Category: public policy

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barriers to entry competition enterprise development public policy Vision 2030

Competition policy, the South African economy and entrepreneurship



David Goldblatt
Braiding hair on Bree Street, Johannesburg, 2002
Digital Prints on 100% cotton rag paper

Edition of 6

 In this week’s Mail and Guardian, two senior economists from the Competition Commission of South Africa (Simon Roberts and Trudi Makhaya) write about the role of competition policy in promoting an environment conducive to new entry and business growth in the economy. Below are some extracts though it would be far more enlightening to read the full article:

“Vision 2030, the plan released by the National Planning Commission, presents a vision of a South Africa in which mass entrepreneurship is possible…
For the plan to succeed it implies a positive understanding of competition as the ability to enter and compete effectively, where effort and creativity is rewarded rather than an inherited incumbency…
A strong emphasis on promoting competition is important in South Africa because of the stifling nature of old networks…
Although these networks may have lost the type of access they had to the state, recent competition cases have shown that they are able to continue to control private activity. Multilayer cartels have been uncovered in concrete pipes, cement, reinforcing steel, scrap metals, flour and bread.

What is often not recognised is that for cartels to be sustained they must not just agree among themselves, but must also keep out new entrants attracted by the high profits. So, not only are consumers harmed by the ­collusive prices, but so is opportunity. Dynamism is harmed in another way as managers who guaranteed their market share through collusive arrangements enjoy the “quiet life” rather than worrying about quality and service…


The orientation to protecting their position through erecting defences to potential rivals has been characterised as “handicap competition”, seeking strategies to disadvantage and undermine other firms outside the club through devious schemes, as compared with “performance competition” where managers commit themselves to winning in the marketplace through the legitimate pursuit of productivity and efficiency…

Given our status quo, not facing up to the tension between the interests of entrants and incumbents is in effect a decision to support the existing networks, albeit with some new members likely buying into them.

The Latin American experience may be instructive where the development of competition law was hostage to the region’s economic history. As these economies were largely dependent on extractive industries and agriculture, elites were indifferent to the value of competition in the economy.It has only been through globalisation and concerns over inequality that competition law has gained traction in recent times.

We believe that in South Africa it is necessary to take a positive stand on future competition through widening participation and increased diversity as guiding principles. This is consistent with supporting entrepreneurship and creativity whereby different ideas and approaches are introduced to the marketplace and tested.”

Trudi Makhaya and Simon Roberts are economists at the Competition Commission. They write in their personal capacity

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base of the pyramid public policy Video Vision 2030

Mass entrepreneurship – a key component of Vision 2030’s proposals

The National Development Plan, Vision 2030, is quite clear about its ambitions for entrepreneurship in South Africa. It is right that it should be so given that the National Planning Commission estimates that 11 million jobs have to be created in the next 20 years if the country is to reach full employment of the economically active population. And as the plan acknowledges, new jobs tend to come from the entry of new firms into the market and the expansion of such firms. Old, established firms don’t create as much net new jobs. Small and expanding firms are expected to create 90% of new jobs.
The National Planning Commission’s channel on YouTube (cool animation technique)
The Plan
Various themes emerge from the Plan’s chapter on Economy and Employment. These themes present a challenge to the private sector (and particularly to entrepreneurs I would say) to produce innovative products and services that will unlock growth in the economy. Below are some of these themes with top of the mind ideas about what I think areas of opportunity for the private sector might be:
–           Lowering costs of production: developing local inputs for key industries such as mining and retail, using lower cost (and hopefully labour intensive) technologies
–           Lowering costs faced by poor households: new ways of distributing products and services to poor areas (developing affordable “last mile” distribution solutions for healthcare, daily groceries etc.), organising households to aggregate their buying power, bringing poor households into the internet economy
–           Community based production in areas such as house-building, small scale agriculture
–           Enabling access to finance for small and expanding firms: risk mitigation plays that make the extension of financial services possible to new borrowers
–           Enabling access to markets for small and expanding firms: the business advisory space seems to be dying for skilled consultants and advisors, innovate curriculums for business training, institutions that co-ordinate activities across value chains and help new businesses to crack into mature  corporate and public sector supply chains
–           Developing regional supply chains: this applies to many value propositions that could be extended to serve the regional market, thus realising economies of scale and revenue growth. However, dealing with multiple regimes is always a challenge in SADC.
–           Labour matching services to reduce the costs of employment searches for the unemployed and preparing applicants for the labour market: this calls for a new philosophy towards staffing solutions at the low income end of the market, with a move away from commoditised, short term placements to solutions that are socially innovative and meet the specific needs of companies and individuals.
Reading the plan, I find I am filled with optimism about the opportunities that exist to build a new economy that is better oriented to the needs and the realities of the majority of the population. What remains to be seen is whether and how the “social partners” – business, labour and government will fall behind this plan to make a more prosperous nation a reality.
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barriers to entry enterprise development public policy small business

