Competition law in Nigeria

Competition law in Nigeria INTRODUCTION SCOPE OF THESIS The area of Competition law in Nigeria remains an area of law that has not been fully tapped. Currently, there is no competition law operating in Nigeria and although there has been a bill, it is yet to be passed to law. The ongoing lack of a competition law regime has quite predictably led to price-fixing, excessive pricing of products , market concentration as well as domination being the order of the day, all to the detriment of the consumer. The primary objective of this thesis therefore, is to discover the value of introducing Competition law in Nigeria and indeed a sector specific Competition Law to the Nigerian Communications Industry. The theses will begin by examining the global significance of Nigeria and the position of Nigeria as a developing economy. This research further seeks to examine the state of the Nigerian telecommunications industry and the steps that have been taken by the Nigerian Government towards the opening up of the telecommunications industry in Nigeria. The thesis will also look at both the arguments for and against the introduction of a competition law in Nigeria and a specific competition law in the telecommunications industry which forms the main focus of this research. The present situation in Nigeria can be likened to a market where all the telecommunications providers provide their services at the same price, a price that always seems to be a little higher week after week, In such a case, what might have happened is that the telecommunications providers have formed cartels so that they can force up prices and make large profits. If such is the case, it is the welfare of the customers that suffers because of the lack of competition. Competition issues in various sectors of the economy are handled by other regulatory regimes such as The Special Trade and Malpractices Investigation panel, standards organisation of Nigeria, Nigerian Civil Aviation authority, Securities and Exchange commission, Central Bank of Nigeria, and of particular importance to this thesis, The Nigerian Communication Commission (NCC) which is the national regulatory authority for the telecommunications industry in Nigeria. The question that arises however is whether the regulations set out by the NCC are sufficient to promote and preserve competition. This thesis will analyse the position of the NCC as a regulator of the Nigerian telecommunications industry. RATIONALE AND RESEARCH METHODOLOGY In carrying out this research, the author will rely on a collection of theories, comparative study of the Law in different jurisdictions and Interviews with various individuals who have experience in this field. Primary and secondary sources of information will be used to collect and analyze data to come to a viable conclusion. The primary sources which the author will utilize include authoritative materials of the law such as the Constitution of the Federal Republic of Nigeria, statutes and legislations in force, official publications and judicial decisions relating to competition law, telecommunications law and Privatization in Nigeria. Books, journals, articles, dictionaries, periodicals, newspapers, The Federal Competition Bill and internet documents will constitute secondary sources of information. These are materials which pertain to law but are not themselves authoritative records of legal rules. A comparative study of competition law systems in other jurisdictions will also form a part of the study. In order to make this thesis logical, the author will sketch headings and arrange materials to accommodate research findings. Headings and cross headings will not only assist to readily identify where a particular point has been dealt with, it will also make the theses flow in a logical way and keep the readers interested. Because the area of law to being researched in this thesis is relatively young in Nigeria, it is necessary to perform foundation research and as such, secondary sources of research will be highly relied upon in this thesis. Challenges of Research Methodology: It is widely accepted that competition authorities in developed and developing countries alike encounter challenges and obstacles in their effort to promote competition and enforce their various competition laws. While the challenges faced are similar in nature their degrees vary across countries. It has been observed that Developing countries such as Nigeria do not generally place the implementation and administration of competition law on their priority lists. They are generally of the mind that it is like giving a silk tie to a hungry child. However, with the changing global landscape, trade barriers being removed and markets becoming more integrated, developing countries find themselves in the situation in which they now have no choice but to institute the relevant legislation. The implementation of institutional reform that the developed countries took several decades to accomplish is now being thrust upon developing countries which do not have the luxury of time, the requisite skill or the resources. In the same vein, in carrying out research on competition law in the Nigerian