Why SA has to diversify its economy, now

12 July 2016

Pieter van der Merwe

The Centre for Competition, Regulation and Economic Development on Tuesday released its latest research on barriers to new entrepreneurs and producers to access the wider market. The research suggests South Africa needs a new approach to open up the economy and allow for better competition.
"We can't keep going down the same road. It's not going to be viable," said Professor Simon Robert, from the University of Johannesburg.
A small group of small businesses have penetrated the market, but this is the exception rather than the rule. The research proposed that new businesses be allowed to access the market and be given the luxury of failing without having to close down.
Researcher Pamela Mondliwa used Capitec Bank as an example. She explained while a number of other banks failed to enter the market, Capitec had three advantages.

The bank had an existing banking license; an existing micro-loans subscriber base and; access to capital.
"But with all those three advantageous, it still took them over 10 years before they could make headway in the market," explained Modliwa.
Her colleague Tamara Paramoer explained the importance of also providing small business with 'shelf space' to ensure that their products are noticed in supermarkets.
"Dominant supermarkets… have considerable market power. They are able to control the trading terms in negotiations with suppliers," she said. 

Paramoer explained that suppliers would often have to pay to get their products onto a certain shelf.
The research also looked at a few other businesses such as Fruit & Veg and Soweto Gold Breweries - which despite establishing itself as a beer brand, still does not have access to the mass market. This is because SAB Miller, the largest brewery in South Africa and one of the largest in the world, controls the fridges in liquor stores, bars and taverns as well as a number of breweries.
This monopoly by a small group of firms prohibits competition which means higher prices for consumers, the research suggests.
Director of the LINK Centre at Wits University Luci Abrahams said although focused on a few firms in a hand full of sectors, the research speaks to the broader challenges facing the economy.
"The South African economy may continue to fall behind the continental economy and the rest of the world in [failing to make] these multiple transitions, which include broad based black economic empowerment and transitions towards more knowledge and technology intensive forms of economic development," said Abrahams.

This article was published on Jacaranda News.