Saturday, 29 December 2007

Let's Play Monopoly

A saying goes, give me a monopoly and I will give you a great business.

In the GCC many family firms have thrived on monopolistic activities. For each brand, a single car importer, a single clothes retailer and a single telephone provider (yes du doesn’t count yet). These families have been able to amass wealth that amounts to billions of dollars, having their net worth and profiles listed in prestigious journals while constantly trying to outdo each other, to the extent that some family members claim their family’s wealth to be their own. No naming names please. The truth is, it’s not smart to be making money from a monopoly, in fact, it is considered to be stupid if you end up not making a fortune. No other governments in the world enact legislation into their constitutions (Saudi doesn’t have one yet) that enshrine the protection of monopolies like the GCC does, giving them powers to prevent entry of goods without the agent’s consent[1]. Monopolies are not considered a burden on the economy, although they have contributed to the stalling of the free trade agreement with EU for example[2], in fact they are feted by officials in lavish ceremonies with honours and contracts.

In the GCC, size does matter, and yes bigger is better. Foreign companies naturally prefer to deal with bigger agents than with newer ones; some even prefer to have a royal backing to ensure their business does well. In some cases, foreign retailers would scout the rich list before deciding whom to award their brand name to. That is their right, but it doesn’t mean that other citizens should be constitutionally barred from importing the same product if a deal with the producer is reached in the future[3]. In each GCC country there is a handful of family businesses, most of which are nationals but some are expatriates that control a majority of the products being sold in the country. For example, in each country or region, there is only one specific luxury car agent (few with royal backing, in stealth of course), allowing no one else the right to sell this brand of vehicles. In case a buyer decides to import a car from abroad to bypass the extortive prices then the agents would refuse to do any maintenance as a way of discouraging this purchase. As most of the population is not concerned with luxury brands, this is not the main problem. The trouble arises when monopolies of basic staples such as food items decide to unjustly increase the prices in a non-scientific way, blaming the rise of the Rupee and the Euro. This results in the so-called imported inflation phenomenon.

As GCC families compete with each other in regional and international rich lists they refuse to allow others to compete with them in their own territory. What is mind boggling about all this is the fact that the GCC countries are protecting these companies instead of encouraging legitimate competition[4]. Surely the economies of Saudi Arabia, Kuwait and Dubai can handle more than one agent for Colgate toothpaste without seriously damaging their GDPs.

The UAE is forced by the terms WTO to abolish monopolistic practices[5], something it has yet to do, despite joining the organisation in 1996[6]. It is no wonder that the powerless parliaments in the GCC are not discussing this issue when a majority of MPs are either involved directly or affiliated to big businesses that would be negatively affected by the introduction of much needed anti-trust legislation. Oddly enough, in Yemen, a country that the GCC has traditionally looked down upon has more advanced competition laws than in the GCC rich man’s club in spite of not being a WTO member. The country’s President himself alleged that greedy importers who hold monopolies are behind drastic price increases of consumer goods and promised to take action against them[7].

As the cost of living continues to grow exponentially in the region, it is difficult to believe the single digit inflation figures supplied by the governments[8]. A large portion of the residents survive on goods being imported from abroad by these monopolies, these range from rice to raw materials. It is the duty of the GCC governments to ensure that their populations are not being over charged by greedy importers.

It all ultimately boils down to one question. Are the respected positions that these family businesses enjoy in the world rich list more important than the well being of the general population?

They decide.










ColOman said...

how else can you rich in Arabia?

pendolino said...

There are so many ways to approach this topic of business monopolies in the GCC region all of which would provoke strong comments from many sides but this was one of the more thoughtful and organized overviews on the topic.

I think the way to start is to explore the impact on consumers as they are effectively gouged and the fat profit margins are concentrated in the hands of the very few that manage to secure concessions either through fiat or luck. Not to take sides here but I think the latter concessionaires have the moral upper hand given that they were first movers and luck in those cases is far from dumb. The would argue that the have invested time, money and effort in building and expanding their businesses locally and should be protected from usurpers. A free-market parallel can be observed in territorial concessions provided to many franchisees around the world as long as they abide by the terms of their agreement to support the efforts of the business.

I also like to note that many of the brands represented by local monopolies may choose to have the certainty of one solid agent rather than a group of undependable resellers. This is an unqualified observation and anecdotal at this point as a thorough count has not been done.

The demise of the agent monopoly system has been predicted repeatedly but it seems the timeline gets pushed farther and farther into the future as people underestimate the resilience of this model. Its going to take quite a few changes to make it disappear but the first step should be clear laws that protect the consumer and the local economy by outlawing the practice.

Sultan Al-Qassemi said...

I completely agree with you. Many of these family businesses worked hard to attain these agencies but when the issue is between fattening their pockets even further and the so called "greater good" of society which dictates that they either get regulated or allow others to import the goods that they hold exclusive rights to, I believe they need to take a second look at their practices.