Regulation Or Retribution

Failure to deliver regulatory action Often creates wrong perception.

Bangladesh's inflation in general still remains elevated, above 9% for April. Though food inflation declined from 8.93% to 8.63% , this reduction means little as the heat of inflation gives a heavy blow to the people. Meanwhile, chief advisor's special economic assistant in a program made it clear that govt may unsubscribe the ongoing IMF credit program if the IMF [stresses] on continuing the reforms set by it.

The May 6 meeting between the two fell through as a last ditch attempt. The bone of contention is the free exchange rate. Currently, Bangladesh follows a crawling peg system (I have serious doubt about calling it a crawling peg), but the IMF wants it to be fully aligned with the market.

The IMF program started during the time of a govt that deemed corrupt and dysfunctional but it wore the attire of a "democratic regime". Current govt lacks the popular mandate and should not unsubscribe the credit program. I personally think the IMF credit program is more important and beneficial to us than any corruption-prone climate fund arrangement. Our banking act was overhauled, the central bank got back its sovereignty, journey of true reporting of economic data has began, exchange rate was liberalized, current account balance improved, pension fund got secured, abuse of social security spending declined, revenue collection increased manifold, loss-making public and private entities' balance sheet improved because of higher interest rate, NBR is likely to get more revenue from them, fuel price adjustment leads to lowering fuel prices, improvement in revenue governance and many more things since the IMF started the credit program.

Undoing it is a step towards going back to old days of unwarranted spending, costing the welfare of mass people and efficiency.

This kind of retributive stance over regulatory supervision should be discarded. When regulation requires proper attention , retribution casts shadow over it and derails the true objective of regulation.

Last week homicidal charges were brought against two directors of a leading advertisement agency, which has a significant market share in the industry. One of the directors were a former ruling party politician and minister and accused of killing 4 people. The other director is an actor and accused of a murder during the uprising in July. The latter's well-wishers denied the accusation as trumped-up charges and claimed he was a supporter of July movement. In addition, they claimed the two were targeted as the agency holds significant market share of the industry ( some say over 80%), sharing the social media post of another PR firm owner.

Now political vendetta should not be mixed up with market malpractices. If anyone is involved in market malpractices then the matter should be brought to the attention to proper regulatory authority ( in this case Bangladesh Competition Commission and the High Court). Rather, the political vendetta only validates the earlier malpractices in future years.

Bangladesh in 2012 introduced the Competition Act that aims " to make provisions to promote, ensure and sustain congenial atmosphere for the competition in the trade, and to prevent, control and eradicate collusion, monopoly and oligopoly, combination or abuse of dominant position or activities adverse to the competition."

There are many business groups and media outlets whose ventures like streaming platform owns more than 70% market share, paper mills that control significant market share of toilet paper, broadsheet newspaper and exercise book. Even the dominant market player of the ceramic industry holds important portfolio of this govt. If govt is committed to true reforms, then they should be subject to BCC's scrutiny. So far we see that BCC gets more inactive under this regime.

There are things called brand reputation and brand loyalty. If a business group engages in controversial, unlawful act, then let the market and consumers do their act. Director of one of country's leading conglomerates was accused of killing a model. Later its brand in sanitary napkin , toilet paper market lost significant market share. Its consumer items met similar fate. Its shopping mall draws less crowd after the incident. It pays a hefty toll after the incident. Rumor has it that a party even extorted the group while the govt remained muted.

Govt should underscore regulatory stance instead of retribution. Regulatory action, which this govt is yet to deliver regularly,is the routine work of a normal and functional govt. Any malpractices deemed breaching regulatory environment should be dealt through regulatory actions. Retribution dampens the regulatory spirit and does not improve the business environment in the long run.

Collapse Of Regulatory System

Three incidents lay it bare, Regulatory system provokes a sense of despair.

