Challenging anti-competitive behaviour by SMEs in the

CHALLENGING ANTI-COMPETITIVE BEHAVIOUR BY SMEs IN THE SOUTH AFRICAN MANUFACTURING SECTOR

by

JULIA ELISABETH KUPKA

MINOR DISSERTATION

submitted in partial fulfilment of the requirements for the degree

MAGISTER COMMERCII

in

BUSINESS MANAGEMENT

in the

FACULTY OF MANAGEMENT

at the

UNIVERSITY OF JOHANNESBURG

Supervisor: PROF ADELE THOMAS Co-supervisor: MS ANOOSHA MAKKA

OCTOBER 2011

ACKNOWLEDGEMENTS

I would like to acknowledge and thank the following people:

My parents, Maria and Karl Kupka, for inspiring in me a love of learning and the

curiosity to seek out knowledge.

My research supervisors, Professor Adèle Thomas and Ms Anoosha Makka.

Without their expert guidance and thought provoking questions this study would

not have been possible.

iii

ABSTRACT

The South African Competition Act (Republic of South Africa, 1998) has

had little impact in diluting the dominance of big business in the agri-food

and steel value chains despite being in existence for over ten years. It is in

this context that the study seeks to create a picture of the impact of anti-

competitive behaviour on SME manufacturers in these value chains and,

from this, to determine whether the Competition authorities should focus

specifically on supporting SMEs as competitors.

The study adopted an inductive approach and fell within the positivist

research philosophy. The research methodology was based on work

undertaken internationally to create a database of evidence of anti-

competitive behaviour from newspaper reports. This research

methodology was qualitative in nature in so far as content analysis was

used to analyse the data, being English language newspaper reports and

Competition Commission press releases. The findings showed that anti-

competitive practices that were engendered during Apartheid have

continued into the modern South African agri-food and steel value chains,

despite state support and regulation in these value chains having ceased.

Anti-competitive behaviour in these value chains has not targetted SMEs

specifically; it has also increased the costs of doing business and

foreclosed opportunities for bigger businesses. However, SMEs do face

unique difficulties in fighting cases of anti-competitive behaviour.

The study concludes there is considerable scope for the Competition

authorities to facilitate the participation of SMEs in the economy without

having a specific focus on SMEs. They can do this by using tools such as

market inquiries, the Corporate Leniency Policy and structural remedies.

However, these tools are still relatively new and, accordingly, it is not yet

possible to assess the efficacy of the Competition authorities in creating a

more supportive market structure for SMEs.

iv

INSERT YOUR SIGNED AFFADAVIT HERE

v

DECLARATION OF ORIGINAL WORK

I, Julia Kupka, declare that this dissertation is my own unaided work. Any

assistance that I have received has been duly acknowledged in the dissertation.

It is submitted in partial fulfilment of the requirements for the degree of Master of

Commerce at the University of Johannesburg. It has not been submitted before

for any degree or examination at this or at any other University.

-------------------------------------------- Julia Elisabeth Kupka October 2011

vi

TABLE OF CONTENTS

1 Chapter One: Introduction 1 1.1 Background and motivation for the study 1 1.1.1 The South African manufacturing sector 3

1.1.1.1. The importance of the manufacturing sector to economic growth 3

1.1.1.2 An historical context to the dominance of big business in the South African

economy

7

1.1.1.3 Ascertaining industry concentration levels in the South African manufacturing

sector

10

1.1.1.4 Overcoming the lack of quantitative data on industry concentration levels 12

1.1.2 The South African agri-food value chain 13

1.1.2.1 Impact of deregulation of the South African agri-food value chain 14

1.1.2.2 Evidence of oligopolies in the South African agri-food value chain 18

1.1.2.3 The role of retailers in the agri-food value chain 19

1.1.3 The South African steel value chain 22

1.2 The role of the South African Competition authorities in assisting SMEs

27

1.2.1 An overview of the South African Competition authorities 27

1.2.2 Types of anti-competitive conduct 33

1.2.3 The performance of the Competition authorities in assisting SMEs 35

1.3 Problem statement 38 1.4 Purpose of the research and research objectives 39 1.6 Brief outline of the research methodology 40 1.7 Outline of the remaining chapters of the dissertation 41

2 Chapter Two: Literature Review 42 2.1 Introduction 42 2.2 The analysis of competition in an industry 42 2.2.1 Overcoming the lack of quantitative data 42

2.2.2 Value chain analysis 43

2.2.3 The importance of governance in value chains 46

2.2.4 Problems of value chain analysis 47

2.3 The role of SMEs in the South African economy 49 2.3.1 A description of SMEs in the South African economy 49

2.3.2 The appropriateness of using competition legislation to achieve socio-economic

objectives

53

2.4 Statement of research questions 58

vii

3 Chapter Three: Research methodology 60 3.1 Introduction 60 3.2 Philosophical foundations 60 3.3 Research design 64 3.4 Research method 64 3.4.1 Electronic research tool 64

3.4.2 Data collection 67

3.4.3 Data analysis 68

3.5 Ethical considerations 71

4 Chapter Four: Presentation of findings 72 4.1 Introduction 72 4.2 The extent of anti-competitive behaviour against SMEs in the agri-

food and steel value chains 73

4.2.1 Cases of anti-competitive behaviour 73

4.2.2 Entities accused of anti-competitive behaviour 74

4.2.3 Complainants of anti-competitive behaviour 77

4.2.4 Types of anti-competitive behaviour 79

4.2.5 Duration of, and justifications for, anti-competitive behaviour 82

4.3 The need for a specific focus on SMEs by the Competition authorities

83

4.3.1 Impact of anti-competitive behaviour on SMEs 83

4.3.1.1 SMEs threatened by anti-competitive behaviour 85

4.3.1.2 SMEs co-opted into anti-competitive behaviour 86

4.3.1.3 SMEs restricted by anti-competitive behaviour 88

4.3.1.4 Cases where SMEs were proactive in fighting anti-competitive behaviour 89

4.3.2 Cases initiated by the Competition Commission 90

4.3.3 Assistance provided by the Corporate Leniency Policy 90

4.3.4 Role of structural remedies 91

4.3.5 Attitudes towards SMEs 93

4.4 Conclusion 94

5 Chapter Five: Discussion of findings 96 5.1 Introduction 96 5.2 The extent of anti-competitive conduct against SMEs in the agri-

food value chain 96

5.2.1 Cases of anti-competitive conduct 96

5.2.2 Entities accused of anti-competitive conduct 98

5.2.3 Complainants of anti-competitive conduct 99


viii

5.3 The extent of anti-competitive conduct against SMEs in the steel

value chain 101

5.3.1 Cases of anti-competitive conduct 101

5.3.2 Entities accused of anti-competitive conduct 102

5.3.3 Complainants of anti-competitive conduct 105


5.4 Answering of the first primary research objective 106 5.4.1 Extent of anti-competitive behaviour in the agri-food value chain 106

5.4.2 Extent of anti-competitive behaviour in the steel value chain 107

5.5 The need for the Competition authorities to focus on SMEs 108 5.5.1 Impact of anti-competitive conduct on SMEs 108

5.5.2. Facilitating the participation of SMEs 110

5.5.2.1 Investigations initiated by the Competition authorities 110

5.5.2.2 Impact of the Corporate Leniency Policy 110

5.5.2.3 Impact of structural remedies 111

5.5.3 Attitudes towards SMEs 113

5.6 Answering of the second primary research objective 115 5.6 Limitations of the study 118 5.7 Summary and conclusion 120

6 Conclusion and recommendations 122 6.1 Introduction 122 6.2 Objectives of the study and major findings 122 6.3 Recommendations for the field of competition policy 125 6.4 Suggestions for future research 125 6.5 Conclusion 127 References 129

ix

LIST OF FIGURES Figure Page

1.1 Location of sub sectors chosen for the study 6

1.2 Diagrammatic representation of the South African agri-food value

chain

14

1.3 Diagrammatic representation of the South African steel value

chain

23

1.4 Schematic representation of Prohibited Practices under the

Competition Act, 1998

35

2.1 The five forces driving industry competition 44

5.1 Cases considered in the agri-food value chian 96

5.2 Cases considered in the steel value chain 102

5.3 Actions of Allens Meshco to counteract anti-competitive behaviour

in the wire industry

104

5.4 Effect of the structural remedy in the Sasol fertiliser case 112

x

LIST OF TABLES Table

Page

Chapter 1 1.1 Contribution to GDP of the top three sectors in the South African

economy

4

1.2 Concentration ratios for total income in the manufacturing

industry, 2008

11

Chapter 2 2.1 Categorisation of SMEs 50

Chapter 4 4.1 Identification of cases according to priority sector 74

4.2 Details of companies from Who Owns Whom database 75

4.3 Entities accused of anti-competitive behaviour 76

4.4 The involvement of construction companies in anti-competitive

behaviour in the manufacturing sector

77

4.5 Categorisation of complainants 78

4.6 Total number of allegations of anti-competitive conduct per priority

sector

80

4.7 Instances of exclusionary conduct in the Food and Agro-

processing sector

81

4.8 Instances of cartel behaviour in the steel value chain 82

4.9 Duration of, and justification for, anti-competitive behaviour 83

4.10 Summary of the impact of anti-competitive behaviour on SMEs 84

4.11 Instances where SMEs were threatened by anti-competitive

behaviour

86

4.12 Cases where SMEs participated in anti-competitive behaviour 87

4.13 Cases where SMEs were restricted by anti-competitive behaviour 88

4.14 Instances where SMEs were proactive in fighting anti-competitive

behaviour

89

4.15 Summary of triggers of Competition Commission investigations

into complaints of anti-competitive behaviour

90

4.16 Cases where the Corporate Leniency Policy has assisted the

Competition Commission

91

xi

4.17 Summary of attitudes to the role of competition policy 93

4.18 Summary of opinions on the accessibility of the Competition Act

for SMEs

94

xii

LIST OF APPENDICES

Appendices Page

1 Literature search on the South African agri-food value chain 144

2 Literature search on the South African steel value chain 148

3 Literature search on South African competition policy and SMEs

151

4a Cases considered in the study, categorised according to the Competition Comission’s priority sectors

