(First appeared in New Era 17 June 2015)
The past few weeks have been very hectic in the Shaanika-Louw household as Captain Adorable starts on the journey of “real foods”. Waking up at night to soothe a crying child brings reality to a parent on what we do in the hope of giving our child the best opportunity in life.
Regardless of how young our children are, all parents worry about the day the child is going to be grown up enough to leave the nest. This is why we take out study insurance policies etc. as we consider whether we, as the parents, will be able to give our children that “right start” to life with a quality education.
The Ministry of Industrialisation, Trade and SME Development is in the final stages of submitting the Consumer Protection Policy and Act to Cabinet before it goes to the legal drafters for submission as a Bill to Parliament. The technical committee responsible for the process must be commended for looking at a principle-based approach rather than a rule-based regulation environment for Namibia.
Without going into too much legalese, this means that under the proposed Namibia Consumer Protection Act, the regulator will work on the “ex post” application principle. In other words, the regulatory principle is applied against specific conduct of a regulated entity ONLY AFTER the conduct has occurred. This is in comparison to a “ex ante” determination principle where the regulator must state exactly what the regulated entity must, or must not, do to comply with the rules before the business engages in the conduct.
Lying in the dark after the Captain has fallen back to sleep allows me to reflect on what exactly the consumer protection environment will mean – not only for me and mine, but also for you and yours in this country. For most of my life I have been engaged in the teaching profession, first as an IT Junior Lecturer and later as a distance tutor at a local education institution offering Cambridge University qualifications.
This very important industry (yes it is a business) has mushroomed in the past few years with the only regulations seeming to come from the Namibian Qualifications Authority (NQA). The NQA has the responsibility of evaluating the educational institution, and more specifically the actual courses the institution provides. In other words, the education institution you send your child to might be accredited, but the actual course your child is following might not be a recognised NQA qualification.
Under our present laws there is very little that a parent can do once their child has completed course and they find out that it is not recognised in the work environment. After all, we all expect that once our child has received a quality (expensive) education that this will allow them to get a good paying position that they may be able to care for themselves. If this happens to you, you have very little recourse to the law as Namibia still adheres to the principle of “buyer beware” or in Latin, “Caveat Emptor”.
Under the proposed new consumer law, the regulator will be able to take action against such educational institutions which mislead the consumer as to the specifics of the course or area of study being NQA recognised compared to just being a “NQA registered” institution. This will be done not only through a complaint resolution given by a consumer, but also formal investigation and the civil investigative demand (CID).
Plainly put, under the new proposed law, the Consumer Protection Commission (CPC) will be able to research and identify seller(s) that violate the principles of the law, and undertake formal investigation on behalf of a group of consumers experiencing similar problems. If the CPC finds that there has been a violation of the law, they will be able to enforce the appropriate remedial action as well as penalties for the violation. This penalty or fine might also include refunding of consumers monies, even if that specific consumer was not one of the consumer who originally brought the complaint.
Knowing this law is on its way will certain make my sleep come a little easier, that is if Captain Adorable allows it.
Thursday, 17 September 2015
Making the poor consumer pay for the privilege of the rich
(First appeared in New Era 3 June 2015)
In 2006, I was privileged to attend the public meetings at Parliament in Windhoek to address the high cost of finance (especially bank finance) in the country. The late Hon. Reinhard (Kalla) Gertze, Member of Parliament, had proposed an investigation into the financial institutions through public hearings of the Parliamentary Committee on Economics, Natural Resources and Public Administration. (This Parliamentary Committee was then under the chairpersonship of our present President, Dr. Hage Geingob.)They held public hearings on bank charges and regulations and one of the submissions, by a banking institution, outlined why interest is charged.
In their submission, the bank explained that in the beginning of banking, interest was used to offset the risk of providing the credit to the borrower. There are four risks (hazards), namely a) The costs incurred by the bank while providing the loan had to be repaid; b) Inflation means the lender will be able to buy less for the money as time passes; c) Scarcity – in other words once it is lent to a borrower at a specific rate, it cannot be used for another loan; and d) That the borrower cannot pay back the loan. Further, the bank indicated that of these four, the only real difference the government can make is in reducing the risk of borrower’s inability to repay.
