Rethinking the state’s price control role amid liberalisation – 3

By Anna Tibaijuka

In the first two articles of this series, I argued that the role of government in a liberalised economy is not to replace markets but to ensure that they function fairly, efficiently and in the public interest. That principle applies equally to producers and consumers.

Whenever fuel prices increase, public transport fares rise or electricity tariffs are adjusted, the public reaction is almost always the same: government should intervene. Protecting consumers is undoubtedly a legitimate responsibility of the State. The more difficult question is how this can be achieved without discouraging investment, reducing supply or creating shortages.

Unlike most agricultural markets, some consumer markets cannot rely entirely on competition. Few communities can sustain competing electricity transmission networks, water pipelines or petroleum distribution systems. Economists describe these as natural monopolies, where duplicating costly infrastructure is economically inefficient. Left unregulated, such monopolies could charge excessive prices or reduce service quality.

This explains the need for independent regulators.

In Tanzania, EWURA regulates petroleum, electricity, natural gas and water services, while LATRA regulates public transport and other land transport services. Their role is often misunderstood. Their responsibility is not to make prices permanently low or permanently high, but to ensure that prices are fair, transparent and broadly reflect the actual cost of providing the service.

There is an important distinction between price regulation and price fixing.

Price fixing occurs when authorities simply decree what a commodity should cost regardless of production costs or market realities.

Price regulation, on the other hand, seeks to establish reasonable prices after considering objective factors such as operating costs, taxes, exchange rates, efficiency, investment requirements and a reasonable return on capital.

No regulator, however effective, can repeal the laws of economics.

If international oil prices rise or the Tanzanian shilling depreciates, someone must bear the additional cost. Government may cushion the impact through temporary subsidies or tax adjustments, but it cannot eliminate the underlying economic reality.

Likewise, if bus fares are permanently held below the actual cost of operation, transport operators eventually reduce services, postpone maintenance, delay fleet replacement or exit the industry altogether. Consumers may enjoy lower fares temporarily, only to face fewer buses, poorer service and declining safety.

Good regulation therefore seeks balance. Consumers deserve protection against monopoly pricing and inefficient service providers. At the same time, investors must have confidence that efficient businesses can recover legitimate costs and earn reasonable returns. Without investment, there can be no sustainable service delivery.

Recent events in Bukoba Municipality illustrate another misunderstanding of government’s role in a market economy. Following increased competition from a local rancher selling meat at lower prices, some butchers reportedly appealed to government to intervene by supporting higher retail prices.

This highlights an important economic principle: Government should protect competition—not competitors.

In this regard, recent directives issued by Morogoro District Council requiring specified spice crops to be marketed exclusively through designated warehouses have raised important legal and policy questions. The Minister for Agriculture may wish to clarify the legal basis under which this directive was issued; whether local authorities possess delegated powers to require compulsory warehouse marketing for these crops; whether farmers retain the right to sell to licensed buyers at the farm gate; and whether the likely effects on competition, private investment and prompt payment to farmers were fully assessed before implementation. Equally important is the impact on thousands of small-scale spice traders—many of them young entrepreneurs—who currently purchase produce directly from farmers and transport it by public buses to Dar es Salaam and other markets.

Similarly, the Minister responsible for State, Regional Administration and Local Government (PO-RALG) may wish to clarify whether local government authorities have statutory powers to establish compulsory marketing systems through administrative notices or whether such measures require ministerial approval or subsidiary legislation. Can local revenue collection be strengthened without disrupting efficient marketing systems that have served farmers and traders for many years?

If one trader offers lower prices because of greater efficiency, lower production costs or better business practices, consumers benefit. Unless there is evidence of predatory pricing, collusion or other unfair trade practices, government has no justification for penalising efficiency.

The objective of competition policy is not to guarantee equal profits for all businesses. It is to ensure that everyone competes under fair and transparent rules.

Government should therefore intervene where businesses collude to fix prices, abuse monopoly power, mislead consumers or where essential services become inaccessible because markets have genuinely failed. It should also enforce quality standards and consumer protection laws.

It should not intervene simply because competition produces lower prices or because efficient enterprises outperform less efficient ones.

These principles are equally relevant to agricultural marketing.

The success of a market economy depends not only on private enterprise but also on strong public institutions that enforce fair competition, protect consumers, uphold the rule of law and inspire public confidence.

Well-designed regulation encourages investment while preventing abuse. Poorly designed regulation can discourage investment, reduce innovation and ultimately harm the very consumers and producers it seeks to protect.

The challenge for policymakers is therefore not to choose between regulation and markets.

It is to ensure that regulation strengthens markets rather than replaces them.

In the next and final article of this series, I shall draw together the lessons from producer and consumer pricing to propose the minimum principles that should guide government intervention in markets and explain why fair competition institutions will be indispensable for the successful implementation of Vision 2050.

Prof Anna Kajumulo Tibaijuka is a former Tanzanian Cabinet minister and former United Nations Under-Secretary-General and Executive Director of UN-HABITAT