Saudi attorney calls for new antitrust law

Saudi attorney calls for new antitrust law

Dr.Khalid Alnowaiser

RIYADH: ARAB NEWS

Monday 13 August 2012

Prominent Saudi attorney Khalid Alnowaiser has issued a call for a new antitrust law to eliminate business monopolies that stifle competition in the Kingdom.

Although the Saudi Competition Law, issued under the Royal Decree No. 25 on 04/05/1425 AH, is a positive development by addressing unfair competition, he says that it does not go far enough to challenge businesses that seek to monopolize markets and business transactions.

Alnowaiser points out that monopoly leads to unfair competition between companies and individuals, especially in light of the dominance of the large companies in vital and important productive sectors in the country, and thus creates negative effects on Saudi citizens and on the whole Saudi economy. He argues that the importance of competition prevents the formation of market domination by a company and promotes the principle of equality among competitors. Moreover, monopoly leads to several major social and economic disadvantages, such as unemployment, inflation, recession, lack of equal opportunities, trade and economic imbalances, and leads to negative effects on social justice, the spread of bribery, nepotism, fraud and rampant ills to the society, causing a sense of injustice and inequity among the society's classes. Thus, Alnowaiser believes it is high time for the government to enact an antitrust law to promote business competition in Saudi Arabia.

Such a law should promote competition so as to influence the public and attract customers to buy goods and services. If a competitor resorts to fraud or violates the law, whether intentionally or unintentionally, the competition would be deemed unfair.

For example, if a business seeks to keep goods priced below production costs in order to capture and dominate the market for such goods and then sells them for an exorbitant price when its competitors have been defeated, such a strategy would be a violation of the antitrust law.
Driving out one's competitors in order to monopolize a market does not promote competition and is antithetical to the goals of a progressive business environment.

A recent example occurred in the cement market. In spite of the decision issued by the Ministry of Commerce and Industry to set the maximum price of a cement bag at SR 14 to the final consumer, its price in some regions of the country reached SR 25. This situation was not caused by a shortage of cement but because of a monopoly by some production companies seeking to increase prices without justification. The result was to increase prices of ready-mixed concrete by 30 percent. The impact of this crisis on the construction sector was severe since contractors were relying on a low price and then found themselves obliged to purchase cement at much higher prices.
Another example involved steel production in which prices were artificially set at about SR 29,000 per ton, all because of the monopoly of one Saudi steel company that produces around 2.7 million tons per year. It was apparent that its price increase had little relation to the prevailing international price for steel.

There is no question that the Saudi steel industry is a monopoly as only one company specializes in it and no other competitors exist, despite the large demand for steel due to the mega development projects that are being implemented in the country. Such a situation certainly affects construction projects and may cause a delay in the establishment and execution of many projects in a timely manner. The Saudi market has been witnessing successive crises due to the high steel prices as a result of this monopoly.

Alnowaiser also pointed to the Saudi dairy industry, which has capital investments amounting to more than SR 13 billion. With dozens of plants around the country, the dairy market is actually managed by only two companies in terms of production volume. This industry represents a clear case of a "minority monopoly" as only one or at the most two companies control the supply and demand of dairy products and thus control the prices of this vital food product.

The Saudi construction sector is estimated at around SR 200 billion, with manpower of three million workers and its market is expected to exceed SR 1 trillion by 2015. Yet, the megaprojects are monopolized by no more than three limited companies. The result of such a monopoly is that several other construction companies are prevented from entering this sector of the Saudi economy, which harms the public interest and is inconsistent with the principle of social justice.

Alnowaiser concludes that it is time for the issuance of a law to address the problem of monopoly of both local and international companies alike, which is separate from the Saudi Competition Law. He suggests that transparency standards be enhanced, ensuring free competition in accordance with the provisions of the antitrust law and Shariah law. He believes this will promote integrity in all business transactions, activate control and supervision of local markets and their products, and raise awareness concerning the harmful effects of monopolies through conferences, seminars and workshops. He says that it is vital that the suggested law, in order to protect social peace and enforce justice, keeps pace with modern trade and business practices by imposing tough penalties on whoever seeks a monopoly to stifle market competition.