DA calls for scrapping of Competition Act’s public interest clauses
The DA wants the public interest provisions in South Africa’s competition law repealed, saying it is being used by the government to politicise mergers & acquisitions (M&A).
In its recently released Economic Justice Policy document, the official opposition proposes repealing parts of the Competition Act that empower the minister of trade, industry & competition to block a merger or acquisition over public interest concerns.
It also wants the Competition Tribunal removed as an arbiter in disputes over M&A.
DA MP Mathew Cuthbert said the public interest provisions they want to remove fall outside competition fundamentals and could be used to block M&A deemed undesirable by those with political interests. He said the DA planned to campaign on this in the run-up to the May 29 elections.
“If we say we want to uplift people, we must allow them to freely participate in the market, and provisions that stop people from buying or merging with other businesses are something we will seriously consider repealing if we were to have a majority in parliament,” Cuthbert added.
“Ultimately, if you repeal it, it can be removed from the act itself. If we have a policy from government that can achieve social goals, that could create the right conditions for businesses to invest, allow the creation of jobs and achieve the growth that the economy requires.”
The DA has signed a pact with several opposition parties under the multiparty charter, which has pledged to form a coalition government should the ANC fail to attain a governing majority. A possible ANCDA tie-up has also been informally discussed inside both parties.
The DA policy document says it is problematic for public interest considerations unrelated to competition to influence merger decisions because it undermined competition policy, and introduced unpredictability and inefficiency.
“The DA will remove the public interest provision from the Competition Act, as it is a political tool used by the ANC government to achieve industrial policy goals,” the document says.
“The [Competition] Commission best serves the public’s interest if it is focused on addressing market concentration and its impact on pricing.”
An example of public interest provisions undermining acquisitions highlighted in the document includes an attempt by Emerging Capital Partners Africa to acquire Burger King South Africa and Grand Foods Meat Plant from Grand Parade Investments.
Grand Parade is a black-controlled entity that owned more than 68% of the target firms, Burger King SA and Grand Foods. However, Emerging Capital wasn’t BEE compliant, which led to the Competition Commission rejecting the acquisition.
“Emerging Capital Partners tried to purchase Burger King from Grand Parade. There was a meeting to stop that because the buyers did not include previously disadvantaged persons in their ownership structure,” the DA document says.
Another instance where the public interest provision was used by trade, industry & competition minister Ebrahim Patel to intervene on behalf of workers was US retail giant Walmart’s acquisition of local wholesaler Massmart in 2010.
Patel and two of his ministerial colleagues at the time took on review the Competition Tribunal’s decision to approve the merger, and eventually won an order in the Competition Appeal Court instructing Walmart to set up a R200m supplier development fund, and to commit to not retrench staff for a number of years.
Patel has slammed the DA proposal, saying it would trigger job losses and lead to market concentration with impunity.
“Through the public interest conditions that we’ve put in place, we’ve tried to live up to the promise of the constitution. Remember the constitution that was adopted in 1996 did not envisage freezing South Africa as it was in 1994 and living with that reality,” Patel said.
“It envisaged a country that would become more transformed, where more women would be in the business sector, more workers would be employed, and more black South Africans would become entrepreneurs and industrialists. The Competition Act is an instrument to help to achieve that.”
Patel added the DA’s Economic Justice Policy document was dismissive of the government’s role in ensuring M&A did not lead to unnecessary job losses, market concentration or loss of value for employees and South African consumers.
These policies had helped the economy, he said, and in the past five years, more than 200,000 workers had become shareholders in the companies that they work for.
Patel said 300,000 jobs that were saved by the Competition Act’s public interest provisions would not have been realised had the DA’s policies been the order of the day.
“Had the DA policies been adopted, those 200,000 workers would not have been shareholders ... Those jobs would have been lost had the approach that the DA proposes been taken forward.”
Independent analyst Simon Brown said the DA’s proposals didn’t make sense from the perspective of business interest as the need to ensure jobs weren’t needlessly shed as a result of M&A was an economic imperative.
“It also depends on how one looks at competition, mergers and the like, and who benefits. In the US, antitrust law focuses on the question of [whether] the consumer gets hurt. If the consumer is hurt, no dice. In the UK it might not be bad for consumers but if it is bad for the sector, it can be blocked.”
Brown said matters that are in the public interest include employment, and current legislation responds to those needs.
Asked whether South Africa had adequately reformed competition legislation since 1994, Brown said: “We’ve done fairly well. In the Massmart situation, they had to set aside R200m to help set up small businesses that could supply to Massmart. I don’t know how successful that was, but the sentiment was right.”
He said his only gripe with current competition law was the slowness in approving M&A, citing Afrimat’s lengthy bid to acquire Lafarge as an example.
“Lafarge was struggling, and the business looked less attractive to Afrimat. The slowness can certainly add risk to deals and with Lafarge, this was an effective process of rescuing a bankrupt company. We have done well, but in terms of processing, we certainly can be slow,” Brown said.
Cosatu parliamentary liaison officer Matthew Parks said current provisions support SMMEs, protect jobs and boost black businesses.
“Massmart was a huge example of where interventions assisted small businesses by preventing Walmart from bringing in Chinese imports that local producers could not compete with.”
The public interest clause was discussed painstakingly by the government, business, and labour at Nedlac, he said, adding that the DA was behind the curve on policies that already had broad market consensus.