whichThe other economic policy option which was was characterized by the now famous conceptembraced by Kenya during the post- of ‘structural adjustment’, was introduced inindependence era was that of ‘import 1979. The basic objectives of the structuralsubstitution’. In the same manner as other adjustment programmes (SAPs) as initiallydeveloping countries in 1970s Kenya adopted conceived were to restore the country toan industrialization strategy that was based on macro-economic stability following theimport substitution. This entailed policy disruptions of the economic shocks of themeasures that offered trade protection for 1970s. A common aspiration underlying thesedomestic ‘infant industries’ that were set up to reforms has been that the reduction ofproduce substitutes for previously imported government’s direct involvement orconsumer goods. At the time there was a very intervention in economic activities wouldstrong view that developing countries should revive economic growth through increasedfollow an industrial development policy based resource mobilization and more efficienton import substitution rather than export utilization of resources.promotion because their prospects for This meant, among other policy options,breaking into global markets for manufactured ‘getting the prices right’ such as, eliminatingproducts were very remote, if non-existent. market distortions and increasing competitionState intervention steadily grew in the 1970s, in the domestic economy. The major economicthis was partly because private business did policy adopted by government consisted ofnot fulfil government expectations. The state ‘deregulation of the market’. This requiredsector became increasingly seen as a phasing out public sector monopoly control innationalistic and pragmatic response to the markets for foreign exchange, credit, andbehaviour of private capital. However, the agricultural commodities; and privatisation ofgovernment was also anxious that there should commercial state enterprises. SAPs were alsobe no drastic rupture with foreign interests in adopted that included market-orientedKenya, and the state enterprises form was a reforms, notably in the areas of deregulation ofmeans for allowing a substantial foreign prices, including the reduction or eliminationminority interest to remain in the affected of subsidies, administrative allocation of keycompanies. product inputs, as well as liberalization of 6
  14. 14. trade policy and investment regimes. The In 1982, a Working Party on Governmentreforms also emphasized the importance of Expenditure (WPGE) was appointed by theopening up markets which were traditionally government to advise on the progressiveheavily regulated or operated by a single, often approach to competition. The committee madestate-owned business. Sectors subject to this several recommendations to the governmentinitiative include telecommunication, air and noted that, as government intervention intransport, postal service and energy sectors. the domestic economy via state-owned commercial enterprises was incrementallyTrade policy has been a central aspect of being reduced, the country would need to relystructural adjustment reforms in Kenya since on market options through policies thatthe 1980s. While progress in liberalization of encourage private sector involvement in thethe trade regime has been sporadic, with economy. The committee further warnedperiods of significant progress followed by government that “as private sector activitiesslower movement and even reversals, the final and community effort increase in scope andposition achieved following the major reforms magnitude, opportunities for abuses,of 1993-1994 has brought Kenya firmly into favouritism and exploitation may alsothe group of developing countries with the increase”.most liberal trade and foreign exchangeregimes. In contrast to the pervasive controls In paragraphs 89 to 91 of that report, themaintained through the 1970s and 1980s, and WPGE proposed the character of thethe inefficiencies and rent-seeking that the institutions that were necessary to facilitate thecontrol system perpetuated, the current motion from a largely controlled economy to aeconomic situation in Kenya can be regarded market oriented economy. Paragraph 90as a revolutionary change. specifically stipulated that, “it is, therefore, recommended that legislation with respect toThe contradictions in Kenya’s economic unfair practices be enacted and that apolicies were noted soon after the reforms. By Monopolies and Prices Commission bethe 1980s there was growing sentiment within established to enforce it. This Commissiongovernment and business to pursue economic should also assume the functions of thepolicies that affect competition within the present Price Control Division. TheKenyan economy. Two major criticisms were Commission should be empowered to collectoffered at the time. There was firstly, the annually standardized financial information onrealisation that the establishment of big state all public companies and to investigatecorporations did not lead to a more rational complaints relating to unfair market prices anddeployment of economic resources, Secondly, practices. Such a Commission should havethe advocates of the market economy were quasi-judicial powers analogous to those of thecalling for competitiveness among enterprises Industrial Court, and should be able to imposeand that the public companies were state sanctions for practices in restraint of fair tradeprotected monopolies cushioned against the as defined in the legislation. Essentiallyconsequences of inefficiency. As a result of therefore, the WPGE proposed theirregular and uncertain profitability by the establishment of a competition authority tostate corporations, there were frequent calls specifically administer the competition policy.for greater autonomy for enterprises on the It called for the transformation of the Pricegrounds that this would restore some elements Control department into a competitionof a competitive system free of state authority. The competition function as an‘interference’. added responsibility to the price controlThe government had to react to the mounting function.pressure to change the economic policy. It The recommendations on market orientedresponded by saying that state corporations reform were supported by Sessional Paper No.will have their monopoly status removed and 1 of 1986 on “Economic Management forcentral controls relaxed. 7
