South Africa's Department of Economic Development plans to amend the Competition Act to give new entrants easier market access. But how exactly will the state do it?
The announcement is contained in a briefing note released on Thursday May 25, by the Economic Development Minister Ebrahim Patel.
In the note Patel says the proposed amendments will seek to incentivise firms to develop relationships and adopt strategies that would "reduce concentrations by encouraging entry of historically disadvantaged South Africans", lower barriers to entry, and expand business ownership to more South Africans.
It follows an announcement by President Jacob Zuma in his State of the Nation Address in February that the economic development department will introduce legislation to amend the Competition Act.
An advisory panel has been established to develop the draft amendments. The panel members are: Advocate Michelle Le Roux, Law partner Doris Tshepe, Competition Commission chief economist Liberty Mncube, Academic Professor Imraan Valodia.
Patel expects the panel will submit a report within the next six weeks to his ministry.
More than 20 years since the end of apartheid, South Africa's economy continues to be dominated by a few, mostly white-owned firms.
In his State of the Nation Address Zuma said only 10% of the top 100 firms on the Johannesburg Stock Exchange (JSE) are owned by black South Africans, directly.
While it’s difficult to get a gauge of real black business ownership, figures from the Finscope 2010 Small Business Survey suggest that while the overwhelming majority of business owners are black (92%), most of these firms are unsophisticated, employ few people and have few assets.
Where almost 14% of businesses owned by white people employ five or more people, just two percent of black-owned firms have five or more employees.
South Africa's competition authorities have been relatively active in prosecuting cartels and other market misdemeanours.
Of late competition authorities have stepped up investigations of alleged cartels in various market sectors. They have also ordered that part of the fines levied on firms found to have been in breach of Competition Act must be used to support the entry of new black firms.
The latest is satellite channel DSTV which must spend R8 million ($600,00) over three years on helping black media firms.
In May last year a measure to criminalise cartels came into force (see this post).
Some argue however that the measure will limit the ability of authorities to investigate market collusion as the competition authorities rely on whistle blowers coming forward. Few will do so if they risk facing criminal prosecution.
In addition a 2003 report by the OECD (at a time when about half a dozen countries had criminal penalties against individuals) said there was no evidence proving the deterrent effects of criminal or monetary sanctions on individuals.
'Focus on inputs'
Regulation should perhaps focus on opening up access for entrants to key inputs and facilities that companies need to compete successfully, argues a 2015 review paper by the Centre for Competition, Regulation and Economic Development.
The centre, which has since 2015 been running a research project for The National Treasury on barriers to entry for firms, also notes in the review that industrial policy support tends to favour certain companies and can therefore entrench incumbents, which may impose barriers to entry.
In this way the government's current controversial programme to fund black industrialists, (see this post) may simply result in the creation of a few large incumbents that could risk shutting other competitors out too.
Better would be to improve the quality of overall support and funding initiatives to all firms, mainly small businesses.
BEE let down
Yet the state's Black Economic Empowerment (BEE) policy, aimed at fostering more black managers and entrepreneurs has arguably failed to open the market to more black firms.
In many instances BEE has created a rent seeking black shareholder class who take equity in large firms, instead of doing more to aid new black firms to enter the market.
The government however might begin to see some improvements. New BEE codes of practice, which came into effect in May 2015, incentivise private sector companies to support and fund black suppliers.
A set-aside encouraging government departments, municipalities and state entities to set aside 30% of large contracts over R30m ($2.2m) in size to small businesses (see this post), might also free up the market. This may be a start.
More difficult will be to help more black entrepreneurs to grow their firms and innovate so that they can take on the few existing firms that dominate the market.
This may go someway to combat the concentrated markets, which Patel says "feed a growing resentment among black South Africans of the "failure to realise the promises made by the Competition Act".
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a