## Competition and Market Power in sub-Saharan Africa — Introduction

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### Overview
- Competition drives efficient resource allocation, firm dynamics that boost innovation and productivity growth, and external competitiveness.
- Competition limits unfair pricing, discriminatory practices, and rent extraction, with significant welfare, employment, and distributional implications.
- Benefits of competition accrue most in the absence of market distortions; opening markets without strong competition law/enforcement can be perceived as hurting domestic industry.

### Regional state of competition
- Sample: 39 sub-Saharan African countries over 2000–17.
- Cross-country comparisons and summary statistics:
  - Sub-Saharan Africa on average lags advanced and emerging market economies in domestic and foreign competition; is on par with other developing economies.
  - More than 70 percent of countries fall in the bottom half globally for domestic and foreign competition indicators.
  - More than 40 percent of sub-Saharan African countries are in the bottom quartile of the global competition index; more than 70 percent are below the world median.
- Key impediments to domestic competition:
  - Market dominance of a few large firms, widespread monopolies and state-owned enterprises (SOEs).
  - Absence or weak enforcement of competition policies.
  - Structural and regulatory barriers to entry.
  - Distortive effects of tax regimes.
- Low foreign competition largely driven by high trade barriers that also restrict access to intermediate inputs.

### Firm-level evidence and sectoral patterns
- Firm-level indicators used: markups and profitability (market shares often unavailable).
- Aggregate comparisons:
  - Markups and profitability are generally higher in sub-Saharan African countries compared to other emerging market economies and developing economies.
  - Average firm profitability in sub-Saharan Africa is higher by 10–20 percent relative to other emerging markets and developing countries.
  - Firm markups are about 11 percent higher in sub-Saharan Africa relative to similar countries.
- Sectoral patterns:
  - Higher markups/profitability in services: hotels and restaurants; information and communications; transportation; wholesale and retail trade; construction.
  - Manufacturing often shows lower markups, notably textile and leather producers.
- Country-group differences (WBES averages from Table 11):
  - By Resource Intensity (Markup / Profitability):
    - Oil exporters 0.82 / 0.51
    - Other resource-intensive 0.69 / 0.45
    - Non-resource-intensive 0.64 / 0.42
  - By Region (Markup / Profitability):
    - Central Africa 0.82 / 0.51
    - East Africa 0.66 / 0.44
    - Southern Africa 0.62 / 0.43
    - West Africa 0.65 / 0.42
    - EMEDEV excl. SSA 0.57 / 0.39
- Markup dynamics and persistence:
  - Evidence of increasing markups in some countries including Nigeria and South Africa.
  - Markups are highly persistent with a half-life of about 1 year in sub-Saharan Africa versus 0.5 years in other emerging/developing countries.
- Ownership and size patterns:
  - Majority state-owned and majority foreign-owned firms tend to have higher markups.
  - Small firms have lower markups than medium/large firms.
  - Share of mostly state-owned firms in SSA sample is almost double that for other emerging/developing economies.
- Correlation across sectors: average sectoral markup difference between SSA and other developing economies about 7 percent; strong positive correlation (~0.9) in sectoral markup patterns across country groups.

### Macroeconomic implications and channels
- Growth association:
  - 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 real GDP per capita growth rate of about 1 percentage point.
  - Average real GDP per capita growth rate in PPP terms in sub-Saharan Africa after 2010 has been 1 percent.
- Channels (country-level regressions):
  - Competition → Investment: positive but statistically weak association between local competition intensity index and investment (percent of GDP); example coefficient Local competition 0.168*** (0.040) for Investment (World sample).
  - Competition → Exports: an improvement from median SSA competition to top quartile associated with increase in exports by 1.7 percent of GDP.
  - Competition → Labor productivity: improvement from median to top quartile associated with labor productivity growth by about 1 percentage point.
  - Competition → Innovation/technological readiness: strongly positive association.
- Prices and consumer welfare:
  - Prices (including essential items) on average about 20 percent higher in SSA than in other emerging/developing economies.
  - World Bank (2016) cited: retail prices of essential food items at least 24 percent higher in African cities than in other major cities; cement prices about 183 percent higher than world prices.
  - ICP 2011 regressions: moving from median SSA competition index to top quartile associated with:
    - about an 8 percent reduction in prices of food items,
    - about a 14 percent reduction in prices of health services,
    - about a 10 percent decline in the price of the overall individual consumption basket.
  - Accounting for foreign competition (trade openness, FDI) shows greater foreign competition helps lower prices, but competition indicators do not explain the entire price differential.

### Firm-level causal associations (elasticities and magnitudes)
- Empirical baseline: main explanatory variable firm markup; controls include size, exports, ownership, age, few-competitors dummy, macro controls and fixed effects.
- Investment:
  - WBES: 1 percent decline in markups → investment +0.7 percent of value added.
  - Orbis: 1 percent decline in markups → investment +1–1.4 percent of value added.
  - Example coefficients: WBES Markup -0.724*** (0.031) for investment in EMDEs; WBES Markup -0.539*** (0.081) for SSA subsample.
  - Orbis (All firms, SSA) Markup -1.275*** (0.094) for investment.
- Exports:
  - WBES: 1 percent decline in markups → exports +0.2 percent of firm value added.
  - Higher markups associated with significantly lower exports across samples.
- Labor shares:
  - WBES and Orbis: a 1 percent decline in markup implies about a one percentage point increase in labor’s share of output.
- Productivity:
  - Orbis: 1 percent decline in markups implies a 0.8 percentage point increase in labor and total factor productivity growth.
  - Associations are nearly twice as strong in manufacturing as in services.
- Ownership heterogeneity:
  - Domestically owned firms respond with significantly lower investment and labor shares for a given increase in markups relative to foreign counterparts.
- Summary pooled elasticities (WBES and Orbis):
  - WBES: 1 percent decline in markups → investment +0.7 percent of value added; exports +0.2 percent of value added; labor share +1 percentage point.
  - Orbis: 1 percent decline in markups → investment +1–1.4 percent of value added; labor share +1 percent; productivity growth +0.8 percentage point.

