Tuesday, May 22, 2018


In recent weeks we have been entertained as the rivalry between the distributors of Plascon and Sadolin has played out on our radios.

The clever ads are only the surface of a competition for a share of the multibillion shilling Uganda paint market.

Last year AkzoNobel South Africa Ltd went into an agreement with Regal Paints Ltd to distribute its Sadolin brand of paints.

But even before the paint had dried on the agreement The Common Market for East & Southern Africa (COMESA) Competition Commission (CCC) announced it was investigating the partnership to determine whether it , “is likely to affect trade between member states and has as its object or effect the prevention, restriction or distortion of competition within the common market.”

Previous distributor Sadolin Paints East Africa was acquired by Japanese firm Kansai Plascon and gave up its right to distribute Sadolin. They now distribute the Plascon brand of paints.

"The CCC notice, which was issued earlier this year, with a 23rd February 2018 deadline for interested parties to submit their views on the subject, came five months after AkzoNobel announced its new partnership in Kampala...

And now towards the end of May no decision has been made on the partnership, eight months later.
While AkzoNobel officials previously dismissed the CCC’s interest as a formality it can have very serious repercussions for the partnership.

According to the CCC, breech of their anti-competition rules can lead to the agreement being cancelled, a fine to up to a tenth of turnover and liability for claims by customers or competitors who claim they have been harmed by the uncompetitive behaviour.

This is just one example and maybe one of the few that affect us in Uganda.

Another one is the takeover of the company that owns Java House by middle eastern private equity firm,  Abraaj Group. But that is unlikely to raise as much attention as fate of the Sadolin paint brand in Uganda.

This is something that our businessmen may not have factored in their operations, that trying to expand into the region or go into partnership with other players, can come up for scrutiny from regulators far from home.

The idea of regulating competition has gained in importance since the rise of the super companies in the US at the beginning of the last century and the growth of the multinational corporation after the Second World War.

It is a recognition that big companies can take unfair advantage of their size and reach to squelch smaller competitors and perpetuate monopolistic tendencies. This denies the consumers choice, discourages innovation and frustrates the market vibrancy. All of which have adverse effects on the customers and revenue collections.

It is also recognises that companies can grow their dominance in one market unfairly, eventually spreading this dominance to the other markets. In signing up to these protocols we need to not only understand what they entail but also appreciate what they mean in practical terms. Often times we will sign anyway as we have little choice if we are to belong.

The idea that the market through its own mechanism can regulate against competition and in fact become more and more efficient is fallacy that has long been disproved. The truth is that market leaders, like any other wielders of power, tend to concentrate power to themselves. Hence the need for an “independent” adjudicator to step in and ensure an even playing field is maintained.

The need for a regulator is also a recognition that while the market has been shown to be the best mechanism for wealth creation, it is the worst distributor of these gains. Hence the role of government in the collection of and distribution of taxes to help the trickle-down effect along.

"Unfortunately you can have a booming private sector and impoverished population because either government is not collecting taxes and therefore has nothing to distribute or it is collecting the taxes or its agents are pilfering them...

So these are the kind of rules we would have to succumb to as we open our markets to the region and the world.

The argument against regulating markets is that the regulators, often bureaucrats, are not in touch with the market and therefore slow to respond or risk going overboard when they try to pre-empt market imbalances.

There is also a mutual distrust of each other. With market participants seeing regulators as shakedown agents, levying fees that makes it increasingly difficult to show a return. The regulators of their part are always suspicious of market players’ demands for concessions as attempts to cheat governments of revenues.

The tension will always exist. None of the parties either the market players or the regulators are going away.

The case of AkzoNobel will be one to watch in coming months, as it can very well determine the long term shape of our paint market and also make us seat up and take notice of the COMESA Competition Commission headquarted hundreds of miles south in Lilongwe, Malawi.

No comments:

Post a Comment