Points made by COSATU General Secretary, Zwelinzima Vavi, at Competition Commission Conference, Johannesburg, 4 September 2014
Introduction
COSATU congratulates the Competition Commission on its fifteenth anniversary. In these 15 years it has done a sterling work in addressing the problems of collusion, price fixing, abuse of dominance and market allocation.
The Commission's good work has thus been recognised globally and the 2012/14 World Economic Forum's Global Competitiveness Report ranked South Africa 8th out of 148 countries for the effectiveness of its anti-monopoly policy (IPAP 2014).
But the problems the Commission is dealing are characteristic of any capitalist economy which is based on the profit motive. The South African economy is highly concentrated which makes collusion by companies relatively easy.
This is why COSATU has been consistently calling for the diversification of the economy to allow more local suppliers to emerge, which would benefit consumers through lower prices and create more jobs. The state should also get more involved as producer of goods and services to help bring prices down.
But competition alone cannot reduce prices in a manner that benefits the majority of our people. Consumers do not always have adequate information to make decisions in relation to where to buy and not to buy. Even in instances they have information of better prices there are transport costs involved and this problem is exacerbated by lack of an integrated, safe and reliable public transport system.
This is why a consideration should be made to regulate prices of basic commodities consumed by the working people and the poor.
Some evidence of good work by the Competition Commission in recent years
In 2013 15 major construction firms were fined a collective R1.46-billion for collusive tendering related to projects concluded between 2006 and 2011. These collusive practices included the construction work for the 2010 FIFA World Cup.
What is disconcerting is that even some SOEs get involved in anti-competitive conduct. Telkom was found to be involved in anticompetitive behaviour and fined of R200-million over three years.
In the poultry industry, one of a few sources of proteins for the majority our people, Astral was found to be involved in price fixing and abuse of dominance and fined R16.7 million.
Glass South Africa was fined R4.3 million for price fixing and market allocation case.
Magaliesberg Grain Corporation, MGK. was fined R32 346.00 for the cattle feed price fixing case.
We will be participating in the Commission's market inquiry into private healthcare, which will focus on the private healthcare sector. Our involvement does not mean that believe affordable quality health care can be attained through competition policy. Ultimately, this fundamental objective can only be realised through full implementation of the NHI.
How do consumers benefit out of these administrative penalties?
This is an important question we have been raising since the bread cartel was exposed in the late 2000s; how are the bread consumers benefiting in lower bread prices through administrative prices imposed for anti-competitive conduct?
We thought the agreement the Commission entered into with Pioneer Foods back in 2010 was a model that attempted to address this question. In that agreement, Pioneer committed, among others, to:
Pay R250 million as an administrative penalty to National Revenue Fund;
Pay R250 million to create an Agro-processing Competitiveness Fund to be administered by the Industrial Development Corporation (IDC). The aim of this fund is to promote competitiveness, employment and growth in food value chains. The Fund will provide finance on favourable terms to small and medium enterprises;
Adjust its pricing of flour and bread (i.e. 600g and 700g standard white and brown loaves) over a defined period such as to reduce its gross margin by R160 million when compared to the similar period in 2009/10 by;
Increase its capital expenditure by R150 million over and above its currently approved capital expenditure budget" (Commission's November 2010 press statement).
The Pioneer case showed that the Commission can take a developmental approach in implementing competition policies. But we are not aware if there was monitoring in, for instance, to adjusting of the price of bread and flour.
Is COSATU happy with all the work of the Commission?
We are yet to see directors of companies involved in anticompetitive practices criminally charged. We have always argued that this could be strong deterrent than the less than 10% administrative penalties imposed by the Commission.
We think the Commission is too happy to approve mergers and acquisitions. For instance, out of 137 merger and acquisitions cases in 2014, the Commission prohibited only one and approved about 13 of them with conditions. The rest were approved unconditionally. Mergers and acquisitions may not only exacerbate the anti-competitive practices but, from the workers' experiences, they result in job cuts.
The merger of Metropolitan and Momentum to form MMI Holdings is a classical example. Despite the Competition Tribunal having imposed a moratorium against retrenchments for at least two years, the company tried to force the Tribunal to remove that condition so that it could retrench workers.
The pre-Massmart-Walmart merger retrenchments were also linked to this merger. We know that Standard Bank also retrenched workers after the Industrial and Commercial Bank of China acquired a big stake in it.
The other thorny issue is the Import Parity Pricing which is being used by companies like Sasol and Arcelor-Mittal South Africa (AMSA). Steel and energy, which these two companies produce, are essential for the industrialisation efforts in the country. That they are supplied at IPP is making the country's economy less competitive.
We know that the Competition Tribunal did find this practice as anti-competitive in the Harmony Goldfields-AMSA case, but lost the case at appeal by AMSA. Surely something must be done to close any loopholes to address this practice and the lessons the Competition Authorities learnt out of that case would be critical.
So there are 3 main problems with the competition legal framework:
1. It promotes mergers based on efficiency or what one can call productivity and indirectly promotes consolidations. This approach is not consistent with need to create an inclusive economy which accommodates new emerging small companies in particular black companies. Almost all mergers result in loss of jobs and the remedy to limit job losses to two years after the merger is not very little to mitigate the impact of mergers on employment.
2. The emphasis on efficiency means that the structure of the colonial-apartheid economy remains intact i.e. reliance on finance and minerals and concentration of the economic a few hands.
3. The Act does not have teeth. The Commission's banking recommendations have not been implemented. The criminal liability provisions of the Competition Amendment Act are not operational yet despite this law being passed by parliament and assented to by the President. The directors who stole money through government World cup bids have not been jailed. This promotes and entrenches a culture of impunity.
Solutions
The Act needs to be amended to provide for promotion of new black companies in the manufacturing sector.
Competition law should be seen as synchronised with industrial policy.
The Act should be amended to reduce the discretion of competition authorities and to require them to promote the public interest, in particular to ensure that mergers that seek to increase packages and egos of managers are prevented and no job losses should be tolerated even after two years. Only mergers that promote public interest, e.g. increase and retain current jobs should be allowed.
Criminal liability of directors should be imposed to ensure that price fixing which constitutes theft from the poor is dealt with severely. In the absence of strong criminal liability in the competition act criminality and price fixing will continue to be condoned.
Issued by COSATU, September 4 2014
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