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Succession process among africa owned business kenya 1 Document Transcript

  • 1. UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENTVOLUNTARY PEER REVIEW ON COMPETITION POLICY: KENYA UNITED NATIONS New York and Geneva, 2005
  • 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. 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. 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. 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. 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. 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. 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. 2
  • 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. 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. 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. 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. 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. 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. 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. 10
  • 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. 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. 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. 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. 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. competition concerns. The Commissionrecommended that the merger be approved oncondition that the acquirer retained theexisting workforce of the two targetcompanies. 16
  • 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. 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. 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. Box 4COMPETITION ENFORCEMENT INSTITUTIONS HIGH COURT OF KENYA RESTRICTIVE TRADE PRACTICES TRIBUNAL MINISTER OF FINANCE COMMISSIONER OF MONOPOLIES AND PRICES 20
  • 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. 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. 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. 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. 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. 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. 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
  • 35. decision within thirty days after the date on from engaging in cartels or anti-which a notice of that decision has been served competitive practices; andon him; the decision of the High Court shall be (ii) adequate enforcement powers andfinal. The law further provides that any institutions, including powers to obtainappellants to the Tribunal under sections documents and information.20(1), 25(1) and 31(1) in respect to theministerial orders made pursuant to the Enforcement issues represent one of the mainprovisions of sections 18(1), 24(1) and 31(1) difficulties in introducing competition law.respectively, may appeal to the High Court of The available enforcement capabilities andKenya if dissatisfied with the decision of the approaches must dictate the substantiveTribunal, approach of the law. It would be counter- productive to introduce a sophisticated pieceThe High Court of Kenya is part of the of legislation that would be difficult orjudiciary, and is required by virtue of the impossible to enforce by the competitionprinciple of separation of powers embodied in authority. However, establishing an efficientthe Kenyan Constitution, to be independent enforcement agency capable of implementingfrom the executive and the legislative branches sophisticated competition legislation should beof the Government. In order to ensure the seen as a long-term objective. Evenindependence of the judiciary, there are competition authorities in developed countriesconstitutional restrictions on the appointment, had many years to perfect their enforcementconditions and tenure of High Court Judges. capabilities.However, there have not been competitioncases which have been appealed to the High The key provisions of the Act related toCourt since the establishment of the enforcement can be placed in the followingCompetition Authority. This again, can be three categories:attributed to the lack of a competition culture • Enforcement procedures for restrictivein Kenya. It is important to observe that the trade practices (RTP) complaintsHigh Court is not a specialized Court for (Box 8).competition cases. Just like in otherjurisdictions, it shall be rare to find judges • Enforcement procedures for the controlwho have experience in adjudicating of unwarranted concentrations ofcompetition cases. This also extends to economic power (Box 9).lawyers in practice. For competition law is still • Enforcement procedures for the controlregarded as a new field. The country is still in of mergers and takeovers (Box 10).the process of developing its own expertise inthe field. 3.7 Restrictive trade practices In relation to restrictive trade practices,3.6 Competition law enforcement: sections 13-20 of the Act give a detailedprocedure and practice procedure to follow when carrying outThe Commission is established by the Act and inquiries and investigations into restrictivehas a number of responsibilities including the trade practices.power to enforce the Act. There is now ageneral consensus that countries should ensure In the case of restrictive trade practices anythat their competition laws effectively halt and aggrieved person may submit a complaint todeter anti-competitive practices, more the Minister, through the Commissioner, in theespecially hardcore cartels, by providing for: prescribed form. The Commissioner investigates the complaint and may inform the (i) effective sanctions, of a kind and level, target of the complaint about the allegations adequate to deter firms and individuals and the evidence adduced, and invite that person to comment on the allegations and the 28
  • 36. evidence, and indicate what remedies theperson would propose in order to bring histrade practices into conformity with the law.The Commissioner may also inform the personcomplained against that the weight of theevidence supports the allegations that havebeen made and request the person in questionto take specific steps to discontinue thepractice; in addition, the person may have tocompensate for the past effects of suchpractices by taking positive steps to assist oneor more existing or potential suppliers,competitors or customers to participate fully inproducing or trading in the goods or servicesto which the allegations relate.In case there is no response to theCommissioner’s communication by a givendate or any remedial action taken is deemed bythe Commissioner to be inadequate, theCommissioner is required to invite the personto negotiate a consent agreement whichenjoins that person to desist from specifiedpractices and to compensate for their pasteffect. Such an agreement is gazetted andcopies sent to any person complaining of thesaid practice/s and to any other persons theCommissioner deems to be affected by theagreement.Should the preceding measures not beeffective, either because of lack of satisfactorysteps or because of a breach of the agreement,the Commissioner then informs the person inquestion that he proposes to recommend thatthe Minister make an order regulating thepractices in question and that a hearing on thedesirability will be held on a specified date.Upon concluding the requisite investigationsunder section 16, including the holding of ameeting, the Commissioner presents his reporttogether with recommendations to theMinister. 29
  • 37. Box 8 Enforcement procedures for restrictive trade practices (RTP) complaints Aggrieved party complains to Commissioner Commissioner Acknowledgement of receipt of complaint Commissioner initiates investigation on suspected RTP Investigations Complaint dismissed Offender informed about the complaint(s) Offender invited to Hearing/Defence Order to desist from practice/compensation Consent agreement signed/gazetted Offender continues malpractice and breaks agreement Case forwarded to Minister and offender informed Minister’s orderOffender complies RTP Tribunal: For appeals against Minister’s order High Court: For Appeals against RTP Tribunal Ruling – Decision final 30
  • 38. 3.8 Control of unwarranted concentrationsof economic powerIn the case of abuse of monopolies anddominant positions, the Minister directs theCommissioner to investigate any economicsector which features one or more factorsrelating to unwarranted concentrations ofeconomic power. The Commissioner thenreports back to the Minister who may make anorder directing any person he deems to hold anunwarranted concentration of economic powerin any sector to dispose of such portion of hisinterests in production or distribution orsupply of services as the Minister deemsnecessary to remove the unwarrantedconcentration. Any aggrieved person mayappeal to the Restrictive Trade PracticesTribunal and finally to the High Court.A concentration may arise where two or moreindependent undertakings merge or where oneor more undertakings acquire direct or indirectcontrol of the whole or parts of one or moreother undertakings. Many of these types oftransactions will therefore fall within themerger regulations. These may includemergers, the creation of joint ventures andmanagement buy-outs. Concentrations whichfall within the merger regulations require to benotified to the Minister. 31
  • 39. Box 9Enforcement procedures for the control of unwarranted concentrations of economic power Commissioner – Investigates economic sector suspected of unwarranted concentrations of economic powerNo existence of evidence – File Existence of evidence – Minister advised/recommendations made Minister orders partial or total disposal of interest RTP Tribunal: Appeals against Minister’s order High Court: Appeals against RTP Tribunal ruling – Decision final 32
  • 40. 3.9 Control of mergers and takeoversHorizontal mergers or takeovers taking placewithout an authorizing order from the Ministerare illegal ab initio and not justiceable. Anyperson intending to effect a merger applies tothe Minister through the Commissioner foraction by the Minister. After considering theCommissioner’s recommendation, theMinister may make an order concerning theapplication. The Minister’s approval may beconditional or unconditional. The Minister isrequired to issue an order for authorization tobe published in the Gazette as soon asreasonably practicable after the order is made.Publishing the authorization in the Gazette isimportant as other infractions of antitrust laware treated differently: the Minister’s order incases of control of unwarranted concentrationsof economic power do not need to be gazetted.An aggrieved person has recourse to theRestrictive Trade Practices Tribunal andfinally to the High Court. 33
  • 41. Box 10 Enforcement procedures for the control of mergers and takeoversApplication to Minister for an order authorizing merger or takeover Commissioner investigates Recommendations made to the Minister Minister’s order Approval – communicated to applicant Rejection RTP Tribunal: Appeals against Minister’s orders High Court: Appeals against RTP Tribunal ruling – Decision final 34
