The Competition Assessment Framework (The CAF) 7Up3 Conference Gaborone, Botswana 14 – 15 February 2008 “Promoting a Healthy Competition Culture in Eastern and Southern Africa” John Preston Competition Consultant Investment Climate Team, DFID, London

The CAF: What, Why, How? Fair competition benefits consumers both directly, through lower prices and higher quality, and indirectly Fair competition stimulates efficiency and innovation, and is crucial for growth and poverty reduction, but anti-competitive practices are common Competition needed for competitiveness Many causes of weak competition – need for a holistic view The CAF: a flexible diagnostic tool poses sets of questions, grouped by theme Assessments could be undertaken by economic research groups, competition authorities or Ministries; need technical ability and right to form an independent view

CAF Section 1: How to select sectors (1) Is the sector important to the economy: or, Is it important for consumer welfare? (2) If ‘yes’ to either or both, do any of these apply? Sector highly concentrated? High entry barriers? High barriers to carrying on business? History of anti-competitive conduct? Indications of concern from consumers or firms? Strong vested interests opposed to change?

CAF Section 2: How to analyse competition Identify the relevant markets (Section 3) Examine the market structure (Section 4) Look for barriers to entry (Section 5): A) natural B) strategic C) regulatory D) gender-based Possible entry must be likely, sufficient and timely

CAF Section 6: Do Government Policies or Institutions Limit Competition? Include national, federal and local governments. State-owned enterprises Public procurement Regulated sectors Trade policies and industrial policies Unequal enforcement of laws and regulations

CAF Section 7: Vested Interests Which stakeholders are affected by the level of competition in the relevant markets? What is the nature of their interest? Do they oppose or support increased competition? What are the reasons for their views? To what extent are these justified? How much power or influence does each stakeholder have over the level of competition?

CAF Section 8: Look for signs of anti-competitive conduct by firms Abuse of dominance: needs high market share Collusion and cartels: domestic cartels usually the most common Mergers – need review. Often beneficial, but sometimes reduce competition significantly Vertical issues – restraints within supply chains Other problems of market structure

CAF Section 9: Draw Conclusions Is competition in the relevant markets weak? If so, what are the effects? Who profits? Who loses? What corrective action is possible? (Affected by relevant laws and institutions) Who would benefit from corrective action? What are the likely effects of corrective action on the economy? (e.g. investment, productivity, employment, exports)