## 2. Competition, Competitiveness, and Growth

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### Overview and key stylized facts
- Product market competition in sub-Saharan Africa is low relative to advanced and emerging market economies, and similar to other developing economies.
- More than 40 percent of countries in the region are in the bottom quartile of the global distribution of the World Economic Forum product market competition index, and more than 70 percent are below the world median.
- Moving from the median value of the competition intensity index for sub-Saharan African countries to the top quartile of the global distribution is associated with an average increase in the real GDP per capita growth rate of about 1 percentage point, achieved mainly through an improvement in export competitiveness and productivity growth.
- Price level comparison: prices, including of essential items, are on average about 20 percent higher in sub-Saharan African countries than in other emerging market and developing economies.

### Country- and firm-level findings
- Drivers of low competition:
  - Weak domestic competition: market dominance of a few large firms; absence or weak enforcement of competition policies; structural and regulatory barriers to entry; distortive effects of fiscal regimes.
  - Weak foreign competition: high trade barriers (tariff and non-tariff), which have declined over two decades but remain relatively high and can restrict access to intermediate inputs.
- Firm-level measures (WBES and Orbis):
  - Average firm profitability in sub-Saharan Africa is significantly higher—about 10–20 percent—compared to other emerging market and developing economies.
  - Firm markups are about 11 percent higher in sub-Saharan African countries relative to other countries at a similar level of development.
  - Profitability and markup measures are positively associated with market concentration measures (for example, the share of firms reporting fewer than 5 competitors).
  - Regression lines (figures given in source):
    - Profitability (Sub-Saharan Africa): y = 0.14***x + 0.344
    - Markup (Emerging market and developing countries excl. SSA): y = 0.31***x + 0.475
- Heterogeneity across country groups (WBES-based selected values):
  - By Resource Intensity:
    - Oil exporters: Markup 0.82, Profitability 0.51
    - Other resource-intensive: Markup 0.69, Profitability 0.45
    - Non-resource-intensive: Markup 0.64, Profitability 0.42
  - By Region:
    - Central Africa: Markup 0.82, Profitability 0.51
    - East Africa: Markup 0.66, Profitability 0.44
    - Southern Africa: Markup 0.62, Profitability 0.43
    - West Africa: Markup 0.65, Profitability 0.42
    - Emerging market and developing economies (excl. SSA): Markup 0.57, Profitability 0.39
  - Relative differences:
    - Oil exporters show about a 16 and 8 percent difference (markup and profitability, respectively) relative to other countries.
    - Central African countries tend to have markups and profitability higher by about 8 percent and 18 percent, respectively, compared to other regions within sub-Saharan Africa.
- Markup dynamics and persistence:
  - Available time-series evidence suggests markups have increased in some large economies (examples noted: Nigeria and South Africa).
  - Markups are highly persistent in sub-Saharan Africa: the half-life of firm markups is about 1 year for the sub-Saharan African sample versus 0.5 years for other emerging market and developing economies.
- Firm-type differences:
  - Majority state-owned and foreign-owned firms tend to have higher markups than other firms, especially in manufacturing.
  - Small firms tend to have lower markups than medium and large firms.
  - The share of mostly state-owned firms in the sample for sub-Saharan Africa is almost double that for other emerging market and developing economies.

### Sectoral patterns
- Sectoral concentration of high profitability and markups:
  - Highest profitability and markups are in nontradable and services sectors.
    - WBES: hotels and restaurants, wholesale and retail trade, construction.
    - Orbis: other services, information and communications, financial intermediation, transportation.
  - Markups tend to be lower in manufacturing, notably among textile and leather producers.
- Cross-country sectoral comparison:
  - Competition is weaker in sub-Saharan Africa across nearly all sectors.
  - The average difference in markups across sectors between sub-Saharan Africa and other emerging market and developing economies is equivalent to about 7 percent.
  - Sectoral patterns are strongly correlated between SSA and other emerging market and developing economies (correlation about 0.9), indicating similar sectoral structure but higher levels in SSA.

