Publications
Partners
In the last couple of weeks, South Africa yet again sat on the edge of its collective chair with bated breath awaiting our sovereign ratings from the ratings agencies, Moody’s Corporation and Standard and Poor. All of this, amidst high levels of pessimism about the country’s well-being as epitomised in newspaper and visual media inundating us with reams of doom and gloom about corruption, student unrest and the breakdown of race-relations, to name a few. Although the announcement by the ratings agencies was not excellent, it also was not the antithesis; junk!
Rather, South Africa was declared very ailing but with the potential for recovery subject to getting our house in order rather urgently. This includes addressing an economy of low growth, high unemployment and a drought amidst rising food prices which is putting a squeeze on the disposable income of all families, especially the poor.
However, despite the negative projections, in the margins of newspapers, in the early mornings and late nights of television news coverage, lies small but significant victories and successes with some institutions still working tirelessly.
It is in these margins that I am reminded of Adrian Gore, Chief Executive Officer of Discovery who is quoted as stating that South Africa is too negative in its outlook and fails to sufficiently acknowledge its successes which include, rolling out the world’s biggest anti-retroviral programme, an economy that has grown in nominal terms four times than it was in 1994, surplus energy and millions of South Africans being lifted out of poverty.
It is in these margins that the Competition Commission is achieving its successes in seeking outcomes for a growing and inclusive economy. Since it opened its doors in 1999 the Competition Commission has been learning and working tirelessly to enforce the Competition Act against transgressions related to cartels and abuses of dominance by large corporations. By 2013, the Competition Commission had levied administrative penalties of approximately R4,2 billion against various firms. These administrative penalties represent a measure of the illicit gains by these firms which usually manifest in high prices for consumers. In 2016 the Competition Commission continued in this trajectory and concluded a settlement agreement worth R1,5 billion with the steel giant ArcelorMittal South Africa in relation to multiple transgressions.
Mind you, the Competition Commission is not just a regulatory Robin Hood focusing only on retrieving illicit gains from the bank accounts of transgressing firms. On the contrary, the Competition Commission has in a very real and practical sense also contributed to the agenda of poverty alleviation as well as ensuring consumer choice and competition through its work. Three examples come to mind, one of which speaks directly to the success identified by Adrian Gore. In 2003 Ms Hazel Tau submitted a complaint to the Competition Commission against two pharmaceutical companies alleging that the companies were, amongst other things, charging excessive prices for their patented ARV medicines. Following investigation but prior to a public hearing, the two pharmaceutical companies entered into a settlement agreement with the Competition Commission which included granting licences to generic manufacturers, permitting licensees to export ARV medicines to sub-Saharan African countries and capping royalties to no more than 5% of the net sales of ARVs. The net effect of this intervention was to bring down the cost of ARVs which consequently increased access to ARVs to those who needed it most. With the significant drop in prices of ARVs, there were cost savings on treatment of at least R12 billion between 2004 and 2015.
In 2007, the Competition Commission recommended the prohibition of a merger between Pick n Pay and Fruit & Veg City based primarily on the fact that Pick n Pay and Fruit & Veg City were effective potential competitors and big purchasers of fresh produce. The competitive constraint between these two companies meant that they are likely to continue competing vigorously through prices and quality to the benefit consumers. If you are scratching your head trying to thread the pieces together, scratch no more. In prohibiting the merger, the Competition Commission forced Pick n Pay and Fruit & Veg City to continue being competitors. This resulted in the substantial growth of Fruit & Veg City illustrated by Food Lover’s Market brand stores increasing from just 2 in 2007 to 75 in 2016 and the rolling out of 220 Fresh Stop stores during the same period.
Bringing things a little closer to the present, in June of this year, the World Bank released a study conducted in conjunction with the African Competition Forum which noted that, amongst other things, the Competition Commission’s intervention in wheat, maize, poultry and pharmaceuticals markets contributed to reducing prices to consumers, consequently reducing overall poverty by at least 0.40 percentage points. Moreover, the study noted that potentially 202,000 individuals were made better off and lifted above the poverty line through lower prices putting back approximately 1.6 percent back into the pockets of to the poorest 10 percent.
To add a last example to the promised three, one should also note the work of the Competition Commission in relation to public interest in merger regulation. In particular, the Coca-Cola bottling transaction as well as the beer transaction (InBev/SAB) have resulted in the creation of development funds worth R1,4 billion which aim to incorporate and establish small and medium enterprises within the supply chains of these firms, leading to more inclusive growth.
These few examples are something to be optimistic about. This however is not to say there are no real challenges to the work of the Competition Commission including serious setbacks particularly in the prosecution of abuses of dominance. The country as a whole also faces significant challenges in trying to resuscitate the economy to create more jobs. And to epitomise the state of the nation and the essence of this article, it was with great pride and excitement that the 2016/17 World Economic Forum Global Competitiveness Report ranked South Africa 7th out of 138 countries for its effectiveness of competition policy. However, the same report ranks us 138th in the quality of our math and science education. Some food for thought.
» Sekgobela is advisor to the deputy commissioner
