In historical terms, discernible competition policy dates from the Price Control Ordinance of 1956. This particular ordinance was later renamed the Price Control Act of 1956 and after independence, was revised under the same name in 1972. As the name clearly suggests, the main concern of this legislation was to regulate the prices of goods and services within the economy. In short, the philosophical consideration of the Price Control Act was purely to protect Kenyan consumers against arbitrary price increases. The economic context of the post-colonial price control was one of intense government control as a result of which it could regulate the prices of goods through the formal channels provided by the Price Control Act. The situation obtained until government commenced liberalisation of the economy in the early 1990s.

The Price Control Act was replaced by the Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504) of 1989. While this act retained the price control functions of its predecessor, its powers were stretched to cover both private and public sector enterprises in Kenya. The object of this law is to “..encourage competition in the economy by prohibiting restrictive trade practices, controlling monopolies, concentrations of economic power and prices for connected purposes.” Essentially, the competition law aims to protect the process of competition and not any firms. Emphasis is therefore ensuring the reduction and elimination of any barriers to entry and restrictive business practices regardless of the groups affected.  This means that the spirit of the competition law in Kenya is to determine the concentration so market power and reduce abuse of dominance. The act is divided into three main areas covering restrictive trade practices, the control of monopolies and control and display of prices. Due ton the progressive liberalization of the economy and the decontrol of prices, sections 33 to 39 that prescribe the modalities for price control are virtually redundant.

The association of the competition law in Kenya with price control makes it absolutely necessary to remove the price control mentality from the law in order that it may be understood both by the regulator and the consumers as a law for regulation of competition. At the same time, the general trend suggests that regulatory authorities in Kenya are often too strong hence cause interference in the sectors. There is need for the Monopolies and Prices Commission to interfere only when it is absolutely necessary. Because there cannot be any growth without economic competition, the many uncompetitive sectors in Kenya are restrictive of growth. The MPC appears insufficiently empowered to promptly respond to abuses in the market. In addition, because the Commission’s role is meant to merely be advisory, there is no internal mechanism for it to enforce those recommendations without the support of the executive.

It is therefore strongly recommended that the full independence of the commission should be secured.  To start with, the Commission should be an autonomous institution that independent of the Ministry of Finance or any other executive body. This is because the role of the competition authority ideally encompasses an entire spectrum of sectors hence it should not be placed under the control or authority of one ministry. The commissioner and the technical staff particularly should enjoy security of tenure as much as other officials such as judges do. An independent commission must also be facilitated in the performance of its duties through direct funding from the treasury and the commissioner who would be more familiar with the requirements of this office should present the budget proposals. Other measures that could enhance the independence of the commission would be a system to ensure neutrality in the appointment of the commission’s workers. It is therefore strongly recommended that the competition authority should be completely disarticulated from the Ministry of Finance especially in light of the fact that the same ministry is a major culprit in creating problems in competition. For instance, the tendering practices that take place at the Ministerial Tender Boards are not only sometimes non-transparent, but also uncompetitive.    

Considering Kenya’s developmental challenges, it would be more prudent to adopt a competition policy that ensures and promotes long-term economic growth. With this in mind, it is therefore advised that the country should align its competition policy towards dynamic efficiency as opposed to static efficiency. As part of the national industrial policy, government should allow for dynamic efficiency which is best served by allowing firms to cooperate where necessary without compromising the efficiency gains that competition guarantees. Given the size of Kenya’s economy, a situation of unrestrained competition would hinder investors. In this respect, the Japanese and Korean competition policy models are instructive for Kenya. Kenya’s development challenges would dictate that the dynamic efficiency be preferred to static efficiency. The national interest should be first identified and this should thereafter find expression in the competition law and policy. Kenya’s national interests at present seem to dictate that the competition policy and law pursued should promote dynamic efficiency over static efficiency. It would probably not be easy to establish a consensus on the because of the requirement for a delicate balance between the economic and non-economic aspects of competition policy.

