There were high hopes in the business community that new trade, industry & competition minister Parks Tau might be less ideological, and have a better sense of how to drive investment and entrepreneurship, than his predecessor, Ebrahim Patel.
Tau’s proposed R100bn Transformation Fund is not a good start.
It raises concerns that the new regime will, if anything, be worse than the last one, both in the sourcing and the spending of the funds. Tau plans to raid the private sector for the R100bn, to be centralised under government’s National Empowerment Fund and spent to support black-owned businesses.
There are the obvious concerns that this could be a licence for high-level looting or mismanagement. There’s also probably a court challenge just waiting to go because only the finance minister is entitled to tax companies, and what Tau proposes is arguably a tax.
The limited detail we have, from his response to a DA parliamentary question, indicates he will target three buckets of private money. First is the 3% of after-tax profit companies are required to put into developing black suppliers to comply with the black empowerment codes.
Second is the “equity equivalent” spending on transformation that multinationals must do if they can’t comply with BEE ownership requirements.
Third are the so-called public interest commitments many merging companies agree with the competition authorities to get their deals done.
In effect, instead of investing in their own supply chains or other development projects to comply with regulations, companies in all three buckets would have to hand over the cash to Tau’s fund.
His plan to appropriate the monies domestic and multinational companies have to invest under the BEE codes has been the main focus of the storm of criticism so far.
Less attention has been paid to his plan to appropriate the public interest money companies wanting to do merger deals commit to invest to get competition approval.
However, the effect of this on SA’s ability to attract foreign investment could be chilling, even fatal. (And you have to wonder why President Cyril Ramaphosa has gone off to Davos to sell SA’s investment case, taking with him two ministers, Tau and health minister Aaron Motsoaledi, who will have the opposite effect).
As it is, merger regulation in SA has become ever more of a deterrent to would-be foreign investors, as well as to domestic deal-making. The competition authorities’ mandate to safeguard competition in the economy has been increasingly relegated to the back seat over the past 15 years, as their focus has shifted to using merger control to support government policies such as localisation, industrialisation and black empowerment.
The trend has accelerated since 2018, when Patel amended the competition legislation to formalise the minister’s right to intervene in mergers — and to give public interest and competition concerns equal weight in merger adjudication.
But a recent study suggests the public interest now trumps competition. Research by Ronan Morris and Willem Boshoff at Stellenbosch University’s Centre for Competition Law & Economics finds that since 2018 the Competition Commission has intervened more often in mergers than before — most often because of public interest concerns, with intervention due to competition concerns declining.
That seems to make it rather ironic that Tau has said he will challenge the competition authorities’ decision to block the Vodacom-Maziv merger on competition grounds, because he is keen to see it go ahead given the R14bn of public interest commitments the merging parties have made to expanding access to broadband. But his intervention seems consistent with an extractive approach to competition regulation that uses it, just as Patel did, to fund the government’s policy objectives.
Legally, the regulators should be demanding public interest commitments from companies, whether on employment or black ownership or small business, only if they are concerned the deals could affect these.
In practice, whether that’s the case the Competition Commission and the minister now routinely insist that companies — especially large foreign companies — implement employee share ownership schemes and black empowerment transactions.
Setting up a fund worth a few hundred million rand to develop black-owned suppliers is now the norm, as are multibillion-rand capital spending commitments. It all requires a lengthy and costly process of horse trading with the minister and the Competition Commission, one that former Competition Appeal Court judge president Dennis Davis has described as a process of rent-seeking.
We don’t know how many foreign companies take a look and walk away. Companies with a strong case to be in SA presumably factor it in as a cost of doing the deal. Much of it is investment they would do anyway — and they can claim the environmental, social & governance and BEE brownie points.
But it’s their own investment, under their own control, in projects tailored to their own businesses. Force that into a centralised Transformation Fund to support unrelated small businesses and those merging parties will surely go somewhere else to do a deal.
That’s before we even ask what problem this fund is supposed to solve. SA doesn’t have nearly enough entrepreneurial small businesses, especially black-owned ones, and those that are started often don’t survive. But access to finance is not the only reason for that, nor even necessarily the main one.
The evidence suggests factors such as government regulations and crime, as well as a dearth of skills and basic municipal infrastructure, weigh just as heavily on small businesses. If Tau wants genuine transformation and entrepreneurship, he could start there.
• Joffe is editor-at-large.
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