156

4b Cases considered in the study, categorised according to the Competition Comission’s priority sectors

157

4c Cases considered in the study, categorised according to the Competition Comission’s priority sectors

158

5a Types of anti-competitive behaviours 159

5b Types of anti-competitive behaviours 160

5c Types of anti-competitive behaviours 161

6a Impact of anti-competitive behaviour on SMEs 162

6b Impact of anti-competitive behaviour on SMEs 163

6c Impact of anti-competitive behaviour on SMEs 164

7 Cases where structural remedies were imposed 165

8a Opinions on the accessibility of Competition Act remedies to SMEs

166

8b Opinions on the accessibility of Competition Act remedies to SMEs

167

xiii

LIST OF ACRONYMS

AMSA Arcelor Mittal SA

CAC Competition Appeal Court

FPMC Food Price Monitoring Committee

GDP Gross Domestic Product

NAMC National Agricultural Marketing Council

MEC Minerals and Energy Complex

Porter’s FFF Porter’s Five Forces Framework

SAB South African Breweries

SCA Supreme Court of Appeal

SME Small and Medium Enterprise

1

CHAPTER ONE: INTRODUCTION

1.1 Background and motivation for the study

The legacy of Apartheid1 has left the South African economy dominated by

large businesses, which has made it difficult for smaller businesses to gain a

foothold and grow (Boyd, Spicer & Keeton, 2001:81; Chabane, Machaka,

Molaba, Roberts, & Taka, 2003:15; Hartzenberg, 2006:669; Kampel,

2005:20). In addition, the period of sanctions against the country under

Apartheid led the state to develop key industries through subsidies,

protective tariffs and market controls (Chabane et al., 2003:8; Kampel,

2005:20).

These factors have resulted in an economy characterised by firms that may

not have achieved their dominant positions for reasons typically used to

justify dominance: economies of scale, technical innovation or efficiency

(Hartzenberg, 2006:684). Rather, in many cases, dominance has been a

consequence of big business being protected from competition through state

support, Apartheid policies and remoteness from other markets (Iheduru,

2004:4; Ramburuth & Roberts, 2009:7).

Since the advent of democracy in 1994, there has been an awareness of the

importance of small and medium enterprises (SMEs) and their promotion has

become a formal policy goal of the South African government (Bradford,

2007:97; Ligthelm, 2008:368; Luiz, 2002:53). SMEs are described in the

National Small Business Act (Republic of South Africa, 1996), as businesses

with annual turnovers of between R2 million and R50 million and employing

up to 200 people. SMEs are recognised for their abilty to create jobs where

the formal sector cannot absorb all labour seekers (Bradford, 2007:97;

Ligthelm, 2008:367; Luiz, 2002:54; Ndabeni, 2008:259); for their ability to 1 Apartheid was a legal system under which races were segregated in South Africa during the period 1948 to 1994. The aim of Apartheid was to entrench minority White rule at the expense of curtailing the legal rights of Black, Coloured and Indian citizens.

2

increase income levels and contribute to black economic empowerment

(Iheduru, 2004:6; Luiz, 2002:54; Ndabeni, 2008:259) and for their ability to

counteract the economic power of big business (Abor & Quartey, 2010:218).

South Africa is not unusual in identifying SMEs as vehicles for economic

growth (Bradford, 2007:97; Ligthelm, 2008:368). SMEs carry similar

expectations in other developing economies with large wealth gaps. A

notable example is in Latin America, where a strong SME sector is seen as

key to eradicating income inequality and achieving more transparency in

business activities (Berry, 2002:105).

A formal manifestation of the South African government’s intention to develop

SMEs is found in the objectives of the Competition Act (Republic of South

Africa, 1998:Section 2). One of these objectives refers to facilitating the

participation of SMEs in the economy (subsection 2(e)), while another refers

to promoting a wider spread of ownership in the economy, particularly of

previously disadvantaged individuals (subsection 2(f)). These objectives are

socio-economic goals motivated, not only by the need to develop a more

efficient economy, but also by considerations of equity (Wise, 2003:17).

However, despite being in existence for more than ten years, the Competition

Act (Republic of South Africa, 1998) has not been successful in diluting the

dominance of big business in the South African manufacturing sector

(Chabane, Goldstein & Roberts, 2003:46; Kampel, 2005:21), and in fact the

dominance of such entities has continued to grow (Competition Commission,

2009b:5). As a result, the Competition authorities have been criticised for

making little progress in increasing the participation of previously

disadvantaged individuals and companies in the economy (Chabane et al.,

2003:5; Mohamed & Roberts, 2008:42).

In 2006, the Competition Commission took a strategic decision to switch its

focus to proactively tackling anti-competitive behaviour (Competition

3

Commission, 2009b:71). Underpinning the new focus was the identification of

priority sectors for investigation based, inter alia, on the strong likelihood of

anti-competitive behaviour being found in these subsectors (Competition

Commission, 2010:5). The prioritisation had the effect of concentrating the

Commission’s resources in areas where they would have their greatest

impact. This is important for tackling anti-competitive behaviour in the form of

cartels which, due to the secret nature of cartels, requires more resources to

enforce than the review of merger application (Wise, 2003:59).

This study explores competition policy in terms of its usefulness in facilitating

the participation of SMEs in two manufacturing value chains that fall within

the Competition Commission’s priority sectors. These are the agri-food value

chain, which falls into the Commission’s Food and Agro-Processing priority

sector, and the steel value chain, which falls into two priority sectors, namely

the Intermediate Industrial Products and the Construction and Infrastructure

priority sectors. The relevance of the research topic stems from the high

profile and on-going nature of investigations and prosecutions by the

Competition authorities into the aforementioned priority sectors. The topic is

further relevant as it contributes to research on the transformation of the

South African economy into an economy that is more diversified and

conducive to the participation of SMEs.

1.1.1 The South African manufacturing sector 1.1.1.1 The importance of the manufacturing sector to economic growth

The manufacturing sector is an important contributor to South Africa’s Gross

Domestic Product (GDP). GDP measures the total value of economic output

by firms and individuals in an economy (Nattrass, Wakeford & Muradzikwa,

2003:9) and changes in GDP are indicative of growth or a slowdown in the

economy (Fourie, 2007:8). The relative importance of the manufacturing

sector in the South African economy is shown in Table 1.1. This table

illustrates that, since 2005, manufacturing has ranked second in contribution

4

to GDP after the Finance, Real Estate and Business Services sectors in the

economy. The General Government Services sector has not been included in

calculation of the total GDP figure, as the emphasis of this study is on the

private sector of the economy.

Table 1.1: Contribution to GDP of the top three sectors in the South African economy.

ManufacturingFinance, real estate

& business services

Wholesale, retail,

motor trade,

accommodation

GDP at market

prices

Contribution to GDP R22 579 R216 747 R161 503

Percentage contribution to GDP 17 16 12

Ranking in contribution to GDP 1 2 3







R1 834 293

2000

2005

2010

R1 301 813

R1 571 082

Source: Compiled from Stats SA (2011:8). Figures are in R millions and are at constant 2005 prices.

The importance of manufacturing for economic growth is provided by

Kaldor’s engine-of-growth hypothesis, which has been found to hold true in

economies such as the United States (Atesoglu, 1993:69); Turkey (Bairam,

1991:1279) and China (Hansen & Zhang, 1996:685), as well as in South

Africa (Millin & Tennassie, 2005:49). Kaldor’s hypothesis positively correlates

an expansion in manufacturing output with growth in GDP (Hansen & Zhang,

1996:682; Millin & Tennassie, 2005:49; Thirlwall, 1983:345). The positive

correlation arises from the fact that by drawing labour and resources from

other sectors in an economy, manufacturing will stimulate growth in those

sectors and hence in the economy as a whole (Hansen & Zhang, 1996:683;

Millin & Tennassie, 2005:53; Thirlwall, 1983:385).

5

This study examines two manufacturing subsectors classified according to

the Standard Industry Classification (SIC) used by the Department of Trade

and Industry, namely the food and beverage subsector (SIC 300) and the

iron and steel and metal products subsector (SIC 350). The subsectors were

chosen for a number of reasons. First both derive their primary raw materials

from industries that were heavily regulated and supported by the Apartheid

government. Primary agriculture and agro-processing were regulated through

control boards and the number of players in those industries were restricted

(Mather, 2005:610), while South Africa’s steel production capacity is due to

significant state funding and tax breaks in the past (Roberts & Rustomjee,

2009:54). There was furthermore a political undertone to this support. In the

agricultural and agro-processing sector the intention was to guarantee stable

incomes for whites living in rural areas (Seeking, 2007:383). In the case of

primary steel production, the intention was to provide employment for white

workers (Bezuidenhout & Cock, 2009:87) and guarantee the supply of a

strategic resources needed for mining and for arms manufacture (Roberts &

Rustomjee, 2009:56).

The legacy of the state support has left the modern South African economy

with high levels of industry concentration in both of these subsectors. In

primary agriculture such concentration occurs for example at level where

mills process grain (Abu & Kirsten, 2009:355), while in the steel industry the

concentration is located at the level where raw materials such as iron ore and

coal are converted into primary steel (Walker & Jourdan, 2003:28). SMEs

have been prejudiced by the high levels of industry concentration in these

subsectors. Thus, the poor performance of SME millers in the food and

beverage subsector of the economy has been attributed to large millers and

bakers dominating the agro-processing of grain (Louw, Geyser, Troskie, van

der Merwe Scheltema and Nicholson, 2010a:110). In the South African steel

subsector the growth of SME steel fabricators is restricted by the dominance

of primary steel producers, such as Arcelor Mittal SA (Kesper, 2000:24;

Walker & Jourdan, 2003:41).