### Data sources and measurement notes
- Country-level competition indicators:
  - World Economic Forum’s Global Competitiveness Index (GCI): overall, domestic, foreign competition; range 1 to 7; annual 2006–17 for 44 SSA countries; main variable: intensity of local competition.
  - Bertelsmann Stiftung Transformation Index (BTI): market-based competition and anti-monopoly policy; range 0 to 10; biennial 2006–18 for 36 SSA countries.
- Firm-level microdata:
  - World Bank Enterprise Survey (WBES): mostly cross-sectional; 39 SSA countries over 2006–18; trimmed sample ~41,000 SSA firm observations and ~10,000 for other emerging/developing countries.
    - Profitability proxy: (annual sales − cost of variable inputs) / annual sales.
    - Markup proxy: log(sales / variable costs) where variable costs = labor cost + raw materials & intermediate goods.
  - Orbis (Bureau van Dijk): harmonized cross-country financials; 28 SSA countries over 2000–17; ~73 percent of SSA Orbis firms from South Africa, Nigeria and Mauritius.
    - Markup measures: (1) operating Revenue (OR) / cost of goods sold (COGS); (2) markups estimated via output elasticities using Olley-Pakes/DLW control function approach.
- Other inputs:
  - Product market liberalization series (1973–2014) for 14 SSA countries (Alesina et al., forthcoming).
  - Competition policy framework: WB–ACF surveys (2010–15); IMF desk survey of competition authorities (May–June 2019; 37 jurisdictions responded).
  - Macroeconomic controls: IMF WEO, World Development Indicators, PWT, ICP, etc.

### How to boost competition in domestic markets (policy pillars and recommendations)
- Core pillars:
  - Product market liberalization.
  - Adoption and enforcement of adequate competition laws.
  - Independent enforcement institutions with adequate resources and staff.
  - Competition advocacy.
  - Complementary trade, fiscal, and structural policies that reduce barriers to entry and facilitate business activity.
- Product market reform recommendations:
  - Pursue further product market reforms in network and services sectors.
  - Reduce regulatory and structural barriers to firm entry and exit and improve overall investment climate.
  - Unbundle natural-monopoly components (example: electricity—separate transmission/distribution from generation/retailing) and open contestable segments to competition.
- Competition policy and enforcement recommendations:
  - Ensure competition laws are matched by independent enforcement bodies with adequate budgets and qualified staff.
  - Strengthen judicial support and technical capacity for antitrust investigations and merger control.
  - Foster regional cooperation where market size is small to enable more effective enforcement and market contestability.
- Complementary policies:
  - Trade liberalization and FDI to bolster foreign competition and access to intermediate inputs.
  - Structural reforms to lower fixed-cost barriers, improve logistics, and reduce distortive regulatory/fiscal measures.
  - Design fiscal incentives and public procurement to avoid creating uneven playing fields.
- Implementation observations:
  - Number of SSA countries with competition law rose from 12 in 2000 to 31 by 2019.
  - Average lag of about 6 years between legal setup and implementation; only 32 percent implemented in tandem with legal setup; in at least three cases it took more than a decade.
  - Institutional capacity varies: about one-third of competition agencies fall under another government body; about one-third of surveyed countries employ fewer than 10 staff; typical agencies investigate about two cases a year on average (Kenya and South Africa investigate about 500 cases a year).
  - Example budgets: CCSA had $22 million nominal budget in 2017–18 (0.01 percent of GDP); Kenya $6 million.

### Regional and cross-border anticompetitive concerns and cooperation
- Regional concentration and collusion examples:
  - Cement industry: nine regional firms produce more than 50 percent of cement; CCSA fined four largest cement producers in 2008 for colluding to segment markets across countries.
- Cross-border behavior:
  - Firms operating across jurisdictions can form cartels or exploit economies of scale to limit foreign competition.
- Current cooperation and regional institutions:
  - Bilateral cooperation and informal information sharing exist (examples cited among Kenya, South Africa, Malawi, Tanzania, Zambia).
  - Supranational competition authorities (COMESA, WAEMU) have started operating regional merger control regimes and facilitating investigative actions.
- Policy imperative:
  - Strengthen regional cooperation to tackle pan-regional monopolies and cartels, especially with greater trade and investment flows expected under the African Continental Free Trade Agreement (AfCFTA).

### Trends in enforcement and reform momentum
- Enforcement snapshot:
  - 0.01 percent of GDP in penalties, and finalized 193 enforcement cases (CCSA Annual Report 2017–18).
- Reform trajectory:
  - Product market reforms in late 1990s/early 2000s boosted competition, but reform momentum has stalled in recent years.
  - Despite almost three-fold increase in countries enacting competition laws since 2000, progress on implementation remains limited.

*Source: wpiea2020030-print-pdf — IMF staff compilation (Introduction; Sections VI–VII; data tables and figures).*

### References .............................................................................................................

### Competition and Market Power in sub-Saharan Africa — Introduction

### Overview
- Competition is an essential driver of market economies, promoting efficient resource allocation, firm dynamics that boost innovation and productivity growth, and external competitiveness.
- Competition also limits unfair pricing, discriminatory practices, and rent extraction, with significant welfare, employment, and distributional implications.
- Benefits of competition are most likely to accrue in the absence of market distortions; where distortions exist, foreign entry can be perceived as hurting domestic industry unless accompanied by appropriate policy frameworks (opening markets plus strong competition law and enforcement).

