Competition policy on SOEs must be clear - commissioner

Cape Town - There should be a clear competition policy on state-owned enterprises which addresses, among other things, transparency in pricing, cross-subsidisation and bailouts, according to Competition Commission head Tembinkosi Bonakele.

He said the effectiveness of the Competition Act needs to be looked at, especially in relation to concentration. The SA economy is one of the most concentrated in the world and at least 70% of economic sectors are dominated by three to four large firms commanding average market shares of between 46% and 67%.

That is why, in his view, competition policy and execution in developing countries must respond to the local challenges of inequality, unemployment and poverty.

State-owned enterprises (SOEs), which often have monopolies over infrastructure, prefer to do business with large firms over SMMEs, according to Bonakele.

One of the commission’s abuse of dominance cases is against Transnet, which has been accused of excessive pricing and discrimination in favour of larger firms, he said at the Competition Law, Economics and Policy Conference at the Gordon Institute of Business Science on Thursday.

Regulation

As for regulation, the commission has observed that the standards authorities have "largely surrendered to incumbents who develop the standards to exclude new entrants and disrupters".

That is why the commission has engaged with the South African Bureau of Standards (SABS) in this regard and is also investigating some of the industry associations which have "usurped the authority of the standards setting authorities".

"A key strategic role for a competition authority operating in this environment is to lower barriers to entry and promote market access. Barriers to entry in SA have manifested themselves in market conduct or firms’ behaviour, which may be abuse of dominance or cartels aimed at preventing entry or excluding small competitors," he said.  

The commission has observed how firms strategically increase barriers to entry. These include large companies combining abuse of dominance with cartel conduct, forming exclusionary export clubs and engaging in exclusionary conduct. Examples of these include rebates and price discrimination in favour of large buyers.  

"We have also seen strategic use of supply contracts that favour particular incumbents and exclude SMMEs and smaller firms. The worst of this has been outright cartels which include market allocation masquerading as genuine market segmentation," he said.

Regulatory barriers include the quantitative restrictions on the number of participants through licensing, resulting in insurmountable first mover advantages. Subsequent licensing of new players is often not accompanied by appropriate regulations to level the playing field. This is particularly rife in the telecommunications and financial services sectors.

Procurement

Procurement rules also favour large incumbents as they promote a "winner takes all" outcome largely based on price, which large firms are able to achieve due to advantages of economies of scale.

"Often, the so-called lowest price is in any event misleading because of the prevalent cost escalations post the award of tenders," said Bonakele.

Rigorous enforcement
   
On market conduct, competition authorities must continue with rigorous enforcement, focusing on those sectors most crucial for consumers - especially the poor - and economic growth, according to Bonakele.

"We need smarter regulation aimed at promoting rivalry and sustainable entry into markets. The commission will step up its advocacy efforts - including assessing the effectiveness of regulation in regulated sectors - and make appropriate recommendations," he said.

"The commission will continue working with our counterparts within the Southern African Development Community and the continent as chair of the African Competition Forum, to strengthen competition policy and enforcement."

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