Competition Amendment Bill: public hearings day 1

Meeting report

The Chairperson said the Committee had received a good response on the Bill. She asked Members to keep the main thrust of the Bill -- to transform the South African economy and to make the economy more inclusive -- on their minds while deliberating on the submissions to be heard. She said that the economy needed growth to change the lives of the people. All input received by the Committee would be considered in arriving at a decision on the Bill, and the drafting of the report on the Bill.

Law Society of South Africa (LSSA)

Ms Petra Kruschke, a Director at Werksmans Attorneys, and a member of the SA Law Society sub-committee on Competition, was the only LSSA representative. She said she would summarise the main aspects of the submission, as the full submission had been given to the Committee, and contained all the detail of their comments.

She highlighted that the LSSA supported the objectives of the Bill to provide greater protection for smaller businesses, businesses of historically disadvantaged persons (HDPs), and to provide small, medium and micro enterprises (SMMEs) with a more equitable share of the economy. It said more clarity was required on some aspects in Section 18A on national security, as some factors included were too wide and broad

Regarding prohibited practices, the LSSA had a concern with some definitions, as they did not provide sufficient clarity: Some of these were:

• average avoidable cost - the current definition did not allow for the calculation of an average cost;
• related markets - the LSSA fell that related markets was not appropriate, and that a more realistic term would be “relevant markets”
• participate - an alternative definition was provided by the LLSA, i.e. “participate” referred to the ability of or opportunity for efficient firms to sustain themselves. In marketing, participation had a corresponding meaning.

There was agreement that dominant firms abused the markets, but LSSA felt that this aspect could be addressed better in industrial policy rather than in competition law. It seemed that the abuse of dominance clause in the amendments sought to curtail the competitiveness of large firms. Large firms that were efficient, effective and pro-competitive were capable of reducing prices to end consumers, so the amendments had to strike a rational balance between the efficient large firms (which were able to reduce costs) and curtailing its size - lower prices to consumers were an important issue that had to be taken into consideration.

There was agreement that the yellow card for first time offenders should be withdrawn, as it would strengthen the penalty regime of the Bill, e.g. Section 8(c).

Some of the concerns on the amendments raised by the LSSA included the following -

• the definition of “excessive price” as used in Section 8, as it seemed that not all relevant factors were taken into consideration on this issue, e.g. demand factors, replacement cost factors etc.
• the LSSA was very concerned about the manner in which guidelines for excessive prices would be published by the Competition Commission. It was concerned about the separation of powers, as the Commission was able to make rules and be the referee on competition matters. It felt that granting such wide powers to an institution to draft guidelines was not correct and that this had to be done by the legislature.
• the one year period for exemptions (section 10.2A) was too long and had to be shortened, as it may impact smaller firms adversely. It felt that six months was more appropriate.
• regarding merger control, the LSSA felt that the period of the “control” had to of short duration. It also felt the term “market relevant” had to be used rather than “markets affected” by the merger.

The LSSA agreed that national security had to be included in the amendments, but was not sure if this was the right time to include it. It said more clarity was required on some aspects in Section 18A on national security -- some factors included were too wide and broad, how would the President’s Committee function, and how would the provisions impact on smaller firms and foreign businesses?

Regarding market enquiries, LSSA’s primary concern was on the cost of the process, and how effective and efficient a market enquiry would be.

Discussion

Mr I Pikinini (ANC) wanted to know what the LSSA concern was about the Competition Commission conducting market enquiries. It seemed to him that LSSA wanted sector regulators to conduce these enquiries.

LSSA responded that the Commission was best placed to regulate matters of an overarching nature that cut across business sectors. The sector regulators had jurisdiction only over the business sectors they regulated. The concern that the LSSA had was that there could be duplication of work already done by sector regulators on an issue, when the Commission conducted market enquiries. Market enquiries had to be efficient, effective and of short duration.

Ms A Mfulo (ANC) said she was concerned about the LLSA’s view that holding companies should not be liable for fines committed by their subsidiaries.

LSSA responded that if a holding company had knowingly directed a subsidiary to commit fraud or anti- competitive business practices, then the holding company was guilty but this was often very difficult to prove.

Ms Kruschke used the term “piercing of the corporate veil” of companies.” Also, boards of holding companies often did not have enough information at their disposal to know what was happening in subsidiaries. The best approach was to start with the subsidiary and work one’s way up the corporate ladder. The rules on the penalties therefore had to be strengthened to make it possible for holding companies to be held accountable.

The Chairperson commented that she was surprised that Board members would be unaware of what was happening at subsidiaries. Ms Kruschke said this was possible, as the level of knowledge at board level was often not enough to pierce the corporate veil in order to uncover anti-competitive business practices, for example. 

Ms Mfulo said she was concerned that some holding companies did not know what their subsidiaries were up to and wanted to know how one dealt with such a problem.

Ms Kruschke said “more” than just knowledge and information was required, but did not elaborate.

Dr J. Cardo (DA) wanted clarity on the changes proposed by LSSA to Section 9 of the Principal Act  in deleting the word “effectively,” and the deletion of section 9.4

The LSSA advised that it preferred the term “efficiently” to replace “effectively,” as efficiency should be at the heart of what drives businesses. Section 9.4 was problematic in that the clause would have unintended consequences for price inflation, as it disincentivised robust price negotiation.

