December 26, 2021

Fraudulent trade practices: Why manufacturers, small firms are vulnerable

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By Timi Olubiyi

WORLD over, competition exists across several fields and sectors of the economy and it is inevitable in business regardless of the business type, structure, size, and industry of operations.

Fair competition exists when no single buyer or seller can control the price or product in the market. Even if a business enjoys a monopoly in a sector it must compete with other businesses over where consumers spend their money.

Consequently, competition is really not a bad phenomenon as it can spark innovation, productivity, competitiveness, and it largely contributes to an effective business environment.

For this reason and more businesses need to continue to attract consumers with innovative behaviours. In fact competition is a natural and healthy part of running businesses in an adequately regulated economy.

This is because when businesses vie for customers, competition makes prices fall, and with that economic output increases. Therefore, if practiced the right way competition can ensure consumers have a range of choices, businesses can equally strive better, and workers can be retained.

However, the place of anti-competitive practices which is a huge challenge for businesses particularly small businesses at this time is the focus of this piece and awareness needs to be brought to it. 

Although anti-competitive practices which are acts that prevent or reduce fair competition in a market often enrich those who practice them, it is widely believed to have a negative effect on the economy as a whole.

From context observation, these anti-competitive practices exist in the various business landscapes in Nigeria and indeed many African countries. Anti-competitive practices can include unfair mergers, cartel conducts, collusions, price-fixing, the overbearing influence of vested interests, deceptive marketing practices, monopolisation, price discrimination, political patronage, and predatory pricing among others.

Cartel conducts are some of the most harmful anti-competitive practices a nation can deal with. For instance, the businesses are ailing in Nigeria, not only because of the weak infrastructure environment but largely due to several cartels’ conduct and collusions, exacerbated by the current economic downturn and stiff challenges.

A visible trend is the engagement of individuals or few businesses among the cartels in taking samples of products to a foreign country to reproduce on a large scale, and their dumping at a predatory price into the market, where no room for fair competition can exist. 

This pattern happens with many household items and consumer goods such as textiles, building fixtures and fittings, detergent, cosmetics, tissue paper, biscuits, shoes, clothing, vehicle spare parts, all types of electronics, phones, generators, and to commodities as low as nylon bags, etc.

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Predominantly having predatory pricing is usually the strategy of the cartels, where prices drop so low until the local businesses are driven out of the market. Sadly these products are usually substandard and with grave health and safety implications.

In the textile space, for instance, six yards of African print (Ankara) can sell as low as N1, 500, that is N250 per yard. Can a Nigerian textile manufacturer with the humongous cost of running a business beat that? Can the product be durable?

These are the questions. A colleague recently bought a flash drive of 32gig capacity for use and could not copy an 18gig presentation file with video onto the 32gig flash drive. This is an example of deceptive marketing practice in every sphere of business life in the country. These sharp practices are evidence of a weak regulatory regime and lack of consequences for such acts of anti-competitive behaviours.

This anti-competitive behaviour is used by a few dominant individuals or businesses to generate abnormal profits and it erodes fair competition within the market. If this activity continues uncontrolled it may take a negative toll on the Nigerian small business ecosystem, create market failures, erase job creation, and wealth creation within the economy.

It is imperative to mention that one of the biggest challenges that result in business failure aside from financial constraints, lack of manpower necessities, operational difficulties, and absence of adequate structure by businesses particularly the Small and Medium-sized Enterprises, SMEs, in Nigeria is the negative impact of anti-competitive behaviours.

It is so bad that it can affect not only the businesses but the entire economy if it remains unchecked. Small businesses have been seen to be an effective bedrock of any economy be it developed or developing, therefore, it is imperative to consider their survival in the face of current realities and the impact of anti-competitive conduct of the few.

One of the important functions of government is to create an enabling environment in which businesses can operate and compete fairly. Government should, therefore, offer protection to SMEs and large industries against anti-competitive behaviours because the future of businesses particularly manufacturing looks bright if government support is there.

The Nigerian market is increasingly viable because of the population which can drive volume and demand for products and services at any level. The Nigerian government recently enacted a national competition law, the Federal Competition and Consumer Protection Act 2019, FCCPA, 17 years after the first idea was pushed.

The role of FCCPA is to oversee consumer protection and competition issues in commercial activities within or having effects on Nigerians. This step is laudable, but for meaningful impact, the specific focus should be on proper implementation, enforcement, and prosecution.

Adequate sanctions have to be in place to check fraudulent trade practices or unfair anti-competitive practices. This responsibility of government is expressly stated under the United Nations guidelines. Consequently, if well implemented it can create confidence in the economy, promote good corporate governance, create market stability that can attract new business entrants, and promote efficiency.

It can even attract Foreign Direct Investment, FDI, and enhance the competitiveness of the domestic market. By and large, operators and other key stakeholders such as Organised Private Sector, OPS, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, NACCIMA, Manufacturers Association of Nigeria, MAN; Lagos Chamber of Commerce and Industry, LCCI, should continue to engage government and policymakers on the need for clear policies to foster a competitive environment for businesses in the country.

When anti-competitive practices are controlled, it can help to ensure that the quality of goods and services remains high in the country. Evidently, with a strong political will, government action can block most of the anti-competitive practices.

Vanguard News Nigeria