Overcharge a customer at the souk, or try to pass off some second-hand car tyres as new, and these days, you will more than likely soon feel the wrath of Oman’s Public Authority for Consumer Protection (PACP). Indeed, the Authority’s rapid response times and on-the-spot investigations have in a very short space of time made it one of the Sultanate’s most popular institutions. The PACP has even made a number of high-profile arrests in recent times in its battle to keep prices down and consumer rights up.
Yet recently, retailers have been finding themselves increasingly challenged by the wide-ranging price fixing regime the PACP enforces. Many are saying too that the raft of restrictions on retail businesses is in fact strangling the very competition it tries to enforce, while also bringing other negative consequences to the economy at large. Calls for reform are now being made, with retailers seeking to strike a new balance between consumer rights and free market norms.
Changing Times
Oman’s retail sector has undergone considerable growth in recent times, alongside a fundamental shift towards larger format stores and malls. The country was added to AT Kearney’s Global Retail Development Index (GRDI) for the first time back in 2012, and in 2014 was ranked 17th after showing an average seven per cent growth since 2011.
Major drivers mentioned in a recent Alpen Capital report on GCC retail include: growing numbers of expatriates and tourists; rising expectations of international standard retail outlets; political stability; and growing personal disposable incomes. At the same time, the organised retail market has been growing from a small base, with low penetration rates for malls, hypermarkets and supermarkets. Even so, in 2013, the report says, the wholesale and retail market was still worth about $5.8bn, or 7.3 per cent of Oman’s GDP.
International and regional brands, such as Carrefour, Spinney’s, LuLu, and Khimji’s are ubiquitous around Muscat these days, while shopping centres such as Muscat Grand Mall are a part of many consumers’ lives. City Centre Mall’s expansion should be finished by the end of this year, while the Palm Mall, Al Mabella will even have a two-floor aquarium to pull in customers by 2017. Indeed, some 380,000 sq meters of additional mall space should come online within the Sultanate over the next two years.
Yet Oman remains a relatively small retail market in comparison to its regional peers. In more recent times too, that organised retail universe has become a lot more concentrated when it comes to areas such as fast moving consumer goods (FMCGs). A number a big, anchor hypermarkets in the malls tend to dominate the modern sector, with this concentration exactly the kind of thing consumer protection agencies tend to worry about.
At the same time, the traditional retail sector – the souks and small stall holders – have also long been a subject of study for bodies such as the PACP, given that many ordinary Omanis still conduct most of their shopping in such places. The PACP was set up back in 2011 with protests following the Arab Spring highlighting issues such as the high cost of living. One of the Authority’s first acts was thus to prohibit any commodity price rises without prior official approval.
Since then, the PACP has been vigorous in exercising its responsibilities. The Authority has also investigated many consumer safety related issues, such as counterfeit automotive parts, while winning the trust and respect of many Omani consumers. At the same time, inflation has tumbled. This stood at 4.1 per cent in 2011, but then fell to 2.9 per cent in 2012, 1.2 per cent in 2013, and around one per cent last year.
In March 2014, however, the cabinet ruled that the PACP should be restricted to regulating prices on just 23 commodities, while all others would be returned to the free market. The 23 were mainly basic food items, such as rice, flour, oil and ghee, fresh and frozen meat and fish, and basic household items such as soap and toothpaste. The ruling was, however, met with some dismay by many consumers, who had become accustomed to lower prices across all the supermarket shelves. The unpopularity of the move resulted in an intervention from His Majesty Sultan Qaboos, who suspended the ruling pending the publication of a new consumer protection law.
In December, royal decrees were issued for that law, along with a new, Competition Protection and Monopoly Prevention Law (CPMPL). These two, along with amendments to the Commercial Agencies Law made earlier in 2014, establish three judicial pillars for the Omani retail sector to rest on. By and large, Oman’s retailers have no quarrel with these regulations, which seek to enshrine consumer rights and ensuring free and fair competition between retailers.
“These three laws are a good thing and free-up the market,” Dominic Myers, CEO of Enhance Operating Companies, Oman’s leading provider of retail management and brand distribution, told OBG. “The laws ensure monopolies don’t get created and this is good for consumers and the industry.”
Price Fixing, Market Fixing
Yet Oman’s retailers also have a big ‘but’ to add when it comes to the current regulatory framework. With the cabinet ruling on 23 commodities still apparently frozen, the PACP continues to fix prices on a whole range of goods – indeed, only government institutions are exempt from the prohibition on raising prices without prior consent. This makes Oman quite a tricky market when it comes to retail. The impact of these price controls is broadly fivefold:
First, if retailers are unable to increase prices, while costs continue to rise, simple economics means retailers have to scale back elsewhere. This often translates into retailers reducing employee numbers – a consequence that works against another of the government’s priorities – getting Omanis into work.
At the same time, while large retailers can absorb some of the low prices due to their economies of scale and preferential terms with suppliers, small and medium-sized enterprises (SMEs) can find the price controls more of a burden.
Second, potential investors and manufacturers can find the price fixing a deterrent to entering the Omani market or expanding their existing operations. This is particularly so when large markets such as Dubai are relatively close by.
Thirdly, if international prices for certain goods happen to be higher than the maximum price allowed by the PACP, then retailers will likely not bring it into their product portfolios. This reduces consumer choice, with gaps appearing on the shelves if global prices levels suddenly jump.
The fourth objection is that currently, with the regulatory framework relatively new and the status of current price controls uncertain, there is an emerging conflict between different interpretations of the laws themselves.
One example is the provision that market ‘dominance’ equals the possession by a person, or group of persons, of more than 35 per cent of a market’s volume. How precisely this is to be assessed is not clear, however, although this regulation is very important when it comes to regulating mergers, for example. Furthermore, the courts have yet to test these provisions, with this also creating some uncertainty amongst retailers and consumer groups.
Finally, retailers point to the long-term un-healthiness of any price control regime. If, at some future date, a return is made to the free market, then what can often happen is a sudden surge in prices, with this dramatic hike having social consequences. Far better, many retailers argue, if prices are allowed to drift upwards more slowly, as and when market conditions demand.
Indeed, one associated difficulty here is that the Sultanate’s inflation figures have become distorted as a result of the price controls. The 0-1 per cent figures now being recorded are the result of a CPI basket that is around 30 per cent food items – on which price increases are prohibited – while the other items include equally regulated products, such as fuel.
Future moves
Oman’s retailers are therefore currently engaged in lobbying for a change in the regulations in the direction of more free market pricing. Naturally, the issue is a sensitive one, however, with political and social ramifications. Rather than a removal of all price controls, some favour the original cabinet decision of March last year, arguing that the 23 commodities listed for price controls were enough for the Omani markets’ current conditions. Limiting the PACP to this list would ensure that ordinary citizens would not face major price hikes for basic commodities, while also enabling retailers to charge more realistic prices for middle and high end products. This in turn would enable stronger growth in the sector, increased employment within it – and as a result longer-term benefits for the Omani consumer.
Meanwhile though, the sector continues to perform well, with growth levels that are still attractive, if on the low end of GCC averages. The effect of the new laws is also generally positive in preventing the establishment of monopolies, while ensuring strong product standards and consumer rights. For Oman’s retailers, the issue of price controls remains the next step to be addressed, however, with many hoping the government will be keeping a close eye on how these controls continue to effect the market.