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.
Category: political economy
The Eeufees offramp, the entry point into Tshwane for many cars coming from the direction of Sandton, must be a dreaded one for many executives with an appointment with the competition authorities. The Voortrekker monument looms in the distance. As does UNISA; with a portrait of Madiba gazing in the distance dominating one side of its impressive building. His face is tough and scholarly, defying the “Disneyfication” of his image. And whizzing through this complex terrain, is the Gautrain. If the Voortrekker monument is a creation of the past, and Madiba a symbol of our bridge to the future, the Gautrain is a promise of better times ahead. Yet this great infrastructure project, commissioned by the state with public funds and built by the private sector, became one of many projects that were preyed upon by cartelists in the construction industry.
On a wintry morning – 17 July 2013 – the Tribunal began hearings into a mega-case involving 15 firms that had been engaged in rampant collusion. The settlements before the Tribunal involved 140 projects rigged by these firms. With penalties totalling R1.5bn, this was the biggest settlement ever reached in a single process.
“Corruption, not collusion,” many have said.
Words that ring in my head as I too approach that dreaded off-ramp. Facing that brown and dull hill before the traffic light turns green, you might forget that you are driving on one of the busiest highways in the country and into the capital city.
Pretoria/Tshwane. Corruption/collusion. Much remains contested in this country.
But an old script was shred to bits in July. In that script, the scene is set like this: On one end of the highway, give or take 40 kilometres from Eeufus Road, dwell free market visionaries conducting clean business. But as we drive north, the temperature gets hotter as we approach languid, indifferent and corrupt bureaucracy. Around Christian de Wet, down Nelson Mandela drive, the heart of corruption beckons. For those of us who bounce between these cities, we know that this is absurd.
The idea that any race, sector of society or even industry has a monopoly (no pun intended) on illegal and unethical behaviour is hopelessly outdated.
What happens to an actor who has perfected the old script, who has been venerated by the establishment and can go through the scenes in his sleep? At this late stage, to suggest that he has to see the story afresh and pronounce new sounds, can seem like a hopeless request. And what of the new actor who has been watching the old play from the sidelines, excluded from the casting call, now having to emerge from the shadows?
This story is unfolding.
On that same morning, the Commission concluded various long-standing matters against Telkom, in a settlement worth R1bn. Commenting on the Telkom settlement, Tribunal chairperson Norman Manoim described it as “one of the most sophisticated settlements ever seen.” He also highlighted that settlements are not inferior to outcomes reached through prosecution but that they can often achieve pro-competitive outcomes in a tangible sense. The package of remedies in this settlement, including price reduction and structural commitments, will have an enduring impact on the market. This theme was reiterated by the deputy chair of the Tribunal, Yasmin Carrim at our annual conference in September, who advocated for the greater use of remedies in resolving cases.
In an action-packed year, South Africa was also in the spotlight for its incredible hosting of the International Competition Network’s cartel workshop, attended by many jurisdictions from around the world. The conference kicked off with a thought-provoking welcome address by the Minister of Economic Development, Honourable Ebrahim Patel followed by days of enlightening discussion. The organising team, led by Keitumetse Letebele, received compliments from far and wide.
Mergers and acquisitions such as the Nestle/Pfizer and Independent News transactions have displayed the Commission’s ability to handle complex competition and public interest concerns. Looming transactions such as the international acquisition of the Afgri group and the purchase of land in Gauteng by a Chinese consortium will give the competition authorities further opportunities to develop the law. Another key theme on the competition agenda for 2014 is that of the impact of government policy and actions on the effective functioning of markets. The global community will be grappling with this question at the 2014 International Competition Network conference, where a special session will be held on competition policy towards state-owned enterprises.
In some parts of the world, state-owned enterprises are exempt from competition policy, with damaging consequences for the economy as these SOEs are often responsible for anti-competitive conduct. Our jurisdiction does not suffer from that weakness, and the competition authorities have levied significant fines on entities such as SAA and partially state-owned Telkom. Where we may be lagging behind other countries is on the treatment of state action such as subsidies and other forms of government assistance that might distort the playing field. These types of government actions fall outside the scrutiny of the authorities, save for making recommendations to the rest of government on possible anti-competitive effects. However, this is not to under-estimate the effectiveness of well-crafted recommendations in changing policy.
To paraphrase Talib Kweli, ours is a beautiful struggle. It continues in 2014. I look forward to new challenges.
Unedited version of my column in this week’s Business Report:
On my flight to India to attend the third BRICS competition conference held last week, I was struck by how our respective countries – Brazil, India, China, Russia and South Africa – have to grapple with the challenge of inequality.