Mr S Tleane (ANC) said he required clarity on what the LSSA ’s view was on shifting the onus to the businesses to prove their innocence in transgressions – for example, price discrimination by dominant firms. The Commission did not have all the resources and capacity that large business organisations had, so he felt it was correct that the onus had to shift to the firms.

The LSSA replied that the laws in place on excessive and predatory pricing were sufficient to deter and ensure anti-competitive practices were kept in check. There was no need for additional measures, like shifting the onus on to companies implicated or suspected of anti-competitive behaviour. It felt that this was an onerous provision and that it was subjective.

The Chairperson wanted to know what the LSSA meant when it indicated that the factors regarding provisions related to national security were too broad. What was the benchmark for saying it was too broad?

Ms Kruschke replied that the LSSA was referring to the provisions as contained in section 4 c, d, f and h, and that more detail was required on the aspects referred to in the sections.

The Chairperson asked LSSA to indicate if it had a specific benchmark in mind on what was too broad in the national security provisions.

Ms Kruschke responded that perhaps the Organisation fo Economic Co-operation and Development (OECD) rules could be used. She would investigate and revert back to the Committee.

The Chairperson asked by when, and Ms Kruschke replied, by 29 August 2018.  She said that in the view of the LSSA, Section 18A needed more work to improve clarity and its understanding.

The Chairperson commented that everyone was working together to make South Africa a better place, so the Committee needed the input, knowledge and expertise of people like LSSA, as this would help the Committee to make the correct decisions on the Bill for the benefit of everyone.

Sakeliga

Mr Piet le Roux, Chief Executive Officer (CEO):Sakeliga, said Sakeliga was an independent organisation representing around 12 000 members, mainly small and medium-sized businesses.

At the outset, he said that it was important to look critically at the underlying reasons for the amendments. There were two overriding criteria. On the one hand, this was nothing more than a bureaucratic process that wanted to replace procedures that the courts could decide upon, while on the other hand it injected “race” legislation into law. BEE criteria were going to feature in all business issues, and commercial conduct would be judged differently, depending on the race of a business person.

He commented further that the Bill indicated that it cared about the interests of black people (HDPs), hence the changes. However, Sakeliga believed that this was not real empowerment, as the only empowerment was that of state bureaucracy at the expense of the economy and the people of South Africa.

He had noted that the South African Communist Party (SACP) had indicated in recent press release that it was happy with these developments in the Bill. The Sakeliga was particularly concerned about proposals in the Bill that would allow certain business actions by black people, but would disallow it for white people, such as having to buy products from black-owned businesses at a higher price.

He said the guides in Section 18A on the committee to be established by the President were too broad and were not needed by the country.

There were numerous clauses in the amendment that would allow far to much room for discretion that could lead to corruption in the Competition Commission, and among regulators, tribunal members, committees etc. These clauses would definitely lead to some capture of the business community by the state.

He said the amendments that would inject race into South Africa’s laws would harm the country’s economy and well being. Mostly consumers would be harmed, but employment would suffer and job losses would occur, and company owners, including pensions invested in companies, would suffer. Black people would bear the brunt of these negative impacts on the economy resulting from the amendments.

He concluded that the Bill targeted foreign investors and capitalists unfairly, and that it was important to note that B23-2018 would apply BEE criteria to virtually all sectors of the economy, and this would be at the discretion of very powerful and opaque institutions like the Competition Commission, and others. The Bill would cause more harm than good, and would lead to more empowerment for bureaucrats, not for the black community.

Discussion

The Chairperson noted that Sakeliga had some qualms about the SACP, which she said was not necessary. It was better to focus on the issues that the Sakeliga wanted to bring to the Committee’s attention, and which could improve the Bill. She thanked Mr le Roux for his input.

Ms C Matsimbi (ANC) wanted to know what the rationale was for the Sakeliga to believe that the Competition Commission should not interfere in the country’s economy. This was the norm in other countries, like those in the Organisation for Economic Cooperation and Development (OECD), so surely regulators had the right to interfere where there were problems?

Mr Le Roux said he agreed with the high levels of economic concentration but that there were other dimensions to this issue that had not been taken into consideration. He believed the competition law was harmful because the Commission believed that concentration was bad for the economy. He did recognise the OECD view, but the key issue was to ascertain if people’s lives would improve with de-concentration. He felt the method proposed to solve the problem of concentration would make matters worse.

Ms Matsimbi wanted to know what Sakeliga proposed, to de-concentrate the economy.

Mr Le Roux replied that that the correct approach was the “long and hard way”. The overall outcome had to be that it benefited consumers. The short cut proposed by the Bill would not work. One had to put in one’s confidence in capitalists (and the market) who over time would correct the imbalance, such as entrepreneurs with the ability to be inventive, instead of putting one’s faith in someone trying to do some “matchmaking” from a government department desk. One had to accept that there was no inherent impediment for HDPs becoming successful - the process would just take some time, as historical injustices could be redressed only over time, and short cuts never worked.

The Chairperson asked Mr le Roux to clarify if the Sakeliga believed that economic concentrations could also be bad, and not just good, as argued earlier.

Mr Le Roux said he agreed.

