IS­COR CHICK­ENS COME HOME TO ROOST

Finweek English Edition - - Companies & markets -

A FEW YEARS AGO, in a mag­a­zine com­mit­ted to up­hold­ing the free mar­ket and de­plor­ing in­ter­ven­tion in it, I wrote an edi­to­rial sug­gest­ing that, with­out aban­don­ing those gen­eral prin­ci­ples, maybe the ac­qui­si­tion of Is­cor by Mit­tal should be con­sid­ered a spe­cial case. Per­haps the sub­mer­sion of South Africa’s near-mo­nop­oly steel­maker into a huge in­ter­na­tional group could lead to the tak­ing of de­ci­sions that might be to Mit­tal’s world­wide ad­van­tage but not in SA’s best in­ter­ests.

That pro­voked a num­ber of let­ters from read­ers de­plor­ing the mag­a­zine’s heresy. How­ever, it’s now ap­par­ent just how jus­ti­fied those reser­va­tions were.

Later, I couldn’t see just how Mit­tal would pla­cate SA steel users by switch­ing from im­port par­ity pric­ing to an­other bun­dle of cri­te­ria with no rel­e­vance to SA – and in­deed it didn’t.

Of course, in a glob­alised mar­ket, in­ter­na­tional con­sid­er­a­tions will al­ways af­fect the price of a com­mod­ity in any par­tic­u­lar ju­ris­dic­tion. But to im­pose a pric­ing sys­tem that re­moves the en­tire com­par­a­tive ad­van­tage to con­sumers of be­ing lo­cated in a low-cost pro­ducer is, to put it mildly, per­verse.

And for Mit­tal to jack SA prices up fur­ther within days of be­ing se­ri­ously crit­i­cised by SA’s com­pe­ti­tion au­thor­i­ties borders on con­tempt.

The au­thor­i­ties claim they will force Mit­tal to di­vest one of its SA mills only as a last re­sort. Well, I have news for them: I can’t imag­ine that any­thing short of bring­ing an in­de­pen­dent pro­ducer into be­ing will have any ef­fect on Mit­tal’s pric­ing pol­icy. Af­ter all, from its own per­spec­tive Mit­tal is be­ing per­fectly log­i­cal and con­sis­tent.

Though I haven’t seen the par­al­lel drawn any­where, I find it rem­i­nis­cent of the ba­sic mis­take made when Telkom was pri­va­tised. Con­trary to what a for­mer ed­i­tor of mine used naïvely to ar­gue, it’s not enough just to pri­va­tise and be­lieve a private-sec­tor mo­nop­oly will be more benev­o­lent than a pub­lic-sec­tor one.

You must in­tro­duce ef­fec­tive com­pe­ti­tion as well. We’re still pay­ing dearly for that er­ror in the tele­coms mar­ket and I fear the same will be true of steel.

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