SA defends its large companies

South Africa has wilfully defended its large incumbent companies and this needs to change if there is going to be transformation in ownership, the Competition Commission’s commissioner, Tembinkosi Bonakele, said at a Wits Business School event this week.

“The biggest problem has been an economy that favours the incumbent. It is a very strange thing for a government that came in on the ticket of change. The overall policy trajectory is the opposite [of change].”

“It you look at industrial policy, it ended up having a lot of subsidies going towards big companies, both global and local.”

“We have backed our big industrials: Sasol, ArcelorMittal....”

“When Mittal says: ‘I am facing imports from China, so I am going to close down my plant’ – everybody gets a call. We get a call asking how we can help Amsa to not close down that plant where 14 000 workers are.”

“That is backing the incumbent,” said Bonakele.

“No one talks about the lack of investment that has caused Amsa to not be competitive.”

Bonakele also took a swipe at licensing rules for banks and mobile networks, saying they make it impossible to establish new entrants without the capacity to suffer years of losses.

“It is impossible to start a bank today. People consider Capitec a success, but they made losses for ten years when they entered. No black person is going to start a business like that. You need very deep pockets to do that,” he said.

Bonakele argued for less stringent regulations in small new banks on the basis that they pose very little systemic risk while they are small.

“You do not need to regulate it the way you regulate the big four. As they grow and pose more systemic risk, then you impose the regulations. I can say the same thing about mobile companies. You cannot start a mobile company today. Cell C and Telkom, to this day, are not profitable.”

Bonakele also pointed to the reference price system South Africa uses to automatically adjust the tariffs on sugar.

The system is designed to allow local producers to charge import parity prices and it is meant to compensate the local industry for the subsidies global competitors enjoy.

Bonakele added the commission made submissions against the system, the last time the international “reference price” was up for review.

“How can South Africa want to protect itself from Swaziland’s sugar?” he asked.

“If you want to really change the structure of the economy it is about entry and sustaining entry ... This is the real hard work. How do we get conditions where you can contest incumbents? We need the second layer coming up. This is what we don’t have.”

Criminalisation

Bonakele expressed serious doubts about the criminalisation of cartel conduct, which was introduced into the Competition Act last year.

It could technically lead to jail terms for managers involved in collusion, but there is yet to be a prosecution.

“It is a highly complex situation and the legislation needs to be refined,” said Bonakele.

It would mean the National Prosecuting Authority prosecuting competition offences.

“We are very sceptical about the NPA - about whether it has the requisite capacity to undertake this work,” explained Bonakele.

He is also worried, however, about how powerful a tool the threat of jail would be.

“You must not exaggerate the deterrent effect of sending people to jail. People often commit crimes without considering the consequences.”

The policy of giving leniency to cartel members who break ranks is already very powerful, he said.

“The caution with going the criminal road is that the standards of evidence will differ. We currently run these as civil trials, so the tribunal will decide on the balance of probabilities. A criminal court will have to prove a case beyond reasonable doubt. It means a judge will be reluctant to convict.

This is further complicated by the importance of vicarious liability in competition cases, he added.

That is when someone is held responsible for the actions of a subordinate they manage.

“A lot of employees are involved and they then cause exposure for the entire firm. This is complex - like when there is a mining accident, there are criminal provisions for negligence.”

“How do you get a CEO in Johannesburg convicted for an accident in a mine in Welkom? Getting that chain of accountability is nearly impossible. This is the same problem competition law has.

“Even if you have criminal sanctions, it will be hard to lock up executives. That is what South Africans are calling for. Everybody is baying for blood. To extract blood will be harder than what we are able to do now,” explained Bonakele.

“South Africa has a particular problem with cartels. We are a unique setting. There are cartels worldwide, but if we look at the scale and the kinds of markets affected ... for anyone who studies it, South Africa stands out because we have the worst cartels.”

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