telecommunications industry, the author came across various research challenges. The main challenge has been the inability to get research materials. This is due to the fact that the area of research is still in its infant stage in Nigeria as a result there is not enough written material on it. Further, it is a very contentious and political issue as a result; companies, institutions and individuals who have access to necessary material or information are not willing to release information. The Bureaucratic nature of Nigerian Institutions also posed as a major challenge to this research. This is because there are many levels of management, much paperwork and impersonal officials working to a fixed routine who seem to find it difficult to provide necessary information or give necessary interviews which would be advantageous to this research paper. The unstable state of the Nigerian Telecommunications Limited (NITEL) which operated monopoly status in the Nigerian Telecommunications industry for a long time also proved to be a challenge in getting research information. This is because as management of NITEL changed, the operations change and this makes it difficult to get information on previous happenings in the company. Other challenges faced by the author in the research process came in the telephone interview process. This is because some people do not have telephones or do not have their telephone numbers listed. People also often dislike intrusion of a call to their homes and never have time for a telephone interview at work. Also telephone interviews need to be relatively short or people get impatient or feel imposed on. The use of the internet as a form of research also came with its own challenges some of which include accuracy and reliability of information obtained from online sources and difficulties in verifying a writers credentials. COUNTRY PROFILE AND GLOBAL SIGNIFICANCE OF NIGERIA The Federal Republic of Nigeria consists of 36 states and 774 local governments administrations. The Capital city is Abuja, located in the Federal Capital Territory and it is geographically situated in the middle of the Country. Nigeria has a population of over 148 million making it the largest market in sub-Saharan Africa with reasonably skilled and potential manpower for efficient and effective management of investment projects within the country. Nigeria is a regional power and it is listed among the Next eleven economies Nigeria is a nation blessed with an abundance of natural and mineral resources as well as renewable energy sources. Its oil reserves make Nigeria in the league of the top ten petroleum rich nations, and by far the most affluent in Africa. Nigeria is a member of the organisation of petroleum exporting nations which makes it significant to the world at large. The petroleum industry in Nigeria has brought unprecedented changes in the Nigerian economy, particularly in the past five decades when it replaced agriculture as the cornerstone of the Nigerian economy and contributes the lion share of in the nations gross domestic product, accounting for the bulk of federal government revenue and foreign exchange earnings. The Nigerian economy can be described as most promising. Nigeria has however been long hobbled by political instability, corruption, inadequate infrastructure, and poor macroeconomic management. Nigerias former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 95% of foreign exchange earnings and about 80% of budgetary revenues. Following the signing of an IMF stand-by agreement in August 2000, Nigeria received a debt-restructuring deal from the Paris Club and a $1 billion credit from the IMF, both contingent on economic reforms. Nigeria has a mixed economy which accommodates all; individuals, corporate organisations and government agencies to invest in almost all economic activities. Over the last decade, the Nigerian government has introduced some economic measures such as liberalisation and privatisation of sectors that had been monopolies, with the purpose of introducing competition, wealth creation and encouraging foreign investors. In 2003, the Nigerian government instituted the National Economic Empowerment and Development Strategy (NEEDS), a domestically designed and run program modelled on the IMFs Poverty Reduction and Growth Facility for fiscal and monetary management[4]. NEEDS focused on four key strategies; poverty reduction, wealth creation, employment generation and value re-orientation. The initiative has recorded remarkable achievements, meeting most of its targets, and in some instances surpassing them. In November 2005, Nigeria won Paris Club approval for a debt-relief deal that eliminated $18 billion of debt in exchange for $12 billion in payments a total package worth $30 billion of Nigerias total $37 billion external debt. The deal requires Nigeria to be subject to stringent IMF reviews. OVERVIEW OF THE TELECOMMUNICATIONS INDUSTRY The telecommunications industry forms a major infrastructural requirement for any meaningful economic development to take place in a country. The importance of a robust telecommunications infrastructure cannot be over emphasized as it is pertinent to economic