### Macroeconomic links: markups, firm behavior, and growth
- Channels and empirical magnitudes (competition → macro outcomes):
  - Private investment: Improvement in the competition index from the median value for sub-Saharan Africa to the top quartile of the global distribution is associated with a positive but statistically weak increase in investment (percent of GDP).
  - Exports: The same increase in the competition index is associated with an increase in exports by 1.7 percent of GDP.
  - Labor productivity: The same increase is associated with labor productivity growth by about 1 percentage point.
  - Prices and welfare: Moving from median to top quartile of the competition index is, on average, associated with about an 8 percent reduction in prices of food items, a 14 percent reduction in prices of health services, and a 10 percent decline in the price of the overall individual consumption basket.
- Firm-level responses to markup declines:
  - WBES-based estimates:
    - A 1 percent decline in markups is associated with an increase in investment of about 0.7 percent of the firm’s value added.
    - A 1 percent decline in markups is associated with an increase in exports of about 0.2 percent of the firm’s value added.
    - A 1 percent decline in markups implies a proportionate increase in the labor share of output.
  - Orbis-based (time-dimension) estimates:
    - A 1 percent decline in markups is associated with a 1–1.4 percent increase in a firm’s investment to value added ratio.
    - A 1 percent decline in markups is associated with about a 1 percent increase in the share of labor in a firm’s output.
    - A 1 percent decline in markups implies a 0.8 percentage point increase in the rate of productivity growth (labor and total factor productivity).
  - Sectoral heterogeneity: Associations between markups and investment, labor share, and productivity growth are nearly twice as strong in manufacturing as in services.
  - Ownership differences: No statistically significant difference in response of publicly and privately owned firms to markups; domestically owned firms have significantly lower investment and labor shares compared to foreign counterparts for a given increase in markups.

### Product market reforms, competition policy, and institutional capacity
- Historical reforms:
  - Major product market reforms (telecommunications, electricity, and agriculture) implemented in the late 1990s included privatization, independent regulatory bodies, and elimination/reduction of price controls.
  - Reform momentum slowed over the last decade; SOEs continue to dominate many markets, especially utilities and transportation.
  - According to OECD–World Bank Product Market Regulations database, Kenya, Senegal, South Africa rank among the most restrictive for entry into network and services sectors.
  - Price controls remain prevalent: about two-thirds of the sub-Saharan African countries surveyed by the World Bank (2016) reported regulations that allow for price controls.
- Competition policy adoption and enforcement capacity:
  - Number of countries with competition law rose from 12 in 2000 to 31 by 2019.
  - Typical legal coverage: merger control, collusive practices, abuse of dominance.
  - Institutional capacity varies:
    - About one-third of countries with competition laws have agencies that fall under another government body, potentially undermining independence.
    - Financial resources for competition agencies range from less than 0.001 percent of GDP to 0.06 percent of GDP.
    - Staffing examples: Competition Commission of South Africa (CCSA) has more than 130 technical staff; about one-third of surveyed countries employ fewer than 10 staff members.
    - On average, agencies report investigating two cases a year; exceptions: Kenya and South Africa investigate about 500 cases a year.
  - Budgets and activity (examples):
    - In 2017–18, CCSA budget was $22 million in nominal terms (0.01 percent of GDP); Kenya had $6 million. Relative to economic size, Seychelles Fair Trading Commission had the largest budget.
    - In 2017–18, the CCSA prohibited 12 mergers, levied about 0.01 percent of GDP in penalties, and finalized 193 enforcement cases.
  - Perception-based enforcement indicators: Kenya and South Africa among best performers; oil exporters lag and have seen declines in perceived effectiveness over the last decade.
- Regional coordination:
  - Nine regional firms produce more than 50 percent of the cement in the region; anticompetitive practices can have regional dimensions.
  - Bilateral cooperation and memoranda of understanding have been initiated (examples: Kenya–South Africa; Malawi–Tanzania–Zambia).
  - Supranational authorities (COMESA, WAEMU) have regional merger control regimes; further regional cooperation needed in the context of AfCFTA.

