The Competition Commission has published its first economy concentration tracker report, highlighting the dominance of firms across several key sectors in South Africa
The report shows a high degree of inequality in company income when considering the overall distribution of income across all tax-paying companies, says Heather Irvine, a partner at law firm Bowmans.
“The top 10% of companies earn 86% of all income whilst the bottom 50% earn only 1.6% of income,” she said.
“This translates to a Gini coefficient of 0.837, which far exceeds the Gini for household expenditure at 0.63. Indicative of this inequality, small and medium enterprises (SMEs) account for 95% of taxpaying companies but only account for 25% of turnover.”
The commission’s chief economist, James Hodge, noted in his presentation that once industries become concentrated, the trend is towards more concentration and so more deliberate action to address this is needed.
Irvine said that some amendments to the South African Competition Act have already come into effect, in particular, to address abuses by dominant buyers in designated sectors of the economy, and to prevent price discrimination which hampers participation by SMEs and historically disadvantaged individuals (HDIs).
She added that this concentration tracker report will be used by the commission to guide its enforcement of the Act, in merger control, in enforcing the amended abuse of dominance provisions, and in identifying areas for market inquiries, such as particular chains within the agricultural sector.
“This study will also be used by the government to provide the basis for a broader set of interventions beyond competition law for the government that address deep-seated structural issues in relation to persistent concentration, a lack of participation and transformation of ownership,” she said.
These interventions may include:
- An audit of how a range of government measures impact the structure of a sector. This may include an assessment of whether legislation or regulations place barriers to broader participation, but also whether some government support measures, from procurement to state funding, may favour incumbents over challenger businesses.
- That the agricultural value chain should immediately be prioritised to support smaller producers and improve South Africa’s land reform efforts.
- That there should be greater coordination among regulators, including, for example, when licences are issued, to ensure that there is broader participation.
- That laws that require the exercise of concurrent jurisdiction over the competition, for example on the transfer of ownership, may need to be reviewed (for example, in the hospital sector).
- That there should be more funding and support to help scale our development finance institutions.
The commission also recommends more involvement by the private sector, including:
- Private sector financial institutions must do more in the funding and development of SMEs and businesses owned by historically disadvantaged entrepreneurs. More ambitious and concrete targets should be set for these institutions, alongside annual reporting against these targets. This may require more widespread concessionary funding and fintech innovations that provide for the reduction of risk and the use of less onerous funding terms.
- Private companies across the economy should be required to scale up procurement from SMEs and HDI-owned companies.
- Government can also make greater use of conditionalities placed on sectors subject to State support, including procurement and licensing.
“Companies in these sectors should ensure that they have comprehensive competition law compliance programs in place,” said Irvine.
“They should also have appropriate strategies to actively participate in any proposed legislative and regulatory changes. This includes active engagements with the DTIC and any applicable regulators.”