growth, and constitutes a significant portion of the worlds economy. This chapter discusses the historical and present state of the global telecommunications industry with particular focus on Nigeria. The Chapter will consider the policy approach to deregulation of the Nigerian telecommunications industry, as well as provide an overview of the evolution of the Nigerian telecommunications industry from the colonial times to full liberalisation as is the position now Over the last one hundred and thirty (130) years, the global telecommunications industry has experienced an unprecedented growth from an almost unnoticed analogue telephony to a modern digital mobile communication with billions of subscribers worldwide. This is evident in the Europe and Latin American telecommunications market worth â‚ ¬424bn in 2007, with mobile services accounting for 51%. The Evolution of the Global Telecommunications Industry The African telecommunications market being the fastest growing telecoms market in the world plays host to the next wave of global competition. In 2006 alone, mobile companies signed up about 60 million new subscribers across the continent, as many people as the entire population of the United Kingdom. Africas unique infrastructure challenges have made telecommunications (particularly mobile phones) an indispensable business and social tool. Despite impressive recent growth in telecommunications, penetration rates in Africa remain relatively low, thereby suggesting a large underlying potential market in this populous continent. It is expected that 260 million new subscribers will be added across Africa by 2014, nearly equal to the present population of the entire United States of America. THE NIGERIAN TELECOMMUNICATIONS INDUSTRY In consonance with the global trend in the telecommunications industry, Nigeria shares a similar success story over the past 130 years of navigating its telecommunications operations. The figure below shows incremental successes achieved within the Nigeria telecoms industry. The Evolution of the Nigerian Telecommunications Industry HISTORY OF TELECOMMUNICATIONS IN NIGERIA Telecommunications facilities came into being in 1886 by the colonial administration. The initial purpose was merely to carry out administrative duties as opposed to the provision of socio economic development for the country. Thus, the introduction of public telegraph services connecting Lagos by submarine cable along the west coast of Africa to Ghana, Sierra-Leone, Gambia and on to England was more important than an efficient telecommunications network. Subsequently, as at 1960 when Nigeria gained her independence, there were only 18,724 telephone lines available for a population estimated at 40 million people. This translated to a tele-density of about 0.5 telephone lines per 1,000 people. The telephone network consisted of 121 exchanges out of which 116 were of the manual (magneto) type and only 5 were automatic. Since independence, there have been a number of development plans for the expansion and modernisation of the telecommunications networks and services. Most of these plans were not fully implemented. After the Nigerian Independence in 1965 and up until 1985, the telecommunications industry was divided into: The department of Posts and Telecommunications (P T) and The Nigerian External Telecommunications (NET) Limited, P T took charge of the internal network while NET overlooked the external telecommunications services and provided the gateway to the outside world. By the end of 1985, the installed switching capacity was about 200,000 lines as against the planned target of about 460,000. All the exchanges were analogue, and telephone penetration remained poor equal to 1 telephone line to 440 inhabitants, well below the target of 1 telephone line to 100 inhabitants recommended by the International Telecommunications Union (ITU) for developing countries. The quality of service was largely unsatisfactory, the telephone was unreliable, congested, expensive and customer unfriendly. These unsatisfactory services led to the split of P T in January 1985, it was divided into Postal Division and Telecommunications Divisions. The telecommunications division was merged with NET to form Nigerian Telecommunications Limited (NITEL),a limited liability Company, while the Postal Division was reconstituted into another organisation called the Nigerian Postal Service (NIPOST). NITEL On establishment, NITEL became the national operator for telecommunications services in Nigeria. Although efforts are being made to privatise NITEL, and indeed there was a recent privatisation attempt where by 51% equity stake of NITEL was sold to core investors, this privatisation attempt was reversed and NITEL remains wholly owned by the Government of Nigeria. NITEL was set up to reverse the defects which characterised telecommunications development from independence up until 1984[11]. Its main objective was to harmonise the co ordination of the external and internal telecommunications services, rationalise investments in telecommunications development and provide easy access, efficient and affordable services. The historical key businesses of NITEL include fixed telephony