Why FCCPC Should Not Ask Traders to Crash Prices – CPPE
The Centre for the Promotion of Private Enterprise (CPPE) has advised the Federal Competition and Consumer Protection Commission (FCCPC) to avoid controlling the prices of goods.
On Thursday, FCCPC gave businesses a one-month ultimatum to reduce prices.
Tunji Bello, executive vice-chairman and chief executive officer (CEO) of FCCPC, said businesses involved in price fixing and gouging, would be penalised, as both practices harm consumers and are considered unfair business practices.
Bello said the commission has identified patterns of price fixing in the retail segment.
Following the warning, Muda Yusuf, CEO of CPPE, in a statement on Sunday, said FCCPC appears to be unwittingly transforming into a price control agency rather than a consumer protection commission.
“The disproportionate focus of the commission on the retail segment of the economy and pricing issues underscores this assertion. The core mandate of the commission is the creation of a robust competition framework across sectors and protection of consumer rights and interests,” Yusuf said.
“Consumer protection is not about directly seeking to control price at the retail end of the supply chain. This is why the CPPE is concerned about the approach, methodology, targeting and the recent threats by the FCCPC to market leaders, traders and supermarket owners.
“The commission seem to be fighting the symptoms rather than dealing with the causes of the current inflationary pressure in the economy. Even then, the core mandate of the commission is not to fight inflation. The fiscal and monetary authorities are statutorily responsible for macroeconomic policy issues and are better placed to deal with the challenge of high prices.
Yusuf said the best way FCCPC can protect consumers from exploitation is by creating a level playing field for all investors and promoting competition across sectors instead of focusing on price control.
He said intense competition makes profiteering difficult and diminishes the chances of exploitation of consumers, as they will have multiple options.
“When consumers have choices, it is difficult to exploit them,” Yusuf said.
“The retail sector of the economy is characterized by a multitude of players. There are an estimated eight million retailers in the trade sector of the Nigerian economy. And there are thousands of supermarkets, departmental stores and markets across the country.
“The higher the number of players in a sector the more competitive the operating environment becomes and the more difficult it becomes for profiteering to take place.”
According to the CPPE CEO, retailers do not have the power to influence prices or perpetuate profiteering sustainably.
“The truth is that the retail segment of the economy is the least vulnerable to price gouging or consumer exploitation on a sustainable basis, contrary to the thinking of the commission,” Yusuf said.
“They do not have the monopoly powers to influence prices or perpetuate profiteering sustainably. Besides, many of them are dealing in perishable items which makes supply manipulation difficult because of the inherent pressure for speedy disposal of the products.
“The reality is that the risk of profiteering increases with monopoly powers. This is why the attention of the commission should be focused on creating a good competition framework to deepen competition across sectors.”
Yusuf said FCCPC needs a proper comprehension of the dynamics of pricing and the key drivers of inflation.
According to the economist, the factors driving prices are the naira exchange rate depreciation, high energy cost, high cost of logistics, seasonality of food production, high cost of funds, extortions on the highways, and high post-harvest losses.
He also mentioned high cargo clearing costs, the impact of the insecurity on food production, climate change and global factors disrupting supply chains.
“There is also the emerging dimension of the increasing export of Nigerian products to neighbouring countries in the West African sub-region and beyond as a consequence of the weak domestic currency,” Yusuf said.
“The incentive to export Nigerian products to neighbouring countries has never been as intense as it is currently. This is because of the significant appreciation of the CFA relative to the naira.
“It has become more profitable to export many Nigerian products [including petrol] to neighbouring countries than to sell domestically because of the relative strength of the CFA. This situation has been exerting enormous pressure on domestic prices.”
Yusuf said the attempt by FCCPC to regulate prices is not a sustainable strategy and it is unlikely to yield concrete outcomes.
He said fixing the fundamentals driving production, operating and distribution costs which resulted in spiralling inflation is the solution.
“The dynamics of pricing and prices in an economy are much more complex and fundamental and do not seem aligned with the comprehension of the FCCPC on the issue,” he said.
“The variables are numerous, multidimensional and dynamic. It is difficult to make pronouncements on issues profiteering in such circumstances without a rigorous analysis based on data.
“The example of the comparative price of a particular brand of fruit blender in the USA and Nigeria cited by the commission is too simplistic and superficial to be relied upon as a basis for the commission’s generalisation about consumer exploitation by supermarkets in the country.
“The commission needs to be more diligent and thorough in its analysis before alleging consumer exploitation by the trading community. Sample size needs to be significant and data integrity needs to be assured to make the commission’s verdicts credible.”
Yusuf advised the commission to stop intimidating retailers, warning that there is an emerging risk of market suppression and private enterprise repression by the FCCPC if the current trajectory continues.
“This marks an elevation of regulatory risk in the Nigerian economy which is detrimental to investors’ confidence. It should be appreciated that these traders are also victims of the current economic headwinds, especially the inflationary pressures,” Yusuf said.
“High prices negatively impact their sales and profit margins. Many of them had in fact shut down their businesses because of the current economic shocks.”
He called for collaboration between FCCPC and other agencies to tackle the fundamental causes of inflation in the economy, adding that the focus should be on causative factors driving prices, not the symptoms.
The CPPE CEO said this is a more sustainable approach than resorting to intimidation of traders, supermarket owners and market men and women.
Yusuf also advised FCCPC to pay attention to areas with frequent consumer rights violations such as the aviation, health, energy markets, electricity market, financial services, telecoms and cable television (TV) sectors.