The Chairperson asked Mr Le Roux to clarify some aspects of the Sakeliga position in relation to putting one’s trust in the market to correct historical injustices. She asked what happened when there was market failure

Mr le Roux responded that some concentrations could be bad, such as electricity in South Africa. Faith should be put in two aspects that he believed would address the concerns raised in the Bill. The two aspects were that of the market, which did not consist only of whites, and the other aspect was the capitalists who owned businesses and wanted to be profitable. These should be able to find solutions to grow or economy for the benefit of all.

He said that perhaps a better way to support and fund HDPs would be to use tax laws, instead of using competition laws to interfere in business.

Ms Matsimbi wanted to know how confident Mr Le Roux was that the market could over time address the concerns raised in the amendments.

Mr Le Roux said he would illustrate this by way of an example of how Afrikaners had bettered themselves from a position in 1930, when fewer than 10% had a matric qualification. This situation had been redressed over the next few decades without the Afrikaner government of the day enacting policies to enhance the status of Afrikaners. The government had been “friendly” towards Afrikaners, but had not invoked policies favouring them.

The Chairperson responded that perhaps the Committee had to provide Sakeliga with some information that would assist them to have a better idea on how Afrikaners had increased their wealth and wellbeing over this period.

Dr Cardo said that he noted that Sakeliga had stated that it was dangerous to use competition law to address business problems. He wanted to know if there was any part of the legislation that Sakeliga supported, or if it rejected the Bill in its entirety.

Mr Le Roux responded that Sakeliga rejected the Bill in its entirety, but that the organisation could provide further input on which parts of the Bill could be redeemed. 

Mr Tleane said that he noted that Sakeliga was very critical of the country’s competition law, and that it wanted to conduct independent research on the issue. He wanted to know if the research would come up with different answers regarding the impact of the racist policies of the previous government, and the impact it had had on the country’s economy, that the current competition law amendment sought to redress.

Mr Le Roux said that he agreed that there had been racist government policies in the past and that intervention would help to redress this. However, the proposals suggested in the amendments were counter-productive and would not help. The short cut would not work, -- one had to follow the long and hard road.

Ms Mfulo wanted to know what the Sakeliga was bringing to the Committee to assist it its deliberations on the Bill.

Mr Le Roux responded that it was the opinion of Sakeliga that the Bill would harm the economy.

Ms Mfulo asked for clarity on the Sakeliga view that the Bill would harm people and the economy. There was a problem regarding race in the economy, so the Bill had to redress these historical wrongs. She also wanted clarity on what Sakeliga meant when it referred to the government as “producers,” in its written submission to the Committee. It also seemed that Sakeliga had a belief that only organisations such as it could be innovative, and that black people could not participate in business but only had to be consumers.

Mr Le Roux answered that the Sakeliga submission did not refer to this government as “producers.” It has been meant as a general term. He said that the Bill did not help companies or people in general, both black and white. The main focus of the Bill should be to help people, and not business companies.

He concluded that Sakeliga rejected the Bill because it would be bad for the majority of South Africa’s people.

SA Clothing and Textile Workers Union (SACTWU)

Mr Etienne Vlok, SACTWU researcher, said the union had 110 000 members and that collectively around 500 000 South Africans were therefore impacted by developments at SACTWU. These were the people who would be directly affected by the amendments in this Bill, and competition law in general.

SACTWU supported the Bill, and had participated in the National Economic Development and Labour Council (NEDLAC) proceedings though the Congress of South African Trade Unions (COSATU). Not all of its proposals had been accepted, and it had compromised on some of them. The Nedlac process was a negotiated outcome, where all the stakeholders sought a balanced package that all could agree to. SACTWU was concerned that some stakeholders may want to roll back the agreements struck at Nedlac. He indicated that these were to accommodate the concerns of larger corporations.

The SACTWU presentation focused on four issues - economic concentration, collaboration, the role of the executive and penalties.

Regarding economic concentration, they welcomed the new amendments that addressed market domination and excessive pricing. The large profits being made by corporations was impacting the economy negatively and resulted in smaller businesses struggling to stay afloat. SACTWU supported Section 9 that addressed concerns on price discrimination, and welcomed the shifting of the evidentiary burden to larger firms to prove that no price discrimination existed, as this would assist in the fight to prevent large firms dominating smaller suppliers. Large corporations had too much power, to the detriment of smaller players in the market.

SACTWU believed that collaboration was necessary under certain conditions as outlined in Section 10, as this would enable certain scale goals, like “buy local,” to be achieved. He mentioned an example, where smaller suppliers could group together to jointly purchase fabric.

The role of the executive was to promote public policy goals, and SACTWU supported the increased role for the executive in the amendments, as it ultimately served the people of the country.

Regarding penalties, SACTWU supported the amendment of Section 59 that strengthened penalties. There were still too many offenders -- and some were repeat offenders. SACTWU wanted stronger penalties than the current 25% of annual turnover fines – for example, the European Union (EU) the figure was 30% -- but it had compromised on the 25% in the negotiations at Nedlac.

Discussion

Dr Cardo asked what SACTWU’s original positions had been on the aspects they had compromised on. He wanted clarity on SACTWU’s support for an increased role for the executive to play a stronger role regarding mergers. Lastly, he wanted to know if SACTWU believed that the new dispensation to address price discrimination by a dominant firm could also harm smaller businesses.

