left at the mercy

Left at the Mercy of Traders with no Conscience

In the aftermath of free market policies and the subsequent lifting of price caps in Ethiopia, setting the price of commodities seems to be left solely to suppliers and traders. With barely any institutional set ups to protect the rights of consumers, the prices of goods and services has soared in folds with the trend showing no end in sight. The Trade Competition and Consumer Protection Authority established seven years ago seems to be a failure. EBR’s Ashenafi Endale looks into the problems in consumer protection and the road ahead.

The hype at the onset of COVID-19 in Ethiopia that lemon, ginger and garlic help treat the virus spiked their prices and the trend soon engulfed other commodities. False rumors were also circulated to push people to panic buy some food and non-food items at significantly exaggerated prices. These are typical examples of the deregulated market practice particularly in Addis Ababa. The inflation and chocking on supply also included non-related items like Teff, in addition to protective items such as face-mask, alcohol and sanitizer.

The city trade bureau reacted urgently, as it usually does, to take legal action against greedy retailers by setting up a committee that went as far as closing down businesses and bringing some of the culprits to justice. A few days after its formation, the committee took action against 188 suppliers, wholesalers and retailers in the capital. Nationwide, the Ministry of Trade and Industry took action against 25,000 businesses since the first case of COVID-19 was found in early March 2020, according to Melaku Alebel, the newly appointed Minister.

The figure from the Addis Ababa trade bureau is five times more than the number of cases the Trade Competition and Consumer Protection Authority (TCCPA) reviewed over the first six months of 2019/20. During the span, the authority received 34 cases involving ETB2.6 million. With its jurisdiction limited to Addis Ababa, the Authority established seven years ago is perceived to be less assertive than it needs to be. Its role is also repeatedly taken up by committee.

Some of the 34 cases the authority handled involve getting buyers a refund on defective products like coffee machines, cell phones and bad hair color from the beauty salon. Defective products, for instance, are returned or compensated, if the buyer brings up the case to the authority within 15 days. There are also close to 12 cases from parents who were subjected to up to 60pct tuition fee increments for their children from schools that failed to notify them five months earlier, as per the requirements of the law.

Most of the cases are forwarded either by deceived customers, public informants or businesses that have fallen victim to unfair market practices. False promotion, snatching others’ clients, irrational inflation, poor service quality, copying logos and trademarks, defective goods and anti-competition cases have also increased.

Although the number and form of anti-competition and market malpractices have been increasing significantly, the number of cases the authority handles and its authoritative position has been diminishing. Of the 88 cases the authority received last year, 20 cases are given final solution by the consumer protection tribunal court under the authority while 42 are still under investigation.

Misleading consumers, false promises, failure to deliver on contracts, distributing defective products and services, inflating prices particularly in schools and medical sector, hoarding and other numerous malpractices have become the norm in the untamed market. However, the situation is improving lately as consumers become aware of their rights.

The Authority’s Communications Director, Alkadir Ibrahim, concurs. He says an increasing number of consumers get better market information and know their rights.

“Yet the rate of market deception is increasing faster. To make things worse, although our function is eliminating anti-competition practices from the market, maintaining quality, contracts and reasonable pricing, providing arbitration through a court system outside the formal judiciary, we are not responding to the dynamism. We are not taking actions as much as the consumer wants and the market demands,” he says.

The Authority is also mandated to undertake investigation and prosecution, enforcing merger provisions control, data collection for market information, consumer education, research and development focusing on competition and consumer studies.

Discontinuing acts pronounced unfair, taking appropriate measures that reinstate victims’ competitive positions, suspending or revoking the business licenses of the offenders are some of its entitlements. However, the authority has fallen short of expectations in its success rate since becoming active seven years ago.

Although accountable to the Ministry of Trade, Getinet Ashenafi, Director of compliance, investigation and case modality at TCCPA, says the authority failed to live up to its mission due to the erosion of its power especially after the establishment of the Attorney General. “The power of the authority is currently very limited due to mandate overlap with the attorney general,” he said. He went on to say: “for instance, most of the economic crimes formerly investigated by the Federal Ethics and Anti-Corruption Commission, TCCPA and the then Ethiopian Revenues and Customs Authority (ERCA) are mandated to the attorney general and the federal police, rendering the former institutions powerless.”

Universally, the consumer protection power structure has two modalities. The first, which is widely practiced throughout the world, gives ultimate power to a central entity like the Ethiopian TCCPA that encompasses all anti-competition and free market malpractices affecting consumers across all sectors and industries. Under the second power structure, however, power is given to all authorities across the sector.

