President Cyril Ramaphosa is gearing up for his fourth investment conference later this month at which SA’s large corporates will no doubt make nice in the way they did at the last three — by pledging investments they were going to make anyway to stay in business.
But while trade, industry & competition minister Ebrahim Patel trumpeted the success of the investment drive in a recent briefing, highlighting the R774bn in pledges at the first three conferences, of which R314bn has already been invested, the macroeconomic numbers tell a different story.
Investment crashed during the pandemic and recovered hardly at all in 2021, remaining at levels far below those needed to support higher rates of economic growth. The time spent on this month’s conference might be better spent bringing urgency to tackling the troubles that make SA’s investment environment so unattractive — low growth itself, as well as wildly unreliable electricity, rail and port services. It might be better spent too on making SA more appealing to the foreign investors and multinationals who, according to Reserve Bank figures, finance more than 27% of SA’s fixed investment spending.
Happily, for the first time in years SA has lately seen a bit of an influx of foreign acquirers buying out companies such as Distell, Imperial and Consol, as well as noncore businesses being sold by the likes of Sasol. Many of those deals still have to get through SA’s competition regulators. Most of the foreign buyers have no presence in SA so their entry into the market should not pose any obvious competition issues.
They may not find it easy going though. The regulatory environment has become unpredictable as public interest considerations have loomed ever larger in the competition authorities’ approach to merger regulation. And much as SA claims to welcome investment, particularly foreign investment, the potential buyers may not pull off their acquisitions at all unless they pay up — not just to the shareholders but to whatever fund or cause Patel and the competition commission consider to be industrial policy priorities for SA.
We’re not talking bribery or corruption here, but the localisation funds or franchises for small businesses or “green” energy or varieties of black empowerment that are now imposed as conditions in most mergers. That there are often public interest conditions is not the problem. Globally there is a growing trend to integrate public interest considerations into merger regulation, alongside pure competition considerations. SA’s competition legislation explicitly requires the regulators to take public interest issues, including the spread of ownership and local industry, into account when they scrutinise mergers.
However, there is mounting concern that public interest issues, sometimes completely unrelated to the specifics of the merger, are overwhelming the competition issues, without much thought at all given to the broader implications of each merger in terms of whether it improves SA’s competitive environment — or not.
The alarm has been sounded in blunt terms by the former president of SA’s competition appeal court, judge Dennis Davis, who has warned that the competition authorities have moved away from merger-specific considerations to a form of rent-seeking. Speaking recently at Bowmans’ annual Africa competition conference, Davis pointed to the recent public interest conditions that have been imposed by the competition tribunal, warning that SA has to be careful about just tacking a series of concerns on to merger regulations rather than looking at their economic effects as a whole.
What had happened in SA was there was no longer an integrative approach: instead it was about “let’s extract conditions”, he said. Instead of the hard work of researching what impact a merger will have on the economy and the public interest, the process had become one in which the regulators negotiated the terms with the merging parties.
Competition regulators are supposed to scrutinise first whether a proposed merger will “substantially lessen or prevent competition” (the SLC test). Even if it will not, it may have negative effects on the public interest — specifically on the employment or ownership or local production criteria set out in the Act — which may override that, in which case the regulators might allow the merger subject to conditions designed to address those negative effects.
Recent mergers have had a whole host of unrelated conditions attached — French multinational Air Liquide’s purchase of Sasol air separation units in 2021 was subject to undertakings to set up a R100m localisation fund and reduce carbon emissions. Localisation funds are becoming common now, no surprise given the extent to which Patel intervenes in big mergers; beneficiation is creeping in too; and the Competition Commission is , and disturbingly, positioning itself as a price regulator not just a competition regulator.
The concern is that foreign companies in particular, may simply go elsewhere when faced with the unpredictabilities of negotiating a merger with regulators. Increasingly too, they may look at structuring alliances with local companies in ways that legally are not mergers, so don’t need to be notified to the competition authorities but probably don’t bring in much-needed foreign direct investment either. One competition lawyer reports she’s built a flourishing business advising on such structures.
Also on the panel at the Bowmans conference was Raphael Mburu of the Competition Authority of Kenya, whose approach was a refreshing contrast to the opaque approach of SA’s authorities. He says he asks the questions: “Did the consumers benefit from lower prices or better quality products? Is the economy benefiting from our actions?”
Patel, and the competition commission, would do well to ask the same questions.
• Joffe is editor-at-large.
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