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Introduction and BackgroundUganda�s economy is characterised by a large

informal sector dominated by the agriculture,forestry and fisheries. The agricultural sectorcontributes approximately 21 percent to thecountry�s gross domestic product (GDP), 48percent to the country�s export earnings andemploys more than 73 percent of the population.The country also has a growing and vibrantservices sector while the mining, quarrying andconstruction sector contributes up to 27 percent tothe country�s GDP. Consequently, the country hasalso been experiencing an economic growth rateof about six percent per year. Despite this growth,among the contemporary challenges facing theeconomy at moment are rising fuel costs, greatercapital equipment needs and the rising tradedeficit.

Over the last 20 years, the Government ofUganda has slowly but consistently reduced itsdirect involvement in economic activities and hascreated bigger space for the private sector tooperate. The policy direction is based on the neo-classical economic thinking that for optimalperformance of an economy, the role ofgovernment should be that of creating anenvironment conducive for doing business, andnot to engage in business itself. Because marketsare seldom perfect and are sometimes vulnerableto abuse by dominant players, governments haverealised the need to come up with relevantregulatory framework and establish effectivemarket regulators to ensure that national

development imperatives and consumer welfareare not compromised.

Along the same lines, the Government ofUganda embraced a National Competition Policy(NCP) in 2014 to ensure that a fair degree ofcompetition exists in the market. The country hashad a draft Competition Law since 2004; howeverit had not been adopted into an Act of Parliamentdue to the absence of a NCP. The adoption of theNCP now is expected to pave the way for aCompetition Act in Uganda.

State of Play: Uganda�s CompetitionPolicy & Law

In 2004, a Draft Competition Bill for Uganda wasdeveloped (Uganda�s Competition Bill 2004), as aproposed framework for ensuring competition inthe local market. After spending three years inreviewing the Bill, its enactment was stalled dueto the absence of a NCP. In 2009, a processcommenced to develop the Competition policy ofUganda. The policy was adopted in 2014 by theCabinet of Uganda. The policy establishes acompetition unit in the Ministry of Trade, Industryand Cooperatives and provides for the enactmentof the draft law which will establish theCommission. The development and subsequently,implementation of these legal frameworks willcomplement efforts towards the implementationof the EAC Competition Act 2006. The EAC Act aimsto create the sort of environment that protectsand promotes free and fair competition in themember States.

Protecting Interests of Consumers and SMEsA Key Focus of Uganda�s Competition Regime

Policy BriefNo. 2/2015

SEATINI Uganda, in cooperation with CUTS Nairobi and with support from TradeMark East Africa(TMEA) undertook a research study to assess the current state of competition policy and law reform inthe five member states of the East African Community (EAC) under a project entitled, �Accelerating theImplementation of EAC Competition Policy and Law� (EACOMP).

This brief presents findings from Uganda, which will be used as evidence to influence policies, reformsand in general facilitate debates about the need for government�s efforts to promote competition inthe country. Uganda has a draft competition law, which needs to be embraced into an Act by thecountry at the earliest to ensure effective enforcement of the EAC regional competition regime.

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A research undertaken by SEATINI Ugandaunder CUTS project �Accelerating theImplementation of EAC Competition Policy andLaw� (EACOMP) revealed that although the Billhas potential advantages in terms of economicefficiency, there could be an implicit risk thatanticipated benefits may be skewed in favor ofbig business, which might compromise consumerinterests and welfare, and disadvantage smalllocal businesses. The research, focussed onanticompetitive practices and other concerns thathave resulted due to lack of a competition law inUganda or provisions in sectoral laws to curb suchpractices.

A detailed assessment of the perception ofconsumers on competition issues was undertakenthrough field research, where interviews weredone with respondents from the government,civil society and private sector. This also revealedsome challenges in undertaking andimplementing competition reforms.

Challenges and Issues inImplementation

In the course of research, among all the mostpressing challenges that were identified was thelimited awareness and appreciation amongstakeholders, including the technocrats, of thebenefits of promoting competition for achievingdevelopment. The absence of a competitionpolicy seems to have restricted the establishmentof the competent authority to regulatecompetition in the market and curbanticompetitive practices.

