The Covid-19 crisis had an exceptional and lasting impact on economies worldwide. At the same time, it underlined and amplified the divergence in economic prospects between countries in the global North and South.
The world continues to confront multiple, inter-connected and mutually reinforcing crises.
Amid the slow recovery from the impact of the pandemic, we are facing food and energy crises exacerbated by the war in Ukraine, record-high inflation and climate change, which are wreaking havoc on the most vulnerable countries and populations.
According to the World Bank, global economic growth is projected to decelerate to 1.9 percent in 2023.
In contrast to advanced economies, most emerging and developing economies (EMDEs) are expected to suffer substantial scarring, with growth trajectories not strong enough to return to pre-pandemic trends.
While by the end of 2023, all advanced economies are anticipated to have achieved full output recovery, output in EMDEs will remain at four percent below pre-pandemic levels.
Kenya Kwanza’s economic agenda has the Micro, small and medium enterprise (MSME) economy as a fundamental pillar in achieving inclusive economic growth.
MSMEs in Kenya account for 98 percent of all businesses, contribute up to 40 percent of the gross domestic product and employ seven out of every 10 working Kenyans.
Importantly, MSMEs are at the centre of inclusive economic growth. They cover a wide variety of activities in virtually all sectors of the economy, presenting business opportunities for excluded segments of the population.
During crises, unfair market conduct becomes pronounced. Victims of exploitation of market power are typically weaker small players.
In buyer-driven supply chains common in developing countries, powerful buyers adopt practices to support their survival, at the expense of suppliers, mostly MSMEs.
Suppliers are forced to absorb costs and risks that would ordinarily be borne by the powerful buyers affected through the introduction of punitive discounts and rebates, mid-term unilateral variation of contract terms and delaying of payments.
Such practices, referred to as abuse of buyer power, are illegal under the Competition Act.
Over the past four years, the Competition Authority of Kenya (CAK) has investigated and remedied abuse of buyer power complaints in 18 sectors, with the most predisposed being retail, manufacturing and insurance.
The most prevalent conduct in abuse of buyer power is a delay of payments, making up 73 percent of all complaints investigated in the financial year to June 2022.
From the insurance sector only, the authority has recovered Sh58 Million owed to motor vehicle repair garages, loss assessors and other service providers.
The beneficiaries of this enforcement action were all MSMEs, 65 percent being sole proprietorships with under 20 employees.
This underscores the role of the agency in supporting economic recovery and inclusive growth.
Some argue that the regulation of buyer power is misplaced. Proponents point to the doctrine of freedom of contract and further argue that what the Competition Act proscribes as an abuse of buyer power actually benefits consumers through lower shelf prices.
The reality, however, is different.
The much-touted lower prices could easily become a Trojan horse.
If one market player has better procurement conditions than competitors due to its exertion of buyer power, this business may take advantage of this skewed position to increase its market power in the sales market.
Competitors without this significant leverage and who are unable to extract similar concessions are progressively squeezed out of the marketplace and, once competitive pressure has eased, the powerful buyer is now in a position to increase the hitherto low commodity prices.
More perilously, abuse of buyer power presents a threat to the viability of efficient small players since reduced supplier revenues directly impact their capacity for research and development, innovation and marketing.
A supplier will find it impossible to switch buyers where the offending buyer accounts for a significant share of its output, or high switching costs make it unprofitable.
A similar quandary is faced by the supplier for whom an abusive buyer is a gateway to a downstream market.
The more rents are shifted from the supplier to the powerful purchaser, the greater the likelihood that suppliers will rather exit the market than reinvest.
In the medium and long term, abuse of buyer power in bilateral negotiations has a negative effect on the competitiveness of markets.
Left unchecked, it has the potential to counteract a trajectory towards economic recovery.
For instance, according to a recent study by Melio, an American-based B2B payment company, 78% of MSMEs reported that delayed payments hamstrung a strong re-opening post-pandemic.
The basic goal of competition law is to make markets work for the good of the economy with the overarching purpose being inclusive economic development.
Deterrence of abuse of buyer power speaks directly to options for safeguarding inclusivity in economic pathways.
It is therefore imperative that the national competition agency strengthens its enforcement, with a focus on key economic sectors and on conduct that particularly curtails MSME sustainability.
Priscilla is the Manager of the Buyer Power Department at the Competition Authority of Kenya.
