Big business bullies choke SA’s economy
New bill aims to crack down on abuse of market dominance
● Corporate giants dominate the South African economy, with most industries controlled by a handful of players, and some economists believe that the status quo has a stranglehold on the country.
Anglo American, whose pre-1994 history saw its tentacles reach into every corner of the South African economy, from paper and packaging to financial services, is an example of one of those giants. Likewise conglomerate Barlow Rand, now trading as Barloworld, had interests in mining, information technology and building materials.
Anglo returned to its mining roots after selling off its stakes in companies such as The Argus Group, now Independent Newspapers, Southern Life and South African Breweries, but the culture of dominance by a small number of players has remained.
A report released last month by the Industrial Development Think Tank at the University of Johannesburg said some data show that concentration levels in the South African economy are worsening, as over the past decades companies have merged and bought businesses rather than expanded and upgraded operations.
“Monopolistic firms have less of an incentive to invest, since they can earn rents by protecting their market share rather than upgrading their product offering. Furthermore, barriers to entry for smaller firms inhibits investment and thus dynamism,” the report said.
The report says Statistics South Africa data show that concentration levels within manufacturing have increased. In 16 out of 80 sub-sectors, five companies were holding 70% or more of the market share in 2008. By 2014 this had risen to 22 sub-sectors in which a small number of firms dominated.
Simon Roberts, an executive director of the Centre for Competition, Regulation and Economic Development (CCRED), who coauthored the report, said to combat the concentration in the market one tool was to regulate for rivalry.
Steps could be taken to boost the domestic market and “open up the space”, such as compelling supermarkets to source locally and have supplier development programmes, he said.
In 2015 the Australian Competition and Consumer Commission introduced its Food and Grocery Code of Conduct. The voluntary code, which major Australian retailers such as Coles and Woolworths have adopted, creates protection for suppliers and also helps to develop them.
The protection includes minimum behavioural standards for retailers when dealing with payments, and allocating shelf space and specifications for fresh produce, among other things. It prohibits retailers from threatening suppliers with unreasonable termination of their contracts and also has a mechanism to solve disputes.
While South Africa has some initiatives similar to those in Australia they have not been as successful. Walmart was required to set up a supplier development programme when it bought a majority stake in Massmart, in order to bring local manufacturers into its supply chain. Woolworths has its own supplier development programme.
The beer sector in South Africa is considered to be highly uncompetitive as it is difficult for small brewers to get their products into bars, fridges and on shelves.
As part of the US’s competition approval for the Anheuser-Busch InBev takeover of SABMiller, the country introduced protection for craft beer brewers. For example, AB InBev can’t provide incentives or rewards to a distributor based on the percentage of AB InBev beer the distributor sells compared with the sale of rival beers. The group also cannot acquire a distributor if the acquisition pushed the amount of beer AB InBev sold through its own distributors to more than 10% in the US.
Conditions by the Competition Tribunal in South Africa require AB InBev — in instances where it is the only supplier of refrigerators to an outlet — to provide at least 10% of the capacity of one refrigerator to small beer producers.
But even with these measures, it is tough out there for small companies.
Last year locally produced craft-beer label Soweto Gold, started by Ndumiso Madlala and Josef Schmid, was bought by Heineken.
Schmid said the business was sold to Heineken because it was the only way to grow the Soweto Gold brand. It would have taken an investment of between R50-million and R100-million to get Soweto Gold distributed around the country. The competition in the sector was very difficult for smaller players.
He said they have had “amazing support” and the government needed to continue supporting micro industries and introduce control measures to prevent unfair practices.
“There is space for a quality [beer] product. I have walked from the grain to the tap and been part of the whole process. It’s different from a master brewer pressing a button and suddenly he has made 150 000 litres of beer,” he said.
Trade and Industry Minister Rob Davies said last week there was no end of assessments of the economy that have highlighted that it is too concentrated and that the barriers to entry are too high.
The Competition Amendment Bill tries not only to give authorities the power to deal with cases of abuse of market dominance but also, where there is evidence, to call for deconcentration.
If the amendment bill, which is open for public comment, becomes law in its current form it will increase the role of market inquiries and give the Competition Commission the power to investigate alleged lack of competition and overconcentration and also impose a broad range of remedies.
Barriers to entry for smaller firms inhibit investment