For all the talk of economic reform and celebrating wins in energy, SA remains in the grip of a dirigiste regime, enslaving individual economic freedoms to dogmatic diktats best exemplified by the department of trade, industry & competition’s so-called reciprocal agreements.
I was facilitating the Steel Masterplan Conference recently where the metaphor of a bring-and-braai emerged describing how we approach tariffs and industrialisation — if one of your mates at a bring-and-braai keeps bringing peanuts while you bring the fillet you are going to let them know. But does it ruin the friendship? Only if you are silent.
And industry is no longer willing to remain silent over billions of rand tied up in overdue International Trade Administration Commission (ITAC) customs duty investigations detailed in a report by XA Trade Advisors that has been garnering lots of attention lately.
At the heart of some of the delays appears to be serious disagreement about who brings what to the braai.
Speaking to Mike Benfield, CEO of Macsteel, about what these reciprocal agreements entail reveals the extent to which we are entering an Ayn Randian dystopia.
Macsteel sought relief in the form of a duty to help it compete efficiently against local imports of bright bar, those shiny supports for a headrest in a motor vehicle for example, but there are many other applications. Macsteel has a business that is under capacity because of the threat of imported finished goods.
Benfield believes the imported price is roughly 2% cheaper. Not material, but it doesn’t allow for Macsteel to secure volumes required to make production processes efficient.
Macsteel submitted a duty application to ITAC in February 2020. The Gazette was published in late October 2020.
Benfield says engagement with the department of trade, industry & competition started in early 2021 on this bring-and-braai scenario where he was asked by minister Ebrahim Patel to commit to certain conditions in writing in exchange for duty relief.
Benfield was rightly reluctant to commit to anything in writing given the uncertainties in the market. How could you?
“I said, look, I’ll give you a good faith letter,” recalls Benfield. “That was May 2021.”
But that’s not what these reciprocal agreements are about. In Patel’s mind they are a tool to bend and shape the market to his will and desired outcomes. He wanted Benfield to sign an agreement committing Macsteel to certain criteria or conditions, specifically about the benefit the steel manufacturer and merchant would receive. Macsteel would have to pass that on to its customers, but pricing changes all the time. That was in September of 2021 and Benfield has been ghosted by the department ever since.
I would find it difficult to even come up with a list of what I would be prepared to commit to if I was a CEO dealing in this sort of transactional manner with the department. It’s an efficient market. Pricing is affected by global events and global conditions, global players and committing to any rigid price structure removes my ability to react to changing market conditions.
But this is what happens when the successful are heavily taxed to support the poor, and the government subsidises inefficient businesses at the expense of the more efficient. With the state controlling large portions of the economy, the result is the rise of opportunistic businesspeople who seek profit by manipulating ideologically blinded politicians rather than by doing productive work. Those who refuse are stonewalled, like Benfield has been.
Evidence of this compulsion of the government to seek to intervene in the economy was on display again on Thursday with the return of dawn raids on eight big insurance companies conducted by the Competition Commission.
The commission said it has reasonable grounds to suspect that the insurers have engaged in collusive practices to fix prices and/or trading conditions in respect of fees for investment products such as retirement annuity and premiums for risk-related products.
Namely, the products are in the life insurance cover, disability cover, life cover and funeral assistance benefits.
It’s curious because pricing of individual risk is based on actuarial tables similar to mortality tables, but adjusted depending on the insurers analysis of own experience and expected experience. This takes actuarial judgment and creates the differences. Expense loadings, acquisition costs, termination rates and the like all also contribute to differences.
Maybe there is some similarity in policy fees but that is relatively minor.
What interests me is the mention of investment fees, which technically aren't levied by life offices but by their subsidiary investment houses and it is then odd that some of the high charging fund managers are not even mentioned.
These raids smack of grandstanding by the departing competition commissioner. After all the Financial Sector Conduct Authority keeps a close eye on life office activities and has a great deal of information at its fingertips so raids seem excessive. The commission may well have a maverick actuary who has an axe to grind, but I doubt it.
Speculation is that Liberty, which wasn’t raided, is the firm that blew the whistle here. But it sometimes happens that a company seeks leniency just in case the commission regards an agreement or business practice as collusive. So even cases in which there is a whistle-blower, it may not be a slam dunk for the commission.
• Avery, a financial journalist and broadcaster, produces BDTV’s Business Watch. Contact him at badger@businesslive.co.za.
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