Competition authorities missed an opportunity

2013-07-09 10:00

South Africa’s competition authorities squandered their opportunity to fundamentally restructure the construction industry and save the taxpayer billions of much-needed infrastructure rands.

Instead, the brazen looting of the public purse through overcharging for infrastructure projects will continue to undermine our economic stimulus programme.

But cartels not only drive prices up; they also discourage new players from outside their circle of mischief.

They lead to a concentration of the ­benefits of infrastructure spending, instead of allowing the circle of benefit to widen.

Cartels lead to a lower level of efficiency and a poorer-quality infrastructure.

The operation of the cartel is based on an agreement between competitors to ­allocate projects between them and to fix the price for delivery.

These companies proceed on the basis that they are too large and important to the national infrastructure drive to be harshly punished.

This week the competition commission settled with 15 of the country’s largest construction companies for collusive behaviour and illegal price-fixing on 300 public and private tenders amounting to R48?billion. The guilty parties will share a R1.46 billion fine.

One argument is that if the likes of WBHO, Murray & Roberts, Stefanutti, Aveng and Basil Read are severely sanctioned and blocked from state business for a period of time, there will be no companies to build the infrastructure.

But this view fails to consider that in 2006 and 2007 the JSE experienced a major ­construction boom as its AltX listings ­division experienced a flood of applications from emerging built environment ­companies.

Generally, these companies were of a high quality with strong balance sheets and robust business models. Companies like Esofranki, Buildworks and Afrimat were some of them.

If the parties to the cartel were sanctioned in the manner demanded by the Black Business Council – through criminal investigation and blacklisting – then the ­AltX and medium-sized companies would have stepped up to the plate and built the future infrastructure of the country.

Without any radical action, collusive ­behaviour may rear its head again. If the competition ommission were to interpret its mandate more broadly and act against ­inequitable market structures, its rulings would be a stronger deterrent.

The commission could consider the introduction of ­mandated access regimes to prevent bigger players in an industry crowding out smaller companies, like the laws implemented in Australia that forced the unbundling of ­railroad monopolies.

Finally, public entities could begin to ­design the rules of the tender process in line with OECD recommendations to make bid-rigging unattractive. But first, sanctions appropriate to the economic harm caused are in order.

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