Mr Vlok responded that some of the compromises that SACTWU had made were around creeping mergers and creeping market concentration, where it wanted stronger provisions to counter this and address the anti-competitive behaviour of cartels and businesses that colluded unfairly. Their concern was not on pricing in respect of mergers, but was focused on jobs and the future of employees in the workplace. He cited the example of Wallmart, where the executive had intervened to protect jobs. In their view, there were no negative implications resulting from the amendments in Section 9 on price discrimination.

Mr P Atkinson (DA) said he understood that SACTWU represented worker rights and that a key priority was to protect jobs in the economy. Some aspect of this Bill would lead to an increase in prices, and he needed to know if it was ethical and moral to keep people employed at the expense of others.

Mr Vlok responded that price was not important - it did not matter what goods cost if there were no jobs. It was not appropriate to only focus narrowly on prices and disregard the other important aspects of the economy, like jobs and employment. It was false to assume that end prices would increase if larger corporations paid higher prices to source products from smaller suppliers.

Mr Pikinini wanted to know what SACTWU”s views on some aspects related to market enquiries were. He asked if market enquiries were the correct tool to address market problems, and if these should be conducted by the Commission. Should the Commission have powers to make decisions and recommend remedial action on an enquiry?

Mr Vlok replied that provision to conduct a market enquiry was very important, in that it would strengthen the overall structure and operation of the market and also provide certainty in terms of the legislation and regulations that would guide it. SACTWU supported the additional powers of the Commission to deal with uncompetitive behaviour in the market. The Commission would work with other sector regulators to manage this issue.

The Chairperson asked if SACTWU was concerned about the time and costs it would take to conduct market enquiries.

Mr Vlok responded that if on balance an enquiry meant that the market would become less concentrated and unlock constraints to growth of the economy, then the costs and time would be offset by the benefits. He said that market enquiries had be to time specific and that more resources were needed to shorten the time period.

The Chairperson wanted to know what SACTWU’s view was on the time period. Was 12 to 18 months appropriate?

Mr Vlok said that it was difficult to provide an absolute time period, as it depended on the sector being investigated. He agreed that 12 to 18 months made sense.

Ms Mfulo wanted to know if SACTWU was aware of any price discrimination by large firms in their sector.

Mr Vlok responded that in their supply chain, consumers had the power and that retailers had most of the power as they vied to meet the needs of consumers. Very little power resided with suppliers, as retailers could very easily switch supply elsewhere away from South Africa – for example, to Vietnam, Bangladesh or India. Even though end prices to consumers had increased over the last few years, the factory gate price had largely remained unchanged, and this was squeezing the margins of manufacturers.

Mr Tleane wanted to know if SACTWU believed it was important to have provisions to regulate in favour of suppliers to large firms.

Mr Vlok replied that large retailers had the biggest profit margins in the supply chain, so the new law would help to address this imbalance.

The Chairperson wanted to know why it was important, as indicated by SACTWU, for the executive to intervene where national security was at stake. Were the new provisions not too broad when compared to other countries?

Mr Vlok replied that said that at the moment, there was no legislation to protect national security when it came to mergers, including the impact on employment and jobs. SACTWU felt that the new provisions addressing this concern covered a gap that previously existed in our law. They were in agreement with the time frames and the manner in which the Presidential Committee would be constituted. There were enough safeguards to deal with concerns. SACTWU had not done any international comparisons on the issue.

The Chairperson asked if SACTWU saw any role for the legislature on national security, as outlined in the Bill.

Mr Vlok responded that in order to speed up the process, it was more efficient to let the executive handle the issue of national security. The process would take far too long at the legislature, with National Assembly (NA), National Council of Provinces (NCOP) and Committee procedures. However, the executive was accountable to the legislature, so the latter had a crucial role to play in ensuring the process was conducted properly.

Black Business Council (BBC)

Mr Sandile Zungu, President, and Mr Kganki Matabane, CEO, represented the BBC.  

Mr Zungu said the BBC was pleased that most of its submissions had been included in the amendments. He gave a bit of background on the organization, and said that the BBC was a professional apex organisation that included bodies like the National African Federated Chamber of Commerce (NAFCOC), the Foundation of African Business & Consumer Services (FABCOS), and other black business organisations which were active in all sectors of the economy. It included hawkers as well as business corporations active in mining, manufacturing and other business sectors.

The BBC supported the Bill, and was specifically pleased that it would address market dominance by large players, as they were one of the key causes for the failure of SMMEs and black businesses. Particular attention had to be paid to the role of multinationals and other dominant firms that constrained the development of other players in the market. He suggested that more focused monitoring was required. Cell phone companies also needed to be monitored more carefully.

A substantial amount of time was spent talking about the price manipulation by the large bread companies, as it harmed the economy and small entrepreneurs in this sector. This had to be addressed, as he was not sure that the practice had ceased. He mentioned Tiger Brands and Pioneer Foods. He also felt that there was price manipulation in the automotive sector. Market enquiries would be a critical tool to break down these unfair market practices.

Mr Zungu said large monopolies had be dismantled, and South Africa had to follow the lead of the most successful economies in the world, where large businesses worked side by side with small businesses. It did did not exclude and sideline small businesses, as was the case in South Africa. The BBC was particularly concerned about the long time it took large suppliers to pay small suppliers - it could be as long as 150 days.