Three incidents recently brought to fore collapse of regulatory system in Bangladesh. First one was put forward by the US President Donald Trump who alleged that USAID had granted $29 million to a 2-men-run NGO in Bangladesh in a bid to strengthen democracy. In Bangladesh, NGO bureau that oversees NGO activities and foreign funding of local NGOs denied presence of such NGO and acceptance of fund. Transparency International Bangladesh also echoed similar stance. NGO bureau is under the auspices of Prime Minister's office but rumor has it that its foreign financing approval is given by the military intelligence. The money for the project here came during the tenure of previous regime. USAID gave the money to Democracy International and which NGO in turn received the money still remains a mystery.

I do not think the US President made such allegations without evidence. He must have documentary evidence that led him to disclose the thing publicly.

If the allegation is true, it proves how this oversight of NGO activities completely broken and how corrupt practices swallow purpose of NGOs. Misappropriation of climate fund is an apt example. Both govt and TIB's findings divulged nitty-gritty of it (Read "Climate Commitment Or Enhancing Corruption?" published here on February 16,2024).

This again proves how lack of transparency of the security establishment led to spread of corruption in other sectors. In this case ,the NGOs. If there were proper accountability in place ,then this money would not end up in this way in the hands of some opaque NGO.

Another incident is the chronic crisis of soybean oil amid tariff waiver on soybean oil import. Previously, at the wholesale level, soybean oil transaction was taken place without any money receipt. I do not know whether this practice is still being taken place. I touched the issue couple of times here. Only handful of big groups including an Army-run subsidiary operate this industry. One of the groups laundered money abroad with blessings from security establishment and jeopardize the supply chain by disrupting the supply. Another group is under the scanner of the Anti Corruption Commission. All the business conglomerates engaged in soybean oil business have media outlets. This way they can shape the narrative. I earlier discussed here why it is bad for consumer welfare when a company has significant market share in the input market as well as in the final output and in the media( read "Enforce Laws To Protect Consumer Rights" published here on September 4,2019).

Routine functioning of Bangladesh Competition Commission (BCC) is absent here. It recently published an announcement, seeking complaints from people. Intervention of BCC is needed in the soybean oil market. It should convene an audition ,inviting representatives of big groups and ask them explanation for the rising prices of bottled soybean oil. This will at least give the market a signal that government is functioning.

Another incident is the attack on an administrator of a Mobile Financial Service(MFS) provider and his subsequent resignation. The administrator was appointed by the govt in the scam-ridden MFS(Read "What Does Nagad Ownership Row Reveal?" published here on September 12,2021, and "BB Detects More Suspicious Transactions" published here on March 19,2022).This attack unveils govt cannot consolidate its grip over trouble-ridden entity. Parallel administration is still strong, challenging govt's authority.

The three incidents are an eye-opener that the regulatory environment is in tatters and requires serious overhaul. Without proper regulatory set up, govt cannot ensure routine functioning, let alone carry out ambitious reforms.

Poultry Market Becomes Volatile Again

Poultry price hike troubles the people, Hurts protein need of the feeble, True culprit hides amid the endless squabble.

Poultry market has become volatile again. This time soaring price of egg is squeezing the pockets of the consumers. Egg is being sold at taka 15 apiece,almost loosing the title of “cheapest source of protein”.Back in March, broiler chicken caused storm into tea cup after 1 kilo had been sold at more than taka 300 per kilo.

Consumers’ Right Protection body inspected the market and found blank receipt /receipt without price and date at the wholesale market. Clear indication of opaque transaction taking place in a country that aspires to become a knowledge based economy. Some wholesalers and dealers put the blame on corporate poultry farms. However,money receipts shown and the so-called representatives of poultry industry interviewed do not belong to the top 15 corporate poultry farms.

In brief, following points emerged out of the egg price debacle:

1 Poultry feed accounts for 70% of the cost and corn and soya account for 85% of the poultry feed. Bangladesh has to import key ingredients of poultry feed and depreciation of taka affected the poultry feed price¹. Recent restriction on import by Bangladesh Bank also played a role.

2. Egg substitutes like lower-end fishes (Telapia,Pangush) registered increase in their prices. One kilo is now being sold at taka 200-250. Earlier the prices varied between taka 120 and 130.

