“To become competitive in Armenia, greater part of those engaged with trade should be reduced”
Interview with Ashot Khurshudyan, analyst at International Center for Human Development, economist.
Mr. Khurshudyan, fight against monopolies has been declared and certain steps are being taken to that end. In your opinion, will they be productive?
It’s difficult to make decisions in one day; steps should be planned and coordinated. Good points have been stated, however, I’m a bit incredulous. It’s good if they are able to implement them. There used to be a systemized solution to fight against monopoly. It’s a question why the system didn’t work. It refers State Commission for the Protection of Economic Competition, as its function was doing that job throughout these years, and not that of the Government. In this case, basically the Government assumes political responsibility, however, it should pose that question to itself, as that link should have functioned to settle the issue systemically. The Prime Minister assigned that the wholesale-retail market stabilized, so that entrance of any person into the market was possible, and there were no obstacles for those to create monopoly.
The biggest issue in Armenia is that until now trade is observed as economy, and occupation in trade is observed as a crucial workplace. It’s important, however, economy based on trade is an economic model of centuries. Moreover, during import the benefitting party is the importing firm, which is not Armenian. That is, by changing the importer, influence on economy is not essential, it simply becomes a redistribution of income. Issue of monopolistic economy in the field of trade is price, as in case of competition prices should fall. Other essential change shouldn’t have been recorded. The same importers under the condition of low prices may even continue to maintain their monopolistic position.
For instance, it’s the same as saying why Coca-cola Company produces, let me produce for myself, or let me import those commodities and benefit from it. The question is not properly formulated. It should be: are there any obstacles, that I can’t import or why isn’t the price fair? As maybe I’m importing and the bigger one may do damping, as it frequently occurs in Armenia. It’s crime, which our monopolistic legislation should exclude. An attempt is made to provide more total solution to establish wholesale-retail market, where entrance will be free and by that it’ll be prevented. This, of course, is possible by 2-3 conditions.
Firstly, it may refer only to standard commodities, i.e. despite the brand, it may mainly be grains, sugar, i.e. commodities, brand of which is not important and physical criteria are important. For this controlling body should be available, that all the standards were unified. Here is the first question: do we have it and do the standards really correspond? For instance, drivers complain that the petrol quality is not as good, as it’s introduced. And one of the options of creating a monopoly is decrease of quality and price, due to which commodities with higher prices aren’t already competitive.
Secondly, dealer’s network is available in the whole world. Big investor can’t socialize with shops in European market, as for instance, in Poland there are 80 thousand points of sale, and it can’t negotiate with them. The work is implemented through dealers, each of which is specialized in his/her field. Big producers have their own dealers.
The third most important factor is the logistic network, i.e. one should have an exact storage and transportation firm, which may productively transport any commodity to any place. In that case it’s becoming possible to compete with concrete price, as transportation price, in particular, in case of retail trade is considerably reflected in the final price.
There are certain investments in Armenia for creating a network, however, if we compare it with Europe, it’s rather miserable. When Romania was involved in the EU, great logistic firm to enter first stated that it’s investing USD 4 million simply to create that network. They are rather serious firms, issue of which is to organize the work in a way that commodities reached the consumer with a cheaper price. For instance, our dairy producers have their own cars, however, it may even be beneficial for them to make use of other service. Here the issue of fair competition is put forward, for instance, trade confidentiality, as many are interested to know whom and by which price the contestant provides commodities. Formerly, even on TVs it was being observed which famous movie would be broadcast on a famous channel, 5 minutes earlier it was being implemented, i.e. rivalry is not only rivalry, it’s also cooperation and information confidentiality should also be provided.
Another important thing should be available as well: we know that retail trade is moving to big networks, which seriously compete, even cases of bankruptcy have been recorded, for instance, “Star.” This is a complicated field, and if you have stores it doesn’t mean you are becoming reach at once. Those stores are importers of their goods. Does that double benefit harm them? In case of ideal variant it shouldn’t, as there should be price competition, anti-monopoly systems should work and the consumer should benefit from rivalry.
Small investors should realize that they need to find their niche, as it’ll be difficult for them. And the main problem is that the consumer knew that the price is fair. However, it’s not only the price, advertising complicated system affects it. We need to get to the point, that anti-monopoly judicial system was stabilized, so that enterprises were able to accuse one another and prove that. A subtle issue is existent here—we have always attempted to establish an ideal extrajudicial system. There are numerous interests of householders and the system should so develop that householders themselves led anti-monopoly struggle out of their own interest. Presently that system is not complete.