### Regional state of competition
- Sample covers 39 sub-Saharan African countries over 2000–17.
- On average, sub-Saharan Africa:
  - Lags advanced and emerging market economies in both domestic and foreign competition.
  - Is on par with other developing economies.
  - Has more than 70 percent of countries falling in the bottom half of countries globally in terms of domestic and foreign competition indicators.
- Low domestic competition is linked to:
  - Market dominance of a few large firms, including widespread monopolies and state-owned enterprises.
  - Absence or weak enforcement of competition policies.
  - Structural and regulatory barriers to entry.
  - Distortive effects of tax regimes.
- Low foreign competition is mainly impeded by high trade barriers, which may also restrict access to intermediate inputs and indirectly reduce domestic competition.

### Firm-level evidence and sectoral patterns
- Firm-level indicators used: markups and profitability (market shares often unavailable).
- Markups and profitability are generally higher in sub-Saharan African countries compared to other emerging market economies and developing economies.
- Variation across sectors and country groups:
  - Markups and profitability tend to be higher in services sectors such as hotels and restaurants, information and communications, and transportation.
  - Markups and profitability tend to be higher among oil exporters relative to other country groups.
- Strong association between the number of competitors a firm faces and its markup and profitability, suggesting that reducing barriers to business entry could boost competition and improve market dynamics.
- Persistence analysis: competitive markets should exhibit mean-reverting behavior of profits and markups; the paper analyzes persistence of profits and markups (detailed results in later sections).

### Macroeconomic implications
- 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 improvements in export competitiveness and productivity growth.
- Price-level comparisons:
  - 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.
  - World Bank (2016) estimates cited: retail prices of essential food items are at least 24 percent higher in African cities than in other major cities around the world, while cement prices are, on average, about 183 percent higher than world prices.
- Firm-level behavioral links:
  - A decline in firm markups is significantly associated with increases in investment and exports, productivity growth, and labor’s share of output.
  - Effects of market power are more pronounced in the manufacturing sector than in services, and stronger for domestic firms relative to majority foreign-owned firms.

### Policy implications and avenues for reform
- To realize the dynamic and welfare benefits of competition, policy frameworks should combine:
  - Opening of markets (reducing trade and regulatory barriers).
  - Strong competition law and an effective enforcement agency.
- Reducing barriers to business entry and addressing structural/regulatory and tax distortions can lower markups and profitability that stem from limited competition, thereby boosting investment, exports, productivity, and lowering consumer prices.
- Addressing high trade barriers can improve foreign competition and access to intermediate inputs, indirectly supporting domestic competition.

*Source: wpiea2020030-print-pdf — Introduction (pages provided).*

### Section VI delves into the firm-level effects. Section VII explores ways to help improve

### Firm dynamics, competition, and policy in sub-Saharan Africa

### Framework for the empirical analysis
- Theoretical ambiguity: rivalry can encourage innovation and productivity growth but can also limit expected returns to innovate and enable dominant firms to entrench (Aghion and Griffith 2005; Rajan and Zingales 2004).
- Empirical focus: effects of domestic market competition on real GDP per capita growth and channels (investment, non-commodity exports, productivity), and on consumer welfare via cross-country price comparisons.
- Micro-level corroboration: firm-level analysis focuses on corporate market power and its relationship with investment, exports, productivity, and labor shares in emerging and developing countries, with emphasis on sub-Saharan Africa.

### Data
- Country-level competition indicators:
  - World Economic Forum’s Global Competitiveness Index (GCI): overall, domestic, foreign competition; range 1 (low) to 7 (best); annual 2006–17 for 44 sub-Saharan African countries. Main variable used: intensity of local competition.
  - Bertelsmann Stiftung Transformation Index (BTI): market-based competition and anti-monopoly policy; range 0 to 10 (best); biennial 2006-18 for 36 sub-Saharan African countries.
- Firm-level data:
  - World Bank Enterprise Survey (WBES): mostly cross-sectional; 39 sub-Saharan African countries over 2006–18; after trimming, about 41,000 firm observations for sub-Saharan Africa and about 10,000 for other emerging/developing countries.
    - Firm profitability proxy: difference between annual sales and cost of variable inputs to annual sales (proxy due to lack of EBIT).
    - Markup proxy: log ratio of annual sales to variable costs (labor cost + raw materials & intermediate goods).
  - Orbis (Bureau van Dijk): harmonized cross-country financial data; 28 sub-Saharan African countries over 2000-17; about 73 percent of sub-Saharan African firms in Orbis data are from South Africa, Nigeria and Mauritius.
    - Markup measures: (1) operating Revenue (OR) to cost of goods sold (COGS); (2) markups estimated via output elasticities using Olley-Pakes/DLW control function approach.
- Other data:
  - Product market liberalization: annual information over 1973-2014 for 14 sub-Saharan African countries (Alesina and others, forthcoming).
  - Competition policy framework: World Bank–African Competition Forum (WB-ACF) surveys (2010–15) and IMF desk survey of competition authorities (May–June 2019; responses from 37 jurisdictions).
  - Macroeconomic controls: IMF World Economic Outlook, World Development Indicators, etc.

