Government has published the long-awaited Competition Amendment Bill for public comment on 1 December 2017.
The draft bill is aimed at addressing the racially-skewed spread of business ownership in South Africa by making it easier for black-owned businesses to enter the market and by advancing transformation of current business.
This will be done by breaking up current cartels (thereby encouraging new businesses into the arena) as well as punishing firms that don’t meet these new objectives. In effect, this means that the Competition Commission must also consider public interest issues (such as race) when considering business practices, said law firm Norton Rose Fulbright.
It could also have much broader effect on the economy as the increased power given to the competition commission could scare away potential investors and increase the cost of doing business, the legal experts warned.
What the laws mean for the average small business owner in South Africa
Speaking to BusinessTech, competition lawyer and director at Norton Rose Fulbright, Jason van Dijk, said that the the intended outcomes of the proposed amendments for small business owners, and in particular those owned by historically disadvantage South Africans, could be substantial.
“The amendments propose a significant shift of focus to transforming market structures and ownership concentration, whilst pushing industrial policy and certain social-economic objectives, as opposed to predominantly looking at historical and likely future conduct of specific participants in such markets,” he said.
“The proposed amendments are aimed at opening up markets and increasing opportunities for small businesses to become either new entrants, or to compete more effectively, whilst trying to maintain a more level playing field.”
In addition, the Commission will have an “easier” time prosecuting those firms that act in a manner that is adverse to competition and counter-act these objectives, he said.
“On a collaborative front and for those seeking out innovative solutions to the new legal challenges proposed by the amendments, there may be scope for small businesses to twin-up or JV with larger players that are looking to create appropriate mechanisms to address any concentration concerns that might arise out of their conduct or future acquisitions, similar to what we have done to in relation to assisting clients achieve BBBEE-legal compliance, whilst giving effect to true transformation and empowerment.”
Effects on the economy
“The significant discretionary and wide ranging powers that are proposed to be bestowed upon the Competition Commission, which grant it the power to elevate the weight of public interest considerations relative to pure competition considerations, the amendments in their current form are likely to result in increased uncertainty, which can have a negative knock-on effect on investment and the cost of doing business,” said van Dijk.
“Given that it is intended for the Commission to have the muscle to force big business to divest of its interest (assuming this effective expropriation “remedy” passes constitutional muster), one could conceivable see medium-sized businesses being adverse to investing in growing their market share, out of fear of how this potential dominance or increase in concentration may be addressed under the new regime, and similarly, international investors being more reluctant to bring their much needed investment to our shores,” he said.
Van Dijk said that the the cost of compliance and therefore doing business will also increase, at least in the short-to-medium-term, as firms, and in particular dominant firms.
These firms will need to revisit their business practices to ensure that they remain compliant with the proposed lower contravention “thresholds” that have been proposed – as well as to avoid the significant administrative penalties for first time contraventions which previously did not attract a penalty, he said.