Dereg­u­late for growth

World Bank says SA must cre­ate a level play­ing field for small en­ter­prises be­cause that is where the jobs will come from

CityPress - - Business - XOLANI MBAN­JWA xolani.mban­jwa@city­press.co.za

South Africa needs to in­crease com­pe­ti­tion and re­duce re­stric­tive reg­u­la­tions to al­low new en­trants in var­i­ous mar­kets to re­duce in­come gaps and cut un­em­ploy­ment. This is ac­cord­ing to the World Bank’s SA Eco­nomic Up­date re­port re­leased this week, which urges au­thor­i­ties to look out­side the nor­mal fis­cal ar­eas to reignite eco­nomic growth and al­le­vi­ate poverty.

Guang Zhe Chen, the World Bank’s di­rec­tor for South Africa, said the de­cline in growth, which the World Bank es­ti­mates will be 0.8% this year, down from 1.3% last year, meant that the Na­tional De­vel­op­ment Plan (NDP) goals would move fur­ther out of reach un­less bold reg­u­la­tory and com­pe­ti­tion re­forms were in­tro­duced.

Chen said: “The out­look calls for fun­da­men­tal pol­icy ac­tion to turn the econ­omy around. Poli­cies that can fast-track in­fra­struc­ture in­vest­ment, slash the reg­u­la­tory bur­den, en­hance flex­i­bil­ity in mar­kets, raise education stan­dards and pro­mote com­pet­i­tive­ness have the po­ten­tial to re­store con­fi­dence, and ig­nite in­vest­ment and growth.”

The re­port high­lighted the Com­pe­ti­tion Com­mis­sion’s dis­man­tling of car­tels in wheat, maize, poul­try and phar­ma­ceu­ti­cals, which led to the re­duc­tion in prices and a drop in the na­tional poverty rate by as much as 0.4 per­cent­age points.

Ca­tri­ona Pur­field, World Bank pro­gramme leader in macroe­co­nomics and fis­cal man­age­ment, said th­ese prod­ucts made up 15.6% of the con­sump­tion bas­ket for the poor­est 10% in South Africa.

The World Bank said the on­go­ing process where the In­de­pen­dent Com­mu­ni­ca­tions Au­thor­ity of SA would be li­cens­ing three bands of spec­trum that can be used for next-gen­er­a­tion mo­bile ser­vice pre­sented a good op­por­tu­nity for South Africa to lower prices by in­creas­ing com­pe­ti­tion for new en­trants who want to of­fer mo­bile broad­band, and The World Bank said the Com­pe­ti­tion Com­mis­sion’s in­ves­ti­ga­tion into the ce­ment car­tel was a good ex­am­ple of how com­pe­ti­tion en­force­ment pro­motes com­pet­i­tive­ness and faster eco­nomic growth.

Anal­y­sis of the af­ter­math of the ce­ment-car­tel probe showed that the com­mis­sion’s ac­tions against the car­tel pre­vented over­charges of up to 9.7% in the price of ce­ment, said a World Bank re­port.

“The in­ves­ti­ga­tion saved down­stream firms R1.1 bil­lion to R1.4 bil­lion a year in in­put costs. The break-up of the car­tel was fol­lowed by the first new green­field en­try [Sephaku] in the sec­tor for 80 years,” said the re­port. wire­less ac­cess ser­vices for ur­ban and ru­ral ar­eas. The li­cens­ing of in-de­mand spec­trum could help the roll-out of long-term evo­lu­tion tech­nol­ogy for mo­bile oper­a­tors. “The forth­com­ing spec­trum li­cens­ing process pro­vides an op­por­tu­nity to get the reg­u­la­tory en­vi­ron­ment right up­front by en­sur­ing an open and trans­par­ent frame­work for ex­ist­ing firms and new en­trants to bid for this ca­pac­ity,” Pur­field said.

“When you know that some­body can en­ter a mar­ket and chal­lenge you, prices are low­ered and there is sta­bil­ity. We have to cre­ate a level play­ing field for small, mi­cro and medium en­ter­prises be­cause that is where the jobs will come from. There is huge po­ten­tial for South Africa there, but there is red tape faced by firms.” She urged au­thor­i­ties not to un­der­mine the ef­fect that a re­duc­tion in the reg­u­la­tory frame­work for en­try in pro­fes­sional sec­tors, in­clud­ing broad­band roll-out and in­creas­ing com­pe­ti­tion, would have on the econ­omy and job cre­ation.

South Africa’s econ­omy would have to grow up to 7.2% from 2017 to meet the NDP goals by 2030, said the World Bank.

“Poverty is at risk of ris­ing, es­pe­cially with the drought. A 7.2% growth would be am­bi­tious to achieve in good times, let alone given the out­look of weaker com­mod­ity prices. Ul­ti­mately, the abil­ity of South Africa and its govern­ment to meet grow­ing de­mand for job cre­ation, re­dis­tri­bu­tion and im­proved ser­vice de­liv­ery sus­tain­ably de­pends on bold re­forms,” said Pur­field.

The Com­pe­ti­tion Com­mis­sion wel­comed the re­port and said that its in­ves­ti­ga­tion of the wheat, maize, poul­try and phar­ma­ceu­ti­cals car­tels meant that more than 200 000 peo­ple were lifted above the poverty line through lower prices that fol­lowed its in­ter­ven­tion.

Lib­erty Mn­cube, the com­mis­sion’s chief econ­o­mist, said: “The so­phis­ti­ca­tion of pric­ing car­tels is one of the things we spend sleep­less nights try­ing to crack. Amend­ments to the Com­pe­ti­tion Com­mis­sion Act in 2009 now in­clude the crim­i­nal­i­sa­tion of car­tels. We’re now wait­ing for the ef­fec­tive date for that to hap­pen.”

“As well as gen­er­at­ing in­vest­ment in the sec­tor that has cre­ated new jobs, the new en­trant ap­pears to be charg­ing lower prices for ce­ment than the older es­tab­lished firms.”

The car­tel fixed prices and en­sured regulation through the al­lo­ca­tion of mar­ket shares and ter­ri­to­ries by the main ce­ment pro­duc­ers: PPC, La­farge, AfriSam and NPC.

“Sephaku now holds around 6% of the mar­ket. An­other new en­trant un­der con­struc­tion, owned by Mamba Ce­ment, will have a 5% share of ca­pac­ity when com­pleted. In­vest­ment by new en­trants – such as Sephaku – can also ben­e­fit the lo­cal econ­omy,” said the re­port.

PHOTO: REUTERS

GET­TING A HEADS-UP Work­ers hold a gi­ant fig­ure of the King of Car­ni­val as part of their prepa­ra­tions for the float pa­rade in Nice, France. The 132nd Car­ni­val of Nice will take place from Fe­bru­ary 13-28 un­der the theme King of Me­dia, in cel­e­bra­tion of press free­dom

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