The state plans to give the Competition Commission more powers to intervene in the economy, though it is under fire from the courts and legal fraternity over its handling of cases and bullying of small firms…
CCRED Senior Researcher Sumayya Goga arguing that President Ramaphosa's 'new deal' requires vision and smart programmes to make re-industrialisation work.
Read the full op-ed in the Business Day here.
An article in the Mail&Guardian discusses the Industrial Development Think Tank's report Structural transformation in South Africa: Moving towards a smart open, economy for all.
Click here to read the full article.
CCRED researchers Shingie Chisoro-Dube, Reena das Nair, and Maria Nkhonjera discussing the need for the state to support and encourage partnerships between establish and small-scale fruit producers.
Read the full op-ed on BusinessDay Live here.
This article appeared in Creamer Media's Engineering News. Click here to view the original article.
A new no-holds-barred study of South Africa’s economic transformation over the past two decades concludes that the country has not only deindustrialised prematurely, but has also failed to materially transform its economic structure to one that encourages inclusive growth and development.
Titled ‘Structural Transformation in South Africa: moving towards a smart, open economy for all’, the report calls for the creation of a broad coalition for reindustrialisation, underpinned by productive investment and widening economic participation.
Such a settlement should also be integrated into any “new deal” pursued by President Cyril Ramaphosa’s administration and be supported through a “reorientation of macroeconomic policy” that manages volatile natural resource earnings, delivers a stable and competitive exchange rate and embraces fiscal policies that prioritise longer-term investment.
Ramaphosa will be convening summits on jobs and investment in the coming months in an effort to forge a new compact between the social partners. He has already indicated that government is aiming to use the summits to facilitate more than R1-trillion-worth of employment-creating investment over the coming five years.
Produced by the Industrial Development Think Tank, which is hosted by the University of Johannesburg’s Centre for Competition, Regulation and Development in the School of Economics (CCRED) in collaboration with the South African Research Chair in Industrial Development, the study has been written with the support of the Department of Trade and Industry (DTI).
In a brutal critique the authors – Jason Bell, Sumayya Goga, Pamela Mondliwa and Simon Roberts – highlight that manufacturing’s contribution to gross domestic product (GDP) has declined from 21% in 1994 to only 13.3% in 2016. In addition, much of the growth in services has been in low-value traditional sectors.
The authors attribute this poor performance to compromises reached between a narrow coalition of elites, which, “buttressed by higher government salaries and social grants for important constituents, has undermined investment and reinforced rather than changed the existing structure of economic power”.
To redress the situation, the new settlement should mobilise key black constituencies, including industrial trade unions, through effective skills upgrading and investment, and productive black entrepreneurs, through opening-up economic opportunity.
The settlement should also include an agreement with large firms, which rewards long-term domestic fixed investment and investments made into skills development.
Professor Roberts describes the report as a “very honest look in the mirror” and argues that it can no longer be business as usual if South Africa is to address the issues tearing at its social fabric, while confronting the threats and opportunities arising as a consequence of the Fourth Industrial Revolution.
“I don’t think we are saying anything people don't already know. Business has woken up to the fact that there is a strong relationship between livelihoods of communities, the sustainability of the economy and their long-term profitability.
“It’s a watershed moment, where business is realising that, if changes are not made, it assets will not be worth much, as there will be no growing demand and incomes,” Roberts tells Engineering News Online.
But while business is receptive, it has grown tired of government plans that are left unimplemented. “We need to recognise that if we don’t follow through and hold everybody to account – not just government – then we are not going to make this change.”
- The consolidation of fragmented government structures, particularly in the economic policy domain.
- Regional industrial integration, which takes account of the need for other Southern Africa countries to export more to South Africa for South Africa to grow its own exports into the region.
- Incentivising and investing in capabilities to take advantage of the Fourth Industrial Revolution.
- Dealing with concentration in the economy through competition policy and legislation.
- And a reorientation of macroeconomic policy to ensure it is supportive of industrialisation.
Trade and Industry Minister Dr Rob Davies, who accepted the report on Friday, has acknowledged that the findings, which are critical of government industrial policy interventions in the metals, machinery and equipment, automotive, and agriculture and agroprocessing sector, “make for hard reading”.
However, Davies says there is no room to be defensive if we are to make the necessary changes.
“The Fourth Industrial Revolution, now upon us, makes it even more critical that we focus single-mindedly on investing in our own productive capabilities and those across the Southern African Development Community.”
The original article appeared in The Conversation on 13 March 2018. Click here to view it.
The South African economy looks uncomfortably the same to the one inherited when the country transitioned from apartheid to democracy in 1994. Which is why it’s time for a robust economic policy agenda to make it more open, productive and inclusive.
A number of obstacles stand in the way. These include the continued bias towards activities with relatively low productivity, high levels of concentration in key sectors and a lack of diversity in ownership.
Competition policy is a critical part of efforts to change the structure of the economy. But addressing entrenched economic power requires a much wider package of measures.
International experience shows that countries develop by moving towards more diverse, higher value-added and more sophisticated products, a process referred to as structural transformation. There is still no sign that this is happening in South Africa.