This topic has been written about before in my newspaper columns and blogs and the reader is encouraged to learn more about credit risk and how to minimise their perceived risk, as this the amount of interest they would be paying on their loans.
This week however, I was reminded about the topic of interest for an entirely different reason. I was reading an article wherein one of our municipalities was quoted as stating the varying prices for pre-paid and post-paid electricity is. What had me sit up and take notice was that the prepaid electricity was at least one-third more expensive that the post-paid price per unit.
Let me repeat that again: If I give my money for electricity that I will use in future, I have to pay a lot more that the customer who has already used the electricity and only has to pay some thirty days or more after using it. Somewhere this flies totally in the face of the market economic rules that I have been taught.
In my limited understanding, a bank or service provider would like to get the money from your pocket into theirs as soon as possible. If they can get you to purchase the service before you even use it, it means they have money for something they have not yet created. If however, they give you the service or product on credit, it means that they have already spent the money on creating that product and now have to wait to recoup their investment. Thus any properly run business would give you the same product for cheaper IF you paid for it before usage as they would be having the money before they have to spent it in creating the product.
Now why are municipalities (and cellular providers) charging you the consumer more for a product which by free market definition should be sold to you for cheaper because you are paying for it before the product was actually consumed? This opportunity cost being lost due to post-paid accounts is not seen in their bill, but rather in the bill of the poor consumer - who has no choice in having a prepaid meter - and is being made to bear the cost.
If we in Namibia are to talk about being “pro-poor”, we have to recognise that these business practices by private and public business are deliberately making the lower-income consumers pay more because of their ignorance. In my mind it is even worse because the product or service being sold is easily manipulated by the seller to increase their profits without any interference or agreement by the consumer.
In 2006, I was privileged to attend the public meetings at Parliament in Windhoek to address the high cost of finance (especially bank finance) in the country. The late Hon. Reinhard (Kalla) Gertze, Member of Parliament, had proposed an investigation into the financial institutions through public hearings of the Parliamentary Committee on Economics, Natural Resources and Public Administration. (This Parliamentary Committee was then under the chairpersonship of our present President, Dr. Hage Geingob.)They held public hearings on bank charges and regulations and one of the submissions, by a banking institution, outlined why interest is charged.
In their submission, the bank explained that in the beginning of banking, interest was used to offset the risk of providing the credit to the borrower. There are four risks (hazards), namely a) The costs incurred by the bank while providing the loan had to be repaid; b) Inflation means the lender will be able to buy less for the money as time passes; c) Scarcity – in other words once it is lent to a borrower at a specific rate, it cannot be used for another loan; and d) That the borrower cannot pay back the loan. Further, the bank indicated that of these four, the only real difference the government can make is in reducing the risk of borrower’s inability to repay.
This topic has been written about before in my newspaper columns and blogs and the reader is encouraged to learn more about credit risk and how to minimise their perceived risk, as this the amount of interest they would be paying on their loans.
This week however, I was reminded about the topic of interest for an entirely different reason. I was reading an article wherein one of our municipalities was quoted as stating the varying prices for pre-paid and post-paid electricity is. What had me sit up and take notice was that the prepaid electricity was at least one-third more expensive that the post-paid price per unit.
Let me repeat that again: If I give my money for electricity that I will use in future, I have to pay a lot more that the customer who has already used the electricity and only has to pay some thirty days or more after using it. Somewhere this flies totally in the face of the market economic rules that I have been taught.
In my limited understanding, a bank or service provider would like to get the money from your pocket into theirs as soon as possible. If they can get you to purchase the service before you even use it, it means they have money for something they have not yet created. If however, they give you the service or product on credit, it means that they have already spent the money on creating that product and now have to wait to recoup their investment. Thus any properly run business would give you the same product for cheaper IF you paid for it before usage as they would be having the money before they have to spent it in creating the product.
Now why are municipalities (and cellular providers) charging you the consumer more for a product which by free market definition should be sold to you for cheaper because you are paying for it before the product was actually consumed? This opportunity cost being lost due to post-paid accounts is not seen in their bill, but rather in the bill of the poor consumer - who has no choice in having a prepaid meter - and is being made to bear the cost.