6

Finally, the aforementioned sectors have been chosen because they fall

within the Competition Commission’s priority sectors for investigation

(Competition Commission, 2009:39). Thus the Food and Beverage subsector

falls within the Commission’s Food, Agro-Processing and Forestry priority

sector. The Forestry portion of the aforementioned priority sector is excluded

from this study, as instances of anti-competitive behaviour in the forestry

industry fall under SIC Code 302: the Wood, Wood Products and Paper

subsector. Hence for the purpose of this study, the name of the

aforementioned priority sector is contracted to the Food and Agro-Processing

sector. The Iron and Steel and Metal Products subsector falls within two

priority sectors, namely the Intermediate and Industrial Products sector (as

steel is a an important industrial input) and the Infrastructure and

Construction sector (as products manufactured from steel are used in this

sector). The Food and Beverage and the Iron and Steel and Metal Products

subsectors of the economy can be linked to the Competition Commission’s

priority sectors as illustrated by Figure 1.1.

Manufacturing Sector Priority Sectors

The South African Economy The Competition Commission

Food, Agro-Processing & Forestry

Intermediate Industrial Products

Infrastructure and Construction

Banking Services

Manufacturing Sub-Sectors• SIC 300 – Food & Beverages• SIC 301 – Textiles, Clothing, Leather & Footwear • SIC 302 – Wood & Wood Products, Paper• SIC 303 – Petroleum, Chemical, Rubber & Plastics• SIC 304 – Glass & Non-Metallic Minerals

• SIC 305 – Iron, Steel & Metal Products• SIC 306 – Electrical Machinery• SIC 307 – Communication & Professional Equipment• SIC 308 – Motor Vehicles, Parts & Accessories• SIC 309 – Furniture & Other Manufacturing

Figure 1.1: Location of the subsectors chosen for the study (Adapted from Statistics South Africa (2010) and Competition Commission, (2009:39).

7

1.1.1.2 An historical context to the dominance of big business in the South African economy

The foundation for the dominance of big business in the South African

economy was laid in the 1880’s when De Beers and Anglo American

consolidated smaller mining resources investors (Chabane, Goldstein &

Roberts, 2006:550). Mining also encouraged the development of big

business because of the resources and economies of scale required for

deep-level mining (Walker & Jourdan, 2003:26).

The development of big business was then further entrenched by four

factors. First, when demand started developing for industrial and consumer

products, mining houses had the resources to respond by diversifying their

business (Chabane et al., 2006: 551; Schneider, 2000:415). Second, a

government policy to develop Afrikaner2 business after World War II provided

state assistance to private Afrikaner companies, allowing these companies to

become dominant without their having some competitive edge (Iheduru,

2004:4). Third, mining firms diversified into manufacturing and financial

services because sanctions and exchange controls restricted expansion

opportunities in foreign markets and because of gaps left in the local

economy from the divestment of foreign firms in protest against Apartheid

(Carmody, 2002:262; Luiz, 2002:54). Finally, state intervention created

monopolies in key input industries such as steel and basic chemicals

(Ramburuth & Roberts, 2009:1; Schneider, 2000:417).

Thus, the dominance of conglomerates in the South African economy can be

attributed to a history of natural resource dependence, state intervention and

protectionism (Bezuidenhout & Cock, 2009:97; Chabane et al., 2006:551). In

addition, conglomerates were also often controlled by a few families, thus

further entrenching concentration levels in the economy (Iheduru, 2004:21),

five of whom arose out of the mining industry. As a result of these

2 A white ethnic minority group in South Africa, descendant of Dutch, French and German settlers and speaking a Germanic language known as Afrikaans.

8

aforementioned factors, six conglomerates controlled over 80% of the

Johannesburg Securities Exchange by market capitalisation at the end of

Apartheid in 1994 (Carmody, 2002:256). The current South African

competition policy therefore arose out of a need to address these high

concentration levels (Chabane et al., 2006:552; Iheduru, 2004:21).

The dominant conglomerates in the South African economy started divesting

themselves of non-core businesses after 1994. This development was in

response to increased competition after South Africa opened up to the global

economy (Ponte, Roberts & van Sittert, 2007:946), a desire to pre-empt

actions by the local Competition authority (Carmody, 2002:264), to gain

political favour by granting ownership to Black South Africans and to seize

the opportunity of investing in offshore markets (Carmody, 2002:264-5).

These developments diluted the control of the JSE in terms of market

capitalisation of the original six conglomerates to 47% in 2004 (Chabane et

al., 2006:555).

The dismantling of the conglomerates did not, however, stimulate competition

in the economy (Cook, 2002:542; Ponte et al., 2007:934), as it was motivated

by a response to globalisation (Chabane et al., 2006:554) and the desire to

exploit new, overseas investment opportunities (Carmody, 2002:264). In fact

after 1994, the dominance of big business was further entrenched by vertical

mergers (Roberts & Rustomjee, 2009:54; Traub & Jayne, 2008:234) and the

creation of large corporates such as Arcelor Mittal and Sasol from the

privatisation of state interests in the steel and chemical sectors. Ironically,

after 1994, it became harder for black-owned and controlled SMEs to expand

in the manufacturing sector (Ponte et al., 2007:948) as barriers to entry were

strengthened, competitors were squeezed out and collusion was facilitated

(Chabane et al., 2006:558).

Where dismantling of conglomerates has occurred, this resulted from the

sale of non-core or less profitable businesses to black-controlled business

9

groups (Luiz, 2002:55). There has been a trend of big business divesting

itself of direct ownership of primary production and “migrating up the value

chain” (Ponte & van Sittert, 2007:461) by strengthening their indirect control

over primary production through brand ownership, marketing and logistics.

Mohamed and Roberts (2008:35) report that new entrants in the metals and

engineering industries have mainly been providers of non-core services, such

as catering and cleaning, or basic raw materials such as scrap metal. The

relegation of new entrants to the area of providing non-core services has

been at the expense of the development of a “wider supplier base with

greater black participation” (Mohamed & Roberts, 2008:42).

The dominance of big business in the South African economy was further

entrenched by the fact that when new, black-economic empowered

competitors did manage to enter an industry, they had to slot into the existing

monopolistic business culture to survive (Iheduru, 2004:21). Such co-option

is common in economies where wealth is concentrated in a few monopolies

with the result that the survival of a small firm can be threatened if it does not

engage with the prevailing monopolistic structure (Dabbah, 2010:297-298).

The aforementioned examples lend support to comments by Cook

(2002:552) that in developing countries, SMEs often lack the resources to

invest in the higher value industries that lie beyond immediate primary

production. These examples also support research conducted by Traub and

Jayne (2008:234) who, commenting on the South African maize milling,

wholesaling and retailing chain, argue there should have been a greater

awareness of the highly concentrated nature of that industry when it was

deregulated in the 1990’s in order to prevent the concentrated industry

structure continuing in a deregulated environment.

10

1.1.1.3 Ascertaining industry concentration levels in the South African manufacturing sector

Several studies have identified the negative impact of high industry

concentration levels in the South African manufacturing sector (Chabane et

al., 2003:5; Fedderke & Szalontai, 2009:242; Kaplinsky & Manning,

1998:144). Fedderke, Kularatne and Mariotti (2007:34), for example, report

that mark-ups are likely to exceed marginal costs in manufacturing industries

with high concentration levels, while Aghion, Braun and Fedderke (2008:764)

show a correlation between high industry concentration levels and lower

productivity.

Fedderke and Szalontai (2009:249) also establish a link between high

concentration levels and decreased employment. They note that high

concentration levels may initially stimulate investment, as dominant firms

establish themselves in the market, but that this stimulus starts subsiding

once concentration levels start making the market uncompetitive. The

authors conclude that “the strongest impact on investment may well lie in

improving competition by improving market access for new entrant firms”

(Fedderke & Szalontai, 2009:249).

A major difficulty in conducting concentration analyses in the South African

manufacturing sector is the lack of official data. Statistics South Africa

publishes monthly manufacturing output data, as well as a tri-annual survey

of manufacturing enterprises. However, industry concentration analyses

cannot be prepared from this data, as the data is not disaggregated into

small, medium and large firm categories.

Statistics South Africa (2010) has started remedying this gap in the data in

2010. Its latest tri-annual survey of the manufacturing industry was published

in February 2010 (“the 2010 Survey”) and covers 10 725 manufacturing

enterprises for the 2008 financial year. The 2010 Survey is the first official

publication of manufacturing concentration ratios. These ratios are calculated

11

by determining the percentage contributed by the top five, ten and 20 firms in

a manufacturing subsector to that subsector’s output.

Accordingly, while it is not possible to conduct a comparative analysis of

manufacturing industry concentration levels using official data, it is possible

to provide a snapshot of the concentration levels in the industry as at 2008.

Table 1.2 contains the industry concentration percentages published by

Statistics South Africa for selected industries in the Food and Beverage and

Metal and Metal Products subsectors. The percentages are calculated using

the income generated by the largest companies in individual subsectors.

Table 1.2: Concentration ratios for the manufacturing industry, 2008

SIC Code Industry descriptionTotal Income

generated in 2008

% contribution

by 5 largest

companies

% contribution

by 10 largest

companies

% contribution

by 20 largest

companies

300 Food & Beverage R221 123 30 40 54

Manufacture of dairy products R16 003 71 81 90

Manufacture of grain mill products R17 887 70 79 88

Manufacture of prepared animal feeds R19 714 72 82 90

Manufacture of beverages R59 272 80 86 90

350 Metals, metal products, machinery and equipment R311 606 27 36 46

Manufacture of basic iron & steel, and primary iron &

steel productsR87 505 70 83 90

Manufacture of structural metal products R32 016 42 50 59

Manufacture of general hardware R3 144 45 56 67

Manufacture of fabricated metal products R27 348 29 36 44

Total Total manufacturing sector R1 526 502 15 25 36

Source: Extracted from Statistics South Africa (2010:24-27).

