Competition body says it expects many mergers due to Covid-19 crisis
The financial crisis caused by the pandemic is expected to put large, mature and cash-flush firms in a prime position to buy out their competitors
The Competition Commission is reviewing its merger control procedures to better manage an expected deluge of merger applications expected to be brought about by the economic consequences of the Covid-19 pandemic.
The financial crisis caused by the Covid-19 pandemic is expected to put large, mature and cash-flush companies in a prime position to buy out their competitors. The commission says it expects consolidation in various sectors such as the aviation industry, which has been hit hard by the pandemic.
The commission is an independent statutory body, mandated to investigate and evaluate markets, restrictive business practices, abuse of dominant positions and mergers and acquisitions.
James Hodge, chief economist at the commission, told MPs during a virtual meeting of parliament’s trade and industry portfolio committee that the organisation would look at boosting control procedures to better manage the expected surge in applications for mergers.
Zoning in on the airline industry, Hodge said the failure of many airline operators such as SAA and Comair could leave SA with fewer airlines, and thus consumers would be likely to have to pay more for tickets. He said, however, airlines can easily emerge from liquidation and re-enter the market as soon as the economy was on the road to recovery. The commission would thus ensure that there were no barriers to entry as part of measure to support hard-hit sectors, Hodge said.
Competition Commission commissioner Thembinkosi Bonakele said the health crisis was likely to affect market dynamics leading to an increase in market concentration as firms exit.
“There will be a lot of consolidation and thus a need to refocus competition regulation to lower barriers and promote access to markets for small and medium-sized enterprises and historically disadvantaged individuals,” Bonakele said.
He said while protecting consumers against price increases and abuse, the commission was also working to help firms survive the pandemic.
“We have therefore provided exemptions to allow them to do things that would have otherwise been regarded as transgressions,” Bonakele said.
The exemption regulations published include the healthcare sector — relating to co-ordinating a supply response for essential health services and products; the banking sector — relating to debt relief measures; retail property industry — to collectively negotiate for rental relief measures; and the hotel industry — co-ordinating on supply of space for potential quarantine premises.
FF Plus MP and trade and industry spokesperson Jaco Mulder said the commission should carefully assess and keep a close eye on the formation of new monopolies so as to prevent further job losses.
“The compulsory Covid-19 lockdown, which has been enforced in SA for the past eight weeks will inevitably lead to mergers between companies where business rescue is no longer an option,” Mulder said.
A balance must be found to prevent the formation of unhealthy monopolies and stimulating and protecting the economy, he said. “Unhindered competition without any government interference is what is needed in SA trade to stimulate a competitive economy,” Mulder said.