The growth stories of Brazil, India and China in particular have captured investor imagination. However, the impressive rise of these economies has been accompanied by a rise in inequality. In Russia, the post-communism privatisation wave created oligarchs, who now face backlash and negative public sentiment. Though progressive policies have lifted many households out of poverty, large segments of Brazil’s population remains trapped in the favelas. The lower castes and the rural poor in India have not shared in the outsourced services boom that has powered that economy. China also suffers from a similar dynamic where large segments of the population have been excluded from export-led growth. South Africa remains one of the most unequal societies in the world, with racial and increasingly class tensions dominating economic policy discussions.
Inequality threatens the sustainability of economic growth because it generates tensions that may upset an already fragile political economy. Countries experiencing rapid but uneven growth face the risk of being stuck in a ‘middle income trap’; where popular protest rises, production is threatened and private investment slows down. Policymakers struggle to justify the market-oriented policies that led to the initial growth spurt to the poor and marginalised. Demands for more state-led and redistributive policies follow. Profits and executive salaries become easy targets for politicians striving to maintain their legitimacy. Investors became wary of the fraught political climate and seek market-friendly reassurances that policymakers find increasingly difficult to make in the face of popular discontent.
The immigration hall in Mumbai’s international airport provides a strange, inverted metaphor for inequality. The immigration hall divides into two wings, with long winding queues on both sides. But in the middle, there are two straight queues reserved for business and first class passengers.
Yet all is not as it seems. What one may imagine to be priority lines are serviced by two booths, whereas the winding masses have about ten booths on each wing. A small, slow-moving cluster of mostly westerners inches slowly towards the front of the room. I could be mistaken but I sense a mild air of amusement in the massive hall as the other passengers whizz past the befuddled group trapped between queue dividers. The authorities may have intended to provide a dedicated express service for the elite, but they simply have not backed up their intention with resources. My colleagues and I split into different queues. Suffice to say, the colleague who stuck to the business class ghetto missed her connecting flight to Delhi.
In the real world, skewed access to opportunity cripples individuals’ ability to function effectively. All our economic policies, including competition law enforcement and advocacy, have to contend with this challenge if they are to be relevant. Fortunately competition policy lends itself towards expanding opportunity because breaking up cartels, preventing anti-competitive mergers and challenging exclusionary behaviour are interventions that create the conditions for greater participation in the economy.
As Prime Minister Manmohan Singh of India emphasised in his speech at the BRICS competition conference, developing countries need to develop credible institutions for sustained and equitable growth. Competition authorities do so by maximising the beneficial effects of the market and ensuring that they deliver efficient outcomes.
In South Africa, competition legislation addresses inequality directly. The competition act aims to ensure that our markets are fair and efficient. Not only that, but the law goes on to state as its objectives the promotion of small businesses and also those owned by historically disadvantaged individuals. The preservation of employment is also a strong theme throughout the legislation. This is important as it has been shown that lack of access to job opportunities is one of the drivers of inequality in South Africa.
Various speakers at the BRICS conference commended the South African authorities for being sensitive to the challenge of inequality. Indeed, this can be seen in the way that the Commission selects cases, with priority given to sectors that poor households spend a high proportion of their income on, such as food. The focus on construction and input markets also means that sectors that affect industrial competitiveness, and thus manufacturing employment, can be rid of practises that increase barriers to entry and costs.
A prominent feature of Prime Minister’s Singh’s address touched on a certain type of inequality in the economy; that perpetuated by governments in the way they treat state-owned enterprises that compete against private companies. The preferential treatment of such entities is often seen as a way to facilitate development. However, the prime minister threw his intellectual support behind the concept of ‘competitive neutrality’ in the way that the state treats its assets in relation to other competitors.
Bemoaning a time when state-owned enterprises were sheltered from competition, the PM argued that the state should refrain from using its legislative and fiscal power to privilege such enterprises. Such preferences may lead to the exclusion and eventual exit of companies that are run on purely commercial lines, leading to loss of employment and dynamism in the market. The state-owned enterprises become like the business class line in Mumbai’s airport, slow-moving and stagnant despite their alleged privilege (or because of it).
As BRICS countries continue to face the challenges of economic growth and inequality, including those inequalities that emerge from state action itself, competition law and policy will play an important role in levelling the playing field.
Trudi Makhaya is an economist in the public service.
Image credit: Etienne Creux
Below I reproduce the English (and unedited) version of my half of last Sunday’s Debaatin Rapport (Afrikaans version here: http://www.rapport.co.za/Weekliks/Nuus/Ons-tribunaal-is-banaal-20130817). As the name suggests, this segment of Rapport is structured like a debate and the other side was represented by Leon Louw of the Free Market Foundation, who presented a piece that was quite similar to the misleading article he penned in last week’s Business Day which sought to discredit the competition authorities.