If we in Namibia are to talk about being “pro-poor”, we have to recognise that these business practices by private and public business are deliberately making the lower-income consumers pay more because of their ignorance. In my mind it is even worse because the product or service being sold is easily manipulated by the seller to increase their profits without any interference or agreement by the consumer.
We are all pirates
(First appeared in New Era 27 May 2015)
In the past few decades, most consumer have started to question the high prices paid for “branded” products and have shown their willingness to but similarly branded products made in developing countries for much cheaper prices. In addition, with new technologies, many consumers are using the Internet and file-sharing services to get hold of digital products such as music and movies that would previously have to be bought but are now “shared” – with no costs to the consumer. Some consumers especially question products made by for example vehicle manufacturers and compare their prices to pirate products that seem to do the same job for a much lower price.
The World Intellectual Property Organization, WIPO, states that, “systems to protect intellectual property rights, currently in place across the world, have many loopholes that are being exploited by those producing fake goods, especially of well-known international brands. Counterfeit and pirate goods have huge negative economic and social impacts on any country and should be addressed collectively to stop or minimize losses.”
In Namibia recently there has been complaints by musicians and other artists that their copyrighted products have been copied or used without their permission. They have in their sights not only individual consumers, but also radio stations and the proliferation of jukeboxes throughout the country. They feel, quite correctly, that they have invested their time and money in producing a product (music, etc.) and other people are making money without giving them their fair share or reward for what is their Intellectual Property.
One of the main arguments for the protection of Intellectual Property (IP) is that without the financial incentive, artists and businesses would not invest in producing new products. In fact many businesses state that they would not invest in Research and Development (R&D) if they were not ensured IP protection.
While agreeing with WIPO and our local musicians, there is also a need to look at when a “pirate” or “generic” product can be of use to the consumer’s bottom line.
Let us first look at branded clothing products. Upon investigation it was realised that many international firms that started out as manufacturers have become marketing or branding firms. Quite a few such have in fact no production or manufacturing facilities at all but only look for products that they can associate their name with and have consumers purchase these products as being “originals”. A few years ago, I was fortunate enough to visit clothes manufacturing facilities across Southern Africa to see how these factories work and the products they manufacture. Imagine my surprise to find that the same factory is often the manufacturer for products that are branded differently. For example, one factory made socks and t-shirts that were practically the same in design and product quality and were branded for Edgars and Pep Stores respectively. Of course, when investigating the selling price, it was found that one store had a much higher selling price. Of course the companies involved explain that they have different customer types as well as the availability of credit at the upmarket store. While these arguments do make financial sense, the consumer is never informed that the different products originate from the same factory.
Another example that is starting to gain momentum for discussion is the high price of medicinal products that receive IP protection and provide huge profits to international pharmaceutical companies. In a sense, the high prices are justified for the amount of research costs, but does that imply that a poor consumer who cannot afford this price should be allowed to die? Many developing countries are looking at the high cost of medicine and introducing generic products (non-branded) at much lower prices to ensure each citizen has the right to quality medical care. It is necessary for Namibia to also start balancing the need for Intellectual Protection against the needs of its people.
In the past few decades, most consumer have started to question the high prices paid for “branded” products and have shown their willingness to but similarly branded products made in developing countries for much cheaper prices. In addition, with new technologies, many consumers are using the Internet and file-sharing services to get hold of digital products such as music and movies that would previously have to be bought but are now “shared” – with no costs to the consumer. Some consumers especially question products made by for example vehicle manufacturers and compare their prices to pirate products that seem to do the same job for a much lower price.
The World Intellectual Property Organization, WIPO, states that, “systems to protect intellectual property rights, currently in place across the world, have many loopholes that are being exploited by those producing fake goods, especially of well-known international brands. Counterfeit and pirate goods have huge negative economic and social impacts on any country and should be addressed collectively to stop or minimize losses.”
In Namibia recently there has been complaints by musicians and other artists that their copyrighted products have been copied or used without their permission. They have in their sights not only individual consumers, but also radio stations and the proliferation of jukeboxes throughout the country. They feel, quite correctly, that they have invested their time and money in producing a product (music, etc.) and other people are making money without giving them their fair share or reward for what is their Intellectual Property.