  • 42. 3.10 Other enforcement methods the force of law and allowing affected parties to stay the operation of the authority’s orders3.10.1 Administrative resolution only by appealing them to the High Court orThe least severe way the Commissioner special higher tribunal. A second approach,resolves complaints of alleged contraventions which has been adopted in South Africa, is toof the Act is by administrative resolutions. create a special competition policy tribunal orSuch resolutions may include: business court to hear competition disputes. A third method is to establish special divisions • Referral or advice to a more appropriate within the existing judiciary to handle agency; competition matters, this approach has been • By means of a simple resolution which adopted in Zimbabwe. In no event can (or consists of reverting to the business should) the judiciary be excluded from the concerned and requesting it to inform process. All judicial participants involved in the Commission that it will cease to resolving competition cases, including engage in the conduct; members of the Board or tribunal or business courts, will require training. The urgency to • In negotiating an administrative provide training is especially acute where resolution the Commission aims to competition law such as is the case of Kenya ensure that the offending conduct ceases provides for a private right of action to enforce and also seeks to obtain suitable redress. the statute.Such resolutions lack formal legal In South Africa, the application of theenforcement, although they may provide competition law combines administrative andrelevant evidence in proceedings against the quasi-judicial approaches. The Commissionform if subsequent enforcement litigation has the first responsibility with respect toensues. matters arising under the Competition Act. Decisions in contested matters are made by the3.10.2 Judicial system Tribunal, on the record and after an openThe effectiveness of competition law hearing of the views of the Commission andenforcement in addressing anti-competitive the parties. The Tribunal also has power topractices largely depends on the actual degree impose sanctions. And parties may appeal anyof enforcement action by the Commission and final Tribunal decision to the Competitionthe role of the tribunal and courts or the Appeal Court, which has the status of a Highjudiciary as institutions of enforcement. Court.It also needs to be recognized that the judicialsystems in most developing countries are 3.10.3 Sanctions and remediesinadequate forums for resolving business The Commission must have at its disposal andisputes. There are very few judges, if any, array of remedies and sanctions that it canwho are familiar with market-oriented legal impose as circumstances warrant. Unless theprinciples, and even fewer who are aware of Commission has adequate powers to addressthe basic concepts of industrial organization the competition harm that results fromunderpinning competition policy. The court violations of competition law and to preventsystem is also beset by extraordinary delays recurrences of those violations, the law willand irregularities in processing cases. quickly become ineffective.A competition system can compensate for The competition law enforcement processthese deficiencies partly by trying to minimize reflects the legal tradition of the countryparticipation by the existing judiciary in the concerned and therefore varies from country toapplication of the law. This can be country. In some countries, criminal penaltiesaccomplished as in Zambia and Malawi by and multiple damages play a central role. Ingiving the competition authority’s decisions others, the administrative process plays a 35
  • 43. major role; in some other countries, an community-wide compliance with theinformal process is preferred over a formal national competition law;enforcement process. (iii) provide deterrence; andNo penalties have been imposed since the (iv) compensate a person or business whoestablishment of the competition authority. has suffered loss or damage as a result ofConsequently, it is still not known what the contravention of the competitionapproach the competition authority will take in law.deciding whether to pursue a criminal or civiltrack. Generally speaking, the choice ofproceedings along a civil or criminal track has Broadly speaking, these purposes address bothimplications on the burden of proof the the immediate issue at hand, i.e. the specificcompetition authority has to bring before the contravention and its effects, as well as thecourts. The former calls for ‘balance of longer-term implications of non-complianceprobabilities’ while the later calls for ‘beyond on a market’s competitive processes.reasonable doubt’. It has been argued that adeveloping competition authority is better 3.10.5 Penalties and offencesadvised to pursue the civil track as opposed to The Act provides for both civil and criminalthe criminal track. This is because in most sanctions for contravening the Act. Section 21competition litigation, a lot of skill is required and 26 of the Act makes it an offence for anyto prove ‘intention’. For example, the Kenyan person, regardless of whether they are theCompetition Law requires ‘proof of intention’ principal or agent, who contravenes or fails towhen dealing with predation under section 10 comply with an order made by the Minister inof the Act. respect of a restrictive trade practice, and inPenalties and offences under Kenyan law are respect unwarranted concentrations ofmentioned throughout the Act, depending on economic power. As regard to a merger,the section of the Act. The question to section 27(3) makes it an offence to carry outconsider is whether it is prudent to impose a merger or takeover without the authorisationcriminal sanctions for competition offences. order by the Minister. In all the above threeThe approach to the question of penalties and instances, the Act provides for jail sentencesoffences varies among developing countries. It and fines.is important for Kenya to first consider and The fines contained under the Act such ascompare its current provisions of sanctions section 21(2) and (3) do not appear to haveand penalties with those to be found in other had the required deterrent effect. The finesbusiness-related laws. provided for under the Act range from $1,500Given the range of sanctions available in the to $3,000 although maybe the fines wereAct, Kenyan courts should be able to impose a initially modest, their value has beencombination of sanctions, taking into account overtaken by other factors such as inflation.the overall penalty impact imposed. The Act has no mechanism for review of fines. The law requires a tough fining policy in order3.10.4 Fines and imprisonment to deter firms from engaging in collusiveThe views of the Commission staff suggest behaviour and to deal with serious breaches ofthat action taken in response to an alleged competition rules.contravention should be designed to serve one Kenyan legislation should introduce finesor more of the following purposes: which are in line with present-day (i) undo the effects of the contravention; requirements, but also be fair and proportionate to the infringement. The policy (ii) prevent a future contravention of the objective is to impose penalties on infringing Act, both immediately and in the longer undertakings which reflect the seriousness of term, and to promote and encourage the infringement and ensure that the threat of 36
  • 44. penalties will deter undertakings from within the business community, of a newengaging in anti-competitive practices. law prohibiting long established business practices, will be compromised3.10.6 Imprisonment if the penalty regime is inconsistent withContraventions of competition laws attract perceptions of proportionality to theprison sentences in some jurisdictions, identified mischief.including Kenya. In Australia, the AustralianCompetition and Consumer Commission has Consideration should be given to retainingrecently called for “the introduction of imprisonment in the law as it offers the mostcriminal sanctions, as in many other countries, effective deterrent in a developing countryincluding jail for up to seven years, for the setting. Fines tend to be abused bymost serious breaches of the competition multinational corporations due to their strongprovisions of the Act, i.e. hard-core cartels by financial base compared to weak currencies inbig business”. Recent debates in the US have the recipient countries.highlighted the credibility problem of talkingtough but not acting tough and commentators; 3.10.7 Procedure for remedies under thesome decision-makers are now calling for Actincreased jail penalties because in reality very In matters concerning restrictive tradefew senior executive actually serve time for practices, the malfeasor may be required byanti-trust violations. the Minister to desist from the prohibited tradeClearly the threat of imprisonment in a practices; the Minister may further also requiredeveloping country like Kenya remains the the malfeasor to take specific steps to assistmost powerful deterrent against individuals existing or potential suppliers, in order tocontravening competition law. It is also a compensate for the past effects of thepunishment that cannot be passed on to others, particular infractions.e.g. by price increases to consumers or In the case of unwarranted concentrations ofbusiness purchasers, or absorbed by a economic power, i.e. abuse of monopolistic orcorporation, i.e. a corporation could not go to dominant positions, the Minister may directjail in lieu of an individual but could pay a the malfeasor to dispose of such portion of hisfine. It might also send a strong message to interests in production or distribution, or theinternational audiences that the country is supply of services as the Minister deemsreally serious about competition law. necessary, to remove the unwarrantedHowever, there are also dangers associated concentration.with this option: In the case of mergers and takeovers, any • The credibility of both competition law action taken without the Minister’s authority is and the agencies involved will be greatly void ab initio and unenforceable in legal harmed if it was perceived that heavy proceedings. sanctions such as imprisonment were imposed in an unfair manner on either 3.10.8 Persons who suffer loss or damage senior executives of large multinational Enabling persons who have suffered loss or businesses or those involved in smaller damage as a result of a contravention of local businesses. competition law to be compensated for that • There would be a far greater incentive loss, is an important objective of action to for businesses, particularly multinational enforce the law. The Minister under section firms, to frustrate investigations and the 18(1) of the Act, in relation to restrictive enforcement of orders. business practices, may by notice in the gazette, require a person to desist from the • The critical process of building broad offending practice and may require him to take community acceptance, particularly positive steps to assist existing or potential 37
  • 45. suppliers, competitor, or customers, in order to 3.11 Investigative Toolscompensate for the past effects of thosepractices. 3.11.1 Obtaining information, documents and evidenceThe ability of an affected consumer to wincompensation for his or her losses is likely to One of the major tools available to theencourage popular support for enforcement. Commissioner is the use of section 14(2),This is likely to appeal to the general public as which allows him or any other personmuch as to the persons actually receiving the authorized in writing by him, to obtaincompensation. Competition law should allow information, documents and evidence whencourts to make compensations in those cases investigating possible contraventions of awhere the person being fined has insufficient restrictive trade practice and to make copies ofmeans to pay a fine. these documents. Section 14(3) empowers the Commissioner, or any person authorized by3.10.9 Availability of private rights of action him, to enter any premises and to inspect any documents in the possession or under theKenya is a common law country, hence a control of a person who the Commissioner hasprivate right of action is generally available reason to believe is in charge of the premises.under the constitution. Consequently, a personwho suffers loss or damage from conduct of Under section 23(3) the Commissioner maythat violates the law may recover the amount require any person possessing records relatingof loss or damage by action against the to the investigations of unwarrantedviolator. Such action must be commenced concentrations of economic power to give himwithin a specified period after the date on copies of the records or alternatively to submitwhich the cause of action accrued. the records to him for copying. Section 29(1)Consequently, the general law provides for a empowers the Commissioner whenright of private action for firms or persons who investigating a merger to require anyconsider their competitors or others are participant in any economic sector withinengaging in unfair marketing practices or if which a merger or takeover is proposed to takethey consider they have been adversely place, to grant the Commissioner or anyaffected by illegal conduct. person authorized in writing by him, access to records and make copies of those records.However, private enforcement of the Act,although it has never happened before, is also There appear to be no safeguards againstgenerally possible, i.e. individuals and likely abuse by the officers of the competitioncorporations with an economic interest or authority. The power to enter or searchindividuals who have suffered a personal loss premises should be exercised only if there arecan take action under the Act and the courts reasonable grounds for suspecting that the lawmay award certain remedies. Private has been infringed. However, the law shouldindividuals (third parties) may also take action have provisions on:under the Competition Act to obtain remedies • privileged communication;against anti-competitive conduct. However,private actions are rare in Kenya because the • self-incrimination;incentives for pursuing cases privately are not • disclosure of confidential information;so strong as, under the cost rules, the loser of acase must also pay the cost of the winning • access to legal advice.side. Actions under the Competition Act willbe taken in the High Court of Kenya. 3.12 International issues in competition law enforcement The Republic of Kenya is a member of the World Trade Organization (WTO), the Common Market for Eastern and Southern 38
