Georgian Market Lacks Competition
09 August, 2012
Georgian Market Lacks Competition

Georgian market lacks fair competition; it lays ground to rampant oligopoly practice and infringe consumer rights.

 

The competition policy largely known as anti-trust law is one of the key factors that outlines competitive power of any county at global market for fair competition encourages improving of quality and reasonable prices on goods and services, adoption innovations, productivity growth – all leading to economic welfare ultimately. Georgia lacks fair market competition leaving consumer vulnerable to trust practice. The reason is legislative gap.

 

Actually

in early days of its independence Georgian state worked out quite decent anti-trust law and set up a proper anti-trust body in 1992. European Bank for Reconstruction and Development assessed Georgian law as one of the best in the post-soviet space. But starting 2000 the law underwent through permanent changes degrading its efficiency until the liberally inclined rose government revoked both the law and anti-trust body in 2005. A new law on Free Trade and Competition with the relevant Agency was created instead regulating the state interference and protectionisms mainly and lacking basic competition principles. The official excuse was to make business free from the state interference.

As a consequence Georgia became a paradise for monopolies and high consumer prices [on fuel and foods particularly] caused by high profit margins became sort of an endemic problem. As an aftermath Georgia having topping the business doing ratings [of the World Bank] ranked near bottom in Global Competitive Index (GCI): it is number 93 out of 139 countries globe over in the 2010-2011 GCI rating, down by three grades from 90 in 2008-2009. Government defied all request of experts to restore the anti-trust law. Only thing that made government to go on concession was the EU pressure that put competition policy as one of key requirements to start negotiations on Deep and Comprehensive Free Trade Agreement (DCFTA) with Georgia.  The new law was approved in this past May but it still is far from perfection and does not guarantee smooth competition game.

Transparency International Georgia (TI Georgia) having researched Georgian competition policy came to several key defects aired on August 3, 2012.

Based on the report findings, a number of structural problems of the Georgian economy might be caused by lack of competition in the market and institutional framework, since liberalization and deregulation cannot succeed without effective competition policy.

According to Erekle Urushadze, TI Georgia expert, recently passed competition legislation sets forth basic regulations for competition policy, which is a step forward however, further improvements are necessary for creating fair market environment.

The law was quite immature in fact as it was not properly discussed with business and independent experts and did not take into account most of their remarks.

On the other hand, government integrated the Competition Agency with the State Procurement Agency that poses interest conflict fears, Urushadze thinks. In compliance with the law a new competition agency’s responsibilities include monitoring of the state procurement process while the role of supervision competition rules and organizing procurement process differ from each other.

“The new agency will both participate in the state procurement process and monitor it. It is noteworthy that roles such as supervising the enforcement of competition legislation, organizing the state procurement process and monitoring it are essentially different from one another. For this reason, merging these roles in a single agency will promote neither efficient enforcement of competition policy nor efficient supervision of state procurement,” Urushadze said in the interview with Georgian Journal. Besides, it lacks human sources. Only 9 out 59 employees of the united Agency work for competition side that falls far below the par. Urushadze believes proper workforce is crucial for efficient inactivation competition policy.

Exemptions made for insignificant market restriction limits in the legislation do not conform with the EU regulations and create the possibility of eliminating competition in respect of a substantial part of the market.

According to the Report, trends and symmetry revealed while examining commercial strategies of dominant players in the fuel and food markets might indicate the possibility of anti-competitive practices and market division, which has a negative impact on consumers, the country’s economy, investment attractiveness and economic welfare.

Although there are not many formal barriers, fuel market is oligopolistic.  The fuel market tends to consolidate (the number of market players is decreasing) and jacks prices up. In 2006-2011 the share of medium-sized companies in the overall fuel retail market turnover has decreased from 20% to 7%, while the employment share of these companies decreased from 47% to 17%. On the other hand, although the price increase in the international market (Platts) is followed by increase in prices in Georgia they do not decrease after Platts prices shrink. The data of fuel imported to Georgia through Italian and Bulgarian customs services are significantly different than similar data at the Georgian Revenue Service.

Institutional factors have had an impact on the dynamics of competition in the food market. 2004 reform, which aimed to change the ineffective soviet-type control system, was suspended by the end of 2006 and inspection of the food producer/distributor companies also stopped. As a result, no regular state monitoring of food safety was done, which posed a serious threat to the consumers’ health and life. This period saw the incidence of food and  water-related poisonings increase.

TI Georgia Experts advise Georgian government to set the competition law in line with the EU standards and segregate functions of the Competition and State Procurement Agency and the independent industry regulators to insure effective competition policy in the country.

 

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