services including international, internet, payphone and interconnection; Long distance carrier including fixed international calls and satellite services; cellular, including all cellular activity carried out within M-Tel. After the inception of NITEL,little progress was made in the development of the telecommunications industry and it was still characterised with poor management, lack of accountability and transparency and inefficiency. At this time, NITEL occupied a monopoly status and being owned by the Government, this resulted in its having a weak infrastructure base, high unmet demand, Lines concentrated in selected urban areas, slow growth of subscriber base and limited investment into the telecommunications sector. In order to tackle these short comings, and in line with what obtains in several developed nations, The Government of Nigeria identified that Liberalisation of the Telecommunications market was essential for rapid network growth. Private sector participation was essential for attracting financial resources, innovation and new technology. The industry was thus deregulated through the establishment of the Nigerian Communications Commission (NCC) by Decree No. 75 of 1992. The NCC has since approved almost 200 operating licenses for private providers of various telecommunications services, including internet services providers, which of course has in turn generated a high demand for telecommunications equipment, accessories, consultancy and technical partnerships. In addition, NITEL has approved various private firms to be connected to its switching systems so as to provide more lines (with greater efficiency and service) and thus act as a buffer for the grossly inadequate NITEL services. Despite all these efforts, it was quite clear that there was a dire need for the Nigerian Government to be more pro-active about improving telecommunications. As such, in 2000, the NCC awarded licenses for Global System of Mobile Communications (GSM) to NITEL by auction to two preferred bidders Econet Wireless Nigeria Limited and MTN Nigeria Limited. The licenses were bought at almost US$240million dollars, the highest amounts ever paid for such licenses in the world. The GSM technology has completely overshadowed NITELs land lines, as the demand is high for them due to efficiency, despite the astronomical tariffs its consumers are subjected to. These cumulative events eventually spurred the NCC, through the Bureau of Public Enterprises (its secretariat) to seek to privatise NITEL by requesting for Core investors to acquire controlling interest in the entity and manage its day to day activities. The privatization of NITEL has always been shrouded in controversies and politics. Many people are of the view that the Federal Government has not shown enough seriousness or sincerity in the many attempts to sell the telecommunications company. The first attempt in 2002 to privatise NITEL could not materialise due to the failure of Investment International Limited (ILL) of Britain to pay the $1.317 billion it offered for the 31 per cent shares of the company. ILL paid up the mandatory 10 per cent deposit, but was unable to make up the balance by the end of several deadline Periods, thereby derailing the process. Another attempt was made in 2003 with the engagement of a Dutch company, called Pentascope to manage NITEL and put it on sound footing preparatory to its sale. This one also collapsed. In the third attempt, Orascomm of Egypt offered $256.43 million for 51 per cent shares of NITEL. This offer was considered ridiculously low, and, so the government cancelled the deal. This has been the story of the efforts to privatize this big and potentially rich government-owned telecommunications firm. One deal that stood out was the Pentascope agreement. While Pentascope was expected to revitalize NITEL, Pentascope ended up not only ruining the company but it mounting up huge debts for the company as well. In particular, when Pentascope took over NITEL in March 2003, NITEL had about N17.7 billion in its coffers. However about a year later when its agreement with NITEL was terminated, it had left NITEL with a debt burden of N38 billion and a reduction in the number of functional land lines from 455,000 to 288,000. It therefore seems correct to state that the singular error of picking Pentascope as the management consultant to NITEL in 2003 is largely responsible for the pitiable condition the company finds itself in today. In 2006, 51 per cent equity in NITEL was sold to another company, Transnational Corporation[16], (TRANSCORP), for US $ 500 million. However, this process also failed to turn around the operator as TRANSCORP has been unable to raise the money to overcome the many problems of NITEL. The Nigerian government holds 49% of NITEL. The government however, wants Transcorp to sell 27% of Nitel to a new investor, which would then purchase a further 24% from the government to take control. This new core investor was scheduled to take over in February 2009; however this has not yet happened. In the meantime, the NCC has awarded a second national carrier license to Globacom Nigeria Limited, the only company out of three who expressed an Interest that was able to come up with the US$20 million 10% deposit of the Auction price requested by the NCC. Government was of the belief that a second National carrier would offer much needed competition to NITEL. Globacom has since commenced operations and as of today, it has the third highest subscriber network in the Country. POLICY APPROACH TO DEREGULATION AND PRIVATIZATION Liberalisation and privatisation It was only a matter of time before it became clear to Nigerian policy-makers that a shift in its policies was required. The over-regulation of the economy had become unhelpful, the economy was anaemic, and the Government had trouble keeping up with subventions to State owned enterprises, many of whom, at any rate, were inefficiently and unprofitably run. For SOEs in the telecommunication sector such as NITEL, the implications of its inefficiency for the entire economy were very far-reaching as it contributed to the retardation of the countrys overall industrial development. The merits of a deregulated economy were thus too overpowering for the Nigerian Government to ignore: much-needed foreign direct investment was to be attracted, bringing in tow the required technology, management and technical skills that would not only boost the economy but would transform the SOEs. To achieve this, however, it was obvious that radical legal reforms would have to be undertaken. Following the collapse of communism and apartheid, more countries joined the race for foreign investors. Investment climates therefore needed to be competitive. Before then, through the indigenisation policy pursued since the early 1970s, foreign investors in Nigeria had to contend with ceding a portion of their business to local investors. The real challenge, however, lay in removing regulation and monopoly so that foreign investors could have a level playing field. What followed was a rash of laws designed to facilitate foreign direct investment in Nigeria. Significant among these reforms was the repeal of the Nigerian Enterprises Promotions Decree 1989 (under which the indigenisation policy was sustained), and in its place came the Nigerian Investment Promotion Decree No.16, 1995 which made it possible for an enterprise to be 100 per cent owned by foreign investors. Also, the Exchange Control Act 1990 under which foreign investors required the approval of the Minister of Finance in order to transfer profits abroad was repealed in favour of the Foreign Exchange Decree No.15, 1995 that guaranteed free transfer of capital. The Companies Act 1968 was also repealed in favour of the Companies and Allied Matters Act, 1990, a more comprehensive and forward-looking company code. Against these reforms, Nigeria began its gradual journey towards deregulation, privatisation and a free market economy. However, as the free market was a model that had never previously been applied in Nigeria, its handlers had trouble grappling with it, and this led to the initial efforts being short-lived.This was followed by another privatisation law, the Bureau of Public Enterprises Decree, 1993. Privatization In every great monarchy in Europe, the sale of crown lands will produce a very large sum of money, which if applied to the payment of public debts, would deliver from mortgage a much greater revenue than any which those lands have ever afforded to the crownWhen the crown lands become private property, they will in the course of a few years become well improved and well cultivated ADAM SMITH, WEALTH OF NATIONS (1776). The term privatization is used to describe a range of different policy initiatives designed to alter the balance between the public and private sectors. It commonly refers to the transfer of ownership and control of enterprise from the state to the private sector.This may occur in various ways, such as, the sale of all or part of the privatized companys equity to the public, or the sale of the company as a complete entity. It may also take the form of joint ventures, where the private sector will invest in a public enterprise Privatization as a tool for economic management came about in the early 1970s when Chile became the first country to turn public businesses to private operators. Since then, over 140 countries have embraced privatization as a route to economic growth and prosperity. In the process of privatization, more investible capital has been injected into the various economies through local and foreign investors to the benefit of the country at large. In the process, funds that would have been committed to the maintenance of otherwise inefficient enterprises have been freed into more productive sectors of the economy. Privatization in Nigeria Privatization in Nigeria was formally introduced by the Privatization and Commercialization Act of 1988[25], This Act set up the Technical Committee on Privatization and Commercialization (TCPC) with a mandate to privatize 111 public enterprises and commercialize 34 others. In 1993, having privatized 88 out of the 111 enterprises listed in the decree, the TCPC concluded its assignment and submitted a final report. Based on the recommendation of the TCPC, the Federal Military Government promulgated the Bureau for Public Enterprises