### Complementary policies affecting competition
- Trade and foreign investment:
  - Trade barriers—tariff and nontariff—hurt competition and competitiveness.
  - Empirical finding: trade reforms that lower tariffs can lower markups by about 4.5 percent during the five years after the reform.
  - AfCFTA (elimination of tariffs on most goods, liberalization of trade in key services, reduction of nontariff obstacles) is expected to stimulate competition, trade, and growth—but requires effective competition frameworks to ensure benefits are realized and markets are not captured by a few firms.
- Fiscal and procurement policies:
  - Preferential tax treatment, selective policy implementation, and procurement systems that favor certain firms impede competition and entrench dominant firms.
  - Inefficient customs administrations can impede trade and foreign competition; customs systems need strengthening and modernization.
  - Subsidies or incentives for public goods require careful cost–benefit analysis to avoid competition distortions.
- Institutions and infrastructure:
  - Stronger institutional quality and better transport infrastructure are associated with significantly lower markups.
  - Higher economic policy uncertainty is associated with lower markups (possibly via depressed activity and prices).

### Policy implications and recommended reforms
- A holistic approach is essential to strengthen competition; key elements include:
  - Effective competition policy framework:
    - Adoption of an adequate competition law.
    - Independent enforcement agency with adequate funding and staffing.
    - Competition advocacy and strengthened cooperation among competition authorities to address anticompetitive practices of large pan-regional firms.
  - Openness to trade and foreign direct investment to stimulate foreign competition, while ensuring competition policy prevents market capture by a few firms.
  - Product market reforms to reduce barriers to firm entry and exit, including:
    - Transfer of production from state-owned enterprises (SOEs) to private firms.
    - Elimination of price controls.
    - Development of regulatory bodies to facilitate private sector activity.
  - Careful design of fiscal policies, tax systems, and public procurement to avoid distortions to competition.
- Policy complementarities emphasized:
  - Trade and investment liberalization stimulate competition, but must be accompanied by competition policy to ensure gains are realized.
  - Reducing barriers to business entry could boost competition and improve market dynamics, given the strong association between number of competitors and firm markups/profitability.
- Maintain a stable macroeconomic and institutional environment to attract private investment and ensure competition policies have traction.
- Strengthen national and regional cooperation among competition authorities in the context of increasing regional trade and AfCFTA implementation.

*Source: Regional Economic Outlook: Sub-Saharan Africa — Chapter 2, "Competition, Competitiveness, and Growth."*

### 2. Competition, Competitiveness, and Growth

### 2. Competition, Competitiveness, and Growth in Sub-Saharan Africa

### Overview and key stylized facts
- Product market competition in sub-Saharan Africa is low relative to advanced and emerging market economies, and similar to other developing economies.
- More than 40 percent of countries in the region are in the bottom quartile of the global distribution of the World Economic Forum product market competition index, and more than 70 percent are below the world median.
- Moving from the median value of the competition intensity index for sub-Saharan African countries to the top quartile of the global distribution is associated with an average increase in the real GDP per capita growth rate of about 1 percentage point, achieved mainly through an improvement in export competitiveness and productivity growth.
- Price level comparison: prices, including of essential items, are on average about 20 percent higher in sub-Saharan African countries than in other emerging market and developing economies.