3. Ministry of livestock set the price of egg at taka 12 apiece.

4. One industry representatives in a press conference said that egg production dropped because of extremely hot weather in this summer time. Chicken consumes lots of water than feed during this time.

5. Following govt intervention, egg price fell to taka 165/ dozen

Some points need serious scrutiny. Corn prices are falling over the last 10 months.Poultry meat has become cheaper,now taka 160/kilo.According to a news report,students living in hostels found poultry meat cheaper than dozen of egg as more meal can be prepared with the poultry meat.Moreover, quail egg is still cheaper,it is not a popular substitute though.So there are substitutes of egg and they are still cheap. This ultimately stem formation of any cartel.

Price fixing by ministry of livestock to some extent set the narrative against the consumer.

Back in March I wrote “Poultry Meat Gets Costlier”².Sharing parts of it again:

“Dutch embassy in Bangladesh commissioned a study on poultry sector of Bangladesh. The study revealed that all the farms produced 525 million broiler chicken annually. There are 300/500 farms that have on average 15000 birds and 18000 contract farms that have the capacity to raise around 3000 birds ³.Apart from that there are small and household level farms that raise chicken under open sky. The big farms and the contract-farms jointly account for 62% of the total broiler meat production. Any successful cartel requires that organizational cost be lower and punishment be lower among other things. With so many contract farmers ,it is impossible to enforce such a cartel. And why the big farms shoot their own feet by taking a stance that ultimately allows entry of chicken from neighboring India that has cost-effective solution to rear chicken. People will switch to eat fish and egg if poultry meat stays out of their reach. In that case ,revenue loss will compound problems of the poultry farmers who are indebted to banks,cooperatives and dear ones. The big farms are subject of regular audit by the chartered accountants. Govt ,Competition Commission can check those audit reports to see how much they earn and how they do that. It is not easy to make windfall gain in poultry farming.

However, there is a possibility to influence the pricing of poultry meat.There are 15 big farmers.Interestingly, they also on the list of top 15 Breeders and Hatchers. These farms also furnish chicks to other farmers. It is not known how many of them in feed business. I do not know whether they acquire any hatchery or breeding farm. But their sheer capacity is influencing the input market price. Similarly, it is not known whether these farms have already purchased other farms. But news reports say nature of contract they place before other farms does not allow them to sell their products at their will in a profitable way.Subcontracting farms' profitability shrinks significantly. There is some kind of “tie-in” in that contract.That means nature of the contract to some extent shapes the poultry meat prices. Close scrutiny of the contract between big farms and other farms is needed. Back in 2012,Bangladesh introduced Competition Act 2012. It prohibits "combination" (cartel/alliance) that adversely effects competition in a commodity market(section-21) ⁴Bangladesh Competition Commission may intervene here.

Govt may also intervene to set up hatchery and breeding unit across the country so that marginalized poultry farmers get chicks and poultry feeds at affordable price. If govt can intervene in telecommunications market then it can also take initiatives to ensure protein for the poor. I think it is not pragmatic to report on commodity prices at retail level. Many western media broadcast prices at wholesale level. Dissemination of retail price and breakdown of production costs through media to some extent sets the “narrative” against the consumers and validates unreasonable price hike.”

Profiteering is pretty common in this part of the world. And we have witnessed how perishable kitchen commodities went through unreasonable price hike. Price hike taking place at a moment when purchasing power of people has fallen and election is knocking on the door. Businessmen were demonized right and left in our command and control economy. I fear this may be used as a pretext to demand election money from the corporate poultry farms. Do not forget ruling party leaders warned loyalists against extortion ahead of August 15, National Day of Mourning. Corporate farms do not control the local bazaars and streets. Whatever outlets they had were shut down, hinting unfavorable business environment.

Policy support towards the poultry industry is what we needed.Just a year ago America made offer to import soy meal from them.I think we have to make strategic ties in this kind of sector instead of military. If we get soya at a convenient price that makes our poultry feed and fish feed cheaper, we could meet our protein need at a cheaper cost as well as capture part of the foreign market.

Central bank may also step forward to their aid by providing subsidized credit or access to export assistance fund. This will help them expanding their farm size as well as bringing the cost of production to a competitive level.

