A cap on profit margins, the government’s new idiocy

In Tunisia, economic operators no longer know which foot to dance on. The rules are constantly changing and the operators have no visibility, which explains the decline in domestic and foreign investment since the revolution. While the crisis is in full swing, the economy is difficult with imported inflation due to rising international prices, the Ministry of Trade deals a new blow to the operators and puts a cap on their profit margin.

The information may seem harmless or even excellent, but it is not because it is actually an anti-productive decision. Explanations.

The Ministry of Trade and Export Development, in a notification on Monday, July 4, 2022, announced a cap on profit margins for certain consumer products of 8% at the wholesale level and 14% at the retail level details, with differences depending on the product after consultation with professionals.

The cap concerned mineral water, beverages, juices, vegetable oils, preserves, household products and hygiene products.

But according to the Ministry of Commerce’s website, price policy in Tunisia is regulated by Law 64-91 on competition and prices. This law establishes the freedom of prices as a general principle, prices are determined by competition on the market. However, Tunisian regulations, which take into account the state of competition and the sensitivity of the products to the consumer, contain two pricing schemes: approval and self-approval.

The scheme for price approval is the administration’s prior determination of the price level or their variation based on the company’s costs and accounting documents. The system of self-approval of prices is that the company itself, at the distribution stage, sets the sales prices by applying a margin rate to the cost price determined by a decision made by the Minister of Trade.

For its part, Article 1 of Chapter 1 of Law No. 2009-69 of 12 August 2009 regarding the distribution trade provides: This law lays down the rules for the exercise of distribution business, according to which freedom is the principle and authorization is the exception. It aims in particular to modernize and upgrade the commercial sector and ensure a balance between the various players in the sector. “. It is thus clear that pricing remains an exception.

The World Trade Organization advocates the establishment and promotion of fair trade competition.

Is setting margins a good thing? To some extent, no, because it favors operators over others: if they are not the same size, some will be able to cover their expenses (production costs, taxes, investments, wages, etc.) but others will not.

In this context, we can quote opinion-CC-FR-A-1-19 of the Moroccan Competition Council, which advises against the Moroccan government’s draft decision to limit profit margins for liquid fuels. ” Inappropriate, ineffective, not sufficient, not well-considered, with limited effects that in no way guarantee the preservation of citizens’ purchasing power and social justice, even discriminatory “, the chairman of the council, Driss Guerraoui, had estimated during a press conference, the Moroccan newspaper Hespress reported on February 15, 2019.

The board had, however, promised to take a position on possible anti-competitive practices.

Concretely, the institution believed that the public control of margins “is not going to change the reality of prices” and, correlatively, “will not lead to protecting the consumer and preserving his purchasing power”. She managed the cap “discriminatory” because there is a risk of penalizing small and medium-sized operators who would see their vulnerability increase and give “a bad sign” to the market and disrupt operators’ visibility.

It must be said that the first thing an investor looks for is political stability and visibility. But in Tunisia these two factors are not guaranteed. The rules change frequently and the operators no longer know which foot to dance on.

Investors need to know their profit margin, to know how to develop: which makes it possible to create jobs and prosperity, for society, but also for the state (tax and tax).

On Monday, June 6, 2022, the Arab Institute of Business Executives (IACE) pointed out that no application text has been published on the twelve planned for activation of the measures of the 2022 Finance Law. Ditto, and after 60 days from the announcement of the economic recovery plan on 1eh last April, only one presidential decree on one measure out of the 42 announced was published, the institute notes.

Specifically, and referring to figures from official institutions, declared investments have fallen by almost 22.95% in two years, and foreign investments have fallen by 2% compared to 2019 (reference year before the pandemic). This can only have a negative impact on employment, tax collection and of course value creation (GDP).

Fixing profit margins is anti-productive and promotes anti-competitive and anti-market practices, especially when inflation is imported and commodity, food and hydrocarbon prices are under significant pressure in the international market, and domestic market demand is at the same time constrained. After this economic model has shown these limits, the Ministry of Commerce should strive to find new models that allow operators to develop freely, but at the same time guarantee the consumer good value for money, all thanks to the promotion of fair competition.


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