One of the main arguments for the protection of Intellectual Property (IP) is that without the financial incentive, artists and businesses would not invest in producing new products. In fact many businesses state that they would not invest in Research and Development (R&D) if they were not ensured IP protection.
While agreeing with WIPO and our local musicians, there is also a need to look at when a “pirate” or “generic” product can be of use to the consumer’s bottom line.
Let us first look at branded clothing products. Upon investigation it was realised that many international firms that started out as manufacturers have become marketing or branding firms. Quite a few such have in fact no production or manufacturing facilities at all but only look for products that they can associate their name with and have consumers purchase these products as being “originals”. A few years ago, I was fortunate enough to visit clothes manufacturing facilities across Southern Africa to see how these factories work and the products they manufacture. Imagine my surprise to find that the same factory is often the manufacturer for products that are branded differently. For example, one factory made socks and t-shirts that were practically the same in design and product quality and were branded for Edgars and Pep Stores respectively. Of course, when investigating the selling price, it was found that one store had a much higher selling price. Of course the companies involved explain that they have different customer types as well as the availability of credit at the upmarket store. While these arguments do make financial sense, the consumer is never informed that the different products originate from the same factory.
Another example that is starting to gain momentum for discussion is the high price of medicinal products that receive IP protection and provide huge profits to international pharmaceutical companies. In a sense, the high prices are justified for the amount of research costs, but does that imply that a poor consumer who cannot afford this price should be allowed to die? Many developing countries are looking at the high cost of medicine and introducing generic products (non-branded) at much lower prices to ensure each citizen has the right to quality medical care. It is necessary for Namibia to also start balancing the need for Intellectual Protection against the needs of its people.
If you want to make enemies, try to change something
(First appeared in New Era 20 May 2015)
This week, I take a quote from Thomas Woodrow Wilson (1856-1924) who was the 28th President of the United States of America (1913-1921). He held a PhD in Political Science and was the President of Princeton University (1902-1910). He wrote various books including a textbook used in colleges in which he argued that government should not be deemed evil and advocated the use of government to” allay social ills and advance society's welfare”.
The past week it was my privilege to have my ten year-old stepson staying with us during the school holidays. At one point, I was playing a game involving Star Trek characters and he asked what that was. I tried to explain but found that the generation gap of what we had watched on television was too broad. Nevertheless, it was good to again watch an episode together and hear the words “To boldly go where no man has gone before”.
The present Housing Crisis (yes it is a Crisis with a capital letters), needs bold actions to address the plight of the landless. No citizen can truly feel the rewards of Independence, without being able to state, “there is my home - it belongs to me”.
Let us look at some bold measures that could be enacted to help the Namibian consumer achieve that dream.
1. Create a National Mortgage Association. The NMA should provide banks with state money to finance home mortgages. This will raise levels of home ownership and the availability of affordable housing. The state should also regulate that at least 55% of these mortgages should be allocated to low- and moderate-income housing.
2. Rental income should be taxed. In many countries rental income is taxed on a progressive basis and helps to cap the greed of landlords. In Tanzania for example, rental income is taxed at 31.45% 0 definitely a barrier to capitalistic tendencies in the market.
3. Have higher property taxes for home owners with more than one property. This should also put a dampener on the view that individuals can become rich through renting at exhorbitant prices.
4. The lands register should be investigated and all companies (close corporations, etc.) should be taxed at a higher rate on residential properties if this is not their place of business. In other words, companies that own property for the purpose of residential leasing should be taxed higher to reduce the undue pressure on house prices.
5. Introduce a Capital Gains Tax (CGT) that will tax non-residents when they sell a property. This will help to reduce the number of foreign investors who see the Housing Crisis as an opportunity to make money through speculation of property. This can also be expanded to include companies owning property to reduce speculation by businesses in the home market. Namibia has the lowest rate of 0% compared with 25% and 40% in Botswana and South Africa respectively.
6. Remove price increasing legislative effects in the housing market. At present too many industries receive “infant protection” and other measures to allow them to increase their selling price without meeting competitiveness in the market. If, on the one hand we argue for a free market economy in housing, why do we introduce statutory false selling prices by giving infant protection to industries such as cement manufacturing? The prices in Namibia for many of the materials used in housing are high because of legislation within Namibia and the Southern African Customs Union (SACU). Creating jobs that do not allow the working population to own property will only continue the history of an indentured labour.
