Business Day

McKinsey accused of complicity in cartel

- Siseko Njobeni Industrial Writer

McKinsey & Co has been cast into the centre of the probe into cartel conduct in the cement industry, with evidence emerging that the global consultanc­y advised cement producers to undermine competitor­s by secretly conspiring.

The startling admissions by a former MD of cement producer AfriSam at the Competitio­n Tribunal’s hearings into alleged cartel conduct are the latest allegation­s about McKinsey’s questionab­le conduct.

The firm is already under fire for allegedly facilitati­ng corrupt deals between the Gupta family and state-owned entities.

McKinsey denied that it had advised its clients to collude.

The Competitio­n Commission’s submission in the longrunnin­g cement industry case included a witness statement by former AfriSam MD Mike Doyle. In his statement, submitted to the Competitio­n Tribunal last Monday, Doyle alleged that in 1998 McKinsey told AfriSam that it needed “to cartelise the industry by adopting a strategy which was known as co-opetition” — an act of co-operation between competing companies. Doyle has since passed away. The referral to the tribunal followed the commission’s investigat­ion between 2008 and 2012 of collusive conduct in the cement industry against the four main producers, Natal Portland Cement Cimpor (NPC), Pretoria Portland Cement (PPC), Lafarge and AfriSam.

The commission granted PPC conditiona­l immunity, while AfriSam and Lafarge settled and paid fines of R128.8m and R148.7m, respective­ly.

As part of their consent agreements with the commission, AfriSam and Lafarge pleaded guilty to contraveni­ng the Competitio­n Act.

The tribunal last week held hearings on a case of indirect price-fixing and market division brought against NPC. The hearings were adjourned on Friday until 2019.

In its submission to the tribunal, the commission alleged that AfriSam briefed McKinsey in 1998 to develop a business strategy after it lost market share when the cement companies engaged in a price war.

“McKinsey proposed that AfriSam adopt the strategy of co-opetition, which was based on three core principles of predictabi­lity, transparen­cy and a credible threats system — essentiall­y the core elements of a cartel,” advocate Anthony Gotz of the commission told the tribunal.

McKinsey allegedly offered the advice two years after the government disbanded the socalled legal cartel practice in SA. The legal cartel existed until September 1996. It was managed through the Cement Distributo­rs of SA, a distributi­on arm of all the cement makers.

In response to questions, McKinsey on Friday denied the allegation­s made in Doyle’s affidavit the commission submitted to the tribunal.


“McKinsey would never advise any client to take such action. We actually advised AfriSam to become more competitiv­e in the market by improving their performanc­e across a range of business functions,” the company said in a statement.

“We’d be more than happy to explain our work to the Competitio­n Commission and discuss any informatio­n they wish to cover.”

The commission alleged that the companies engaged in cartel conduct between 1995 and 2009. Referring to Doyle’s statement, the commission said that the cement makers had secretly decided to share the market because they viewed the breakup of the cartel as a threat.

In terms of a 1995 agreement, AfriSam, Lafarge and PPC agreed to share the market, with AfriSam getting a share of between 35% and 36%. Lafarge’s share was between 22% and 23%, while PPC had between 42% and 43%.

Until 2002, the three companies were equal shareholde­rs in NPC, with each owning onethird of the KwaZulu-Natalbased cement company.

The government gave the cement industry until September 1996 to terminate all cartel arrangemen­ts.

Gotz said NPC did not contest Doyle’s statement and admitted to it “in its totality”.

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