RESTRICTED
WORLD TRADE WT/WGTCP/W/46
25November 1997
ORGANIZATION(97-5176)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
SUBMISSION FROM KENYA
Thefollowing communication, dated 13November 1997, hasbeenreceived fromthePermanent
Mission oftheRepublic ofKenya withtherequest thatitbecirculated toMembers.
_______________
1. Introduction anddevelopmental strategies ofindustrialization
InKenya, asinmost developing countries, theperiod afterindependence wasmarked bya
deliberate policy ofdirect government participation inproduction anddistribution ofgoods andservices
overandabove thecontrol structures inherited fromthecolonial regime. Avariety ofsocio-economic
andpolitical objectives were settowards indigenization, rapid development, theredress ofregional
imbalances, increased participation bycitizens intheeconomy andpromotion ofindigenous
entrepreneurship.
Private investors sought government participation injoint ventures toensure continued
government support forsuchventures. Later some ofthesewholly orpartly private-owned enterprises
wereacquired bytheGovernment withtheaimofrescuing collapsing firms. Thisincluded converting
outstanding debts ortaxliabilities intoequity. Financial institutions weremandated toprovide funding
fordevelopment projects unable toobtain financial support from private sector sources.
Inthe1970s, itwasrealized thatstateparticipation intheeconomy hadgrown beyond the
Government 'soriginal intentions ofmobilizing resources toenable Kenyans toparticipate fullyinthe
economy, since theylacked ingredients likeeducation (literacy), health facilities andability toraise
minimum seedcapital.
Alarge debtexposure among parastatal enterprises resulted inincreased vulnerability while
planning inrespect toprovision ofinfrastructure andconducive business environment wasnotgiven
theattention itdeserved.
Operating losses andinadequate reforms onparastatal investments further eroded thealready
weakcapitalbasesoftheseenterprises.Asaresult,thelimitedadministrativeandmanagerialcapabilities
ofthepublic sector werediverted fromfundamentally more important areas ofpolicy, infrastructural
development, development ofsocial services andthemanagement oftheeconomy tothefavoured
inefficient parastatals.
Inthe1980s, thedevelopment strategy shifted tothatofafreemarket. Itaimsatrestructuring
theeconomy tostrengthen integration ofsectoral linkages hence stimulate demand, output, employment,
savings andinvestment. Thisstrategy isgeared toincreasing thecountry 'sexports, employment of
alltheresources, disposable income andsavings forinvestments.WT/WGTCP/W/46
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2. Thetransition
Kenya hascome through aseries ofeconomic crises; theoilshock oftheearly1970s, adecline
intradeduetolowcoffee andteaprices, domestic inflation oftheearly1980s andthedrought of1984
which negatively affected average incomes ofthepeople.
Thereport ofthe1982Working Party onGovernment Expenditure proposed lessgovernment
intervention intheeconomy butitwarned -"Asprivate sector activities andcommunity efforts increase
inscope andmagnitude, opportunities forabuse, favouritism andexploitation mayalsoincrease".
Thereport thusrecommended thesetting upofaMonopolies andPrices Commission andacompetition
lawthatwould serve asapolicy instrument forinfluencing resource allocation.
TheSessional Paper No.1of1986on"Economic Management forRenewed Growth" marked
apolicy turning point within theKenyan economy asitintroduced thepolicy oflessgovernment
intervention inthemarket-place andrecognized thateconomic development needed anefficient and
effective competition policy. Itfurther noted thatKenya hadnocomprehensive administrative orlegal
mechanisms toeffect thecompetition policy.
3. Competition LawofKenya -TheRestrictive Trade Practices, Monopolies andPrice Control
Act,Cap. 504
TheActcommenced on1February 1989. TheMonopolies andPrices Commission, under
theMinistry ofFinance, hasthemandate ofimplementing thesaidAct. TheCommission isheaded
byaCommissionerwithaTechnicalTeamofEconomists(Planners)andMonopoliesandPricesOfficers.
TheCommission hasfive(5)divisions:
(1) Planning andEvaluation -dealing withmarket structure.
(2) Restrictive Trade Practices -dealing withmarket conduct.
(3) Legal Division -deals withallmatters pertaining tolawespecially amendments of
Cap. 504andchecking theotherlegislations which areincontradiction withCap. 504.
(4) Computing andStatistical Division -charged withupdating ofthedatabank, casestatus
report,documentationcentreandcollectionofrawdatafromtheplayersintheeconomy.
(5) Administration Division -offers support services, e.g.motor vehicles, computers and
support staffforthetechnical divisions.
TheRestrictive Trade Practices, Monopolies andPrice Control Actisbasically concerned with
market conduct andmarket structure.
3.1 Market conduct
Sections 6-12enumerate therestrictive tradepractices which mayaffect market conduct. Some
oftherestrictive trade practices expressly declared asillegal are:
(i) refusal todeal;
(ii) price discrimination;
(iii) conditional sale;
(iv) resale price maintenance;WT/WGTCP/W/46
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(v) price cooperation;
(vi) customer discrimination;
(vii) market allocation;
(viii) collusive tendering;
(ix) tiedpurchasing;
(x) predatory pricing andpractices.
Thelawprovides thattheabove occurrences aredetected intwoways:
(a) Aperson aggrieved asaresult ofanalleged restrictive trade practice maysubmit a
complaint totheMinister through theCommissioner forMonopolies andPrices.