### Country- and firm-level findings
- Low competition reflects both weak domestic competition and weak foreign competition.
  - Weak domestic competition drivers: market dominance of a few large firms; absence or weak enforcement of competition policies; structural and regulatory barriers to entry; distortive effects of fiscal regimes.
  - Weak foreign competition driver: high trade barriers (tariff and non-tariff), which have declined over two decades but remain relatively high and can restrict access to intermediate inputs.
- Firm-level measures (constructed from World Bank Enterprise Survey (WBES) and Orbis) indicate:
  - Average firm profitability in sub-Saharan Africa is significantly higher—about 10–20 percent—compared to other emerging market and developing economies.
  - Firm markups are about 11 percent higher in sub-Saharan African countries relative to other countries at a similar level of development.
  - The derived profitability and markup measures are positively associated with each other and with market concentration measures (for example, the share of firms reporting fewer than 5 competitors).
  - A higher share of firms reporting few competitors is associated with higher profitability and markups; regression lines show:
    - Profitability: y = 0.14***x + 0.344 (Sub-Saharan Africa)
    - Markup: y = 0.31***x + 0.475 (Emerging market and developing countries excl. SSA) — (figures given in the source)
- Heterogeneity across country groups:
  - Oil exporters record the highest average firm markups and profitability within the region.
  - Table (selected values from WBES-based estimates):
    - By Resource Intensity:
      - Oil exporters: Markup 0.82, Profitability 0.51
      - Other resource-intensive: Markup 0.69, Profitability 0.45
      - Non-resource-intensive: Markup 0.64, Profitability 0.42
    - By Region:
      - Central Africa: Markup 0.82, Profitability 0.51
      - East Africa: Markup 0.66, Profitability 0.44
      - Southern Africa: Markup 0.62, Profitability 0.43
      - West Africa: Markup 0.65, Profitability 0.42
      - Emerging market and developing economies (excl. SSA): Markup 0.57, Profitability 0.39
  - Relative differences reported in the text:
    - Oil exporters show about a 16 and 8 percent difference (markup and profitability, respectively) relative to other countries.
    - Central African countries tend to have markups and profitability higher by about 8 percent and 18 percent, respectively, compared to other regions within sub-Saharan Africa.
- Markup dynamics and persistence:
  - Available time-series evidence suggests markups have increased in some large economies (examples noted: Nigeria and South Africa).
  - Markups are highly persistent in sub-Saharan Africa: the half-life of firm markups is about 1 year for the sub-Saharan African sample versus 0.5 years for other emerging market and developing economies (i.e., almost twice as long in the region).
- Firm-type differences:
  - Majority state-owned and foreign-owned firms tend to have higher markups than other firms, especially in manufacturing.
  - Small firms tend to have lower markups than medium and large firms.
  - The share of mostly state-owned firms in the sample for sub-Saharan Africa is almost double that for other emerging market and developing economies.

### Sectoral patterns
- Sectoral aggregation of firm profitability and markups reveals:
  - The highest profitability and markups are in nontradable and services sectors:
    - WBES: hotels and restaurants, wholesale and retail trade, construction.
    - Orbis: other services, information and communications, financial intermediation, transportation.
  - Markups tend to be lower in manufacturing, notably among textile and leather producers.
- Cross-country comparison by sector:
  - Competition is weaker in sub-Saharan Africa across nearly all sectors.
  - The average difference in markups across sectors between sub-Saharan Africa and other emerging market and developing economies is equivalent to about 7 percent.
  - There is a strong positive correlation (about 0.9) between sectoral markups in sub-Saharan Africa and those in other emerging market and developing economies (indicating similar sectoral patterns but higher levels in SSA).

### Macroeconomic links: markups, firm behavior, and growth
- Firm behavior responses to market structure:
  - A decline in firm markups is significantly associated with:
    - An increase in investment and exports.
    - Productivity growth.
    - An increase in labor’s share of output.
  - The effect of markups is more pronounced in manufacturing than in services, and stronger for domestic firms than for majority foreign-owned firms.
- Macro gains from greater competition:
  - Raising competition intensity (from regional median to global top quartile) is associated with about a 1 percentage point increase in real GDP per capita growth, driven mainly by export competitiveness and productivity.
  - Greater competition can help lower prices of consumer and intermediate goods, improving welfare and competitiveness.

### Policy implications and recommended reforms
- A holistic approach is essential to strengthen competition; key elements include:
  - Effective competition policy framework:
    - Adequate competition law.
    - Independent enforcement agency.
    - Strengthened cooperation among competition authorities to address anticompetitive practices of large pan-regional firms.
  - Openness to trade and foreign direct investment to stimulate foreign competition, while ensuring an effective competition policy to prevent market capture by a few firms.
  - Product market reforms to reduce barriers to firm entry and exit.
  - Careful design of fiscal policies, tax systems, and public procurement to avoid distortions to competition.
- Policy complementarities emphasized:
  - Trade and investment liberalization stimulate competition, but must be accompanied by competition policy to ensure gains are realized.
  - Reducing barriers to business entry could play an important role in boosting competition and improving market dynamics, given the strong association between number of competitors and firm markups/profitability.