Mr Matabane added that it was regrettable that even after 24 years, none of the business sectors were owned by black businesses. This was due to the monopolistic tendencies of large companies that led to market concentration. The market had failed the South African economy in this regard, and legislation now had to be introduced to drive this process, not the market. The BBC welcomed the emphasis on public interest issues in Section 12, and was keen to see the 25% penalty regime instituted as soon as possible.

Discussion

Ms Mfulo wanted more clarity on the BBC’s concerns around the monitoring of mergers. She wanted to know if the BBC wanted continuous monitoring, and who had to do the monitoring. Who had to be liable for the penalties as per Section 59 -- was it the companies or the CEOs? Lastly, she queried whether it was really necessary a need to have rule regarding the payment of suppliers, for example, within 30 days.

Mr Zungu responded that for government to work, state institutions had to collaborate more effectively. The Commission could monitor mergers, but it required other sector regulators to play a greater role. He also commented that if the conditions of mergers were known to the public, the latter could also assist in monitoring.

Mr Matabane said the best approach was to put the onus on companies to pay the fines, and not the CEOs. Punishing the CEO it may result in the CEO being dismissed, so the company would to be off the hook.  

Mr Zungu said that the practice of large businesses to delay payment to small suppliers was having a detrimental affect on small businesses, and had to be stopped.

Ms Mfulo asked if the BBC wanted a clause in the Bill to effect this.

Mr Zungu said that the BBC did not want to be the beneficiaries of government policy, and did not want excessive legislation, but large businesses were not playing fair so the BBC had no option but to ask that specific payment terms for SMMEs from its buyers be specified in the Bill.

The Chairperson asked the BBC where in the Bill they would prefer the payments terms to be specified, to which Mr Zungu replied that the BBC would respond in writing.

Mr Atkinson asked what factual evidence the BBC had of the non-payment by private sector businesses to small suppliers. He said it was well known that large business like Pick n Pay specified payments terms of 90 days, and that if suppliers did not like it they could go elsewhere. If payments terms were written into law, it would remove some company marketing and business operation tools. Some government departments were also not paying suppliers on time.

Mr Zungu said the BBC did not agree with the approach as mentioned by Mr Atkinson for Pick n Pay. It was not fair to “milk” SMMEs who did not have the necessary resources to survive that long without cash flow. He was not sure if non or late payment was more rampant in the private sector or government, and that perhaps a study needed to be done to establish this.

Mr Atkinson said that the main investors in big business these days were the large pension funds. He wanted more information on the BBC’s view that there was no black ownership in the SA economy. He asked if that view was based on any academic research.

Mr Matabane said that there was some research information on the matter, and blacks owned only between 3% and 5% of the economy. The imbalance was exacerbated by white-owned firms appointing mainly whites.

Mr Atkinson asked what race the government pension or employee fund was, inferring that the Public Investment Corporation (PIC) was one of the largest investors in the economy.

The Chairperson intervened, and said that it was not a fair question.

However, Mt Atkinson said it was important to know who owned what, due to the ownership models of the JSE. He wanted to know if the Committee had any idea what the ownership patterns were.

The Chairperson responded that ownership patterns favoured certain population groups, so it was not fair to deal with this issue now.

Mr Tleane said the the BBC presentation had made a very clear statement on the importance of addressing the challenges faced by SMMEs, and he wanted to know if BBC members had any information on unfair practices being meted out to their members by large firms.

Mr Matabane responded that the purpose of the Competition Bill was to remove barriers to entry, and the 90-day payment terms was of them. Only companies with large cash resources could deal with aspects like this. The main challenge for small businesses was access to funding and access to the market. Market concentration meant that the market was not accessible to all. In addition, large companies often had their own supply chain, even outside South Africa’s borders, like the automotive sector.

Malatji Kanyane Incorporated

Mr Tebogo Malatji, Managing Director, Malatji Kanyane Incorporated, supported by Ms Bonang Masia, fellow Director, said the focus of their presentation would be on amendments that addressed the inherent problem areas in the economy -- economic concentration, dominance, skewed ownership, mergers and public interest issues.

Mr Malatji said that guidelines to be published would clarify the blurring of power between the executive and the judiciary. On the criticism levelled at the onus now being on companies to prove that they did not act in an uncompetitive manner, he said that as long as the evidence was “prima facie” -- the Commission having to be in possession of factual information supporting the contravention and had to satisfy itself of the veracity -- the change in focus was justified. The law would provide clear guidelines for this.

He said the Commission would have powers to publish guidelines (Section 79), but that these would not be binding (not having the status of law). The guidelines could only provide persuasive explanations on issues. They would give the Commission an indication of how it would apply itself when investigating matters, and this would be clear to others as well.

Ms Masia provided input on merger revocations. She explained the term “functus officio” relating to mergers that had been drawing some criticism in certain quarters. It meant that once a decision had been reached by the Commission in respect of a merger, the decision could not be reversed. However this was a general rule, and courts would accept that the legislature could instruct an administrator like the Commissioner to revisit or reverse an earlier decision, as long the rationale for revisiting was not arbitrary but based on sound reasoning and facts. An example would be where the number of employment opportunities created in a sector was given as a condition for the merger. If new information was available that indicated that even more jobs was possible, the original decision could be revisited.

Ms Masia said that in terms of appeals, the Minister of Economic Development had to be afforded the same right of appeal as other interested parties in the merger proceedings.

