Protecting the small fish from globalisation
It has become apparent that SMME’s will increasingly be exposed to — and have to survive — in the big pond that is the global economy
IF ONE considers the position of small, medium and micro enterprises (SMMEs ) in the context of the local economy, they can be seen to be small fish in a small pond. However, with the trend of globalisation and the recent spate of large foreign investments in SA, it has become apparent that SMME’s will increasingly be exposed to — and have to survive — in the big pond that is the global economy.
The pertinent question that arises in this regard is whether SA SMME’s can compete in the global arena and, if not, whether competition law can assist and/or protect them.
Of relevance in this regard is the recent Competition Appeal Court (CAC) judgment in relation to the acquisition of 51% of Massmart Holdings by Walmart Stores. In this judgment, handed down on October 9 by Judge President Davis, it was emphasised that the Competition Act should not be seen as a substitute for a comprehensive policy designed by the state to deal with the challenges of globalisation.
The CAC cannot thus usurp government’s prerogative of formulating and developing economic policies to address broader challenges within the economy. In the view of the court, the public interest factors set out in section 12(3) of the Competition Act are limited to addressing the direct and specific risks posed by a particular transaction under scrutiny.
Accordingly, as far as the court is concerned, competition law can assist local SMME’s only in relation to merger specific risks which fall within the ambit of section 12(3) of the Competition Act. For assistance in relation to the broader challenges posed by globalisation, SA SMME’s will have to turn to those government departments mandated to formulate and develop economic policies.
Against this background, the CAC reiterated that the benefits flowing from Walmart’s entrance (through lower prices) outweighed the possible negative effect that may arise (through the displacement of local suppliers and the knock-on effects on employment). Thus, the CAC held that there was no evidential basis to prohibit the merger. Notwithstanding this, the CAC determined that there remained a need for the supplier development condition to minimise the potential risk of the negative effect of the merger on SMME’s.
Before finalising the supplier development condition, the CAC sought further assistance and thus ordered that a study be commissioned by the merged entity (to be prepared by three experts, appointed by each of the Ministers, the SA Commercial Catering and Allied Workers Union and the merged entity) to determine the most appropriate means, together with a mechanism, by which local SMME’s may be empowered to respond to the challenges posed by the merger and thus benefit thereby.
There were significant differences in the two expert reports submitted to the CAC, particularly in relation to the duration, quantum, scope and control of the fund. In this regard, the CAC assessed the differing viewpoints of the expert panel and, in imposing a condition that the merged entity set up a programme to assist local South African suppliers, stressed that the focus of the fund was to promote the most vulnerable SA enterprises, particularly SMME’s (as opposed to large, well established SA suppliers), within the global value chain of the merged entity (as opposed to the broader global economy).
After considering the submissions of the experts, the CAC ordered that the fund will operate as follows:
the focus of the programme will be on skills development, rather than cash hand-outs to local producers. Thus, although the CAC ordered Massmart to contribute a maximum amount of R200m to the programme over its duration (being 5 years) it was made clear that it may not be necessary to expend the entire amount in achieving the programme’s objectives;
while subject to consultation with an advisory board, the administration and management of the fund will vest in the merged entity;
Massmart shall determine the amounts to be spent each year, after consultation with the advisory board;
the fund will be used to defray expenses and costs incurred in its implementation;
the fund is intended to assist both highly focused clusters of micro enterprises in upgrading their capabilities and by providing them with access to the merged entity’s supply chain, as well as existing and potential local suppliers who fall within and outside of Massmart’s priority supply chain development;
the fund should seek to incentivise the merged entity to purchase products from local producers over and above the kind of products that would in any event be purchased by it;
the fund will be audited by external auditors; and
the merged entity will report annually to the Competition Commission.
It appears that SMME’s will be better off in light of the CAC’s order (as they will receive some assistance from the merged entity in competing with global competitors). Be that as it may, this does not provide general protection from globalisation. This is a role that must be fulfilled by government and SMME’s cannot turn to competition law to be their saviour.
Justin Balkin, is a director and Rick van Rensburg is senior associate in the ENS competition law department.