*Source: Regional Economic Outlook: Sub-Saharan Africa — Chapter 2, "Competition, Competitiveness, and Growth."*

### 1. Based on WBES Data

### ch2 - 1. Based on WBES Data

### Sectoral markups and cross-country patterns
- Sectoral markups are generally positively correlated across country groups within sub-Saharan Africa, except for central African countries, which tend to have higher markups in most manufacturing industries along with the services sector.
- On average, commodity exporters—both oil and other—tend to have higher markups in the manufacturing sector than the non-resource-intensive countries.
- Note on measurement: Markup is defined as the log of the ratio of sales to cost in panel 1 (WBES) and the log of the ratio of revenue turnover to costs in panel 2 (Orbis). Manuf. = manufacturing; SSA = sub-Saharan Africa; WBES = World Bank Enterprise Survey.

### Competition and macroeconomic performance — Growth
- Empirical result: An increase in the World Economic Forum’s local competition intensity index from the median level for sub-Saharan African countries to the top quartile of the global distribution implies an average increase in the real GDP per capita growth rate of about 1 percentage point.
- Context: The average real GDP per capita growth rate in sub-Saharan Africa after 2010 has been 1 percent.
- Statistical robustness: Results are statistically significant in broad samples of advanced, emerging market, and developing economies, and remain positive when restricted to emerging market and developing economies including sub-Saharan African countries. Results are robust to alternative econometric approaches to address potential endogeneity.

### Channels of transmission (competition → growth)
- Private investment: Improvement in the competition index from the median value for sub-Saharan Africa to the top quartile of the global distribution is associated with a positive but statistically weak increase in investment (percent of GDP).
- Exports: The same increase in the competition index is associated with an increase in exports by 1.7 percent of GDP.
- Labor productivity: The same increase is associated with labor productivity growth by about 1 percentage point.
- Mechanisms: Increased competition is associated with greater innovation and technological readiness; regressions using World Economic Forum innovation and technological readiness indicators show that improving domestic competition is associated with a significant boost in innovation and technological capability.

### Competition and welfare — Prices and consumption
- Cross-country price levels: After controlling for country-specific macroeconomic and structural characteristics, price levels in sub-Saharan African countries are significantly higher than those in other emerging market and developing economies for most goods and services, including food, clothing, and health services.
- Aggregate effect: These higher product prices translate on average into a 20 percent higher price level for the individual consumption basket in sub-Saharan Africa compared to other countries at a similar level of development.
- Price impact of competition: Moving from the median level of the competition index for sub-Saharan Africa to the top quartile of the global distribution is, on average, associated with about an 8 percent reduction in the prices of food items, a 14 percent reduction in the prices of health services, and a 10 percent decline in the price of the overall individual consumption basket.
- Foreign competition: Including measures of trade openness and foreign direct investment shows greater foreign competition also helps to lower prices; however, domestic and foreign competition indicators do not fully account for the price differential with other emerging market and developing economies, implying other macro-structural factors also matter.

