THE Central Bank of Nigeria (CBN) on April 28, 2011, announced its intent to implement a cashless policy for the Nigerian economy. The elements of that policy consist of a limit to daily cash withdrawals, which can be made from Nigerian financial institutions, with those of individuals pegged at N150,000 (one hundred and fifty thousand naira) and corporations N1,000,000 (one million naira). As explained by the CBN, the policy was adopted to reduce the high usage of cash and moderate the cost of cash management, as well as encourage the use of electronic payment channels. The cash economy is argued to be very costly as the annual cost of transportation, security and printing of the Nigerian currency is too high. Although this policy has received criticisms from some who argue that given the high level of illiteracy in the country, faulty technological framework and inefficiency of the banks, that Nigeria was not yet ready for such policy, we are more persuaded by the World Bank's endorsement of the policy. As the World Bank noted, for Nigeria to be ready in its quest to become one of the largest economies in the world by 2020, operating a cashless society is a key strategy to fast-tracking growth in the nation's financial sector. Getting access to finance and developing a vibrant market that would create more jobs require the backing of a solid and modern financial sector and while moving cash around is considered normal in Nigeria, it actually takes the nation's financial sector backward. We do agree with the above assessment. And we add that indeed, if averagely modern African countries such as Kenya and Uganda practise and have for a while been at home with reduced physical cash and electronic payment in commercial transactions, it becomes indefensibly primitive that people should carry huge stacks of cash around, from one city to the other, one bank to another, just to transact businesses.However, while the cashless policy by itself is a noble thing, like all things, the devil seems to lie in the details, and in this case, in the manner and ways by which the apex institution intends to prosecute this policy. The CBN had in announcing the policy in April 2011 declared its intent to flood the country with Point of Sales (PoS) terminals, the basic equipment for electronic payment transactions. In furtherance of this declaration, the CBN had in an advertorial on page 80 of ThisDay newspaper of October 10, 2011, announced the selection of four manufacturers for the provision of PoS terminals for the Nigerian market, namely: PAX Technology; Bitel; Ingenico; and Verifone.According to the CBN, the four manufacturers were selected after a thorough process by a committee comprising key stakeholders in the payments' systems value chain.As the CBN disclosed in its advertorial, the four manufacturers all have products that conform to the minimum standards as specified in the CBN PoS guidelines. The CBN further disclosed that it had negotiated attractive discounts (on standard pricing list for models expected to be in high demand). It further disclosed that as a mark of commitment to the Nigerian market, the selected manufacturers have offered to discuss buying back existing terminals in the Nigerian market that might not comply with the CBN guidelines, at a negotiated price to be determined between manufacturers and the sellers. The CBN thus signed off by 'encouraging' (rather directing) all banks, acquirers, and other potential terminal-owners to buy from any of these four manufacturers.Though, as stated above, the CBN's cashless policy is justifiable and indeed overripe for the Nigerian economy, a number of observations need to be made, particularly on the need to preserve the process of competition in the new market for PoS equipment for electronic payment transactions.The first observation is that the involvement of the CBN in determining minimum standards that PoS manufacturers must comply with (as published in its guidelines to that effect), and indeed in selecting manufacturers whose products the CBN adjudged as being compliant with the standards, calls into question the proper role of the CBN or of any Central Bank for that matter.The core function of the CBN, among others, as prescribed in the CBN enabling laws, is to promote monetary stability and a sound financial system in Nigeria. Thus, in setting the minimum standards for PoS equipment, the question is indeed whether the CBN has the power to set standards for physical goods such as PoS equipment, even if it could be argued that it has the power to do so for financial products offered by financial institutions in the context of its power to promote monetary stability and a sound financial system.Given that in the country there already exists institutions, which set standards in respect of given products, the way the CBN has the power to regulate and standardise financial products, when the CBN goes on to set or to superintend the setting of standards for goods other than financial products, is the CBN not, therefore, usurping or appearing to usurp the functions and powers of these specialised agencies such as, for example, the Standards Organisation of Nigeria (SON) for all physical goods, and for example for medicinal products, the role of an agency such as National Agency for Food and Drug Administration and Control (NAFDAC).In the context of the promotion of the rule of law and the need for all institutions to operate within the confines of their statutory powers and not encroach into territories assigned to other agencies by law to avoid a free-for-all, there is a clear need to reappraise and ensure that the CBN, though well motivated, is not in the process undermining the role and powers of other institutions.In this respect, it is noteworthy that the CBN indicated that the four manufacturers were selected by a