12 July 2016
Johannesburg – The rules of competition regulation need to change, according to research by the Centre for Competition, Regulation and Economic Development (CCRED).
The research, funded by the University of Johannesburg and National Treasury, unpacked some of the barriers for new entrants, especially black industrialists. The team, led by Professor Simon Roberts, director of CCRED, also found possible solutions for new entrants to make headway in markets.
“There is no silver bullet approach, but there are answers out there and things we can do differently,” he said. “Businesses should not be afraid to try things that fail, they should learn from failure and move forward,” he added.
Policy and regulatory issues impact the ability of business to access the economy, Roberts explained. Other barriers include access to funding to finance risk, access to markets which are dominated by major supermarkets, understanding consumer behaviour which is different from textbook theory, access to time for learning by doing and the ability to achieve scale, he explained.
CCRED studied the paths taken by different sectors including telecoms, agro-processing, liquid fuels, renewable energy and mobile money and firms such as Capitec, Fruit & Veg City, Soweto Gold, 1Time and FlySafair to determine their level of success.
Looking at the telecoms sector, the introduction of Mobile Termination Rates by regulator Icasa led to R47.2bn worth of savings for consumers between 2010 and 2015, said senior researcher Pamela Mondliwa. “Regulating for competition works and we should do it more,” she said.
Similarly, the introduction of Capitec Bank saved consumers close to R20bn per annum since 2010. It also gave poorer households access to the formal banking sector, she added.
In another example related to market access, the case of Fruit & Veg City opened routes to the market for suppliers, who offered fresh produce at lower prices. “Healthy competition among suppliers is important because it benefits consumers by offering them goods at lower prices, access to a wide range of products and increased convenience,” said senior researcher Reena das Nair.
Failure builds future strengths
“Entry brings clear benefits to the economy,” said senior researcher Thando Vilakazi. When some firms take risks they may fail, but through failure capabilities of doing business are built, he explained.
It is evident by the benefits in the telecoms sector that competition should be regulated. “It empowers the man on the ground, the consumer,” he said.
Risk and rivalry should be financed through various funding programmes. “Funds support existing players and incoming players to develop.” Routes to market should be opened up, to open the space for smaller players.
Finally, the Competition Act should be amended to be more favourable of entry. “The current framework makes it difficult for small players to compete.”
This article was published in Fin24.