  • 46. Africa (COMESA), the East African capacity building and infrastructureCommunity (EAC). development.The above international and regional bodies The Commission is the national focal point inhave provisions in their statutes on all matters relating to competition law andcompetition law and policy. Commission policy. It also has informal cooperationofficials have played an active role in agreements with South Africa, Zambia andarticulating the Kenyan position on Zimbabwe in the field of technical assistance.competition law and policy in the internationaland regional meetings. In fact, theCommissioner chairs the National Reference 3.13 Agency resources, caseload, prioritiesCommittee on Competition and Trade. He has and managementbeen and continues to be instrumental in all 3.13.1 Funding of the competition authoritythe deliberations leading to the enactment ofthe East African Community competition As a government department, the competitionregime. authority relies on the government’s budgetary allocations to finance its operations. UnlikeAt the WTO, the Commission has continued to other autonomous competition authorities inparticipate in the negotiations on the Doha the region, the Kenyan competition authorityDevelopment Agenda. COMESA competition does not charge fees and does not receiveregulations and rules have been adopted at a funds from donors or obtain private loans fromregional level and are now already in place financial institutions.and being implemented in all COMESAmember states. As a result of its sole dependence on government funding, the competition authoritySimilarly, the negotiations leading to the like most of the government departments, hasestablishment of the East African Community continued to experience serious under-competition regime will soon be finalized and funding. Some key programmes havebecome law in Kenya, Tanzania and Uganda. continued to suffer due to the under-funding;Kenya’s membership of WTO, COMESA and principally-affected are training, hiring ofEAC has placed additional responsibilities on consultants to carry out special assignments;the Commission. This will mean that the office automation, and attractive salaries forCommission will need to find support for staff, etc. Box 11 Estimates of expenditures for the Monopolies and Prices Commission (2000-2005) Year 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 Estimate in Kshs 17,933,200 16,953,226 21,439,759 27,901,167 22,173,165 Estimate in US$ 239,109 226,043 285,863 372,015 295,642 39
  • 47. The Planning and Evaluation Division is3.13.2 Management headed by a Principal Economist whose dutiesThe competition authority as earlier stated is and responsibilities consists of:headed by a Commissioner who is accountable (a) Handling all cases on mergers andto the Minister of Finance through the takeovers in accordance with thePermanent Secretary to the Treasury. provisions of Cap. 504 of the Laws ofThe Commission has an authorized staff of 63 Kenya.officers. The actual number of staff currently (b) Dealing with concentrations ofemployed is 31. The academic qualifications economic power and advising theof the staff is very high. Almost all senior staff Commissioner on whether divestiturehave a Master’s degree. And almost all the is necessary or not. The Divisionstaff have received some form of training in institutes surveys in sub-sectorscompetition law and policy. The staff have believed to have concentrations orbenefited from UNCTAD training where restrictive trade practices mayprogrammes on competition law and policy. be suspected to be occurring.There have been some bilateral arrangementsbetween the Commission and the Competition (c) Dealing with cases of monopolyCommission of South Africa where the two undertakings which lead to abuse ofinstitutions have exchanged staff. dominant position.The Commissioner is highly qualified in both (d) Dealing with international tradelaw and economics, and commands respect in matters.both professional circles, the business (e) Liaising with the computing andcommunity and the government. He is documentation division in developingoutspoken and has managed to bring the management information systems forconcept of competition law and policy into the the department.public domain. (f) Monitoring product and factor prices,A good number of staff have further benefited ownership patterns, new investmentsfrom attachments to competition authorities in and business failures and evaluatingdeveloped countries, e.g. Japan and Germany. contractual agreements and articles ofThe structure and staffing of the Commission association of businesses andis contained in the Ministerial Rationalization professional bodies.Report of the Ministry of Finance andPlanning of March 2000 (Although over the Restrictive Trade Practices (RTP) Divisionyears this has been replaced by the structure is headed by an Economist and is responsibleappearing in Box 7). This report forms part of for assisting in competition policythe Civil Service Reform Programme. The enforcement through the examination ofCommission is currently organized in five market behaviour and performance. Thisdivisions, namely: essentially involves research and investigation • Administration; of cases relating to restrictive trade practices. These are the anti-competitive practices that • Planning and evaluation; have the effect of restraining free and fair • Restrictive trade practices; commercial activities including: cartelisation, collusion, refusal to deal, discriminatory deals • Legal division; and predatory practices. • Computing and documentation. The Legal Division supports other divisions in matters pertaining to law and law enforcement. This division is responsible for drafting legal notices that include directives, 40
  • 48. orders or instructions of the Minister on mandate, the inherited structure and staffing ofchanges made in the Act, litigation, case the department are unsuitable for an efficientprocedures, compliance and follow-up, and effective competition policy office. Therelegislative exemptions to competition law, is great need to change the perception of theharmonization of other laws with the Act and staff. The prevailing mindset should evolvereview of Cap. 504, Laws of Kenya. from to price control to competition.Computing and Documentation Division is Competition policy functions and competitioncharged with offering support services to other law enforcement are specialized fields indivisions. These services include application which multi-disciplinary experts in economics,of software programmes, repairs and Law, financial analysis, market analysts,maintenance of computers, recording and among others, play crucial roles as a teamupdating cases, designing questionnaires, data while, at the same time, functioninginput, cataloguing all documents and other effectively individually. The organizationmaterials in the department and identifying structure of the Monopolies and Pricesviolations of Cap. 504 in the print and Commission should therefore have theelectronic media. flexibility to e respond to market changes so that it is able to attract and retain neededAdministration Division is responsible for multi-disciplinary skills. Competition policyoffice premises, procurement of equipment, provides the necessary linkage betweensecurity, personnel, transport, and budget various development policies and canestimates preparation. therefore contribute to the achievement ofProvincial Offices are charged with the development objectives in a free-marketresponsibility of carrying out preliminary economy.investigation and analysis of anti-competitive Competition policy structures essentially workpractices in their areas of jurisdiction. towards coordinating and harmonizing3.13.3 Constraints mechanisms in the regulatory framework of the various sectors of the economy such asThe Commission has, in the years it has been industry, trade, privatisation, investment,in operation, identified the constraints it is consumer affairs, deregulation and so on.facing in the administration and enforcement However, the linkage between the variousof competition law and policy. The structures has not been established.Commissioner has ranked the majorconstraints faced by the Commission and his The existing law does not directly provide forconclusion are as follows: consumer protection and fair-trading. Clear provision for these two policies in the lawThe department’s present organizational would provide competition policy and lawstructure was inherited from the Price Control administrators and enforcing agencies withDepartment. The price control structure useful tools to interpret the substantive rules infacilitated the administration and enforcement the application of the law on practical cases inof fixed prices of goods and services whereas the market place.the present competition policy function isconcerned with the economic examination of Provisions in the existing law are quite oftenpractices of market players with the view of in conflict with provisions of several existingdetecting any restrictive business practices and sectoral laws. These sectoral laws ought to beabuse of dominance in the market place which harmonized with competition legislationrestrain, distort or prevent free and fair provisions and the country’s policy of a freecompetition. There are six provincial offices, market economy. Sectoral laws such as,in addition to the departmental Head Office in among others, the Trade Licensing Act,the Treasury Building. As a result of the Import, Export and Essential Supplies Act,dramatic change of policy and functional Agriculture Act, Tea Act, Intellectual Property Act, Protection of Foreign Investments Act, 41