7. Establish a Rent Control Board. I have written about this in last week’s column and hope the readers have looked at the arguments put forth. The rent control should peg the amount of rent charged to the bond repayment such a property would have to repay.
The bottom line issue of the Housing Crisis remains: Without home ownership, a citizen feels like a foreigner in their own country.
This week, I take a quote from Thomas Woodrow Wilson (1856-1924) who was the 28th President of the United States of America (1913-1921). He held a PhD in Political Science and was the President of Princeton University (1902-1910). He wrote various books including a textbook used in colleges in which he argued that government should not be deemed evil and advocated the use of government to” allay social ills and advance society's welfare”.
The past week it was my privilege to have my ten year-old stepson staying with us during the school holidays. At one point, I was playing a game involving Star Trek characters and he asked what that was. I tried to explain but found that the generation gap of what we had watched on television was too broad. Nevertheless, it was good to again watch an episode together and hear the words “To boldly go where no man has gone before”.
The present Housing Crisis (yes it is a Crisis with a capital letters), needs bold actions to address the plight of the landless. No citizen can truly feel the rewards of Independence, without being able to state, “there is my home - it belongs to me”.
Let us look at some bold measures that could be enacted to help the Namibian consumer achieve that dream.
1. Create a National Mortgage Association. The NMA should provide banks with state money to finance home mortgages. This will raise levels of home ownership and the availability of affordable housing. The state should also regulate that at least 55% of these mortgages should be allocated to low- and moderate-income housing.
2. Rental income should be taxed. In many countries rental income is taxed on a progressive basis and helps to cap the greed of landlords. In Tanzania for example, rental income is taxed at 31.45% 0 definitely a barrier to capitalistic tendencies in the market.
3. Have higher property taxes for home owners with more than one property. This should also put a dampener on the view that individuals can become rich through renting at exhorbitant prices.
4. The lands register should be investigated and all companies (close corporations, etc.) should be taxed at a higher rate on residential properties if this is not their place of business. In other words, companies that own property for the purpose of residential leasing should be taxed higher to reduce the undue pressure on house prices.
5. Introduce a Capital Gains Tax (CGT) that will tax non-residents when they sell a property. This will help to reduce the number of foreign investors who see the Housing Crisis as an opportunity to make money through speculation of property. This can also be expanded to include companies owning property to reduce speculation by businesses in the home market. Namibia has the lowest rate of 0% compared with 25% and 40% in Botswana and South Africa respectively.
6. Remove price increasing legislative effects in the housing market. At present too many industries receive “infant protection” and other measures to allow them to increase their selling price without meeting competitiveness in the market. If, on the one hand we argue for a free market economy in housing, why do we introduce statutory false selling prices by giving infant protection to industries such as cement manufacturing? The prices in Namibia for many of the materials used in housing are high because of legislation within Namibia and the Southern African Customs Union (SACU). Creating jobs that do not allow the working population to own property will only continue the history of an indentured labour.
7. Establish a Rent Control Board. I have written about this in last week’s column and hope the readers have looked at the arguments put forth. The rent control should peg the amount of rent charged to the bond repayment such a property would have to repay.
The bottom line issue of the Housing Crisis remains: Without home ownership, a citizen feels like a foreigner in their own country.
A man’s home is his castle and fortress
(First appeared in New Era 13 May 2015)
The saying “A man’s home is his castle” is an old English proverb and is often attributed to Sir Edward Coke (1552-1634), an English jurist, member of parliament and writer, who used this principle to state that no one may enter a person’s home without permission.
The past two years I have been renting a double story flat in a complex close to the Social Security Commission. As my family has expanded to include a wife and baby I have had to start looking for a free-standing house or at least a flat without stairs as we fear our baby will be a little rough with his new walking ring. As I was looking through the various rental options, I once again realised that the price of rentals in Windhoek is going through the roof. This led me to look once again at the issue of rent control and its applicability in the Namibian situation.
The idea to enforce rent control is in place in at least 40 countries across the world. The idea of rent control is to promulgate laws or regulations that sets renting prices on residential housing as a price ceiling for certain types of accommodation. Generally speaking such laws dictate the frequency and degree of rent increases and is commonly indicated at a level less than the rate of inflation.