What’s up – Global Entrepreneurship Week, agencies merge, DBSA Development Report

There has been much buzz about entrepreneurship lately. It’s Global Entrepreneurship Week (GEW) from the 14 – 20 November with various events planned around the country. Endeavour South Africa describes GEW as “the world’s largest celebration of innovators and job creators who launch start-ups that bring ideas to life, drive economic growth and expand human welfare”. GEW is celebrated in 115 countries. In South Africa, planned events include a summit on 15 November (sponsored by FNB and SAP) featuring Adrian Gore as a panellist that will examine the state of entrepreneurship in South Africa. The summit will also examine the different contexts in which entrepreneurial activity emerges.
On the public sector front, government plans to merge three enterprise development agencies also seem to be well under way. The South African Microfinance Apex Fund (SAMAF), Khula and the Small Enterprise Development Agency (SEDA) are to be merged into one entity capitalised with an R921m shareholder loan raised by the IDC. SAMAF and Khula are wholesale lenders. The government lends them money, which they on-lend (or use to provide guarantees) to microfinance organisations in the case of SAMAF and small business lenders (such as small business divisions in commercial banks) in the case of Khula. SEDA is a development and advisory agency that builds the capacity of small businesses through non-financial support.
I think most people would agree that these institutions have struggled to lead a small business development revolution, which is what we need to achieve significant levels of growth and development.  So many studies have been produced that try to identify what ails small business development in South Africa – the most oft-cited maladies are lack of access to finance and skills, especially practical skills that allow business-people to develop products, sell these products and keep accurate records.
These agencies have been bedevilled by two categories of challenges as far as we can tell – business failure and a lack of accountability. The high rate of business failure means that the capital and grants invested in small businesses have to be written off, and unfortunately the agencies end up with appalling results in terms of default rates and financial self-sufficiency. Some of the institutions that the agencies fund default on their commitments due to weak governance. The capacity of the agencies themselves to deliver on their mandate has often been questioned. We can only wish the best to the new entity. It won’t be easy.
The Development Bank of Southern Africa (DBSA) has recently highlighted the need to develop entrepreneurs in addition to traditional black economic empowerment schemes. The DBSA quotes Moeletsi Mbeki who argues that BEE handicaps entrepreneurship as it removes talented black people from creative activities and into redistributive schemes in existing companies.
The DBSA’s overview report goes on to identify the barriers to the creation of a black entrepreneurial class as high barriers to entry and lack of access to finance and markets. The inability of state institutions and commercial banks to tackle these obstacles is noted. Further, the report cautions that “slow changes in the monopoly structure of the economy, despite the valiant efforts of the Competition Commission, are also likely to impede SMME development for some time to come.” Sobering point of view.
The report proposes a systematic approach to developing opportunity-seeking enterprises. We have been here before. Sentiment in policy circles sways between seeing small business development, and entrepreneurship in general, as a solution to the job creation challenge; and then back to seeing the state and big business as the real job creators of significance. So one hopes that this moment won’t be undermined by backlash if renewed efforts at enterprise development do no deliver immediate results. The DBSA’s full report will be out at the end of the month.