  • 49. ought to be streamlined so that in matters of Act, to allow it to carry out more functions. Itcompetition policy, sectoral laws become is evident that more anti-competitive practicessubservient to the general competition law. in the economy have continued to be practiced without being noticed or reported to the3.13.4 Case priority and handling Commission.The Commission’s work largely follows The other explanation can be attributed to lackdevelopments in the marketplace, this often of motivation of the Commission’s officers. Ittakes the form of information received about was evident during the interviews with theviolations of the Act and other complaints and officers that their salaries were on the lowerinquiries. The Commission has, on its own side compared to their counterparts whoseinitiative, began making inquiries especially organisations have been turned into statutoryfrom press reports. In this regard it has an bodies. It was suggested during the inquiriesofficer in the Administration Division charged that the only way the Commission officerswith preliminary analysis of competition cases were going to be adequately motivated was toarising from the media. legislate for the Commission as a statutoryThe government has also continued to give body with autonomous status. A Commissionadditional responsibilities to the Commission. with autonomous status shall be able toFor instance, the Commissioner chairs the introduce better conditions of service.National Reference Group on Competition and As regards priorities for case handling, it isTrade Negotiations constituted in to support rather difficult to determine given the lowwork held under the Doha Development volume of cases being handled by theAgenda. The Commission is the contact point Commission annually. However, from thefor all competition matters relating to the East annual statistics (Box 12), it would appear theAfrican Community Treaty and the COMESA Commission has handled more cases under theTreaty. merger control provisions, than otherThe screening and handling of complaints and provisions of the Act.enquiries forms the major part of theCommission’s day-to-day activities. Thesecomplaints are received by phone calls,personal visits, letters, etc. The Commission’sstaff is expected to give advice, acknowledgecomplaints and commence the inquiry process,where necessary. The Commission pays a lotof attention to how it deals efficiently withcomplaints and inquiries. The Commissionerhas stated that he is aware that the manner itdeals with complaints plays a major role inhow the public perceives the Commission.The rest of the work follows from theimplementation of the various provisions ofthe Act. It was observed that the Commissionhas handled the smallest number of cases,compared to other competition authorities inthe COMESA region, this is in spite of the factthat Kenya having a robust economy. Theexplanation of this phenomenon was that,unlike other competition authorities, theCommission is constrained by its institutionalarrangements and insufficient autonomy in the 42
  • 50. 4: CASEWORK, EXEMPTIONS AND this request, does the Commission invite himSECTOR-SPECIFIC REGULATION or her to negotiate a consent agreement. Only two consent agreements (under section 15(3) of the Act) have been published in the Gazette.4.1 Casework review The first consent agreement was made in 1991The Monopolies and Prices Commission has and provides that a carbonated soft drinkdealt with an average of 20 restrictive trade manufacturer will refrain from exclusivepractices cases and 27 merger and takeover dealing and predatory practices against thecases a year over the five-year between 2000- marketing of its competitors’ products. The2004. The numbers of case considered by the second consent agreement was made in 2003Commission is given below. and relates to the insurance industry. The Association of Kenya Insurers agreed to cease recommending premium rates (see Box 2). Box 12 If a person who has committed a restrictive Cases considered by the trade practice fails to enter or comply with a Monopolies and Prices consent agreement, the Commission can Commission from 1989 to 2004 recommend to the Minister that an order is Year Restrictive Merger and made to regulate the practices in question trade practices takeover (under section 18 of the Act). The Minister has cases cases made four such orders. The orders relate to tobacco distributorship (1992), carbonated soft 1989 7 6 drinks (1993), wines and spirits distributorship 1990 6 9 (1996) and computer software (2004). 1991 6 10 1992 7 9 The Commission was directed by the Minister 1993 7 7 to investigate two economic sectors because of 1994 13 9 the possible existence of an unwarranted 1995 15 14 concentration of economic power under 1996 15 11 section 23 of the Act. These two cases 1997 10 11 concerned the carbonated soft drinks sector (in 1998 15 12 1999 18 24 2003) and the cement industry (in 2004). In 2000 18 37 neither case did the Commission find any need 2001 18 23 to recommend the disposal of interests. No 2002 15 35 such orders to dispose of interests have been 2003 35 19 made under section 24 of the Act. 2004 15 22Source: Monopolies and Prices Commission 4.2 Exemptions from the competition law Section 5 of the Act has been interpreted as a wide exemption from the tenets of competitionThe Commission terminates most restrictive law. The exemption relates to trade practicestrade practices cases without issuing a formal that are directly associated with the exercise ofpublished decision. Under section 15(1) and exclusive or preferential trading privileges(2) the Commission informs the person alleged conferred by an Act of Parliament, and thoseto have contravened the Act of the evidence associated with the licensing of participants inand invites comments on the evidence. If the certain trades and professions by governmentCommission takes the view that the weight of agencies acting in accordance with an Act ofthe evidence supports the allegations, the Parliament. Regulated enterprises considerperson concerned is requested to discontinue themselves to be exempt from the competitionthe practice and compensate for its past law by virtue of this section.effects. Only if the person fails to respond to 43
  • 51. Insurance Commissioner, as well as the Monopolies and Prices Commissioner, both of4.3 Sector-specific regulation whom give their advice to the Minister.There are sectoral regulators for the tea,coffee, sugar and petroleum sectors, as well asin the utility sectors such astelecommunications, as well as in the financialservices sector.Contacts between the Monopolies and PricesCommission and the various sectoralregulators who act independently of theCommission do not appear to be very frequent.Sectoral regulators are responsible for manytechnical issues other than competition;however, it is not clear how their remit oncompetition issues is handled in the context oftheir technical regulation activities. Where aregulator exists in a sector, section 5 of the Actis generally interpreted in such a way that theCommission has no jurisdiction to intervene inrespect of any restrictive trade practices whichmay exist in the sector.Some of the regulators have explicitresponsibility for competition issues in theirsector. For example, the CommunicationsCommission of Kenya (CCK) has a duty undersection 23(1)(b) of the KenyaCommunications Act 1998 to “maintain andpromote effective competition”. Under theKenya Communications Regulations 2001, theCCK, “shall … promote, develop and enforcecompetition” (section 5(1)).The regulations goon to describe unfair competition as any abuseof a dominant position that: unfairly excludesor limits competition; entering into anyagreement or engaging in any concertedpractice which unfairly prevents, restricts ordistorts competition; or entering into anti-competitive mergers. The CCK can investigateany licensee which it has reason to believe hasengaged in unfair competition. It maysubsequently issue an order requiring thelicensee to desist, to take action to remedy theunfair competition and to pay a penalty.The Capital Markets Authority issues licencesto companies operating in the capital markets.It can prohibit mergers between thesecompanies and would seek advice from theCommission. In the same manner, mergers inthe insurance industry need the approval of the 44
  • 52. Box 13 OECD guidelines for apportioning competition-enhancing tasks between competition agencies and regulators1. It might not always be necessary to employ economic regulation to address problems arising from alleged market power either because such power could be too transitional to be worth worrying about or because light-handed regulation may possibly be a superior alternative;2. Technical regulation will not likely fit well within competition agencies;3. Since there area advantages in combining economic regulation with technical regulation, economic regulation should probably not be organised as a stand-alone function;4. Given what has been said about technical and economic regulation, there seem to be three practical alternatives: • combine technical and economic regulation in a sector-specific regulator and leave competition law enforcement entirely in the hands of the competition agency; • organise technical regulation as a stand-alone function and include economic regulation within the competition agency; • combine technical and economic regulation in a sector-specific regulator and give it all or some competition law enforcement functions.5. Separating competition law enforcement from regulation means sacrificing certain synergies and having to adopt measures ensuring firms that are not subjected to inconsistent demands, but it also ensures that both policies are administered by agencies thoroughly understanding them and having cultures suited to their implementation;6. If a decision is made to combine competition law enforcement and economic regulation, serious attention should be paid to differences in how competition agencies and regulators conduct their principal functions because this could significantly influence how they would carry out a combined mandate;7. In sectors expected to evolve reasonably quickly to being workably competitive (i.e. transition sectors), assuming a decision has been made to combine economic regulation with competition law enforcement, it would probably be better to locate these functions within the competition agency than within a sector- specific regulator;8. In non-transition sectors, it is decided to combine economic regulation with responsibility for ensuring non- discriminatory access to necessary inputs, this is probably better done within a regulator than within the competition agency;9. Because competition agencies appear to have a comparative advantage over regulators when it comes to enforcing prohibitions of anti-competitive behaviour and reviewing mergers, such agencies should have exclusive jurisdiction in those domains, or at least retain concurrent jurisdiction along with a regulator;10. There seem to be good reasons for organizing regulators as general rather than sector-specific agencies (moreover, some of the difference in performance expected from competition agencies and regulators would likely disappear if the regulator were general instead of being sector-specific in nature); and11. Economic regulation, especially that being applied to markets in the process of liberalization, should be subject to sun-setting, and should not be renewed unless the competition agency believes that is justified by continued market power; thought should also be given to requiring regulatory forbearance in any market which is workably competitive, and once again the competition agency could usefully be involved in that determination.Source: OECD (1999), Relationship between regulators and competition authorities. DAFFE/CLP(99)8. 45
  • 53. 4.4 Sector studies tea at the Mombasa auction. Farmers andThe Commission has prepared reports on the private companies own 65 and 35 per cent ofstate of competition and the possible existence KETEPA’s capital, respectively.of restrictive trade practices in eight sectors of The East Africa Tea Trade Associationthe economy. The reports are summarised (EATTA) brings together tea producers (bothbelow. Kenyan and non-Kenyan), buyers, brokers, packers and warehousing companies, and4.4.1 Small-scale tea sector organizes the Mombasa tea auction. About 85Tea is Kenya’s leading foreign exchange per cent of Kenyan tea is sold through theearner, accounting for about 4 per cent of Mombasa auction, which is the second largestGDP, and providing direct and indirect in the world after Colombo and is consideredemployment to about 3 million Kenyans. The to be the price leader internationally.smallholder production of tea is managed by alimited liability company, the Kenya Tea There are 60 buyers affiliated to EATTA, butDevelopment Agency (KTDA), which also the top 5 buyers account for 65 per cent of alloperates processing plants. There are about Kenyan tea traded at the auction and 50 per400,000 small-scale growers (and about 70 cent of all teas traded in the course of thelarge-scale growers) with the average small- 2003/2004 financial year. The Commissionscale farm being about 0.4 hectare or 1 acre. was informed of collusive bidding by majorAll tea growers are required to register with buyers who were suspected of purchasingthe Tea Board of Kenya in order to obtain a large quantities of tea in order to controllicence which specifies the minimum number prices. The Commission recommended that anof hectares on which tea may be grown. investigation be initiated.However, there are no barriers to entry. 4.4.2 Coffee sectorThe farmers pick and then deliver the tea There has been a decline in coffee productionleaves to the nearest buying centre where they in recent years and it has been overtaken as aare sorted and checked by a factory inspector. foreign exchange earner by tea, horticultureThe green leaf is then transported to the and tourism. Coffee is grown on large estates,processing factories, using factory transport. as well by small-scale growers andThere are 54 processing plants under KTDA cooperatives, the latter sectors are increasinglymanagement and approximately 39 are owned responsible for rising production and qualityby private companies. The main shareholders levels.in the factories under KTDA management arethe farmers. To establish a tea processing The KPCU provides coffee cooperatives andplant, it is necessary to obtain a licence from plantations with essential services andthe Tea Board of Kenya. The price paid to facilities such as storage in rural areas. Coffeefarmers for the green tea is set by the KTDA, is delivered to KPCU branches for milling,and is normally around 20 per cent of the price grading and electronic sorting before it is sentit would fetch in the market. to be marketed and auctioned. Marketing is also undertaken by the KPCU. Farmers areThe work carried out by tea packers adds prohibited from roasting coffee for localvalue to the raw product. Although there are consumption. The Coffee Board of Kenya200 packers registered with the Tea Board of (CBK) is responsible for regulating andKenya, only 60 are operational. The packing promoting coffee production. It carries outplants owned by the Kenya Tea Packers registration and issues licenses to the variousAssociation (KETEPA) account for 67 per parties such as pulping stations, millers,cent of tea for the domestic market (which warehousemen and exporters. All coffee inaccounts for 5 per cent of total production). Kenya is sold through a central auction. TheKEPTA obtains its supplies directly from auction is operated under the rules andKTDA factories, while other packers buy their regulations of the Coffee Trade Associations. 46
  • 54. Multinational companies dominate the buying requires distributors not to sell competingof coffee, but there are a large number of products, nor to sell at recommended pricesdealers (over 90) at the auction. and within designated geographical boundaries. Investigations are continuing onCoffee prices are currently low due to the basis of possible contraventions of sectionsoversupply on the world market, coupled with 6(1)(a)(i), 6(1)(d) and 6(1)(i) of the Act.high costs of production. Poor infrastructureadds to high transport costs and lack of 4.4.4 Petroleum sectoraffordable credit prevents farmers from buyingneeded inputs such as fertilizers and pesticides From 1 January 2004, all importers of crudeto produce high quality coffee to compete in oil and petroleum products for domesticthe world market. consumption have to be sourced through an Open Tender System (OTS) centrallyThe Commission concluded that if there were coordinated through the Ministry of Energy.more marketing agents it would encourage Under the OTS, companies bid and the winnercompetition in coffee marketing, and believes imports the oil on behalf of the otherthat the CBK should licence more competent companies. After importation, the companiesmarketing agents. The opportunity to add with no loading/depot facilities have to rely onmore value, by roasting and packing the those with such facilities. The currentcoffee, for example, would assist the industry. Government regulation requires that 70 per cent of the country’s petroleum products4.4.3 Sugar sector requirements should be imported in crudeThe sugar industry is estimated to contribute form and the rest in refined form. Due to the3.4 per cent of GDP and directly and indirectly OTS, all the oil companies incur fairly similaremploys a large workforce. costs, with differences occurring in overheadThe Kenya Sugar Board (KSB) was created by costs.the Kenya Sugar Act of 2001, which provides The Commission investigated pricing in fourfor the development, regulation and promotion products, namely premium petrol, regularof the sugar industry. The KSB tries to petrol, diesel and kerosene in the Nairobi area.encourage private participation in the industry The national market has five main playerswhile it concentrates on regulation. The with a combined market share of 82 per cent.government, farmers and millers’ The companies in this industry determine theirrepresentatives are represented on the KSB prices using the cost build-up process togetherboard. KSB currently licenses sugar mills, and with the import parity pricing and then addonly a small amount of sugar is destined for their margins. Since the price elasticity ofexport. demand for petroleum products is generallyThe government has a majority shareholding inelastic, oil companies can be expected toin all the sugar firms except Mumias (where it pass on to consumers the whole costhas a minority interest) and West Kenya increment. The Commission found that over(where it has no interest). Mumias controls the period examined (July 2003 and Mayover 30 per cent of the market, based on 2004), the aggregate expected changes in theturnover figures. Imports make up another 30 prices of premium and regular petrol were lessper cent of the market and the next largest than the actual changes, while for diesel andshare is held by Chemelil which has 15 per kerosene the observed changes were more thancent market share. The four other major the actual changes. This could be attributed tocompanies each have less than 10 per cent the presence of other variable costs. Theremarket share. were instances of parallel price movements, but these did not occur with high enoughThe Commission takes the view that Mumias frequency to justify allegations of explicitis a price leader and that other firms follow coordination.suit. The Mumias distribution agreement 47
  • 55. 4.4.5 Alcoholic beverages sector 4.4.6 Carbonated soft drinks sectorThe Commission’s launched an investigation The Minister of Finance directed theof this sector after receiving complaints from Commission to investigate the carbonated softthe distributors of Kenya Breweries Limited drinks sector, believing that it might feature(KBL). Currently, KBL has a monopoly of the one or more factors relating to unwarrantedbeer market. In 1998 Castle Brewing Limited concentrations of economic power. 4 Theentered the beer market but exited in 2002. Minister had received complaints from otherSeveral other beer companies have entered the companies and was aware of the dominance ofmarket but none have been able to stay the Coca Cola and its vertical integration with itscourse. bottling operations and its distributors. TheKBL manufactures, imports, exports and Commission conducted an investigation whichdistributes beer and spirits all over the country. included interviews with the major players inIt sells its products through appointed the industry and a sample of 85 distributors.distributors located across the country and also The investigation found that section 23(1)(a)sells directly to retail outlets. The Commission of the Act, which deals with the control of aconducted oral interviews and obtained chain of distributing units, the value of whosequestionnaires during its investigation. sales exceeds a third of the relevant market,Interviews were conducted with 18 was relevant to the activities of Coca Coladistributors (out of a total of about 60), KBL East Africa Limited. Section 23(1)(b)and several other companies operating in the concerning companies that control two ormarket. The Commission concluded that the more physically distinct units whichfollowing major provisions in the KBL manufacture substantially similar products,agreement with distributors appear to and supply more than one third of the value atcontravene the Act: ex-factory prices of the domestic market, (i) Territorial allocation: the agreement applied to Coca Cola Holdings Limited. defines the geographic area within Finally, section 23(1)(c) which applies to a which the distributor must transport person who has a beneficial interest exceeding or sell the products (section 6(1)(i)); 20 per cent in a manufacturing enterprise, and simultaneously has a beneficial interest in one (ii) Exclusive dealership: the agreement bars or wholesale or retail enterprises which the distributor from involvement in distribute products of the manufacturing manufacturing, importing, marketing, enterprise, is relevant to ICDC and Softa distribution or sale of any goods which Bottling Company. are similar to or competitive with KBL brands in Kenya. The distributors are During the investigation, several potential also prevented from using their vehicles restrictive trade practices came to light and which are used for transporting KBL were addressed in a draft consent order. These brands to transport any other goods included possible resale price maintenance, (section 6(1)(a)(i)). territorial allocation, exclusive dealership arrangements and tied selling. However, the (iii) Price fixing: the agreement empowers Commission suspended its investigation under KBL to fix the wholesale price of its section 23 when some of the complainants brands and distributors cannot sell at any took the matter to the High Court. The High prices different from those fixed by KBL Court proceedings have not been concluded. (section 6(1)(d)).The Commission noted the absence ofadequate provisions in the Act to controldominance in the market. 4 Gazette Notice Number 1020 of 10 February 2003. 48
  • 56. 4.4.7 Cement sector 4.4.8 Electronic media sectorThere are three cement manufacturers in The Commission investigated this sector inKenya: Bamburi Cement Limited (BCL), East response to an application to the Minister onAfrican Portland Cement Limited (EAPC) and 28 February 2002, for approval for theAthi River Mining Company Limited (ARM). acquisition by Nation Media Group of a 75 perBCL is the largest of the manufacturers with a cent shareholding in Capital Group Limited.market share of 57 per cent, followed by The Nation Media Group is the leading playerEAPC with 37 per cent and ARM with 6 per in this sector with interests in newspapers andcent. A small quantity of cement is imported. radio and TV stations. Capital Group LimitedThis is clearly a concentrated market with a owns a radio station.HHI index of 4654. The media sector may be broadly classifiedThere is cross-ownership within the industry. into the two main categories of the print andBCL has a 41.7 per cent shareholding in the electronic media. This has now beenEAPC and a 15.17 per cent shareholding in expanded to include the internet and billboardARM, and is represented by three directors on advertising, which may be viewed asthe board of EAPC and one director on the alternative advertising in competition withboard of ARM. The largest shareholding in newspapers, TV and radio.BCL in turn is held by Lafarge, the largest The print media comprises daily newspapers,cement producer in the world, which owns periodicals and billboards. The main market73.26 per cent of the shares. NSSF controls players in the print media are the Nation15.79 per cent of the shares of BCL and 27 per Media Group, The Standard Newspapercent of the shares of EAPC. Group, the Kenya Times Media Trust andBCL supplies ARM with all its requirements Kalamka Limited (the People Newspaper).of clinker, a raw material that is mixed with The electronic media is classified into radio orgypsum to produce cement. BCL and EAPC TV broadcasting. There are currently 18sell their products through appointed individual radio stations and 7 TV stations.distributors and also directly to large The main radio stations are KBC, Capital,contractors, but ARM sells through general Nation, Kiss 100, Kameme, BBC Metro Eastdealers. BCL’s distribution agreement has a and Family, while the main TV stations are therestrictive clause that prohibits the distributors KBC, the Kenya Television Network, STV,from selling competitors’ products. the Nation TV, Family TV, Metro 1 and theBCL has leased and developed two berths at DSTV.Mombasa port which results in the company The Nation Media Group is the leadingbeing charged a port tariff of $1.5 per ton by company in the media sector followed by thethe Kenya Ports Authority. However, their Standard Newspaper Group. The two are thecompetitors must pay a port tariff of $15 per publishers of the two leading dailyton when they use the other general berths. newspapers, and also own broadcastingThe Minister of Finance directed the stations. The Nation Media Group is theCommissioner to investigate the cement sector proprietor of the Nation radio station and theas he believed the sector might feature one or Nation TV station while the Standardmore factors related to unwarranted Newspaper Group is the proprietor of theconcentrations of economic power under Kenya Television Network. 5section 23 of the Act. The Commission did The Kenya Broadcasting Corporation with thenot find any need to recommend a disposal of leading radio and TV stations is the marketinterests in the sector. leader in the electronic media. The media sector has undergone major structural changes since 1989 with the licensing of many5 Gazette Notice of 23 January 2004. independent media operators. The KBC was 49
