Draft legislation would expand the empire of the competition regulators

Parliament should keep in check whatever imperial ambitions the commission may harbour when it changes law

The Competition Commission is a key statutory body. Its mandate is to investigate and evaluate restrictive business practices, abuse of dominant positions, and mergers. Now the ANC government has earmarked the commission as a key institutional lever to “deconcentrate” the economy and promote economic inclusion.

Draft legislation in the pipeline would significantly expand the commission’s mandate and powers to do so.

Indeed, the Competition Amendment Bill gives considerable scope to reshape the economy by intervening in market structures. If enacted, the bill would expand the commission’s empire. The broad terrain of economic policy would become its fiefdom and protectorate.

Already there are signs that the competition authority is acting in an imperious (perhaps even imperialistic) fashion. Hence, when Parliament amends the law later in 2018 it should keep in check whatever imperial ambitions the regulator may harbour.

According to recent reports, a praetorian guard of VIP protection officers watches over several members of the commission’s executive committee at taxpayers’ expense.

There are allegations of nepotism in staff appointments. Anthony Ndzabandzaba, the principal partner at Ndzabandzaba Attorneys who was previously head of training and development in the commission’s cartels division, seems to be a favoured courtier. His law firm benefited handsomely from the commission’s coffers in the last 18 months, raking in more than R10m (63% of the commission’s expenditure) for work on cartel cases alone.

Two recent court judgments are of interest. In May, the Competition Appeal Court found that the commission had inexplicably and unjustifiably denied Standard Bank access to its record of investigation in the case of alleged forex-fixing.

In June, Kwa-Zulu-Natal Deputy Judge President Isaac Madondo found that the regulator had relied on conjecture, speculation and hearsay to obtain search-and-seizure warrants for so-called dawn raids.

The commission, he said, was guilty of a “serious breach” of its duty of good faith because it had failed to disclose material facts and withheld information from the court.

He therefore ordered the regulator to return everything it had seized in the raids and awarded costs to the affected companies.

These were botched raids of Jamesonian proportions. It seems strange that the commission would target relatively small operators in such a gung-ho fashion on trumped-up grounds. After all, small and medium enterprises are the very businesses whose economic competitiveness the regulator should seek to promote.

But the commission has performance targets to meet, and dawn raids — an intimidatory spectacle often accompanied by heavy infantry — are increasingly being used as a tool to gather evidence in cases of suspected collusion, price-fixing and abuse of dominance.

Even so, the commission must respect the limits of its authority. This is critical for the regulator’s institutional integrity. The commission cannot be entrusted with greater powers if it abuses the power it already has.

Yet the draft bill runs the risk of turning the commission into an imperium. In the words of one competition lawyer, it in effect empowers the regulator to move parts of the economy around “like pieces on a chess board”.

Ostensibly, the bill aims to tackle two major structural challenges facing the economy: high levels of market concentration and racially skewed patterns of ownership. The bill aims to promote the inclusion of black South Africans in the economy. This is a laudable objective, but competition legislation is not the right tool for tackling economic exclusion. Making the economy more inclusive doesn’t revolve around breaking up large firms or using a regulator to create a new market structure. There is no guarantee that smaller players will enter the market.

Economic inclusion should be about radically transforming labour laws to create jobs. SA should focus on improving access to capital and credit for unbanked entrepreneurs and cutting red tape for small businesspeople. None of this can be achieved by the competition regulators.

The bill puts too great a burden on the competition authorities to solve SA’s economic problems. And it gives them far too much power to do so. Alarmingly, the bill enables the president to appoint a committee with the power to decide whether an acquisition by a “foreign acquiring firm” is in the interests of national security. But “national security” is nebulously defined. This is frankly a mad and dangerous provision that is likely to create uncertainty and disincentivise foreign investment.

The bill also gives the commission authority to make binding orders (rather than just recommendations, as has been the case until now) after it has conducted market inquiries.

It will be empowered to remedy structural features believed to adversely effect competition in a market.

The amendments also provide for the imposition of more onerous and comprehensive administrative penalties for all contraventions of the act. Previously, only misconduct related to cartels and certain kinds of abuse of dominance would lead to an administrative penalty for a first-time offence.

The removal of an “orange card” for contraventions that aren’t cut and dried, and the introduction of a “red card” for both outright and potential violations will make it difficult for companies to monitor compliance. This may stifle dynamic competition by efficient large firms.

The bill’s merger control provisions entrench and intensify the trend to elevate so-called “public interest” considerations over pure competition concerns. This gives the competition authorities the power to range freely and proprietorially over the domain of industrial policy.

ABUSE OF DOMINANCE

The bill’s overriding concern with market concentration in merger control may lead to confusion and uncertainty when mergers are assessed. It may put those smaller players that do exist in concentrated markets at a disadvantage.

The bill’s abuse of dominance provisions could disincentivise medium-sized businesses from growing their market share.

If it is enacted in its current form, the bill will have negative economic consequences. It will introduce regulatory uncertainty, increase the cost of doing business and deter foreign investment.

No doubt Economic Development Minister Ebrahim Patel and other flag bearers for the “new dawn” will present a plausible justification for the proposed amendments. The economy should be deconcentrated and made more racially inclusive. So let us use the tried-and-tested structures and processes of institutions such as the Competition Commission and Competition Tribunal to do it in a transparent and regulated way, they will say. Rather that than a populist, anarchic crusade against the bogeyman of “white monopoly capital” in the guise of “radical economic transformation”.

It is a seductive argument, but also wholly deceptive. Left unchecked and given unfettered powers to stand astride the economy like the Colossus of Rhodes, the competition regulators pose just as much of a threat to economic freedom and welfare as the bandits of state capture.