This has further been worsened by theabsence of related and supportive policies such asconsumer protection, which also awaits passageby the Parliament. The absence of suchframeworks happens at a time when Ugandanmarkets are replete with anticompetitivepractices. These include price-fixing, bid riggingand market sharing cartels, price discriminationand excessive pricing, which continue tonegatively affect consumers and producers in thecountry. Moreover, the local firms are failing toadequately compete with the foreign companiesand even to break into the sectors dominated bythe transnational corporations. The ensuingdiscussion is an attempt to give details of thesecases.

Anticompetitive Tendencies in theUgandan Market

Anticompetitive practices include agreementsinvolving implicit or explicit arrangementsbetween firms competing in identical or similarproduct categories in the same market. Sucharrangements are mostly between producers orbetween wholesalers or between retailersdealing in identical or similar kinds of products. Inthis arrangement, the parties who enter into thistype of agreement will, for example, agreeamongst themselves to fix prices, reduce outputor allocate customers to particular suppliers in amarket. These arrangements are widelycondemned by most competition authorities, asthey serve no purpose other than to shift benefitsfrom consumers to producers, the upshot being

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organisational inefficiencies and the making ofexcess profits.

Collective price fixingPrice fixing is the most obvious violation of

competition law to the extent that in alljurisdictions that enforce competition law, it is perse illegal. In Uganda, government has in theoryeliminated price controls in the domestic marketthrough the consistent pursuit of free-markettrade and economic policies. However, theabsence of an autonomous and competentcompetition authority undermines adherence tothe quest for market-determined pricingstructures. The similarity in prices across manysectors of the economy would have warrantedexamination by the competition authority, if itexisted.

Market sharing, customer allocation andallocation of territories

This occurs where two large companiesdominate a particular market. Recentdevelopments in the beverages sector, notably incarbonated soft drinks (soda) and bottled watersub-sectors, could be reflective of market sharing.The two biggest soft drink producers (franchiseholders of Pepsi and Coca-Cola), recently boughtthe leading water-bottling companies. Pepsibought NC Beverages, bottlers of Highland brandmineral water while Rwenzori BeveragesCompanies, manufacturers of the Rwenzori Brand,went to Coca Cola. The development was seen asa move towards stifling competition from thewater companies that analysts had noted wasreducing profitability of carbonated soft drinks.

Given this arrangement, companies can controlmarket shares of these bottled water companiesby controlling their production. Such acquisitionsof stakes in the bottled water companies by thesetwo beverage giants (as has also happened inother countries) appear to indicate that themarket for soft drinks is affected by availability ofnear substitutes (with significant demandsubstitutability) like packed fruit juices andmineral water.

Bid riggingBid rigging involves groups of firms conspiring

to raise prices or lower the quality of goods orservices offered in public tenders. This illegalanticompetitive practice continues to cost theUgandan government and taxpayers billions ofdollars every year.

The advent of economic liberalisation resultedin the introduction of competition in almost allsectors of the economy. As a result, tendering andbidding in government departments is nowcompetitive and more transparent. Theseprocedures are designed to provide competitionin areas where it might otherwise be absent. Anessential feature of the system is that prospectivesuppliers prepare and submit tenders or bidsindependently. However, reports of alleged bidrigging have surfaced, particularly at localgovernment levels. Under the country�sdecentralisation arrangement provided for in theLocal Government Act, districts have a wide rangeof powers including the awarding of tenders forsupply of goods and services.

Unfair trade practicesLiberalisation of the 1990s led to a competitive

market but little efforts were put in place tosimultaneously develop adequate �safety nets� forconsumers and the country as a whole. This hasprevailed in a number of sectors and has affectedconsumers since they end up purchasing lowquality goods and services at high cost. Examplesinclude Chinese manufactured products inelectronics and textiles.

Vertical agreementsVertical arrangements generally refer to

agreements between undertakings operating atdifferent stages in the same production andmarketing chain. These practices are most obviousin the local trade environment. Arrangements of

A Controversial Divestiture RegimeThe privatisation process has been bedeviled

by controversies related to the award of bids toprivate business entities.

Some of the most prominent among thedivestiture projects that were hit bycontroversies was the sale of controlling stakein Uganda Commercial Bank Limited, CoffeeMarketing Board and Nyanza Textiles Limited.

The controversy over the sale of the bankcame in the wake of allegations that severalprivatised state-owned enterprises were soldthrough bid rigging. Consequently, theprivatisation exercise in the country has beendogged by credibility questions with sectionsof the country distrusting government�s abilityto divest state enterprises in a transparent andlegal manner.

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resale price maintenance are widely reported.Resale price maintenance involves restrictionon the price to be charged by downstreamfirms.

Some other facts on the groundEntry barriers are evident within the utilities

industry mainly because the sector is stilldominated by monopolies. Until the late 1990s,the power sector was in the hands of thegovernment. The sector is divided intogeneration, distribution and transmission, withthe South Africa-based Eskom as the leadingplayer in the generation sub-sector. Powertransmission remains a preserve of thegovernment.

According to the Electricity Act, 1997 andregulations, power transmission will remain afunction of the state. Although powerdistribution was liberalised, the state-runUganda Electricity Distribution Company(UEDCL) remains the monopoly in this sub-sector. New entrants in the market are requiredto invest in their own distributioninfrastructure and move out into rural areas.

The railways sector, which, with theexception of goods freighting, has virtuallycollapsed, also remains a monopoly. Years ofneglect and mismanagement by thegovernment led to the near-collapse of themonopoly, Uganda Railways Corporation (URC).In Uganda, water supply remains aresponsibility of the state through the NationalWater and Sewerage Corporation (NWSC). Thewater sub-sector is undergoing restructuringwith the aim of offering concessions to thepublic to commercially supply water andsewerage services at regional and districtlevels.

Uganda thus presents a number ofillustrative examples of monopolies whichhave either remained weak or are nearingdisintegration due to the continuedgovernment involvement in these sectors. It isnecessary for the government (especially giventhe current political will towards greaterprivate participation) to institutionalise atransparent and effective process to facilitategreater private participation in these keysectors, whose potential has been stunted dueto the existence of monopolies. This wouldalso help the government save scarceresources.

Cross-sectional Perception onCompetition Issues

Based on the field survey findings itemerges that respondents expressed mixedfeelings about competition and the need forUganda to have a competition policy.

One view was that appropriate competitionlaw and policy are desirable and can bevaluable instruments to prevent and reduceabuse of dominant position by monopolies.However, it was also felt that such an approachshould not be anchored on free marketfundamentals, rather to ensure that thecountry�s aspirations for social and economicdevelopment can be met. Further, it shouldalso not dilute the ambition entrenched in thecountry�s industrial development strategy foraugmenting domestic production andachieving value-addition.

Another view was that competition drivesefficiency, innovation and productivity growth,which are keys to competitiveness andremunerative employment. Competitionpolicy is also associated with increasedinvestment and trade, and has a bearing onnational poverty alleviation effort. The policyis thus seen an important tool in therealisation of benefits of EAC integration. Onerespondent also argued that competitionpolicy is associated with increased investmentand trade, and has a bearing on nationalpoverty alleviation effort. Thus, therespondent felt that competition policy is alsoan important tool in the realisation of benefitsof EAC integration.

A respondent from the Kampala City TradersAssociation believes that trade openness, asenvisaged in Uganda, has not promotedsustainable local production andentrepreneurship, but has led to benefitswhich are skewed in favor of foreign bigbusinesses. Consequently, a pro-competitiveenvironment has led to the creation of privatemonopolies. Thus, there is an urgent need forthe state to come in and favourably protect thedomestic investments and traders in order topromote structural transformation and attainsustainable development.

This view was also echoed by a respondentfrom Uganda Small Scale IndustriesAssociation, who argues that big firms shouldbe controlled to concentrate on one section ofthe value chain such as production, rather thancontrolling the whole selling and retailing

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sections as well. This would allow smallretailers the opportunity to engage and benefitby participating in such markets. In addition,big firms should also be controlled toconcentrate on the production of specificproducts rather than diversifying into othermarkets to kill competition.

In conclusion, respondents showed thatbecause Uganda is a largely liberalisedeconomy, and because current markets havenot favored sustainable domestic productionand entrepreneurship because of beingoutcompeted by powerful firms, it is importantfor Uganda to have a competition policy toprotect both consumer welfare and domesticproduction. However, it is also critical that aneffective competition enforcement agency isestablished, especially to ensure thatdominant firms (public or private) don�t abusetheir market strength at the cost of smallbusinesses and consumers.

