Bangladesh has been heralded as a model of economic development and poverty reduction. The driving force has been the concerted effort between its government and the people. Small businesses, collectively termed ‘cottage, micro, small and medium enterprises’ (CMSMEs), have been the bloodline of the economy.  Small businesses employ more than 86% of the labour force outside of agriculture and the public sector. They also make up 25% of the country’s gross domestic product (GDP).

Like any country, Bangladesh’s economy has faced shocks from the covid-19 pandemic since 2020, and from the Russia–Ukraine war since 2022. Small businesses have borne the brunt of these crises. Intergovernmental bodies like the World Bank and the Asian Development Bank have reported that, during the pandemic, cash shortages and temporary or permanent closures were among the top challenges small businesses faced. Meanwhile, the Russian–Ukraine war has exposed Bangladeshi small businesses to spiralling costs of imported wheat and vegetable oil, and higher input costs for the country’s vibrant clothing sector.

Bangladesh’s next big target is to become a high-income country by 2041. For that, it must ensure a competitive edge for its small business, as it navigates from one crisis to another. The aim is to design ‘build back better’ policies that will enable small businesses to be sustainable, efficient and shock-absorbent.

A sound policy framework plays a crucial role in building a competitive business environment for small businesses. Competition incentivises businesses to excel based on the merits of their products or services. It fosters innovation, lowers prices and diversifies supplies. In the presence of pro-competitive regulations, big businesses cannot hold a monopoly over innovation. As such, affordable quality products and services from small businesses can obtain easy entry to the market.

Wide-ranging research suggests that competition brings benefits to developing countries.

The question for Bangladesh is whether its legal and institutional framework can truly reap the benefits of competition in the country.

Snapshot of Bangladesh’s competition regime

Bangladesh enacted its signature law, the Competition Act (BCA), in 2012. The enforcement of this is in its infancy.. The country has set up a designated agency, the Bangladesh Competition Commission (BCC), to encourage competition. This is mandated to enforce the BCA. There are many challenges to the BCC’s enforcement of the BCA. A paper titled ‘Voluntary Peer Review of the Competition Law and Policy of Bangladesh’ published by the United Nations Conference on Trade and Development (UNCTAD) in 2022 details some of these concerns. Among the major impediments to market competition in Bangladesh are:

1. Unclear legal standards: Bangladesh’s Competition Act, inspired by the Competition Act of India, penalises action that has an ‘adverse effect’ on competition in the market. However, unlike its Indian counterpart, the BCA omits the crucial ‘appreciability’ requirement in finding an adverse effect on the market. Appreciability here essentially signifies what is worthy of the regulatory authority’s attention and resources. This means that Bangladesh’s prime law for market competitiveness does not factor in ‘appreciability’ while screening business conduct.

This could lead to the BCC going after cases involving agreements that do not have any substantial impact on competition in the market.[1] The BCC’s resources would go to waste because it is working on issues that do not have any significant benefit to the economy.[2]

2. Lack of provision for dawn raids or leniency: Given the secretive nature of anti-competitive acts, it is difficult for competition authorities to prosecute competition law violators. To break the secrecy, competition authorities often use investigative tools such as dawn raids or leniency to uncover information.

Dawn raids are unannounced on-site inspections by the authorities to investigate suspected infringements of competition law. For example, Japan’s Fair Trade Commission can conduct on-site inspections and search and seize records.[3] Similar provisions exist in the United Kingdom, Australia and South Korea.

On the other hand, leniency is the reduction of penalties, such as fines, for companies involved in cartels. In exchange, they disclose the cartel agreement or cooperate with the investigating authorities.

BCC does not have the power to undertake dawn raids or implement a leniency programme. This is a serious impediment for the BCC. Here, Bangladesh’s parliament can help strengthen the competition regime by passing provisions so that law enforcement agencies can undertake need-based dawn raids.

3. Private enforcement: In many countries, competition laws are enforced using two avenues—publicly via agency-imposed penalties and privately via individually led action by someone (or an entity) suffering from anti-competitive acts.

