Sunday, May 26, 2019
Government | Africa | Egypt

Egypt

ECA: Building a competitive economy that works for all


2 weeks ago

Dr. Amir Ibrahim, Egyptian Competition Authority
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Dr. Amir Ibrahim

Egyptian Competition Authority

The Worldfolio sits down with the Dr. Amir Ibrahim to discuss some of the important work of the Egyptian Competition Authority in building a competitive economy that works for local investors, foreign investors and consumers alike.

 

What is your vision as an institution and your personal opinion in terms of the reform process that has been going in the country? What is your overall evaluation of this process and how do you think this has made the country more competitive on an international scale?

Well I think that the reforms were desperately needed. We are the competition authority and we are the defenders of the free market. If anyone believes in the value of free market economy, it would be a competition authority. I think that the removal of subsidies was much needed, and we noticed that the presence of subsidies in some sectors disturbed supply and demand. It’s the usual scenarios of overconsumption or the underestimation of the value of the service that you actually use however international experience and empirical evidence demonstrate that after the removal of subsidies in some sectors like electricity it drives environmentally friendly substitutes, which is a good thing.

However, as a competition authority, we work closely together with other government entities to make sure that when they calculate the cost of the provision of the service they don’t calculate it on the basis of a monopoly but they take into consideration that the calculation is based on the cost of the most efficient adequately equipped undertaking operating within a competitive environment. This was something we have raised for instance with the electricity authority. We have been very clear to them, that we are supporting the removal of subsidies; however we have to make sure that when we calculate the rate for the consumers, the cost of operations is not the one calculated for a monopoly but rather the other ones that reflect competitive constraints based on objective efficiency criteria.

From day one when I took office we wanted to make sure that economic reforms will not be taken as an excuse for anti-competitive prices. If the reforms aim into remove the state influence from the market, this should not be substituted by the collective influence of private undertaking. If we are asking the state or demanding the state to not impose prices, or to liberalize the economy we cannot accept that the private sector will assume this role on their own through price collusion.

So, we think the competition policy has a role to play to maintain the success of the reform policies specifically in tackling inflation that may result after a decision to remove a subsidy and this is what we have done in the last two months. It’s that when the government takes a decision to remove the few subsidies some businesses took it as an inviting opportunity to collude and raise prices on the consumers.

So, we are protecting the reforms, and the government endeavors to make reforms work for the interest of the consumer and for the interest of foreign investment, and also local investment as well.

 

How important is it to send an important and strong message and apply the force of law in a proper manner to make sure that the authority is taken seriously by the private sector community?

At the ECA, we believe that while advocacy is important it cannot be an end in itself, it’s not the one that achieves the best deterrence. Our main goal is to improve the competitive structure of the market. So, we are not here to run after businesses and to send them to court. We believe that the deterrence can be achieved through administrative measures including administrative fines. They are more effective, easier to collect and they don’t impose any threat on investors. They are imposed on any undertakings that exercise economic activity; this means it provides greater certainty for the business community. How we calculate the fine is something they already know. If they commit a violation we have the fining guidelines, we also have the settlement guidelines.

Moreover in terms of deterrence, current evidence suggests that the criminal regime may take longer to achieve the desired deterrence because a criminal case can take too much time before it is decided. This runs against the fast-evolving nature of markets. Some sectors after one year may look totally different from what they look like now.

So, if you are waiting too long to punish anti-competitive behavior, I think this is equal to no deterrence at all. I believe this is why Egypt committed to the IMF that it will change the competition regime towards a more administrative framework. The ECA shares the belief that this is the most appropriate one in achieving not just deterrence, but also economic goals that we aim to implement, which is basically the restructuring of our economy.

 

I wanted to take this towards the legal framework for M&As. You have said something very important which is that aggressive mergers and acquisitions can stop innovation or the creation of companies in other areas that are not necessarily in big populated areas. One of the main and most difficult things for the government to achieve is to create jobs in these small cities and avoid massive migrations to big cities. How are you making sure that all of these laws and acquisitions, or how is the law making sure that you don’t kill the opportunities of these cities to have their own economic growth?

