Ebrahim Patel. Picture: FINANCIAL MAIL
Ebrahim Patel. Picture: FINANCIAL MAIL

A new provision recently introduced into the Competition Amendment Bill will make it possible for the minister of economic development to intervene in mergers regarded as affecting the national security interests of the republic.

This is despite the economic development department last year rejecting such a measure which is practised elsewhere in the world.

The clause is expected to add complexity to the decision on whether to approve or reject mergers.

However, as the final version of the bill has not been gazetted, it is not possible to assess how it would define national security interests and how the minister’s intervention will take place.

The new clause was introduced into the bill by Economic Development Minister Ebrahim Patel in negotiations within the National Economic Development and Labour Council (Nedlac) in the past few months.

It has echoes of US President Donald Trump’s decision to impose tariffs on aluminium and steel imports in the interests of "national security".

The proposed amendments to the act expand the ambit of the competition authorities to include market concentration which can lead to higher prices and lower growth, as well as stunting investment and innovation

The clause comes despite the existing act allowing Patel to intervene in mergers and impose conditions. This includes Walmart’s merger with Massmart, AB Inbev’s tie-up with SAB Miller and Coca Cola’s merger of its three bottling plants.

Cabinet approved the bill last week and Patel gave notice in the Government Gazette on Friday that it would now be presented before Parliament.

However, the introduction of the clause allowing the minister to intervene in mergers affecting national security interests represents an about-turn in Patel’s view.

It contradicts the view presented by him and his department in the background notes to the bill published when the draft law was first gazetted for public comment in December last year.

These notes recognised existing international precedent for giving the executive an effective veto power over mergers. The US, UK, Canada and Australia have such provisions.

In such a system the minister could be given the right to review merger decisions on specified grounds, such as the effect it would have on employment, small business and black-owned businesses.

This view took into account the fact that "there is insufficient alignment of competition-related processes and decisions with other public policies, programmes and interests and with the policies that voters embrace through the democratic process".

However, the department rejected this approach which it said had a number of problems.

"First, it might create a high level of uncertainty through the introduction of a dual approval system centred on the one hand in the regulator and on the other hand the executive.

"Second, it argued that the separation of competition and public interest issues into two unconnected processes could make the development of innovative solutions that affect both sets of considerations more difficult to craft.

"Third, the department said the possibility of improper considerations that falls outside the scope of the act being applied in a merger would be higher when one process was simply a political decision that was not subject to the same transparency and engagement that would be the case in a public-, regulator-led process.

"Finally, the dual approval system might lengthen and delay consideration of mergers."

The department opted in the notes to keep decision-making processes within the competition authorities but to provide the minister with a more effective means of participating in competition-related inquiries, investigations and adjudicative processes.

The latest version of the bill adopted by Cabinet gives the minister both powers. Patel’s notice of the bill said it would among other things "facilitate the effective participation of the national executive within proceedings contemplated in the act, including making provision for national executive intervention in respect of mergers that affect the national security interests of the republic".

The proposed amendments to the act expand the ambit of the competition authorities to include market concentration which can lead to higher prices and lower growth, as well as stunting investment and innovation. Concentration also made it difficult for new players, especially black South Africans, to get into the economy. The existing act allows only the competition authorities to address collusion and market abuse, not concentration.

The competition authorities would be required to scrutinise market concentration when considering mergers, prosecuting abuse of dominance cases and conducting market inquiries.

The bill proposes to empower the commission to impose remedies, if necessary, to open these sectors to new competitors if it finds that the level of concentration is leading to anti-competitive outcomes. Inquiries into the racially skewed pattern of ownership would also be possible.