### Firm dynamics and the microeconomic evidence
- WBES-based firm-level estimates:
  - A 1 percent decline in markups is associated with an increase in investment of about 0.7 percent of the firm’s value added.
  - A 1 percent decline in markups is associated with an increase in exports of about 0.2 percent of the firm’s value added.
  - A 1 percent decline in markups implies a proportionate increase in the share of output remunerated to labor (labor share).
- Results when restricting the sample to sub-Saharan African countries show a similar strong negative association between firm markup and investment, exports, and labor shares.
- Effect of number of competitors: Firms facing fewer competitors have lower exports, labor shares, and investment on average; the association is statistically significant for exports only.
- Orbis-based (time-dimension) firm estimates:
  - A 1 percent decline in markups is associated with a 1–1.4 percent increase in a firm’s investment to value added ratio.
  - A 1 percent decline in markups is associated with about a 1 percent increase in the share of labor in a firm’s output.
  - A 1 percent decline in markups implies a 0.8 percentage point increase in the rate of productivity growth (labor and total factor productivity growth).
- Sectoral heterogeneity: The association between markups and investment, labor share, and productivity growth is nearly twice as strong in the manufacturing sector as in the services sector.
- Ownership differences: No statistically significant difference in response of publicly and privately owned firms to markups; for a given increase in markups, domestically owned firms have significantly lower investment and labor shares compared to foreign counterparts.

### Policy recommendations — Boosting competition in domestic markets
- Strengthen enforcement of a robust competition policy framework that includes:
  - Product market liberalization.
  - Adoption of an adequate competition law.
  - An independent enforcement body.
  - Competition advocacy.
- Complementary policies that matter:
  - Trade policy that increases foreign competition.
  - Fiscal and structural policies that facilitate business activity and reduce barriers to entry.
- Product market liberalization elements:
  - Transfer of production from state-owned enterprises (SOEs) to private firms.
  - Elimination of price controls.
  - Development of regulatory bodies to facilitate private sector activity.
- Historical context: Product market reforms in sub-Saharan Africa began alongside broader structural reforms, with trade liberalization in the early 1980s followed by current account and financial liberalization in the 1990s.

*Source: https://www.imf.org/-/media/files/publications/reo/afr/2019/october/english/ch2.pdf*

### 2. COMPETITION, COMPETITIVENESS, AND GROWTH IN SUB-SAHARAN AFRICA

### 2. COMPETITION, COMPETITIVENESS, AND GROWTH IN SUB-SAHARAN AFRICA

### Product market reforms and historical developments
- Major product market reforms (telecommunications, electricity, and agriculture) were implemented in the late 1990s and included a shift from public to private ownership, development of independent regulatory bodies, and elimination (or reduction) of price controls.
- Reform momentum has slowed over the last decade; state-owned enterprises (SOEs) continue to dominate many markets, especially utilities and transportation.
- According to the OECD–World Bank Product Market Regulations database, some sub-Saharan African countries (Kenya, Senegal, South Africa) rank among the most restrictive for entry into network and services sectors.
- Price controls remain prevalent: about two-thirds of the sub-Saharan African countries surveyed by the World Bank (2016) reported regulations that allow for price controls.
- Natural monopoly concerns arise from small domestic markets and large fixed costs in utilities, telecommunications, and transportation; unbundling components amenable to competition (for example, separating generation from transmission and distribution in electricity) can improve outcomes.

### Competition policies: adoption, capacity, and enforcement
- Number of countries with competition law more than doubled from 12 in 2000 to 31 by 2019.
- Typical legal coverage: merger control, collusive practices, abuse of dominance.
- Institutional capacity varies widely:
  - About one-third of countries with competition laws have agencies that fall under another government body, potentially undermining independence.
  - Financial resources for competition agencies range from less than 0.001 percent of GDP to 0.06 percent of GDP.
  - Staffing varies: the Competition Commission of South Africa (CCSA) has more than 130 technical staff; about one-third of surveyed countries employ fewer than 10 staff members.
  - On average, agencies report investigating two cases a year; exceptions: Kenya and South Africa investigate about 500 cases a year.
- Examples of budgets and activity:
  - In 2017–18, CCSA budget was $22 million in nominal terms (0.01 percent of GDP); Kenya had $6 million. Relative to economic size, Seychelles Fair Trading Commission had the largest budget.
  - In 2017–18, the CCSA prohibited 12 mergers, levied about 0.01 percent of GDP in penalties, and finalized 193 enforcement cases.
- Perception-based enforcement indicators show variation: Kenya and South Africa among best performers; oil exporters lag and have seen declines in perceived effectiveness over the last decade.
- Regional coordination is increasingly important because firms operate across borders:
  - Nine regional firms produce more than 50 percent of the cement in the region; anticompetitive practices can have regional dimensions.
  - Bilateral cooperation and memoranda of understanding have been initiated (examples: Kenya–South Africa; Malawi–Tanzania–Zambia).
  - Supranational authorities (COMESA, WAEMU) have regional merger control regimes, but further regional cooperation is needed, especially given AfCFTA.