  • 57. the only broadcasting company for many years number of people tuning in to the variousuntil 1989 when KTN entered the market as stations; with regard to TV stations marketthe first private TV station. Capital radio shares were estimated using the number ofentered the market in 1996 as the first radio people viewing the various TV Channels. Instation to compete with KBC radio. The sector the case of the printed media the figures werewitnessed further changes when Standard estimated using the number of adults (i.e. overNewspaper Group acquired the KTN in 1997. 15 years) reading the printed media and theIn 1999 the Nation Media Group bought out advertising figures were estimated using salesthe East African Television Network through volume.its subsidiary the Africa Broadcasting The Kenya Broadcasting Corporation isNetwork. However, the Nation Media Group dominant in both the Radio and TV markets. Itwas not granted the necessary licences to operates five radio stations, namely KBCoperate the airwaves allocated to EATN. In the General Service, KBC National Service,same year, the Nation was licensed to operate Metro, KBC Luo and Coro. The total marketa radio station and Nation Radio was launched shares for KBC in radio broadcasting isin October 1999. approximately 52.2 per cent and 29.8 per centEach radio station has its own target audience. in TV broadcasting. The KBC operates underCapital radio is an entertainment radio station an Act of Parliament which was not repealedwhich mainly targets youth and young adults, when the sector was liberalized.while Nation radio is mainly for business The Nation radio which has an estimatedbroadcasts, with some entertainment services, market share of 12.1 per cent ranks third afterand mainly targets middle-aged and older KBC and Kiss 100 with 12.6 per cent Capitallisteners. ranks fifth with 8.5 per cent while Kameme isThe responsibility for issuing licences, price sixth with 5.4 per cent. Other radio stations areregulation, establishing interconnection Citizen, Baraka, Rehema, Central, Sayare,principles, type approve equipment and Iqra, Sound Asia and Voice of America eachmanaging radio spectrum equipment lies with with less than 1 per cent market share.the Communications Commission of Kenya In terms of TV broadcasts, the Nation TV(CCK), the regulatory body for the sector. ranks fourth with an estimated market share ofThis role was initially performed by the then 18 per cent, after KBC with 29.8 per cent,Ministry of Information and Broadcasting but KTN with 18.6 per cent, and STV with 18.2it was taken over by the CCK after being per cent. Other TV stations are Family, Metroestablished in February 1999. 1 and DSTV with market shares of 7.2, 6.8CCK regulations do not allow one company to and 0.7 per cent, respectively.have more than one frequency channel in a The combined market share of Nation radioparticular area. For example, a company that is and Capital radio is 20.6 per cent which is lessalready assigned one FM frequency to than 33.33 per cent, the statutory level abovebroadcast in the Nairobi area should not be which it would raise competition concerns. Itassigned another FM frequency for the same would rank second to KBC in terms of marketarea because the same can be used for all the share in radio service.broadcasts in that particular area. Such a movewould put one company in control of scarce The proposed transaction would result in theradio spectrum resources at the expense of Nation Media Group enhancing its marketother deserving applicants. shares in radio broadcasting from 12.1 to 20.6 per cent. However, this enhanced market shareMarket shares were estimated for the major is unlikely to cause substantial injury tomedia companies in the electronic and print competition because of two main reasons.sub-sectors. The figures were estimated using First, the market share for the two radioaudience figures with market shares for the stations is below the level of 33.33 per cent,radio stations being estimated using the 50
  • 58. which is the statutory threshold. Secondly,each radio station has a particular nichemarket and it is therefore unlikely that theproposed transaction increases the marketpower of the Nation Media Group in radiobroadcasting. Furthermore, competition in theradio broadcast service is keen with upcomingand competing radio stations.However, the sole responsibility for allocatingall radio and TV frequencies rests with theCCK, the sector regulator. According to CCKregulations, a company cannot operate acertain frequency without direct allocation orlicensing by the CCK. This implies that theNation Media Group cannot acquire thefrequencies allocated to Capital Group throughthe proposed transaction without authorityfrom CCK. The CCK has indicated that it isopposed to this transaction. The Minister didnot approve the proposed acquisition. 51
  • 59. 52
  • 60. 5: CONSUMER PROTECTION ISSUES (ii) substantial asymmetries of information in both product and credit markets; andKenya’s competition law does not contain (iii) a greater proportion of local (mostlyexplicit provisions on consumer protection. In non-tradable) markets.fact, the Commission would find it difficult tojustify its activities if it becomes involved inconsumer protection matters. Although In these circumstances, consumers in Kenyafavoured by most stakeholders, the actual need need stronger legislation to protect themfor comprehensive consumer legislation is still against cartels, monopoly abuses and anti-the subject of debate. competitive practices. However, although consumer protection is one of the principal objectives of competition policy, the right mix5.1 The protection of consumer interests: its to use in applying the combination of bothrelevance to Kenya competition and consumer principles stillThe issues most often discussed are whether needs to be found.there are reasons to combine competitionpolicy and consumer protection in oneauthority. Obviously, the protection of 5.2 Different approaches in the region andconsumers against deceptive and fraudulent elsewhere: consumer protectionbehaviour by sellers has strong links to In a number of countries, consumer protectioncompetition policy, and many countries in the legislation is included in competition law, butregion have seen advantages in combining is separated in others. All national competitionthose branches of market regulation in one laws within the region (apart from Southauthority. Competition policy is designed to Africa) include consumer protectionincrease consumer welfare in one way or provisions as do the national competition lawsanother. For example, increasing the of countries as diverse as Poland, France,economy’s efficiency is the best way of Canada, India, Lithuania, Venezuela andmaximizing consumer welfare. Further, the Australia.optimum allocation of resources can be Even in countries where competition law andachieved by maintaining competition and the consumer protection law are separated, thebeneficiaries are consumers. links between them are often recognized byOn the other hand, it is argued that consumers assigning the administration of the laws to aneed protection from the exploitative single authority, as is the case in Algeria,tendencies of large corporations. It is alleged Hungary, Peru, the United Kingdom and thethat large enterprises abuse their dominant United States. Any of the two approaches canpowers over consumers by selling at be followed by Kenya. However, combiningmonopoly (or cartel) prices and by imposing consumer protection provisions in competitionunfavourable terms of trade. An adequate legislation is favoured for the reasons givenlegislative and policy framework is required to below.protect consumers and industrial users fromanti-competitive practices. In fact, there arestrong reasons for believing that less mature 5.3 Importance of including certainregional markets are often more vulnerable to consumer protection provisions in theanti-competitive practices. The reasons for this national competition lawinclude: There are strong reasons for the inclusion of appropriate consumer protection provisions in (i) high ‘natural’ entry barriers due to competition law. Among the advantages are: inadequate business infrastructure, including distribution channels; • COMESA’s Competition Regulations have embraced consumer provisions 53
  • 61. hence need to have a clear law on The goals of consumer protection in the consumer welfare; context of a country’s competition law should be to deliver a system of regulation that • maintaining an institutional emphasis on achieves as high as possible a level of the consumer welfare objective of consumer protection while, at the same time, competition law; keeping costs to business and government to a • reducing the opportunity for business to minimum. Regulators are also keen to ensure deny consumers the benefits of that the system is simple and sufficiently competitive markets by engaging in flexible to respond quickly to the market. unfair practices; • providing the agency with the opportunity to demonstrate tangible outcomes quickly and cheaply; • ensuring earlier and stronger engagement with consumer stakeholders (through consumer groups); • providing market-driven inducements for domestically-traded goods and services to meet basic standards of fair trading; • providing a basis for linking to overseas enforcement agencies and the international markets supervision network.It should be acknowledged that inappropriateinclusion of consumer protection provisionscan create some disadvantages, namely by: • distracting focus and diverting scarce resources away from competition investigations; • duplicating existing national laws and institutions; and • creating higher standards for goods and services traded across national borders.Managing the risk of unduly distracting focusand diverting scarce resources away fromcompetition investigations is largely aquestion of prioritization and administrativeefficiency. Managing the extent of any costdisadvantages to internationally-traded goodsand services is a question of ensuring theminimum possible compliance costs andraising market awareness of the extra valuederived from compliance with the law. 54