  15. 15. Renewed Growth”, which articulated the need Kenya. Other natural monopoly companiesfor a market-driven economy. On the question earmarked for reform include, among others,of competition policy, the Sessional Paper the Kenya Railways Corporation, Kenya Portsnoted that, “at present, Kenya has no Authority, and Kenya Power and Lightingcomprehensive legislation making restrictive Company.practices illegal and no administrative or legalmechanism to prevent them”.Sentiments within government and businesstowards the decline of the economy continuedto grow. For example, pervasive price controlshad become an important part of Kenyaneconomic life in the 1970s and early 1980s.The prices of almost all goods were controlledunder the General or the Specific PriceControl Orders (GPCO and SPCO) establishedunder regulations dating as far back as 1956,and amended in the Price Control Act of 1972.Although the WPGE Report of 1982 WorkingParty did not explicitly mention pricedecontrol, and Sessional Paper No. 1 of 1986argued that some price controls should bemaintained, only suggesting that they be‘streamlined’, the publication of SessionalPaper No. 1 resulted in a reduction of thenumber of goods controlled under both generaland specific orders. This was done by listingthe goods to be decontrolled in the FinanceMinister’s annual budget speech. Pursuant tothe proposals of the WPGE, a bill was draftedand subsequently presented to the legislaturein 1988. This commitment by the governmentresulted in the enactment of the RestrictiveTrade Practices, Monopolies and Price ControlAct, Chapter 504 of the Laws of Kenya of1988. The legislation assigned the Monopoliesand Prices Commission as the primaryenforcement body of the competition policy.By 1994 all price controls had beeneliminated.The Public Enterprise Reforms of 2003-2007have continued with the process ofdisengaging government from commercialactivities that can be performed moreefficiently and effectively by the privatesector. This has included the acceleration onthe ongoing privatisation programme. Forexample, plans are being carried out toliberalize the telecommunication sector, thismay involve the privatization of Telkom 8
  16. 16. Box 1 Chronology of economic developments in KenyaPeriod Description12 December 1963 Kenya’s independence from the United Kingdom.1965 Sessional Paper (SP) no. 10 of 1965, “African Socialism and Its Application to Planning in Kenya.”1966 Central Bank of Kenya established.October 1973 First oil crisis.1976 – 1977 Coffee boom results in erosion of fiscal discipline; subsequent decline in coffee prices worsens balance of payment deficits.August 1977 Break-up of East African Community and common currency area linking Kenya, Tanzania, and Uganda.1979 Second oil crisis1980 – 1983 Loss of fiscal discipline followed by successful, but possibly too abrupt, macro/fiscal stabilization; fiscal control restored by FY 1983; start of flexible monetary and exchange rate policy; beginning attempts at trade liberalization but limited success due to lack of coordination with macroeconomic policies; little progress in cereals market liberalization.January 1980 Launch of structural adjustment program; first Structural Adjustment Credit from World Bank.1984 – 1985 Hiatus in reform efforts and in donor balance of payments support.1984 Severe drought due to failure of rains, requiring massive food grain imports.1986 – 1991 Sessional Paper n. 1 of 1986, “Economic Management for Renewed Growth.” This paper defines policy objectives. Periods of sectoral adjustment programs in agriculture, industry, trade and finance, with renewed donor support. Slow but steady progress in domestic price decontrol and trade liberalization (further elimination of QRs, tariff reform, more active exchange rate management, liberalization of interest rates, improvements in management of financial sector, some initial steps in cereals market liberalization); but decay in fiscal discipline.1986 – 1987 Coffee boom, of lesser impact than 1976–1977.25-26 November 1991 Consultative Group meeting in Paris at which donors decide to suspend balance of payments aid.1991 – 1993 Slowing of reform effort. Reversals of cereals market liberalization but continued progress in domestic price decontrol; tariff rationalization plus introduction of ad hoc measures for limited liberalization of foreign exchange market. But weak overall reform effort, growing political problems, and donor concerns over governance and corruption lead to suspension of balance of payments support from November 1991 to mid-1993.1993 – 1995 Resumption of reform effort, particularly trade and exchange rate policy. Complete liberalisation of foreign exchange market, end to import licensing, further tariff reform; completion of domestic price decontrol; only limited progress in reform/privatisation of state-owned enterprises, civil service reform. Resumption of donor balance of payments support from mid-1993.December 1995 Repeal of Exchange Control Act to complete liberalization of trade regime.1996 – 1998 Again, slowing of reform effort. Government maintains liberalized trade and exchange regime, interest rates, decontrol of domestic prices. Fiscal and monetary policy are reasonably well managed, but structural problems in budget, state enterprise sector, civil service, and agricultural sector institutions are not adequately dealt with. Result is suspension of new IMF ESAF in July 1997, cancellation of World Bank SAC in June 1998. 9
  17. 17. 10
