/ 26 January 2018

Bill raises fears for industrialists

The proposed changes to competition laws could undermine South Africa’s industrial policy space to advance local manufacturers
The proposed changes to competition laws could undermine South Africa’s industrial policy space to advance local manufacturers

Proposed changes to the Competition Act have sparked concerns in the government that they may inadvertently limit industrial development policy space to promote local business.

“If the amendments [in the Competition Amendment Bill] lead to a further tightening of the space in which we can deploy other policy instruments, I think the [department of trade and industry] is going to voice strong opposition,” said Garth Strachan, the deputy director general of industrial development in the department.

The department supported “unequivocally” many of the clauses in the Bill but, without an overarching competition policy, it was unclear how the proposed Bill would be aligned to other industrial development instruments and tools. These include industrial incentives and the designation of certain sectors for preferential procurement to promote local production, Strachan said.

He participated in a public discussion panel last week, jointly hosted by the University of the Witwatersrand and the Centre for Competition, Regulation and Economic Development at the University of Johannesburg, on the proposed amendments.

Last year, the minister for economic development, Ebrahim Patel, released the Bill, which proposes a range of changes to the country’s competition law, for public comment. The deadline for submissions is January 29. The changes are intended to address economic concentration and the racially skewed nature of ownership in the economy, he said in a press release.

[Economic Development Minister Ebrahim Patel’s Bill involves changes to competition laws. (Delwyn Verasamy/M&G)]

Strachan gave examples of how problems have already arisen under the Act, including that of yellow metal equipment manufacturer Bell Equipment.

Because of competition concerns, the department was prevented from designating the yellow metals sector for preferential procurement, despite the company having to compete against similar manufacturers from North America and Europe, many of which benefit from government support in their own countries, he said.

The history of successful industrialised countries was replete with examples of governments working very closely with national champions. Supporting local manufacturing was particularly important when it came to the department’s black industrialists programme, Strachan said.

“These are real industrial opportunities that we are supporting. We would like to ensure that South African manufacturers including the black industrialists benefit significantly through the deployment of industrial development instruments [such as] procurement incentives, which is targeted industrial policy to support national champions.”

If the amendments limited this then the department would take issue with it, he said.

The department is studying the proposed changes but he appealed for sufficient time “to canvass the Bill and its implications and its fit into the industrial policy framework”.

Some of the changes to the Act include enhancing market inquiries, which will make the Competition Commission’s findings and actions following an inquiry binding.

“The amendments envisage a range of creative, flexible and bespoke actions that the competition authorities will undertake where an adverse effect on competition due to the features of a market is established,” the economic development department said in a note on the Bill.

Notably, one of the remedies the commission can recommend following an inquiry is divestiture, although it can only be imposed by the Competition Tribunal.

The Bill also takes steps to strengthen the provisions that deal with the abuse of dominance, collusion and price discrimination.

In a recent statement on the changes, law firm Norton Rose Fulbright said the significant amendments to the abuse of dominance provisions were aimed at correcting the difficulties that the authorities have experienced.

Under the Bill, it would no longer be necessary for an excessive price to be shown to be to the detriment of consumers because excessive pricing could also affect businesses that buy from dominant firms, it said.

The Bill now places the burden on the dominant firm to show that the price it charges is reasonable, after the commission has established a prima facie case against it.