Regarding national security, she said that concerns were unfounded, as Section 18A outlined a clear direction and process of how the issue had to take place. The President had to publish the factors that had to be considered.

Mr Malatji said that in the view of his organisation, the Bill had no legal impediments.

Discussion

Dr Cardo asked what would constitute prima facie evidence in terms of the abuse of dominance. He also asked what would be the risk of political meddling in terms of Section 18A, and wanted to know if the safeguards to prevent this were adequate.

Mr Malatji responded that in terms of prima facie evidence, there had to enough evidence with the Commission to enable the Commissioner to satisfy itself that there was a case, and the onus was on the other party to prove otherwise. If the case went to the Tribunal and a guilty verdict emerged, the prima facie threshold would be crossed, as then the initial evidence was proven. All of this had to be conducted within the confines of the Competition Law in place.

He said that South Africa was a constitutional state and that the President did not have unfettered powers. He had to produce a list that would be scrutinised in terms of the Constitution.

Dr Cardo wanted to know if there were any examples globally in other jurisdictions that South Africa could use to ensure oversight and control, for the legislature to prevent the abuse of power in terms of Section 18A.

Mr Tleane said the Bill shifted the evidential burden of price discrimination to companies, and wanted to know if this was fair. He wanted to know how South Africa’s competition law measured up against other countries, and if their laws could apply in SA as well.

Mr Malatji responded that in his view, the shifting of the onus to dominant firms to prove their innocence was fair, as anti-competitive behaviour often was swept under the carpet. The only assistance competition authorities had had in the past was whistle blowers, so this change in the law provided an additional tool to fight anti-competitive practices in the business place. Much of South African law emanated from OECD countries, like predatory pricing and market dominance. In SA there were added public interest issues, like HDPs, as an additional point of reference.

Mr Pikinini wanted to know if Malatji Kanayane Incorporated felt that the market inquiry process was fair.

Mr Maltaji replied that the Commission needed the necessary tools to conduct market enquiries. In the past, the Commission was often hamstrung by inadequacies in the law. The current augmentation to the law was necessary to improve the Commission’s work and to provide a clear direction for enquiries.

The Chairperson asked if the time lines for market enquiries were in order.

Mr Malatji said that 12 to 18 months was just about enough to allow a thorough investigation. He said it depended on the industry being investigated -- the more concentrated the market, the more difficult it would be to conclude the enquiry within these time frames.

Federation of Unions of South Africa (FEDUSA)

Mr Ashley Benjamin, an official at FEDUSA, said FEDUSA fully supported the amendments, as they would address the current economic exclusion that existed in the country. FEDUSA had participated at Nedlac and was aligned to the processes and agreements reached there. Not all of FEDUSA’s proposals had been accepted at Nedlac -- it had wanted stronger penalties and fines, but had compromised on these. They were concerned that those who opposed Bill wanted full control of the economy and restrict HDP participation. FEDUSA did not believe that the amendments would deter investors.

FEDUSA was pleased with some of the amendments in the Bill, as this would improve the economic climate for HDPs and small businesses. Economic concentration would be curtailed, prices would be lowered, workers would acquire ownership in firms, and black-owned businesses would be better off, as well as SMMEs.

Other aspects that they welcomed were the strengthening of public interest aspects, as this would lead to greater worker empowerment. Market enquiries would improve the business climate as it rooted out uncompetitive practices. FEDUSA supported the inclusion of national security in the Bill. It was pleased that fines and penalties were increased, and supported the 25% turnover penalty. It welcomed the greater role  for the Executive in the Bill, as well provisions that would address price discrimination the market. These amendments would all help to improve SMME and black-owned business operations.

Discussion

Mr Tleane said he noted that FEDUSA was aligned to the views of COSATU as negotiated at Nedlac, but wanted to know why FEDUSA believed it was important that there had to be provisions in the Bill to provide assistance to suppliers dealing with large businesses.

Mr Benjamin replied that in the sector he represented, all the bargaining power resided with retailers. They could procure their product anywhere, including from outside SA, where prices were cheaper. This was the reason why assistance was required.

Ms Mfulo wanted more clarity on the 25% penalty imposed on firms that contravened competition law.

Mr Benjamin responded that the law had been amended to remove the yellow card for first time offenders. The new penalties meant that first time offenders would be fined 10% of their annual turnover and a second offence would incur a fine of 25% of annual turnover.

The Chairperson wanted to know which Minister had the right to appeal decisions made by the Commissioner.

Mr Benjamin responded that it had to be the Minister with jurisdiction over competition law -- the Minister of Economic Development.

The Chairperson queried what the position would be if other ministers wanted to appeal decisions that impacted on their departments.

Mr Benjamin said that anyone could lodge a complaint, including other ministers, but that the line function of competition law lay with the Minister of Economic Development.

The Chairperson commented that the process of appeals had to follow a rational process that was in the national interest.

FEDUSA said it was comfortable with the processes on appeals, as outlined in Bill

SA Communist Party (SACP)

Ms Reneva Fourie, Member of the Central Committee, SACP, supported by Mr Anthony Dietrich, SACP Chairperson in the Western Cape, told the meeting that a delegation from Southern Cameroon had accompanied them and was observing proceedings.

The SACP submissions were based on resolutions taken at its recent conference in 2017, which included amongst other aspects the advancement of the working class, advancing transformation in the economy, measures to put private monopoly capital off balance, and to promote socialism.