  18. 18. 2: SUBSTANTIVE ISSUES: CONTENT services. There are no turnover thresholds.OF THE COMPETITION LAW Mergers falling within the ambit of the Act require an order from the Minister authorizingKenya’s competition law is contained in the the transaction. Applications for an order areRestrictive Trade Practices Monopolies and investigated by the Commissioner who isPrice Control Act (Chapter 504 of the Laws of required to take wide public interest criteriaKenya) which came into force on 1 February into account and then makes a1989. The Act replaced the Price Control Act recommendation to the Minister.which was repealed, but the previous pricecontrol provisions were incorporated into thenew law which was intended to be a 2.1 Restrictive trade practicestransitional measure to allow Kenya to move The provisions relating to restrictive tradefrom a price control regime to a competitive practices are contained in Part II of the Act. Inmarket economy. The intention was that the section 3 a restrictive trade practice is defined“government will rely less on instruments of as “an act performed by one or more persons”direct control and increasingly on competitive which eliminates opportunities to participate 3 in the market or to acquire goods and services.elements in the economy”. It therefore encompasses both unilateralPart IV of the Act relating to the control and conduct and agreements. The elimination ofdisplay of prices has not been used since 1994 opportunities is to be measured with referencewhen petroleum products were the last item to to the situation that would have obtained in thebe removed from the price control regime. absence of the practices in question. This is anThis part of the Act will not be considered unusual definition of anti-competitive conduct,further in this report. although it is elaborated by a list of categoriesThe Act provides for the control of restrictive of conduct which are declared to be restrictivebusiness practices which cover both unilateral trade practices.conduct and agreements. However, there are There is also a wide-ranging exemption inno provisions relating to dominance in this section 5. Under this section, trade practicespart of the Act and in relation to conduct, there are exempted from the provisions of the Act ifis no distinction between dominant and non- they are directly and necessarily associateddominant companies. Complaints about anti- with the exercise of exclusive or preferentialcompetitive conduct are made to the Minister trading privileges conferred by an Act ofthrough the Commissioner. Parliament or by an agency of the GovernmentWhere more than one third of a market is acting under an Act of Parliament. Alsocontrolled by a single entity or there is vertical exempted are trade practices which areintegration between manufacturing, directly and necessarily associated with thewholesaling and retailing, the unusual licensing of participants in certain trades andprovisions relating to unwarranted professions by agencies of the Governmentconcentrations of economic power become acting under an Act of Parliament.applicable. Such concentrations can be The exemption has the effect of removing theinvestigated at the request of the Minister. public sector from the scope of the Act. TheThere are merger control provisions which utility sectors, for example, come within thisapply to certain mergers which involve exemption and are therefore not subject to thecompanies dealing in similar commodities or general competition law. It goes wider than the public sector to exempt trade practices which3 Sessional Paper No. 1 of 1986 on “Economic relate to the licensing of participants in certainManagement for Renewed Growth”, paragraph 2.53. trades and professions. 11
  19. 19. The enumeration of restrictive trade practices association members are free to follow the(in section 6) includes nine categories of recommendation or not, as they choose.agreements. The list includes many of the However, if a member expressly notifies thetypes of agreements which are often the association in writing that he or sheconcern of a competition law. They include disassociates himself or herself entirely fromcartels, resale price maintenance, quantity an agreement or recommendation, thatrebates, discrimination and market sharing. member will not be deemed to be a party to the restrictive trade practice.Cartels relating to prices or the terms on whichbusiness is transacted are mentioned The Commission succeeded in ending a pricespecifically and the parties to the agreements fixing scheme in the insurance industry (seecan be manufacturers, wholesalers, retailers or box 2). Following an investigation, thecontractors. Resale price maintenance (or the Commission established that the Associationimposition of conditions of sale) is deemed to of Kenya Insurers (AKI) was makingbe a restrictive trade practice when engaged in recommendations to its members concerningby manufacturers or wholesalers. premiums rates to be charged. A consent order was agreed in April 2003 whereby the AKIDiscrimination constitutes a restrictive trade agreed to withdraw its recommendations andpractice when sellers agree not to sell not to issue any further rate recommendations.particular goods to buyers or any class ofbuyers, or when resellers agree not to buyparticular goods from sellers or any class ofsellers. Furthermore there cannot be anagreement to employ or to restrict or favourthe employment of any method, machinery,process, labour, land or other resources.Finally, market sharing is deemed to be arestrictive trade practice, as is any agreementto limit or restrict the output or supply of anygoods, or to withhold or destroy supplies ofgoods.Any agreement or arrangement falling withinany of the above categories is not enforceablein legal proceedings. However, theseprovisions do not apply to an agreement orarrangement between consumers relating togoods which are bought by them forconsumption and not for resale.Where an agreement is made by a tradeassociation, the agreement is deemed to havebeen made by the association and by all itsmembers (section 6(4)). There follows, insection 7, a list of practices which, whenconducted by a trade association, are declaredto be restrictive trade practices. The practicesinclude the unjustifiable exclusion of anyperson, and making direct or indirectrecommendations to association membersrelating to prices or terms of sale. Theprovisions apply regardless of whether the 12
