Economy in SA requires rivalry

By Kabelo Khumalo Time of article published Aug 6, 2018

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JOHANNESBURG - The International Monetary Fund (IMF) in its latest country focus note on South Africa said that the country needs to dismantle the high levels of concentration in the economy to ignite growth and to reduce the high cost of internet connection. 

Ana Lucía Coronel, who heads the IMF team for South Africa, said: “The recommendation of IMF staff is to increase competition in all sectors, so that more private companies, domestic and foreign, could invest and compete in the production of services – not only in telecommunications, but also in energy, transport, and other sectors”. 

The IMF also said that the use of technology still has a long way to advance in South Africa, given the potential of the economy. 

The lender said the cost of internet in the country is high and the quality is low, because there are very few competitors. 

South Africa’s economy is known to be characterised by high levels of concentration – spatially as well as industrially. 

Research produced by the Industrial Development Think Tank found that monopolistic firms have less of an incentive to invest, since they can earn economic benefits by protecting their market share rather than upgrading their product offering. 

The study also found that the South African economy requires a broader competition policy, as part of an industrial policy, which facilitates the entry and expansion of businesses, especially black entrepreneurs, and reduces barriers to entry. 

Adrian Saville, chief executive of Cannon Asset Managers, said new entrants could also promote geographic de-concentration. 

“To this end, almost all economic activity in South Africa takes place in a few economic centres (Gauteng; Cape Town; Durban; and Nelson Mandela Bay),” Saville said. 

“New entrants could promote investment and economic activity in a fashion that reduces this exceptionally high level of geographic concentration that continues to represent the structure of the apartheid economy.” 

The government is currently in the process of shoring up its competition laws to allow for more participants in the economy. 

The Competition Amendment Bill was officially introduced to the national assembly last month. Its primary objective is to address structural challenges that are seen by the Minister of Economic Development to constrain the South African economy. 

The amendments’ objective is to address high levels of economic concentration in the economy and the existing ownership profile of the economy. 

The bill also aims for better regulation of dominant firms and ensuring their effective prosecution where they abuse their market power – particularly where this is done in a manner that excludes participation in the market by smaller local players. 

Jean Meijer, a partner at Herbert Smith Freehills, said of concern is that a politically appointed committee will wield power over foreign investment as per the act. 

“This is particularly so in circumstances where there is no clear guidance as to what standard the committee will have to apply in making its decision to block or impose conditions on foreign investment,” Meijer said. 

President Cyril Ramaphosa has embarked on an ambitious investment drive, which has seen him criss-crossing the world to raise $100 billion (R1.33 trillion) in investment, both from foreign and domestic investors, in five years. 

“South African industry displays high levels of concentration. This suggests that the country needs more than strong policy, and my argument is that it needs new investment alongside strong policy to encourage competition,” Saville said.


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