Competition Commission 2021/22 Annual Performance Plan

Meeting report

Opening remarks
The Chairperson welcomed Members and everyone on the platform.

The Secretary confirmed the attendance of all Members.

The Chairperson read through the agenda which was adopted unchanged. The first item on the agenda was a presentation by the Competition Commission (CC) on its Strategic and Annual Performance Plans for 2021/22 which the Committee should interrogate for alignment to the national strategies and economic programme. The Third Quarter Programme included meetings during the recess but that would be discussed before the Committee was asked to adopt the programme.

Presentation by the Competition Commission on its Strategic and Annual Performance Plans for 2021/22
Mr Tembinkosi Bonakele, Commissioner, CC, indicated that all Commissioners as well as the CFO, Amos Moledi, Ms Khanyisa Qobo, Divisional Manager: Advocacy and other senior officials were on the platform.

Commissioner Bonakele expressed the Commission’s condolences following the death of Ms T Mantashe (ANC): it was the first time the Commission was engaging with the Committee following her death.  The CC had worked very closely with her, including on issues in her constituency. The CC had held a Zoom meeting with Ms Mantashe on her birthday the previous year. He expressed condolences to her family and to Parliament.

With Covid-19 came a quadrupling of complaints to around 1500 about price gouging, which had had an impact on the Commission’s operational practices and a fast-track mechanism had been implemented.  The case management system was adapted to respond to those complaints. The fast-track mechanism would remain in place in the 2021/22 financial year, particularly if further waves of infection arose and/or the conduct of retailers contravened the current regulations. Various hearings had been held online at the Tribunal in 2020/21 and the Commission would continue to refer matters to the Tribunal expeditiously in the 2021/22 financial year. The Commission staff had been largely operating remotely since the lockdown.

SA had seen a remarkable growth in online activity, including a massive increase in online shopping. There would be ongoing enforcement of regulations against high pricing and price gouging. The Commission would also follow the developments around the vaccine programme to ensure that procurement processes and the supply of the vaccines were compliant with Competition laws. The Commission would focus on enforcing amendments that reduced barriers to entry and participation by Small and Medium Enterprises (SMEs) and historically disadvantaged individuals (HDI) firms.
Mr Amos Moledi, CFO, CC, presented the financial details. He noted that the Interest Received and Government Grant had accidently been transposed on slide 29. The Government Grant was R439 550 000 in the 2021/22 budget. The CC had received an increase in budget for 2021/22 and the MTEF. The Commissioner gratefully acknowledged the increase.

Commissioner Bonakele concluded that the Commission would prioritise actions that would support a strong emphasis on implementing key amendments to the Act which promoted inclusion and a reduction in concentration levels. Guidelines would be issued setting out what conduct was seen to contravene the amended Act to ensure compliance across the business community. The Annual Performance Plan included prioritising market conduct enforcement generally, and more specifically, the new provisions in the Act. The Commission would make greater use of market inquiries to promote more competitive and inclusive markets in key sectors that might support economic recovery.

Discussion
The Chairperson thanked the Commission for the presentation and especially for the condolences on the death of Ms Mantashe.

Mr W Thring (ACDP) asked about the data costs. The Commissioner had given some information but how far had the CC come in bringing down data costs. He appreciated the feedback given in the presentation and requested that the Commission kept the Committee in the loop with regards to data costs. What success had the Commission had in bringing down price gouging during lockdown when the CC had over 2 000 complaints? His experience had been that ginger had risen from R89 to almost R200 in a week, so some serious price gouging had been taking place. Mr Thring drank honey, garlic, lemon and ginger on a daily basis and, consequently, had not had flu for the past two years.

Mr Thring raised the question of the manipulation of the Rand by some of the banks. That had been touched on, but it was an ongoing process and many had a keen interest in the outcome of that. He asked that the outcome of that investigation be shared with the Committee as soon as it became available.

Mr Thring asked about mergers and acquisitions in the shipping industry. He had received a complaint regarding shipping imports/exports. During the lockdown, there had been an increase of 300% per container per tonnage. He did not know if the Commissioner had received any complaints but he was willing to chat to the Commissioner offline, if information was required. Regarding the enforcement and mandate reach of the Commission: how far did it go? Did it reach, for example, the complaints regarding the Steinhoff and Hulett Sugar irregularities? With the onset of the lockdowns, thousands of SMMEs had had to close their doors. That had had the unintended, some said the intended, consequence of big businesses mopping up and buying the smaller businesses for a song and thereby creating monopolies. Was that the experience of the Commission or would that information only be available on completion of the study that the CC was conducting on market concentration?

Ms Y Yako (EFF) asked about impediments. What were the biggest impediments that were preventing the CC from doing its job to its fullest extent and prosecuting people involved in price fixing?

Mr D Macpherson (DA) zeroed in on the much-publicised Burger King SA transaction. It interested him for a couple of reasons. How did the CC view its role? Did it view its role as creating market access, driving down costs and job creation or did it see its role as an enforcer of B-BBEE legislation?

In terms of the specific transaction, Mr Macpherson noted that a propriety company had tried to acquire Burger King SA and Grand Foods Meat Plant from Grand Parade Investments, intending that the Meat Plant created the ingredients and Burger King SA would be the retail outlet. It was an acquisition or sale, not a merger but the CC had considered that acquisition a merger and had subjected it to section 12A(3)(e) of the Competition Act (Amended 13 February 2020).  There was a huge difference between a sale and a merger. The Act defined a merger as occurring when one or more firms directly or indirectly acquired or
established direct or indirect control over the whole or part of the business of another firm, obviously to create dominance. He could not understand the logic behind why an acquisition or sale was considered a merger.

What if Grand Parade Investments could not find another buyer and chose to close down the 80 stores and put the staff into unemployment? Was that a preferred outcome so long as the company could not meet a particular criteria?  Where or when did the CC decide the structure of a company making an acquisition?

The Chairperson asked if Mr Macpherson was using a specific case as the Commissioner had said that he had no had time for specific cases.

Mr Macpherson stated that it was the well-publicised case of Burger King SA.

Mr M Cuthbert (DA) understood that the founding of the Competition Commission had been to ensure a level playing field for all and that it had not been set up to ensure racial bean counting within the market itself. Unfortunately, the B-BBEE Commission had been set up to monitor those kinds of things, but not the CC. Why did they not adhere to the basics of a market economy and the fundamentals of competition and ensure that there were no uncompetitive practices instead of bean counting? The CC was overstepping its mandate when it should be trying to spur on growth in the economy. Why was it trampling on the neck of a competitive economy? He found that to be rather problematic. He wanted to understand whether the CC was staying in its lane and whether or not or it saw its actions as having broader consequences on economic prosperity.

Ms J Hermans (ANC) found it regrettable that the DA saw transformation as racial bean counting. She was looking forward to the Commission’s response. She appreciated the work of the CC during the challenging times and noted that the CC was protecting the poorest of the poor from price gouging. She asked about the reach and the footprint of the CC because the word of the CC had to spread to every corner of SA. It would be good to hear what the CC had done in reaching out so that every South African knew what the Commission was doing.

Mr Z Burns-Ncamashe (ANC) attempted to speak but had connectivity problems.

Commissioner Bonakele offered to join the Committee or Parliament’s outreach programmes to rural areas, in addition to the outreach programmes that the Commission was running.

On data costs, he confirmed that the CC continued to monitor and assess the situation. The changes had had a huge impact from a pricing point of view but during lockdown there had been increased use of data which meant that the data providers had done very well financially but the CC had not reached the end of the concern about data prices. The main constraint was the lack of spectrum that should have been released a long time ago but had been held up in court and that was a major reason for higher prices. It was important that government resolved that problem. Releasing spectrum would lower data costs. The CC had made a submission in regard to the release of spectrum and the CC had suggested that a condition of broader spectrum should be universal access to data for all people, including schools, healthcare centres and communities living in poverty in rural areas. That would enhance the economy and the lives of people. The CC had reached out to ICASA to discuss the issue of spectrum.

He added that there was not a particular point at which the CC could say that the price had stabilised as it should continue dropping. The lowered price been offset by increased volume. Prices should continue to fall over time.

The Commissioner noted that CC had dealt with price gouging via a combination of discussions with industry and prosecution. The CC had not gone out with guns blazing. The CC encouraged retailers to tell the Commission when there would be price increases that they could do nothing about, e.g. when suppliers, sometimes international suppliers, raised prices because productions costs had increased and so on. Sometimes prices increased and one could not do anything about it, so the CC action should not over-reach in those instances. The interventions had had a huge impact. Retailers had committed, e.g. Pick ‘n Pay, to keep a particular margin for products such as ginger and garlic. The consumer looked at the final price but that price was a result of a number of factors. The CC therefore focussed on the margins that the supplier or retailer was adding because that could lead to excessive prices. For example, in the case of the sanitiser sold to the South African Police Service (SAPS), the margin of profit was excessive. What the CC was looking for was abuse, not just increased prices. Some products went down, such as the price of fuel, where the demand was low. People did not look at the low prices but the rate of inflation had not been high during lockdown because there were lower priced items in the basket. The problems had been with specific products, such as personal protective equipment, ginger and garlic. The CC had generally tamed the market.

The Forex case had been held up and he could not comment on that. The Commissioner was unaware of the increase in the cost of shipping but welcomed that information that Mr Thring would be able to provide so that the CC could determine whether there was a case of price gouging.

The issue of SMMEs was a big concern for the Commission because they had been hardest hit by the lockdown and many would close down, which would lead to a lot of job losses. He noted that several government departments had offered to assist SMMEs. It was related to B-BBEE and there was a need to protect certain businesses in the economy. He agreed that the study would shed light on concentration in the market and the broader participation of SMMEs.

The question of impediments was a very difficult question. Even though the Commission had received an increase, for which it was grateful, financial resources would never be enough because the CC was dealing with immense corporations. Cases were often defended by at least four top-flight lawyers and the CC staff could not match that. The situation had been better during lockdown because the cases were very clear cut. About five cases had gone to the Competition Appeal Court and the CC had won all of the cases. The resource constraints should not be exaggerated. The changes implemented the previous year had made things easier. If people were accused of excessive pricing, they would litigate because one could not define excessive pricing specifically. Part of the challenge had been the courts in SA as the courts did not understand the role of the CC in telling a business what it could charge. He was disappointed at the level of fines that the courts were prepared to impose. The legislation states that a fine could be up to 10% of turnover but the courts tended to impose lower fines.
There was no controversy regarding Burger King because the legislation had been changed by Parliament a couple of years previously and one of the things the law said was that when there was a merger, one had to look at the impact on competition and at the public interest. The CC had made an assessment and decided that the firm that was acquiring Burger King had no competition but on looking at public interest, it had noted that Grand Parade was a company that was 68% black-owned and the buyer was not a black-empowered company. The CC had asked what was going to be done but the answer was not satisfactory and so the CC had no option but to block the sale.

The Commissioner added that the CC was expecting that the courts would determine whether the CC was interpreting the law correctly, as determined by Parliament. CC simply implemented the law; it did not make the law.

Regarding the difference between merger and acquisition, it was neither here or there – the important thing was the acquisition of control so it did not matter whether it was a sale or a merger. The Competition Act clearly indicates what constitutes a merger or acquisition and in the Burger King case, there was an acquisition of control, which falls within the ambit of the Competition Law.

He did not want to get into the polemics of the control of a business – the debate belonged in Parliament.

Ms Khanyisa Qobo, Divisional Manager: Advocacy, CC, stated that the CC presentation had shown a vision of an integrated economy and had broadened the concept of inclusive growth to include those who lived and worked in rural communities and peri-urban areas. The Commission’s work was expanding in that area. The work in the automotive sector was to ensure that more SMMEs could be involved in the after-sales market. The CC had, specifically engaged with the motor body repairers in non-metro areas and whether they had opportunities to participate in that area.

