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South Africa faces a new and accelerated phase of Black Economic Empowerment should the current Competition Amendment Bill be passed as proposed. Under the Amendment Bill, South Africa’s competition authorities would effectively be transformed into instruments for BEE.

The above is the conclusion of Sakeliga (formerly AfriBusiness) based on an analysis of the Amendment Bill. The period for comments closed on 31 January 2018.

Piet le Roux, CEO of Sakeliga, says the Amendment Bill is explicitly crafted with racial transformation in mind. “The Amendment Bill significantly expands the scope of competition regulation, which is regrettable enough. But more importantly, it vastly expands the ability of competition authorities to regulate prices, mergers and other market behaviour based on criteria such as those currently applied under the Broad-based Black Economic Empowerment Act.”

According to the background note on the Amendment Bill “… it is imperative to address the persistently racially-skewed profile of ownership of the economy …”; and “The amendments proposed in the draft bill seek to address both concentration and ownership representivity concerns whenever these issues are before the competition authorities”.

Le Roux points out that the Competition Act is a far-reaching piece of legislation. “In principle, all market behaviour falls under its jurisdiction. Currently, competition authorities are applying supposedly clinical measures of market power, fairness and public interest to regulate prices, mergers and other market behaviour. Now the Amendment Bill proposes that competition authorities should also be obliged to apply arbitrary criteria of racial representivity.”

“By adding racial transformation of ownership to the heart of competition policy, the Competition Act becomes one of the most powerful pieces of BEE legislation in the country. In principle, and without the need for a Constitutional amendment, competition authorities would be able to command or strongarm any economic actor into complying with its arbitrary vision for racial transformation. Large firms would be most at risk, but no market behaviour would be out of reach. It would make the Competition Act a vehicle for radical economic transformation.”

The Bill’s most problematic amendments regarding racial transformation include that it makes race a criterion in:

prohibiting, penalising or excusing supposedly uncompetitive behaviour. For example, under the amended act, the Competition Commission may grant exemptions for agreements and practices otherwise prohibited if it would lead to the “promotion of the effective entry into, participation in and expansion within a market by … firms controlled or owned by historically disadvantaged persons” – Article 10(3)(b)(ii);
the approval or rejection of mergers. For example, under the amended act, “when determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on … the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons in the firms in the market” – Article 12A(3)(e).

Le Roux says that, while it could be alleged that that the above clauses are not cause for alarm, arguing that it would be benevolently implemented and without economic harm, such optimism would be unwarranted. “Firstly, the background note to the Amendment Bill makes it clear that its intention is to racially transform ownership of companies vigorously. Secondly, the ideal measure against which competition authorities should seek to advance racial transformation is left entirely to its discretion, which presents significant risk. Thirdly, in an environment of calls for radical economic transformation at the highest level of public office in South Africa, the new provisions should be understood to represent and give effect to ANC policy. And fourthly, the provisions will attract the attention of politicians and aspiring beneficiaries of empowerment deals, leading to significant pressure on competition authorities to interpret the provisions with a bias toward ownership transfers.”

Sakeliga has submitted comments on the above and other issues of concern and will continue to monitor the Amendment Bill’s progress and legality.

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