Table 1.2 shows there are high industry concentration ratios in the Food and

Beverage subsector, such that the largest five companies contribute 71% of

all income earned in the dairy industry and 70% of income earned in the

grain mill industry. Studies have shown that both of these industries are

characterised by oligopolies (Abu & Kirsten, 2009:355; Cutts & Kirsten,

2006:328-9; Watkinson & Makgetla, 2002:10; Mkhabela & Mndeme,

2010:123). In the Metal and Metal Products subsector, it is evident from

Table 1.2 that the manufacture of primary steel is very concentrated, with the

top five companies generating 70% of income. In contrast, however,

downstream steel production is less concentrated, with the top five

companies contributing only 42% of income in the manufacture of structural

12

metal products, 45% of income in the manufacture of general hardware and

only 29% of income in the manufacture of fabricated metal products. Studies

have shown that while primary steel production is dominated by companies

such as Arcelor Mittal SA and Highveld Steel and Vanadium, the downstream

steel sector is diverse and highly fragmented (Bezuidenhout & Cock,

2009:91-92; Roberts & Rustomjee, 2009:56).

1.1.1.4 Overcoming the lack of quantitative data on industry concentration levels

In the absence of publicly available statistics for the assessment of

concentration levels in an industry, it is necessary to rely on qualitative

frameworks to determine how the competitiveness of an industry is affected

by the dominance of large firms. A useful tool for analysing the inter-

relationships between firms in different sectors of the economy is the value

chain analysis (Altenburg, 2006b:517; Kaplinsky, 2000:121; Machaka &

Roberts, 2003:700; Roberts, 2002:4) because it considers all the activities

required to create, market and distribute a product and dispose of it after use

(Altenburg, 2006a:6; Humphrey & Sturgeon, 2006:79; Kaplinsky, 2004:80).

In assessing the various activities undertaken throughout the life cycle of a

product, value chain analysis distinguishes buyer-driven chains from

producer-driven chains (Altenburg, 2006a:12; Barnes & Morris, 2004:791;

Gereffi, Kaplinsky, 2000:125; Ponte & Gibbon, 2005:22; Roberts, 2002:4).

Food manufacturers are examples of manufacturers found in buyer-driven

chains, as markets are dominated by a small number of retail buyers

(Roberts, 2002:4; Vorley, 2001:3). The steel industry, on the other hand, can

be characterised as a producer-driven value chain where upstream

participants control the inputs and/or technology needed for the functioning of

a value chain (Altenburg, 2006a:12; Barnes & Morris, 2004:791; Kaplinsky,

2000:125).

13

1.1.2 The South African agri-food value chain

The Competition Commission has prioritised the Food and Agro-Processing

sector for investigation. The value chain that falls within this sector is the agri-

food value chain, which covers the process of food production from the farm

to the consumer. The value chain is divided into three broad categories: pre-

production (which includes the production of inputs required for farming, such

as equipment, tools, seed and agro-chemicals); production (which entails the

farming of crops and animals); post-production (which entails processing,

preservation and packaging as well as the marketing and distribution of

agricultural products) (Louw et al., 2010a:10).

The structure of the South African agri-food value chain has not been

extensively researched, and most of the research has concentrated on the

grain value chains. A search of the academic databases, Business Source

Premier JStor, revealed that work published during the period January 2000

to September 2011 in peer-reviewed academic journals is dominated by a

small group of academics, namely studies lead by Professor Johann Kirsten,

Professor Andre Louw and Dr Lulama Traub of the Universtity of Pretoria;

Professor T.S. Jayne of Michigan State University and Dr Simon Roberts and

Ms Neo Chabane, economists at the Competition Commission. The results of

the literature search are set out in Appendix 1.

Accordingly, this section concentrates on the grain value chain, which is

depicted diagrammatically in Figure 1.2.

14

Research & Biotechnology

Input suppliers

SilosCo-operatives

Import & Export Markets

Farmers

Local markets

Baking & Agro-processingWheat/Maize MillingAnimal Feed Industry

Retailers

Consumers

FertiliserSeedAgro-chemicalsEquipment

Pre-Production

Production

Post-Production

Figure 1.2: Diagrammatic representation of the South African agri-food value chain (Adapted from Louw et al., 2010a:11).

1.1.2.1 Impact of deregulation of the South African agri-food value chain

Food processing and retailing is a highly concentrated value chain worldwide

(Vorley, 2002:3), a characteristic that, in South Africa, is attributed to the

legacy of Apartheid-era agricultural marketing control boards as well as to the

capital-intensive technology requirements of food processing (Mather,

2005:610; Ponte & van Sittert, 2007:442; Ramburuth & Roberts, 2009:5).

Regulation of the agricultural value chain, in particular the grain value chain,

was motivated by a need to guarantee white farmers a stable income and

protect them against market risks (Mather, 2005:610; Seeking, 2007:383).

Regulation restricted the number of players who could operate in the market

(Traub & Jayne, 2008:225) which, in turn, constrained the development of

processing capacity and so also competition in the industry (Abu & Kirsten,

2009:353).

The enactment of the Marketing of Agricultural Products Act (Republic of

South Africa, 1996a) ended the regulation of South African agricultural

15

industries, except for the sugar industry (Jenny, 2006:130). It was expected

that deregulation would open the market for SME processors, particularly in

the grain milling industry, because this had been a consequence of

deregulation in Zimbabwe, Zambia, Mozambique and Kenya (Traub & Jayne,

2008:224). However, in South Africa, an oligopolistic market has arisen. This

is a market where a small number of firms are dominant (Jones & Sufrin,

2011:11). Thus, in the grain value chain, 85% of maize meal is produced by

22 mills and four large mills account for 73% of this amount (Abu & Kirsten,

2009:355), an observation that is supported by Watkinson and Makgetla

(2002:10). In the dairy value chain, large milk buyers, such as Clover,

Parmalat and Nestle, are responsible for processing the majority of milk

produced in South Africa. This market share ranges from 65% (Cutts &

Kirsten, 2006:328-9) to 80% (Mkhabela & Mndeme, 2010:123). Of these

buyers, Clover and Parmalat are the price leaders (Cutts & Kirsten,

2006:328-9). Oligopolies are also found in the South African grain storage

industry, where formerly state-funded grain silos have become concentrated

in the hands of a small number of private-sector players following the

privatisation of state-owned grain co-operatives in the 1990’s (Traub &

Jayne, 2008:225).

Oligopolies are not per se anti-competitive, as the leading firms can compete

against each other; nevertheless the presence of only a small number of

leading firms in the market is conducive to anti-competitive conduct (Jones &

Sufrin, 2011:11). One indication of anti-competitive behaviour in an

oligopolistic market is to test for asymmetric price transmission. Price

transmission refers to how participants in a supply chain respond to price

changes at various stages in the value chain that either boost or depress

their profit margins (Alemu & Ogundeji, 2010:435). Price transmission is

asymmetric when a price change at one stage of the supply chain (for

example, a drop in the price paid to farmers for their maize) is not reflected at

other stages in the supply chain (for example, it does not lead to consumers

paying less for maize meal). Thus asymmetric price transmission can have

16

the effect that consumers do not benefit from lower prices paid to farmers or

that agro-processors and farmers do not benefit from high retail prices

(Funke, 2006:50).

An example of asymmetric price transmission was found in the South African

food value chain when, during 2002 and 2003, food prices increased

significantly following a depreciation of the Rand and rising global grain

prices. However, once the Rand strengthened and global food inflation

eased, there was no consequent easing in South African food retail prices

(Alemu & Ogundeji, 2010:434; Cutts & Kirsten, 2006:328). The fact that retail

prices did not track farmgate prices was seen as asymmetric price

transmission and raised the suspicion of anti-competitive behaviour in the

agri-food value chain (Cutts & Kirsten, 2006:323).

Asymmetric price transmission can be detected from the difference between

the maize milling and maize retail price margin, this being the difference

between the price at which mills procure maize and the price at which maize

is sold to the consumer (Funke, 2006:32). If the margin increases, then

consumers are buying maize meal at a price that is not correlated to the raw

maize price and, accordingly, price transmission from the farmer to the

consumer will be asymmetric. Milling/retail margins decreased in other

countries where the maize milling industry was opened to SME players

(Traub & Jayne, 2008:224) and hence their narrowing was seen as evidence

of deregulation increasing competition in the grain value chain (Traub &

Jayne, 2008:224). In South Africa, however, the margin has increased since

deregulation (Funke, 2006:35) an indication of a lack of competition in the

processing and retailing of maize (Abu & Kirsten, 2009: 354; Traub & Jayne,

2008:234).

There is support for these conclusions in earlier South African studies as well

as in international studies. Thus De Klerk et al. (2004:61) show that the food

retail price does not truly reflect the volatility in the price paid to farmers,

17

while the Australian Competition and Consumer Commission also notes a

disconnect between farmgate and retail prices in Australia (Griffith,

2000:333). In a study of Latin American and African countries, Jenny

(2006:134) reveals that market forces do not determine consumer prices in a

transparent manner with the result that practices such as price fixing are

common among retailers. Both Jenny (2006:134) and Vorley (2002:3) call on

developing countries to include measures to counter anti-competitive

behaviour in basic necessity markets as part of their pro-poor policies.

Published academic research on price transmission in the South African

agricultural value chain has been limited. A search on Business Source

Premier revealed two papers published in academic journals. These are a

study by Cutts and Kirsten (2006) and a later study by Alemu and Ogundeji

(2010), who also cite the Cutts and Kirsten (2006) study as being the only

previous study on the topic (Alemu & Ogundeji, 2010:435). Other research

includes an unpublished masters dissertation by Mr Thomas Funke of the

University of Pretoria and studies by Professor T.S. Jayne and Dr Lulama

Traub of Michigan State University.