### Stylized facts (country and firm-level)
- Country-level:
  - Overall competition in sub-Saharan Africa is, on average, significantly lower than in advanced and emerging market economies but similar to the rest of developing countries.
  - More than 40 percent of sub-Saharan African countries are in the bottom quartile of the global competition index; more than 70 percent are below the world median.
  - Low competition stems from: market dominance by a few firms, lack of effective competition policies, structural and regulatory barriers to entry, and distortive fiscal regimes.
  - Trade barriers have declined over two decades but remain relatively high, limiting foreign competition and affecting input availability/costs.
  - Heterogeneity: non-resource intensive countries have more competition-prone markets; oil exporters have the least competition; competition is lowest in central Africa and highest in southern Africa.
- Firm-level:
  - Average firm profitability in sub-Saharan Africa is significantly higher by 10–20 percent compared to other emerging market economies and developing countries.
  - Firm markups are about 11 percent higher in sub-Saharan Africa relative to similar countries.
  - Higher shares of firms reporting fewer competitors are associated with higher profitability and markups; for a given share reporting few competitors, markups/profitability tend to be higher in sub-Saharan Africa than in peers.
  - By country group: oil-exporting countries have markups and profitability higher by about 16 percent and 8 percent, respectively, relative to other countries; central African countries have markups and profitability higher by about 8 percent and 18 percent, respectively.
  - Markup dynamics: evidence of increasing markups in some countries including Nigeria and South Africa; markups are highly persistent with a half-life of about 1 year in sub-Saharan Africa versus 0.5 years in other emerging/developing countries.
  - Ownership and size patterns: majority state-owned and foreign-owned firms tend to have higher markups; small firms have lower markups than medium/large firms; share of mostly state-owned firms in SSA sample is almost double that for other emerging/developing economies.
- Sectoral patterns:
  - Highest profitability and markups in nontradable sectors: hotels and restaurants, wholesale and retail trade, construction (WBES); and in services, information & communications, financial intermediation, transportation (Orbis).
  - Manufacturing often shows lower markups, especially textile and leather producers.
  - Average difference in sectoral markups between SSA and other developing economies is about 7 percent; strong positive correlation (~0.9) in sectoral markup patterns across country groups.

### Competition and macroeconomic performance
- Empirical specification (country-level growth regressions):
  - Dependent variables: real GDP per capita growth, private investment share of GDP, non-oil exports percent of GDP, indicators of innovation and technological readiness.
  - Main regressor: intensity of local competition from GCI (range 1–7).
  - Controls: lagged log real GDP per capita, share of investment, trade openness, change in terms of trade, years of schooling, trading partner growth, institutional quality, public debt percent of GDP; country and year fixed effects.
- Growth effects:
  - Competition is positively associated with higher economic growth in the world sample and EMEDEV sample (statistically significant at 1 percent for world; 5 percent for EMEDEV).
  - An increase in the 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 real GDP per capita growth rate of about 1 percentage point.
  - Average real GDP per capita growth rate in PPP terms in sub-Saharan Africa after 2010 has been 1 percent.
  - In the SSA-only regressions the competition coefficient is positive but not statistically significant (p-value: 0.2).
  - Robustness: IV-2SLS used with instruments (i) first two lagged values of competition index; (ii) regional competition index (average of nearby countries).
- Channels of transmission:
  - Competition and investment: positive but statistically weak association between local competition intensity index and investment (percent of GDP).
  - Competition and exports: strongly positive association; an improvement from median SSA competition to top quartile is associated with an increase in exports by 1.7 percent of GDP.
  - Competition and labor productivity: improvement from median to top quartile associated with labor productivity growth by about 1 percentage point.
  - Competition and innovation: competition is strongly positively associated with greater innovation and technological readiness.
- Welfare and prices:
  - Cross-country ICP 2011 regressions show prices of most products/services (food, utilities, furniture, health, communication, education, machinery & equipment) are on average significantly higher in sub-Saharan Africa than in other emerging/developing countries.
  - Prices tend to be higher for food, clothing, and health services—items with larger weight in low-income households’ consumption baskets.
  - East Africa has the lowest prices on average for goods, followed by West Africa; services prices not statistically different across regions in most cases.
  - Accounting for foreign competition (trade openness, FDI) shows greater foreign competition helps lower prices.
  - Moving from the median SSA competition index to the top quartile is associated with:
    - about an 8 percent reduction in prices of food items,
    - about a 14 percent reduction in prices of health services,
    - about a 10 percent decline in the price of the overall individual consumption basket.
  - Competition indicators explain a large part but not all of the average price differential between SSA and other emerging/developing economies; trade openness and FDI also reduce price differentials but do not eliminate them.

### Firm dynamics and competition (firm-level causal associations)
- Empirical baseline for firm-level regressions:
  - Main explanatory variable: firm markup.
  - Firm controls: size (log employees), direct exports (share of direct exports in sales), majority foreign/private ownership dummies, age (years since establishment), few-competitors dummy (1 if competitors < 5).
  - Macroeconomic controls: log real GDP per capita (PPP), industry, country, year fixed effects.
  - Dependent variables normalized by value added and log-transformed (except exports).
- Investment:
  - Investment proxy: purchase of equipment reported by firms scaled to value added.
  - Higher firm markups are associated with lower investment with an elasticity of about 0.5–0.7; highly statistically significant across samples.
  - Private majority-owned firms invest more relative to public firms; larger and older firms invest less; weak evidence on foreign ownership or exporting status affecting investment.
  - Orbis panel estimates: a 1 percent decline in markups is associated with a 1–1.4 percent increase in firm investment-to-value-added ratio (EMDE including SSA).
- Exports:
  - Measured as exports to firm value added (share of direct exports in sales back-out).
  - Higher markups are associated with significantly lower exports in both WBES and Orbis samples.
  - Firms facing fewer competitors and older firms export less; larger and foreign firms export more.
  - WBES: a 1 percent decline in markups is associated with an increase in exports of about 0.2 percent of firm value added.
- Labor shares:
  - Dependent variable: labor cost to value added.
  - Effect of markups on labor share is negative and significant with elasticity about one.
  - WBES and Orbis: a 1 percent decline in markup implies about a one percentage point increase in labor’s share of output (Orbis shows about 1 percent increase in labor share for a 1 percent markup decline).
  - Older, exporting, and foreign-owned firms tend to have lower labor shares.
- Productivity:
  - Using Orbis: a 1 percent decline in markups implies a 0.8 percentage point increase in labor and total factor productivity growth.
  - Associations between markups and investment, labor share, and productivity growth are nearly twice as strong in manufacturing as in services.
- Ownership heterogeneity:
  - No statistically significant differential response to market power between publicly and privately owned firms overall.
  - For a given increase in markups, domestically owned firms have significantly lower investment and labor shares than foreign counterparts.
- Summary elasticities (WBES and Orbis pooled findings):
  - WBES: 1 percent decline in markups → investment +0.7 percent of value added; exports +0.2 percent of value added; labor share +1 percentage point.
  - Orbis: 1 percent decline in markups → investment +1–1.4 percent of value added; labor share +1 percent; productivity growth +0.8 percentage point.