### Complementary policies affecting competition
- Trade and foreign investment policies matter: trade barriers—tariff and nontariff—hurt competition and competitiveness.
- Empirical finding: trade reforms that lower tariffs can lower markups by about 4.5 percent during the five years after the reform.
- AfCFTA provisions (elimination of tariffs on most goods, liberalization of trade in key services, reduction of nontariff obstacles) are expected to stimulate competition, trade, and growth—but require effective competition frameworks to ensure benefits are realized and markets are not captured by a few firms.
- Fiscal and public procurement policies can distort competition:
  - Preferential tax treatment, selective policy implementation, and procurement systems that favor certain firms (state or private) impede competition and entrench dominant firms.
  - Inefficient customs administrations can impede trade and foreign competition; customs systems need strengthening and modernization.
  - When subsidies or incentives are applied for public goods, costs and benefits should be carefully analyzed.
- Institutional quality and transport infrastructure are associated with significantly lower markups; higher economic policy uncertainty is associated with lower markups (possibly via depressed activity and prices).

### Empirical findings on market structure, markups, and macroeconomic outcomes
- Product market competition in sub-Saharan Africa is low relative to the rest of the world: more than 70 percent of countries in the region are below the median in global distribution of competition indicators.
- Firm-level markups are higher, on average, in sub-Saharan African countries than in other emerging market and developing economies, particularly in services.
- Prices of internationally comparable products and services are relatively higher in the region at similar development levels—partly attributable to low product market competition.
- Declines in markups are significantly associated with:
  - Increased firm investment.
  - Increased exports.
  - Productivity growth.
  - Higher labor’s share in output.
- These effects tend to be stronger in manufacturing relative to services, and stronger for domestic firms relative to foreign-owned firms.

### Policy recommendations and holistic approach
- A holistic approach is needed to stimulate competition, combining:
  - Product market reforms that reduce structural and regulatory barriers to private sector participation and improve ease of doing business.
  - An effective competition policy framework: adequate competition law plus an independent, adequately funded, and staffed enforcement agency.
  - Complementary trade and foreign direct investment policies to bolster foreign competition and improve access to intermediate inputs.
  - Carefully designed fiscal policies and procurement systems that avoid distorting competition by benefiting a few market players.
- Emphasize mutual reinforcement:
  - Trade and investment liberalization stimulate competition, but effective competition policy is needed to prevent market dominance by a few large firms.
  - Development policies targeting sector advancement must avoid creating corporate market power that offsets intended benefits.
- Maintain a stable and sound macroeconomic and institutional environment to attract private investment and ensure competition policies have traction.
- Strengthen cooperation among national competition authorities to address anticompetitive practices of large pan-regional firms in the context of increasing regional trade and integration.

### Box: Firm Markups and Trade Liberalization (key quantitative finding)
- Trade tariff reform, measured using the mean tariff score from the Fraser Institute database, results in a cumulative reduction in markups of about 4.5 percent over a five-year period after reform implementation.
- Lowering tariffs in the services sector has a stronger effect on markups than in manufacturing.
- Results are robust to alternative import-openness measures (sectoral tariff rates, import-to-GDP ratio).
- Stronger institutional quality and better transport infrastructure are, on average, associated with significantly lower markups.
- Higher economic policy uncertainty is associated with lower markups.

*Source: IMF, "2. COMPETITION, COMPETITIVENESS, AND GROWTH IN SUB-SAHARAN AFRICA" (chapter content).*

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*ch2 - REFERENCES*

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_Source: https://www.imf.org/-/media/files/publications/reo/afr/2019/october/english/ch2.pdf_