Alemu and Ogundeji (2010:444) tested and proved the conclusion reached

by Cutts and Kirsten (2006:333) of the existence of market power among

food manufacturers and retailers in the oligopolistic market structures Cutts

and Kirsten (2006:328-9) identified in the grain and dairy markets. Both sets

of researchers concluded that market power was exhibited by the fact that

large food manufacturers and retailers were able to quickly pass higher

agricultural commodity prices on to consumers, but could delay passing on

declines in these prices (Alemu & Ogundeji, 2010:444; Cutts & Kirsten,

2006:328-9). Thus both sets of researchers concluded that the South African

food value chain was conducive to anti-competitive behaviour on the part of

large food manufacturers and retailers (Alemu & Ogundeji, 2010:444; Cutts &

Kirsten, 2006:328-9).

18

1.1.2.2 Evidence of oligopolies in the South African grain value chain

A search of the academic databases, Business Source Premier and Jstor

during the period January 2000 to August 2011, indicates that the topic of the

performance of SMEs in the South African agri-food value chain has been

under researched and that the research that has been conducted has

focussed on the grain industry. The results of this search are set out in

Appendix 1. Abu and Kirsten (2009) produced the only published academic

study on the performance of small maize millers in relation to the larger

millers in South Africa. The National Agricultural Marketing Council (“NAMC”)

subsequently commissioned two studies on the factors restricting

agroprocessing as well as the participation of SMEs in the grain value chains.

These studies, namely Louw, Geyser, Troskie, van der Merwe, Scheltema

and Nicholson (2010a) (focussing on the maize milling industry) and Louw et

al. (2010b) (focussing on the wheat milling and baking industries) have,

however, not been peer reviewed. Louw et al. (2010b:122) also highlight that

recent investigations by the Competition Commission in the grain industry

have made industry participants reluctant to share information, and that this

hampers future research in the industry.

Abu and Kirsten (2009:363-4) conclude that the growth of SME millers has

been restricted in South Africa by their lack of profitability. They attribute this

to SMEs not achieving the economies of scale of the larger mills and

consumers prefering the brands produced by the four large mills (Abu &

Kirsten, 2009:363-5). The two researchers argue further that evidence of the

greater efficiencies achieved by the larger mills indicates that, provided that

SME mills are allowed to grow, this will lead to more competition in the South

African maize milling industry in the long run.

The two National Agricultural Marketing Council (NAMC) studies (Louw et al.,

2010a; Louw et al., 2010b) build on the work of Abu and Kirsten (2009). In

interviews conducted by the NAMC, the SMEs revealed they were not

19

struggling with low profitability. Just over half of the 36 maize millers

interviewed by Louw et al. (2010a:104) comprised SMEs. Of these SMEs,

78% rated their financial performance as either average or above average

(Louw et al., 2010a:144). The SME millers cite among their difficulties, a

struggle to compete against the large millers, and in the wheat industry,

against the large bakers (Louw et al., 2010a:110; Louw et al., 2010b:108).

The two NAMC studies provide anecdotal evidence of how the asymmetric

price transmission can occur in the grain agro-processing value chains to the

detriment of SME millers. The SME millers argue that the larger millers are

able to ride out fluctuations in grain prices, as they have the resources to buy

up large quantities of grain, which then places them in a position to engage in

price wars with SME millers (Louw et al., 2010a:130; Louw et al., 2010b:108).

This finding led Louw et al. (2010b:109) to conclude that SME participants

should be protected against larger players in the grain industry due to the

ability of the larger players to use their “capital and cash flow to distort the

markets”.

1.1.2.3 The role of retailers in the food value chain

The role of retailers in stimulating or preventing competition among food

manufacturers has also been considered by researchers (Griffith, 2000;

Louw, Vermeulen, Kirsten, & Madevu, 2007; NAMC, 2008; Mather, 2005).

The emphasis has been on whether retailers’ procurement and price-setting

practices disadvantage smaller players in the agro-food value chain (NAMC,

2008:2).

In 2005, 2% of retailers – Metcash, Massmart, Pick ‘n Pay, Shoprite, Spar

and Woolworths – accounted for 50% to 60% of the South African food retail

market (Cutts & Kirsten, 2006:328; Weatherspoon & Reardon, 2003:337),

making retailers the dominant channel through which food processors can

get their produce to the market (NAMC, 2008:1). Thus, the South African

20

food value chain is buyer-driven (Kaplinsky, 2000:125; Roberts, 2002:4), as

retailers can dictate the terms on which they will source from manufacturers

(Louw, et al., 2007:542; NAMC, 2008:3; Vorley, 2001:4; Weatherspoon &

Reardon, 2003:344). This buyer-driven market is not co-ordinated by prices

negotiated in the open market but through the contracts retailers conclude

with their suppliers that dictate the volumes, grades, prices, packaging and

timing of delivery (Vorley, 2001:3; Weatherspoon & Reardon, 2003:344).

The South African situation reflects a global trend. Retailers control national

food sales in the US and the EU (Gibbon, 2003:624; Weatherspoon &

Reardon, 2003:333); in Central America, 20-35% of rural food sales are

controlled by retailers (Vorley, 2001:5) and in Latin America and the

Philipines retailers control 55% of national food sales (Gibbon, 2003:618). In

Australia, retailers use contractual relationships with their farming and

processing suppliers to dictate favourable market terms for themselves

(Griffith, 2000:340).

The aforementioned oligopolistic practices make it harder for smaller

processors to participate in the supply chain because barriers to entry are

higher (Vorley, 2001:3; Weatherspoon & Reardon, 2003:344). Such barriers

include the need to invest in technology to be able to perform value-adding

activities, such as packaging and barcoding, or to comply with intricate

quality standards (Griffith, 2000:351; Louw et al., 2007:540; Mather,

2005:612). Barriers also include onerous practices such as long payment

terms, rebates, discounts, returns and promotional discounts (Griffith,

2000:351; Mather, 2005:612) as well as “listing charges, slotting allowances,

retroactive discounts on goods already sold, buyer-forced application of

most-favoured-buyer clauses […and] insistence on exclusive supply” (NAMC,

2008:9). Jenny (2006:115-6) also records evidence of such practices in the

consumer goods retail sectors in Kenya, Malawi, Chile and Turkey.

21

While supplying a retailer is often key to an SME processor’s ability to grow,

the costs of doing so are often prohibitive and risky because investment in

infrastructure and assets must be undertaken once-off as opposed to

incrementally (Mather, 2005:614 and 618). Thus Weatherspoon and Reardon

(2003:347) report that SMEs supplying retailers required significant

investment in refrigerated trucks to remain on the Shoprite Checkers’ list of

preferred suppliers, while Boselie, Henson and Weatherspoon (2003:1159)

report evidence of SME processors in South Africa, Kenya, Zimbabwe and

Thailand having to undergo techonological and organisational changes in

order to supply retailers.

The National Agricultural Marketing Council’s (2008) report on a study

conducted by Food Price Monitoring Committee (FPMC) into the relationship

between food manufacturers and retailers found that while large food

manufacturers reported a good working relationship with retailers, smaller

food manufacturers highlighted the procurement and price fixing practices of

food retailers as hampering their growth (NAMC, 2008:24). Furthermore,

smaller food manufacturers are afraid to raise these issues with the retailers

and, accordingly, sent anonymous submissions to the FPMC because they

feared being ‘black-listed’ by retailers for speaking out (NAMC, 2008:24). The

NAMC (2008) study found there to be “substantial evidence suggesting that

practices by retailers act as an entry barrier for many smaller suppliers”

(NAMC, 2008:24).

In Australia, studies have found that while the dominance of retailers in the

food value chain has benefited customers in terms of low prices and wide

variety, this has come at the expense of the survival and growth of suppliers

and smaller independent retailers (Griffith, 2000:350). Thus Griffith

(2000:359) recommends that in the food retail industry Competition

authorities should focus on the state of competition in the supplier side, and

not the consumer side, of the market. Similarly, Vorley (2001:6) recommends

22

that competition policy should consider the effects of buyer concentration on

the food value chain to ensure an equitable distribution of profits.

While the aforegoing analysis has highlighted the negative impact on SMEs

arising from the dominance of retailers in the food value chain, there are also

examples of retailers creating opportunities for SMEs. Thus Mather

(2005:618-619) notes the unique opportunity open to SME suppliers in the

formal retail chain, namely through supplying retailers’ smaller franchise

stores. These stores have greater flexibility in sourcing produce from local

suppliers and also focus on speciality products. Likewise, Altenburg

(2006:510-511) argues that a positive impact of buyer-driven chains for

SMEs is the opening up of new markets for previously marginalised producer

groups.

An investigation by the Competition Commission (2011:2) into the conduct of

four major retailers (Spar, Pick n Pay, Woolworths and Shoprite/Checkers)

and the two dominant wholesale retailers (Metcash and Massmart) also

found little evidence that they were abusing their dominant position in the

South African food value chain by placing onerous demands on SME

suppliers. Nevertheless, the Commission did raise the concern that it was

often difficult for SME suppliers to supply retailers because of the “difficulty in

complying with the range of allowances and rebates demanded by retailers

[as well as] adverse payment terms and retrospective deductions from

payments” (Competition Commission, 2011:2).

