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.