  20. 20. Box 2 Price fixingFollowing complaints about high insurance premiums, particularly in the transport sector, theCommission initiated an investigation. The Association of Kenya Insurers (AKI) is one of the strongestindustry associations in Kenya in terms of financial resources and has all of the major actors of thecountry’s insurance industry as members.The Commission made a breakthrough and obtained a copy of the AKI Motor Rating Schedule dated 4June 2002 which set rates, terms and benefits to apply to all motor policies issued after 1 July 2002.The Commission also obtained a copy of AKI Resolution 07/2002 wherein it was resolved and agreedthat other supplementary rates would apply with effect from 1 January 2003.The AKI was therefore asked to answer allegations that it had been making, directly or indirectly,recommendations to its members which relate to the prices charged or to be charged by its members.The AKI responded by claiming that it was exempt from the provisions of the competition law by virtueof section 5, and furthermore pointed out that the industry was regulated by the InsuranceCommissioner who had requested rating guidelines on all classes of general insurance business.However, the AKI negotiated a consent order with the Commission, under section 15(3) of the Act, andon 23rd April 2003 it was agreed that:1. The Association of Kenya Insurers undertakes to withdraw, with immediate effect, all its present and past decisions on premium rates which purport to recommend prices chargeable for insurance services by its members. The Association of Kenya Insurers also undertakes to desist from making such decisions and from issuing such premium rates recommendations in future.2. The Association of Kenya Insurers undertakes to observe, with effect from the date of this consent agreement, all the provisions of the Restrictive Trade Practices, Monopolies and Price Control Act.3. The Association of Kenya Insurers will diligently and strictly observe the terms of this Consent Agreement in order to compensate for the past effects of the said past decisions. 13
  21. 21. These restrictive trade practices are essentially inferred that successful execution of theagreements between two or more parties. The practice would be followed by that outcome.next three sections of the Act deal with The section then lists the five types of conductunilateral conduct, but the scope of the which are included in the definition ofsections is not confined to parties with a predatory trade practices, namely: selling atdominant position on the market. Refusal or prices below average variable cost; offering adiscrimination in supply is treated as a discount on condition that the purchaser doesrestrictive trade practice in sections 8 and 9 of not purchase goods or services from somethe Act. Discrimination is defined in terms of other person; threatening an existing orproviding less favourable conditions than are potential competitor if that competitor carriesavailable to third parties. The conditions of out a lawful trade practice or purchases goodsale or supply which are deemed to be less or services from a third person; or offeringfavourable are specified and include delays in inducements to, or threatening, suppliers tomaking goods or services available, supplying withhold supplies or to furnish them on termsat higher prices, or on less favourable credit and conditions that discriminate against aterms. In a situation of shortage (for example, competitor.because of import restrictions), discriminationalso includes supplying less than a normalproportionate share of the goods or services. 2.2 Collusive tenderingRefusal to sell or supply, or to continue to sell Collusive tendering is prohibited by section 11or supply, by a manufacturer, wholesaler, that makes it an offence which is punishableretailer or supplier of services, is deemed to be by a fine or imprisonment, or both. Thea restrictive trade practice. offence is committed when two or moreSection 9 sets out specific instances of refusal persons, being either manufacturers,or discrimination in supply which are deemed wholesalers, retailers, contractors or suppliersto be restrictive trade practices. The conduct of services, agree the terms of their bids orincludes refusing to sell or supply intermediate agree to abstain from bidding. It is also anproducts to downstream processors, forcing offence to collude when bidding at an auctionpurchasers to buy other goods or services as a (section 12).condition of supplying, selling goods orsupplying services on condition that thepurchaser sells or arranges the sale of second- 2.3 Monopolies and concentrations ofhand goods to the seller or a person nominated economic powerby him, or imposing resale price maintenance Part III of the Act deals with concentrations ofas a condition of supply. economic power and mergers and takeovers. The Minister of Finance is required (byPredatory pricing and related conduct is dealt section 23) to keep the structure of productionwith in section 10 of the Act. Predatory trade and distribution of goods and services inpractices are defined in relation to an intention Kenya under review to determine whereto drive a competitor out of business or to unwarranted concentrations of economicdeter a person from establishing a business, or power exist. Such concentrations are thoseto induce a competitor to dispose of a business whose detrimental impact on the economy out-or shut down any facility, or to induce a weighs the efficiency advantages, if any, ofperson to desist from producing or trading. It integration in production and distribution.is further provided that a predatory tradepractice is deemed to have been committed The Minister is directed to pay particularwith the requisite intention if any outcome attention to various factors. These includedescribed above occurs subsequent to the situations where a person controls a chain ofoccurrence of the practice, or if it may be distributing units the value of whose sales exceed one third of the relevant market for those goods, which can be a national or 14
