MARKET concentration is a term used to describe the presence of a few large local firms serving the domestic market.
Typically, these companies produce goods or services that have no meaningful local substitutes.
At the same time, there are limited imports to compete against them, often because of high tariffs or other barriers to entry.
Concentration rarely yields broad societal benefits. It is frequently associated with the abuse of market power by dominant firms.
High mark-ups, and therefore high prices, are common features of concentrated markets. Innovation and productivity growth also tend to lag, largely because rivalry within the industry is weak.
In some cases, concentration arises from the nature of the industry itself. Certain sectors depend on large-scale operations to be viable.
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Public utilities such as the Zesa Holdings Limited, Zimbabwe National Water Authority and National Railways of Zimbabwe are cases in point.
While it is possible to introduce elements of private sector participation to improve efficiency, experts continue to debate the practicality and desirability of reducing concentration in such markets.
Competitive markets represent the opposite end of the spectrum. They are characterised by many firms competing to offer the best value in terms of price, quality and service.
In striving to create value for clients, firms in competitive markets are often more innovative and tend to record stronger productivity growth over time.
Unsuccessful firms exit, while successful ones create benefits for shareholders, consumers, government and society at large.
Importantly, competitive domestic markets tend to produce firms that can withstand foreign competition without excessive state protection. Their efficiency also positions them better in export markets, enabling them to grow foreign market share and earn much-needed foreign currency for the country.
In Zimbabwe, institutions mandated to monitor market concentration include the Ministry of Industry and Commerce and the Competition and Tariff Commission.
These bodies have a responsibility to continuously assess the structure of domestic markets, identify emerging concentration, and intervene where necessary — in ways that are economically sound and socially progressive.
Market concentration drivers
At independence in 1980, local markets were arguably more concentrated than they are today. Only a handful of firms served the entire population across retail, manufacturing and services.
This partly reflected the colonial economic structure, which concentrated wealth in the hands of a minority while excluding the black majority.
Sanctions imposed on the Rhodesian government from 1963 onwards also fostered state support for selected domestic firms.
Some evolved into “national champions”, benefitting from policy backing that was not extended to smaller or emerging players. Over time, these firms entrenched their dominance. Protectionist policies, including high tariffs and non-tariff barriers, further insulated them from foreign competition.
However, limited effort was made to systematically dismantle concentrated markets or facilitate new entrants.
The land reform programme from 2000 triggered the collapse of many formal sector firms, leaving Zimbabwe heavily reliant on imports for a range of goods and services.
While the informal sector has diluted the power of some surviving formal players, consumers who rely on formal markets still encounter concentrated structures. Telecommunications, financial services, electricity and water remain clear examples.
Zimbabwe’s complex regulatory environment has also reinforced concentration. High licensing requirements, numerous fees and constantly shifting regulations discourage new entrants into the formal economy.
Existing firms are often reluctant to expand operations under such conditions. The cumulative effect has been to block both domestic and foreign investment, sustaining concentration in key industries.
Certain anti-competitive practices further entrench dominance. Collusion and exclusionary conduct can limit market entry. In financial services, persistently high transaction charges raise legitimate questions about whether competitive pressures are sufficiently strong.
In retail, exclusive supply or distribution arrangements can prevent new supermarket players from accessing quality supply chains.
Domestic firms may also lobby for restrictive trade policies that limit imports. While temporary protection can sometimes nurture infant industries, prolonged shielding often breeds complacency. Protected firms may lose the incentive to innovate, cut prices, expand operations or create jobs.
Negative effects of concentration
Beyond high mark-ups, concentrated markets create structural weaknesses in the broader economy. Businesses that rely on overpriced inputs become less competitive against imports and struggle in export markets.
Weak investment, limited innovation and sluggish productivity growth frequently follow. When firms face little competitive pressure, the urgency to improve efficiency diminishes.
Higher productivity, meaning more value produced per worker, typically supports real wage growth.
Zimbabwe’s limited real wage progression over recent years may partly reflect stagnating productivity in concentrated industries.
Concentration can also erode consumer welfare. Inflation tends to be more persistent where competition is weak, as there is little pressure to introduce cost-saving innovations or promotional pricing.
High mark-ups and rigid regulations create price stickiness, prices rise easily but fall reluctantly. This weakens the country’s competitiveness and restrains growth.
In public utilities, inefficiencies are often passed on to consumers through high tariffs. The fiscus also bears the burden through subsidies and bailouts.
Without competition or strong oversight, service quality can deteriorate alongside rising tariffs. Yet introducing competition in utilities has not always yielded lower prices elsewhere.
South Africa’s experience illustrates the complexities involved. The case for reform, therefore, requires careful calibration.
Some firms achieve dominance through legitimate innovation and efficiency. Econet, for example, has built substantial market share in telecommunications.
Even so, market power must be monitored to prevent abuse. Mergers and acquisitions can also increase concentration, which is why competition authorities require notification and assessment before approval. Harmful deals can, and should, be blocked.
Recommendations
To protect consumer welfare, targeted price regulation may be necessary in certain concentrated markets. For example, low-balance bank accounts of US$50 could be exempt from fixed monthly charges.
Financial institutions could be barred from charging for digital balance enquiries. Telecommunications tariffs for voice and data could be benchmarked against regional averages.
Industries in concentrated markets can also be taxed at higher rates than those in competitive markets. This would make some of their windfall profits accrue to government as well.
So, higher income tax rates (28%-35%) for privileged firms, in such industries, are a possibility. The government can then use its proceeds from the higher taxes to support new entrants into the concentrated markets, or for other endeavours which are in the national interest.
Inefficient industries, which are privileged with government support, while they are of little benefit to consumers and the economy, should lose that protection.
This includes domestic industries, which enjoy protection from imports, in the form of steep import duties, while they have no zeal to improve productivity nor innovate.
Gradually driving import tariffs downwards can push locals to be more innovative and increase their productivity.
Deregulation of local markets, so that more emerging businesses, including small to enterprises and foreign competitors, may participate in currently-concentrated markets, can be beneficial.
This pertains to reducing the requirements for licences, fees and improving the administrative efficiency of regulators, among others. Encouraging more entrants in the financial technology (Fintech) space, for example, could potentially lead to lower charges for clients within the financial sector, along with improved credit access at modest interest rates, for the broader economy.
Legislation, which prohibits uncompetitive trade practices such as, exclusive supply and distribution arrangements, where established businesses exclude new or emerging entrants, should also be considered.
Applications for mergers and acquisitions are usually accompanied by promises to keep prices low and to refrain from abusing consumers as a result of the new-found market power.
However, competition authorities do not have a formal framework for following up, to ensure that these promises are kept, and deviations are addressed. It will be essential to address this anomaly.
In reality, room must be kept available, for some industries where concentration is seen as the most or only viable option, as well.
Regarding public utilities and other government agencies, their efficiency needs to be improved through digital management of their activities, from procurement, to project management. Incentivised whistleblowing, where informers who expose crime are paid, can also be considered.
Their tariffs should not only be regulated, but also be justified through efficient operations. The contracts of employment for their executives should be regularly reviewed, based on their performance. Otherwise, introducing public utilities to private sector competition may not have the much touted efficacy (usefulness).
Finally, the treatment of collusion cases warrants debate. Converting certain violations into civil matters, where full restitution is paid to affected consumers, could strengthen deterrence compared to modest fines under commercial or criminal law.
Market concentration is not merely a structural issue. It shapes prices, productivity, wages and the country’s overall growth trajectory. Addressing it requires deliberate, balanced and sustained policy action.
Tutani is a political economy analyst. — tutanikevin@gmail.com.