Paint Firms’ Restrictive Trade Practices Noted in Kenya’s Housing Plan

The implementation of a new economic blueprint in Kenya that prioritizes housing and manufacturing sectors seems to have triggered intense market competition among construction material suppliers including paint manufacturers according to the Competition Authority of Kenya (CAK), a State agency that promotes fair trade.

‘Big Four’ Agenda

The government-driven ‘Big Four’ agenda, an economic strategy to foster growth and provide solutions to various socio-economic problems in the East African country of 40 million people, had identified four priority initiatives that were initially to be implemented between 2017 and 2022 including food security and nutrition, universal health care, affordable housing and manufacturing.

However, it is the housing and manufacturing expansion strategy that have opened more new opportunities for coatings and paint companies in Kenya with stiff competition among industry players to grow their respective market share leading to what CAK now says are collusive tendencies especially on pricing, discount structure and transport charges.

The government has set a target of constructing 500,000 low-cost houses in a partnership scheme with the private sector to ensure “every Kenyan has access to comfortable housing.”

This housing scheme sought to create 300,000 jobs and provide a viable market for local manufacturers and suppliers including coatings and paint companies according to Kenya’s Treasury Cabinet Secretary Ukur Yatani.

Among the priority schemes under the affordable housing component is a special housing program to provide houses for police officers and prison wardens across the country.

Incentives to Accelerate Investment

To accelerate investment in the low-cost housing program, the government is providing incentives to private developers in the form of reduced taxes for the envisaged construction of at least 100,000 houses every year.

In a move that would enhance demand for fabric paint in Kenya, the government has, under the ‘Big Four’ agenda, been modernizing the country’s biggest textile company, Rivatex Ltd, enabling the facility to increase production of fabrics by 500% to 25,000 meters per a day since 2018.

Overall, Kenya had set a target to establish a total of 3,850 new manufacturing enterprises through industrial financing and other incentives according to Yatani.

The government, he said, has “further plans to increase export earnings from textiles and apparel production from KES 80 billion ($ 703 million) in 2017 to KES 200 billion ($ 1.8 billion) by the end of 2022.”

But in the drive to have a slice of the numerous business opportunities created by the increased investment in manufacturing and low-cost housing, CAK said at least four paint manufacturers engaged in collusive practices among themselves and their distributors according to the agency’s 2019/2020 financial year report.

Trade Practices Under Investigation

An investigation into trade practices among the paint makers and distributors CAK said “was in light of the fact that the manufacturing and housing sectors are part of the ‘Big Four’ agenda to drive economic growth in the country.”

The probe involved Crown Paints, Basco Products Kenya Limited (Basco), Kansai Plascon Kenya Limited (Plascon) and Galaxy Paints and Coatings Limited (Galaxy).

“The Authority reviewed the information to determine whether there was alleged collusive conduct between these manufacturers and distributors of paint products,” the report says.

“Accordingly, the parties were accorded an opportunity to respond to the allegations leveled against them pursuant to section 31 of the Act through written and oral submissions which were presented on various dates between September and November 2019,” CAK’s report added.

The law defines the restrictive practices as any agreement, decision or concerted practice that directly or indirectly fixes purchase or selling prices or any other trading conditions and the dividing of markets by allocating customers, suppliers, areas or specific types of goods or services and this case paints.

“The alleged concerted practices are harmful to competition since the transparency of strategies by firms is likely to increase prices or reduce product availability in the market to the detriment of the consumer welfare,” CAK said of the probe of the four paint firms.

Basco Products (K) Ltd, which manufactures and distributes more than 234 varieties of the Duracoat brand in East Africa, opted to settle the dispute with CAK soon after the probe was launched by paying KES 20,799,277.70 ($183,000) with an undertaking to “desist from any anticompetitive conduct and put in place a Competition Compliance Program to sensitize its leadership and key staff on competition law.”

The competition’s law in Kenya mandates CAK to impose an administrative penalty of up to 10% of the preceding year’s turnover of a company found engaging in restrictive trade practices or issue and desist orders to remedy infringement of the fair trade regulations.

The remaining three companies, CAK said “investigations were concluded in July 2019 with the Authority making a preliminary finding that the parties were involved in an anti-competitive agreement on prices, discount structure and transport charges.”

Crown Paints, Kenya’s leading paint manufacturer with an annual turnover of KES 9 billion ($79 million) in 2020 and a monthly paint production of 3 million liters, the low-cost housing scheme by Kenya was likely to attract more investors into the sector hence boost demand for paint products.

“The Kenyan government has indicated interest in providing one million low cost houses and we expect that this will create a significant demand for paint,” said Rakesh K. Rao, Group chief executive officer, Crown Paints soon after the promulgation of the
‘Big Four’ agenda.

“We already have a range of economy paints and other products to meet this demand. We will also continue to expand our market share by introducing new and innovative product solutions, better customer experience and outreach into new market segments,” he said.

The paint manufacturer admits in its latest annual report “the paint industry has become ever more competitive both in terms of the products and players.”

Despite these previous missteps by Kenya’s paint industry key players in complying with fair trade practices, the government has nevertheless continued to streamline the overall retail sector including the recent amendments to the Competition Act No. 12 of 2010 that paved way creation of the a ‘Buyer Power’ department within CAK.

The department would address concerns about businesses abusing their influence over suppliers along the retail value chain.

Looking into the future, the four leading paint companies in Kenya, also happen to be market leaders in the Eastern Africa region where the post-COVID-19 period could see recovery of economies with average growth of 4.1% in 2021 from 0.4% in 2020 in tandem with the global trends.

The anticipated economic recovery would give a new shot in the arm of the stalled construction and infrastructure projects in East Africa including Kenya’s ‘Big Four’ agenda hence support further growth of the region’s coatings and paint industry.