### How to boost competition in domestic markets?
- Main pillars to strengthen competition:
  - Product market liberalization,
  - Adoption and enforcement of adequate competition laws,
  - Independent enforcement institutions with adequate resources and staff,
  - Competition advocacy,
  - Complementary trade, fiscal, and structural policies that reduce barriers to entry and facilitate business activity.
- Product market liberalization:
  - Historical reforms: trade liberalization in early 1980s, current account and financial liberalization in 1990s, product market reforms (telecoms, electricity, agriculture) in late 1990s including privatization, independent regulators, and removal/reduction of price controls.
  - Reform momentum slowed over last decade; SOEs still dominate utilities and transportation in many countries.
  - OECD–World Bank Product Market Regulations: some SSA countries (Kenya, Senegal, South Africa) among most restrictive for entry in network/services sectors.
  - About two-thirds of SSA countries surveyed reported existence of regulations that allow for price controls.
  - Policy recommendations:
    - Pursue further product market reforms in network and services sectors.
    - Reduce regulatory and structural barriers to firm entry and exit.
    - Improve overall investment climate.
    - Unbundle natural-monopoly components (e.g., electricity: separate transmission/distribution from generation/retailing) and open contestable segments to competition.
- Competition policies and enforcement:
  - Adoption progress: number of SSA countries with competition law rose from 12 in 2000 to 31 by 2019.
  - Implementation lags: average lag of about 6 years between legal setup and implementation; only 32 percent implemented in tandem with legal setup; in at least three cases it took more than a decade.
  - Institutional capacity issues:
    - About one-third of competition agencies fall under another government body (potential independence concerns).
    - Financial resources often limited; few agencies self-finance from penalties.
    - Staff variation: some agencies (e.g., CCSA) have more than 130 technical staff; about one-third of surveyed countries employ fewer than 10 staff.
    - Case activity: agencies report investigating about two cases a year on average; Kenya and South Africa investigate about 500 cases a year.
    - Example budgets: CCSA had $22 million nominal budget in 2017–18 (0.01 percent of GDP); Kenya $6 million; Seychelles Fair Trading Commission largest relative to economic size.
  - Perceived enforcement effectiveness: Kenya and South Africa score better; oil exporters lag and show declining perceived effectiveness over last decade.
  - Policy recommendations:
    - Ensure competition laws are matched by independent enforcement bodies with adequate budgets and qualified staff.
    - Strengthen judicial support and technical capacity for antitrust investigations and merger control.
    - Foster regional cooperation where market size is small to enable more effective enforcement and market contestability.
- Complementary policies:
  - Trade liberalization and FDI: stronger foreign competition helps lower prices and improve welfare.
  - Structural reforms: facilitate entry, reduce fixed-cost barriers, and improve logistical efficiency.
  - Address regulatory price controls and fiscal distortions that protect incumbents.

*Italic: Source — Section VI and VII, wpiea2020030-print-pdf.*

### 0.01 percent of GDP in penalties, and finalized 193 enforcement cases (CCSA Annual Report 2017–18). The increase in

### Product market competition in sub-Saharan Africa

### Evidence on competition and market structure
- Country-level indicators: "more than 70 percent of countries in the region are below the global median in terms competition indicators."
- Firm-level markups: "markups in sub-Saharan African countries are higher than in other emerging market economies and developing countries, especially in the services sectors."
- Price comparisons: "prices in the region are relatively higher than in other regions at a similar level of development," which can be partly attributed to low product market competition.
- Firm-level impacts of markup declines:
  - Decline in markups is significantly associated with an increase in firm investment.
  - Decline in markups is significantly associated with an increase in exports.
  - Decline in markups is significantly associated with productivity growth.
  - Decline in markups is significantly associated with an increase in labor’s share in output.
  - These effects are more pronounced in the manufacturing sector relative to services and tend to be stronger for domestic firms relative to foreign-owned firms.

### Regional and cross-border anticompetitive concerns
- Examples of regional concentration and collusion:
  - "A case in point is that of the cement industry, where nine regional firms produce more than 50 percent of the cement, and anticompetitive practices have regional dimensions (World Bank 2016)."
  - The CCSA "investigated and fined the four largest cement producers in 2008 for colluding to segment markets across countries (See CCSA Annual Report 2009–10)."
- Cross-border behavior: "firms may operate in multiple jurisdictions to reap economies of scale, or a few large firms across countries may form cartels to limit foreign competition in their jurisdictions and exploit consumers."
- Current cooperation efforts: "Some agencies have initiated bilateral cooperation, including informal information sharing and signing memoranda of understanding, such as between Kenya and South Africa and among Malawi, Tanzania, and Zambia (World Bank 2016)."
- Regional institutions: "supranational competition authorities for blocs like the Common Market for Eastern and Southern Africa (COMESA) and the West African Economic and Monetary Union (WAEMU) have started operating regional merger control regimes and facilitating investigative actions at a regional level."
- Policy imperative: "further regional cooperation remains necessary to tackle the growing challenges from pan-regional monopolies and cartels, especially in view of greater expected trade and investment flows in the context of the African Continential Free Trade Agreement (AfCFTA)."

