Don’t think any [other] developing country has been able to do this,” says Competition Commissioner Tembinkosi Bonakele proudly over the phone from the commission’s Pretoria office. He is talking to finweek about the recently announced prosecution of 18 local and international banks, accused in the forex scandal.
“With this case, we have joined the elite competition enforcers in the world,” he states. “It’s good for us as a competition authority, our team and the country.”
Bonakele says the commission worked very hard on the case, adding: “It was not an easy investigation, it was painstaking.”
When finweek asks him how he reacted to private sector players and politicians questioning the independence of the commission or the timing of the announcement of the prosecution, he says he just shrugged it off.
“Ultimately the truth will come out. You can’t play games with these kinds of cases. We treated it like any other prosecution,” he explains. “Nobody is treated special.”
Bonakele admits to being surprised by the scale of the political and public reaction to the case and the media coverage it garnered. “The commission doesn’t refer cases without evidence,” he explains. “We are quite keen for the case to be heard and be heard soon. That being said, we are more than happy to engage with the banks, we want this case resolved as soon as possible.”
A distinguished career
A veteran of competition law, Bonakele has been with the commission for 10 years and was appointed to head the commission in 2014, after serving as deputy commissioner since 2008. He established the commission’s cartel division and was active in high-profile cases like those involving the bread cartel and the construction cartel.
These days the commission’s high-profile cases crop up on a more regular basis. “Yeah, we are quite active in [cases involving] cartels,” he says in a matter-of-fact tone. “It’s almost every week.”
Bonakele studied law at Fort Hare University and has an MBA from the Gordon Institute of Business Science. He practised with Cheadle Thompson and Haysom in the areas of labour law, regulation and health and safety. However it was during a year spent working in corporate finance and antitrust at Clifford Chance’s New York office that the competition law bug bit.
He currently serves as the chairperson of the African Competition Forum and is a member of the International Competition Network Steering Group.
The commission is involved in some very interesting investigations and market inquiries at the moment, but naturally the forex scandal is on the tip of everyone’s tongue. Evidence appears to be stacking up against the 18 local and international banks that stand accused in the matter.
Citibank has agreed to pay a fine of R69.5m, as part of a settlement agreement for its part in the forex trading scandal and has agreed to cooperate with the commission, making available witnesses to assist the prosecution of the other banks that colluded in this matter. Bonakele says that the “full disclosure” that Citibank has agreed to, will “strengthen the evidence for prosecution of the other banks”.
That evidence is already predicated on full disclosure from Absa and its parent company Barclays, which is understood to have approached the commission with evidence of collusion in 2015. The commission’s investigation followed hot on the heels of investigations and prosecutions in Europe and the US in 2014/15.
Bonakele says that the collusion investigated by the commission would have had the effect of distorting the prices of foreign exchange trades and inflating the costs of trading. This would have particularly hurt importers and exporters in the country. If the currency was artificially weaker it would negatively impact importers into South Africa, while if it were artificially stronger it would negatively impact exporters from the country.
Schools uniform sector
On other fronts the commission is taking on the school uniform sector, the food retail sector, the liquid petroleum gas sector and the automotive service and panel beating sectors. These cases speak to the every day plight of consumers and were fuelled by numerous complaints to the commission.
Bonakele explains the R10bn school uniform sector is a key focus area for the commission. It first announced its interest in this sector in late 2015 after numerous complaints from parents.
“It was only after we started investigating that we realised how widespread it is,” he says. At first the commission decided to work through the minister of basic education, sending a guide to schools on how to prescribe uniforms. But Bonakele adds that the uptake to the guidelines was very disappointing and so the commission has decided to step in and regulate.
“We wanted the minister to direct the schools, it didn’t work well, the schools didn’t comply,” he explains. “So we have begun investigating some schools and suppliers.”
Bonakele says the commission is particularly interested in cases where schools prescribe items as part of the uniform that are only available from one or two suppliers. The commission is also interested in exclusive relationships between suppliers and schools.
“Schools must be as generic as possible when prescribing uniforms,” Bonakele maintains, adding that schools can still distinguish themselves, through cheaper options, like badges, which can be easily attached.
