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
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.
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