“The establishment proclamation of the TCCPA gives all the power to a single central authority. But practically, the powers are exercised by other institutions. Ethiopia needs to choose one,” argued Getinet.

The original mandate of the authority includes protecting consumers’ right both in goods and services, maintaining fair market competition and assessing and solving forwarded cases. The mandate includes not only traded goods but also ensuring value for money in health, education, technology, media, hospitality and other services.

Although the commercial code of 1960 states the necessity of consumer protection, efforts by the Ethiopian government to monitor the market date back to 2003 when the Trade Practice proclamation was introduced. This notion of protecting the consumer was replaced by the Trade Practice and Consumer Protection Proclamation in 2013. The later proclamation, which is the legal foundation of the TCCPA, was enacted in 2014 but only a small section of it has been implemented so far largely because of financial constraints.

The objective of the proclamation was to secure a fair competitive process through the prevention and elimination of anti-competitive and unfair trade practices, stopping market monopoly behavior and/or agreements, control merger and acquisitions and safeguarding the interests of consumers through the prevention and elimination of any restraints on the efficient supply and distribution of goods and services.

Based on the 2013 proclamation, a Federal Trade Competition and Consumer Protection Appellate Tribunal was set up and it was given powers of hearing and deciding on appeals against decisions of the Authority, which is the sole organization responsible for consumer protection and welfare ever since the Ethiopian consumer association was abolished.

Nonetheless, high turnover of judges and lawyers weakened the Tribunal. Even last year, the Tribunal suspended operations for almost half a year after a judge resigned and the Prime Minister did not replace him on time. “Our judges are paid way less than those working the same post in federal courts,” said Alkadir.

The consumer-economy nexus
Mengesha Tesfaye, a father of five, had already waited for over an hour at the consumer association shop located around Shewa Dabo in Bole Sub-city at 10am on March 25, 2020. “I received information that sugar would be up for sale at the association shop today.” Mengesha did not buy sugar for the last two months. Up on hearing about the impending sale of sugar at the consumer association shop, Mengesha waited in a long line. “There are rare shops that sell sugar in secret. But they sell it up to ETB30 per kilogram, which is almost twice the price charged by the association shop.”

The residents also used to buy saturated sub-standard palm oil for cheap from the association shops for over five years until the Ethiopian Public Health Institute identified it risky to health few months back. By selling the palm oil, the government protected the consumer from buying edible oil at inflated price while this came at the expense of the consumers’ safety.

“We receive a couple of quintals of sugar and wheat flour. Currently, we are selling locally produced and affordable edible oil since the need for saturated palm oil has decreased. We also sell other items whose supply is low in private shops. However, there is a supply problem of almost all commodities,” said Akele Tibebu, Salesman at the Consumers’ Association Shop.

Most of the goods and services provided by the state and its affiliates have quality issues, although they address the low income segment that accounts for the lion’s share of the country’s population. On the other hand, goods and services provided by the private sector are characterized by price hikes, which are generally unwelcomed by the population.

The dependence of the country on imports, coupled with difficulties in accessing foreign currency and the ever plummeting purchasing power of the birr, resulted in an increase in the price of commodities. Shortage of raw material, power shortage and minimal capacity utilization in the industry sector contribute to the fluctuating supply and price hikes.

The failure of small and medium enterprises to meet expectations in fostering the supply side and stabilizing markets also aggravate the monopolistic competition and further increase the price of goods. The prices of agricultural commodities, which should have been cheaper, are inflated due to the involvement of intermediaries in the market chain. Such malpractices lead to increased hoarding and arbitrary price hikes.

According to a baseline survey on competition and markets in Ethiopia, a study commissioned by Addis Ababa Chamber of Commerce and Sectoral Associations, abuse of dominance is higher in industry/manufacturing and agriculture, collusive practices are very common in industry/manufacturing, vertical restraints are high in agriculture and industry/manufacturing, and unfair competition is high in industry/manufacturing while it is moderately prevalent in the service sector.

The Oromia Trade Bureau head, Dhenge Boru, agrees. “The consumer is always confronted with the risk of substandard products and price fluctuations. Items with better supply are hoarded because opportunist traders attempts to make 100pct profits at once. Ethiopia’s market will be predictable only when it is integrated with the whole East African market,” he analyzed.

