The Impact of Infant Industry Protection On Competition in Namibia

RECENT reports have pointed to concerns over increases on consumer prices of basic foodstuffs and commodities, such as poultry, meat and dairy. Some critics have blamed this on the government’s Infant Industry Protection (IIP) policy.

Caution should however be taken when apportioning such blame on infant industry protection. The Minister of Trade and Industry in his recent ministerial speech indicated that the rationale for the adoption of the policy and regulatory measures such as infant industry protection and quantitative restrictions on imports of selected products entering our market are very important instruments to preserve and nurture our economic and industrial growth and in turn accelerate jobs and wealth creation and to equalize wealth distribution by cushioning and creating policy space for existing economic value chains to get off the ground and build the requisite competitive capacity.

Infant Industry protection usually takes three forms, namely that it protects and nurtures local industries such as the imposition of an import duty levy on imported goods, a quantitative restriction on imports, and granting of targeted and performance based incentivized subsidies to stimulate local production and ensure market supply.

Factors affecting basic food prices

It is however undeniable that the prices of basic foods are increasing worldwide. Food prices are expected to rise 3 to 4 percent in 2014 and will continue rising till the year 2018, representing a 12-15% increase over a four year period. There are global factors at play that can have repercussions on food prices. The El Nintildeo drought impact of 2012-2013 withered crops in the fields. As a result, prices for agricultural goods and agro-processing products will tend to rise and since it usually takes several months for these commodities’ prices to translate to the food we buy, most of the price effect of the drought will occur in 2014 as it is happening currently in Namibia.

Higher prices of agricultural inputs will directly affect the cost of meat and any other animal-based product. Also hardest hit will be cereals, baked goods and other grain-based food. The current exchange rate depreciation from around 8-plus to the US Dollar in 2012 to around 10 plus in 2014 will also cause the price of imported food to increase in line with the depreciation impact of the exchange rate. There is therefore cold comfort that Namibians will have to dig deeper into their pockets to meet the rising prices of foodstuffs. According to data and inflation reports by the Namibia Statistics Agency, food price inflation is on an increasing trend and this trend, based on forecast data worldwide, will continue until 2018.

This situation will worsen if the RandNamibia dollar depreciates against the currencies of its trading partners, as is the case currently where food imports rise in local currency against foreign prices. The squeeze on many Namibian consumers’ finances will continue for at least the next four years as many experts warn food prices will continue to increase significantly in the world. Rising food prices will result in the annual food bill for the average family tripling over the coming years, heaping further pressure on already overstretched household incomes of the Namibian consumer.

Namibia is not alone!

Namibia is not alone in this since all countries would be affected. The rising food prices are exacerbated by rising global civil and military unrests in countries across Europe and Asia, Ukraine, Turkey, Egypt, Nigeria, Egypt and the Central African Republic. These unrests do cause interrupted supplies and global food shortages along the global distribution chains and cause prices of basic food items to rise. Namibia is a net importer of most of the food we buy from different supermarkets and grocery stores and as a result, rising food prices in global markets will be transmitted into Namibia automatically. In Namibia, food price increases are being driven by rises in key inputs such as maize and wheat, as well as commodities of administered prices such as energy, fuel and water. This implies rising cost structures across the firms involved in the food value chains, prompting them to either seek productive efficiencies and financial viability through assimilations and integrations in terms of mergers and acquisitions.

How does this impact on competition in Namibia?

The Competition Commission as established by the Competition Act, 2003 considers competitive pricing and wider product choices as a form of consumer protection for the Namibian consumer. It is in this regard that it necessitates that the commission informs the consumer on the recent food price increases and that it is not directly attributed to the infant industry protection measures as a policy instrument by the Ministry of Trade and Industry. The commission is considerate of higher price increases, which have an impact on consumer welfare in Namibia. Consumers are informed that the Namibia Competition Commission has announced measures as part of ensured micro-economic stability to monitor prices of selected consumer products to assess their pricing trends in terms of input costs, margins, retail pricing strategies and to inform the Ministry of Trade and Industry as competition aisor on such pricing formations. The constitutional dispensation of Namibia is such that prices are set in the context of the market economy in accordance to demand and supply conditions. The role of the commission is to ensure that consumers are not overcharged for items such as poultry, meat, and dairy products.

Where excessive pricing would be proven in court, the commission would be in a position to penalize businesses and companies that are engaged in predatory pricing i.e. charging so low as to drive other businesses such as SMEs out or excessive pricing i.e. charging so high, way above to make super normal profits at the expense of consumers.

The commission also wants to ensure that members of the public understand their consumer rights, as well as the avenues of recourse available to them and the infant industry protections granted that are in the best interests of industrial development and manufacturing expansion. There is further evidence of higher propensity of mergers in the retail and commercial businesses in Namibia, mainly from South Africa. Such mergers could impact on further consolidation of the food sector, pushing the dominance and monopolisation of certain firms further.

The commission has recourse under the Act to penalise, through the courts, the abuse of dominance and monopolistic behaviours. The commission is also cognizant of these structural changes on the economic landscape and has finalised a merger impact study that would propose guarding against mergers of foreign owned firms versus locally owned firms. The commission is further cognizant that local participation and local ownership of business is important for the economy to go forward. The commission would thus be considerate that local businesses, especially SMEs, are safeguarded and protected from extensive foreign competition in terms of the Competition Act.

Is there room for controlling food price increases?

It should be understood that the government has a legislative mandate to control prices by intervening where necessary in the public interest in order to combat price increases. Such pricing control was done for butter and sunflower oil in the past. Namibia does not have an overarching food control regime, and therefore it is very hard to tell what could happen. However, from a theoretical perspective, the impacts on consumers is very high as high food prices inaertently reduce the purchasing power of consumers and concomitantly consumer choice is frustrated and even quality and choice of such food products could also be aersely affected, which have implications for consumer protection in terms of competitive pricing and wider product choice in terms of the Competition Act. It should therefore be understood that the government considers such a move on price control viable only to the extent that it should be commercially and financially viable for the targeted sectors or products. Equally it should not frustrate or counter infant industries, which are economically sensitive and necessary for industrial development and for creating local value added manufacturing in Namibia.

Source : New Era