committee 'comprising key stakeholders in the payments system value chain'. However, the CBN did not indicate that the setting of the minimum standards was done by that committee. It rather appears that the standards were set by the CBN itself. Even if, though unlikely, that the committee was the one that set the standards, and also did the selection of the four manufacturers, the further question that arises relates to the composition of the committee. Was the SON a member of that committee' The fact, as revealed by the CBN, that the committee comprises key stakeholders in the 'payments value chain', which in our interpretation could only mean banks and other financial institutions, consumers and vendors, means it is most likely than not that the SON was not a member of the committee and, therefore, could not have set the standards for the PoS. It is very possible though, that the SON very voluntarily waived or conceded its statutory powers to set standards for PoS equipment to the CBN on account of the sensitive nature of the financial industry, and perhaps the semi-novelty of the products. There is no evidence of such waiver or surrender of powers by SON to the CBN. And if such evidence exists, it is arguable that such a surrender of powers is of doubtful validity since it does not seem to be contemplated by the Standards Organisation of Nigeria Act.The second observation relates to the impact of the restriction of only four manufacturers for the PoS market to the competition process - the primary concern of this intervention. In effect, by giving a licence to only four manufacturers and not throw it open to all PoS manufacturers whose products comply with the standards, what the CBN has done has been to grant monopoly powers to only those four manufacturers in such a vital and potentially juicy market without a corresponding invention introduced into the market by those manufacturers - the only basis on which intellectual property laws grant monopoly powers to inventors. Is such a restriction in numbers necessary' Is it objectively justifiable' For a market as large as Nigeria, such a restriction in number of players is revolutionary, and with the greatest respect to the CBN, it is arguable that such a restriction, no matter how well intended, would cause harmful effect to the process of competition and to the dynamism which the competitive process brings to any market. A competitive market is that in which, subject to any product regulation arrangements that do exist, there is free entry and free exit and market participants can freely compete and thus exert downward pressure on prices to the benefit of consumers.Further to the above, a market in which there are only four players is necessarily an oligopolistic market. It is an accepted fact within the competition law and policy world that an oligopolistic market is particularly prone to cartelisation. Monopoly powers in the absence of a corresponding innovation are malign and unacceptable. The problem with oligopolistic markets as is being created by CBN's fiat is that undertakings operating on most oligopolistic markets automatically emulate the economic effect of monopoly even in the absence of an agreement, or other explicit communication, to do so (this is known as 'tacit collusion' or 'tacit coordination'). Market conditions dictate that the undertakings align their behaviour in a manner, which maximises the profits of the players involved. They, therefore, have an incentive not to compete aggressively or at all against each other. By avoiding competition among themselves, oligopolists can attain shared market power that may allow them to maintain prices above the competitive level.In a normal competitive market, undertakings should determine their economic conducts and their prices independently and non-collusively. Clearly, it will be easier to align behaviour and not behave independently (as competition law and policy dictates) on some markets than others: for example, alignment is more feasible where there are fewer players on the market; the players are of similar sizes; their products are very similar (there is little non-price competition for the product); and their cost structures are similar (there will then be less disagreement as to the collusive price to be charged).The PoS equipment market in the manner in which it is sought to be created by the CBN is prone to the creation of a cartel and this would not augur well for the consumers of the PoS products. Markets with the following characteristics are most likely to support the successful operation of a cartel.' Inelastic demand: Undertakings will be able to increase prices and raise profits only where demand for their product is inelastic. Where demand for a product is elastic, then price increases are more difficult. Incidentally, the demand for PoS equipment is likely going to be inelastic given that these are products which the various vendors necessarily need anyway whatever the price, and are locked into purchasing them no matter how high the prices are set. There is, therefore, nothing stopping the four manufacturers from explicitly agreeing to set their prices at a certain level and stick collectively to this agreement, knowing full well that they are unavoidable trading partners.' Barriers to entry: Barriers to entry are important to the successful operation of a cartel. In the absence of barriers, an increase in price will attract new competitors into the market. By licensing only four manufacturers to deal on the Nigerian PoS market, the CBN has thereby created a huge barrier to entry such that there can be no potential competition that would keep the four manufacturers in check and discourage them from setting monopoly prices for the products;' Homogeneous goods: It will be easier for firms to collude where products are similar and where