Blame game and witch hunting have become the trend ,which only hides the true reason. Without deep digging into an issue, any kind of character assassination only complicates the problem.

Notes And References

1. ”Eggonomics 101:How Do India, China Keep Egg Price In Check When Bangladesh Fails?”,Masum Billah and Shawkat Ali,Business Standard, August 17,2023. For more read at https://www.tbsnews.net/features/panorama/eggonomics-101-how-do-india-china-keep-egg-prices-check-when-bangladesh-fails
2. ”Poultry Meat Gets Costlier “,Rezaul Hoque,https://hoquestake.blogspot.com,March 31,2023. For more read at https://hoquestake.blogspot.com/2023/03/poultry-meat-gets-costlier.html?m=1
3. "Poultry Sector Study Bangladesh", Larive International B.V. and LightCastle Partners Ltd,May,2020
4. Protijogita Ain 2012(The Competition Act 2012)

Enforce Laws To Protect Consumer Rights

Slapping punitive tariffs for hiding information on new subscribers ratchets up tension between telecom regulator and two leading mobile operators. The matter reached to court and the operators sought to settle the issue outside the court. BTRC keeps saying that the two have to pay the tariffs and even cut their bandwidth to comply.

Mobile operators have every reason to get angry over imposition of supplementary duties every now and then. However, telecom regulator does not take the operators into task for violating consumer rights and harming competition.

In recent years, we witnessed mergers of key mobile operators. Interestingly no hue and cry has been heard from the government side. In USA, antitrust laws protect consumer interests and head off initiative to harm competition. At the heart of US antitrust policies lies the Sherman Act , the Clayton Act and the Federal Trade Commission Act. The Sherman Act discourages bad monopoly practices. Meanwhile the Clayton Act prevents price discrimination, tie-ins, exclusive dealings, mergers that shrink competition and control of competing firms by interrelated board of directors. The Federal Trade Commission Act paved the path for creation of Federal Trade Commission Act to enforce antitrust laws.

Like US antitrust laws, Bangladesh in 2012 passed Competition Act that aims " to make provisions to promote, ensure and sustain congenial atmosphere for the competition in the trade, and to prevent, control and eradicate collusion, monopoly and oligopoly, combination or abuse of dominant position or activities adverse to the competition." It also entailed creation of Bangladesh Competition Commission (BCC). Unfortunately BCC first witnessed appointment of its chairman back in 2016 and the body remains a toothless tiger under Ministry of Commerce with an annual budget of Tk 1.8 million, which is subject to ministry's approval.

In USA, not all mergers and acquisitions deem anti-consumer and anti-competition if those amalgamations result in more efficiency for the firm and thereby improving the welfare of the society as a whole. For instance, merger of two competing firms may lower the marginal cost of the combined firm in post merger period. Since the firm produces at lower marginal cost than before its efficient production may render better quality product or more output at same price or both for the consumers. Thus the social welfare is also increased because of this merger. In this light merger is good and antitrust laws do not put any obstacle in such amalgamation. A merger may also lead to increase in price and less output. A deadweight loss is attributed to the rise in price and lowering of output. Antitrust laws enforcement authority examines whether efficiency gains outweigh deadweight loss of a potential merger. If efficiency gains offset or more than offset deadweight loss of a merger plan then the court or antitrust law enforcement body nods affirmatively to such merger proposal. Otherwise, it throws cold water to merger plan. Those managed to get their merger deals passed the probing eyes of antitrust laws enforcement bodies did so by selling their efficiency gain's concept.

Bangladesh's mobile telecommunications industry is characterized by oligopoly: identical product and few operators. Previously six operators dominated the industry. Axiata's acquisition of Airtel and dissolution of Citycell reduced the number of operators to four. One does not have to be an expert to say competition is reduced because of merger. Are the consumers better off now than before? Coming back to it a little bit later.

