The Competition Commission has urged the government to learn from the mistakes of previous privatisation efforts in which certain industries merely became private sector monopolies, leaving the economy highly concentrated.
The commission’s second “Economy Concentration Tracker” report, published on Tuesday, says bringing private sector players into the energy and logistics sectors — dominated by Eskom and Transnet — will help to decrease concentration.
The report, which covers the period 2017-2021, notes the extreme concentration of ownership in electric power generation, transmission, and distribution as well as railways.
“Reforms to energy and logistics where state monopolies persist provide the best means to inject competition and benefit from private investment, with support from competition law,” it states.
“It is apparent that past privatisations in selected subsectors, such as forestry and agricultural co-operatives, created private monopolies where competition law can mostly deal with the effects of concentration but will battle to deconcentrate. This is a lesson for future reforms.”
South Africa’s logistics sector is undergoing the biggest reforms in a generation through a robust private sector participation policy.
Transnet concluded its flagship private sector participation project at Durban Container Terminal Pier 2 last year in a 25-year deal for the terminal to be operated by International Container Terminal Services (ITCS) of the Philippines.
ITCS is expected to spend about R11bn upgrading the terminal, which accounts for 46% of South Africa’s port traffic.
Transnet recently issued a market sounding exercise for a private partner for the Richards Bay dry bulk terminal, where capacity will be increased from 18-million tonnes to 28-million tonnes.
Today, the department of transport is expected to announce the names of the first 11 private train operating companies that aim to move 24-million tonnes of freight per annum on Transnet Freight Rail lines, starting on April 1 next year.
The move is part of the government’s rail and port reforms centred on the National Rail Policy of 2022 and the Freight Logistics Roadmap published in 2023.
Small business still marginalised
Though there has been progress since the first report, the commission’s latest report notes the economy continues to exhibit high levels of market concentration, with small businesses confined to the fringes of the mainstream economy.
Ownership in the reinsurance; manufacture of grain mill products, starches and starch products; tobacco; refined petroleum, chemical and glass products; weapons and ammunition; and consumer electronics is also highly concentrated.
Other sectors with high levels of concentration include:
- Manufacturing of railway locomotives and rolling stock;
- Extraction of natural gas; and
- Mining of iron ores.
“The South African economy remains highly concentrated, and continued efforts are needed to reduce concentration … concentrated subsectors with presumptively dominant firms, rather than an oligopoly structure, are less likely to see reductions in competition, suggesting a continued focus on reining in exclusionary conduct by dominant firms,” the commission said.
“However, this needs to be an ‘all of government’ competition policy approach rather than simply a competition law and agency approach, as many regulations may pose barriers to competition or sustain monopoly structures.
“MSME [micro, small and medium enterprises] participation remains an attractive policy goal, as these firms are twice as employment-intensive relative to large firms, suggesting that their growth is critical to job creation objectives.”
Trade, industry & competition minister Parks Tau welcomed the report, saying the data shows that concentration in South Africa is an inheritance.
“The apartheid economy was engineered, deliberately and systematically, to concentrate ownership, to exclude the majority and to entrench the dominance of a small elite. That architecture did not dissolve with democracy,” he said.
“It persists — in who controls markets, in who can access finance, in who is permitted to grow, and in who is locked out … We cannot accept that. We will not accept that. And this is precisely why we are persistent about our growth plans, which enable us to focus on areas of the economy that will break from our apartheid past.”
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