All eyes on Nigeria's competition and consumer protection reforms
In November 2020, Nigeria’s Senate approved the founding board for the new Federal Competition and Consumer Protection Commission (FCCPC). The commission has since been drawing up a basic framework to regulate competition in the country. As officials lay this foundation, there are concerns about the role of dominant firms in sectors experiencing price volatility, and the ability and willingness of the new agency to address the situation.
Main Findings – Regulatory blind spots
Cement prices in Nigeria have risen by more than 50% in the past one year. A 20kg bag that cost NGN2,600 in July 2020 now costs about NGN4,000 (USD9.74). The prices for other building inputs have also risen sharply in that time. For instance, a 20-litre bucket of paint now costs about 30% more than it did a year ago. The continued inflation is having a significant effect on project costs for real estate development in the country, and one factor driving this inflation is inadequate competition in industries that produce key inputs for construction.
In the cement industry, Dangote Cement effectively controls the market with a 62% share while Lafarge and BUA act as fringes. At the same time, there are credible allegations of collusion in the steel industry. The top firms who produce nearly all the country’s steel bars are clustered in the Ikorodu-Sagamu area on the outskirts of Lagos. Prices and supply move in concert and industry insiders speaking to us allege a cartel operates freely there with little in the way of competition regulation.
The present situation has its origins in a 20-year-old regulatory blind spot. Nigeria has pursued a backward integration policy since Olusegun Obasanjo was president between 1999 and 2007. During his tenure, firms such as African Steel Mills and Dangote received special licenses and waivers to import their products on grounds that they were simultaneously investing in raising domestic output. However, that policy was not effectively supported with other interventions that would create a competitive environment. In fact, Nigeria did not have a specific framework for regulating competition until January 2019 when President Muhammadu Buhari signed into law the Federal Competition and Consumer Protection Act.
Even so, the current Senate recognises that the flaw persists. This year it proposed opening up the cement market to more competition, saying “the negative consequences of high prices on the economy will outweigh the benefits of producing cement locally." But that proposal has not developed further.
The new FCCPC is empowered to act in a case of abuse of dominance, but in doing so it has to deal with political relationships that precede its own establishment. For example, while Nigeria’s central bank rationed dollars during an FX shortage in 2016, BUA owner Abdulsamad Rabiu accused the bank of allocating a disproportionate amount to his competitor Dangote Cement – owned by Aliko Dangote who has maintained strong ties with the government for more than two decades. Indeed, a Reuters story suggests firms owned by Aliko Dangote received about 13% of all the dollars that the central bank rationed out to the whole economy in March that year.[1]
Outlook – Building capacity
In terms of ability and willingness to apply measures that would make the concerned sectors more competitive, we note that presently the new watchdog is still developing competition regulation (see drafts here). While it is writing the rule book, orientating itself and learning to stand on its own two feet, institutional muscle must remain weak. On willingness, of which independence from short-term political currents is a part, the leadership have an unproven track record. The current CEO Babatunde Irukera was a gubernatorial aspirant with the ruling All Progressives Congress (APC) in 2019 while he concurrently led the Consumer Protection Council, overseeing its transition to the FCCPC. The watchdog is unlikely to intervene decisively where actors close to the present government are involved. Neither is parliament given APC’s dominance there and given the lawmakers’ other political priorities ahead of general elections to be held in 2023. See: Nigeria crackdown on separatism leaves signature development projects on the fringes.
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[1] Africa’s richest man got a fistful of dollars in Nigerian currency squeeze (2016, 23 June). Reuters
Photo credit: OLUWATOBILOBA, CC BY-SA
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