  22. 22. regional or urban market. A second scenario such orders have been made since the Actinvolves a situation in which a person who came into force.controls two or more physically distinct unitswhich manufacture substantially similarproducts, supplies more than one third of the 2.4 Control of mergers and takeoversdomestic market. Thirdly, where a person has Mergers and takeovers which involve two ora beneficial interest, exceeding 20 per cent, in more independent enterprises engaged ina manufacturing enterprise, and manufacturing or distributing substantiallysimultaneously has any beneficial interest in similar commodities, or supplyingone or more wholesale or retail enterprises substantially similar services, are subject towhich distribute products of the manufacturing control under section 27 of the Act. All suchenterprise. Fourthly, where a person has a mergers and takeovers require an authorizingbeneficial interest, exceeding 20 per cent, in a order issued by the Minister. Failure to obtainwholesale distributing enterprise, and such an order means that the merger orsimultaneously has any beneficial interest in takeover has no legal effect and is an offenceone or more retail enterprises which distribute punishable by a fine or imprisonment, or both.goods of that wholesale enterprise. Application for an order authorizing a mergerThe Minister may direct the Commissioner to or takeover is made to the Minister through theinvestigate any economic sector which he has Commissioner who then investigates thereason to believe may feature one or more application and makes a recommendation tofactors relating to unwarranted concentrations the Minister. In evaluating the application forof economic power. the purpose of formulating a recommendation, the Commissioner must have due regard to theAn unwarranted concentration of economic criteria set out in section 30.power is deemed to be prejudicial to the publicinterest if it: (a) unreasonably increases the There are three broad evaluation criteria. Theycost of production, supply or distribution of are in the nature of public interest criteriagoods or the provision of any service; (b) which extend beyond competition concerns.unreasonably increases the price at which The first criterion is that a merger or takeovergoods are sold or the profits derived from the will be advantageous to Kenya to the extentproduction, supply or distribution of goods or that it will result in a substantially moreservices; (c) reduces or limits competition in efficient unit with lower production costs andthe production, supply or distribution of any greater marketing thrust, thus enabling it togoods or services; and (d) results in a compete more effectively with imports, anddeterioration in the quality of any goods, or in expand Kenya’s exports and therefore increasethe performance of any service. employment. The second is that the transaction will be disadvantageous to theAfter receiving a report from the extent that it reduces competition in theCommissioner, the Minister may make an domestic market and increases the ability oforder directing any person whom he considers producers of the goods or services in questionto hold an unwarranted concentration of to manipulate domestic prices due toeconomic power to dispose of such portion of oligopolistic interdependence. The third is thathis interests as the Minister deems necessary the transaction will be disadvantageous to theto remove the unwarranted concentration. A extent that it encourages capital-intensivedisposal of interests under such an order may production technology in lieu of labour-involve the sale of all or part of a person’s intensive technology.beneficial interest in an enterprise or the saleof one or more units controlled by the person. The Premier Food Industries case (see Box 3)A person against whom an order is made, may demonstrates how the Commission wasappeal to the Restrictive Trade Practices concerned about the employment effects of aTribunal and from there to the High Court. No proposed merger, even in the absence of 15
  23. 23. competition concerns. The Commissionrecommended that the merger be approved oncondition that the acquirer retained theexisting workforce of the two targetcompanies. 16
  24. 24. Box 3 Merger ControlPremier Food Industries Limited applied to the Monopolies and Prices Commission on 21 November2002 seeking approval to acquire the assets of Trufoods Limited and Kabazi Canners Limited. Itsbusiness operations involve manufacturing, processing and selling of processed fruits, vegetable productsand beverages. Trufoods Limited is a local private company manufacturing food products. KabaziCanners Limited is also a limited local private company and also manufactures food products.Trufoods Ltd and Kabazi Canners had interlocking directorships and shareholders and the directors andshareholders were the same for both companies.The three firms had a very wide distribution network which involved over 200 distributors spread acrossthe country. The companies also had numerous competitors in the same market. More competition wasposed by importers. Numerous jua kali sector [informal sector] players were also involved in thisbusiness.Over 30 companies were operating in this sub-sector and none had any appreciable control of the marketin any particular product. Therefore, the takeover was unlikely to lead to any dominance by PremierFoods Limited. Premier’s estimated market share of about 10 per cent did not pose any competitionconcerns.The proposed new entity would safeguard employment. At the time the takeover application wasconsidered, Premier employed 223 people (of these 90 were casual labourers and 133 were permanentmembers of staff), Trufoods had 192 (113 casual/contract workers, 86 permanent workers), Kabazi 159casual/contract workers and 69 permanent workers. The two target firms were experiencing difficultiesbecause of their outdated technology which was on the verge of becoming redundant and this meant thatthey faced the danger of closing down. The takeover looked likely to salvage this situation and thusensure that those persons already in employment would retain their jobs. The services of the staff of thetwo target firms, it was agreed, would be transferred to Premier Foods Limited.It was, therefore, recommended that the takeover be approved on the following conditions:1. Trufoods Limited and Kabazi Canners Limited would pay all their pre-takeover employees their full employment benefits in accordance with the contractual arrangements governing their employment.2. Premier Food Industries Limited would introduce new employment contracts for the employees of the two other companies who wish to become its employees. 17
