Competition Policy in Nigeria’s Technology Sector: Non-Existent or Non-Enforced? (Part I)- Tomiwa Erinosho, PhD

Competition Policy in Nigeria's Technology Sector: Non-Existent or Non-Enforced? (Part I)- Tomiwa Erinosho, PhD

Competition is an important concept in economics that creates and promotes efficient markets for the benefit of the consumer. A competitive market promotes better services to customers, through increased choices and, lower prices. It also leads to innovation needed to promote dynamic efficiency. Innovation, defined simply as a better and more efficient way of doing things, will typically lower market prices all other things being equal. However, profit margins are still preserved because costs are also lowered by innovation. A competitive market encourages 'fair' competition such that the disparity in price of products of similar quality and quantity is generally small. This is expected because, any large price disparities will drive all the customers to the seller/producer with the lower price. So in order to stay in business, prices have to stay competitive causing rational producers to specify a price that enables them to cover their costs and also add a margin in order to meet the aim of doing business (for profit). 

A topical example today is the current price war in the ride hailing business. Global ride hailing apps with operations in Nigeria such as (Uber and Taxify) and, local ones such as (Oga Taxi), have increased benefits for consumers. They provide increased safety, driver accountability, ease and, convenience of travel. However, the current trends in the market highlight pertinent questions regarding fairness. For example, Uber recently crashed the prices of rides by 40% but still collects 25% commission from drivers. Taxify maintains higher prices and collects much lower commission (<15%). Uber's strategy is beneficial for the customers but, certainly not for the drivers who are now likely to receive lower revenue and lower profit in absolute terms. Uber argues that increased frequency of use by customers will counter the revenue lost by price reduction. Taxify's higher price strategy currently provides more benefit to the driver and less for the consumer. This places smaller indigenous players in the ride hailing business (e.g. Oga Taxi) at risk due to their inability to compete with two dominant foreign firms who are also more likely to export their profit out of Nigeria in the future. No judgement on bad behaviour is being passed here however, such practices in the ride hailing market would have been subject to investigation for anti-competitiveness by the Nigeria Competition Authority, if we had one.

The existence of fair competition implies the existence of 'unfair' competition. This has birthed a field of 'Competition Policy' which is based on establishing the rules for fair competition needed for both short and long term improved consumer welfare. The field was pioneered in the United States (US) through the Sherman Act which provided the frameworks for competition policy in 1890. The European Union's (EUs) goal of creating a single European market that works for all also hinges on preventing anticompetitive behaviour. Competition policy has been a longstanding issue in the European community since 1957 when the Treaty of Rome established the foundations of its competition policy. The four main forms of anti-competitive behaviour include Collusion (price coordination), Merger Control (creating super firms by merging existing large firms), State Aid (subsidies) and Market Dominance (creating a monopoly). Some historical examples of anticompetitive behaviour include the famous case of Standard Oil and more recent cases such as Qualcomm (dominance of 3G modems), Gazprom (creating barriers in the supply of gas in Eastern Europe), British Airways (anticompetitive use of reward miles) and Microsoft (bundling of internet explorer with Windows operating system).

The cornerstone of competition policy is based on; the competition and the consumer. Naturally, increased consumer benefit/welfare always takes priority except when the competition is threatened. In such situation, protecting the competition takes centre stage because short term consumer benefits will quickly give way to long term suffering once dominance is established by a player. This forms the core of competition policies found in the openly competitive markets around the world. Nigeria has a vast majority of industry regulations e.g. NCC Act (2003), Power Sector Reform Act (2005), Investment and Securities Act 2007, Civil Aviation Act 2006 etc. However, none of the nine bills presented to the National Assembly to create a legal framework for a competition authority in Nigeria has been passed till date (e.g. NTCC Bill and others- see National Assembly website- www.nassnig.org). This may be attributed to two reasons. First, the government prefers to focus on other pressing issues affecting the country such as insecurity and poverty. Second, there is possibly a lack of understanding of the benefits of competition policy among policymakers. The true situation is probably a combination of both factors.

Nigeria is an emerging economy which is evolving into a competitive market that is receptive to foreign investment especially in technology driven sectors such as telecommunication, electricity and transport. In light of recent privatizations in these industries as opposed to the state-owned ventures in the past, the role of the government is to now act as the rule setter. This should be codified in a formal competition policy that promotes an efficient market for Nigerian consumers; short and long term. Nigeria still lacks such rules of engagement, thereby creating voids that can be exploited (market failures). 

We must now look towards developing codified competition policies (not limited to the technology sector alone) that can be enforced to ensure that anticompetitive behaviour can be proven, prevented and/or punished. This is needed to correct market asymmetries that may appear to benefit the consumer in the short term but, will be ultimately hurtful longer term. 

Given the lack of Competition Policy in Nigeria, Part II of this article will provide justification on why developing a codified competition policy should be considered at par with tackling poverty and insecurity.

Dr Tomiwa Erinosho is currently studying a Master's in Technology Policy at the Judge Business School, University of Cambridge.