Hilary Joffe Editor-at-large
Ebrahim Patel. Picture: MARTIN RHODES
Ebrahim Patel. Picture: MARTIN RHODES

Economic Development Minister Ebrahim Patel announced proposed changes to SA’s competition legislation that aim to open up markets to new small businesses, particularly black-owned businesses, rather than relying for transformation on the transfer of stakes in existing businesses to black owners.

The amendments will empower the Competition Commission to launch market enquiries into sectors which are dominated by just a handful of large firms and to impose remedies, if necessary, to open these sectors to new competitors.

They will also require the competition authorities to take market structure into account when they scrutinise mergers, or alleged cartel activity.

Patel announced the package of proposed amendments to the Competition Act on Friday, delivering on the undertaking he had made earlier in 2017 to put measures in place to  tackle SA’s high levels of economic concentration to  drive inclusive economic growth and transformation.

"This is a bold proposal to place market concentration within the framework of the Competition Act, but to do so in a manner which is sustainable from a growth perspective," Patel said in an interview.

Concentration was a complex economic issue and the government could not simply prohibit it, he said. However, it led to higher prices and lower growth and could stunt investment and innovation.

Concentration also made it difficult for new players, especially black South Africans, to get into the economy, effectively excluding large numbers of black South Africans from the opportunity to run successful enterprises and limiting the talent pool of entrepreneurs on which the growth potential of the economy relied. "Our view is that black and white south Africans need to get more into the economy by way of new start-ups, new products and fresh ways of doing things, and that requires that markets be opened up," Patel said.

"Instead of the principal focus being on transferring shares in existing companies, this is about opening opportunities for new companies." he said.

A study by the Competition Commission found that nine of SA’s economic sectors were highly concentrated, measured by international benchmarks, with communication technology, energy, financial services and food and agro-processing top of the list.

The proposed amendments to the competition legislation will extend the commission’s existing market enquiry powers, setting out the triggers for it to investigate the structure of markets, and giving it the power to impose "reasonable and practicable" remedies tailored to the findings if it finds that the level of concentration is leading to anticompetitive outcomes. Companies will, however, have the automatic right to appeal against the commission’s findings to the Competition Tribunal.

The legislation will also impose more discipline on the market enquiries conducted by the commission, which tend to become lengthy affairs mired in legal contestation.

 The challenge of dealing with concentration could not be left to the competition authorities alone and the state had to put a coherent package of measures in place

The commission will be able to go after highly regulated sectors or those dominated by large state-owned entities.

The proposed amendments expand the public interest grounds in merger cases, requiring that the competition authorities consider the effect of a merger on levels of economic concentration and its causes, as well as on the ownership structure of the market, particularly black ownership.

Action against cartels and dominant firms will include consideration of levels of concentration and transformation.

Patel said he had rejected the option of creating a new law and new institutions to tackle concentration and had instead used the potential within the Competition Act to do this. However, the challenge of dealing with concentration could not be left to the competition authorities alone and the state had to put a coherent package of measures in place, including in areas such as procurement policies, licensing regimes and support for small business, he said.

The competition authorities would also require more resources to pursue enquiries, including not just money but technical expertise too, and his department had started discussions with universities to see what could be done to build more competition skills.

joffeh@businesslive.co.za

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