  • 62. 6: COMPETITION ADVOCACY effective tool for effective implementation of competition policy. The current situation is that the tools available to the KenyanTo have an effective advocacy function, it is Competition Authority for competition lawimportant that the enabling legislation, in this enforcement are unlikely to result incase the Kenya competition law, provides the advancing the cause of competition advocacy.Commission with a clear mandate to carry outadvocacy. The current competition law of The Commissioner, despite the legal andKenya is silent on advocacy and competition administrative constraints, has taken up theawareness, and both topics are absent from the initiative to create public awareness andlaw’s objectives. promote competition compliance. He has made sure that the Commission’s activities areIn a situation where the Commission has no reported in the national press and has beenlegal mandate to carry out advocacy functions, frequently quoted; likewise the press and theit becomes difficult for such an authority to public at large have made frequent enquiriesjustify its advocacy functions to the on competition matters.stakeholders. Further, the CompetitionAuthority in Kenya as earlier stated, is a The numbers of cases referred to thegovernment department, and subject to Commission by both government and non-government controls when it comes to press governmental organizations has increased instatements. The government regulations recent years. As result, the Competitionrequire a specific officer to carry out the Authority has continued to comment and offerfunction of spokesman. Consequently, all advice and opinions on various economicpublic affairs or publicity questions need to be matters. The Commission has also become anchannelled to the office of the government integral part of the policy formulation processspokesman. This has not worked well for the at the Ministry of Trade and Industry, as wellKenyan Competition Authority. The as other ministries. The Commission’s staffCommissioner is not formally permitted to members are also being co-opted onto variousissue press statements or call a press government committees involved in policyconference. It is only the Secretary to the formulation.Treasury who can issue a press statement on The Commission has taken the initiative tobehalf of the Commissioner. create public awareness and promoteDespite the constraint, the office of the competition compliance to bring about aCommissioner is aware of the need to develop competition culture, and has done so in theand initiate methods of building awareness and face of existing legal and administrativeensuring wider support for competition law constraints. The Competition Authority hasand policy among the public and within the carried out a number of awareness raisingbusiness community. The current strategies, including:Commissioner acknowledges that the creation • Participating and organizingof a “competition culture” within a country is conferences, seminars and workshops tofundamental to the success of the agency, and promote an understanding of the role ofultimately for the effective implementation of competition in a market economy.competition law and policy. Various trade and professionalAs a result of the unfavourable competition associations invite the Commission toenvironment, the Kenyan Competition participate and present papers at theirAuthority has found itself faced with the events. The Commission has also takenformidable task of creating a “competition such events to circulate its variousculture” within the country. It is aware that for publications, and explain how it makesdeveloping competition authority, advocacy its decisions.through education and persuasion is a more 55
  • 63. • The Commission seeks to create public sent to the press, to all interested parties, and support for competition enforcement by are accessible to the public. In addition, demonstrating how consumers and the summaries of decisions are published in the public benefit from an effective Commission’s widely circulated Annual competition policy. The Commission has Report. It is likewise using public events been active in large number of sectors, throughout the country to communicate the including the poultry, agro-processing government’s policy approach on competition, (maize meal processing, fresh vegetables by means of statements, speeches and articles. and flowers), oil marketing, beverages, The Commission has just recently established construction (cement), and alcohol a website, which will enhance public beverages. The Commission dealings awareness of its activities. with companies in these sectors have The Commission has continued to develop a resulted in various undertakings and better understanding of its procedures. There signed compliance programmes with the is greater transparency in the application of the Commission. In some cases, the competition principles. It has also enhanced dominant firms in these sectors have transparency and certainty in its procedures by entered into various restrictive publishing its guidelines and notices on how it agreements with the weaker parties to analyses competition matters. ensure that they continue to dominate the relevant markets. In such cases, the Competition Authority nullified the 6.1 Advocacy and awareness building agreement’s anti-competitive provisions Stakeholders broadly agreed that the strategy and opened up the sectors to more for addressing Kenya’s weak competition competition. The compliance culture needs to be focused around a programmes agreed with the substantially reinforced programme of Competition Authority became the basis advocacy and awareness building targeted at for interventions by the Commission the various stakeholder groups. In this regard, whenever the anti-competitive habits it was suggested that the Commission establish relapse. a dedicated advocacy division or unit • The Commission has on various comprised of persons who would focus solely occasions called on institutions outside on this important work. to develop competition expertise and has A clear advocacy and communications used government channels to encourage strategy needs to be developed by the senior government officials and Commission to promote awareness: politicians to raise awareness of the Act in their speeches and communications to • in the area of pro-competitive reform of trade and business associations. The rules and other measures, or Minister of Commerce and Industry has administrative practices that distort made a number of speeches with input competition; from the Commission. The use of public officials is very effective for free and • of competition policies by specific maximum media coverage. stakeholder groups; • The Commission has also stopped the • among the general public so that they government from taking particular have a better understanding of the action; managed to modify government benefits of competition, the Act, the role action; and has advised it to take a of the Commission; particular course of action. • among the general public of specificAbove all, the Commission has continued to cases and policy initiatives.publish its enforcement decisions. These are 56
  • 64. Competition advocacy needs to be carried out that only a small number of staff can bein conjunction with other key stakeholders, seconded at any given time, and that thise.g. the Law Society of Kenya and Kenyan measure is therefore a complement to,universities. This creates more than a single rather than a substitute for, otherchampion for competition, through creating capacity building efforts).formal linkages with opinion leaders. • working with long-term residentThe Commission should also possess advisors from other competitionsufficient powers of enforcement to fight and agencies or who have substantialstop cartels. It is desirable that the experience in working with agenciesCommission views prosecution or contested (once again, it was recognized that thislitigation as its ‘least preferred option’. Kenya option would be a complement to, ratherhaving a developing Competition Authority, than a substitute for, other capacityemphasis should be on alternative forms of building efforts)dispute resolution, i.e. a broader programme of In addition to the Commission staff, it wascompliance should be established through recognized that members of the Tribunal alsolegislation. Through this compliance require sustainable training in antitrustprogramme, communication and education analysis and case handling.through competition advocacy should play amajor role. The Commissioner stressed the importance of the Commission being able to have its word to say with respect to any capacity building6.2 Helping to build capacity of Kenya’s programme that might be developed to addresscompetition institution its needs.There was general agreement regarding theCommission’s capacity building needs. Thevarious options identified for addressing those 6.3 Competition policy and povertyneeds include: reduction Competition authorities in developing • obtaining donor funding to permit the countries should promote competition policy Commission to hire additional staff, as a means of reducing poverty. An effective purchase required computer and office competition policy can enhance economic equipment, establish a small library or growth by making individual markets more resource centre, prepare advocacy and efficient and the benefits can result in poverty communications materials, organise reduction. Competition advocacy plays an awareness building events, and travel to important role in achieving these outcomes. important regional and international seminars; The private sector is an important engine of growth which can make a significant • a multi-year capacity building contribution to the reduction of poverty. programme specifically developed for Markets are the mechanism by which the the Commission and financed by donor private sector operates and competition policy agencies; is concerned with ensuring that markets • enhanced participation by the function efficiently and produce the predicted Commission in regional capacity benefits. The World Development Report building events organized by UNCTAD 2000/2001 argues that markets are central to and other international agencies. the lives of poor people. By providing opportunities to engage in productive • secondment of Commission staff to one activities, markets in the private sector can or more competition enforcement promote growth and poverty reduction. The agencies in other regional countries or in benefits of more efficient markets will reach developed countries (it was recognized poor people and help to reduce poverty to the 57
  • 65. extent that poor people can participate in thesemarkets.In developing countries such as Kenya, poorpeople can participate in markets in a numberof ways. As consumers, they can benefit fromlower prices, improved quality and morechoice, which are the expected outcomes of acompetitive market. As employees, they canbenefit from better paid and more productivejobs and the net effect on employment can bepositive as the market expands. Poor peoplecan also participate in the market asentrepreneurs, particularly if there is scope toestablish small businesses. Finally, improvedeconomic growth should result in higher taxrevenues; and if these are used to provideservices or infrastructure which poor peoplecan access, this provides another means ofreducing poverty.Competition policy can make a directcontribution to economic development bypromoting an efficient allocation of resources,preventing anti-competitive conduct andexcessive levels of concentration in theeconomy. It can also enhance a country’sability to attract foreign direct investment, andenhance the benefits of privatisation andregulatory reform.If economic growth is to reduce poverty andhelp to achieve the Millennium DevelopmentGoals, the benefits must reach poor people.Establishing competitive markets in theprivate sector is one way of making asignificant contribution to this process,provided poor people have access to themarkets and thereby gain the incentive and themeans to improve their economic position. 58
  • 66. 7: FINDINGS AND POSSIBLE POLICYOPTIONS7.1 OverviewThe current Kenyan competition law wasoriginally seen as a transitional measure as thecountry moved from a price control regime toa market economy. Its replacement by amodern competition law is now overdue. TheKenyan Government has recognized thissituation and has established a Task Force toreview the law.66 Gazette Notice No. 3692 of 20 May 2005. 59
