Sunday Times

Big business bullies choke SA’s economy

New bill aims to crack down on abuse of market dominance

- anetosp@sundaytime­s.co.za By PERICLES ANETOS

● 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

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