Effective competition is key to economic growth

Effective competition is a driver of economic growth. Competition not only spurs efficiency among firms, but also ensures that more productive firms are rewarded for their innovation and adaptive strategies at the expense of complacent entities.

In addition, effective competition pushes firms of all sizes to innovate and differentiate, bringing new products and services to the marketplace. On the other end of the product value chain, consumers benefit from competitively priced goods and services that meet their changing and diverse needs.

Effective enforcement of competition law also reduces poverty and removes barriers of entry for new entrants to a market, thereby ensuring that big firms are not entrenched in a market. This type of business environment attracts national and foreign direct investment, boosting economic growth.

It is against this backdrop that competition agencies globally commemorate the World Competition Day (WCD) on December 5 in order to underscore the importance of effective competition to the economy.

This year’s WCD theme is: ‘ensuring effective competition in an increasingly online world’. This rallying call resonates well locally since we have experienced unprecedented growth of our digital economy. Indeed, Kenyans are accustomed to the new norm where online markets, referred to as e-tailers, have increasingly substituted traditional retailers who operate from physical locations.

Recent data from the World Bank Group shows that the ICT sector accounts for 17% of GDP growth in developing countries. Domestically, the Economic Survey of 2019 shows that the value of the country’s ICT sector expanded by about 13% from Ksh. 345.6 billion in 2017 to Ksh. 390.2 billion in 2018, driven by a steady growth in the digital economy.

The Digital Economy Blueprint, which H.E President Uhuru Kenyatta unveiled in May 2019, lays out a framework through which stakeholders, including Government agencies and the private sector, can help extract more value from the rapidly growing digital markets.

As more economic activities shift online, regulatory agencies are finding themselves at crossroads as to whether to regulate or not, and if so, how far is too far? Regulatory frameworks should also be cautious against undoing the gains so far made in the development of online markets.

Disruptive technologies and concepts such as Artificial Intelligence and Big Data are gaining traction across the globe. Competition agencies, including the Competition Authority of Kenya, are now considering these concepts during the merger analysis process and enforcement of competition laws and policy.

Indeed, the Authority recently reviewed its Market Definition Guidelines in order to capture emerging trends and to more broadly support the growth of Kenya’s digital economy.

Whereas regulations should be pro-innovation, pro-digital markets and pro-growth, there is need to secure the rights of all stakeholders in the digital space, both innovators and consumers. For instance, regulations are necessary to ensure that consumers’ rights are enforced and to help create safe, secure and trustworthy digital markets.

Data protection concerns are also key to formulation of regulations in the digital era. Disaggregated consumer data is a prized asset, one which is always at risk of being misused by profit-seeking companies.

Concerns have been raised with respect to anti-competitive business practices, how they manifest in the digital space and how they can be detected and the necessary action taken.

For instance, there are concerns around predatory pricing. In addition, some digital players who possess market power may control or have access to certain data privileges which they may use unfairly and to the exclusion of competitors. But are these threats to competition, and harm to consumers, real or imagined?

What is agreeable is that e-tailers have occasioned a vibrancy in the digital market that is unprecedented globally. The online market has largely provided a solution to what was otherwise an imperfect market due to information asymmetry between firms and consumers.

To commemorate WCD this year, the Authority will sensitize players in the digital finance sector about competition law and policy. The significance of this day is to inform stakeholders in digital space and to underscore the potential benefits that consumers are likely to enjoy from an effectively implemented competition regime.

Dr. Adano Wario, is the Director Planning, Research, Policy and Quality Assurance, CAK.