Without an enforcing agency, the Competition Act will be a still-birth
What you need to know:
- At times acquisitions can be what is termed hostile take-over, where a big company buys its smaller competitor to kill it. It is such practices that justify the need and the essence of anti-monopoly law.
‘…you guys are moving to do the right thing in the wrong way…you need a Competition Authority or Commission…by whatever name. The law cannot be enforced without an autonomous agency…’ was the knee-jerk reaction of Mzee BSN.
He was responding to a question by a participant during a training on trade marketing at a leading manufacturer of fast-moving consumer goods here. Wondering how an economy can run without a competition law, or what is commonly called anti-trust law, anti-monopoly law, Mzee delved into the details of this legislation and how it is enforced practically. Its essence is to prevent monopoly, protect the consumer and spread wealth. And whereas in developed economies it usually applies to mergers and acquisitions, in young developing economies, its applicability is mainly on value chains. Mergers are where two or more companies, in related or linked sectors merge into one, on mutually agreed terms.
This was the case of the short-lived merger between German giant Mercedes and American giant Chrysler. Corporate strategy gurus who have dissected this ‘marriage and divorce’, have attributed the ‘divorce’ to the fact of merging two equals, each seeking to maintain its culture, identity and status quo ante, including geographical appellation: was the new company born out of the merger, a German company or an American one?
Acquisitions refers to one company buying another, usually smaller though not necessarily in the same industry. Mergers and acquisitions are equally common in vertical integration, where a company merges with or acquires its erstwhile component supplier: a car manufacturer merges with or buys a tyre manufacturer. At times acquisitions can be what is termed hostile take-over, where a big company buys its smaller competitor to kill it. It is such practices that justify the need and the essence of anti-monopoly law. The law subjects the process to comb-tooth scrutiny by a statutory regulator, to assess the implications of each case to the economy, including consumer exploitation, taxation manipulation, unfair competition and other harmful practices.
In our young economies, Mzee explains, anti-monopoly law serves to protect against unfair competition by multinational giants, which have the capacity to push emerging indigenous players from economic activity.
Regulation enables them to participate in the economy as input or component suppliers, distributors, wholesalers, retailers, advertising agencies, contract transporters, and other services. Mzee was startled to learn that the giant manufacturer whose managers we were training runs retail outlets all over the country, including ‘factory sales’. He cautions though, that stemming unfair competition should not mean protecting inefficient businesses. The enormity and depth of the work entailed in this requires an autonomous agency, staffed by the relevant staff and sufficiently financed. It cannot be effectively executed by a committee, department or even directorate in a ministry.
Under the proposed agency rationalisation, there are two agencies which can be merged and retooled to create the anti-trust body to enforce the Competition Act. From his long corporate world experience, he picked one case of Gosse Gourmand, [pseudonym], a multinational baby formula manufacturer that would declare losses year-in, year-out, by practising ‘transfer pricing’ with its sister companies in a concessionary taxation regime. It sourced the key ingredients from a sister company that made various nutrition formulations; at prices higher than the market average.
This formulations company was categorised under innovation, with VAT zero-rating and other incentives. The unfair practices of these sister companies were unearthed by a sharp scrutinising eye of an anti-trust authority. This is what Uganda needs to enforce the Competition Act. With no agency, the Act is a still-birth.