Category: competition policy

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competition competition policy economic policy industrial inputs political economy

Fifteen years of competition regulation in post-apartheid South Africa

Photo: Chris Kirchhoff, MediaClubSouthAfrica.com
Photo: Chris Kirchhoff, MediaClubSouthAfrica.com

This month the Competition Commission, Competition Tribunal and Competition Appeal Tribunal celebrate fifteen years of pursuing the ideal of fair and efficient markets in South Africa.
A look back on one of the most ground-breaking cases the Commission has taken on, known as the Hazel Tau case, which saw the price of antiretrovirals from global manufacturers brought down:

Today, over a decade since lodging that complaint, Tau works for a research programme in health economics at Wits University.

But at the time, the victory at the Commission was bitter-sweet. Many of Tau’s comrades and colleagues lost their lives before antiretrovirals became affordable and widely available.
Read more at enca.com
The authorities’ main anniversary featured Ebrahim Patel, Minister of Economic Development, as keynote speaker.

 

Patel will also consider the extent to which the law, as it stands, allows the competition authorities to break up giants that behave anti-competitively. The pricing practices of dominant firms will also be under scrutiny, to see if amendments are needed to deal with pricing practices considered harmful.

Read more at enca.com
The South African Venture Capital Association is holding a masterclass on merger control on 18 September, following one on abuse of dominance held on the 11th. For a brief Q&A with the convenor of the masterclass, go to www.savca.co.za

 

In tough economic times employment security and protecting consumers’ pockets take on a heightened importance. In mergers, potential job losses especially amongst unskilled and semi-skilled workers, who earn lower incomes, will be of concern. I also expect to see a greater focus on abuse of dominance, in other words single-firm behaviour as opposed to cartels. Recent successful abuse of dominance cases such as Telkom and Sasol set the framework for future investigations.

An opinion piece at Business Day with a focus on excessive pricing, with reference to the recent Tribunal ruling against Sasol:

 

In short, local plastics manufacturers pay an import parity price for polypropylene, the most significant input in production. This is in a market context where there is a greater supply of polypropylene than local manufacturers can absorb. Sasol Chemical Industries exports about half of its production to international markets, notably Asia, where it charges a lower price to manufacturers in those markets. It’s also worth noting that Sasol Chemical Industries is globally a low-cost producer of the input as it enjoys a special cost advantage due to the state’s historical investment in and support for the company.

 

The tribunal heard that the firm’s pricing practice has stunted plastics manufacturers, who are rendered unable to compete with their international counterparts.

 

Categories
competition policy economic development economic policy political economy wealth

The path to riches is paved with crony capitalism

In the wake of the Public Protector’s report on Nkandla, many of us are reflecting on the type of society we have become. What the report reveals, in line with many other scandals, are the dysfunctions that may emerge in the relationships formed between private service providers, and public sector officials and politicians. The Economist just last week ran with a cover story on ‘The new age of crony capitalism’ based on an index it had created of countries that are friendly to that form of wealth accumulation.

Full article at Daily Maverick: The path to riches is paved with crony capitalism
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competition competition policy entrepreneurship

Competing on merit, not handicaps

Unedited version of my column in yesterday’s Business Report: link to published version

Thinking about how South African companies compete in the marketplace, two conversations come to mind: one with a private equity veteran and another with a business science student. Over a cup of coffee, I remind Antony Ball of a talk that he gave a few years ago at Deloitte Consulting where he lamented the lack of competition in South African industry. He describes some of the behaviour that he saw in his career as a ‘small mining town culture’; where the prevailing impulse is to undermine one’s competitor, cut off their supply lines, tie up customers, and generally make it difficult for them to function. Competition becomes about how to handicap the competitor in tactics that do not add much value, not how to improve one’s own offering to serve the customer better.

Soon after hearing Antony Ball’s speech, I joined the Competition Commission. The case load of the competition authorities is a dispiriting catalogue of the many ways in which South African businesses shun merit-based competition. Some companies simply refuse to compete at all and form cartels. The bread and construction cases are well-known examples. Other companies seek to gain market share by engaging in behaviour that robs rivals of the opportunity to compete on a level playing field and ultimately deny customers the benefits of competition. Notable prosecutions for abuse of dominance include those against Telkom and South African Airways.

