EDITORIAL COMMENT: Government clampdown on cartels good for economy

11 Jun, 2019 - 00:06 0 Views
EDITORIAL COMMENT: Government clampdown on cartels good for economy Professor Mthuli Ncube

The Chronicle

The harmful impact of cartels in the economy has come to the fore in recent days.

Industry and Commerce Minister, Mangaliso Ndlovu, speaking at a Zanu-PF Youth League conference in Bulawayo on Sunday last week, expressed the ruling party and Government’s unhappiness at the operations of the cartels and monopolies that are manifest in frequent, simultaneous price increases, their collusion in determining the amount of goods they put on the market and their efforts to staunchly frustrate competition, often through predatory means.

Generally speaking, a cartel is a grouping of producers who work together, or collude, to protect their narrow interests. Also, cartels can fix prices so that competition on price is avoided. 

In a post-Cabinet briefing two days later, Finance and Economic Development Minister Professor Mthuli Ncube reiterated the Government’s position.

“We need to deal with issues of monopolies and cartels because they contribute to the price hikes,” said Prof Ncube.

“They need these price hikes which tend to be unwarranted most of the time. And now we know; actually, if you look at the food sector, the real pass-through — I am using a technical term in economics — within the movement of the exchange rate and inflation is only about 34 percent. It’s not a full translation, 100 percent, in terms of exchange rate movements, but it’s lower than that. So we are aware of this and one of the ways is to deal with it, it’s really to deal with monopolies and just in general, competition, as one of the strategies.”

Information, Publicity and Broadcasting Services Minister, Monica Mutsvangwa, buttressed the point. She said, in response to the existence of the cartels and their negative impacts, Cabinet had approved the principles of the amendments to the Competition Act.  

It is clear that the Government is aware of the existence of this tiny minority that has had the economy dancing to their tune all along. Consumers, also unhappy about  their existence, must be excited that authorities have the cartels in their sights.

The approach that the Government has announced to deal with the monopolies is a good one. They will not be investigated and no one will order them to reduce their prices.

These are old tactics which, while well-meaning can be actually destructive in the end just like price controls did to the economy around 2008.

The Government, as Minister Mutsvangwa said, will come up with the Competition Act to dilute the influence of monopolies through, inter alia, empowering the competition commission to levy administrative penalties for companies that violate the competition law, introducing a corporate leniency programme so as to facilitate the successful investigation of cartels and strengthening the powers of the commission in obtaining evidence during investigations through providing for the procedure to be followed.  

Another approach would be for the Government to promote the entry of more players into up-to-now closed sectors of the economy to engender a competitive environment where the motive for profit is tempered by greater discipline and where choices are broadened.  

Hard-pressed consumers and potential investors who are being frustrated by the cartels cannot wait for the promulgation and implementation of the law.    

With regard to the second approach, we appreciate that building new businesses to expand the economy and be able to compete against monopolies that have been in the business for decades, making super profits will not be easy and will not be achieved overnight. 

It will take much effort and a considerable amount of time for the firms to begin operations and grow to the extent of making an impact in sectors that have been dominated by a few.

But we are mindful of the fact that this effort is coming from the Government. As such, the new players will count on Government support.

This will make it easier for them to enter the market. Otherwise, it would have been impossible for them to compete alone against the old guard.

We have a good example of Silo Food Industries which has now entered the market in a much bigger way.

Wholly-owned by the Grain Marketing Board the company came about after the commercialisation of the parastatal in 1996 and is involved in maize milling, flour production, pre-packs trading and bakeries, stock-feed, silo products and other products.

However, as part of the Government strategy to lessen the hold of cartels in the all-important food industry, Silo started operating as a fully-fledged commercial business unit in April this year.

It now has at least 84 shops countrywide after the Government injected $70 million into it to ramp up production with $95 million more to be invested over the next three years to make the project both viable and sustainable.  

Through the company, food supply should improve and be available at fair prices and help in the agenda to counter the dangerous role of cartels.

We look forward to more of this in more equally critical sectors of the economy among them the cooking oil industry, liquid fuels marketing and so on.

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