Faulty competition law will not solve SA’s economic slide

It is a common view in radical economic transformation circles that the reason for SA s failure to industrialise is because the economy is “highly concentrated”.

As a consequence, President Cyril Ramaphosa announced in his state of the nation speech that the Competition Amendment Bill would be signed soon. That has now been done.

The passing of the bill marks a watershed of SA’s industrial policy. It is an impending disaster of enormous consequence.

There has been a lot of pussyfooting around this issue, so let me just lay it down straight: this bill is premised on poor and undisclosed analysis; it misdiagnosis the problem; it constitutes yet another impediment to investment; it represents a major shift towards the politicisation of competition policy; it will have the opposite result to the one intended by making South Africans poorer.

Though it is designated an amendment bill, it is actually a root-and-branch reconstitution of competition law. The existing act, the Competition Act, addresses the behaviour of firms and evaluates mergers but does not seek to “create competition” in the face of barriers to entry.

The new act is essentially intended to do that. Among many other things, the bill introduces protection against price discrimination and unfair purchasing practices by “dominant” firms.

The sanctions have moved from harsh to vicious, increasing from 10% to 25% of a firm’s annual turnover in the case of repeated offences. It has the indelible flavour of its sponsor, economic affairs minister Ebrahim Patel, a former trade unionist and essentially a vigorously antibusiness politician whose reputation as a high-octane micromanager is legendary.

Consequently, the legislation places massive new responsibilities for the implementation of competition law on the political head, that is him.

Ramaphosa’s statement echoed a long line of politicians and commentators who have argued that one of the factors inhibiting growth is the high level of economic concentration. But is this actually true?

Of course, there are some areas where the SA economy is very concentrated. Famously a bunch of companies have colluded on everything from bread prices to the construction of Fifa World Cup stadiums.

But what about concentration generally? The Competition Commission has claimed that its research (which it will not release) finds nine sectors are “highly concentrated” in terms of the formal, internationally accepted calculation, the Herfindahl–Hirschman index (HHI). One of these sectors is financial services.

It should be obvious to anyone that SA has six major banks that fight like cats for our precious cents.

If there are six roughly equal players in an industry, there is no way you get to an HHI score of over 68.8%, which is “highly concentrated”. So they must be talking about an aspect of the industry, but what aspect? We don’t know.

You could also ask what function the consumer price index plays. If an economy is concentrating, then surely companies will put up their prices? As it happens, the consumer price index has been rising pretty consistently at about 2.4% a year for the past decade.

PRETENDING THAT THE ROOT OF ECONOMIC DECLINE IS CONCENTRATION CONVENIENTLY ABSOLVES THE ANC FROM FOCUSING ON THE REAL PROBLEM

Looked at a different way, the conclusion is the same. In the 1990s Anglo American constituted about 21% of the JSE, but it is now about 3%. Old Mutual was then 11% of the JSE, it is now less than 2%.

The problem with SA’s economy is not concentration, it is low skills, low productivity, huge amounts of red tape and extremely high labour volatility. It is obvious.

For the ANC, pretending that the root of economic decline is economic concentration conveniently absolves it from focusing on the real problem: its alliance partner and its own policies.

It would be fabulous to have more small firms doing well in SA, but forcing big companies to be less competitive to make it notionally easier for small companies to compete just degrades productivity.

In any event, the arbitrariness of the new legislation with so much power in the hands of politicians will hurt small companies as much as large companies. How do you decide whether a company is gaining market share because it is “dominating”, or because it is providing a better service? You can’t.

There are plenty of problems in SA. Economic concentration is, broadly speaking, not one of them.