MICHAEL AVERY: GNU must bring competition dogs to heel

At the time of writing this column, after weeks of intense negotiations it looks likely the ANC and DA will be able to bury ideological shibboleths (for now) and form a government of national unity (GNU). A certain rugby commentator’s line about a draw feeling like kissing your sister springs to mind.

Speaking of sport, I can’t begin to imagine what Aiden Markram and his Proteas must be feeling on that long haul back from Barbados this morning. The team can find some comfort in this young generation of cricketers, who will no doubt be scrapping for higher honours more frequently over the next decade given the talent on show.

It’s all rather emblematic of SA broadly, isn’t it? Plucky, talented but never quite able to deliver the knock-out punch. Take the scrap this past week for the trade, industry & competition portfolio. If ever there was a ministry integral to turning this moribund economy around, surely this is it?  

While I was away the Competition Commission published its provisional report in its market inquiry into the SA fresh produce sector. The report is full of advice for municipalities, which control the fresh produce markets.

The commission says they should change the operating and governance models for these markets, and harmonise their bylaws. It suggests they should ring fence “profits earned from the market to fund capital expenditure”, and where feasible increase budget allocations from municipal budgets, over and above the revenue generated by the national fresh produce markets.

The commission clearly hasn’t spent too much time considering the fiscal position or operational capacities of most of the country’s municipalities, which might generously be described as dire. 

None of these recommendations is likely to be enforceable by the commission by means of an order of the Competition Tribunal, since all of this falls squarely within the exclusive competencies of municipalities as set out in the constitution. 

The commission also has some recommendations for government departments to amend legislation — suggesting the department of agriculture should amend the Agricultural Produce Agents Act to confer powers to the Agricultural Produce Agents Council to regulate market agencies’ ownership and participation by “historically disadvantaged persons” (HDPs), and to set the maximum commission fee that may be charged by market agents. Once again the commission cannot order that this must happen, because amending legislation is parliament’s job. 

It appears the commission is being used by the department as a form of super regulator with vast powers of inquiry to help drive policy across national government, despite numerous questions over whether this is legally permissible or enforceable.  

There is no mention of the impact on the fresh produce value chain of load-shedding, mismanaged ports, the near collapse of our rail network, or dysfunctional government departments and regulators, which take years to process applications to register new products. The result is that virtually all the “remedial actions” proposed by the commission will have to be funded by the private sector.  

These market inquiries have become nothing more than a means for the commission to impose an extra tax on the private sector and force it to do what the government should already be doing: provide basic infrastructure (such as marketplaces), support policies (like transformation) and implement programmes (like small business development, education and spatial development). These are things the government should be funding using the enormous amounts of tax paid by the companies annually as they fight to run their businesses.  

For example, the commission mandates that produce markets implement a programme to introduce new market agents from the ranks of HDPs and ensure they have access to highly traded produce such as potatoes. Additionally, the SA Property Owners Association and large retail property owners must allocate a minimum amount of retail space to facilitate the entry of new businesses, including HDPs and small and medium-sized enterprises, into shopping centres and malls.

Seed companies are encouraged to support new entrants in testing varieties suitable for SA conditions. Retailers such as Woolworths and Shoprite Checkers are urged to expand their existing supplier development programmes or increase their supplier development baseline by 10% annually for five years. 

More alarmingly for potential investors will be the commission’s suggestion that African Rainbow Capital (ARC) divest its shareholding in either Subtropico (in which it holds a minority shareholding) or RSA Group (in which it holds a majority stake).

The report does not allege that these shareholdings were unlawfully acquired by ARC, or that these companies have actually colluded on prices or otherwise contravened the Competition Act. The report merely suggests that there is a concern about “alignment of economic interests and incentives”. It’s difficult to imagine a more investment-unfriendly message.  

Institutional investors, including the likes of the Public Investment Corporation, frequently make investments into competing companies (such as listed banks or insurance companies). There’s nothing wrong with this provided they don’t control these rivals and, therefore, cannot cause them to fix prices or divide markets.

The threat that the commission might swoop in at any time and demand the sale of an investment because of a concern raised in a market inquiry is unlikely to foster great confidence in either local or foreign investors. 

The commission’s report seems glaringly out of step with the tone of the new GNU, via the president, which is actively seeking more reasonable collaboration with the private sector, to grow the economy and create jobs. If this sort of thinking cannot be uprooted the DA will regret not walking away when it had the chance.  

• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at badger@businesslive.co.za.