Competition watchdog warns companies over power abuse

Competition Authority of Kenya Director General Wang’ombe Kariuku (left) consulting with Joyce Karanja-Ng’ang’a, Partner at Bowmans, Coulson Harney LLP,

The insurance industry is under the spotlight after the Competition Authority of Kenya (CAK) flagged the numerous instances of delays in remitting payments to suppliers.

This is in addition to other practices that are detrimental to suppliers, many of them small businesses.

The authority, which has an oversight role on how large companies relate with their small and medium enterprises (SME) suppliers, cited the insurance firms for abuse of buyer power, where a company has considerable sway and can dictate terms of engagement with a supplier.

In the insurance sector, this is seen in suppliers enduring lengthy durations before they are paid or having their contracts terminated without notice.

Many times, this pushes them to a corner, and in some instances leads to their deaths.

The authority, in its annual report for the period to June 2020, said it investigated 32 cases of buyer power abuse, of which 12 were small businesses having made complaints about the insurance industry.

The retail industry, according to CAK, accounted for 28 per cent of all the complaints that the authority received last year. “Of these (32 cases), 38 per cent were from the insurance sector, 28 per cent from the retail sector and 14 per cent from government procurement,” said CAK in the report.

“Informed by the high prevalence of abuse of buyer power reports in the insurance sector, the authority plans to develop a template contract for consideration and adoption by players in the sector in liaison with the sector regulator, Association of Kenya Insurers, Kenya Motor Vehicle Repairer’s Association, among other stakeholders.”

It added that another 14 per cent of the cases related to procurement by government agencies, which were forwarded to the Public Procurement Regulatory Authority. “In terms of abuse of buyer power conducts investigated, delayed payments was the most prevalent at 66 per cent, followed by unilateral termination without notice or on short notice at 15 per cent,” said CAK.

The authority said many of the suppliers affected when large companies abuse buyer power are small and medium enterprises, some which have had to shut down after failing to sustain operations owing to cash flow problems.

They are also forced to sell at low margins due to the hold that some of the customers buying from them have.

“The use of buyer power can negatively affect the sustainability of suppliers… the more costs are shifted from the supplier to the power purchaser, the greater the likelihood that the supplier will ultimately become unsustainable and exit the market,” said CAK.

“The vast majority of suppliers are SMEs with a substantial disparity in bargaining power between themselves and buyers of their goods and services for resale... They are the biggest casualties of abuse of buyer power.”

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