Around the 90s, Malawi liberalised its economy, deregulated its markets and consequently privatised state owned enterprises. Arguably, governments including Malawi are not good at managing enterprises and that these enterprises are better off in the hands of the private sector.
Before liberalisation, the government was able to limit abuses through some of its policies. These included an extensive regime of price controls. In addition, the government, through the central bank was able to exert leverage over the private sector by directing the banking sector to prioritise certain sectors of the economy.
But after liberalisation and privatisation, the government somehow lost its grip on the economy exposing consumers to possible abuse by enterprises.
Tying loose ends
Arguably, the economic liberalisation policies can promote greater competition and increase efficiency in the economy to the ultimate benefit of the consumer. Fair enough, competition brings in efficiency, quality goods, and better prices. However, there are a number of reasons why competition policy and regulation are necessary irrespective of the degree of liberalization achieved through structural adjustments.
Enterprises are primarily motivated by profits throwing consumers and other smaller enterprises under the bus. But should economies move back to total regulation because of some greedy enterprises? Not at all.
Subsequent to the liberalization and deregulation of the economy, the government thought it was right and proper to have policies and of course laws that would protect consumers from the greedy enterprises.
To ensure consumer welfare, the Malawi Parliament passed the Competition and Fair Trading Act (CFTA) in 1998 to create a legal basis for promoting competition and fair trading and to provide strong incentives for achieving economic efficiency, innovation and ensure that production of goods and services responds to consumer demands.
Specifically, the objective of the Act among others is to encourage competition in the economy by prohibiting anti-competitive trade practices to regulate and monitor monopolies and concentrations of economic power and to protect consumer welfare. The Act also established the Competition and Fair-Trading Commission (CFTC).
Five years later, in 2003, the Consumer Protection Act (CPA) was enacted. The Act among others is intended to protect the rights of consumers, address the interests and needs of consumers, establish a Consumer Protection Council, and provide an effective redress mechanism for consumer claims.
The question that often arises is, can pricing be an issue in a country which has a liberalised economy?
Recently in the wake of the novel coronavirus (Covid-19) pandemic, the CFTC inspected 283 pharmaceutical companies and supermarkets and ordered 58 pharmacy shops to cease and desist from excessive pricing of preventive and protection equipment used in the management of the Corona Virus. The orders followed a market inspection conducted by the Commission from March 20 to 23 March, this year.
The law makes it mandatory for enterprises to price their products in a manner that is fair, reasonable and conscionable.
Precisely, Section 43(1)(g) of the CFTA makes it an offence for any business to engage in unconscionable conduct in the supply of goods and services. Excessive pricing occurs when a dominant undertaking charges a price which is substantially above the competitive benchmarks or the cost price, without any objective justification.
During the inspection, the Commission found that these pharmacy shops had raised prices of basic medical supplies used in the prevention of the corona virus by margins ranging from 100 percent to 400 percent. The Commission in a press statement, noted that this conduct created terms and conditions of trade which were unfair, unreasonable, oppressive and unconscionable to consumers.
Apart from prohibiting unconscionable conduct, the CFTA provides against anti-competitive business practices under Section 32. Under 32(2), the CFTA specifically provides that enterprises shall refrain from predatory behaviour towards competitors including the use of cost pricing.
Enhancing competition, prompting efficiency
So, competition law which in our case is the CFTA, is a form of regulation which is intended to promote or maintain market competition by regulating anti-competitive conduct. Specifically, the CFTA provides against that under Section 32. Effectively, the Act forces businesses to keep prices low and be efficient.
Regardless of the degree of liberalisation, the principal objective of competition law is to maintain and encourage competition as a vehicle to promote economic efficiency and maximise consumer welfare.
*The author is the public relations officer for the Competition and Fair Trading Commission.