New amendments to South Africa’s Competition Act, introduced last week, aim to open to economy to more new entrants – but they won’t ban economic concentration.
The draft bill was gazetted for public comment for 60 days (see it here), on Friday December 1, by Economic development Minister Ebrahim Patel (pictured above).
It follows advice received from a panel of legal and economic experts (see this earlier post) on how competition legislation can be sharpened to help open the economy to more small businesses and black entrepreneurs,
A recent analysis by the Competition Commission of 2,150 merger reports between 2009 to 2016 found that 70% of 31 economic sectors analysed are dominated by firms that hold more than 45% market share in that sector.
The existing Competition Act does not enable the Competition Commission or the Competition Tribunal to address concentration, but only collusion and market abuse, notes a memorandum attached to the bill.
Two options to regulate concentration
In the memorandum, the department notes that there were two options to regulate market concentration.
The first approach is to have predefined thresholds of concentration or untransformed ownership profiles, which if reached, would trigger measures to de-concentrate the market or restructure firms or a combination of both measures.
The memorandum however does not reveal what these measures are.
The second approach – which the department and experts favoured – is to opt for an evaluation of concentration, largely through the use of market inquiries.
The department argues in some cases economic concentration is a necessary feature in certain sectors where economies of scale are required. Furthermore the outlawing of concentration would not necessarily induce entry or lower barriers to entry for firms.
Banning market concentration would also difficult to implement because it would require the setting of thresholds of concentration in multiple specific product and geographic markets, which would have to be based on a prior detailed analysis of each market.
In addition there is no international precedent in either competition law or economics for outlawing concentration and ownership profiles without reference to the anti-competitive effects of abuse of dominance, or for that matter, merger control.
There was also some concern - voiced by commentators in a newspaper article on Sunday - that in the wrong hands, a ban on economic concentration could be used by politicians to meet their own means.
The department instead proposes to strengthen provisions of the act that prohibit collusion, abuse of dominance and price discrimination should be strengthened.
Among others these include for instance guidelines on how to determine excessive prices and making it unlawful for dominant firms from requesting suppliers to set the sale of their goods or services at excessively low prices.
The bill also creates a mechanism for stopping “creeping concentration”, where companies acquire competitors slowly.
Getting dominant firms to back SMEs
Through the bill the department envisages that market inquiries (which will have to be wrapped up within 18 months) will become the chief mechanism for analysing and tackling the structural problems in a market.
Linked to this, the Competition Commission and Tribunal will be able to make an appropriate order regarding any condition relating to the merger. For instance it may rule on jobs to be retained or black small firms to be assisted.
The state wants to adopt the same approach it used for the Wallmart-Massmart merger in 2011 - where on condition that the deal was okayed Wallmart was made to set up a programme to develop local suppliers and guarantee the jobs of workers (see this post).
Similarly the 2015 merger involving ABInBev and SABMiller was approved on provision of support to small businesses - with R1 billion ($73m) to be disbursed over a period of five years to black farmers and suppliers (revealed in the Competition Commission latest annual report).
The idea then is to investigate markets and then force big dominant companies to provide support to small, mostly black firms,
This is perhaps a more wise and measured way to go about things, and black small businesses could ultimately benefit from more access to markets, funding and support. But only if it also leads to more jobs - that will be the crunch.
Timm is a South African who writes on small business in emerging economies. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a