RecommendationsFrom the above analysis, the following

recommendations emerge for consideration byrelevant sections of the government:� Legislations should be put in place to

protect consumers from exploitation in keysectors

� Competition policy should also aim atcomplimenting national policies in order toachieve national development objectives

� The competition regime of Uganda shouldbe implemented to ensure that interests of

small and medium enterprises (SMEs) areprotected

� The competition policy and/or law ofUganda should not affect the ability ofstrategic growth-oriented sectors to thrive

� The competition law should beimplemented by an autonomous body withpowers and capacity to investigateanticompetitive practices and behaviourand impose penalties where applicable

� Uganda�s competition regime should lead tothe development of a level-playing fieldthat should allow easy entry and exit offirms, so that the current situation wheremost sectors are dominated by large(foreign) companies can be rectified. Thisshould, however, be done through a fair andtransparent process

� Uganda ought to draw lessons from othercountries experiences of promotingcompetition, especially its neighboursKenya and Tanzania, who haveimplemented their competition regimes forsome time now

In order to actualise potential benefits ofhaving a competition policy and law, thefollowing are important:

Awareness raising: Stakeholder awareness onthe importance and relevancy of having acompetition policy and law that is linked toUganda�s level of development and supportiveof her industrial development is pertinent.

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This Policy Brief has been prepared by Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI),Uganda from the findings of the project entitled �Accelerating the Implementation of EAC Competition Policy and Law� (EACOMP).This Publication was made possible through the support provided by TradeMark East Africa (TMEA). The views/opinions expressedherein are those of the author and do not necessarily reflect the views of TMEA.

CUTS Policy Briefs are meant to inform and educate readers and provoke debate on specific issues. Readers are encouraged to quoteor reproduce materials from this paper for their own use, but as a copyright holder, CUTS request due acknowledgement and a copy ofthe publication.

© CUTS Nairobi 2015. CUTS Nairobi, Yaya Court, Second Floor, Room No. 5, Ring Road, Kilimani, Nairobi, Kenya.Ph: +254-20-3862149. Fax: +254-20-3862149, E-mail: nairobi@cuts.org, Web: www.cuts-international.org/ARC/Nairobi

Capacity building: Stakeholders should beempowered and motivated through capacitybuilding/strengthening to understand theimportance of the competition laws for theprotection of consumers by regulatinganticompetitive practices and enforcing fairbusiness practices.

Information generation and dissemination:Simplified information and advocacy materialsshould be developed and disseminated toenhance stakeholders� understanding of theimportance of competition policy in a country likeUganda. Information materials should alsohighlight some of the anticompetitive marketprices and other unfair business practices thatcould undermine the country�s development.

Engage members of parliament to fast track thepassage of the Uganda Competition Bill into law:The passage of the Competition Bill into a lawshould be fast tracked to facilitate theestablishment of an autonomous body with thepower and capacity to investigateanticompetitive practices and behavior andimpose penalties where applicable. There shouldbe a strong body to safeguard against statecapture in the implementation of thecompetition policy.

Budget allocation: Adequate resources should bedevoted to disseminating competition relatedinformation to market participants. Uponestablishment, resources should also be madeavailable by government to strengthen thecompetition authority to monitor and actionanticompetitive behavior in the market.

Fast track the development and enactment ofrelated and supportive policies and laws: Thegovernment should also finalise the enactment ofrelated and supportive legislations such as theAnti-counterfeit Act, Consumer Protection policy,etc.

In conclusion, the objective of a competitionpolicy and law is to regulate competition for thebenefit of consumers and business, which allowsfor the easy entry of businesses into a market.Competition in Uganda is becoming more criticalas players jostle to survive within the existingcompetitive market environment. Uganda�scompetition law and its enforcement should bedesigned to restrain anticompetitive behavior bylarge domestic corporations by limiting or pre-empting abuse of monopoly power. Protectingthe interest of consumers and SMEs should beentrenched into the heart of the process ofdevelopment and implementation of thenational competition regime of Uganda.