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13.10.2007 Business & Finance

Businesses Profit from Competition

By Evans Selorm Branttie

Governments understandably like to act in the interests of their nations. These include not only citizenry but also businesses originating from their countries. A lot of African economies are, like most other places, shielded by their governments some of the harsh situations market forces inflict on their industry, their people and their economy.

Ghana's government is no different. However, in trying to promote local businesses, is there really the need to eliminate competition by banning imports? Certain issues need to be really factored in before we can justify such an action. The government's decision to ban all tomato paste imports to allow just one local company to be profitable is, at best a very unfortunate occurrence.
This argument is flawed. How much capacity does this Northern Star Tomato factory have to supply the whole of the country with this enormous demand for tomato paste that appears on almost any plate of food in Ghana? Has this company initiated an adequate supply chain system that will ensure that its products can reach every corner of the country? In the business plan that established the organization, was it factored in that there will be competition from other brands before the factory was established? If that was the case then the company itself should be closed down.

We are in a democracy that professes property ownership, open markets for trade, fair competition, no corruption and impartiality. Why then should the government single out just one company to monopolize production of this commodity? It brings to mind the question whether this company even has international standards certification and production quality standards for its produce. Apart from that there is no knowledge of the kind of quality the produce itself has, and whether this is at par with imported tomato paste.

Another important oversight is the fact that the farms that provide the tomatoes are largely subsistence farms that rely on cutlasses and hoes as well as erratic rainfall. What is the guarantee that they can even supply constantly the raw material needed to feed the factory? The argument that tomatoes rot in the fields is neither here nor there. Where is the infrastructure in terms of transport that should make it possible for the produce to reach the market? Prices of farm produce often have their prices inflated so many times over just because of the difficulty in transporting them.
Proceeding in this direction is only designed to encourage corruption and black marketeering, and in some cases imported counterfeit and sub-standard tomato paste packaged as the locally produced version will be smuggled in by unscrupulous businessmen, not even taking into account potential health issues that will result.

For a country that sees itself as an African paragon in good governance, liberal economics and such, it is unfortunate that we rob our citizenry of a simple right that is as crucial to our democracy as our right to vote; the right of choice.

We seem to forget that instead of adopting the protectionist approach, we should rather make the cost of doing business cheaper in this country by making it easier to establish businesses, acquire land and other important inputs like capital for business. We also need to eliminate corruption and bureaucracy that will allow not only one company to establish tomato mills or any other business setup for that matter.

We also as a country need to establish activities that give us the required competitive advantage so that the cost of production will be an incentive. This will prevent future failures of business in the country. If this tomato mill for instance cannot produce at economic rates that are lower than the cost of importing tomato paste and all the taxes associated with it, including marketing and distribution, then the company has itself to blame. This is the same for all businesses that want to cheat their consumers under the premise of government protection. The day the protection goes, the venture is doomed to failure.

The imported tomato pastes have already established chains of distribution, employ thousands through marketing, distribution, packaginging and the other related activities. We gain as a nation from import and other duties that are charged on these products. Does that mean that we as tax payers are paying to support someone's private endeavor to succeed? Businesses are made to profit the owner, and therefore we do not expect our taxes or the opportunity cost of it to fund a privately owned enterprise in the name of promoting locally consumed tomato or any other item for that matter.

In our so called golden age of business, we need businesses that will thrive against competition in the market so that the consumer gets the best value for money. We need not set a bad precedent by adopting a stance that limits our power of choice. After all, it is our money we are using to buy the commodities, and our choices are informed by our presence and how the commodities are marketed and made attractive to us.

What we need to do is to place emphasis on standards of production to meet world accepted standards and the demand for local products will rise commensurately. The solution is not banning imports or protecting local businesses, because the problem is not the inability of the local produce to compete. The problem is the inability of government to set the environment and infrastructure right, thus increasing the cost of production and then ridding industry of the competitive advantage it needs.
However, a plus to our ideals of good governance is the ability of the importers to seek redress at the law courts. The importers have taken the government and the ministries to court over the ban, indicating that the rule of law prevails, and that any person or group of persons can at least seek redress from the judiciary if they feel slighted by activities of the executive arm of government and have justification for taking them on. Time will decide what the judgment will be, but then the point is simple. We as consumers have our choices which need to be safeguarded, it is the producers' responsibility to ensure that the products are standards compliant and are good enough to beat the competition through good marketing. Nobody should use the government to establish monopolies that will only perpetuate mediocrity.

Selorm Branttie is Events Director at IMANI. IMANI is a think-tank dedicated to researching economic trends for the benefit of government, civil society and business. Send him an email at [email protected]