First and foremost, serious field survey should be implemented, which currently is incomplete in Armenia. SCPEC (State Commission for the Protection of Economic Competition) implements such surveys, however, it never publishes them. For instance it’s possible to observe how the petrol price is being developed in Australia. Likewise surveys either are not available in our country or they lack. Concentration index may even be calculated for importers, and volume of monopoly will become clear in this or that field.
Specialists link monopolies with corruption.
Corruption should be excluded for anti-monopoly systems and other institutes—customs, judicial, quality control—to work. To which extent the monopolist is able to impact on judicial, political, legislative and other decisions? If that liaison isn’t broken, and we know that business-authorities linkage is still very strong in Armenia, it’ll be very difficult. And this mechanism in case of some goods may be developed. Business market should be developed.
There is another crucial circumstance as well: Ministry of Economy didn’t formerly pursue trade policy. I hope, it’ll be corrected. It refers productive trade policy of internal market, as well as external, electronic, internet trade and etc. There are regulating laws, however, their main motive is that of taxing. And trade is the criteria for economic competition, finally, production is consumed through trade. Such a policy didn’t formerly exist, i.e. we need to understand what we want.
Maybe my standpoint won’t be approved by the many, however, to become competitive, the number of the majority of those in trade sector should be reduced. Now, when we say there are no workplaces, people immediately think it’s monopoly that’s why they are not able to be in trade, import goods, however, it makes our economy very unproductive, as by the development of information technologies trade leads to the point that people’s participation in the process is rather low. Workforce is expenditure, which automatically increases price for sold goods. That is, trade is more turned into serious logistic firm. We didn’t develop to a degree to robotize trade, people should work in logistic firms, however, we should forget about trade as economic base or workplace establisher, otherwise we’d become a country, which gets money from Russia and buys goods inside. We also export some raw material. And we don’t need such economy, i.e. trade should be maximally productive, rivalry should increase the way to keep the price low and not to observe this field as an issue of maintaining workplaces.
There is another circumstance regarding breaking of vendor-importer connection; when “Carrefour” came to Armenia, we were very delighted and enthusiastic, and the latter is such a firm, it imports and sells its own production. This policy shouldn’t move it out. It’s accepted in the whole world and is an essential factor for price reduction that non-advertised commodities are bought and sold under their brand, or you may attach your brand, raise the price if the advertisement is good. These are trade tricks.
There is one issue: information accessibility in our country is rather low, even big electronic stores don’t provide information on price. It’s a trade trick to bring the buyer to the store, orally advertise the production and sell it for a more expensive price. However, if there was a possibility to compare the prices of the same production in various stores, the buyer would immediately go to the cheaper store. Trick used here is ridiculous and out-of-date, as electronics market in the whole world is built on advertisement and is available on the internet. Respective institutes in the world are busy with price control, and here work of those institutes theoretically exists, but practically lacks.
Hovik Abrahamyan assigned to ban simultaneous wholesale and retail trade, and wholesale trade should be implemented only through electronic platform. What do you think, will that platform be productive?
Business-business platform exists in the whole world, there are various forms, which provide initial information on their goods, i.e. it’s like semi-trade fair, where the good is being advertised by various means. It’s not an exchange, it’s very standardized. Other businesses—dealers or stores, make a survey, buy it and then sell. They negotiate by virtual contacts.
Negotiations in trade are of utmost importance, as trade conditions may be very different. Usually, if someone new intends to deal with trade, he/she is firstly obliged to give them on a post-paid basis, there is no other choice. If the system is standardized, that time he/she will approach to exchange rules, i.e. you need to comply with certain conditions. The issue of licensing also emerges here, as they assume financial responsibility. If we further with the pre-paid version, price for commodities will rise a bit. This is one of the issues, i.e. the producer-vendor issues will be improved, however, it will occur on account of consumers.
Usually market analysis on such platforms is mandatorily made so that the householder understands what competitive field is available. There are two variants of such platforms—eitherit’s paid and by that money survey is being launched or if it’s a state one, survey should be implemented by public means and issued openly, which will be available for everyone. Thus, one should understand who’s responsible for the platform.
On such platforms in the world logistics exists automatically, there is no point in bothering, and in Armenia it’s the reverse of the coin who will supply the product. Logistic firm already knows what to move from where and optimizes its work. System of electronic freight transfer is available in our country, however, it was also initiated out of taxation purposes. Such systems should be invested to make commodity transfer process possible to observe. And the purpose should be price reduction. If there were such a platform, many issues raised days ago at EEU forum, would be automatically settled and people wouldn’t think how to come to the market and how to sell.
By Gayane Khachatryan
