Small and medium-sized enterprises will be allowed to work together to negotiate collective purchasing deals with larger suppliers, and to collaborate on pricing and production agreements in terms of a new block exemption from the anti-collusion provisions of SA’s competition legislation.
Trade, industry & competition minister Ebrahim Patel said on Wednesday that the block exemption had been gazetted for public comment. He was speaking at the opening of the annual competition law, economics and policy conference hosted by SA’s competition authorities in Johannesburg. The conference, in its 16th year, was the first to be held in person since 2019.
The competition legislation imposes heavy penalties on firms found to have been colluding to set prices or divide markets, but competition policy has had a particular focus in recent years on curbing the power of large firms in an effort to try to open up markets to smaller ones. Patel said allowing small players to combine was part of making it easier to do business and would help to build a layer of small businesses.
“We introduced the block exemption to enable small businesses to grow faster, and to compensate for their lack of scale when dealing with competitors that are larger businesses in the market,” he said in an interview on the sidelines of the conference on Wednesday.
However, competition lawyers expressed concerns that allowing collusion among smaller companies could lead to significant abuse and open loopholes for firms to create cartels and engage in anticompetitive conduct. Patel said he was aware of the potential for abuse, but smaller businesses would have the right to combine only in specific areas for a maximum of five years, and the public consultation process will enable the rules to be tightened.
He said the government had learnt from the experience of Covid-19, when he invoked the provisions of the competition legislation to grant temporary block exemptions allowing firms in sectors such as health care and banking to collaborate to tackle the pandemic.
Firms were also given temporary exemptions during the 2021 July unrest to enable them to deal with the resulting shortages of goods.
Patel said the EU had block exemptions for smaller businesses, so the concept is not foreign to competition regulation.
The minister, who over the past decade has increasingly intervened in proposed merger deals to impose public interest conditions in areas such as employment, localisation and black ownership, also promised clearer guidelines on his approach to the public interest, which market players have often found capricious and unpredictable and a deterrent to doing deals.
He told the conference that the department would by February 2023 gazette a set of guidelines that would help merging parties work with the competition authorities to craft appropriate sets of public interest conditions. The guidelines would shorten the time taken to gain approval for mergers and lower the fees paid to lawyers, though the conditions would still be specific to each merger.
Concentrated
Research for the Competition Commission last year showed the SA economy was highly concentrated, with many sectors dominated by just a handful of firms and the likelihood that sectors that already have a dominant firm would become even more concentrated over time.
Outgoing competition commissioner Tembinkosi Bonakele said promoting inclusive growth was a key theme for the commission, which lately had been deliberate about getting merging firms to promote inclusion, whether through promoting local suppliers or implementing BEE schemes.
Patel also announced that the Competition Commission would from September be allowed to provide non-binding advisory opinions to firms on potential anticompetitive conduct or mergers. A draft notice had been published for comment.
Companies and their lawyers have long called for the commission to make it possible for them to approach it for advice upfront so they fast track deals or avoid the risk of contravening competition rules.
Bonakele paid special tribute to the Competition Tribunal’s founding chair, David Lewis, who attended the conference. Lewis presided over the tribunal for a decade, penning precedent-setting judgments that formed the foundation of SA’s competition law and economics. He founded Corruption Watch after he stepped down from the tribunal, and was this week appointed by President Cyril Ramaphosa to the new national anticorruption advisory council.
Doris Tshepe takes over from Bonakele as commissioner on September 1.
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