Competition Commission in hot water once again
The entity is back in the firing line over dodgy procurement practices but Patel’s support is unwavering
The auditor-general’s (AG) finding that R128m of the competition commission’s 2017/2018 expenditure was irregular has put it back under the spotlight.
It also raises the question as to why economic development minister Ebrahim Patel — who declined to institute an inquiry after an FM exposé in July – continues to praise the commission.
The FM reported that all was not well at the commission after being tipped off by a whistleblower about bubbling dissatisfaction among its staff, the legal fraternity and the business community.
Sandton lawyers alleged that the Bryanston firm Ndzabandzaba Attorneys, run by a former commission employee, was being handed a disproportionate amount of cartel work, while at the commission’s Pretoria head office, allegations swirled about nepotism and favouritism in appointments.
There were also mutterings over the commission’s top four executives being chauffeured by bodyguards in a fleet of BMWs.
A spate of court judgments against the commission — for lying to obtain search warrants, failing to abide by its rules and ignoring legal precedent in the high-stakes foreign-exchange case against 23 banks — appeared to confirm that it was becoming increasingly high-handed towards business.
The accusations of favouritism regarding Ndzabandzaba proved well-founded too. It was revealed that the firm had received 27% of the outsourced cartel work over the preceding 18 months, for which it had received R10.5m, or 63% of all the fees paid out, suggesting it was well remunerated.
At the time, the commission dismissed these complaints as opposition politicking, given that DA MP Michael Cardo had asked Patel for an independent inquiry — a request he has so far declined to acknowledge.
However, according to the AG’s report, the irregular expenditure of R128m incurred by the commission during 2017/2018 included R51.3m relating to supply-chain management irregularities. The commission did not follow proper tender and procurement processes for dawn raids or in the use of forensic, legal and economic experts in the prosecution of cases.
Moreover, the commission’s case-related legal costs climbed more than 80% to R85.2m in 2018 compared to R46.7m the year before. In the same period, its security costs soared from R1m to R16m.
Overall expenditure rose 15%, or R54m, resulting in a R69m deficit for the 2017/2018 financial year.
This was on top of the previous year’s R78m deficit, which all but wiped out a surplus built up over many years. The commission’s total liabilities now exceed its assets by almost R35m.
"The AG’s findings underscore that there’s a growing culture of arrogance and unaccountability at the commission," says Cardo. "There’s increasing disregard for supply-chain management regulations and it would seem that an inner circle of favoured courtiers is channelling most of the forensic and legal advisory work without proper procedures being followed."
The commission’s audit committee prefers to see the institution as a victim of a growing workload and mandate, claiming management took "extraordinary measures" to limit the deficit by scaling down case work, curtailing noncritical activities and insourcing.
To be sustainable, the commission will need a bigger budget or will have to curtail costs and/or its competition enforcement activities. However, the Competition Amendment Bill currently before parliament will give it greater powers and responsibilities for which it will require even more resources.
The existing Competition Act doesn’t enable the authorities to address high levels of concentration that exclude small business and black people from the mainstream economy, only collusion and market abuse. To remedy this, the bill provides mechanisms to address concentration, including through enforced divestiture.
The idea that the competition authorities could soon be ordering large firms to break up, to stimulate competition, alarms some economists since the potential for unintended consequences is high.
The legislation is Patel’s brainchild. He acknowledges that it will require that the commission "retools itself" and "builds strong capacity in economic analysis and law". He has increased its budget by 21% to R268m — roughly a quarter of his department’s 2018/2019 budget.
The DA is uneasy about the latitude the bill gives the authorities to intervene in market structures. According to Cardo, it’s "being rammed through parliament with unseemly haste".
On Tuesday, DA members walked out of the portfolio committee considering the bill when the chair, Elsie Mmathulare Coleman, tried to prevent them from posing questions to Patel.
Patel fails to acknowledge problems around the commission in either his budget vote speech or his foreword to its 2017/2018 annual report. He enumerates only its successes: 146 cartel cases investigated, R354m levied in penalties, public-interest conditions imposed on 32 mergers, 76,000 jobs saved (see graphic).
Though its achievements are laudable, they are being be undermined by the commission’s dodgy procurement practices and precarious budgeting. If it expects corporate SA to be squeaky clean it will have to clean up its own act.