Competition Act changes will create conflict

Johannesburg - The proposed amendments to the Competition Act could face opposition from other parts of government and invite an onslaught of challenges from companies that find themselves subject to the powerful new market inquiry mechanism.

Overzealous competition law can neuter industrial policy, warned Garth Strachan, deputy director-general: industrial development policy at the department of trade and industry (the dti).

“If we get it wrong, we may fall prey to competition or free market fundamentalism,” he said at a panel discussion on the amendments Economic Development Minister Ebrahim Patel released in December.

Strachan complained about the way competition concerns already constrained government’s attempts at drawing up industrial policy.

The dti has in the past tried to designate so-called yellow metal, meaning heavy machinery used in mining and construction, for local procurement, he said.

Treasury shot this down, citing competition concerns, said Strachan.

“If the amendments lead to a further tightening of the space in which we can create other policy instruments, I think the dti is going to be in opposition.”

Treasury itself has run headlong into competition problems with its flagship “transversal” contract with Vodacom for mobile telephony in the public service.

Treasury extolled it as the “benchmark model for cost reduction measures” but, according to the Competition Commission, it is an abuse of dominance.

“Fragmentation of policy in government is our biggest problem,” said Strachan.

“Global history and academic literature are replete with examples of countries that identified and supported national industry champions and deployed a host of policy instruments to support that national champion.”

NEW REGIME

The major change in the proposed amendments is to massively increase the role of market inquiries.

The Competition Commission will be able to hold these to interrogate an alleged lack of competition and overconcentration in sectors – and impose a broad range of remedies.

This new instrument will effectively turn the commission into a kind of “markets authority”, said Simon Roberts, professor of economics and director of the University of Johannesburg’s Centre for Competition, Regulation and Economic Development, which organised the discussion.

That would see South Africa follow in the footsteps of other countries where competition enforcement has evolved into a broader kind of market regulation.

Because the competition authorities have been relatively effective, there is a temptation to use them to make up for failures elsewhere, said Roberts.

Despite the growing profile and activities of the competition authorities, South Africa still doesn’t really have a competition policy as such, he said.

“It is striking that there is very little mention of competition in the national development plan, given that what we are really talking about is how a market economy works.”

He warned against the temptation to stretch the ambit of inquiries, especially for those with political objectives.

Said Imraan Valodia, dean of the faculty of commerce, law and management at the University of the Witwatersrand: “There is a justifiable concern that we might be trying to do everything with competition law.”

Valodia was a member of the panel advising Patel on the amendments.

He said that had he been in charge of the process, he would have had a broader review of competition policy and the impact of a range of things.

South Africa’s economy is typified as being extremely concentrated but, according to Valodia, “much of that evidence only comes from the economy we see”.

The informal economy is not visible in market share numbers, although South Africa famously has a tiny informal sector compared with most developing economies.

“We have to think about how the large firms with dominance exert influence over that part of the economy,” said Valodia.

BACKLASH

If competition authorities try to impose the “powerful” new remedies open to it, it will be met with an equal reaction from companies affected, predicted Liberty Mncube, chief economist of the Competition Commission.

“There is a direct correlation between the remedies that can be imposed and the intensity of opposition that affected parties bring. You can expect, with these amendments, that contestation around conditions imposed will become an issue.

“Perhaps the trick will be to limit the number of inquiries the commission can do at one time,” he said.

The amendments already proposed that inquiries have to finish within 18 months – seemingly a response to the never-ending healthcare inquiry that has now lasted four years and has constantly expanded its scope.

The only inquiry that has been concluded is the one into the liquid petroleum gas market last year. The effects of its recommendations are yet to be seen.

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