Pro­tect­ing the small fish from glob­al­i­sa­tion

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Justin Balkin & Rick van Rens­burg

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.

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