OPINION: Competition law overhaul could ignite economy
IOL / 22 AUGUST 2018 - 13:00 / DR THAMI MAZWAI
JOHANNESBURG - Suggested amendments to competition policy could, if adopted and implemented, revitalise black economic empowerment and the small business sector and set the country on a remarkable growth trajectory.
Minister Ebrahim Patel’s Economic Development Department (EDD), under which competition institutions and policy fall, has recommended far reaching amendments and which, more importantly, address what the law calls public interest.
Minister of Economic Developmemt Ebrahim Patel at a media briefing. Picture: Etienne Creux
Public interest specifically refers to employment creation and the development of the small business sector, and is a radical departure in competition law from the conventionalism in other jurisdictions. This public interest is an urgent necessity as, in terms of the latest figures from Statistics SA, the unemployment rate has shot up to 27.2percent.
The broad unemployment rate for black Africans is 41percent and for whites 8percent; while for coloureds it is at 29percent and for Indians at 15percent. Inequality is stark as the World Bank (2018) reports that household wealth held by the top 10percent was 71percent, while the bottom 60percent held 7percent of net wealth.
It is these frightening figures that have prompted the government to boost the tempo of interventions to remedy the situation. It is using the three levers in its control, and they include competition policy, the basis of this article; and the other two are procurement and black economic empowerment policies.
To contextualise the approach by Patel’s EDD and delve into the public interest imperative much more deeply; the World Bank, IMF and the Organisation for Economic Co-operation and Development have at different times decried the levels of concentration in our economy. High concentration levels mean sectors have dominant players, sometimes two or three, and these make entry impossible because of vertical and horizontal linkages.
The Competition Commission has released numerous reports on collusion and uncompetitive behaviour which, arguably, is a direct consequence of these levels of concentration. Apart from the impact these have on the poor, and as indicated earlier, this collusion and uncompetitive behaviour also crowds out new entrants and other small businesses, mostly black owned.
In its latest report the commission revealed that three hospital groups, Netcare, Mediclinic and Life have a combined market share of 83percent of the national private healthcare market in terms of number of beds, and 90percent in terms of total number of admissions.
The litmus test for our post-democracy economy is not necessarily only the presence of black shareholders in major companies, including those listed on the JSE. It is also the extent to which black-owned small to medium companies are a formidable force in the economy in general. After all, this is where skills development and job creation take place and, more potently, entrepreneurship and innovation are unleashed.
Unsurprisingly, the latest report by Zodwa Ntuli’s BEE Commission confirms the above in terms of companies being committed to black economic empowerment. The report reveals that 60percent of major companies were between being outrightly non-compliant (level 8) or compliant to mostly level five. Only 5percent of large companies were level one, which is the highest.
Those who are 100percent non-compliant are a little above 27percent. It must also be considered that, as less than 30percent of major companies submitted reports, the situation could even be worse. More depressing levels are reflected in the medium-sized companies, the so-called Qualifying Small Enterprises, but this analysis is for another day.
Patel’s suggested amendments will be a massive shot in the arm and, to say the least, very, very welcome. Furthermore, and if truth be told, and as Ben Turok argues in his book ANC Economic Policy; when the ruling party took power in 1994 it, rightly or wrongly, enacted policies that avoided a backlash from domestic and international capital.
Thus, so-called internationally accepted economic fundamentals, in other words neoliberalism, became the narrative. Yesteryear’s Growth, Employment, and Redistribution policy is testimony.
There is nothing wrong with neoliberalism, as we are in a global environment which will have norms and practices, but, as any other approach, it also has its downsides. The most important downside is that market driven policies strengthen the incumbents.
Hence, policies must always be based on the realities on the ground, rather than some airy fairy “trickle down” assumption. Deviations must also be factored in, so that policies are tailored to suit the voter, and not internationalism.
This dogmatic adherence to neoliberalism accounts, but not exhaustively, for the low levels of economic transformation and the dire poverty, unemployment and inequality that runs rampant, more so in black areas. While some may argue that investors may become wary of a turbulent environment with daily protests, because economic marginalisation definitely stops investors from coming in. Finish and klaar.
To get into the discussion on the amendments to competition policy, they are what the doctor ordered in terms of the realities on the ground. Firstly, they will eliminate unfair price discrimination or excessive pricing by dominant firms. This dominance makes it hard for small and medium businesses to compete.
When this dominance is linked to the Preferential Procurement Policy Framework Act, black aspirants are knocked for a six.
Other abuses by large firms like predatory pricing (when dominant firms lower their prices below reasonable economic levels to force competitors out of the market), margin squeezes (when dominant firms who operate across the value chain use their position to manipulate prices in the different markets in which they compete to force competition out), and refusing to supply scarce resources are also routed out by the amendments.
The bill also has provisions which make it easier for the authorities to exempt collaboration between small and medium businesses to enable industrial expansion and better aggregate employment.
The Competition Commission has been given teeth to deal with errant companies and fines could be at 10percent of turnover even for a first offender, and as much as 25percent of turnover for repeat offenders.
Finally, it is hoped the EDD will take another look at horizontal linkages, in other words, the control of value chains by major entities. For instance, small black publishers have to compete with publications owned by their printers and distributors. This is patently unfair, given the fact that these small publishers indirectly subsidise the publications owned by the major company.
For black entrepreneurs the amendments are like manna, and this could then be the start of effective economic restructure that could see more blacks in the economy. South Africa needs more such fire power.
Dr Thami Mazwai is a member of the Black Economic Empowerment Advisory Council, but writes in his personal capacity.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER