CAPE TOWN - Described as echoing the remnants of apartheid South Africa, a report recently presented in Parliament has laid bare the high levels of concentration in some of the country’s major economic industries, making it impossible for “small players’' to survive.
As few as between three and five firms dominate in farming, retail, construction, communications and healthcare among others.
This emerged from the Competition Commission’s (Compcom) “Measuring Concentration and Participation in the South African Economy: Levels and Trends Report” recently tabled before the Portfolio Committee on Trade and Industry.
The findings are based on data from over 80 organisations, Competition Commission, StatsSA and South African Revenue Service (SARS) covering 178 sub-sectors over the past five to eight years including companies like Essential (Sasko), Premium Milling and Baking (Blue Ribbon), Tiger Food Group (Albany), Shoprite Checkers, Pick n Pay, Vodacom, MTN, WBHO and Raubex among others.
According to the Compcom, persistent high levels of concentration was found in the agricultural inputs sectors such as seeds, seed treatment and fertiliser, as well as agro-processing, fisheries, sin industries, healthcare and medical schemes, administration and pathology, communication, and the upstream steel value chain and chemicals.
High levels of concentration also persisted in the construction sector, particularly the cement industry and the retail sector.
The report confirmed this situation has remained in place since the Competition Act was first promulgated over 15 years ago and details how the government is struggling to even the playing field for small businesses.
There is a high degree of inequity in the distribution of firm income, the Compcom found and the top 10% of firms have 86% of total turnover compared to 1.6% for the bottom 50% of firms.
In construction the report found: “Building and Civil work have far more contract awards compared to other work class categories. In the building category, the top five companies enjoyed a market share of 68.8% and the top 10.75.8%. In the civil work category, the top five firms held a combined market share of 76.6% and the top 10 had a share of 89.9% of the market in 2019.”
The total income for the construction industry in 2017 was R495.5-billion with two of the 12 service types accounting for 64,1% of total income, namely ‘construction of civil engineering structures’(40,0%) and ‘construction of buildings’ (23,8%).
The pan-baked bread (what we colloquially refer to as government loaves) industry was also identified as being highly concentrated.
“Although there were 802 producers of pan-baked bread in 2018/19, just five bakery groups produced 76% of all pan-baked bread in the country and six supermarket groups produced 12%.”
In farming, large farms, that make up just 6.5% of all farms, accounted for 67.0% of total income in 2017/18, while seven national supermarket chains tend to dominate the grocery retail sector in South Africa.
In the Retail, Motor Trade and Repair Services sector large firms represented 5.3% of the total number of firms and generated 73.8% of total sales turnover in 2011. By 2016, large firms represented a larger percentage of all firms in this segment (8.6%) and generated 75.8% of the total sales turnover.
Small to medium enterprises hold a low share of value and face increasing exit rates.
“In recent challenging times exit rates have climbed and even overtook entry rates in some years. (We) also see more industries with declining participation (38%) than increasing (24%),” the Competition Commission said.
The stats did not sit well with MPs who described the report findings as echoing the remnants of apartheid.
“It is widely acknowledged that apartheid had left the country with an economy characterised by excessive levels of concentration of ownership and control, as well as a lack of participation by all South Africans,” said portfolio committee chairperson, Judy Hermans.
The committee was also concerned with concentration in these sectors, as it limited entry to small and medium enterprises (SMEs) that have employment-creation potential.
Policy analyst Nkosikhulule Nyembezi said the report showed there was still a long way to go in terms of transformation.
“Systematic and structural barriers such as red-tape and uncomplimentary regulations maintain barrier entries in a number of industries, including to the emerging black farmers that are predominantly small and are contending with barriers to scaling from small to large growers,” he said.
“The findings paint a gloom picture of the factors that are artificially inflating food and healthcare prices, as reflected in the high and persistent concentration in most key categories, with retail food and pharmacy rapidly consolidating and adversely affecting the affordability of primary healthcare services and basic food items.
“The report confirms that 95% of black-owned farms only account for 19% of sugar cane production. This is in contrast with over 65% of sugarcane output produced by white-owed farms. In the healthcare industry pathology and other laboratory services are dominated by three firms that are white-owned. Instead of seeing an improvement we see regression as increasingly in more and more provinces there are only two dominant white-owned companies providing the service.”
Among its efforts to turn the tide are amendments to the Competition Act, more systematic funding and support to scaling SMEs and settlement agreements with two largest grocery retailers to end exclusive leases among other interventions.
However the Compcom cautioned that competition law alone cannot achieve the transformation of the economic structure.
The Department of Trade and Industry said it could not respond to requests for comment around its own interventions by deadline.
Cape Times