  25. 25. An order made by the Minister may approveor reject the application or it may approve theapplication on condition that certain steps aretaken to reduce the negative effects of themerger or takeover on competition. The orderis published in the Gazette and an appeal canbe made to the Restrictive Trade PracticesTribunal and from there to the High Court. 18
  26. 26. The Act provides for four enforcement3: INSTITUTIONAL ISSUES: institutions namely: the Office of the MinisterENFORCEMENT STRUCTURES AND of Finance, the Office of the Commissioner forPRACTICES Monopolies and Prices; the Restrictive Trade Practices Tribunal; and the High Court of3.1 Competition policy institutions Kenya.During the enactment of the law, thegovernment concluded that competition law,of which the Restrictive Trade Practices,Monopolies and Price Control Act, Chapter504 is the principal legislative centre piece,was a piece of economic legislation andshould fall under the responsibility of theMinistry of Finance.This form of institutional arrangement hasattracted substantial comments fromstakeholders with respect to the need to havean independent competition authority. Themajor theme of this debate is whether thedecisions of the competition authority shouldbe binding or remain recommendations subjectto the approval of another authority, in thiscase the Minister outside the competitionauthority. Are the decisions of the authoritybased on sound competition principles withoutpolitical or government interference, given thecurrent decision-making process? To whatdegree should the government be given thepower to intervene in the functions of theCommission?Institutional autonomy, freedom from politicalinterference in the Commission’s activitiesand the ability to exert influence on theCommission’s decisions are sometimes seenas interrelated. Thus, a highly autonomouscompetition authority is assumed to stand freefrom political influence on decisions andinitiatives. On the other hand, a competitionauthority close to the government, and perhapsinvolved in the political agenda, might bepositioned to have a stronger influence andinput in government programmes which maybe to the benefit of competition.The situation in Kenya is quite elaborate. Theinstitutions for competition law enforcementare closely linked to the central governmentthrough the Ministry of Finance. 19
  27. 27. Box 4COMPETITION ENFORCEMENT INSTITUTIONS HIGH COURT OF KENYA RESTRICTIVE TRADE PRACTICES TRIBUNAL MINISTER OF FINANCE COMMISSIONER OF MONOPOLIES AND PRICES 20
  28. 28. 3.2 Office of the Minister of FinanceThe Act gives the overall powers to administerand enforce competition law and policy to theMinister of Finance. Section 3(2) of the Actsubjects the Commissioner for Monopoliesand Prices to the absolute control of theMinister. The Office of the Minister ofFinance is the supreme organ in theadministration of competition law. TheMinister possesses absolute power to makeorders in all aspects of restrictive tradepractices, control of concentrations ofeconomic power, as well as orders relating tomergers and takeovers.Although the Minister is expected to seektechnical advice of the Commissioner inenforcing competition law, this has in certaincircumstances created regulatory uncertainty.For instance, the Minister has on certainoccasions disregarded the advice or notconsulted the Commissioner. The Act does notmake it mandatory for the Minister to seek theadvice of the Commissioner. 21
  29. 29. Box: 5 - THE FINANCIAL STANDARD Tuesday 4 September 2001 Okemo, Kijirah in dilemma Presidential order has put the duo on the spot By Mutahi MureithiThe saga surrounding the acquisition of Machakos-based East Kenya Bottlers by a South Africancompany, Coca-Cola Sabco took a new turn last week following an order by President Moi thatforeigners should not be left to control local companies.On the spotlight is Finance Minister Chris Okemo and the Commissioner of Monopolies, JustusKijirah, who gave the go-ahead for the takeover, despite loud protestations from indigenous bottlers.The South African company was also said to be making plans to acquire two other bottlers, whichwould give it a 70 per cent stake in the entire carbonated soft drinks market. This would be contraryto the monopoly laws that guard against such a stranglehold on a market, by one firm, while thereare other equally competent, and cash rich firms, trying to get a foothold.It is now emerging that when Sabco acquired total share-holding in Flamingo Bottlers in 1997, therewas an express proviso, by the Commissioner of Monopolies, that it would not acquire any otherplant at any time so as not to have too tight a hold on the market.Kijirah, at the time said that “future applications (by Sabco) for consummation of takeovers/mergersof existing bottling firms in Kenya by M/S Coca-Cola Sabco or its subsidiary firms will not beentertained.”In fact, as late as last year, the then Permanent Secretary in the Ministry of Finance, Martin OdourOtieno, also wrote to the chairman of East Kenya Bottlers, Muriuki Mugwandia, asserting that thestatus quo (that Sabco would not be allowed to acquire any other plant) prevailed. “This conditionhad not been lifted and as such, sales of existing Coca-Cola bottling plants in the country to M/SCoca-Cola Sabco cannot therefore be considered,” said Otieno. He advised the chairman to eitherfloat the company or identify another buyer “if the shareholders have decided that they must divestfrom carbonated soft drinks manufacturing.”Although investors of East Kenya Bottlers, the firm at the centre of the row, may have wanted out,there are indications that the local independent bottling plants wanted to buy the plant, and had evenmade budgetary allocations for the buyout.Early last month, the independent bottlers delivered a memorandum to the Finance Minister, inwhich they expressed their fears and apprehensions about the Sabco/East Kenya deal.The bottlers told Okemo they did not understand how he could have given the go-ahead to the deal,especially in light of the fact that the bids had been rejected twice in the last three years. The feelingwas that the investors were being let down by the Government in their hour of need. The bottlersnow say that the gazetting of the deal has place Sabco in a much stronger position – contrary to anearlier position where the firm had indicated it would not control over 59 per cent of the market if aconsolidation plan mooted by it was affected. 22