1.1.3 The South African steel value chain

The Competition Commission has prioritised the Intermediate Industrial

Products and the Construction and Infrastructure sectors for investigation

(Competition Commission, 2009:39). The steel value chain falls into both of

those sectors, as steel is a primary input in many manufacturing processes

and a common building material in construction. The steel value chain starts

23

with sourcing the raw materials needed to produce steel (such a iron ore,

coke and scrap metal). The next step is the production of steel either through

primary methods, being the reduction of iron ore, coal, limestone and scrap

metal into iron and then into steel, or through secondary methods (being the

recycling of scrap metal into steel (World Steel Association, 2008:2). Steel is

then beneficiated in the manufacturing sector and manufactured and primary

steel products are used in the construction and mining sectors. Steel (after

being benefitiated into consumer goods such as cars and washing machines)

is retailed to consumers either through retailers or wholesalers. Scrap metal

dealers source scrap from consumers, manufacturers and the construction

and mining sectors and sell this back to secondary steel producers. A

diagrammatic representation of the steel value chain is set out in Figure 1.3.

Iron Ore Coal

Scrap metal

Raw material sourcing

Steel production Primary Steel Production

Steel ProductsHot, cold & pickled steel coilsFlat & long steel products

Alloys

Mining Electricity

Retailers

Mining (5%)

Wholesalers

Consumers

Beneficiation

Retail

Secondary Steel Production

Manufacturing (69%)

Construction (26%)

RecyclingScap Metal Dealers

Figure 1.3: Diagrammatic representation of the South African steel value chain (Based on World Steel Association, 2008; SAISI, 2009).

24

A search of the academic databases, Business Source Premier and Jstor

during the period January 2000 to August 2011, revealed that very little

recent research had been performed on the structure of the South African

steel value chain, nor has much research been published on anti-competitive

behaviour in that value chain. Research output is dominated by the works of

Dr Simon Roberts and Ms Neo Chabane, both economists at the Competition

Commission. The results of the search are set out in Appendix 2.

South Africa produces among the cheapest steel in the world from low-cost

and readily available raw materials such as iron-ore and coal (Machaka &

Roberts, 2003:689). There is a distinction between the upstream and

downstream sectors of the South African steel value chain. The upstream

component, dominated by steel mills such as Arcelor Mittal and Highveld

Steel and Vanadium, produce crude steel and convert it into long and flat

steel products and steel coils. This sector is capital intensive and requires

economies of scale. The downstream steel sector adds value to steel by

using it in a wide range of industries such as such as manufacturing, mining

and construction (Walker & Jourdan, 2003:30). This sector is diverse,

fragmented and labour intensive (Bezuidenhout & Cock, 2009:91-92; Roberts

& Rustomjee, 2009:56). The downstream sector is underdeveloped in South

Africa (Bezuidenhout & Cock, 2009:85) despite the fact it produces higher

value products and employs more labour (Walker & Jourdan, 2003:35).

The dominance of upstream players in the South African steel value chain

can be attributed to the South African economy being dominated by a

Minerals and Energy Complex (“MEC”) until the 1990’s (Bezuidenhout &

Cock, 2009:97). Fine and Rustomjee (1996) were the first to propose the

MEC as a framework to understand power relations in the South African

economy (Freund, 2009:3). The MEC explains that the interconnectedness

between electicity generation and consumption, mining and mining-related

manufacturing arose from the Apartheid government’s need to be self

sufficient in terms of energy supply and manufacturing inputs (such as steel

25

and chemicals) (Roberts & Rustomjee, 2009:50). The focus on MEC has

resulted in the South African economy being dominated by companies that

process mined resources into primary manufacturing inputs, for example

Sasol, which produces liquid fuel and polymers from coal, and Arcelor Mittal

SA and Highveld Steel and Vanadium, which turn iron ore and coal into

primary steel (Walker & Jourdan, 2003:28).

A further effect of the MEC focus has been an industrial policy that has

favoured capital-intensive, mining industries, as well as the manufacturing

enterprises based on these, with the result that the South African economy

has not succeeded in diversifying away from mined resources (Fine &

Rustomjee, 1996:14). South Africa is not unusual in this respect,

manufacturing sectors that are tied to mining are common in countries with

an abundance of natural resources. However, it is the countries that have

been able to diversify away from this resource dependency that have been

able to grow, notably Finland, Sweden and the United States (Walker &

Jourdan, 2003:31).

The South African government’s acknowledgement of the need to diversfy

out of mineral dependency is evidenced by the post-1994 industrial policies,

which emphasise downstream value adding (Phele, Roberts & Steuart,

2004:4). The single biggest constraint preventing such diversification is the

pervasive practice of import-parity pricing (Walker & Jourdan, 2003:41).

Import parity pricing arises when a seller charges its local customers as if

they were based offshore. Accordingly, local consumers are charged a world

price which is converted into Rands, and to which the cost of importing are

added, such as shipping charges, insurance premiums, agent’s commission

and import duty (Bezuidenhout & Cock, 2009:95).

Import parity pricing can exceed a supplier’s cost of production and may be

possible in markets where there is insufficient domestic competition (Parr,

2005:3). It is therefore indicative of the producer-driven nature of the steel

26

value chain, where power in the value chain is concentrated at the upstream

at the level of production (Kaplinsky, 2000:125) and downstream users have

little bargaining power in price negotiations (Bezuidenhout & Cock, 2009:95).

The pricing practice has been described as a tax on downstream steel

industries, effectively preventing their growth and evolution (Machaka &

Roberts, 2003:702). The practice also makes downstream users

uncompetitive against imports and makes exports of South African

beneficiated steel uncompetitive (Kesper, 2000:24).

Two of South Africa’s large mining houses, DRD Gold and Harmony Gold,

challenged the practice of import parity pricing, arguing it could be construed

as excessive pricing because the price of steel sold by the mills is not related

to the actual cost of production. The gold miners therefore challenged Arcelor

Mittal SA under the Competition Act (Republic of South Africa, 1998) as

abusing its position of dominance in the production of steel.

The outcome of the challenge was a Competition Tribunal ruling in favour of

the gold miners, with the Tribunal fining Arcelor Mittal SA R692 million for

engaging in excessive pricing and imposing structural remedies relating to

the sale of steel products in South Africa and the offering of rebates and

discounts under such sales (Competition Tribunal, 2004:34-35). However,

the ruling did not bring about the expected change in local steel prices.

Firstly, despite the ruling, Arcelor Mittal SA introduced four price increases

within one year (Bezuidenhout & Cock, 2009:100) and secondly, Arcelor

Mittal SA successfully challenged the ruling in the Competition Appeal Court.

The matter was remitted back to the Competition Tribunal to reconsider the

evidence and the assumptions of its excessive pricing ruling (Competition

Tribunal, 2009b:60). The case, which was initiated in September 2007,

remains unresolved and has been used to criticise the efficacy of competition

policy in curbing abuse of dominance (Bezuidenhout & Cock, 2009:102).

27

1.2 The role of the South African Competition authorities in assisting SMEs

1.2.1 An overview of the South African Competition authorities

The Competition Act (Republic of South Africa, 1998) is jointly administered

by the Competition Commission, the Competition Tribunal and the

Competition Appeal Court. The Competition Commission investigates and

adjudicates on complaints of anti-competitive practices (Visser, 2004:54). It

can also initiate investigations on its own accord into sectors in which it

suspects anti-competitive activity is taking place. (Competition Commission,

2001:14). The Competition Tribunal hears matters referred to it by the

Competition Commission and issues orders and fines in respect of conduct

that has been found to be anti-competitive (Visser, 2004:55). The Tribunal

also hears appeals arising from, and reviews of, Competition Commission

decisions (Competition Commission, 2001:15). Rulings by the Competition

Tribunal can be taken on review or appeal to the Competition Appeal Court

(“CAC”), and from there to Supreme Court of Appeal (“SCA”) or the

Constitutional Court (Competition Commission, 2009b:6).

Despite being in existence for more than ten years, the Competition Act

(Republic of South Africa, 1998) has not been successful in diluting the

dominance of big business in the South African manufacturing sector

(Chabane, Goldstein & Roberts, 2003:46; Kampel, 2005:21), and in fact the

dominance of such entities has continued to grow (Competition Commission,

2009b:5). As a result, the Competition authorities have been criticised for

making little progress in increasing the participation of previously

disadvantaged individuals and companies in the economy (Chabane et al.,

2003:5; Mohamed & Roberts, 2008:42).

Ten years is, however, a short period to judge the efficacy of the Competition

authorities. Reflecting back on the performance of the Competition

28

Commission in its first decade, Deputy Commissioner, Tembinkosi Bonakele,

reports that the focus of the first five years was on setting up the institution,

crystallising its processes and building expertise and capacity among staff

(Competition Commission, 2009b:71). The focus in those years was also on

merger control, as opposed to detecting and enforcing the anti-competitive

practices that restrict SMEs. This is not unusual for new institutions, as the

performance of merger control is fairly straightforward and requires fewer

resources. This is because merging parties are required by law to notify the

authorities of their intention, and it is also in their interests to co-operate with

the authorities in providing information (Wise, 2003:59). In addition, merger

control provides an excellent training ground regarding the workings of

business and the economy for officials who may not have had much business

exposure (Wise, 2003:59). Thus, in its first seven years, the Competition

Commission focused on merger control rather than on the detection and

enforcement of anti-competitive behaviour (Competition Commission,

2009b:46).

In 2006, the Competition Commission took the strategic decision to switch its

focus to proactively tackling anti-competitive behaviour (Competition

Commission, 2009b:71). Underpinning the new focus was the identification of

priority sectors for investigation, namely the Food and Agro-Processing, the

Intermediate Industrial Products, the Infrastructure and Construction and the

Banking Services sectors (Competition Commission, 2010:5). These sectors

were chosen because anti-competitive behaviour in these sectors has a

disproportionate impact on poor consumers, because of the potential of these

sectors to contribute to economic growth and finally the likelihood of anti-

competitive behaviour occuring in those sectors (Competition Commission,

2009b:39; 2010:5). A consequence of the Competition Commission

prioritising these sectors is that the Competition Commission is proactive in

investigating anti-competitive behaviour.