While reviewing competition law in terms of the national interests, Kenya must necessarily take account of the global developments in the area. However competent the laws may be, Kenya cannot operate in isolation since there are definitely effects of international cartels that are felt within the country. The Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504) of Kenya’s laws doers not address itself sufficiently or at all to cross-border competition issues. There are many mergers that are consummated outside the country but which affect Kenya due to the affect that the merging entities are part of the market in Kenya. It is not precisely clear whether Kenyan courts have absolute jurisdiction in hearing cases where firms based in Kenya or trading in Kenya have undermined the competitive process in Kenya. The reason for this is because all domestic laws in Kenya are construes as having territorial jurisdiction only hence are not applicable elsewhere. Among the major reform issues for the law would to provide for the cooperation of Kenyan and foreign competition authorities in investigating international cartels. Depending on the interpretation of the law, it may be possible to conclude that Kenya’s competition law does have extraterritorial jurisdiction in competition cases. 

For the purposes of securing the expected reforms on the competition law, an elaborate advocacy agenda is required. This must integrate the need to develop a self-contained consumer protection law that may integrate the various consumer protection clauses scattered across many different statutes. This law could be based on Consumer International’s model consumer law would be an ideal starting point to guide the drafting of Kenya’s consumer protection law.  The lack of a separate consumer protection law may suggest the low profile that consumer protection issues have in Kenya. This advocacy role need to be intensified and can be played by professional associations, the few consumer organisations in Kenya and the media through coverage of consumer issues in the press. Kenya’s consumer protection organisations are virtually ineffective hence do not register in the protection of consumers through advocacy. Kenya needs to strengthen the existing organisations and develop viable institutions that will develop links with the various sub-sectors in the economy. Through these sub-sectoral links, these organisations will be in the knowledge loops hence able to disseminate and receive information on the effects of any anti-competitive practices in most of the economy. In addition, consumer protection laws alone are not sufficient to ensure that instances of consumer exploitation are reduced. The debate must therefore be kept going on the appropriate consumer protection law and especially on the need to create a separate consumer protection law.

Following from the advocacy regarding the creation of a consumer protection law and the reform of the existing competition law, the role off public education by the commission needs to be intensified too. While this may be dependent on the availability of funds, this is an indispensable responsibility of the commission as consumers are the most affected by anti-competitive practices. On the other hand, public education by the consumer organisations may be of assistance to the commission by creating consumer awareness. In this respect, the public education roles of the consumer organisations and the commission are complimentary. Consumer education is imperative in Kenya not only because of the fact that firms get away with anti-competitive practices partly due to consumer ignorance but also because awareness among consumers could lead to information being directed to the Monopolies and Prices Commission so that evidence may be gathered to facilitate prosecution.

The legal scope of consumer organisations in terms of seeking legal remedies is limited in Kenyan law. This is because Kenya’s law makes it difficult for an organisation representing consumers to initiate a class action suits. The legal complication arises from the fact that such institutions would have to prove that they have legitimate “Locus Standi” or legal standing to commence that suit on behalf of the consumers. It is on the basis of this complication in Kenyan law that many consumer issues have not been heard in the courts. It is anticipated that a consumer protection law would ease the proof of “Locus Standi” by consumer organisations seeking legal redress. This fact alone and the weakness of civil society organisations in Kenya have thoroughly undermined the efficacy of consumer organisations in the country. Whereas the judiciary has interpreted the legal standing rule to the detriment of the consumer movement, there is still legal scope for active engagement of consumer organisations in the advocacy for the creation of a small claims court through which consumer issues can be heard and determined promptly without the delay characteristic of the Kenya justice system.