The work of the CC in the retail sector followed largely the recommendations that had been made following the retail enquiry and the CC was currently implementing those recommendations that dealt with spaza shops, etc. and it monitoring the big retailers who were moving into rural areas. The CC was looking at how spaza shops could be empowered. Exclusive leases, particularly against SMMEs, were being managed in shopping malls. The transport enquiry had recently been completed and the CC was implementing the recommendations which would have an impact on consumers in the different areas of the country, urban and rural, where people used mini-bus taxis, buses and trains. The CC would give feedback on the recommendations and how they were being implemented at the next meeting. Community programmes, targeted the consumers in rural communities. The CC was involved in community programmes and outreach programmes directed at rural areas. The focus was on women and their economic participation was a theme that ran through all the work of the CC. The CC was trying to understand the dynamics of the exclusion of women and some research was being undertaken in that regard.

The Chairperson noted that small businesses and spaces were being targeted by internationals. The malls had an impact on the spaza shops and small businesses. There was a competition for space and participation of SA’s retail space. Plastic, bottling, paper and recycling was big in some areas. local community members could sustain themselves. The grocery retail market enquiry had produced evidence that could be used in other spaces. Intervention should be there, but it should not be interference with the economy. Intervention had to add value in terms of economic activities, especially when one went into the communities. The CC was addressing some very important information in the reports and there should be co-ordination between departments in the light of the report on the retail and other areas. Families supported themselves through small businesses and it was important to sustain those businesses.

Mr Macpherson stated that some of the Commissioner’s answers had confused him because there was a technical difference between a merger and a sale and that had to be properly understood and resolved. A merger was when two companies came together and merged into one, which was where the idea of “merger” came from. He disagreed that there could be a public interest in a sale. That would create a very dangerous precedent. For example, if he had a restaurant and he wished to buy the Commissioner’s restaurant and if there was any sort of public interest, one of the businesses would have to get permission from the CC to make that sale. That would be ludicrous but that was where the CC was going, according to the Commissioner’s previous answers, and that was not the role of the CC. It was not for the CC to make unwarranted interventions in the market.

If the CC was unsure of the interpretation, the CC should go to court and get a declaratory order. Why should so many people stand to lose their jobs because the Commissioner was not sure whether it was right or wrong. The Burger King case was an important test case. He asked where the foreign investment that the President had promised the country would come from, if those companies were locked out from the SA economy because they were not B-BBEE players? Another standard did exist. In the automotive sector, multi-national companies like BMW, Ford and Mercedes worked with government and they did not have a B-BBEE component; they came to other arrangements of a contribution towards a transformation fund. The CC was subjecting the company, Burger King SA, to double standards. It had not been given the option of a contribution to a transformation fund because the B-BBEE Commission was not involved in the transaction. He did not think that anyone saw the huge consequences of the CC’s actions and the impact that it would have on the country. Maybe the employees should march to the CC for answers.

Mr Cuthbert stated that it was not a matter of polemics between the DA Members and the Commissioner but a real, fundamental difference. As much as the Commission said that the CC was there to impersonally implement the law, it was obvious that some personal decisions had come into play as there had been no reason regarding competition for blocking the sale, so the CC had gone to the public interest clause to block the sale. That was not clinical; it was subjective, and that was overstepping its bounds. It was the wrong approach because it was anti-market and created distortions in the market. The CC and the Commissioner were supposed to be neutral players in the market. The ministry should be involved in a discussion so that there could be clarity as to how the CC should proceed as the CC was overstepping its bounds.

The Chairperson stated that the CC should look at the legal position. The Committee was happy with the work of the CC but there should be no interference in companies and the economy. He believed that the CC should be engaging a range of government departments.

Commissioner Bonakele stated that many of the market enquiries did require collaboration and interaction across government. During the market enquiry into retail practices, a survey had shown that the large chain store and foreigners had pushed out independent spaza shops which were now on the retreat. It was very important to note that the number one concern of the respondents, i.e. owners of spaza shops, was safety and secondly, there was a concern about encroachment by national and international retailers and foreigners. The spaza shop businesses were cash businesses and the cash was kept overnight, and the owners knew that criminals would come for that money. Therefore, it was no longer safe to run a spaza shop: the owners became targets for criminals. There ought to be a conversation across departments, especially those responsible for safety and security, to discuss how the owners of small businesses in townships and small villages could be made to feel safe. So it was critical there be cross-government collaboration. How effective could the CC be without help from other departments?

