Ebrahim Patel needs the resources, not just the rules
WHEN Economic Development Minister Ebrahim Patel introduced changes to competition legislation late last year to tackle the high levels of concentration in South Africa’s economy, it was in part a response to the calls for “radical economic transformation”.
Patel sought to offer an alternative means to drive economic growth and transformation by opening up the economy to new – ideally black-owned – entrants and making it more dynamic and more inclusive. He had the explicit backing of then deputy president, Cyril Ramaphosa.
The “RET” agenda and its backers may have been marginalised subsequently, but Patel’s proposed amendments to the competition legislation are very much still on the agenda as one of the signature policy measures of the new Ramaphosa administration.
The amendments are wending their way through Nedlac, where there’s been an unusually extensive consultation process between business, the government and labour – most recently on Monday.
The next step is for the parties to draft a Nedlac report, which should prompt revisions that will have to go back to cabinet before being tabled in parliament.
The minister has made it clear he wants to get the legislation through in 2018.
Companies, especially big companies, need to start thinking about what the changes could mean for them.
The timelines seem optimistic though, for amendments that are as controversial and as much in need of thoughtful debate as these are.
The controversy is not so much around the intentions – Patel has managed to rally surprisingly broad support in business and the competition law community, with a clear recognition that something does need to be done to make the economy more inclusive and make it easier for small businesses to compete.
Rather, it’s a case of the devil being in the detail. And there is a great deal of controversial detail in the amendments to the Competition Act that Patel published in December – everything and the kitchen sink, competition-wise, including a bunch of far-reaching changes unrelated to economic concentration.
The main tool the new legislation proposes to deal with economic concentration is the market inquiry.
The Competition Commission already has the power to launch market inquiries, but the amendments hugely extend these powers, mandating the commission to look at markets dominated by just a few players and to impose remedies – which could include ordering dominant companies to divest businesses to smaller players.
Most would agree with the minister that using the established tools of competition regulation to address concentration concerns is much better than letting the government do this by decree.
However, there are big questions about the test the commission would use to trigger market inquiries, and about the remedies. There are even bigger questions about the commission’s capacity to implement all of this in a way that will do economic good, not harm.
The amendments set out a much lower test for the commission to intervene in sectors with market inquiries or abuse-of-dominance probes, but give it the power to impose potentially very intrusive remedies.
The existing act asks whether mergers or conduct “substantially prevent or lessen competition”; the amendment talks merely about an “adverse effect on competition”.
It’s unclear what that will mean in practice, and whether there are adequate safeguards to prevent abuse (or incompetence).
And since the commission’s recommendations on remedies will generally be binding on companies, with only some remedies such as divestiture required to be judged by the Competition Tribunal, safeguards will be needed.
No doubt the legislative clauses will be tweaked, but there’s still the bigger question of implementation.
The commission is overextended and under-resourced, chasing a host of cases with too few skills and, arguably, not enough sense of priorities.
It is already cutting the number of investigations because it didn’t get the budget it required, it told parliament recently.
The commission is clearly not in any position to take on the new and complex task of investigating concentrated markets and devising remedies.
Expectations of the new legislation are high; so too are the risks of damage to well-functioning companies and sectors, and to business confidence and investment. Some worry that if the commission fails to deliver effectively on Patel’s intentions, more Draconian measures from government could follow.
He will have to make sure he has the resources, not just the rules.
The amendments make the minister even more powerful in competition regulation than he is already, giving him the power to intervene in mergers on competition grounds, not just the public interest grounds on which he intervened in deals such as Walmart/Massmart and AB InBev’s acquisition of SABMiller.
They also give him access to confidential documents.
Some wonder how the competition authorities can still be called independent if the minister calls the shots; others say the amendment will at least formalise and make transparent the interventions Patel already does.
Companies need to start thinking about what competition legislation changes could mean for them