History of Competition Policy and Law Development in Kenya
Economic Environment Prior to the Introduction of Competition Policy and Law
Prior to Kenya's attainment of self-rule in June 1963, the degree of industrialization and monetization of the economy was low. Most consumer items such as sugar, fats, razor blades, and farming implements which were needed by the settler community were imported from U.K. The interests of the settlers was protected through the Price Control Act of 16th October 1956 to ensure that consumers of essential goods and services were not exploited.
On attainment of independence, Kenya embarked on a process of rapid industrialization and indigenization of the economy through the setting up of import substitution industries to meet local and East African Community requirements. The government enacted the Trade Licensing Act, Cap. 497 which legalized the take-over of non-citizen firms by Kenyans through denial of trade licenses for certain trades and businesses. The government also controlled imports and exports through the Imports, Exports and Essential Supplies Act, Cap.502.
In the mid 1970s, Kenya's industrialization programme began to experience setbacks which were largely attributed to the collapse of the East African Community. Tanzania and Uganda opened their markets to imports from Asia resulting in the loss of the larger captive East African market. In addition, Kenya’s products were not competitive in other export markets because of their prices and quality. This economic downturn was further exacerbated by fewer employment opportunities and falling standards of living for Kenyans.
To reverse the trend of economic decline, it became abundantly clear that Kenyan industries must produce not only for domestic market but also for the export market. The Government therefore decided in the mid 1970s to expose domestic firms to foreign competition by allowing some imports. Competing imports were selectively allowed into the Kenyan market; banned and price controlled items were removed progressively. In addition, the licensing of more industries boosted domestic competition, and led to lower consumer prices and increased employment opportunities.
Competition Policy and Law
The proposal to develop and enact a competition policy and law in Kenya was advanced in 1982 by the Working Party on Government Expenditures (WPGE). The proposal noted that, as direct Government intervention in the economy via state-owned commercial enterprises diminishes, "more reliance will be put on policy instruments to influence firm management and industrial decisions on product choice, investment and employment." The Report further noted that, "as private sector activities and community efforts increase in scope and magnitude, opportunities for abuse, favoritism and exploitation may also increase."
More specifically, paragraphs 87-91 spelt out the WPGE views on the type of legislation and institutions that Kenya needed to facilitate the desirable changes from a controlled economy to a market economy. Paragraph 90 in particular stipulated that, it was, therefore, recommended that legislation with respect to unfair practices be enacted and that a Monopolies and Prices Commission be established to enforce it. Towards the end of 1985, a Cabinet memorandum was prepared proposing the enactment of a law prohibiting restrictive trade practices and the establishment of a Monopolies and Prices Commission in Kenya.
Kenya's momentum for change from a controlled economy to a free economy was amplified by Sessional Paper No.1 of 1986 on "Economic Management for Renewed Growth," which noted that the "Government will establish the market-based incentives and regulatory structures that will channel private activity into areas of greatest benefit for all Kenyans. In doing so, Government will rely less on instruments of direct control and increasingly on competitive elements in the economy." The Sessional Paper also noted that, "At present, Kenya has no comprehensive legislation making restrictive practices illegal and no administrative or legal mechanism to prevent them". Therefore "Government will propose legislation prohibiting restrictive trade practices and establishing an administrative mechanism to enforce it." This commitment by the Government resulted in the enactment of the Restrictive Trade Practices, Monopolies and Price Control Act, Cap.504 of the Laws of Kenya in 1988.
The Restrictive Trade Practices, Monopolies and Price Control Act came into effect in 1989. It engendered the regulation of mergers, control of unwarranted concentrations of economic power and prohibition of restrictive trade practices. It however retained all the price control provisions contained in the Price Control Act.
It was clear from the Sessional Paper that the Restrictive Trade Practices, Monopolies and Price Control Act was intended to be a transitional piece of legislation to enable Kenya move from a price control regime to a market regime. In the 1988 Budget Speech, the Minister for Finance declared that Kenya was committed to a market driven competition regime. This was evidence that Kenya was not only committed to a transitional promotion of competition arrangement; it was willing to eventually liberalize the market and fully embrace competition.
To further buttress its commitment to local and international competition, in the Sessional Paper No. 2 of 1996 on Industrial Transformation to the Year 2020, the then Minister for Commerce and Industry with regard to international trade, said: “… As a country, we must look outward to our neighbours and the world both to seek opportunities for our enterprises and to invite others to participate in building our economy. We cannot create a future if we turn our backs on the challenges of international trade and commerce”.
The Sessional Paper further reiterated the need to ensure promotion of competition among local traders through strict enforcement of anti-monopoly and anti-trust laws. The Sessional Paper also definitively stated that: “The multilateral trade negotiations of the Uruguay Round which culminated in the establishment of the World Trade Organization (WTO) set out an ambitious agenda that included reducing trade barriers further. Kenya is a signatory to the Agreement and is obligated to work within its trade regulations and recognize that international trade will become more competitive. However, new trade opportunities will emerge as a result of the new multilateral arrangements that will encourage international trade provided Kenya can establish export oriented industries. ”
The Restrictive Trade Practices, Monopolies and Price Control Act created the Monopolies and Prices Department which was mandated to encourage competition in the economy.
However, the Restrictive Trade Practices, Monopolies and Price Control Act was not effective given that it was intended to be a transitional piece of legislation to enable Kenya move from a price control regime to a market regime. Some of the notable weaknesses included the fact that it maintained price control provisions, its enforcement procedures were convoluted, the Commissioner only played an advisory role, and the remedial measures were ineffective among others.
Fortunately, the government, having recognized the important link that competition had to economic development, made the decision to introduce further legal reforms that is contained in the Economic Recovery Strategy document, a spirit that is further amplified in the Vision 2030. A new Competition Act, 2009 thus commenced on 1st August 2011.
The Competition Act No. 12 of 2010