Project Brief Investment Climate | World Bank Group 91181 Competition Policies Open Markets in Kenya Project At A Glance Results and Impacts Country/Region Kenya/Sub-Saharan Africa • Removing association-related market PRODUCT Private Participation in Infrastructure and constraints is expected to generate Social Sectors savings for consumers of at least $18 THEME Competition Policy million per year in the insurance sector alone. Many developing economies still do not fully enjoy the benefits of competitive markets. Distorted markets reduce investment • Introducing greater private sector participation in Kenya’s pyrethrum opportunities, increase business risks, raise the cost of essential sector is expected to increase business inputs needed to compete in domestic and international agricultural exports and improve markets, and lessen the benefits of private sector participation for incomes for more than 40,000 farmers. economic development and poverty reduction. • Focusing on assessing merger and The World Bank Group’s Competition Policy team has been acquisition transactions that are supporting the government of the Republic of Kenya’s efforts to likely to harm consumers will lower increase competition in its markets in support of Kenya’s Vision private sector compliance costs for 2030, a national development blueprint that aims to transform such transactions by approximately 70 Kenya into a newly industrializing middle-income country by 2030. percent. In Partnership with FIAS, UK Department for International Development (DFID) World Bank Group Context policies that can deter competition, and work with sector regulators and ministries to make Kenya more competitive. Kenya ranks in the bottom half of all countries with regard to competition in domestic markets, according to the World Economic Forum. Furthermore, the Bank Group’s 2010 Investing Across Borders survey noted that 45 percent of select Kenyan sub-sectors have markets with either only one or a few large firms. In addition, some trade and professional associations are legally allowed to control the prices their members charge consumers, further hindering market competition. Factors such as these result in higher prices for essential business inputs (e.g. insurance and logistics services) and primary household goods (e.g. food). And sector-specific regulations have limited private investment in certain sectors such as agribusiness, fueling the perception of higher risks of entry for new businesses. Among the reform initiatives that have emerged from this partnership are interventions in three areas: The new Competition Act, which came into effect in August 2011 as part of Kenya’s Vision 2030, is expected to strengthen • Lowering barriers to entry in the pyrethrum sector: In the ability of the Competition Authority of Kenya (CAK) to 1980, Kenya was the world’s leading supplier of pyrethrin, promote and safeguard competition, protect consumers from an organic insecticide made from the pyrethrum flower. anticompetitive market conduct, and prevent mergers and Since then, Kenya’s share of the world market has fallen acquisitions that would cause negative effects on consumers. from 82 percent to only 4 percent (2009), in part due to the existence of a statutory state monopoly, the Pyrethrum Board of Kenya, the only firm allowed to Our Role purchase and process pyrethrum flowers. The Bank In support of Kenya’s Vision 2030, the Bank Group is helping Group has helped draft reforms—and is providing to strengthen the government’s ability to encourage implementation support—to remove this monopoly, competition and private investment in its markets. The Bank unlocking investment opportunities in the pyrethrin Group staff are engaging with key institutions within the sector for at least two local companies and potentially Kenyan government, such as the Competition Authority of three international investors. This effort will also benefit Kenya (CAK) and the Ministry of Finance, and consulting with close to 40,000 farmers who will be able to grow and sell sector regulators and other important stakeholders. CAK’s pyrethrum to new manufacturers and exporters. role is to advocate for well-functioning markets, identify • Removal of market constraints imposed by professional and trade associations: CAK adopted regulations proposed by the Bank Group that will bar associations “The World Bank Group has been a valued and from being able to control the prices that members set for dependable partner over the last few years. We consumers (e.g. for legal fees). expect substantial increases in competition—with • Reducing the cost of implementing mergers and subsequent visible positive impacts on consumers, acquisitions (M&As): The Bank Group helped develop especially the poor—and business to arise from a new policy for the review and authorization of our collaboration with the World Bank Group.” M&As. Quicker, easier, and cheaper implementation of FRANCIS W. KARIUKI transactions will lower private sector costs of complying Director-General of the Competition Authority of Kenya with the M&A regime by approximately 70 percent in sectors such as agribusiness, tourism, and logistics. Contact Martha Martinez Licetti | Senior Economist | Investment Climate Email: mlicetti@worldbank.org | www.wbginvestmentclimate.org