Act of 1993, which repealed the 1988 Act and set up the Bureau for Public Enterprises (BPE) to implement the privatization program in Nigeria. As at May 1999 the Federal Government investment in these public enterprises was in the region of US$100 billion. In spite of these massive investments, however, public enterprises have failed to perform the functions and attain the objectives for which they were set up. The gross failure of these enterprises to live up to expectations is partly responsible for the current move towards economic liberalization, competition and privatization. The philosophy behind privatization in Nigeria therefore is to restructure and rationalize the public sector not only to lessen the dominance of unproductive investments in the sector but also to initiate the process of gradual cession to the private sector of public enterprises which are believed to be better operated by the private sector. It is also expected that the privatization programme will provide the channel for reintegrating Nigeria back into the global economy as a platform to attract foreign direct investment in an open, fair and transparent manner. THE ENABLING PRIVATISATION LAWS Public Enterprises (Privatisation and Commercialisation) Act 1999 provides the enabling legislation for the implementation of the privatization and commercialization programme. This Act created the National Council on Privatization (NCP) whose functions include: making policies on privatization and commercialization; determining the modalities for privatization and advising the government accordingly; determining the timing of privatization for particular enterprises; approving the prices for shares and the appointment of privatization advisers; ensuring that commercialized public enterprises are managed in accordance with sound commercial principles and prudent financial practices; and Interfacing between the public enterprises and the supervising ministries in order to ensure effective monitoring and safeguarding of the managerial autonomy of the public enterprises. The 1999 Act also established the Bureau of Public Enterprises (BPE) as the secretariat of the National Council on Privatization. The functions of the bureau include among others to do the following: implement the councils policies on privatization and commercialization; prepare public enterprises approved by the council for privatization and commercialization; advise the council on capital restructuring needs of enterprises to be privatized; ensure financial discipline and accountability of commercialized enterprises; make recommendations to the council in the appointment of consultants, advisers, investment bankers, issuing houses, stockbrokers, solicitors, trustees, accountants, and other professionals required for the purpose of either privatization or commercialization; and Ensure the success of privatization and commercialization implementation through monitoring and evaluation. The Constitution of the Federal Republic of Nigeria 1999 Nigerian laws dealing with the issues of privatization do not exist in a vacuum. It is part of the body of laws governing the transfer and acquisition of property in Nigeria. The most fundamental legal document in Nigeria is the Constitution of the Federal Republic of Nigeria 1999. Under sections 43 and 44 of the Constitution, the right of the individual to own movable and immovable property is guaranteed by the Constitution. As a corollary to this guarantee, these properties cannot be acquired by the Government without the payment of compensation. The issue that has been discussed very frequently is whether the guarantees protect the sale of shares. This depends on whether the shares are movable property under the Constitution. It has been argued that since shares are choses in action they are not strictly so called movable property. They are special specie; consequently they are not protected under the Constitution. If this argument prevails it means that if a NEW Government which does not share the philosophy of the recent Governments ascends to power, it can reacquire the shares which it had disposed off through privatisation without any obligation to pay compensation for the share. At present the position of the Constitution should not create any serious alarm because, Under the Nigeria Investment Promotion Commission Act, Decree No. 16 1995 (the law enacted to encourage inflow of investments in Nigeria) the Government of Nigeria guarantees expressly that no compulsory acquisition of enterprises and interests shall take place in Nigeria. This clearly includes chooses in action. Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree 1995 A major factor which provided a catalyst for the privatization process was the need to attract foreign investment. The commanding height of the economy theory had failed to attract investments. The oil boom had disappeared and it was necessary to augment national revenue through foreign investment. The laws governing the allocation of foreign exchange had to be adapted in such a manner as to make it very attractive to the foreign investor. Consistent with this spirit of liberalization and privatization of the economy the rules