The arguments for rent control are a) a moral ground that housing is a human right which supersedes the property rights of a house owner. In this argument, the income a landlord may receive from a property should for example be no higher than 20% of a bond repayment for a house of this value; b) price control also gives the tenant the right to insist upon certain improvements being done on a minimum standard without the landlord being able to improperly adjust with higher rentals fees; and c) most importantly, the social dynamics of rent control (or to use the term correctly “rent stabilisation”), is an important one for consumer protection as the laws or regulations provide assurance to the consumer that they can maintain stability in their housing situation.
At present, there is a tendency among some landlords to insist upon an increase of 10% and sometimes higher from renters and they inform the renter to either pay this increased amount or move.
It has become painfully obvious that the main problem is not that rentals are increasing, but rather that the shortage of housing has led to there being many more people looking to rent than the number of houses available on the market. The local authorities have caused this problem through the slow speed of serviced land being available for new housing which has put a lot of pressure on potential home owners who now need to rent as there is no other option available. Thus the market is being skewed by the supply and demand equation that stipulates that prices will go up and where there is more demand than what can currently be supplied.
Thus looking at rent control and applying it in certain areas will help to keep the market in check, but in reality it is a solution that also has its downside. Most free market believers will point out that controlling rent leads to a reduction in the quantity and quality of houses available. While this argument is valid once all other factors are equal, we must realise that this could be short-term strategy to ensure that greed tendencies do not lead to the further impoverishment of our consumer especially in the lower and middle income families.
Perhaps a new debate should take place to talk not about land (as in farmlands) but rather a discussion of how to increase the availability of housing (a man’s castle) to more of our people.
The saying “A man’s home is his castle” is an old English proverb and is often attributed to Sir Edward Coke (1552-1634), an English jurist, member of parliament and writer, who used this principle to state that no one may enter a person’s home without permission.
The past two years I have been renting a double story flat in a complex close to the Social Security Commission. As my family has expanded to include a wife and baby I have had to start looking for a free-standing house or at least a flat without stairs as we fear our baby will be a little rough with his new walking ring. As I was looking through the various rental options, I once again realised that the price of rentals in Windhoek is going through the roof. This led me to look once again at the issue of rent control and its applicability in the Namibian situation.
The idea to enforce rent control is in place in at least 40 countries across the world. The idea of rent control is to promulgate laws or regulations that sets renting prices on residential housing as a price ceiling for certain types of accommodation. Generally speaking such laws dictate the frequency and degree of rent increases and is commonly indicated at a level less than the rate of inflation.
The arguments for rent control are a) a moral ground that housing is a human right which supersedes the property rights of a house owner. In this argument, the income a landlord may receive from a property should for example be no higher than 20% of a bond repayment for a house of this value; b) price control also gives the tenant the right to insist upon certain improvements being done on a minimum standard without the landlord being able to improperly adjust with higher rentals fees; and c) most importantly, the social dynamics of rent control (or to use the term correctly “rent stabilisation”), is an important one for consumer protection as the laws or regulations provide assurance to the consumer that they can maintain stability in their housing situation.
At present, there is a tendency among some landlords to insist upon an increase of 10% and sometimes higher from renters and they inform the renter to either pay this increased amount or move.
It has become painfully obvious that the main problem is not that rentals are increasing, but rather that the shortage of housing has led to there being many more people looking to rent than the number of houses available on the market. The local authorities have caused this problem through the slow speed of serviced land being available for new housing which has put a lot of pressure on potential home owners who now need to rent as there is no other option available. Thus the market is being skewed by the supply and demand equation that stipulates that prices will go up and where there is more demand than what can currently be supplied.
Thus looking at rent control and applying it in certain areas will help to keep the market in check, but in reality it is a solution that also has its downside. Most free market believers will point out that controlling rent leads to a reduction in the quantity and quality of houses available. While this argument is valid once all other factors are equal, we must realise that this could be short-term strategy to ensure that greed tendencies do not lead to the further impoverishment of our consumer especially in the lower and middle income families.
Perhaps a new debate should take place to talk not about land (as in farmlands) but rather a discussion of how to increase the availability of housing (a man’s castle) to more of our people.
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