South African analysts pay disproportionate attention to labour market rigidities relative to those in product markets. It is often international institutions, like the OECD and the IMF, that consistently point to the high cost base that results from concentrated markets lacking competitive dynamism. This is not an issue of business versus government. Financing business, including start-ups, in such an environment, becomes a very risky proposition. It’s not only consumers that suffer, but investors too, who have to draw their returns from a limited pool of companies in a stagnant economy.

This brings me to the business science student. She asks me to set aside my ‘enforcement’ hat for a moment and don my ‘MBA’ hat. Do I ever encounter instances where I am moved to admire the strategic brilliance of a company’s conduct despite its illegality, she asks.

It is not a surprising question given how we are socialised to think of the business sphere as an amoral space where ‘anything goes’. But my answer is no.

The quiet life of the monopolist stunts the business mind. Breakthrough innovation is rare, but in an environment permeated by what is termed ‘handicap’ competition in the anti-trust literature, it’s almost impossible. To give an example, if the best response that managers in an airline business can conjure up to counter new entrants is to induce travel agents not to sell rivals’ tickets, what can we expect from them when the internet takes over as a sales channel? Certainly not brilliance; unused as such executives are to real competition.

Handicap competition involves improving the relative position of a company through under-handed means, without meaningful contribution to the economy. Competition on the merits, is in theory, what is being taught in business schools. This is the kind of striving that concentrates the mind on how to improve performance through providing better goods and services, lower prices or innovation.

Exclusionary and exploitative business practices will never be as good as those that seek to win on merit. Managers focus on their ‘territories’ and on policing cartels as opposed to becoming future-oriented. Diversity and transformation suffer because insiders have something to hide. It becomes difficult to integrate women into a ‘boy’s club’ that fixes prices on fishing trips on the Zambezi.

Yet it seems that introspection is taking place in some South African boardrooms. The financial and reputational costs of engaging in practices that break the law weigh heavily on the minds of business leaders. The question is whether this is enough to root out a mind-set of handicap competition.

Trudi Makhaya, a former management consultant and executive at the Competition Commission, writes in her personal capacity.

Categories
competition competition policy private healthcare

Commission appoints healthcare inquiry panel

Competition Commission media release:

The Competition Commission has appointed retired Chief Justice Sandile Ngcobo; Professor Sharon Fonn; Dr Ntuthuko Bhengu; Dr Lungiswa Nkonki and Mr Cornelis (Cees) van Gent as chairman and panellists respectively, to lead the market inquiry into the private healthcare sector in South Africa. The five-member panel will preside over the market inquiry, oversee public hearings, review submissions, draft the inquiry report and produce its final recommendations.
The panel will be supported by a team of investigators comprising of the Commission’s economists and lawyers and expert consultants. The team will be led by the Inquiry Director, Ms Tamara Paremoer.

The inquiry will probe the private healthcare sector holistically to determine the factors that restrict, prevent or distort competition and underlie increases in private healthcare prices and expenditure in South Africa. The panel will gather evidence and insights into private healthcare through public hearings, reviews of secondary material, information requests, consultations and summons, as required. The market inquiry will be completed by 30 November 2015.

The panel will issue administrative guidelines for the health inquiry in due course. The administrative guidelines will set out the administrative timeline for the inquiry and will guide participants on the format and method for submitting information to the market inquiry. They will also set out the rules of proceedings for public hearings.

“This is undoubtedly the best panel we could come up with. It has the right balance of skills, varied and distinguished experiences as well as impeccable integrity. In short we have the right panel for this important task for the nation and we look forward to its recommendations.” said Acting Commissioner Tembinkosi Bonakele.

For detailed bios: http://www.compcom.co.za/healthcare-enquiry/
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competition policy economic policy mergers political economy Video

Role of public interest criteria in assessment of mergers

This is always a hot topic in competition policy discussions, especially since South Africa is one of the few countries in the world to have a formal approach to the assessment of public interest issues by an independent competition agency during the merger approval process. This is an interview I participated in at Deal Flow with host Erika van der Merwe and Webber Wentzel partner Robert Wilson. Pity we didn’t have enough time to fully explore that (tangential) philosophical debate on the role of business in supporting policies geared at employment generation. With years of jobless growth behind us, I think this is a debate we should all have more often.