In this month's issue
Let's play monopoly
Thursday, 01 November 2007
Are monopolies more important than common people, asks Sultan Sooud Al-Qassemi
As the 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 (no, 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 foolish if you end up not making a fortune. No other government in the world has enacted legislation into their constitutions (Saudi doesn’t have one yet) that enshrines the protection of monopolies like the GCC does, giving them powers to prevent entry of goods without the agent’s consent1. Monopolies are not considered a burden on the economy, although they have contributed to the stalling of the free trade agreement with the EU, for example2. 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 have been known to 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 future3.
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 vehicle. 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 the 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 Indian 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 competition4. 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 practices5, something it has yet to do despite joining the organisation in 19966. 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 them7.
As the cost of living continues to grow exponentially in the region, it is difficultto believe the single-digit inflationfiguressupplied by the governments8. A large portion of the residents survive on goods being imported from abroad by these monopolies, which range from rice to raw materials. It is the duty of the GCC governments to ensure that their populations are not being overcharged 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 wellbeing of the general population?
Sheikh Sultan Sooud Al-Qassemi is the chairman of Barjeel Securities. He can be reached at www.sultansq.blogspot.com.
Opinions expressed in this article are those of the author and do not necessarily represent those of the MONEYworks group of magazines.
This article should not be misconstrued as financial advice.
This article appeared in the November 2007 issue of MONEYworks magazine.