Ms Fourie gave some historical perspective that informed the submission of the SACP, saying past imbalances had to be redressed and that conglomerates continued to dominate the economy, which had to be dismantled. The SACP favoured strong action against monopolies to break the cycle of high economic concentration that resided in a few big firms.

The SACP was pleased with innovations in the Bill that dealt with national security, economic concentration, market dominance and price discrimination. It wanted to see competition policy linked to industrial policy, as this would strengthen the fight against market concentration and open up the economy to more people. The focus on national security was welcomed, and it believed it should be broadened to include other aspects like food security. The SACP did not believe that the new penalties were adequate to stamp out anti-competitive behaviour - it felt that first offenders had to be fined at 25% of annual turnover, and second offenders had to pay 40% of turnover.

Ms Fourie said that the SACP wanted public interest issues in the Bill to include stokvels, burial societies and other operations in the informal sector. Provisions had to be included in the Bill to address the exclusion of services like business insurance for businesses operating in the townships.

She said that government may need to explore ways of protecting “vulnerable” businesses from invasion by foreign interests, such as the poultry industry and clothing manufacturers.

She concluded by saying that the SACP did not believe the amendments would deter investors and that it supported the Bill.

Discussion

Dr Cardo said that in engaging with Mr Garth Strachan, Deputy Director General, Department of Trade and Industry (DTI), he did not seem to be in favour of “collaboration” between industrial policy and competitive policy.

Ms Fourie responded that the SACP viewed the DTI and Economic Development polices as complementary, so there had to be cooperation. She was not aware of what the DDG’s views were. The SACP was willing to provide a more detailed comment on how the two departments could cooperate to help unlock blockages in the economy that constrained growth.

Mr Tleane said it seemed to him that the SACP supported the Bill because it was motivated to end the injustices of the past, and wanted to make the economy more inclusive. He asked if this was the case.

Ms Fourie replied that the SACP supported the Bill because it was opposed to monopoly capital. If this problem was not addressed, the county would face economic and political instability going forward, and this would cause major problem for the country.

Mr Tleane wanted to know if political leaders of the country had a role to play in matters regarding competition law and the process of appeals, rather than just leaving it up to the Commissioner.

Ms Fourie responded that when the electorate voted for a particular party, they expected delivery of the mandates given to the leaders, so ministers had to act responsibly when it came to mandates. This meant that they should be able to intervene in competition matters to allow objectives to be met.

Ms Matsobi wanted to know if the SACP supported the provisions for black economic empowerment (BEE) and workers in the Bill.

Ms Fourie replied that it did.

Mr Atkinson wanted to know how sure the SACP was that the Bill would not deter investors. He said the new amendment would make it more onerous for businesses to operate, so perhaps some businesses would be scared away?

Ms Fourie said that the SACP’s desire was to build the local economy with active employment and local resources. Those investors who did not share the same objectives that benefited the country in general were not welcome. Not all international investors were in South Africa only to make money -- some also had a developmental agenda, and these were the investors the SACP wanted to invest in SA.

Mr Atkinson wanted to know who these investors were.

Ms Fourie said she was not able to divulge names at this stage, but it was well known that the Chinese had a different investment philosophy that was not only about profits.

Mr Dietrich added that in essence, the SACP view was that the amendments in the Bill were the building blocks of socialism. The SACP was certain that the amendments would not deter investors. Investors wanted certainty of rules that governed their operations, and these amendments would provide that.

Mr Tleane said he wanted more clarity on the assertion that there would be political strife if these amendments were not implemented.

Ms Fourie responded said that this was inevitable. Some of the turmoil was already occurring now, and if there was no change to the current status quo, she forecast very troubled times ahead.

The Chairperson wanted to know if the SACP believed that the amendments would contribute to change in the economy, such as the dismantling of conglomerates.

Ms Fourie said that amending the Competition Act only would not address the challenges. There would be significant changes, but this would not be enough. For real traction, there had to be alignment with industrial policy, which meant that inequality could be eradicated over the next ten to 20 years.

The Chairperson wanted clarity on why the SAPC indicated it wanted the Competition Commission to be strengthened.

Ms Fourie said it meant the Commission needed more capacity in terms of skills, staffing and increased financial resources.

The Chairperson wanted to know if there were any weaknesses in the current Commission that required to be addressed.

Ms Fourie said it was not the intention of the SACP to undermine the Commission. What she meant was that the Commission needed more resources to wage a more effective battle against offenders with very large resources and balance sheets.

Dursots Foods

Mr Ismail Darsot, CEO and Managing Director of Dursots, briefed the Committee on his concerns regarding the plight of smaller businesses and their daily struggle to compete against the unfair tactics of larger businesses. It was a very passionate and at times strident commentary on the lack of support for small businesses. He supported the Bill as it was a real attempt to improve the lives of all the people in the country, but that it had to be improved, as the current amendments to the Act were anaemic.

A key question was to ask what the purpose of the Bill was. If it was to correct commercial deficiencies, then its intervention proposals were weak. If it was combat racism in commerce, because of our history, then the proposals were anaemic.

He said the laws governing business had be reassessed. For instance, the regulations to open a retail service station were very onerous, including an environmental impact assessment (EIA), while to acquire a grocer’s licence in Soweto required no such assessment, including what the impact would be on the lives of ordinary citizens.