29

The new strategic focus on enforcement was boosted by the enactment of

the Competition Amendment Act (Republic of South Africa, 2009), which

introduced new remedies designed to assist the Competition authorities in

dismantling the high levels of concentration in the economy. These are a

prohibition against participation in complex monopolies; a market inquiry

provision empowering the Competition Commission to proactively investigate

markets; the introduction of criminal sanctions against individuals directing or

managing firms engaged in cartel activities; and the incorporation of a

corporate leniency policy granting whistle-blowers immunity against criminal

and financial sanctions arising from anti-competitive behaviour (Competition

Commission, 2009a:13). Finally the media coverage of Competition

Commission hearings, which are open to the public, will also assist the

Commission in taking action against anti-competitive behaviour. Such

coverage serves to educate the public about the conduct that can be defined

as anti-competitive, and encourages cartel participants to apply for corporate

leniency as a precaution against being found guilty of such behaviour

(Competition Commission, 2009b:46). In light of the above, it is accordingly

premature to judge the impact of the Competition Commission in facilitating

the participation of SMEs in the South African economy.

The overarching environment in which the Competition authorities operate is

a legal one and, as a result, there is an emphasis on the following of due

process (Competition Commission, 2009:61; Wise, 2003:4). In reviewing the

performance of the South African Competition Commission for the

Organisation of Economic Cooperation and Development (OECD), Wise

(2003:61) warned that the Commission’s lax attitude to due legal process in

its early years was out of keeping with the “highly legalistic enforcement

culture”. This warning was justified when two cases were dismissed on

appeal because the Commission failed to follow due process. Both cases

concerned the practice of the Competition Commission widening the ambit of

an original complaint concerning anti-competitive conduct by a particular

entity to include additional parties and/or additional complaints.

30

In the first case the Competition Commission launched an investigation into

an alleged cartel in the dairy industry after receiving information from a

farmer that only Clover, Parmalat and Nestle were likely to be engaging in

such conduct. As a consequence of this investigation, two smaller milk

processors, Woodlands Dairy and Milkwood Dairy, were summoned to

submit themselves to interrogation and produce evidence (SCA, 2010:8). The

SCA ordered the Competition Commission to set aside the orders against the

two smaller processors, as there was no evidence that they were

participating in the cartel. The SCA (2010:12) held that “a suspicion against

some cannot be used as a springboard to investigate all and sundry”. The

ruling therefore curtails the power of the Commission to launch industry-wide

investigations, as unless it is able to obtain evidence against individual

entities, it is not empowered to include such entities when referring a

complaint to the Competition Tribunal for adjudication. The court therefore

adopted a strict legal approach, arguing that since the penalties levied by the

Competition Tribunal are akin to criminal penalties, the same strict legal

procedures should apply as in criminal cases

The SCA ruling was upheld by the CAC (2011:19) in a case concerning Yara

SA and Omnia Fertiliser, both blenders of fertilisers. That case concerned a

complaint by Nutri-Flo that Sasol was abusing its dominant position by

engaging in excessive, exclusionary and discriminatory pricing (CAC,

2011:3). The initial complaint against Sasol was then widened to include a

complaint that Sasol, Yara SA and Omnia Fertiliser were colluding on fixing

prices in the fertiliser industry (CAC, 2011:3). The latter complaint was then

dismissed on the grounds that the Competition Act (Republic of South Africa,

1998) did not permit the Commission to widen a complaint that addressed

only one party to include an additional two parties (CAC, 2011:23).

Cognisant of the two aforementioned appeal court rulings, the Competition

Tribunal then, in April 2011, dismissed the referral of a complaint against

South African Breweries (SAB) by the Competition Commission (Competition

31

Tribunal, 2011b:1). The court held that it lacked the jurisdiction to hear the

referral because the matter referred to it for adjudication was different to the

original complaint lodged.

Commenting in the media on the aforementioned appeal court rulings,

attorney Ms Lumala Mtanga, said the effect of the rulings is that the

Competition Commission’s powers of investigation would now be limited

strictly to the information presented at the time of the complaint (Marais,

2010b:para 2). Competition Commission staff and legal experts have

criticised the rulings in the media for opening a loophole that will allow

companies accused of anti-competitive conduct of dragging cases out

indefinitely on technicalities (Marais, 2010a:para 11; Bleby, 2011:para 8).

The Competition Commission has since announced that it would appeal the

CAC decision in the Constitutional Court to clarify its powers of investigation

and the circumstances under which it can refer complaints to the Competition

Tribunal (Competition Commission, 2011c:1).

There are several ways in which a Competition Commission investigation of

a complaint can be triggered (Competition Commission, 2009b:38). First, the

investigation may be initiated by the Competition Commission itself following

its own market analysis. Second the investigation may be initiated by the

Competition Commission after accessing evidence during a merger

investigation. Third the investigation may be triggered by evidence brought to

the Commission in a leniency application. Finally the investigation may be

triggered by a complaint lodged by a complainant, who may be SME or non-

SME entities (Visser, 2004:55). The benefit of investigations initiated by the

Competition Commission for SMEs is that allegations of anti-competitive

conduct that could affect SMEs would be investigated without the SME

having to expend time and resources in lodging and, if necessary, fighting a

complaint.

32

The Competition Commission’s Corporate Leniency Policy has emerged as

an important trigger for investigations. The policy, which was introduced in

2004, and grants immunity to prosecution to a cartel member who is the first

to make a full disclosure of an undetected cartel, or a cartel that the

Commission has not been able to prosecute for lack of evidence

(Competition Commission, 2008b:2). Leniency polices are used

internationally to assist Competition authorities in uncovering cartels that may

not be easy to detect without inside information (Jones & Sufrin, 2011:801;

Motta, 2009:193). The fact that immunity is granted to the first firm to blow

the whistle is a strong incentive for firms to destabilise a cartel (Jones &

Sufrin, 2011:801).

Without this policy it would be very difficult for the Commission to prosecute

cartels, as due to the secret nature of cartel activity, it is difficult to gather

sufficient evidence for a prosecution unless the Commission has inside

assistance (Competition Commission, 2009b:46). The prosecution of cartels

is a lengthy process that is draining on time and resources (Moodliyar,

2008:158).

Another tool the Competition authorities have, which assists them in meeting

their objective to facilitate the participation of SMEs in the economy, is the

ability to impose structural remedies. These remedies allow the authorities to

intervene in a market place with measures that control how a firm will do

business in the future, or even requiring a firm to divest itself of certain assets

or business units (Motta, 2009:69). Structural remedies are typically used to

dilute the monopoly power of dominant firms, and are premised on the

understanding that without such intervention, it would not be possible for new

firms to enter a market (Motta, 2009:69).

33

1.2.2 Types of anti-competitive conduct

Chapter 2 of the Competition Act (Republic of South Africa, 1998) provides

for two types of anti-competitive conduct, namely Restrictive Practices which

may be performed by a firm irrespective of size acting in concert with other

firms, and single-firm conduct in the form of Abuse of a Dominant Position,

for which it is necessary to prove that the accused holds a dominant position

in an industry. In terms of section 7 (Republic of South Africa, 1998), a firm is

dominant in a market if it has at least a 45% market share or, if it has a

smaller market share, it nevertheless has market power in that market. A

separate category of anti-competitive conduct is distinguished for dominant

firms, as these firms are said to have, by virtue of their size, a “special

responsibility” (Jones & Sufrin, 2011:366) not to distort competition in a

market.

Restrictive Practices are further divided into two categories. The first is

horizontal practices, which entails a concerted action among competitors in

an industry (for example, in terms of an agreement or as part of an industry

practice). Such actions are not anti-competitive if they promote economic

efficiency, stimulate innovation and the opening of new markets (Jones &

Sufrin, 2011:982). However, horizontal co-operation will be anti-competitive if

it creates a cartel that leads to “an easier environment for [the competitors]

and higher profits at the expense of consumers” (Competition Commission,

2009b:43). Price fixing is common in such cartels. Such behaviour is anti-

competitive as it goes against the principles that competitors should compete

freely in the market where they sell their goods and services (Lepaku,

2003:134).

Price fixing is often supported by market allocation and collusive tendering

(Competition Commission, 2009b:43). Where all of these practices occur, the

cartel is often deemed to be “hard core” (Jones & Sufrin, 2011:802). Market

allocation entails cartel participants agreeing to operate in certain market

34

segments only and staying out of segments allocated to other cartel

participants (Motta, 2009:141). This practice allows cartel participants to

achieve dominance in a particular market (Jones & Sufrin, 2011:810) and to

avoid the price wars that would benefit consumers (Motta, 2009:141).

Collusive tendering can be seen as a form of market allocation (Jones &

Sufrin, 2011:812) as firms co-ordinate their responses to a tender invitation

such that only one, or some of them, will win the tender. The effect is to deny

the entity making the tender the benefit of price competition.

The second category refers to vertical restricted practices between entities in

vertical relationship, such as a firm and its suppliers or customers

(Competition Commission, 2009b:54). Figure 1.4 is a diagrammatic

representation of the types of anti-competitive conduct prohibited in South

Africa.

35

Competition Act, No 89 of 1998

Chapter 2: Prohibited Practices

Part A: Restrictive Practices Part B: Abuse of Dominant Position

Section 4: Restrictive Horizontal Practices• A horizontal relationship that substantially prevents

or lessens competition• Price fixing• Market allocation• Collusive tendering

Section 5: Restrictive Vertical Practices• A vertical relationship that substantially prevents or

lessens competition• Resale price maintenance

Section 6: Abuse of DominanceA dominant firm may not:• Charge excessive prices• Refuse access to essential facility• Engage in exclusionary conduct that has effect of:

• Inducing a party not to deal with a competitor• Refusing to supply scarce goods to a competitor• Bundling• Selling goods or services below marginal cost• Buying up scarce supply of resources

Section 9: Price DiscriminationA dominant firm may not discriminate on price if:• This substantially prevents or lessens competition• This relates to the sale of equivalent goods/services• Discrimination may be in terms of:

• Prices charged• Discounts, rebates, credit allowed• Services offered• Payment for services

Figure 1.4: Summary of Prohibited Practices under the Competition Act, No 89 of 1998.

