Crackdown on monopolies
The big players in the financial services, telecommunications, automotive, sugar, fuel and steel industries are among those that will be in the firing line.
Proposed amendments to the Competition Act come as government tries to drive down the cost of doing business, improve consumer protection, grow the economy and create jobs.
The planned changes would give the Competition Commission and the Competition Tribunal more teeth to prosecute anti-competitive practices and intervene to break up inherited monopolies. The proposals are expected to go before the Department of Trade and Industry (DTI) executive board this week.
The DTI has proposed a clampdown on “oligopolistic markets”, where a few players collectively dominate the market. The intention is to try to break cartel-like operations and collusion between key players in various industries — something that is very difficult to prove.
Using SA’s “Big Four” banks as an example, DTI chief director of policy and legislation, Fungai Sibanda, explained that under the new legislation they could be taken to task for alleged collusion as a collective, dominant force — in an attempt to bring about lower bank fees — even though a single bank does not control the market.
Under the current laws, authorities can take action against abuse of dominance only if one company has at least 35%-45% of the market. The Big Four banks are Standard, First National, Absa and Nedbank.
A number of studies have indicated South Africans may be paying a lot more than their counterparts in other countries for services in industries such as banking and telecommunications. This was a concern from a competition policy perspective, Sibanda said.
“The basic goal of competition policy is the promotion of consumer welfare. Competition is good for consumers — it leads to lower prices, more product choice and better-quality goods and services,” Sibanda told Business Times. “High prices, therefore, may be an indication of a lack of competition.”
Government has undertaken a number of economic reform strategies, including trade liberalisation, that have generally brought international competition to sectors that were traditionally closed.
But in the process some industries, such as textiles and clothing, have become vulnerable to cheap foreign imports. And in the case of Mittal Steel, new international owners have not brought down the prices of their goods on the local market, in part because of obligations to their shareholders.
Policymakers are becoming increasingly impatient that concentration of market power still exists in key industries and new entrants find it hard to enter certain sectors.
The DTI is particularly concerned about concentration in the resources and intermediate goods sectors. It believes, for example, if steel prices were lower SA would have a more vibrant manufacturing industry.
Sibanda said there was general agreement that the competitiveness of the economy had improved, but government felt prices in many sectors were still too high by global standards.
One of the proposed changes looks at clarifying definitions, such as for excessive pricing.
“This needs to be unpacked,” said Sibanda. “Currently, the challenge is to prove that any price is excessive. Because there’s no formula to measure prices, the calculation to prove excessive prices will be challenged by companies.”
Azar Jammine, a director and chief economist at Econometrix, said new entrants into the economy would be welcome from a competition and diversity view.
Shan Ramburuth, the head of the Competition Commission, said banking and telecommunications were sectors “with [new] dynamics” that were being investigated.
“Competition is important in these two sectors because you’re dealing with high levels of innovation. The pressure comes in because of the new products, new technology and services.”
Ramburuth said the commission would make an announcement this week on its public inquiry into bank charges and the relationship between various banks in setting fees.
Banking Council of SA MD Cas Coovadia welcomed the legislative review and said the Big Four banks would co-operate fully with competition authorities.
“It’s certainly not the intention of the Big Four to collude, but it is the intention of the banking regulator and competition authorities to ensure we have sound competition and no systemic risk to the economy,” he said.
“We have contributed to the commission’s report on bank charges, and will continue to co-operate with the competition authorities to address any concerns they might have about anti-competitive practices in the sector.”
While there might be perceptions in some sections of the public that banks collude, “my interaction with industry players suggests they compete all the time and there’s no collusion by the Big Four”, he added.
Vodacom, the leading cellphone company in SA by subscriber numbers, said the company had always subscribed to a “light-touch” regulatory approach. “We feel competition in the marketplace is the best form of bringing down prices, rather then heavy-handed regulation,” said spokesperson Dot Field.
Colin McClelland, director of the SA Petroleum Industry Association (Sapia), said he was surprised current law didn’t allow authorities to deal with a situation where a number of companies collectively collude to dominate a market.
“We are not a normal competitive industry, because the industry is not deregulated. We’re in an unusual situation because petrol price increases and our profits, for example, are controlled by government.
“In a lot of industries a number of players get together to rig the market, so giving competition authorities more powers to clamp down on collective market dominance of players will be great for the economy.
“We’re in an unusual situation, but, if we were deregulated, Sapia wouldn’t like a situation where a few players could rig the market without the competition authorities being able to come down hard on them.”
Anthony Norton, head of legal firm Webber Wentzel Bowens’ competition law department, said he was a strong proponent of competition law given the “high levels of concentration in the economy”.
But he said some Competition Commission decisions did more harm than good to corporate SA and the economy because of a “lack of rigorous analysis and factual evidence” to prove anti-competitiveness.
“The commission is struggling at the moment because of lack of resources. They should be given more support from government,” he said.
The proposed changes are expected to go out for public comment in the next three months — following Cabinet approval.
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