Private enforcement is an important tool for developing countries because it decentralises enforcement authority. It also empowers citizens, especially when a competition agency is under-resourced (underfunded and understaffed). In Bangladesh, the BCA has not taken a position on the right to file a private action to recover damages. Such a provision will encourage small companies to fight against anti-competitive activities of big corporations.

4. Disconnect between competition policy and development agenda: A competition policy’s primary job is to regulate the markets. But its broad purpose is to protect the most vulnerable. Competition policies have to reflect a country’s overall development goals. For Bangladesh, this means the competition regime should have poverty reduction provisions within it. For example, sectors with a high number of small businesses, such as agriculture, can be given special mandates to the BCC. 

Bangladesh’s long-term policy agenda, Vision 2041, which aims to reduce poverty incidence to 3%, mentions competition several times in relation to agriculture, marine ports, power and energy. Despite this, it is unclear if the country’s competition authority plans to link the competition regime with its development objectives. 

…sectors with a high number of small businesses, such as agriculture, can be given special mandates to Bangladesh’s Competition Commission.

5. Lack of awareness of the BCA: The Bangladeshi public is largely unaware of the benefits of competition, and thereby its prime law, the BCA, and the designated agency, the BCC.  It is noteworthy that the BCC has organised a number of information-sharing activities. But this is a drop in the ocean. This lack of awareness has two effects.

First, it hampers the enforcement of the competition law. For example, a person will simply not report anti-competitive conduct to the BCC if s/he does not understand anti-competitive behaviours. Similarly, businesses will also not know how to comply with the law.

Second, if people are unfamiliar with competition principles, policy-makers will be reluctant to make regulations for healthy competition in the market. For example, with popular demand, policy-makers may approve excessive licensing requirements, unintentionally barring some poorly capitalised small businesses from entering certain markets.

6. Limited resources: Bangladesh’s competition regulatory authority, the BCC, has very limited financial and human resources to carry out its mandate. The BCC’s budget is very small compared with that of its counterparts in India, Indonesia, Pakistan, the Philippines and Vietnam. Owing to budgetary constraints, its staffing and capacities are also constrained.

What can be done?

Bangladesh can reach for some low-hanging fruits, certain regulatory improvements, to enhance its competition regime. Policies focused around the BCC’s mandate will reap the most benefit for the country. Here are the reform recommendations:

Building a culture of competition: Compared with its counterparts in other countries, Bangladesh’s competition agency, the BCC, is a relatively new competition authority, in effect since 2016. Its most important task is to build a culture of competition in the economy. The BCC will need to intensify encouragement strategies on compliance with the main competition law, the BCA. The public needs to understand why anti-competitive conduct, like collusion, hampers their day-to-day activities, and how the BCC’s decisions affect the prices of daily goods or services. This will help the BCC acquire legitimacy for its enforcement activities.

Bangladesh’s government machinery also needs to open up, and meet the BCC mid-way. It shouldn’t be tempted to isolate competition-facilitating policies from its broader development plans. Continued advocacy with the government is also crucial for the BCC.

The BCC must push competition policy as both a redistributive mechanism and a sustainable development tool. One example of mainstreaming competition policy in development plans is the Philippines, where the Philippine Competition Commission successfully advocated for the inclusion of a special chapter on competition in the country’s five-year development plans. Here, Bangladesh’s upcoming five-year plan can draw lessons.

The BCC must also continue engaging with all stakeholders, especially small businesses, to raise awareness on the intricate challenges facing small enterprises in Bangladesh. This includes coming up with an action plan to disseminate the essentials of competition policy framework.

So as not to reinvent the wheel, Bangladesh’s existing CMSME-cooperation frameworks, such as the National SME Development Council (NSDC), can be used to facilitate competition principles in honing policies. Here, the NSDC can inculcate the BCC’s representation into its decision-making panel.