  30. 30. There are specific provisions in the Act which comparable public administrative bodies in thebestow certain powers on the Minister. Under country. Building this institutional apparatussection 17 of the Act, the Commissioner is will require that the competition authority’srequired to submit his recommendations to the position within the government be re-Minister after his investigation in an allegation established. First of all, the competitionof a restrictive trade practice. Such a authority would have to be delegated therecommendation shall also include the record power to implement competition policies atof the hearing. The Minister upon receipt of the national level. The competition authoritysuch a recommendation may under section 18 would need institutional support to implementmake an order through a notice in the Gazette, and enforce competition policy effectively.prohibiting a restrictive trade practice or order Secondly, those government policies that havecertain steps to be taken to address the the potential to maximise competition policycompetition concerns. effects when combined, such as consumer protection, should be integrated withFurther, the Minister under section 23 of the competition policy. Thirdly, the relationshipAct is required to keep the structure of between the competition authority andproduction and distribution of goods and regulatory bodies in the various sectors shouldservices in Kenya under review to determine be redefined.where concentrations of economic powerexists whose detrimental impact on the It is important that the competition authority iseconomy outweighs the efficiency advantages. functionally and operationally independentIn carrying out this function, the Minister may from government. If this independence is notunder section 24(1) of the Act make an order achieved, both in fact and in the perception ofdirecting any person whom he deems to hold the community, the competition authority willan unwarranted concentration of economic be, or be seen to be, influenced by the politicspower in any sector to dispose of such portion of the government of the day, and thereforeof his interests in production or distribution or subject to other political agendas. Such athe supply of services as he deems necessary situation need not necessarily be in the interestto remove the unwarranted concentration. of competition and achieving competitive market outcomes. Without independence, theThe Minister has also been given powers to agency may lack credibility and theapprove mergers and takeovers. Section 27 of community will not have the requisite degreethe Act requires prior merger notification to of faith that their complaint or problem will bethe Minister for any intended merger or dealt with in a fair and reasonable manner.takeover. The Commissioner is required under Without this element of trust, the result maysection 30 of the Act to evaluate an application be a sceptical public and an ineffectiveof a merger and submit the same and his regulator.recommendation to the Minister for approval,pursuant to section 28 of the Act.The elaborate powers given by the Act to theMinister have raised concerns to manystakeholders. It has been felt that this hasweakened the effectiveness of the law and hadled to wrong perceptions. The current debate isas to whether the Commission should beindependent or autonomous.It is accepted that the design of a competitionauthority is linked to the traditions andinstitutional structure of the country, and couldnot, or only with difficulty, be set up in adifferent way than is customary for 23
  31. 31. Box 6 Best practice features of a competition authority • Independent, insulated from political interference. • Transparent, well-designed administrative mechanisms, regulations and procedures. • Separate investigation, prosecution and adjudication functions. • Checks and balances with rights of appeal, reviews of decisions, and access to information on legal and economic interpretations. • Expeditious and transparent proceedings which safeguard sensitive business information. • Provisions for imposing significant penalties.3.3 Office of the Commissioner ofMonopolies and Prices Consequently, the situation exists whereby theSection 3 of the Act establishes the Office of administrative function of the Commissionerthe Commissioner of Monopolies and Prices. is shared with the Ministry whereas the lawThe Commissioner, subject to the control of enforcement function is shared with thethe Minister, is responsible for the control and Minister of Finance. In practice, themanagement of the competition authority. The Commissioner’s powers are neitherCommission is the regulatory authority with independent nor absolute. The Commissionerprimary responsibility for enforcing the is placed under the general supervision of theprovisions of the Act. Its broad authority Permanent Secretary in the Ministry ofincludes oversight of both the competition and Finance. What is important is that theprice control provisions of the legislation (the Commissioner’s decision-making processprice control function is now discarded). should be free of political influence and be based on sound competition principles.The Act clearly states under section 3(2) thatthe Competition Authority is a Department of The powers of the Commissioner as spelt outthe Treasury. The Competition Authority’s in the Act consist of receiving