THE BLOG
13/12/2017 04:57 SAST | Updated 13/12/2017 04:57 SAST

South Africa's Competition Policy Is Evolving For The Better

Since the dawn of democracy, South Africa's competition policy has evolved and taken an architecture that is admired in the international antitrust community.

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Most advocates of the free market system (capitalism) often caution against governments' role in the markets. These proponents normally retort with the refrain that government intervention often causes greater harm than good.

However, even Adam Smith the dubbed Father of Capitalism in his instructive book the "Wealth of Nations" makes the following observation: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

The observation by Adam Smith is an astute one. It is one of the major architects which led to a public policy intervention -- in the form of the competition/anti-trust legislation. These interventions are extremely vital in a country like ours with an economy, which is entrenched in the concentration of ownership of private wealth in the hands of a small number of large corporations.

Former Competition Tribunal Chairperson David Lewis characterizes the structure make of our economy as follows: "For the most part, [the economy is controlled by] highly diversified conglomerates -- that were in turn controlled by a select group of white families. The perceived counterpoint of this concentration of private wealth and economic power was precisely the dispossession, the poverty, and the unequal and unfair treatment of the majority black population."

Competition policy in South Africa dates back to as early as 1955 when the Regulation of Monopolies Conditions Act (RMC Act) was promulgated. Although the act sought to promote and maintain competition in South African markets, it failed to achieve this objective.

The Board of Trade and Industries, now the Department of Trade and Industry, was tasked with the administration of the RMC Act. The efficacy of this act was called into question since monopolies continued to be rife in different sectors of the economy. The Mouton Commission led to the adoption of a new piece of legislation in 1979, which replaced the RMC Act.

The proposed amendments aim to give the competition authorities more muscle to tackle transformation and economic concentration.

The Maintenance and Promotion of Competition Act ("Promotion of Competition Act") created a new body, the Competition Board, which was appointed by the Minister of Trade and Industry. Just like its predecessor, the Promotion of Competition Act was ineffective. It contained no explicit prohibitions and relied on 'public interest' as a measure for prohibitions, a concept that was not defined in the Act. In consequence, the Competition Board issued inconsistent decisions.

Despite the existence of the board for more than 25 years and the creation of a special court to hear cases referred by the board, not a single case was prosecuted under the Promotion of Competition Act. The only tangible achievement under this legislation was the issuing of a regulation in 1984, which declared practices such as resale price maintenance and horizontal collusion to be per se unlawful.

Since the dawn of democracy, South Africa's competition policy has evolved and taken an architecture that is admired in the international antitrust community. Over the years the policy and the competition authorities have tackled anticompetitive conduct in various sectors such as the, maize meal and baking flour; critical inputs to infrastructure development such as steel, cement and the construction bid rigging; and essential inputs to manufacturing such as basic chemicals and polymers, all of which affect mainly the poor.

Our competition policy embraces the efficiency model, while balancing the act of economic transformation that will benefit all South Africans through ownership, the participation of small and medium enterprises and employment.

With its successes, the Competition Act has been criticized by consumers as being too lenient to offenders and also labelling the Competition Commission a toothless watchdog. In the beginning of December, the Minister of Economic Development, Ebrahim Patel, released the Competition Amendment Bill, 2017 (the "Competition Bill") for public comment.

The proposed amendments aim to give the competition authorities more muscle to tackle transformation and economic concentration. Of course, economic transformation is not a yoke solely for competition authorities to bear, however, as an entity that deals directly with economic concentration, is rightful that their mandate is extended.

The experts argue that if the competitive process is making it difficult to exit, people will think twice about investing.

The set of amendments also gives the competition authorities more power by making findings in market inquiries binding, unless they're challenged before the Competition Tribunal. Which is important to note, considering the Competition Commission is currently investigating the cellphone data market, private healthcare market, public transport market, and grocery retail market to name a few.

Past market inquiries, such as the market inquiry into the banking sector, have been beneficial to the consumer. The banking sector has seen successes like improved switching, reduction of penalty fees, better bank fee transparency and cash withdrawal from shop tills.

Amendments to a bill will almost always come with challenges from various stakeholders. Competition law experts have raised concerns over the proposed amendments describing them as radical, extensive and far-reaching. The experts argue that if the competitive process is making it difficult to exit, people will think twice about investing.

Certain sectors such as the communications, technology, energy, financial services and food processing sectors have been identified as concentrated industries by the Competition Commission and are therefore susceptible to increased scrutiny.

The policy has evolved and taken into account the nature of the structure of our economy. Like consumer and small business, larger firms that are abiding by the law will benefit from the efficient market.