### Complementary macroeconomic and regulatory policies
- Trade and investment:
  - Trade barriers—both tariff and nontariff—"hurt overall competition and competitiveness (World Bank 2012; Cadot and others 2015)."
  - The African Continential Free Trade Agreement (AfCFTA) "envisions the elimination of tariffs on most goods, the liberalization of trade of key services, and the reduction of nontariff obstacles to international trade."
  - "Trade and investment liberalization stimulate competition, but an effective competition policy framework is needed to ensure that gains from foreign competition are realized and markets are not taken over by a few large firms engaging in unfair trading practices."
- Fiscal policy, procurement, and customs:
  - Preferential tax treatment or selective implementation of policies "can hamper competition by creating an uneven playing field."
  - Public procurement that benefits certain firms "can also hurt competition and entrench the dominant position of large firms."
  - Example: In 2012 the Zambian Competition and Consumer Protection Commission investigated bid irregularities for a government subsidy program; the commission "levied sanctions and the government broadened the tender process."
  - "Inefficient customs administrations can adversely impact trade and foreign competition. Fiscal policies and public procurement systems thus need to be carefully designed, and customs administration systems need to be strengthened and modernized so as not to undermine competition."
  - Where subsidies are used "the costs and benefits of the incentives at play should be clearly analyzed, including their effects on economic competiton."

### Trends in enforcement and reform momentum
- Recent enforcement snapshot: "0.01 percent of GDP in penalties, and finalized 193 enforcement cases (CCSA Annual Report 2017–18)."
- Reform trajectory: "Although product market reforms were undertaken in several countries in the region in the late 1990s and early 2000s and helped to boost competition and conferred growth gains, the reform momentum has stalled in recent years."
- Legal framework expansion: "despite the almost three-fold increase in the number of countries that have enacted competition laws since 2000, progress on the ground remains limited."

### Policy recommendations and holistic approach
- Core elements of a holistic approach:
  - a) "product market reforms that reduce structural and regulatory barriers to private sector participation in the goods and services markets and improve the ease of doing business;"
  - b) "an effective competition policy framework, which includes an adequate competition law along with an independent, adequately funded, and staffed enforcement agency;"
  - c) "complementary trade and foreign direct investment policies that bolster foreign competition and improve access to intermediate inputs;"
  - d) "carefully designed fiscal policies and procurement systems that do not distort competition by benefiting a few market players."
- Reinforcing interactions:
  - "These policies are individually important and also mutually reinforcing."
  - "Trade and investment liberalization help to stimulate competition, but an effective competition policy framework is essential to ensure that gains from foreign competition are realized by the whole economy and a few large firms do not dominate markets and implement unfair trading practices."
  - Development policies for priority sectors "should not give way to a decline in competition and and increase in corporate market power that would impose costs on the rest of the economy and offset the potential effects of the original policies."
  - "In the current context of increasing regional trade and integration, cooperation among national competition authorities needs to be strengthened to tackle any anticompetitive practices of large pan-regional firms."
  - "Countries need to maintain a stable and sound macroeconomic and institutional environment to attract private investment and ensure that policies to stimulate competition have traction."

*wpiea2020030-print-pdf*

### REFERENCES

### REFERENCES

### Bibliographic References (selection)
- Aghion, P., M. Braun and J. Fedderke, 2008. “Competition and Productivity Growth in South Africa.” Economics of Transition, 16: 741–68.
- Aghion, P., and R. Griffith, 2005. “Competition and Growth: Reconciling Theory and Evidence.” Cambridge, MA: MIT Press.
- Autor, D., D. Dorn, L. Katz, C. Patterson, and J. Van Reenen. 2017. “Concentrating on the Fall of the Labor Share.” American Economic Review, 107(5): 180–85.
- De Loecker, J., and F. Warzynski. 2012. “Markups and Firm-Level Export Status,” American Economic Review, 102(6): 2437–71.
- De Loecker, J., and J. Eeckhout. 2018. “Global Market Power.” NBER Working Paper 24768.
- Gutiérrez, G., and T. Philippon. 2017. “Declining Competition and Investment in the U.S.” NBER Working Paper No. 23583.
- International Monetary Fund (IMF). 2019a. “The Rise of Corporate Market Power and Its Macroeconomic Effects.” World Economic Outlook, Washington, DC, April.
- Lerner, A. 1934. “The Concept of Monopoly and the Measurement of Monopoly Power.” Review of Economic Studies, 1: 157–75.
- Olley, G. S. and Pakes, A. 1996. “The Dynamics of Productivity in the Telecommunications Equipment Industry,” Econometrica, 64(6):1263–1297.
- Schumpeter, J. 1942. “Capitalism, Socialism and Democracy.” New York: Harper & Brothers.
- Smith, A. 1776. “An Inquiry into the Nature and Causes of The Wealth of Nations.” London: William Strahan and Thomas Cadell.
- World Bank. 2016. “Breaking Down Barriers: Unlocking Africa's Potential through Vigorous Competition Policy.” Washington, DC.

### Data sources, datasets, and classifications cited
- World Economic Forum: Global Competitiveness Index; Methodology and Computation of the Global Competitiveness Index 2017–18.
- World Bank: World Bank Enterprise Survey (WBES); World Development Indicators (WDI).
- ORBIS Bureau van Dijk.
- Bertelsmann Stiftung Foundation (BTI).
- IMF, WEO database.
- Eurostat: NACE Rev. 2 Statistical Classification of Economic Activities in the European Community.
- UNCTAD; OECD.

### Key referenced methodologies and definitions (as presented)
- Profitability (WBES note): defined as the difference between revenue and the cost of inputs relative to revenue.
- Markup (WBES note): defined as the log ratio of sales to the cost of inputs (also described in various table notes as log ratio of sales to cost of labor, raw materials and intermediate inputs).
- WEF’s Index of Intensity of Local Competition: ranges from 1 to 7 (best).
- CFA franc zone: dummy variable indicating membership in the CFA franc zone for price-level regressions.

### Notable referenced empirical and conceptual contributions
- Studies on markups, concentration, and market power: De Loecker et al. (2012, 2016, 2018), De Loecker & Eeckhout (2018), Edmond et al. (2015), Mazumder (2014).
- Competition and growth/productivity literature: Aghion et al.; Nickell (1996); Holmes & Schmitz (2010); Dutz & Hayri (1999).
- Regional and sectoral analyses relevant to Sub-Saharan Africa: Fedderke et al. (2018); McKinsey Global Institute (MGI) 2016; World Bank (2012, 2016); Sibiya et al. (2018).

