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Competition policy as an instrument for economic transformation – a careful balancing act

By Willemien Viljoen
25 Jan 2018
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Competition policy as an instrument for economic transformation – a careful balancing act

On 1 December 2017 the Competition Amendment Bill, 2017 was published for public comments (click here to download). According to the Economic Development Minister, Ebrahim Patel, the Bill aims to achieve economic transformation and inclusive growth objectives by addressing high levels of concentration, including by opening markets up for small scale businesses and businesses owned by previously disadvantaged individuals.

The effect of high levels of concentration on competition in general, and in particular, the ability of small scale businesses and businesses owned by previously disadvantaged individuals to enter into and effectively compete in the market will play a central role in evaluating mergers, acquisitions and the abuse of dominance and in conducting market inquiries under amendments contained in the Bill. The inclusion of concentration levels within the framework of competition policy is seen as a bold and far-reaching development in South Africa’s Competition Act. Furthermore, including the impact on small scale businesses and businesses owned by previously disadvantage individuals as evaluation criteria serves to cement the increasing importance the Competition Commission has been placing on public interest factors since the Wallmart/Massmart merger in competition legislation.

Some of the most significant changes the Bill introduces pertain to the ability and discretion of the Competition Commission when it comes to market inquiries. In terms of the Bill the Commission can conduct a market inquiry to determine if there is ‘any feature of a market for goods and services’ that adversely effects competition. To determine the feature of the market and subsequent impact, factors that can be considered include the level of concentration and ownership in the market; regulation of the market; state support to firms operating in the market; innovation, employment, prices and the quality of goods and services; and the conduct by firms in the market. Throughout the determination the Commission must take special cognisance of the adverse effect on small scale businesses or businesses controlled or owned by previously disadvantaged individuals. To remedy any adverse effects on competition the Commission has the discretion to assign any duty that is ‘reasonable and practicable to remedy, mitigate or prevent the adverse effects on competition.’

The question is, how will the Bill affect economic transformation to the benefit of small scale businesses and businesses owned by previously disadvantaged individuals without it being to the detriment of investors, producers, labour, consumers and the economy as a whole? The weight concentration levels and the need for transformation will carry is yet to be determined. The Competition Commission will have to perform a very careful case-by-case balancing act between the importance of these factors vis-à-vis other relevant factors which hamper entry, participation and exit in a market and overall competition.

Concentration levels and socio-economic public interest factors cannot be the be all and end all of the evaluation criteria – there are various factors which can hamper competition in a specific market – economies of scale, access to finance, initial capital outlays and investment requirements, access to and cost of inputs, the regulatory environment within which a specific market operates and know-how, knowledge and skills. Will the Competition Bill be able to effect change in these areas to maintain and promote competition in the long-run? This might require changes in policies regarding trade (for instance tariffs on imported inputs and intermediate goods), labour, financial regulations and investment and the cost of inputs like electricity.

The Amendment Bill allows for the Competition Commission to make recommendations for new or amended policy, legislation and regulations based on their findings. Will these recommendations actually be taken on board and lead to effective policy changes in vital areas that currently hamper competitiveness and supply-side constraints.


Source:

Competition Amendment Bill, 2017. Available at https://www.tralac.org/documents/resources/by-country/south-africa/1508-sa-competition-amendment-bill-request-for-public-comments-1-december-2017.html

About the Author(s)

Willemien Viljoen

Willemien Viljoen

Willemien Viljoen holds a Master’s degree in Economics and a Bachelor of Laws degree (LLB) from the University of Stellenbosch. Her research interests are in regional integration and international trade policy, and specifically in issues pertaining to non-tariff barriers to trade, trade data analysis and modeling and trade and climate change.

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