Intrusive competition law may prompt investors to go elsewhere
Is SA’s ever more intrusive competition regulation driving away foreign direct investment at a time when President Cyril Ramaphosa is trying hard to attract it? The leadership of Naspers seems to think so. Naspers chair Koos Bekker told shareholders last month that SA’s increasing competition scrutiny hampered investment, while CEO Bob van Dijk spoke of regulatory limitations when Naspers wanted to invest its dollars back in SA. They were right, in a sense, but for the wrong reasons. The deal that prompted the comments — Naspers’s proposed acquisition of WeBuyCars — is by no means a done deal. The Competition Commission recommended that the deal be prohibited, for reasons that are unusual at best — in effect because it would remove a potential competitor in the used-car market that Naspers had previously contemplated creating. The deal still has to go to the Competition Tribunal to be heard and decided. It promises to be a big legal bunfight.
Though the WeBuyCars deal is a legitimate subject for competition scrutiny, the broader concerns the Naspers bosses raise are shared by many in the market and the legal community, and can only increase now that trade and industry minister Ebrahim Patel’s new competition legislation is coming into force. The new law was signed by the president earlier this year, but the first few sections were proclaimed only on July 6, with some of the more controversial ones still to come.
Most controversial of the sections not yet in force are on buyer and supplier power, which attempt to prevent smaller firms being discriminated against but could rule out standard business practices such as bulk discounts and could even have the perverse effect of discouraging companies from dealing with small businesses at all.
The Competition Commission is due to issue guidelines for comment soon, along with the regulations required for the section to be proclaimed. But it’s feared these will still be intrusive and unclear.
Also still to come, on merger regulation specifically, is the national security committee that will scrutinise any foreign takeover on national security grounds, making the process of getting approval even more cumbersome and uncertain. The committee may never happen, but if the government is trying to promote investment it’s hardly the right signal to put out there.
The more immediate challenge for investors and potential investors is the sections on mergers now in force. Patel has long intervened to impose conditions on big foreign deals (such as Walmart/Massmart and AB InBev/SABMiller), but he has now been given the power to take Competition Tribunal merger decisions on appeal. At best, this could cause further delays to deals that are time sensitive. The increased uncertainty about the timing could in itself deter investors.
Core to the new merger rules is that they seek to promote greater levels of ownership by black people and workers and, while everyone supports the objective, it’s as yet unclear how that will play out in practice, and what the unexpected consequences might be. Will a new foreign owner be subjected to BEE requirements that other companies in its sector are not? If a black-owned company wants to sell to foreign investors, will the competition authorities prohibit that?
There will be lucrative work for M&A and competition lawyers. But will those foreign bids come? There have been nice deals lately, such as Milco/Clover, which the Competition Tribunal approved this week, and Pepsico’s proposed acquisition of Pioneer. The trouble is that what we don’t see are the deals that don’t happen, the multinationals that look at SA but then decide it might be easier, quicker and more predictable to take their money somewhere else. Corporate lawyers report an increasing number of these. Whether SA can pull in new foreign money will depend in part on how the new rules play out.
There will be lucrative work for M&A and competition lawyers