“Ethiopia’s market is led by extreme speculation,” said the State Minister of Finance, Eyob Tekalign while explaining the possible impacts of the recently revised excise tax. The revision, which imposed an average of 160.5pct tax on the 378 goods and services selected across 19 categories, substantially increased prices. Although the revision aims to discourage consumers’ use of alcohol, cigarette and old cars, basic items are also included.

The TCCPA, which focuses only on controlling the private sector, indifferently looks away when consumer rights are breached by the government. For instance, the government has been supplying saturated sub-standard palm oil that causes serious health problems for years. The authority has, however, shown no interest to protect consumer rights in this case.

Above all, the authority does not set a maximum limit on the percentage of one time price increment by both private and governmental bodies. Despite the self-declared developmental state economic policy over the past couple of decades, market pricing has been comparatively more liberated during that time. However, not everything is left for the market forces as the government’s hand extends up to supplying basic commodities at fixed prices. The price of these commodities with limited supply could dramatically shoot up, were they left solely for the private sector.

Seifu Ayalew (PhD), a legal expert based in USA, supports such measures. “I do not think free market is fully implemented in Ethiopia and I do not believe it should. But on the other hand, government intervention to protect consumers and regulate the market does not violate the principle of free market. Intervention should always be there to mitigate malpractices in the market place: corruption, contraband, and maintaining quality, health and fair competition principles,” he says. “Legal interventions are also critical in the market in order to bring justice to market crimes.”

Solomon Abay (PhD), Associate Dean for Graduate Programs at AAU’s College of Law and Governance Studies, seconds that opinion. “Free market economic policy does not mean not regulating market at all. The economics and logic of free market policy is that decisions can be left to the market (i.e. demand-supply) when it only works. When there is market failure, regulation and intervention by the government is expected and it is justified whether on quality or quantity.”

According to UNCTAD’s review, most of the economic sectors in Ethiopia are monopolized or dominated by SOEs, government affiliated businesses, and oligopolistic sectors. The review states that ‘comparatively, better free market prevails in the livestock sector in Ethiopia.’

The review concludes markets in Ethiopia are lately opening up for competition, following removal of many regulatory barriers at entry. What remains are behavioral barriers that are erected by market incumbents to protect themselves from new entrants. In Ethiopia, behavioral barriers to entry come in various forms, including the abusive dominant firm practices of refusal to supply, predatory pricing, and exclusive supply arrangements as well as other unfair competition practices aimed at weakening competitors.

Meanwhile, the TCCPA is undertaking two decisive tasks that might amend its past underperformances. The first is amending the existing proclamation while the second is preparing its five years strategy in line with the new homegrown economic reform. The amendment has several articles under abuse of market dominance, assessment of market dominance, acts of market dominance, anti-competitive agreements, concerted practices and decisions, unfair competition and conclusion of merger, among others. The draft proclamation mandates the TCCPA impose administrative and criminal penalties.

The main rationale for amending the 2013 proclamation, which many experts say does not need amendment unless through subsidiary regulations, is related to restoring the power of TCCPA.

Basically the amendment will help TCCPA restore its two powers, which are derived from the proclamation. These two powers are: the power to pass administrative decisions on cases and the power to oversee criminal cases. The power to oversee criminal cases has already been given to the attorney general, which was established in 2015/6. The power to pass administrative decisions, which allows TCCPA to rule non-criminal market cases at especial courts, is not explicitly stated in the 2013 proclamation.

“The amendment is needed to save TCCPA from losing both powers. Additionally, the new proclamation would also allow TCCPA open branch authorities in regions, change its existing structure, amend to whom it would be accountable to, and many more changes,” said Alkadir.

Solomon is still unsatisfied though. He argues: “first, the consumer protection function should be separated from the competition and the trade law enforcement functions. This means a consumer protection authority separate from the competition authority and the trade bureaus has to be established and mandated. Second, the power of the Attorney General is (and should be) limited to criminal law enforcement (regarding consumer protection related crimes). The consumer protection authority can report suspected criminal cases to the Attorney General, but should focus on setting and enforcing consumer protection regulations.”

He underscores that full power should be given to a single entity that works on consumer protection. “The main problem is the absence of the above structure and clear division of mandate in Ethiopia. The consumer protection function is not given to a well organized consumer protection authority. Hence, the Ministry of Trade, trade bureaus, code enforcement offices, the police, and courts are conducting piecemeal intervention. In the meantime, consumers suffer from unfair price increases and many other unjustified acts by irresponsible traders.EBR

9th Year • May.16 – Jun.15 2020 • No. 86

Ashenafi Endale

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