Institutional reform issuance of guidelines: Bangladesh prime competition law, the BCA, itself has some visible gaps, whereby the document does not reflect the political economic realities of the country. A comprehensive review of the competition regime is essential to jumpstart the machinery. Meanwhile, institutional action can resolve certain hanging points. The BCC can issue guidelines to explain how it interprets and plans to enforce the law. 

Bangladesh prime competition law has some visible gaps, whereby the document does not reflect the political economic realities of the country.

It is important for the BCC to give small businesses concrete and clear guidelines. This will help improve legal certainty. More importantly, it will instil confidence within the small business community. 

Prioritisation: Bangladesh’s small business boosting strategy needs a medium- and long-term approach. Here, the BCC can prioritise facilitating competition in sectors with a high number of small enterprises. This prioritisation exercise would need a thorough market assessment to identify the sectors where there is a risk of anti-competitive behaviour and of distorted market structures stifling growth.

The Competition Commission of South Africa has seven priority sectors for enforcement based on the country’s economic policies and previous market failures.[4] For Bangladesh, the digital economy sector is a very good place to spur competition. The sector has a massive presence of small enterprises, such as restaurants and retailers, especially since the covid-19 pandemic era.

Resource expansion and international cooperation: Bangladesh’s government should consider increasing the budget of the BCC. It should at least equal that of regulators from comparator countries. If not, the BCC should be able to raise its own funds to mobilise resources.

International development partners, such as UNCTAD, the Organisation for Economic Co-operation and Development and the International Competition Network, can also come forward to address the resource gap of the BCC. A range of capacity-building projects can be designed to strengthen the agency. Moreover, they can help facilitate relationships with other competition authorities for direct knowledge transfer.

Conclusion

The enforcement of competition in Bangladesh reflects the challenges facing a young competition agency in a country where many are still unfamiliar with competition. Despite the resource limitations confronting the regulatory agency, the enforcement of competition in Bangladesh has been steady. Legal and institutional reform to strengthen the agency will need public and government support. The reforms should be carried out with small businesses in mind. Only then will the economy get a shot in the arm.

 

[1]  For example, taking up a case involving companies with no major market share.

[2] There are a few jurisdictions with exemptions from the ban on cartels explicitly for small and medium sized enterprises if they have only an insignificant effect on the market.

[3] Japan’s Fair Trade Commission needs the prior permission of the court of criminal jurisdiction for dawn raids.

[4] The seven sectors for intervention identified by South Africa’s competition regulatory body are food and agro-processing; health care; intermediate industrial inputs; construction and infrastructure; financial services; information technology; and energy.

 

Photo ©️ Mahmud Hossain Opu

Leni Papa
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Leni Papa is Visiting Lecturer at Freie Universität Berlin, Germany. She is a lawyer. She is also a Fulbright United States–Association of Southeast Asian Nations Visiting Scholar at the George Washington University Law School, USA. She specialises in regulatory policy, competition policy and small and medium enterprises. She has worked with the United Nations Conference on Trade and Development, the Organisation for Economic Co-operation and Development and the Asian Development Bank. She has been a spokesperson for the Philippine Competition Commission. She pursued her graduate studies in law at Freie Universität Berlin, Germany.
Pierre Horna
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Pierre Horna is Economic Affairs Officer at the United Nations Economic and Social Commission for Asia and the Pacific. He is a lawyer. He has been a legal affairs official in the Competition and Consumer Policies Branch of the United Nations Conference on Trade and Development and Visiting Research Fellow at the Centre for Competition Law and Policy at the University of Oxford. He pursued his doctoral studies in international law at the Graduate Institute, Geneva, Switzerland.
Azhar Uddin Bhuiyan
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Azhar Uddin Bhuiyan is Lecturer of Law at Bangladesh University of Professionals (BUP). He is an academic and a lawyer. His research focuses on competition law, intellectual property law and financial law. He is a non-government adviser to the Bangladesh Competition Commission. He was Fellow at the Foundation for the Development of International Law in Asia. He is also a Chevening Scholar at the University of Cambridge, UK. He pursued his graduate studies in law at the University of Dhaka.