10 ways the new Competition Bill will change the business landscape | Fin24
 
  • Pioneer

    Allan Gray was an investment disruptor who brought change to young South Africans.

  • Job Losses

    Government wants ArcelorMittal to sell its Saldanha Bay plant, rather than shut it down.

  • Ferial Haffajee

    South Africans are a cynical lot. Are we are missing that the business investment strike is over?

Loading...

10 ways the new Competition Bill will change the business landscape

Dec 09 2018 16:02
Lameez Omarjee

The Competition Amendment Bill will now go to President Cyril Ramaphosa for his assent, now that it has been passed by both houses of Parliament.

This week the National Council of Provinces approved the bill, which seeks to break down monopolies and aid transformation of the business sector through efforts to increase access to the economy for small to medium, black-owned or previously disadvantaged businesses.

The bill will give much more powers to the Competition Commission as well as Economic Development Minister, Ebrahim Patel, legal experts pointed out.

"Business needs to be aware, the changes signal a different kind of thinking. Anyone operating in SA will have to think of impact of conduct on small, medium business and black-owned businesses. This will become a factor when conducting business," Rosalind Lake, director at Norton Rose Fulbright, explained to Fin24.

Here are 10 ways the provisions of the new bill will affect businesses:

1. Broader scope of work for Competition Commission under market inquiry

Lake explained that under new provisions for market inquiries, the Competition Commission will have more power to get information from people.

The commission currently focusses on competition matters in market inquiries, but this will broaden to consider levels of market concentration by firms and ownership in the sector. "If anything has an adverse effect on competition, then Competition Commission must make recommendations to fix those problems," Lake explained.

2. More powers to the Competition Commission

The commission's recommendations following a market inquiry will now be binding under the amendment, Lake said.

The Competition Tribunal can order the divestment of a business or assets of a firm upon the commission's recommendation, Paul Coetser, head of the competition practice at Werksmans Attorneys explained.

Lake said this means that there can be an order to break up the powers of a company, if the commission believes it makes it difficult for smaller businesses to enter the market.  

3. Acquisitions affected

The acquisition of a business or a controlling stake in a firm may in future be prohibited on grounds that it has an adverse effect on historically disadvantaged or employee ownership in the firm. Or conditions may be imposed on the approval of the transaction to ensure previously disadvantaged or employee ownership, explained Coetser.

4. More powers to the economic development minister

The minister would be able to require the commission to do a market inquiry on an industry. "Throughout the bill, the minister has been given a lot of power to be directly involved in the activities of the Competition Commission, which does blur the lines between administrative body and the executive," said Lake.

5. New provisions dealing with abuses of dominance

There is specifically a new provision to ensure big businesses engage with small, or medium sized, or black-owned businesses on fair terms. For example, when a very big firm buys from a small or medium sized, or black-owned business, it must show that it did so under fair terms and prices, explained Lake.

"There is a positive duty on dominant firms to engage with small businesses with fair terms, and they must prove pricing is fair," said Lake.  "Big business will have to be more careful when looking at procurement, and their sales policy and their pricing policy," she added.

6. Fair pricing

The big business should also provide clear justification that it has carefully considered whether the price they give small business is going to prevent the small business from participating in market. "The big company has to be able to show to the Competition Commission that the price it gives a [small] company is good enough for company to compete in the market," she explained.

"Small and medium owned businesses and black-owned businesses are going to have a lot more rights and it's going to be far easier to complain against big firms over pricing," Lake added.

Coetser also explained that dominant firms will have to offer historically disadvantaged firms and small and medium businesses the same prices that they charge other firms – regardless of order volume differences. This is unless the dominant firm can show that the differential pricing does not prevent the smaller businesses to participate in the market.

7. Acquisitions by foreign firms

The bill also indicates that a foreign firm's acquisition of a South African business could be blocked by the government on national security grounds. "These grounds are vaguely defined and include South Africa's economic and social stability," said Coetser.

Lake said some sort of review of foreign investment is not "unusual".  But it is unusual that it is in the competition legislation.

Lake explained this provision will see the president set up a committee to review mergers where it involves a foreign company acquiring something in SA, that could affect national security.

A foreign entity will have to make submission to both the Competition Commission and the president's committee. And even if the commission approves a merger, the president's committee will have the final say, Lake explained.

"It gives the president and the committee an override on foreign mergers in certain sectors. We don’t know what those are going to be."

When asked if this would create room for political influence on the business operations, Lake said that it could create an opportunity for lobbying and other conditions that could deter foreign investment.  

8. Penalty changes

Currently the maximum penalty is 10% of annual turnover, for firms contravening the Competition Act, Lake said. Under the new provisions maximum penalties increased, for repeat offenders, to 25% of the turnover of the offending firm, Coetser explained.

"Any and all contraventions of the Competition Act will in future attract penalties – in the past, only the more serious and more clearly defined offences attracted penalties upon a first conviction; the less serious and unclear ones were merely 'yellow-carded'," he added.

9. Liability to parent company

In future, the parent or holding company could be liable for a penalty payable by its subsidiary for contravening competition legislation, Coetser explained.

"The penalty can in future be calculated using the holding company's turnover, if the holding company knew or ought to have known of the offending conduct by the subsidiary," he said.

10. Removal of yellow card

On top of the increased penalties, the bill has removed the warning or "yellow card" for a first-time contravention.

The reasoning by the minister is that the competition act has been enforced for 19 years and companies should know the legislation by now. This means a penalty will be issued for every contravention, including the new provision which have been introduced, explained Lake.

Trailblazer

Adding further comment on the bill, Lake said that SA was a trailblazer in terms of the provisions. "These are very new provisions and not seen in other jurisdictions around the world.  SA is leading the charge in the 'public interest' way of looking at competition," she said.

Principal Economist of Econex Helen Kean, shared views that the provisions are specific to the challenges that SA is facing. "We need to take a long-term approach to increasing participation in the economy, but this cannot be at the expense of the economy and investment in the short term," she warned.

"We must also appreciate the limits of competition policy on its own – many other stakeholders are needed to create broader, effective and sustainable economic change," said Kean.


* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

NEXT ON FIN24X

 
 
 
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

What do you think about private healthcare in SA?

Previous results · Suggest a vote

Loading...