Cartels And Anti-Competitive Business Practices Are Keeping Internet Access Down And Driving Prices Up In Africa

A new report by the World Bank has found that a lack of competitiveness in Africa's markets, along with anticompetitive business practices and rules that stifle competition is slowing down the growth of telecommunications on the continent.

Despite making progress in recent years, the report, titled Breaking Down Barriers: Unlocking Africa’s Potential through Vigorous Competition Policy, identifies cartels and anticompetitive business practices as the main factors stifling growth in the industry, causing increase in prices for both mobile and internet connections.

Internet penetration in Africa has jumped from 5.4% in 2009 to 16% in 2013 and over 20% in 2015. That said, the proportion of people online still lags far behind the global average, with only 17.4% of Africans with access to broadband compared to 82% in the developed world.

The supply of bandwidth is keeping up with the rising demand, thanks in part to the proliferation of undersea cables and terminal points, which would explain the speed at which that the shift to digital across all sectors is taking place.

The GSMA Mobile Economy report [PDF] predicts that there will be more than 700 million smartphone connections in Africa by 2020, more than twice the projected number in North America and not far from the total in Europe. In Nigeria alone, 16 smartphones are sold every minute, while mobile data traffic across Africa is set to increase fifteen-fold by 2020.

However, despite all these advances, Sub-Saharan African countries had the highest final prices for mobile broadband services in the world as of 2015, and internet use is the second lowest among the regions. African mobile and wireless markets are highly monopolized, with 27 countries having one player with more than 50 percent of the market share. There are 11 operators on the continent offering international gateway services, and six offering WiMAX wireless internet services.

While some of these players have become monopolies through the benefit of first-mover advantage, their dominance hurts the industry. Instead, governments need to encourage open and competitive markets in order to spur sustainable economic growth and help alleviate poverty. More than 70 percent of African countries rank in the bottom half globally on the World Economic Forum's Global Competitiveness Report, which ranks countries based on perceived intensity of local competition.

Monopolies, duopolies and oligopolies are more prevalent in Africa compared to other regions. These players are able to set the market price for their services, meaning that they can undercut their competition to retain market share, necessitating non-distortive state interventions and regulation of access to key inputs so that these players to provide telecom services will benefit African economies.

According to the World Bank report, cartel agreements among competitors to fix prices, limit production or rig bids are stifling competition levels in Africa, and they raise the prices for services, meaning that the incentives for operators to lower their prices are non-existent. Evidence further reveals that consumers pay 49 percent more on average when firms enter into these agreements than if the market was left open.

“There have been a notable number of countries adopting competition laws in Africa, and this bodes well for growth and development", Tembinkosi Bonakele, Chairperson of the African Competition Forum, notes. "However, while the benefits of competition are already clearly observable in Africa, there is still considerable effort required to ensure effective implementation of competition laws and policies across the continent”.

Breaking Down Barriers also highlights the important progress many African countries are making in improving competition policies. Economic communities like EAC, COMESA and ECOWAS have pushed for the adoption of harmonized competition laws, and the number of countries that have instituted these legislations has grown from 12 to 27. There are also now 25 functional competition authorities in Africa compared to and budgets allocated to these authorities increased by 39 percent between 2009 and 2014.

Competition authorities can take additional steps to strengthen their ability to detect and deter cartels. Setting fines and penalties so that they are higher than the expected profits may help to deter anticompetitive behavior. For example, although the maximum fine imposed on cartels in South Africa is US$116 million, on average, fines are only 9% of a company's excess profits, meaning that incentives to change practices are lacking, as profits often far outweigh fines.

African countries need regional cooperation to boost competition with supply chains and business arrangements often across borders in order to address issues that go beyond the powers of national authorities.

“There is a scope for national and regional competition authorities to increase their impact by taking a regional perspective", Klaus Tilmes, Director of the Trade and Competitiveness Global Practice at the World Bank Group said at the launch of the World Bank report. "Strong cooperation between agencies involved in implementing competition policy is important for all involved."

Comments