One consequence of the liberalization of Kenya’s economy was the creation of various regulatory agencies for given sectors. However, most of the laws that create the sectoral regulators do not provide clear linkages with the overall competition law. Given also the original price control mandate of the Monopolies and Prices Commission, the interface between the various sectoral regulators and the MPC has been virtually non-existent. Most of the sectoral regulators perform their roles without any cross-referencing with the competition authority in regulating competition within those sectors. This situation may create regulatory confusion because the effects of anti-competitive practices are not necessarily confined to a sector and so the sectoral regulator may not have the authority to act against the offending firm. The competition law also places a limitation on the commission by the exemptions and exceptions created under section 5 of the Act. By prescribing exemptions for professional bodies operating under separate acts of parliament and for institutions whose trading privileges are accorded by a statute, the law has effectively extinguished the role of the commission in regulating competition through cooperation with the sectoral regulators. While exemptions are acceptable under competition policy, the effect of this provision is that all professional associations that license professionals are outside the remit of the competition authority and so are most government trading institutions, which are often monopolies.

In the consideration for law reform, Kenyans must address themselves to the matter of business licensing. Because the procurement of business licenses may be used to act as effective barriers to entry into certain sectors, the competition policy should be structured to respond to licensing of businesses. To the extent possible, the impending investment bill should be audited in terms of the prescriptions for reducing the number of bureaucratic steps for the issuance of business licenses to both foreign and domestic investors. The understanding however is that the bill will create a one stop shop for the issuance of the business permits hence allow for easy entry into the markets. However, there must be a careful analysis of the relative strengths of foreigners vis-à-vis Kenyans in specific sub-sectors of the economy. Related to this issue is the fact that a significant portion of economic activity in Kenya takes place within the informal markets. As a result, the governance of competition in these markets is fairly complex due to the absence of formal structures in the business units.   This situation reinforces the recommendation that Kenya’s competition policy must account for this economic structure so that competition may be regulated fairly regardless of the character of the industry. 

The questionnaire for the second phase of the study was without doubt much more focused and succinct as compared to the questionnaires administered in the first phase. This led to an increased response rate as the opinions that were sought could easily be given without the need to make reference to other documentation. Still, the questionnaire was not completely clear in some respects as some questions were very long. Question 3 was quite long despite the fact that it was important for analysing the specific hot spots.  By virtue of the fact that the questionnaire was standardised in order to allow for comparisons across the seven countries, it does not sufficiently allow for respondents to address peculiar issues in the status of competition within their countries. For instance, it does not address key sectors in Kenya such as the telecommunications sector where consumers are obviously affected by the market structure and conduct of the players.

The construction of question two appears to suggest that the respondents should be certain about the specific anti-competitive practices in the chosen sectors. This may have been confusing to respondents without clarification from the researchers that the question really sought opinions and not necessarily certainty on the detailed facts regarding all these sectors. Yet the questions were pertinent and represent a good and balanced inquiry into issues of competition policy in Kenya. While taking into consideration the fact that the questionnaire was quite succinct and clear, the amount of information generated could have been improved if the issues of enforcement had been raised too. Because the enforcement of competition policy occurs at various levels, the question on enforcement should have been split in order to record the opinions on the enforcement ability and competence of the various actors such as the commission, the judiciary and the tribunal. This disarticulation is important not only to distinguish between them but also to ensure that each of the enforcement agencies is put on the spot on the basis of its individual performance and the outcomes that this has on the overall competition policy.    

Regarding the validity of the responses, the researcher and the Institute of economic affairs were asked to note that a good number of the respondents were members of the National Reference Group.   By virtue of this association, a significant number of them had not only encountered the issues on competition policy but had also met the Monopolies and Prices Commissioner in the two previous national reference Group meeting and had been already sensitised to the main issues. Their level of knowledge in the subject is therefore comparatively higher than that of the rest of the professionals in the country. It is to be borne in mind therefore that while this survey is quite instructive, it is not to be taken as n accurate reflection on the general knowledge in Kenya about issues of competition law and policy. At the same time, because competition policy issues may not have the requisite public profile, it is worth noting that the responses may reflect the fact that most respondents would most likely be more confident in commenting on the competition issues within the industry in which they practise. For this reason, it would not be surprising if the consolidated results revealed that competition issues are not broadly appreciated.