### Tables and empirical content overview
- Table 1–7: Country and industry coverage of data sources (WEF Competition Index, BTI, WBES, Orbis). (Sources: World Economic Forum; Bertelsmann Stiftung Foundation; World Bank Enterprise Survey; Orbis Bureau van Dijk.)
- Table 8: Variable Definitions and Data Sources — lists variables and their sources (examples include: General gov. gross debt to GDP — IMF, WEO database; Real GDP growth in trading partners — IMF, WEO database; Share of investment in GDP — World Bank, WDI; Real price of investment goods — PWT 9.0).
- Table 9: List of Non-Sub-Saharan African Countries included in data compilation (sample entries include Afghanistan, Albania, Algeria, Argentina, Australia, Austria, ... Papua New Guinea).
- Table 10: Sub-Saharan Africa: Firm Markup and Profitability — based on WBES; profit and markup definitions noted.
- Table 11: Sub-Saharan Africa: Average Sectoral Profitability and Markup Based on WBES — reported values include:
  - By Resource Intensity (Markup / Profitability):
    - Oil exporters 0.82 / 0.51
    - Other resource-intensive 0.69 / 0.45
    - Non-resource-intensive 0.64 / 0.42
  - By Region (Markup / Profitability):
    - Central Africa 0.82 / 0.51
    - East Africa 0.66 / 0.44
    - Southern Africa 0.62 / 0.43
    - West Africa 0.65 / 0.42
    - EMEDEV excl. SSA 0.57 / 0.39
  - Average sectoral entries (Markup / Profitability) examples:
    - Hotels and restaurants 0.62 / 1.17
    - Wholesale trade, except of motor vehicles 0.56 / 1.03
    - Retail trade, excl. motor vehicles/cycles 0.54 / 1.00
    - Manufacturing of food products and beverages 0.48 / 0.77
    - Average 0.47 / 0.76
- Table 12–13: Sectoral markup/profitability matrices from Orbis and WBES; Table 13 provides industry-level profitability/markup examples (Hotels and restaurants 0.63 / 1.17; Financial intermediation 0.55 / 0.91; Mining and quarrying 0.35 / 0.51; Agriculture, hunting and forestry 0.36 / 0.49; Manufacturing 0.36 / 0.48).
- Tables 14–16: Econometric analyses of Competition and Real GDP Per Capita Growth, including IV-2SLS specifications. Selected reported coefficients and statistics (examples preserved exactly):
  - From IV-2SLS table (columns sample): Local competition 1.500*** (0.529) in column (1); Real GDP per capita (lag) -14.122*** (1.947); Investment 14.997*** (3.495).
  - Extended specifications: Local competition 1.978* (1.063) in column (1) of another panel; Real GDP per capita (lag) -20.468*** (2.887); Investment 16.307*** (4.618).
  - Observations and panels: Observations 971, 678, 179; R-squared examples 0.610, 0.560, 0.515; No. of Countries examples 121, 88, 25.
- Table 16: Competition, Investment, Exports and Productivity — reported example coefficients:
  - Local competition 0.168*** (0.040) for Investment (World sample, col. 1).
  - Investment 0.004* (0.003) as predictor in Non-Oil Exports regressions.
  - Observations examples: 1,264; 868; 233; R-squared examples: 0.968; 0.862; 0.806.
- Table 17: Competition and Innovation — selected coefficients:
  - Local competition 0.213 (0.772) in a World sample column; Real GDP per capita (lag) 4.726 (3.386).
  - Observations examples: 1,069; 748; 190; R-squared examples: 0.738; 0.738; 0.762.
- Tables 18–21: Competition and Price Levels / Internationally Comparable Price Levels — extensive panels reporting coefficients for categories such as Food & Beverages, Alcohol & Tobacco, Clothes & Footwear, Utilities, Furniture, Health, Transport, Communication, Recreation, Education, Hotels, Machinery & Equipment, Household Consumption, Individual Consumption. Key preserved estimates include:
  - Real GDP per capita (log) coefficients frequently significant (examples: 0.145***; 0.281***; 0.299***).
  - Local competition negative coefficients in many categories (examples: -0.082**, -0.086**, -0.145*).
  - Observations frequently 141, 122, 121; R-squared values range across regressions (examples: 0.585, 0.663, 0.770).
- Tables 22–25: Competition and Firm Behavior using WBES and Orbis microdata — key reported coefficient patterns:
  - Markup negatively associated with investment and exports measures:
    - WBES: Markup -0.724*** (0.031) for investment in EMDEs (col. 1); Markup -0.539*** (0.081) for SSA (col. 2).
    - Orbis (All firms, Sub-Saharan Africa): Markup -1.275*** (0.094) for investment (col. 1); other panels show Markup coefficients such as -0.844***, -2.353***, -0.648*** depending on specification and sample.
  - Firm size, age, ownership, and macro controls included as covariates; samples and observations reported (examples: WBES Observations 17,933; 3,598; Orbis Observations examples 19,422; 33,563).
  - R-squared examples across firm-level regressions: 0.117, 0.408, 0.048, 0.358, 0.111, 0.336.

### Figures (list and notes)
- Figure 1: Selected Groups of Countries: Product Market Competition, 2007–17 — WEF Global Competitiveness Index; index ranges from 1 to 7.
- Figure 2: Sub-Saharan Africa: Comparison with Quartiles of Global Distribution, 2007–17 — bars indicate number of countries in each quartile.
- Figure 3: Selected Groups of Countries: Competition Indicators (BTI), 2008–18 — higher values indicate greater competition; comparisons across Advanced, Emerging, DEV excl. SSA, SSA.
- Figure 4–6: Revised WEF Competition Indicators, 2018; Domestic Competition Indicators, 2013–17; Foreign Competition Indicators, 2013–17 — all sourced to World Economic Forum, Global Competitiveness Index 4.0; notes preserve index ranges and interpretation (higher values indicate greater competition or varying directions depending on subindex).