Revenue Market Share of Mobile Operators.(Data Source: EBL Securities Limited)

In the USA, authority blocks merger or acquisition attempt if it leads to increase of market power of the merged firm. This market power is defined by firm's ability to set price above the price under perfect competition. One of the indirect measure of this market power is the share of the market. Often a market share of 50 percent is deemed low as market power if other firms can enter easily into the market and drive price lower to the competitive market. Unfortunately this is not easy in Bangladesh's mobile telecommunications service industry. Entry is not easy here. So any merger insinuates concentration of market power to merged company and thereby reduction in competition. EBL securities prepared an analysis for its clients about the mobile operators of Bangladesh. According to EBL Securities Limited, GrameenPhone and Robi own 43% and 33% of market share of active mobile internet subscribers respectively in September, 2018. In terms of revenue, GrameenPhone holds 58% of the market share whereas Robi holds 28% of the market share till the third quarter in 2018. Before 2016 when the merger between Airtel and Robi took place, Robi had 26% of the revenue market. Clearly Robi's revenue market share increased by 2% due to merger. Technically speaking a reduction in competition occurred.The body that supposed to look into this matter , Bangladesh Competition Commission, was formed in that same year. However, Bangladesh Telecom Regulatory Commission introduced Significant Market Player clause that allows it to impose restrictive measures to curb influence of a dominant market player.

Court in December 2018 also banned any hike in call rate. However call rate increased significantly since the merger of Airtel and Robi. Earlier 33 paisa/ minute was the lowest available call rate, now it is 77 paisa/ minute. When it comes to mobile internet data, BTRC intervened to raise the duration of all data packs to a minimum of one week. From my personal experience I can tell operators took off many offers following the instruction. For instance, data pack of 25 MB for 4 hours at Tk 5 literally disappeared. Data pack worth Tk 9 for 24 hours resulted in a duration of 72 hours. Consumers' cost on data pack has increased following reduction in competition. In addition, call drop crops up every now and then in the middle of conversation, prompting BTRC order to compensate subscribers in the event of call drop. Consumers in general do not receive more output from the leading operators let alone experience better service and products. Out of the blue this year we came to learn via Telenor website a negotiation was started to merge Axiata and Telenor in South Asia. However, Axiata underscored that Bangladesh operation is not part of the merger discussion. It is hilarious to hear such argument when operations of a significant market are about to come under one clutch and only one part will be left out. The merged company will have far more control on cost and thereby deeper influences on setting prices across different markets. This merger negotiation also laid bare to ridicule ability of our agencies to foresee such important amalgamation that has the potential to affect VAT and Tax revenue of the government struggling to finance development projects and social security programs.

Many subtle incidents also go unnoticed to the eyes of our antitrust bodies. For instance, selling of high value mobile phone sets or tabs at extended installments by mobile operators. This kind of practices deter competition among retailer shops and raise the costs for selling of such sets in the retail market. This tie-in sale practice has to be addressed in the Competition Act.

Another incident is to pick up exclusive multimedia content provider for entertainment contents. For instance, leading operators often inked exclusive deal with online entertainment service providers at a special fee or free of cost. This kind of exclusive deals raise entry barrier to other similar service providers and kill many budding companies. With the introduction of 4G , mobile operators play the role of windows to seamless internet service industry. In that service industry,  it cannot cut special deal with some clients ( entertainment service providers are operators ' clients) by depriving others. This subtle-competition-killer matter has to be taken into account by our antitrust authority in a bid to augment competition and welfare.

However, we have to acknowledge that the leading two mobile operators play a crucial role in bridging digital divide and educating poor and hard-to-reach community through their freebasics services at zero balance. The Facebook assisted freebasics allows one to browse internet without paying any fee.Obviously the two operators run this program as part of corporate social responsibility out of their own pockets.

But it should not be the reason to allow the merger of two operators who have significant subscriber base and market share. Government can sell another telecom license to a new willing company in combination with ailing one brings some foreign partner so that there is resurgence in competition in mobile telecom market. So far BTRC and the Court have taken the onus of enforcing competition and consumer rights in this market. In the coming months I hope Bangladesh Competition Commission under the auspices of parliament will take the lead in that end. Before that our Competition Act needs to be updated to address various forms of competition killing practices.