The issue of CC and B-BBEE had been debated by Parliament and it had given the CC a law and he was obliged to implement that law. The Competition Act defined a merger. Mr Macpherson had said that a sale was not a merger. That was incorrect. Section 12(1)(a) of the Competition Act said that: “For purposes of this Act, a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm”. The Commissioner pointed out that it was about control, not how a company gained control.

He added that that if one was selling assets, a business or shares, that was defined as a merger because the firm would be gaining control over another business
“12(1)(b):  A merger contemplated in paragraph (a) may be achieved in any manner, including through-
purchase or lease of the shares, an interest or assets of the other firm in question;
 amalgamation or other combination with the other firm in question.”

Therefore, an acquisition was a merger because the company was acquiring control of a business. It did not matter how control was established. In the case of Burger King SA, was there an acquisition of control? If the answer was “yes”, and it had to be “yes” because there was no other answer, then one had to look at public interest and that included B-BBEE. The law stated that the CC had to look at that impact. The Commission had to look at competition and B-BBEE.  In the Burger King SA case, the party had been asked how it would mitigate against the loss of 68% of B-BBEE and it had not provided an answer.

He said Mr Macpherson might not like the law, but he had to take the debate to Parliament; he could not take it to the implementing agent of the law. It was too late. If Mr Macpherson had lost the debate, it was too late to question the law when it was being implemented. The Commissioner could not ask for a declaratory order from the courts as he was very clear about what the law said, so he could not go to court. The parties could go to court if they were unhappy with how he had implemented the law. He was an implementing agent and the law was very clear.

The Chairperson noted that the debate that the CC had just engaged in would be an ongoing debate. He thanked the Commission for its engagement with the Committee.

Third Quarter Committee Programme
The Third Quarter was presented by the Committee Secretary. In order to process the remitted Bills which needed to be attended to urgently, it was proposed that the Committee would re-commence work two weeks before the end of the recess period, i.e. on 3 August 2021 as the next session of Parliament would only be three weeks in duration.

Recess period
3 August 2021 – Workshop for Committee Members on Copyright
4/5 August 2021 -  Public Hearings.
10 August 2021 – Response by Legal Advisor and dtic on input received from the public
11/12 August 2021 – Deliberations on the Bills

Parliamentary sitting
17/18 August 2021 - Continuation of deliberation of the Bills
24 August 2021 - Deliberations on the Bills completed. Committee Report to the National Assembly
31 August 2021 – dtic Fourth Quarter Report

Constituency period from 3 September 2021.

The Chairperson noted that permission to hold the meetings had been granted by the Programming Committee. He understood that it interfered with constituency time but it was an important to set aside time to deal with the Bills.

Ms Herman proposed adoption of the programme. Mr S Mbuyane (ANC) seconded the adoption of the programme because the previous day people had been grandstanding about the Committee not wanting to complete the processing of the Bills. There were no objections.

The Chairperson noted that the Committee agreed to the programme.

The Secretary stated that he was preparing to advertise the clauses in the two Bills about which the President had had reservations. The advertisement would appear in weekend newspapers and on parliamentary social media platforms and advertisements would be forwarded to all Members to advertise as they wished in their constituency, etc. Only comments on the President’s reservation would be accepted.

The Secretary would keep the Committee abreast of matters. The closing date for comments was 9 July 2021. Copies submissions would be sent to Members and the secretariat would prepare a summary of inputs for Members prior to the public hearings on 4 August 2021.

The Chairperson confirmed that they were talking about the Copyright Amendment Bill and the Performers Protection Amendment Bill.

There were no further comments

Adoption of Minutes
The minutes of 3 March, 4 May, 5 May, 11 May, 14 May, 26 May 2021 were adopted, with no amendments or objections.

Concluding remarks
The Secretary noted that he had just received approval for the programme as presented, in writing, from the House Chairperson. The next meeting would be on 3 August 2021.

He informed the Committee that Some members of the secretariat would be on leave during recess.

Ms Hermans wished the members of the secretariat who were taking leave, a safe and restful leave.

The Chairperson thanked the Committee, noting that the programme for the third term was extremely tight.

The meeting was adjourned.