*_Source: wpiea2020030-print-pdf – REFERENCES (IMF staff compilation of references, tables, and figure notes)._

### 1. Product Market Environment

### 1. Product Market Environment

### Competition indicators and trends
- Source data and measures:
  - World Economic Forum, Global Competitiveness Index: index ranges from 1 to 7, with higher values indicating greater competition.
  - World Bank Enterprise Survey (WBES) and Orbis databases used for firm-level indicators.
  - Time spans referenced include 2002–17, 2007–12, 2013–17, and 1973–2014.
- Regional and group comparisons presented:
  - Sub-Saharan Africa (SSA) compared with Emerging market economies and developing countries (excl. SSA) and Advanced economies.
  - Subregional breakdowns: Central Africa, Eastern Africa, Southern Africa, West Africa.
  - Resource-intensity groups: Oil exporters, Other resource-intensive, Non-resource-intensive.
- Survey and sample notes:
  - Competition framework survey: total respondents equal to 37; scores denote percentage of respondent authorities answering yes to specific questions (e.g., existence of independent competition/anti-trust agency, formal competition policy, centralized implementation, competition law/unified legal framework).

### Firm-level competition, profitability, and markups
- Definitions preserved from source:
  - Profitability (WBES): difference between revenue and the cost of inputs relative to revenue.
  - Markup (WBES): log ratio of sales to the cost of inputs.
  - Markup (Orbis): log ratio of revenue turnover to costs.
- Key empirical comparisons:
  - Profitability and markup reported for Emerging market and developing economies (excl. SSA) versus Sub-Saharan Africa.
  - Regression fits shown: y = 0.14***x + 0.344 (markup/profitability relationship using one dataset) and y = 0.31***x + 0.475 (alternative fit), with *** indicating statistical significance at the 1 percent level.
- Firm-type heterogeneity:
  - Small firms defined as those with number of employees less than 20.
  - Majority public and majority foreign owned firms defined as those with public and foreign ownership of more than 50 percent, respectively.
  - Markup comparisons by firm type indicate statistical significance markers ***, **, and * at the 1, 5, and 10 percent levels, respectively.
- Time series:
  - Firm markups series presented as an index with 2002 = 100 for Nigeria, South Africa, and Sub-Saharan Africa across 2002–17.

### Sectoral markups and competition effects
- Markup by sector:
  - Sectors reported (WBES and Orbis panels) include Hotels and restaurants; Other services; Information and communication; Financial intermediation; Transport and storage; Real estate, renting, and business activities; Mining and quarrying; Agriculture, hunting, and forestry; Manufacturing; Electricity, gas, and water supply; Construction; Wholesale/retail trade; Repair of motor vehicles and goods.
  - Manufacturing subsectors listed include: food products and beverages; motor vehicles/trailers; electrical machinery/apparatus; basic metals; other non-metallic mineral products; chemicals/chemical products; rubber and plastics products; wood/wood products; furniture; fabricated metal products; wearing apparel; machinery and equipment; leather products; textiles; paper and paper products; publishing/printing.
- Evidence of competition intensity changes:
  - Comparisons of average competition index values for Average 2007–12 versus Average 2013–17 across regions and resource groups.

### Impact of competition and markups on macroeconomic outcomes
- Presented macroeconomic channels and magnitudes (as in figures and notes):
  - The change in macroeconomic variables is measured for an increase in the World Economic Forum's local competition intensity index from the median for sub-Saharan African countries to the top decile of the global distribution.
  - Outcome categories shown: Growth, Private investment, Non-oil exports, Labor productivity growth; units reported as Percentage points.
  - Figures and regression notes indicate results with significance markers ***, ** and * at the 1 and 5 percent levels, respectively.
- Estimated impact of markups on firm performance:
  - Effects shown for a 1 percent decline in firm markups (markup defined as the log of the ratio of sales to cost in one panel and as the log of output elasticity to input relative to the expenditure share of the input in sales in another panel).
  - Outcome variables reported include Investment to value added, Labor share to value added, Labor productivity growth, Total factor productivity growth, Exports to value added; percent changes are displayed in the source.

### Prices, consumption baskets, and price differentials
- Price level comparisons:
  - IMF staff calculations using World Bank, International Comparison Program data compare SSA price levels with other country groups.
  - Figure notes indicate bars show average difference in price levels between SSA and other groups; ***, ** denote statistical significance at 1 and 5 percent levels.
- Effect of increased local competition on prices:
  - The effect is measured as the change from the median SSA local competition intensity to the top decile of the world distribution; presented for consumption categories including Food and beverages, Clothes and footwear, Health services, and Individual consumption basket.
  - Panel labels show percent changes (negative and positive ranges illustrated in figures).

### Structural reforms and competition frameworks
- Long-run reform trajectory:
  - Structural reforms series for SSA shown for 1973–2014 (source: Alesina and others, forthcoming); higher values indicate greater liberalization.
- Competition policy and enforcement indicators:
  - Competition frameworks: survey questions on independent competition/anti-trust agency, formal competition policy, centralized implementation, competition law/unified legal framework; shares of positive answers reported.
  - Anti-monopoly enforcement index (World Economic Forum): index ranges from 1 to 7, with higher values indicating more comprehensive anti-monopoly policy enforcement.
- Institutional scores and findings:
  - The competition framework survey involved 37 respondents; scores denote percentages answering yes to specific institutional questions.

*Source: IMF staff and external datasets as cited in the source figures (World Economic Forum, World Bank Enterprise Survey, Orbis, World Bank International Comparison Program).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020030-print-pdf.pdf_