Stimulating competition

Competition is fundamental in the operation of markets. Economists strongly believe that competition encourages innovation, productivity and economic growth – all of which create wealth.

There are enormous economic gains in competitive environments. It was only 12 years ago that Nigeria adopted competition in the telecom sector. Rivalry in that sector is playing out to the advantage of consumers. Government is currently privatising the electricity sector with the sale of generating and distribution companies to facilitate efficiency in the economy. This may pave way for other companies to co-exist with the privatised firms to serve Nigerians better.

Since 2007, intra-African trade has grown faster than Foreign Direct Investments into projects, according to Ernst & Young. Most of the intra-African investments have originated from South Africa. And from Kenya and Nigeria too. Angola’s planned $5 billion sovereign wealth fund (SWF) is expected to boost investments within the continent. Given the size and direction of these investments, it will be a pity if Nigeria’s SWF or Nigerian businesses come against anti-competitive brick walls in African countries – especially when Africa needs investments and regional trade has been identified as a path to development.

Unfortunately, in some markets, certain players often lobby for anti-competitive policies, of course for pecuniary benefits, but this is to the disadvantage of the economy and the populace as it denies them the best service and economic growth.

Raising the barrier to entry will deflate confidence and delay progress. Companies, either from Europe, which is in recession, or the US, whose investors’ perception of risk is keeping them from the continent, are willing or able to take advantage of Africa’s growing opportunities.

It appears the Nigerian advertising industry, with its new licensing regime, wants to fence off entry of foreign firms into the sector. One of the rules in the advertising reform states that a foreign agency whose foreign investment equity is above 25.1 percent shall practice advertising targeted at market outside the shores of Nigeria. This move has generated a heated debate, with some arguing in favour of the new rule while others are opposed to it.

While it may be necessary for groups to protect their territories, it is also worthy of note that “no country will possibly survive the current operating environment by closing up her doors against foreign investors”, as one operator observes.

Industry experts have argued that the presence of foreign agencies, with new ways of doing things, will engender strong competition that will bring about industry best practices. “There is nothing wrong with foreign agencies coming into the country with their expertise provided they obey the laws and regulations guiding the industry,” says an operator. “If you are good enough you should not be afraid of competition, whether local or international. It is all part of the globally acceptable standard practices that we are all talking about.”

Competition, in the provision of services instead of, say, palm oil, sugar and rice industries, is likely to improve a country’s competitiveness. We welcome competition as it is the necessary tonic to engender productivity, better services, better pricing and economic growth. Barriers to competition harm innovation, productivity and growth in countries.