More powers of deconcentration

When economists search for explanations of SA’s economic sclerosis and its persistently weak growth, one of the factors that comes up is the high level of concentration in the economy.

There are key sectors dominated by just three to five large companies that collectively often have market shares of 80% or more. Economists, including those of the IMF and the Organisation for Economic Co-operation and Development, have pointed to economic concentration as a drag on SA’s growth rate. They have pointed as well to the way in which economic concentration inhibits the entry of smaller, newer competitors, whether black- or white-owned, and so undermines SA’s ability to generate inclusive growth and jobs.

And if the economics of concentration are problematic, so too are the politics, with the dominance of so few in so many sectors feeding into the “white monopoly capital” narrative that blames big, supposedly white-owned businesses for the exclusion from the economy of smaller black-owned aspirants.

Economic Development Minister Ebrahim Patel has long sought to tackle the economics and politics of concentration by using the tools he has in his portfolio, which includes oversight of SA’s competition authorities.

The competition authorities already do a competent and credible job of pursuing monopolies and other dominant firms when they get up to no good and form cartels or abuse their dominance in some or other way. They do a good job too of preventing, or at least putting conditions on, mergers that reduce competition or increase concentration.

But Patel, supported among others by Deputy President Cyril Ramaphosa, wants the competition authorities to be able to tackle concentration even where the companies concerned are not accused of any wrongdoing.

That’s a potentially very slippery slide.

Fortunately, Patel has not gone that route and the set of proposed amendments to the competition legislation he announced on Friday reflect a reasonably careful approach. The minister, who appointed an advisory panel of competition lawyers and economists to assist him, has used the existing competition tools rather than going the very dubious route of creating a new act and new institutions to deal with economic concentration. And his proposed amendments to the Competition Act tend to rely on evidence-based probes by the Competition Commission rather than hard rules.

The amendments beef up the power the commission already has to launch market inquiries, extending its mandate to enable it to probe concentrated economic sectors and find out whether the structure of those markets is causing anticompetitive outcomes such as higher prices, lower quality or the exclusion of new, especially black firms. The commission might order the break-up of companies, or other more innovative remedies to deconcentrate sectors, although companies do have the right to appeal against the findings.

The amendments also bring concentration considerations into merger regulation and the regulation of cartels — and they give the minister himself enhanced powers to intervene in mergers.

All of this is pretty high-risk stuff for corporate SA. This minister may have the best of intentions when it comes to growth and transformation, but putting such powerful tools in the hands of a captured minister without integrity or any commitment to economic growth and investment could be very dangerous.

The same goes for the competition authorities, which are highly regarded, but will not have the same leadership forever. The proposed amendments are now open for public consultation and are due to go to Parliament in 2018. The public and parliamentarians need to ensure the good intentions of the legislative proposals are accompanied by sufficient safeguards to prevent abuse by those with bad intentions.

THE COMMISSION MIGHT ORDER THE BREAK-UP OF COMPANIES, OR OTHER INNOVATIVE REMEDIES