In today’s Business Day, Leon Louw admits to cutting some corners and appears to be correcting his earlier views:
“CORRECTION: In last week’s column, I decried the erosion of the rule of law, especially the separation of powers, the transfer of judicial functions from independent courts to the executive branch of government. An eminent senior counsel and competition law expert scolded me for getting it wrong on two counts. The Competition Tribunal tends to do a better job of weighing evidence and applying the law objectively than the courts, he said, and the Competition Commission does not make rulings and settlements but refers its recommendations to the tribunal for final determinations. I bow to his superior knowledge. However, temporary vices of judicial officers with tenure and virtues of transient nonprofessional incumbents in quasi-courts are no excuse for ditching the rule of law. It calls for restoring judicial excellence and functions.
In the interests of brevity I cut some corners. Technically, for instance, pseudo-courts might implement aspects of due process as opposed to precisely “zero”, and all must operate constitutionally. The point is that they lack essential characteristics of properly functioning courts, and what the constitution requires is often hypothetical in the executive branch of government.”
The piece I submitted to Rapport:
Towards a fair and efficient economy for all
Debated at NEDLAC by representatives of labour, business and government; and thereafter passed by Parliament, the Competition Act of 1998 ushered in transformative competition law and policy in South Africa. The resultant system is an outcome of robust contestation and reflects the aspiration for consumers to have access to competitive prices and product choice within the context of an employment-generating, inclusive and internationally competitive economy.
It is a well-known international phenomenon to have specialist agencies and courts to investigate and adjudicate on competition matters, as can be seen in the membership of the International Competition Network, which brings together over 100 agencies across the globe, many of whom are independent and specialist agencies. Legal and economic expertise need to be combined in multi-disciplinary institutions for effective implementation of competition law. The South African institutions meet this important requirement.
The Competition Act creates a system with layers of oversight and safeguards. It provides for the creation of three institutions, the Competition Commission as an investigative body, the Competition Tribunal as an adjudicative body and the Competition Appeal Court which serves as the appellate body. The appeal court is a special division of the High Court and is served by judges. Decisions of the Competition Commission can be appealed or reviewed by the Competition Tribunal and decisions of the Competition Tribunal can be appealed or reviewed by the Competition Appeal Court and in certain appropriate circumstances, a further appeal lies to the Supreme Court of Appeal and the Constitutional Court. Thus the competition adjudication system allows for checks and balances; guarantees due process, procedural fairness, the right to face and cross-examine accusers and also the right of appeal on merits to an independent tribunal and appellate courts.
It is important to distinguish between a settlement process and contested proceedings. A settlement process, as in the recent case of collusion involving construction companies, is an outcome of negotiation and agreement between the commission and the implicated companies. Even so, the tribunal has oversight powers and will hold a public hearing and interrogate the key elements of that settlement for appropriateness. Contested proceedings in the Competition Tribunal mirror ordinary court proceedings with concomitant rights to lead and rebut evidence.
Our economy remains bedevilled by cartels and other forms of anti-competitive conduct. Organisations such as the International Monetary Fund and OECD have in recent times pointed to lack of competition in product markets as one of the reasons for the economy’s lacklustre productivity and unemployment challenge.
When firms engage in ‘hard core’ cartel behaviour and collude to fix prices, allocate markets or rig tenders, they maintain the illusion of competition. Consumers think that they are benefiting from the positive effects of competition whereas in reality they are dealing with firms acting in concert to keep prices high and markets stagnant.
The competition authorities have investigated and prosecuted cartels in diverse industries. These include steel, concrete products, the milling and baking value chain (including the fixing of the price of bread), plastic pipes, airlines, and construction. In the recent settlement process with construction firms, 300 rigged projects were uncovered. Though there has been focus on World Cup stadia, these represent only 7 projects, whereas the behaviour affected roads, non-profit institutions, industrial plants and other instances that defy attempts at justification or rationalisation.
Most competition regimes reserve the harshest penalties for cartels given the blatant way in which they undermine the efficient functioning of markets. In a case study analysing market developments after the dismantling of a decades-long cartel in concrete products, the commission’s economists found evidence of lower prices, expansion by former cartelists and new entry. Cartels restrict output, raise prices and stifle industries, robbing us of much-needed economic growth.
Our competition law also recognises that there may be agreements between competitors that do not constitute ‘hard core’ cartel behaviour as described above and that may be justifiable on economic grounds. For this class of behaviour, which is to be prosecuted under section 4(1) (a) of the competition act, the key test is to determine whether this behaviour can be justifiable on the basis of efficiency, technological or other pro-competitive gain. The legislation also provides for firms to apply for exemption from certain aspects of the act, on the basis of a defined list of justifications. Thus our law is alive to commercial realities that may justify relationships between competitors whilst also imposing appropriate sanction on ‘hard core’ cartel behaviour that holds no benefit for consumers.