complaintsindependence or autonomy is therefore not from aggrieved parties, investigatingassured as it falls under the authority of the complaints, hosting of public hearings,government. The actual appointment of the evaluation of cases and makingCommissioner is not provided for under the recommendations to the Minister of FinanceAct. It can be assumed that the Commissioner for the final determination. Section 14 of theis appointed under the general civil service Act provides for the powers of theconditions which govern any other Commissioner to investigate any complaintgovernment employees. In fact, all the from any person who considers his or herselfprevious Commissioners and the current one aggrieved as a result of a restrictive tradewere recruited through the civil service practice. The Commissioner may also in thisprocedure. instance initiate investigations. In carrying out his investigative duties, the CommissionerThe other staff and officers of the Competition may authorize any person in writing to haveAuthority are appointed under the government access to documents or enter premises.civil service system. They regard themselvesas government employees working for the The Act provides for elaborate powers givenMinistry of Finance. They perceive the to the Commissioner in the performance of hisCommissioner as an institutional head, as they duties and investigations involving restrictivecan still refer any personnel matter affecting business practices, unwarranted concentrationsthem to the Ministry for remedy. of economic power and assessment of mergers and takeovers. These powers shall be 24
  32. 32. elaborated when we later consider theenforcement procedures and practices.The Ministry of Finance plays a veryimportant policy and legislative role, and alsoplays a role in staff appointments. TheTreasury is also responsible for the budget ofthe Competition Authority. 25
  33. 33. Box 7 Structure of the Commission Minister of Finance and Planning Permanent Secretary in the Ministry of Finance and Planning Monopolies and Prices CommissionerAdministration Enforcement Investigation Legal Economic Division Division Division Division Division Restrictive Trade Practices Tribunal High Court of Kenya/Court of Appeal 26
  34. 34. 3.4 The Restrictive Trade Practices Minister under section 31, the merger orTribunal (RTPT) takeover to which the appeal relates to may not be consummated pending thePursuant to section 64(1) of the Act, a determination of the appeal.Restrictive Trade Practices Tribunal was Since the Competition Authority wasestablished in 1991. The composition of the established, only one appeal case has beenTribunal is as follows: the Chairman who must presented to the Tribunal. In fact, the currentbe an advocate of the High Court of Kenya Tribunal has neither administratively norand of not less than seven years standing, and considered a case referred to it in the timefour members. The Act does not prescribe any since it was first appointed. It is very doubtfulqualifications for the other four members. if its existence is known by the businessHowever, the members of the Tribunal shall community. A discussion with its chairpersonhold office for five years and may be re- revealed that, since their appointment, theyappointed for another five-year term. have not met.It would appear that once constituted by the The non-operation of the Tribunal can beMinister of Finance, the Tribunal shall operate partly attributed to the general low level of theindependently of the office of either the activities of the Competition Authority. TheMinister of Finance or the Commissioner. The number of decisions which can be appealedTribunal operates as a collegial body, although has been comparatively low. There have alsoit is not a formal court. The quorum for a been suggestions that, as the Tribunal ismeeting of the Tribunal shall be the chairman appointed by the Minister and adjudicates onand two other members. The Minister, under the Minister’s decisions, the would-be users ofsection 64(5) may make rules prescribing the the Tribunal system have no confidence in themanner in which an appeal shall be made to system. The independence of the Tribunal isthe Tribunal and the fees to be paid in respect doubted.of an appeal. The Minister may also makerules prescribing the procedure to be adopted The lack of awareness of the existence of theby the Tribunal in hearing an appeal, and the Tribunal by the business community has alsomanner in which the Tribunal shall be contributed to its non-performance. Amongstconvened and the location and time where the most of the people interviewed there was asitting shall be held. general lack of knowledge of the institutions involved in competition law administrationSection 25(1) provides for a person aggrieved and enforcement, although they knew theby an order of the Minister to dispose of existence of the Competition Authority.interests to appeal to the Tribunal in theprescribed form. The Tribunal also receives Further, the functions of the Tribunal are notappeals against orders of the Minister made specific and clear from the Act. Itsunder section 18 of the Act. Consequently, the establishment is not provided for fully in theprincipal function of the Tribunal is to Act. For example, it has no secretariat, noarbitrate over competition disputes resulting premises or building, no budget, and doesfrom ministerial orders made on the work on a full-time basis. It has beenrecommendation of the Commissioner. described as ‘a practically redundant body’.Section 67(3) gives the Tribunal powers to The suitability of the Tribunal system isoverturn, modify, confirm, or reverse the order examined below when considering the judicialappealed against. Under section 68 of the Act, system in Kenya.the Tribunal may direct the Minister toreconsider the matter, rather determine anyappeal. 3.5 The High Court of Kenya Section 25(2) provides for the party who isWhen appeals are brought to the Tribunal dissatisfied with the decision of the Tribunalunder section 32 against any order of the to appeal to the High Court against that 27

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