In spite of the argument posited above that the validity of the responses may only apply to the respondents who are not necessarily representative of the Kenyan population, it is quite significant that absolutely all respondents reported that competition law is both useful and necessary for the country. It is also significant that the respondents unanimously answered that the competition law is not effectively enforced. This answer is instructive but could have been clarified by the splitting of the enforcement agency since the enforcement takes place at different levels. An opportunity could then have been provided for respondents to state the performance of the individual enforcement agencies. The complexity of the competition law and policy landscape makes it imperative that the specific deficiencies facing the tribunal, the courts and the commission be identified and fixed separately.

As the brief from the Consumer Unity and Trust Society (CUTS) requires and as was agreed at the first phase culmination meeting in Goa, the second phase of the project will entail 3 case studies for each country. These are to be a single case for an international merger and this is supposed to be the same for all countries if possible. The suggested case is the Coca-Cola and Cadbury Schweppes merger. The international merger case is best illustrated by the Coca-Cola example as this is  a fairly visible case of international consolidation by the companies concerned. The second case study is to be in the cement sector and this too is supposed to be the same for all countries in order that comparisons and contrasts may be made across the countries. Here too, the consolidation and acquisition by the main cement companies raises important competition issues, as the cement sector is evidently an international cartel. The effects of this cartel stretch beyond many countries and raises several cross-border competition issues. Each National Reference Group would then be expected to identify a sector that poses significant challenges for the competition policy in the country and preferably one where cross-border concerns may be evident too. 

Quite apart from the Coca-Cola Schweppes merger, the soft drinks sector in Kenya is faced with a unique competition atmosphere. Not only is the corporation actively attempting to consolidate the bottling plants in Kenya under a single anchor bottler the South African Bottling Company (SABCO). This bottling company is specifically trying to consolidate the bottling operations of the Coca-Cola corporation within eastern and southern African region. The chosen anchor bottler is therefore taking some of the independent bottling plants up and this has raised a controversy in Kenya.  The case is currently being considered by the Monopolies and prices Commission together with the Minister for Finance before the go-ahead for further acquisitions are made. On the other hand, there is the Softa company that is also a manufacturer of soft drinks in the country. It is not known what the effect of the consolidation of the bottling plant may have on this competitor.

The beverages market in Kenya already appears to be quite concentrated and this factor also applies to the beer industry. Right up to the later years of the 1990s, Kenya’s beer industry was under a monopoly beer marketer and manufacturer. The Monopoly was itself the result of a consolidation of three other beer producers, namely the City Breweries, All Sops Breweries and the Tusker Breweries. These three were consolidated ostensibly to create economies of scale in beer production and led to the East African Breweries Ltd. This consolidation created a monopoly in the beer industry in Kenya until the entrance of the South African Brewery (SAB) into the industry 1996. This case illustrates perfectly the industrial policy of the early 1970s which allowed a few firms in the country to grow as monopolies. This internal growth in turn led to sizeable and dominant market players that may be uncomfortable with the introduction of competitors. Globally, the beer market is also becoming increasingly concentrated and there is also a trend of convergence of the beer and spirits industries. These mergers at the international level have effects in Kenya. The competition between the two rival firms in Kenya is so fierce that it has become adversarial with claims that there has been destruction of the equipment and advertisement posters of one firm by the other.  The Kenyan press has recorded instances in which crates and posters are torn off with allegations that this is done by the agents of the rival firms. In addition, the East African Breweries Limited is now expanding into the east African market through the acquisition of other smaller firms in Uganda.