He said that market dominance was a big problem in SA, and that 95-98% of the food market in the country was controlled by six organisations. Market dominance in the retail food sector had to be addressed, as smaller operators stood no chance against the large dominant companies. The market share that defined market dominance had to be adjusted downwards from 45% to 15%, or even lower. His preference was to have this at 10%, meaning that any business that owned more than 10% of the market was dominant, Businesses with a market share greater than 10% would have to divest.

Mr Darsot spent some time explaining how the dominant businesses -- he mentioned Shoprite, Checkers, Pick n Pay, Tiger Brands and others -- in the food market abused their power to the detriment of smaller operators like himself, and said these practices also harmed consumers in general. He was particularly scathing of their practice of using their “house brand” product lines to keep outsiders at bay, as no-one could offer products for sale in their stores at prices below the house brand. He also said that the 18% rebate given to larger manufacturers like Tiger Brands was not fair, as it was already a dominant player in the market. He commented that “our” government created these mechanisms that now keep these large conglomerates in power, to the detriment of smaller businesses like his. The Bill had to include measures to provide protection for smaller businesses that were vulnerable against the power exerted by the large corporations.

Mr Darsot said there was still racism in trade. Large corporations kept the products of black businesses off their shelves, reserving them for only white businesses. The economy was still controlled by whites, so many years after democracy. BEE was not working, and black directors in companies earned more than the owners, only to ensure that the BEE scores were in line with the law.

He was very scathing of the practice of rebates in the food industry, as this practice was not very clear and hidden “behind the back.” Rebates had to be abolished, as it was very difficult to make sense of financial information and company profits due to rebates. It was merely a smoke screen to hide excessive profits.

He said the price of goods would decrease by around 40% if the unfair business practices used by large corporations were stopped, like the practice of paying for shelf space and house brand marketing etc. He said he had been unable to place his products on the shelves of the big retailers for the last 25 years.

Discussion

The Chairperson said she was pleased that Mr Darsot had briefed the Committee, as it had provided them with valuable insight into some of the business practices in the industry he operated in.

Mr Tleane thanked Mr Darsot for “opening the eyes” of the Committee regarding his experiences. The Committee had to build relationships with Mr Darsot to learn from him, especially on aspects like rebates that he said had to be stopped. It perhaps needed to engage with him under different circumstances -- not on the Bill currently under discussion -- so that all the issues he had raised could be unpacked.

Ms Matsubi asked what benefits Mr Darsot envisaged for the country’s economy for black businesses like his.

Mr Darsot responded that the benefits would be vast. It would not be immediate, but would take around ten to 15 years and was achievable. He said “our” people had be educated to become operators of their own businesses, as in this way one could feed one’s family, extended family, neighbours and others. This was how Africa, with all its other problems, was surviving.

Mr Pikinini wanted more clarity on practices that impeded competition among businesses.

Mr Darsot said that a start would be get input from countries with successful economies. South Africa needed to learn from them. It needed to change its value system that was based on extracting far too much money from consumers.

Broadway Sweets

Mr Nazir Osman, CEO: Broadway Sweets, gave a brief submission to the Committee from the perspective of an independent manufacturer operating in an environment dominated by large players that exploited the sector he was operating in, to the detriment of smaller independent manufacturers like his company. The experiences were similar to that of Dursots -- the unfair exploitation of smaller companies by the large dominant firms.

He supported the Bill, but said it needed more measures to support small businesses.

He said smaller businesses were put under tremendous pressure by large players that it made it difficult to survive. He cited predatory pricing as a key weapon used by large businesses, saying that Tiger Brands had reduced a product’s price by 30% to compete with a similar product he manufactured. 

Big business, with their huge financial and other resources, had outsmarted government and the ruling party. They still controlled the economy and because of this, the politics as well. He said often large businesses controlled the whole value chain -- for example, sugar as a raw material for the manufacture sweets, the manufacturing facility, as well as the retail outlet that sold the sweets. Broadway Sweets also felt that government had to set a minimum wage to avoid the exploitation of workers, especially by large players in the market.

Other suggestions made by Mr Osman to improve the Bill and provide better assistance to small entrepreneurs were:

• Criminal liability of directors, to stop their unfair businesses practices;
• Training and capacity building for small entrepreneurs;
• The banning of house brands and rebates -- he said house brands were banned in the USA;
• The current definition of dominance had to be reassessed, as it was not working.

Discussion

The Chairperson that the Committee had taken note of the comments made by Broadway to improve the current legislation, but asked that it provide the Committee with specific points of where they wanted the legislation to be amended, such as the criminal liability of directors, and anew definition of dominant firms, for instance. Some of the aspects raised were not part of the Bill, but were important in terms of the overall social and economic landscape of the country, so these needed to be looked at.

Ms Mfulo wanted clarity on what was meant by the banning house brands.

The Chairperson responded that these were products marketed under the retail chain’s name.

Absent organisations

The following organisations were scheduled to present their submissions orally to the Committee, but were absent:

• National Council of Trade Unions (NACTU)
• TCI Apparel
• National Union of Mineworkers (NUM)

The Chairperson thanked all for their engagement, and assured them that their input would considered by the Committee in finalising its position on the Bill.

The meeting was adjourned.