SOEs must have clarity in their price policy

COMPETITION Commissioner Tembinkosi Bonakele believes there should be a clear competition policy for state-owned enterprises (SOEs).

The policy must address, among other things, transparency in pricing, cross subsidisation and bailouts, he told a competition law, economics and policy conference in Johannesburg yesterday.

His comments were made against the backdrop of a number of SOEs being in serious financial trouble and requesting bailouts or loan guarantees from the National Treasury, including South African Airways, the SA Broadcasting Corporation and Petro SA.

Bonakele also expressed concern about the level of concentration in South Africa’s economy, which he described as “one of the most concentrated in the world”.

He said the commission’s concentration study had revealed that at least 70 percent of the country’s economic sectors were dominated by three to four large firms commanding average market shares of between 46 percent and 67 percent.

Bonakele said a key strategic role for a competition authority in this environment was to lower barriers to entry and promote market access.

He said barriers to entry in South Africa had manifested themselves in market conduct or the behaviour of firms, which may be abuse of dominance or cartels aimed at preventing entry or excluding small competitors.

Bonakele said the strategic behaviour observed by the Competition Commission that had been noted by firms to increase barriers to entry included large companies combining abuse of dominance with cartel conduct, forming exclusionary export clubs and engaging in exclusionary conduct.

Supply contracts He said the commission had also seen strategic use of supply contracts that favour particular incumbents and exclude small, medium and micro enterprises and smaller firms.

“The worst of this has been outright cartels, which include market allocation masquerading as genuine market segmentation.

“Regulatory barriers include the quantitative restrictions on the number of participants through licensing, resulting in insurmountable first mover advantages.

“Subsequent licensing of new players are often not accompanied by appropriate regulations to level the playing fields. “This is particularly rife in the telecommunications and financial services sectors,” he said.

Bonakele said there had been a sharp increase in the number of cartel investigations and prosecutions in the past few years and the roll of cases this week within the cartels division stood at 177 cases, of which 84 were prosecutions before the Competition Tribunal, while the remaining 93 were under investigation.

He added that procurement rules also favoured large incumbents because they promote a “winner takes all” outcome largely based on price, which large firms were able to achieve due to economies of scale advantages.

“Often, the ‘so called’ lowest price is in any event misleading, because of the prevalent cost escalations post the award of tenders,” he said.