There is also a lot more to the cross border effects of competition that arise from factors other than mergers. The cigarette markets in Kenya and Tanzania show some interesting peculiarities. Both national markets have two main competitors but the kind of acquisitions and resultant market structures reveals that the rival firms own the same brand names in the different markets. In other words, the firm that markets the Sportsman Brand of cigarettes in Kenya has to contend with the fact that its competitor in Tanzania markets the same brand. This situation suggests that the character of mergers and acquisitions in the tobacco marketing industry differs quite remarkably from other sectors. It would be interesting for the case study if we examined what this structure and brand ownership pattern has on the overall market competition and impact upon the consumer.

The pharmaceuticals industry also has relevance for the case studies. First, the demand for the products is quite high while the number of firms is small. Secondly, most of the largest firms are foreign firms and are known to be partners in either joint research or even in the marketing of certain products. The international merger of the SmithKline-Beechham and Glaxo-Welcome have led to the consolidation of the pharmaceutical industry even further as the two were the main competitors of one another. It remains to be seen what the effects of this international merger would be on countries such as Kenya that have few indigenous pharmaceutical firms.

While the use of computers in Kenya does not compare to more developed countries, there is the shared trait of the domination of the industry by a single firm. Taking to mind the accusations on anti-competitive practices that have been proved against Microsoft in the United States, it may be prudent to find out to what extent the same practices have been applied domestically and what welfare-reducing effects they have had. The major software marketing company is quite big by developed country standards and virtually dwarfs all the sub-Saharan countries. Considering that most monopolies in the western world tend to be even more vicious in the developed world, it could be through this case study that we get to learn what is Microsoft’s strategy in developing countries such as Kenya. This is an entity exercising dominance and the relative effects in the developed and developing countries could emerge from the case study.

Ever since the government of Kenya liberalised the petroleum products market, the power of the oil marketing companies has risen considerably. This is an industry that is highly concentrated as the top four firms control more than 70% of the total produced sold at the retail level. Despite the fact that the government lifted the price controls of petroleum products, there is hardly any difference in price for the petroleum products in Kenya. In addition, while the petroleum marketing companies are often quick to raise prices in response to the rise in the international crude oil prices, there is never a corresponding reduction when the crude oil prices fall. Allegations of collusion among the major players are often strengthened by the simultaneous increases in pump prices that give the strong impression of open collusion. Apart from the adverse effects on the economy through collusive action, there are international mergers of oil companies that have different effects on the consumer and the overall economy. On its own, the petroleum sub-sector is among the largest in the country as virtually all Kenyans use its products in one way or the other. To this extent therefore, it is important too review the industry more thoroughly.

While Kenya’s financial sector is another interesting area in respect of competition. This is because while there are 56 registered banking institutions in the country, the largest four control more than 60% of both the total deposits and assets. This situation is important because it shows that the industry could have many institutions but the relative power of each of them may vary quite considerably. The central bank of Kenya has been increasing the capital requirements for the establishment of a banking institution and this has had the effect of increasing the barriers to entry into the sector. There is no competitive pressure on the largest four as the smaller competitors are also faced with a comparatively harsh regulatory environment that erodes their cost advantages. The result is that banking in Kenya is highly concentrated and there is no competitive pressure on the big four at all. The situation is so serious that the larger banks are discriminating between the consumers of their services through the setting of arbitrary fees and rules that are meant to raise their incomes at the consumer’s cost.

In consideration of the fact that the demand for cement in the country has been seriously depressed by the poor economic performance, the effects of the international mergers are therefore not apparent in Kenya. In view of these comments, the NRG resolved to consider the following sectors for the case studies:

§                     International Merger: The beverages sub-sector- and this will include both the Coca-Cola and Cadbury Schweppes merger and possibly the beer sector in Kenya.

§                     The NRG resolved to replace the cement industry for the pharmaceutical sub-sector as the latter would inform the study much more.

§                     The financial services sector will form the third case study. The study will be limited to the competition within the banking institutions.

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