Political interference has undermined the purpose of the 1999 Competition Act, says David Lewis, one its key formulators and first chair of the Competition Tribunal.
“The job of the competition authorities is to prevent monopolies and promote competition without removing the incentive to compete or invest,” he says — but politically driven abuse of the public interest clause in the act has nullified that incentive.
“Public interest was never meant to take precedence over competition.” But because it has, the competition authorities have become “a significant impediment to deal-making and competition”.
Against the advice of “very eminent international people” public interest grounds were included in the act, particularly in the consideration of mergers, in recognition of the impact of past discrimination on small and black-owned businesses, and South Africa’s unemployment problem.
“But we applied it in a manner that we understood to be the intention of the act: that first we would view the transaction before us through the prism of its impact on competition, and having done that we would look at the public interest grounds. We took an implicit policy decision that we would never prohibit a merger entirely on public interest grounds.”
He and his colleagues did not see themselves as creators of employment or as the principle support for small business or more diverse ownership. “We saw ourselves as principally a competition body.”
They were fortunate to have in Trevor Manuel (finance) and Alec Erwin (public enterprises) ministers who respected the independence of the competition authorities and shared their view on where the act stood in relation to public interest, he says.
“And then came Ebrahim Patel, who saw things very differently and politicised the role of the competition authorities and gave them a very, very difficult task to fulfil,” Lewis says.
“In addition, the manner in which he inserted himself into the decision-making functions of the commission and tribunal further undermined them in respect of the time it took to adjudicate these matters and generally complicated them in a really unfortunate manner.”
Until Patel became minister of economic development in 2009 and then trade, industry & competition the competition authorities, “as the name of the act implies”, considered themselves to be charged with promoting and defending competition.
“We never said this merger is OK on competition grounds but not so great on public interest grounds and we’re therefore going to prohibit it.”
The job of the competition authorities was never in the name of public interest to remove the incentive to compete or invest, as has happened: “There’s no doubt about it.”
Mergers & acquisitions are time-sensitive transactions. After Patel came to office, the way the competition authorities handled them created “huge uncertainty, which deterred investment because you can’t easily predict what way the competition commission or tribunal will go on any given transaction”, Lewis says.
The public interest grounds they’re charged with evaluating under the current, rewritten, guidelines are ridiculous
— David Lewis
“The public interest grounds they’re charged with evaluating under the current, rewritten, guidelines are ridiculous. To look at the environmental impact of a merger, to look at the impact on rates and taxes in the municipality, is just absolutely insane.
“The competition authorities are not qualified, frankly, to look at those sorts of things. There are regulators responsible for that,” he says.
“A foreign firm, particularly from as litigious an environment as the US where any big merger will always have to be approved as well, looks at it and says, ‘We don’t know what the environmental consequences of this merger are but we’re not going to take a chance that we’ll have to change our production process because of South African public interest requirements.’
“Their lawyers look at this and advise them it’s not worth the uncertainty and the trouble to be turned down in the end, or to have a massive obligation imposed on them.”
Public interest was meant to be a support for empowerment and employment protection, not the principal vehicle for them, he says.
“The irony is that with all the emphasis on public interest since the Patel ministry began, I really wonder how much it has achieved. It’s viewed as this principal vehicle of empowerment and employment protection but in the greater scheme of things it doesn’t, I believe, add up to terribly much.”
Nobody should be at all surprised, he adds.
“We have a ministry of small business, for God’s sake, we have a labour ministry. These are the ones who should be dictating the laws and regulations to support employment and small business, not the competition authorities. It’s not their job to promote employment and small business.”
Competition law was used by Patel “as the key to a regulatory gate which could be manned by the defenders of public interest”, Lewis says.
“So much so that the modus operandi of the big law firms was to go to the minister first and sort that out with the minister, and then arrive either at the competition commission or the tribunal with an agreed public interest thing.”
In this way the minister undermined the independence of the competition agencies, says Lewis.
“The fantastic thing about the competition agencies before Patel is that ministers before him respected their independence. I know there were decisions Erwin disagreed with, and sometimes he said so. But he never tried to make the decision for us on any grounds, including public interest.”
The Competition Act was fit for purpose until Patel, he says, and then it wasn’t.
In the hands of Patel “public interest” was too often used as a tool to extort as much as the competition authorities felt they could from companies needing their approval for a merger or acquisition.
“That’s exactly what it became.”
But because they feel they are being robbed, and because of the uncertainty it adds to the approval process, “big companies think it’s not worth the candle”.
It does not help that the once world-renowned competition tribunal is “so badly under resourced and beleaguered that its administration leaves a lot to be desired”.
Vodacom and Remgro’s Maziv, for example, whose merger was barred by the tribunal, had to approach the competition appeal court without knowing what the reasons for the tribunal’s ruling were, because these were not given before the legal cut-off time.
Patel’s successor in the portfolio, Parks Tau, needs urgently to confront his legacy, says Lewis.
“Competition is in the public interest. It brings investment, creates jobs and stimulates economic growth. That’s why we have competition agencies. If you place other considerations over competition considerations then you undermine the public interest.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.