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Ebrahim Patel: Why govt won't take 'sledgehammer' approach to deconcentrate markets

Dec 19 2017 19:54
Lameez Omarjee

Johannesburg – Government won’t simply propose to have a law passed to deconcentrate markets, as sometimes it can be a necessary feature of a market, said Minister of Economic Development Ebrahim Patel.

He was addressing guests at the Progressive Business Forum’s (PBF) breakfast on Tuesday. Patel highlighted the downside of concentrated markets - those with a few dominant players. Among these being that concentrated markets can stunt economic growth, innovation and investment and is associated with high levels of inequality.

Concentrated markets also lead to economic exclusion. “It is harder for a young person or small business to break into a market that is highly concentrated, with established players that have a history of dominating the market.”

But the solution is not to pass a law to deconcentrate markets, he explained. “We decided not to go that route because economic concentration may be a necessary feature of a market.”

For example, concentrated markets exist if the only way to achieve economies of scale is through huge production runs, or if the capital needs in a sector are so high only one player can find an opportunity in the market.

In small economies like South Africa, if there are larger players then it is often associated with high concentration. Patel also said that South Africa needs to have big players to be national champions, active and competitive on a global scale, much like what Samsung is for South Korea.

“If we want South African companies to compete in global markets and particularly the rest of African markets, they need to be large companies,” he said.

Market inquiry

Government recently gazetted a bill to expand the power and mandate of competition authorities to evaluate market concentration.  If a market is dominated by few players and others can’t come in, then instead of taking a “sledgehammer” route and passing a law to prevent economic concentration, competition authorities can hold inquiries.

This means they will look at a sector to determine the level of economic concentration and if it has a negative impact on competition, prevents the inclusion of black South Africans to participate in the economy and if it has a negative impact on the operation of small businesses.

“If they find it has a negative impact on competition and the entry of a greater number of South Africans in the economy, then they will be entitled to put remedies in place.”

This is a more economically sensible way of deconcentrating the economy, without “clumsily” interfering with the way corporates do business, without any “economic or social rationale” to do so, he said.

Patel added that clumsy, regulatory intervention can also stunt growth.

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