(b) TheCommissionermayalsoinstituteinvestigationsintoallegedrestrictivetradepractices
brought intohiscognizance byother government agents oreventhrough thepress or
informal discussions. Upon receipt ofacomplaint, theCommissioner acknowledges
itinwriting tothecomplainant andinvestigations commence.
Step1
Establish thesection oftheActallegedly breached -iftheRestrictive Trade Practice Acthas
notbeenbreached theinvestigations areclosed andthecomplainant isinformed ordirected where to
seekredress.
Step2
Collect information relating totherelevant product andgeographical market.
Step3
Where there isspecific orsufficient evidence, theCommissioner issupposed toinform the
offender about theallegations andasremedial measures heisrequired toindicate thesteps heintends
totaketobring histrade practices intoconformity withthelaw. Intheevent offailure torespond,
theCommissioner willbecompelled toinvite theoffender tonegotiate aconsent agreement stipulating
thathewilldesist fromthespecified practices. Once theconsent agreement isdulysigned andgazetted,
andtheoffender complies, thematter isclosed.
Step4
ContinuanceofthemalpracticewillleadtothematterbeingforwardedtotheMinisterofFinance
tomake anorder regulating thepractices inquestion after ahearing which isattended bythe
Commissioner, theMinister, theoffender orhisappointed representatives.
Aperson aggrieved bythesaidorder mayappeal against theorder totheRestrictive Trade
Practices Tribunal andalsowithin 30daysafterthedateonwhich anotice oftheTribunal 'sdecision
hasbeenserved onhim,appeal totheHigh Court andtheHigh Court 'sdecision shallbefinal.
Failure tocomply withtheHighCourt 'sdecision isacriminal offence withafinenotexceeding
KSh200,000/= orimprisonment foratermnotexceeding twoyears orboth.WT/WGTCP/W/46
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3.2 Market structure: sections 23-30
Inthesesections, Cap. 504enumerates howtohandle unwarranted concentrations ofeconomic
power andmergers/takeover oracquisition proposals which definitely affect themarket structure.
3.2.1 Concentrations ofeconomic power
ThelawempowerstheMinistertoinvestigateeconomicsectorswithunwarrantedconcentrations
ofeconomic power. Thisisbecause monopolies andother forms ofconcentrations ofeconomic power
candictate terms andconditions inthemarket-place.
Unless theunwarranted concentration ofeconomic power leads tohighproduction costs and
deterioration ofgoods orservices andisprejudicial tothepublic interest, theyarenotpenalized.
Ifthere exists abuse ofdominant position, theMinister maymake anorder directing those
deemed toholdunwarranted concentrations ofeconomic power inagiven sector todispose ofcertain
portion(s) oftheirinterest inproduction ordistribution ofsupply ofgoods andservices.
Thedisposing oftheinterests should beinsuchamanner thatthephysical disintegration of
theunits willnotreduce efficiency orraiseproduction costs.
3.2.2 Mergers andacquisition
These mayleadtodominant positions thatcanbeabused andtherefore theyrequire notification
andMinisterial approval before consummation. Thelawrequires pre-notification ofallhorizontal
mergers andtakeovers; failure towhich constitutes acriminal offence.
Step1
Theconcerned parties apply totheMinister.
Step2
Investigations commence involving thestudy oftherelevant market (both product and
geographical), patterns ofownership, market shares oftheconcerned enterprises andother leading
enterprises inthemarket.
TheMinister mayapprove orreject theapplication ormayapprove itoncondition thatcertain
steps (likepartial disposal ofinterests) aretaken toreduce negative effects ofthemerger ortakeover
onapplication.
TheMinister shallthencause theorder somade tobepublished intheofficial Kenya Gazette
assoonasreasonably practicable afteritismade.
4. Cases handled
(1) Seventy-four (74)complaints involving restrictive trade practices havebeendetected,
ofwhich 64havebeenfinalized while theothers areatdifferent stages ofinvestigation.
(2) Onehundred andseven (107) applications ofmergers andtakeovers havebeenreceived
-allexcept twohavebeenapproved andoneisstillunder investigation.WT/WGTCP/W/46
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(3) Fivecases (5)involving abuse ofadominant position havebeeninitiated during the
period thattheActhasbeeninforce.
Conclusion
Theroleofcompetition policy intrade, mayitbenationally orinternationally, cannot be
overemphasized.
Competition lawincreases efficiency inthemarket sectors leading toqualitative andquantitative
increase ingoods orservices offered.
Effective competition lawsareaimed atcorrecting market failures which distort national and
international markets hence increasing trade. Many oftheenacted competition lawsareconcerned
about thenegative effects ofrestrictive trade practices ormergers andacquisitions intheirnational
economies. Thiscanleadtobiginternational companies merging andestablishing themselves inthe
developing countries curtailing localinvestment bycreating barriers toentry andother restraints.
Duetotheproblem ofcapacity, theCommission hasnotbeenabletodwell much onthecases
ofunwarrantedconcentrationofeconomicpowerwhichareverypredominantinthedevelopingcountries.
Finally, competition policy andlawissues indeveloping countries needspecial considerations
ifthese countries aretoenjoy thebenefits offreemarkets afterliberalizing trade intheireconomies.
Further work byWTO andUNCTAD needs tobedoneontheinteraction between trade and
competition policy especially asitrelates todeveloping economies.