In-fact, research conducted by the Industrial Development Think Tank has found that South Africa regressed between 1994 and 2016. The economy has become less diverse and it’s failed to use existing capabilities to produce new products.
Take the country’s export basket. It continues to be dominated by minerals and resource based industries, which represent 60% of total merchandise exports. This is at the expense of increased competitiveness in industries which create more jobs such as plastic products which range from simple lunch boxes to complex automotive components.
The composition of the export basket also compares poorly to other upper middle-income countries. For example, in 2016 high-technology exports accounted for only 6% of South Africa’s manufacturing exports compared to Thailand’s 21% and Malaysia’s 43%.
If South Africa continues on this path, it will struggle to create employment at the scale that is required. The majority of its population will continue to be excluded and the social fabric will continue to unravel.
High levels of market concentration coupled with barriers to entry are a big part of the problem. South Africa needs to allow for economic rivalry. Its known that rivals bring new products and business models, and spur incumbents to invest in improving their own offerings.
A recent study of merger reports by the Competition Commission found that there was unilateral dominance – where a single firm has a market share in excess of 45% – in a large number of markets. This included communication technologies, energy, financial services, food and agro-processing, infrastructure and construction, industrial input products mining, pharmaceuticals and transport.
These sectors cover most of the economy. They are central to economic growth and to consumers’ pockets.
And the situation seems to be getting worse. Statistics South Africa datashow concentration levels in manufacturing has intensified: in 80 sub-sectors, the proportion in which the biggest five firms held over 70% of market share increased from 16 in 2008 to 22 in 2014.
Concentration is bad
Economic concentration opens the door to market power being exercised in a way that undermines productivity. This can be seen, for instance, in value chains where downstream players have to pay high prices for inputs, with dire consequences for their competitiveness.
The knock on effect is that economic growth slows down and employment creation is affected if downstream industries are labour absorbing.
Such skewed economic power also translates into political power where dominant companies use their resources to lobby for ‘rules of the game’ that favour them. Some examples include:
Telkom, a partially state owned telecommunication company, has for a long time persuaded policymakers, in the name of extending access, to support its position in the fixed-line monopoly.
There’s been similar strong lobbying in pay TV to secure rules that hinder potential rivals.
In beer distribution and retail, Anheuser-Busch InBev spent millions of dollars lobbying against conditions that would have restricted its operations .
The other area that has felt the effect of big player dictating the rules of the game has been in the slow progress when it comes to meaningful black economic empowerment. Economic transformation initiatives have tended to reinforce incumbents as gate keepers in exchange for minority shareholdings.
Broader agenda needed
A lack of progress towards increased participation is one of the justifications for amendments to the country’s Competition Act. The Competition Amendment Bill is an important step in addressing concentration and increased participation. But it needs to be part of a broader competition policy agenda.
South Africa also needs to introduce a range of complementary policies. Three key areas in particular need to be addressed:
Promote new entrants: Economic regulations must be changed to favour entrants and ensure incumbents can be effectively challenged. This includes regulations to allow access to essential infrastructure. For example, in telecommunications, spectrum must be allocated to foster greater rivalry. Measures can also include soft regulation such as codes of conduct for supermarket chains to promote access to markets by suppliers and small retailers.
Enforcement: The country needs more effective enforcement against anticompetitive conduct that excludes smaller rivals. The Competition Amendment Bill goes some way to deal with this. It emphasises the competitive process and in important areas gives weight to the ability of smaller participants and black industrialists to enter markets and grow.
Support rivals: This can be done by expanding development finance for entrants. Funds could be drawn from competition penalties. Development finance should also consider extending support across the different levels of the value chain. An example is the funding that the Industrial Development Corporation has given to new entrants in the agro-processing value chain from the fund created from the bread cartel fines.
Talk of economic transformation needs to be backed by a coherent economic strategy that moves the country away from a concentrated, exclusionary, low productivity economy into an open, fair economy for all.
CCRED Senior Researcher Pamela Mondliwa and Executive Director Professor Simon Roberts's article discussing structural transformation and competition dynamics in South Africa which appeared on Econ3X3.
Click here to read the article.
Eliot Mokoena wanted to fly to the Eastern Cape this week for his brother in-law's funeral. Instead, he has to drive. He checked flight prices to East London, Port Elizabeth and Mthatha, which would cost him at least R8,000 for him and his wife, he said. Driving might be “gruelling” but it will only cost a full tank of petrol to get to his destination.
Read more here
The Department of Trade and Industry (DTI) has denied reports of rivalry with the Economic Development Department over proposed amendments to the Competition Act, which its claims to support.
In a statement released on Thursday, the department underlined its concern over the “excessive concentration” in the ownership and control of the South Africa economy, which “breeds uncompetitive tendencies”, detrimental to industrial development and economic growth.
Read the full story on Engineering News here.
Professor Simon Roberts, director of CCRED, was discussing the Competition Law and Economic Regulation book.
Shaping markets through competition and economic regulation is at the heart of addressing the development challenges facing countries in southern Africa.
The contributors to Competition Law and Economic Regulation: Addressing Market Power in southern Africa critically assess the efficacy of the competition and economic regulation frameworks, including the impact of a number of the regional competition authorities in a range of sectors throughout southern Africa...
The book is also available for purchase here.