the main dimension of competition is price competition (competition is not multidimensional). Where goods are homogeneous, the costs of collusion are reduced and the likelihood of successful collusion increased. The possibility for non-price competition through product differentiation is, of course, reduced. Many of the European Commission's decisions prohibiting the operation of a cartel have been taken against undertakings whose products offer little scope for differentiation, for example, steel tubes, vitamins, sugar, cement, carton-board, pvc, soda, ash, polypropylene. The PoS equipment very easily would be homogeneous and as such, it is almost impossible for one to have competition among the four manufacturers on any variable other than price. However, as pointed out above, the state of interdependence existing between the four manufacturers on account of the oligopolistic nature of the market as created by CBN's restriction of market participants to only the four selected manufacturers means that this price competition is likely a mirage and that collusion between them is inevitable;' Fewer firms and higher market concentrations: The fewer the number of operators on the market, or controlling the market, the simpler it is to coordinate actions, the cheaper the costs of collusions, the easier it is to detect cheating and the easier it is to detect cheating, the easier it is to keep the arrangement secret. Further, the larger the market share that each undertaking has, the greater the potential profits to be earned from successful collusions (the bigger the share that each will receive of the collusive pie!). The greater the anticipated rewards, the more likely they are to outweigh the risks of detection. These characteristics and assessment holds true for the Nigerian PoS market to be created under CBN's regulation.Other characteristics of markets likely to support the creation of cartels, most of which characteristics apply to the PoS market are: markets in which the firms have similar cost structures or operating efficiencies and market shares; markets in which there is transparency because the more transparent the market, the easier it will be for firms to monitor what their competitors are doing and to detect cheating on or deviation from any cartel arrangement; mechanisms for coordination in the sense of the existence of some credible enforcement mechanism among cartel members to ensure that none of the members deviate from the agreed artificial price; dispersed buyers with no controlling purchasing power; demand patterns; and depressed conditions or low innovation rate.Normally, given the pernicious effect of cartels to the competitive process, antitrust agencies or competition authorities, the world over are ever on the alert to detect any cartel arrangements and to bust them.Oligopolies are, therefore, discouraged because of their tendency to result in cartelisation. However, where they do, in fact, exist for whatever reason, perhaps on account of the fact that the nature of the industry or market can support only few firms, competition authorities are usually on a heightened state of surveillance over these markets to ensure that other than conscious parallelism (i.e., the unilateral decisions of oligopolists that simply take into account their mutual interdependence), no cooperative arrangements such as price-fixing or market allocation can be allowed to exist among them. Thus, the concerns that arise from the hard fact of the existence of only few firms and resulting tendency towards cartel behaviour is addressed by the powerful arsenal available to competition authorities and antitrust agencies under existing national or regional competition laws, as the case may be. The problem here is that despite all the agitations and efforts made for its actualisation within the last decade, Nigeria is yet to pass a competition law and create an agency that would control cartels and price-fixing and other anti-competitive behaviour. Therefore, if the four manufacturers of the PoS equipment selected by the CBN were to engage in anti-competitive arrangements as the variables dictate that they most likely would, this would not be illegal since there is no competition law that proscribes those conducts, no matter how much they hurt the Nigerian economy. For this reason, therefore, it is better to prevent this problem from occurring at incipiency, than waiting for it to occur first and only watch helplessly when it is too late to do anything.In conclusion, in the light of the above, our suggestion is that without prejudice to the reservations expressed as to the capacity and legal permissiveness of the CBN undertaking physical products certification and standards-setting functions (as opposed to financial products), even in the presence of arguably more legally qualified institutions such as the Standards Organisation of Nigeria, it is important to liberalise the PoS market from incipiency and lift the monopoly powers which the CBN has conferred on only four manufacturers without any convincing objective justification. Granted that the setting of standards is by itself a good thing, let the market be thrown open to every PoS manufacturer provided that their products conform to the standards set in the CBN guidelines, which in our view can only be consistent with international standards for PoS equipment anyway.Granting monopoly powers to only four manufacturers is unmerited and unnecessary, and the resultant oligopolistic market structure that would be created is dangerous to competition and thus ought to be reconsidered.'Dr. Dimgba is of PUNUKA Attorneys & Solicitors and Akinosun is of Simmons Cooper Partners. Both are members of the Competition Law Committee, Section on Business Law, of the Nigerian Bar Association.
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