Building Political Support for Cartel Enforcement: The Zambian Case

1. Building Political Support for Cartel Enforcement: The Zambian Case 2013 ICN Cartel Workshop Chester Njobvu Investigator Competition & Consumer Protection Commission

2. Sectors • Agricultural Sector • Same two firms winning tender to conduct the Farmer Input Support Programme (FISP) • Banking Sector • High and similar interest rates

3. Fertilizer Case • Farmer Input Support Programme (FISP) • The Farmer Input Support Program (FISP), formerly the Fertilizer Support Program, is a deliberate government programme meant to support small scale farmers with agricultural inputs i.e fertilizer and seed in the hope of reducing rural poverty. • Since 2001/2002 Farming Season, Zambia’s (FISP) has provided fertilizer and seed at subsidized prices to farmers Mostly Small scale . Each year FISP has consumed the vast majority of the Government of Zambia’s agricultural budget allocation to poverty reduction. • FISP has expanded the scale of its fertilizer distribution from 48,000 metric tons (MT) in 2002/03, when the program started, to nearly 183,000 MT in the 2012/2013 farming season.

4. Overall Objectives of FISP • Improved household and national food security and incomes • Improved access to agricultural inputs for smallholder farm households • Building the capacity of the private sector and cooperatives in inputs marketing

5. Other Objectives • To increase private sector participation in supply of agric inputs to smallholder farmers, reduce govt involvement • To ensure timely, effective and adequate supply of agricultural inputs, • To improve access of smallholder farmers to agricultural inputs ( fertilizer and hybrid maize seed). • To ensure competitiveness and transparency in the distribution of input

6. Government Expenditure on FISP The Government of the Republic of Zambia through the Ministry of Agriculture and Cooperatives through the Programme Coordination Office (PCO) is in charge of implementing FISP. Govt. spends an average of K500 Million (US$94 Million)on FISP. Which is roughly 29.4% of the Ministry’s budget. (2012 budget). The last 8-10 years only 2 firms have been winning the tenders to supply fertilizer and other agricultural inputs to government under the FISP.

7. Lead Received • In 2012the Commission received some information from a market playerthat some firms involved in fertilizer distribution had engaged in market allocation and Bid Rigging. And further reported that only two firms had been winning the tender to supply agricultural inputs to rural farmers since the programme began.

8. Commission’s Course of Action The Decision came at a time when the Ministry of Agriculture had again shortlisted 2 firms to be part of the supply of agricultural inputs for the 2013. • Conduct raid after Farming Season; • Conduct raid immediately allegation is reported; • Inform government first then conduct raid • Conduct raid immediately but inform government at the same time • Conduct raid immediately but inform government later

9. Commission’s Action • In November 2012 the Commission collaborated with other Law Enforcement Agencies (i.e. DEC, ACC and Police) conducted dawn raids on the unsuspecting parties • During the raid the Commission sealed off the offices premises of the targeted firms of the raids • Seized among other things Computers, Documents email printouts.

10. Parties Reaction to the Raid • Parties complained to Government Ministry claiming that the investigation would delay input distribution as farming season had just began; • Alleged that they were being harassed by the law enforcement agencies; • Challenged the search through litigation at the Tribunal citing what they saw as irregularities in the way the Commission Conducted its search

11. Bank Case • The Commission had noted with keen interest complaints from the general public and stakeholders regarding the perceived high bank interest rates in Zambia. The Commission through market surveillance took note of certain concerns in the banking sector, namely: • extremely high prevailing lending rates; • similar or closely related base lending rates among commercial banks regardless of the prevailing market conditions at a given period and regardless of the size of operations for the different banks in the Zambian market; and • coordinated announcements of changes in lending base rates among commercial banks.

12. The Commission, on 10th November 2011 conducted an unannounced search or “raid” at specific banks that had previously held position of Bankers Association of Zambia (BAZ) President through their CEOs. • No evidence of cartel conduct was found in the banking sector.

13. Government’s Reaction to the Raids Fertilizer Case • Government concern was the distribution of inputs at the time the farming season was beginning. • The parties used the CCPC raid as an excuse not to supply or delay supply of inputs Banks Case • The Central Bank, Secretary to the Treasury and the Minister of Commerce stated that the raid was sending a wrong signal to the world and the public that the banks in Zambia were not stable

14. Commission’s Course of Action • The Commission had to act quickly and retrieve information from computers. • Commission, against the wishes of some Government Officials made the findings of the fertilizer raid public • Fined 2 companies and recommended for their prosecution. • Matter is now at the tribunal on appeal

15. Information Given to Government • Summary of findings • Available penalties in line with the law • Demonstrated the loss to Government (demonstrated that government lost approximately US$20 million each year to the cartel)

16. Securing Government Support • Inform Government about what was happening when the Commission is conducting a dawn raid. • CCPC improvised a strategy to inform the Parent Ministry of the dawn raid at the time of the raid. i.e. the Executive Director will call the PS-MCTI and inform him of the raid and what they are looking for and which companies are involved. • Publish findings, losses, benefits of busting cartel Show loss to the Public (around US$ 20 million lost every year by government- fertilizer case) • Show how intervention will result in either • Saving public Expenditure • Job Creation, • Establishing New Enterprises • Food Security • Other public Interest (Banking Sector- Interest reduced from 20% to around 18%)

17. Thank you