Investment & Money Market I N S I D E B U S I N E S S A F R I C A Concern about competition The IMF adds to a chorus of concern about competition P HYSICISTS' QUEST for a "theory of everything" to explain all of their observations about the world is well-known. The equivalent in economics is the hunt for common causes for the rich-world macroeconomic trends of the past decade or so: a shrinking share of the economic pie for workers, disappointing investment and lacklustre productivity growth. These must be reconciled with low interest rates, pockets of technological advance and juicy returns for investors willing to take risks. The leading economic theory of everything is that competition has weakened as markets have become more concentrated. Unlike firms in competitive markets, monopolies limit production in order to keep prices and profits high. They can therefore be expected to restrain their investment, too. They might still be innovative-with monopoly profits up for grabs, why not be?-but market power usually makes economies less productive overall. And monopolies have many opportunities to take bites out of labour's share of the pie. Their high profits typically flow to investors, not workers. Their high prices eat into the purchasing power of wages. Their bargaining clout may even allow them to suppress pay directly. On April 3rd the IMF provided the latest evidence for parts of this theory. In a new study the fund's economists examined the markups over marginal cost-one proxy for market power-charged by over 900,000 firms in 27 countries. They found that markups rose by 8% on average between 2000 and 2015. In findings consistent with earlier analyses by The Economist, the fund concluded that market power has risen notably in America and by a smaller amount in Europe, and largely affected industries other than manufacturing (which trade keeps fiercely competitive). IMF Chief, Christine Lagarde A new analysis reinforces worries about market power Case closed? Not so fast. Those who doubt that competition has weakened attribute such findings to the rise of "superstar" firms. They argue that economic activity is becoming concentrated in the best firms because of technology, network effects and globalisation. This "winner-takes- THE MAGAZINE 0F THE CORPORATE WORLD most" pattern could explain rising average markups, if pricey but brilliant products are capturing more market share, or if superstar firms are unusually reliant on investments in intangible assets that do not count as marginal costs. Given the growing importance of intellectual property and brand value to obvious superstars such as Apple and Google, this objection is worth taking seriously. The IMF study confirms that in most places a small share of firms are responsible for rising markups, which have soared among the best and are flat among the rest (see chart). The top 10% of firms are 50% more profitable than their peers, more than 30% more productive and much more reliant on intangible assets. The fund did not find that rising markups had slowed innovation, at least using the (admittedly dubious) proxy of patent registrations. Yet market power that grows organically is still market power. The fund found support for some of the pernicious consequences of less competition. Higher markups are associated with less investment in physical capital-enough to have lopped a percentage point off GDP in the average advanced economy, they estimate. Top firms with higher markups pay a smaller share of the economic value they create to workers. And the fund warns that market power could yet put a brake on innovation, should incumbent firms get too cosy. That might happen if regulators are slow to respond to structural shifts in the economy, or too lax in policing mergers that allow incumbents to pick off potential competitors. The fund found that mergers and acquisitions were, on average, followed by significantly higher markups by the firms involved. Economists are sometimes accused of having "physics envy"-that is, of coveting the precision of the hard sciences. But if economics has a law worthy of the name, it is that firms prefer to merge than to compete. I N S I D E B U S I N E S S A F R I C A THE MAGAZINE 0F THE CORPORATE WORLD Opening up the space Crown Refinery & Petrochemical Ltd to build $500m modular refinery in Ondo Edna Molewa C rown Refinery & Petrochemical Limited, a crude oil refining firm, has signed a Memorandum of Understanding with Ondo State government for the building of a $500 million refiner y in Ilaje Local Government Area of the state. The plant is designed for an initial production capacity of 30,000 Barrels per day. Located in Eruna Ogboti community of the state, the refinery is expected to increase its crude oil refining capacity to 60,000bpd when it commences full operation within its first five years of operating. It is expected to be completed within 36 months from the day of the signing of the MoU, which took place yesterday at the Governor's Office in Akure. The refinery is designed to process both imported paraffinic and Nigerian crude into finished petroleum products, oils and lubricants. According to the CEO of Crown Refinery and Petrochemical limited Mr Kassim Adeleke, the project will create a total of 2000 direct and indirect jobs for Nigerians, with much consideration for the host community. "It is expected that the upcoming private refineries, ours included, would be able to meet Nigeria's need for refined petroleum products," said Adeleke while speaking on the enormous vacuum left uncovered in the petroleum downstream sector. "The market is deep enough! For us, it is more of contributing to an industry output that will meet the demand," Adeleke said when asked how his company would compete successfully in this market, considering the number of like modular refineries springing up in the country. The Nigerian, and West African market's demand for petroleum products has been on the increase. This has been largely unmet by the existing supply from refineries in the region. Nigeria has 4 major refineries (approx. 445,000 bpd). The West African sub- region still imports most of her petroleum products. This is the gap that Crown Refinery & Petrochemical Limited is set up to fill. The Ondo State Government has reiterated its determination to make Ondo State conducive for all genuine investors willing to partner the state in its industrialisation drive. Speaking during the courtesy visit to him by the Management of LWE a joint venture of Crown Refinery and Petrochemical limited with its technical partners in his office in Akure, the Ondo State Gover nor, Oluwarotimi Akeredolu, SAN, said his administration was resolutely determined to make Ondo State attractive to willing investors by easing the cost of doing business in the state. While describing as heartwarming the SOURCES: THE ECONOMIST 24 u t APRIL1 4 - 28, 2019 t 25 u APRIL1 4 - 28, 2019 Investment Memorandum of Understanding between the State Government and Crown Refinery and Petrochemical limited on the construction and management of a Modular Refinery worth over Five Hundred million Dollars, Governor Akeredolu said investible potentials of the state particularly in the southern part where the proposed Refinery could not be quantified. He said Ondo State is strategically positioned among the Niger Delta States and Lagos State, which is the nation's economic nerve centre, to make all business minded investors reap bountifully on their investments in the state. He commended Crown Refinery and Petrochemical limited for coming on board at this time to be a worthy partner with the State Government and assured them and their partners a second to none atmosphere in their business deals in Ondo State. Adeleke said his company had before now approached some states for the establishment of the project but was not welcomed. He however said in Ondo State he found professionalism, swift decision making , friendly communities and passion, such that in less than one year of opening talks with the State Government, the coast has been clear for kick start the landmark project. While commending the State Government for having brought Ondo State closer to Lagos State through the facilitation of daily flight, the chairman said the project will further make both states accessible on water with the use of speed boats in thirty minutes. Earlier in the day, the MOU between the Ondo State Government and the C.E.O of. Crown Refinery and Petrochemical limited on the project was signed by the Secretary to the State Government, Hon Ifedayo Abegunde and the Senior Special Assistant to the Governor on Energy and Mineral Resources, Engineer Femi Akarakiri for the State Government while the C.E.O of the company, Mr Kassim Adeleke and Company Secretary, Ambassador Folake Marcus- Bello signed the MOU on behalf of the company.