That is exactly why the new competition policy focuses on economic freedom. One thing we look to is the EU. The EU competition policy still actually focuses on the protection of economic freedom to achieve the goal of market integration. We think that geographical blocking, whether through contractual terms or other commercial practices may actually harm the economic integrations that you have just described. We want to ensure that jobs are not just available in Cairo but available everywhere.

When for example you try to create a nationwide monopoly, you will have more incentives to invest in commercial areas and less incentive to invest in non-commercial areas. So, one way to tackle this is to ensure that new undertakings are free to enter the market and try to develop new business models for what the monopoly may perceive as a non-commercial area. That is something very important for us. Segmentation of businesses, whether it is geographical or racial or any kind of segmentation, is not helping to create a wide market that is capable of serving many people and battling unemployment.

I think we need to make sure that our competition policy creates enough incentives for each and every undertaking whether big or small to compete on the merits, to serve the widest consumer they can reach, and this cannot happen under monopoly conditions. A monopoly by definition doesn’t have enough incentives to work by itself to reduce costs. Because as someone put it, the best reward for a monopoly is an easy life. You don’t have enough incentives to reach new customer bases.

And that’s exactly the concern we have in our market, we have serious concerns about the news that we heard that UBER is trying to merge with Careem. We have some tools to tackle this problem under our current legal framework. We are planning to introduce some law amendments that increase our powers in the area of merger and acquisition to make sure that any merger operation will not lead to the creation of a market monopoly and lessen effective competition within the market and we have law amendments ready and presented to the government.

It will be hopefully put on the voting floor soon. But that doesn’t mean that the current tools are not effective to stop and to tackle the planned merger and we sent information requests to both in relation to this merger, especially when Careem itself came to ECA a year ago complaining about exclusionary practices that UBER implements in the market. And if a main competitor is saying that its main rival is not competing on the merits and now we find that both competitors are merging there will definitely be concerns from our side. So if Uber was performing like Careem has described in the presence of effective competition, the risks will be higher in the total absence of competition. This is why this is a major issue for us.

 

There is a new generation that needs to take over. Bad habits cannot be changed, you need to remove people and bring in a new generation with a new way of thinking and there has been a revolution in this country from its core. So taking as an example the authority I want you to share with us how important is that the country in general leads a generational change that is able to bring new fresh ideas and to not be intimidated by old school habits?

I guess ECA and its new management portrays the change that you are just describing. I think I’m the youngest person that has chaired ECA throughout its 12 years. I practiced competition law. In London and I’m proud that I studied at Queen Mary University. As you said the new generation and the new power and ideas to shape the performance of ECA to make it more effective and make it in harmony with the goals that the government aims to achieve. We are probably not intimidated because we are a fresh administration or a new generation that has taken over the authority, also because there is a genuine governmental willingness to challenge the status quo. I’m young which highlights the leadership commitment to empower youth. I am proud to be here because I don’t just represent myself or the ECA but also a generation and I wish I can achieve the success they are expecting

 

In that sense I wanted to ask you something to finish on a personal level. Which are your main objectives for your tenure here in ECA and how do you undertake this responsibility in terms of being young and having a young team as well – acting as an example to other public institutions?

As you can see my advisors, my media team, we are hiring people that got their Masters degree from France or the US etc. We are trying to create a diverse work environment. Actually I’m proud to say that most of the ECA’s members are women. It’s something I’m proud of. It’s something that the new administration is trying to channel and inspire government entities to follow and if this experience is successful that will definitely facilitate access of youth and women to the workplace. It highlights a real willingness to change.

I think when international investors see that those who are running the authorities are technically and managerially capable, they see that they are accountable, they are credible and they are not endangering their investments. Rather they protect them. What I will be trying to achieve during my term is to build a very capable and efficient authority that will help in the restructuring of the Egyptian economy in the interest of 100 million Egyptians. And I think they deserve a very competent competition authority. This will be my first goal.

Competition culture needs to be entrenched in the mind of consumers, this increases the confidence of the consumer in the public authorities and it also facilitates our work. Another important goal that I would like to achieve is advocacy through enforcement and that’s why I will put greater emphasis on increasing the rate of enforcement, because I think it is one of the main tools to achieve the advocacy levels that we aim to achieve.

 

 


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