“You can distinguish your school,” says Bonakele. “But you need to bear in mind that it can’t cost parents an arm and a leg.”
He adds that if schools insist on exclusivity for an item, then it has to be subject to a competitive bidding for the contract.
The commission also recently made public the fact that it is busy with a scoping study of the automotive sector as well as related insurance and service sectors. Bonakele describes it as advocacy work, saying that the commission has concerns about excessive concentration of ownership and control and exclusionary practices. The body is also concerned with “potentially exorbitant prices” being charged because of a lack of competition.
The scoping study was launched after an excessive number of complaints from consumers. “There were a lot of complaints,” says Bonakele. “There is a lot of unhappiness.”
He adds that that EU, China, Russia and the USA all had to step in to deal with this sector, either through codes of conduct or regulations: “This is a big area of concern for us.”
Bonakele explains that the study has found many exclusive anti-competitive agreements in the sector cutting right across the value chain, which includes panel beaters, service centres, parts manufacturers, car manufacturers and insurance companies. Often these agreements require the consumer to deal with one specified company.
Bonakele says the commission is concerned with what this means for competition and how independent service providers are being foreclosed from these markets through the exclusive agreements. The commission is still engaging with stakeholders in these sectors. It is hoping to come to an agreement on how to make sure that consumers are allowed maximum choice and the sector is opened up for independent service providers.
Russia, he says, followed this voluntary self-regulation model, while the EU opted for legislated regulations. “We will try the self-regulation model, failing which we would seriously consider asking government to regulate this sector.”
Meanwhile the commission’s regulatory intervention in the liquid petroleum gas (LPG) sector is reaching a conclusion, with “final touch ups” being done to the report. The body is proposing changes to the LPG sector in a bid to stimulate competition and achieve lower prices for consumers.
In 2016 the commission put out draft proposals for comment. These draft proposals were a direct result of a market inquiry launched by the Commission in 2014.
South Africa produces about 300 000 tons of LPG annually, with a turnover of about R1.5bn. Domestic users use only 3% of this, and the commission believes this is due to high prices and limited supply.
The commission is recommending changes to the practice of long-term supply agreements between major wholesalers and refineries. Some of these agreements allow discounts on the regulated refinery gate price of up to 10%, terms not offered to smaller wholesalers.
The commission has also proposed a new allocation mechanism where wholesalers bid for their LPG requirements. Alternatively, refineries could set aside a minimum allocation for them. The commission believes that consumers are likely to benefit if smaller wholesalers are able to access LPG directly from refineries with the same discounts.
Bonakele says the commission’s investigation of the grocery retail sector is scheduled for completion in a year’s time and is “going well”. SA’s formal supermarket industry is very concentrated, with a few large chains making up more than 90% of the market. This market share hands the chains significant market power. The commission is concerned with how this power is used, particularly in the form of exclusivity clauses in long-term lease agreements between anchor supermarkets and property developers in shopping malls.
It is the anchor supermarket that often calls for these exclusivity clauses and it means that competitors like butchers and bakers, as well as fruit and vegetable retailers are barred from space in the mall. Sometimes these exclusivity periods can be as long as twenty years. Obviously this has implications for competition and consumer choice, and has been the subject of numerous complaints to the commission.
In 2016 the commission said it was initiating the grocery retail sector inquiry because it has reason to believe there are features in the sector that may “prevent, distort and restrict competition”. But the body’s investigation is also focused on the informal retail sector and this has seen the institution’s work dovetail with a regular and persistent complaint against international migrants made by South Africans.
“We are looking at spaza shops,” says Bonakele. “We are trying to understand why South Africans can’t compete in township businesses. Given the importance of the informal sector, it is important to make a deliberate effort to examine competition between local and foreign-owned small and independent retailers.”
Upon completion of the inquiry, the regulator could recommend policy changes to promote competition.
It’s clear that Bonakele has a lot on his plate. Consumers should be grateful – if he gets his way, they should feel their financial burdens lessen in years to come.This article originally appeared in the 30 March edition of finweek. Buy and download the magazine here.