  • 67. Box 14 Terms of Reference of Task Force on Review of Competition LawThe terms of reference of the Task Force are to: 1. review the institutional framework to provide for an autonomous Competition Authority with an established mechanism for management and technical manpower and to provide for functions and powers of the Authority; 2. revise the enforcement procedures to make them easy to follow by Competition officials, the courts and also the business community; 3. provide, if necessary, the time frames and thresholds for merger and takeover cases; 4. clearly spell out litigation procedures and to assign specific functions to each institution; 5. assess the relevance of part IV of the Restrictive Trade Practices, Monopolies and Price Control Act on price controls; 6. review the functions of the Competition Tribunal; 7. review provisions of the Restrictive Trade Practices, Monopolies and Price Control Act relating to exemptions; 8. harmonize the competition laws with other laws regulating competition in other sectors; 9. review the provisions dealing with Restrictive Trade Practices; 10. harmonize the law with the best international practices and more specifically with the proposed EAC and COMESA laws in cases involving cross border competition; 11. align the law with Kenya’s international obligations in the Competition area; and 12. present a report and a draft Bill to the Minister within a period of one year.20 May 2005 60
  • 68. The Restrictive Trade Practices, Monopolies little or no scope to engage in competitionand Price Control Act is outdated and fails to advocacy activities. For example, theprovide a comprehensive and effective Commissioner does not directly issue pressframework for competition policy in Kenya. releases or give press conferences as theseThe Act contains a number of unusual matters are generally handled by the relevantprovisions which have proved to be difficult to Minister. This is a serious restriction sinceimplement. This is reflected in the fact that no competition authorities have an importantorders have been made relating to unwarranted advocacy role to play, particularly inconcentrations of economic power. The most developing countries. Indeed, the terms ofobvious gap in the current law is the lack of reference of the Task Force established toany provisions relating to an abuse of a review the competition law include the requestdominant position. Since Kenya is a member “to provide for an autonomous competitionof COMESA and the East African authority”. There does not appear to be aCommunity, the new law should be strong competition culture in Kenya and manyharmonized with the competition regimes in stakeholders referred were unaware ofthese two organizations. competition law and the Commission. It is therefore important that the CommissionThe Monopolies and Prices Commission has acquires a higher profile and assumes a moreresponsibility under the Act for investigations pro-active role in promoting competition in theof anti-competitive practices and provides Kenyan economy. This is particularlyadvice to the Minister of Finance who takes important as the enforcement work undertakenany final decisions. The Commission is, to all by the Commission is limited.extent and purposes, a Ministry. Consumer organizations are not prominent inThe Commission was established in 1989 and Kenya and consequently there is littlehas been able to acquire a good amount of lobbying to promote the benefits ofexperience over the years, even though its competition. There are no consumer protectioncaseload has been fairly light, particularly in provisions in the current Act, but there arethe early years. The Commission’s recent such provisions in the COMESA law. If theinvestigation of a number of sectors has Commission were to be given powers to dealrevealed the possible existence of cartels and with consumer protection issues, it would helpother anti-competitive practices which would to raise the Commission’s profile and wouldwarrant further investigation. also provide a means of demonstrating how consumers can benefit directly from the workThe Commission has 22 professional officials, of the Commission.all of whom have some training in relevantlegal areas and economics (for example, three There is a comparatively large number ofmembers of staff completed Master’s degrees regulators in Kenya covering a number ofin 2003). All technical officers have been sectors from telecommunications to the teareceived some training outside the country. industry. All the regulated sectors areThere is a need to gain further experience of considered to be exempt from the competitionenforcing the law and case handling and in this law enforced by the Commission, althoughrespect, further capacity building is essential. some of the sectoral regulators have responsibility for competition issues. Clearly,The Competition Tribunal has been under- technical regulations have an important role toutilized and has only dealt with one case since play alongside competition scrutiny,it was established. The Tribunal, whose particularly when considering potentialmembers are appointed by the Minister, hears mergers. The case of the proposed mergerappeals from decisions made by the Minister, between the media interests of the “Nation”which is an unsatisfactory situation. and “Capital” groups is an example where theThe Commission is not autonomous, being a technical regulatory requirements led to thedepartment of the Ministry, and therefore has 61
  • 69. prohibition of a merger which did not raise that the new law provides for effectiveany competition concerns. However, the investigation powers and appropriatecurrent relationship between competition law remedies. The new law should be harmonizedand sectoral regulation is not clear. There is a with the COMESA competition law and theneed to rationalize the application of proposed EAC competition law.competition law and better define therelationship between the various regulatorsand the Commission. 7.2.2 The Monopolies and PricesThe overall architecture of the Kenyan Commission to be become an autonomouscompetition regime needs to be redesigned. competition authorityThe Restrictive Trade Practices, Monopoliesand Price Control Act should be repealed and The competition authority should bereplaced with a modern competition law. The autonomous, but not independent, ofinstitutional structure also needs to be revised. Government. The trend in many countries isThe interaction between the Commission, the towards a board structure, with members ofTribunal and the regulators should be clarified the board appointed by the Government, ratherso that responsibilities are clearly assigned and than a single individual taking all theunderstood. The new enforcement procedures decisions. It is particularly important for theshould, in line with the terms of reference of authority to be autonomous so that it canthe Task Force to review the competition law, engage in advocacy activities and be a visiblebe made “easy to follow by competition advocate of competition and consumerofficials, the courts and also the business welfare.community”.7.2 Policy options for consideration 7.2.3 Competition authority to have a formal advocacy role7.2.1 Replace the Restrictive Trade Given the importance of advocacy work in aPractices, Monopolies and Price Control developing country, the competition authorityAct with a modern competition law should have a formal role, set out in the legislation, to comment on matters relating toThe Act which was only intended to be competition. The authority could be requiredprovisional should be repealed. The to review proposed or existing laws andGovernment has referred to the Act as regulations, and other government activities, 7 and identify and advise on any anti-“outdated” and it is clear that it has outlivedits usefulness. Part IV of the Act dealing with competitive effects and consequentprice control is now obsolete. A modern inefficiencies. Furthermore, the authoritycompetition law, which could be based on the should address the general lack of knowledgeUNCTAD model law, should be drafted taking about the competition law by educationalaccount of the particular circumstances of the activities and publicity, by commenting onKenyan economy. This new law should also topical issues and by pursuing high-profileprovide for the control of anti-competitive cases of anti-competitive conduct. This willagreements, the prohibition of an abuse of a help to generate a competition culture which isdominant position, and for the control of currently lacking in Kenya.mergers and takeovers. Enforcementprocedures should also be revised to ensure7 Kenya Economic Recovery Strategy for Wealth andEmployment Creation (2003-2007). 62
  • 70. 7.2.4 Sectoral regimes to be brought within 7.2.6 Consumer protection provisions to bethe competition law framework added to the lawIn principle, the competition authority should Although consumer protection measures, suchbe able to consider competition issues across as the control of misleading advertisements,all sectors of the economy. This is a practical are not strictly speaking part of competitionarrangement, since in a developing country law, they are closely related and there iswhere specialized knowledge of competition considerable advantage in combining the twoissues is limited, it is unlikely that sectoral areas, particularly in a developing countryregulators will have the required expertise. context. Taking action to enforce consumerHowever, these same regulators clearly have rights is often easier than competition policyan important role to play in technical enforcement and it can produce results whichregulation and this should be coordinated with are obvious and of immediate benefit to manythe competition authority’s scrutiny of consumers. This has the effect of raising thecompetition issues. Several different models profile of the competition authority andare to be found in other countries. The demonstrating its relevance and effectiveness.regulators can be given independent, orconcurrent competition powers (which is notrecommended for the reason given above), orthey can be required to consult the competitionauthority on competition issues, or it could berequired to consult them before deciding anycompetition issues in the sector. However,there needs to be a clear understanding abouthow potentially overlapping or conflictingpowers are to be exercised.7.2.5 Merger control thresholds and timeframes for review to be introducedThere are no merger thresholds in the currentlegislation. This means that all mergers, evensmall transactions which are very unlikely tohave any adverse effect on competition, aresubject to the approval process. This results ina misallocation of resources which could bebetter employed on other matters. Thresholdsshould be introduced in the new law andshould be set by empirical research to ensurethat only potentially anti-competitivetransactions are subject to control.Consideration should also be given tointroducing timeframes for merger review.This is referred to in the Task Force terms ofreference, together with merger thresholds,and would have the effect of providing greatercertainty for the business community. 63
  • 71. CONCLUSIONSThis report has shown that: • there is a very weak competition culture in Kenya; • an extensive programme of advocacy and communications, directed towards a broad range of stakeholders, is required to promote a greater awareness and understanding of the benefits of competition, the terms of the Act and the mandate of the Commission; • the Commission urgently requires substantial training and financial resources to develop and execute such a programme and the various materials that will be needed; • the Commission’s management requires training on strategic planning (e.g., setting objectives/priorities), managing different programmes, and on how to build and organize an effective antitrust enforcement agency, etc. 64
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