Customers purchasing goods and services in a modern economy have the legitimate expectation that the prices and other terms of trade that they face are the outcome of open and competitive markets. In its Senwes ruling, the Constitutional Court endorsed the transformative role that competition policy plays in an economy characterised by inequality and exclusion.
Trudi Makhaya is the Deputy Competition Commissioner.
You’re gonna burn out all my love
I keep telling you
How you bruised my heart
Keeping me holding on too long
(Sipho ‘Hotstix’ Mabuse)
I keep telling you
How you bruised my heart
Keeping me holding on too long
(Sipho ‘Hotstix’ Mabuse)
Last week, as I was about to be interviewed on a radio show about an issue of competition law, I received a frantic sms from the producer. The show is running 30 minutes late. She is overwhelmed. And close to tears. It turns out that the subject under discussion before I was about to go on the talk show was rape in South Africa, in the wake of the brutal rape and murder of Anene Booysen. The nation is outraged, broken and once again, at a loss for words.
The past few months have reminded us of our brokenness, our demons and our fault lines. But we didn’t learn anything new about our nation. Femicide, violent protest, corruption – I could go on – these are things we know about ourselves already.
The show must go on. And so the producer informs me that the host will talk to me after the news. The news is followed by a commercial break. Then the very talented and gracious radio host helps us all transition from brutal crime to corporate corruption. That’s how we roll, how’ve learnt to roll, from crisis to crisis.
*
The show must go on. The presidential motorcade winds down Adderley Street. It’s a good show. Red carpet. Military guard of honour. Black-suited men dashing out of big black cars. For a night, the political divide gives way to the afrochic/ball-gown divide.
You’re gonna burn out all my love. Our military band is full of surprises.
You’re gonna burn out all my love, Sipho Hotstix Mabuse sang in the 1980s. The country was on fire. But we danced to Hotstix, and Chaka Chaka and Fassie and Stimela. I listen to that music today, that soundtrack to the eighties that we dismissed as bubble-gum, and it’s hard to discern the pain buried therein. You have to listen closely. The show must go on. We danced then. We dance today.
The 21 gun salute. No-one really wants to talk about guns today. I’m afraid that, unlike the praise singer, pelo ya ka ha e monate.
*
As the presidency announced earlier this month, this is the first state of the nation speech delivered within the context of the national development plan. The plan will tackle poverty, inequality and unemployment. The head of state rattles of goals that we aspire to. But he acknowledges that we will not achieve the good life, as defined by government, with our tepid Mzansi economic growth rates.
There is a need to engage the social partners for solutions. This is the kind of rhetoric that drives people straight into the arms of authoritarian populism.
I’m not a hater. Concrete projects are mentioned. Power stations, dams and ports are being built. It’s not all tuck shops and rural lifestyle estates, you see. Like, I’m talking about 860 billion Rands. ‘Nuff said, some might think.
I’m really not a hater. Like those people that routinely criticise the speech of being short on detail. It’s a one hour (or thereabouts) speech. Get over it. Go read some policies and annual reports.
There are some recurring ideas and policies. I suppose that is the challenge. The commander-in-chief can keep presenting the nation with new, lofty plans every year or keep plugging at the same general framework, pushing for implementation. And so we learn that some discussions have been concluded on the issue of incentives for youth employment. An accord will be signed later this month. We wait with bated breath. This enterprise is a follow up from the 2010 state of the nation. Other familiar ideas to tackle unemployment include boosting the tourism sector and the expanded public works programme. These are solid ideas, with tireless officials behind them. But there’s the question of impact. There’s an assurance that this programme of action will be implemented differently as departments are expected to align themselves with the National Development Plan.
There are newish ideas that also deserve a chance. The Nationa Health Insurance pilot is such an idea. What’s the point of debating this idea in abstract when sensible experimentation might yield some interesting results? Keep it real, keep it fact-based, and something special might emerge.
*
The account of the Marikana moment leaves me bewildered. What did I expect? Outrage, even longer pauses, eyes off the page?
We are told that there is policy certainty in the mining sector, mostly because the nationalisation debate was laid to rest late last year. Reports from the recent Mining Indaba paint a less reassuring picture. Anyway, it has been determined that a suitable tax policy is the solution to our mineral resource management woes. Perhaps this is what I love most about this nation. After a few years of vexed debate, bringing us to the brink of serious strife, we find our way out of the mess in the tax code. I just wish we could skip the part where we flirt with the edges.
*
You’re gonna burn out all my love. Or not. There’s hope. Like Hotstix achieving his matric certificate at 60.
I’m done with my armchair dissing. This is what I’m fighting for this year: fair, efficient and inclusive markets in our economy.
I might burn out all my love. I probably won’t. The show must go on.