1.2.3 The performance of the Competition authorities in assisting SMEs

The Competition authorities have been active in identifying anti-competitive

behaviour in the South African manufacturing sector and prosecuting

wrongdoers. However, despite doing so for the ten years that the

Competition Act (Republic of South Africa, 1998) has been in existence, the

authorities have not been successful in levelling the playing field for SMEs.

Accordingly, Hartzenberg (2006:668) and Kampel (2005:23) have criticised

the current competition regulatory framework for not doing enough to assist

SMEs in fighting the anti-competitive conduct of large firms and for facilitating

SMEs’ meaningful participation in the economy. The topic of the applicability

of competition policy to SMEs has not been extensively researched in the

36

South African economy, and a search of the Business Source Premier and

Jstor academic databases during the period January 2000 to August 2011

shows that the reseach that exists has been conducted by a small number of

academics, namely Competition Commission economists, Dr Simon Roberts

and Ms Neo Chabane; Competition Commission Commissioner Kim Kampel;

and economist Trudi Hartzenberg. The results of the literature search are set

out in Appendix 3.

A number of criticisms have been raised against the current regulatory

framework. First, the Competition authorities are largely inaccessible to

SMEs who often lack the financial and human resources and time needed to

take on big business (Kampel, 2005:20). Criticisms of the accessibility of the

Competition authorities have increased following the recent CAC and SCA

rulings that have limited the power of the Competition Commission to

investigate anti-competitive behaviour to strictly the allegations made in the

initial complaint (Bleby, 2011:para 8; Marais, 2010:para 11). A consequence

of the Competition authorities being inaccessible to SMEs it that SMEs are

inclined either not to enter into or to opt out of a market dominated by big

business, or they simply put up with the anti-competitive behaviour (Chabane

et al., 2003:47; Hartzenberg, 2006:678).

Second, the strongest existing remedies available to SMEs for tackling the

anti-competitive behaviour of big firms, namely horizontal and vertical

restricted practices and abuse of dominance, have been ineffective in

dismantling the monopolies that raise the barriers to entry and the costs of

doing business for small businesses (Hartzenberg, 2006:669). It is the proof

of collusion that is required under these remedies that makes them so

ineffective for SMEs (Irvine, 2004:450; Lake, 2009:1). Such collusion is

difficult to prove in oligopolistic economies where big businesses can

coordinate their behaviour without the need for formal agreements (Albors-

Llorens, 2002-2003:160; Etter, 2000:104; Norton, 2008:80) or because they

can successfully conceal such agreement (Mackenzie, 2009:19). These

37

criticsms will likely lessen following the introduction of the Competition

Commission’s Corporate Leniency Policy. The policy incentivises firms to

expose cartel behaviour, thereby making the Competition Commission’s task

to eradicate cartels easier (Moodliyar, 2008:158).

Third, a further difficulty in establishing a prohibited practice is that the

Competition authorities have traditionally required proof of anti-competitive

conduct in the narrow sense (Hartzenberg, 2006:685; Kampel, 2005:22). This

onus is difficult for an SME to discharge, as proof of harm to an individual

SME is generally not sufficient to show that the competitiveness of a market

sector as a whole is under threat (Chabane et al., 2003:46; Kampel,

2005:22). In order to assist SMEs, the Competition authorities would need to

adopt a broader definition of what constitutes anti-competitive behaviour that

does not require proof of harm to the competitiveness of a market sector. To

date there has been only one such case, namely that of Nationwide Poles

and Sasol Oil (Pty) Ltd.

The Nationwide case (Competition Tribunal, 2003) concerned a complaint of

price discrimination lodged by the SME, Nationwide Poles (Pty) Ltd (being a

manufacturer of creosote impregnated poles), against Sasol Limited (the

main supplier of creosote in the South African market). Nationwide alleged

Sasol was not granting it the same rebates for creosote purchases it was

granting its larger customers (Competition Tribunal, 2003:1). Sasol argued

that this practice could not be construed as anti-competitive as it did not lead

to higher prices of creosote-impregnated poles and hence was not

detrimental to the welfare of consumers as a whole (Competition Tribunal,

2003:24). The Competition Tribunal did not uphold this argument. It held that

simply by proving that the price discrimination was not justified on

“technological, efficiency or other pro-competitive gains” (Competition

Tribunal, 2003:26), Nationwide had succeeded in establishing Sasol’s

conduct was anti-competitive.

38

The Competition authorities have not, however, been consistent in allowing

SMEs the benefit of a more lenient interpretation of the anti-competitive

definition. Hawthorne (2008:294) points out that in situations where the SME

complainants are small, downstream customers of a dominant firm, the

Competition authorities have adopted the narrower definition of anti-

competitive effect.

A case in point is that of York Timbers Limited and South African Forestry

Limited (Safcol), where the Competition Appeal Court did not uphold York

Timber’s argument that Safcol was acting in an uncompetitive manner when

it refused to supply York Timber with sawmill logs. Here the Competition

Appeal Court placed a more stringent test on the smaller downstream

consumer, requiring it not only to prove the existence of a prohibited conduct

(in this case a refusal to supply scarce goods), but also that by performing

such a prohibited act, the dominant company was also trying to create a

monopoly situation (Competition Appeal Court, 2001:7).

1.3 Problem statement

In the first decade of its existence, the Competition Act (Republic of South

Africa, 1998) has achieved little of the socio-economic goals of promoting a

greater spread of ownership and promoting the equal participation of SMEs

in the economy. In August 2009, the Competition Amendment Act (Republic

of South Africa, 2009) was enacted to introduce new remedies to combat

anti-competitive behaviour. In the context of evolving competition policy and

law in South Africa, it is uncertain as to the extent to which SMEs are being

constrained by anti-competitive behaviour and, following from this, whether

the South African Competition authorities should focus specifically on

protecting SMEs as competitors in order to achieve the socio-economic

objectives set out in the Competition Act (Republic of South Africa, 1998).

39

1.4 Purpose of the research and research objectives

The study has two primary research objectives. These are to determine the

extent of anti-competitive behaviour against manufacturing SMEs in agri-food

and the steel value chains, and following from this, to determine whether

there is a need for the Competition authorities to focus on supporting SMEs

as competitors The primary objectives were divided into a number of

secondary objectives that provide the detail needed to answer the primary

research objectives.

1. First primary research objective is to ascertain the extent to which SME

manufacturers are constrained by anti-competitive behaviour in the agri-food

and steel value chains.

The secondary objectives which assist in answering the aforementioned

primary research objective are as follows:

1.1. To identify the cases of anti-competitive behaviour reported.

1.2. To identify the type of entities being accused of anti-competitive

behaviour.

1.3. To identify the type of entities making allegations of anti-competitive

behaviour.

1.4. To identify the types of anti-competitive behaviour being alleged.

1.5. To establish the duration of, and justifications for, anti-competitive

behaviour.

2. Second primary research objective is to ascertain whether the Competition

authorities should focus on protecting SMEs as competitors.

The secondary objectives which assist in answering the aforementioned

primary research objective are as follows:

40

2.1. To establish the impact of anti-competitive behaviour on SMEs.

2.2. To identify the instances were investigations into anti-competitive

behaviour were triggered by Competition Commission investigations.

2.3. To determine how tools such as structural remedies and the Corporate

Leniency Policy can assist in creating an economy that is more supportive

of SMEs.

2.4. To identify the attitudes of Competition authority officials and competition

policy experts on the role of competition policy towards SMEs.

1.5 Brief outline of the research methodology

The research methodology was based on that used by Clarke, Evenett and

Lucenti (2005) to construct a database of media reports of allegations and

instances in the South African English language press of anti-competitive

practices in the South African agri-food and steel value chains. The purpose

of such a database was to collate empirical evidence of the pervasiveness of

anti-competitive practices against SMEs.

The study adopted an inductive approach, as it sought to generalise the

impact of anti-competitive behaviour on manufacturing SMEs from the

reported instances of anti-competitive behaviour. Data was collected from all

English language newspaper articles and Competition press releases

published within South Africa a certain period using the electronic data base,

Newsmonitor. The research can therefore be located within the positivist

research philosophy, as both the data collection and analysis can be

replicated by future researchers and because the aim of the study was to

extract descriptive information of anti-competitive behaviour, rather than

interpret the intentions of the creator of the data. As the data was narrative in

natue, it was analysed using a qualititative methodology, namely content

analysis.

The content analysis commenced with the reading and screening of the

newspaper articles and media reports for the central theme of anti-

41

competitive behaviour. Codes were developed to facilitate the analysis of the

data in determining the number of allegations of anti-competitive acts, the

sectors in which such allegations were prevalent and the extent to which big

business was indicated as the source of such anti-competitive acts.

1.6 Outline of the remaining chapters of the dissertation

The present study is divided into the following chapters:

Chapter Two sets out the review of literature consulted in the study. This

review includes academic literature as well as pertinent Competition Tribunal

decisions. Chapter Two concludes with a statement of the research

questions that emanated from the literature and which serve to guide the

study.

Chapter Three focuses on the research methodology and describes the

electronic database used, the population and sample, how the data was

collected and the method of analysing data. The ethical considerations of the

research methodology are also noted.

Chapter Four presents the findings of the study.

Chapter Five deals with the discussion and interpretation of the findings and

integrates the findings with the theory discussed in Chapter Two. The

limitations of the study are also noted.

Chapter Six summarises the objectives of the study. Recommendations are

made with regard to the field of competition policy and suggestions are

furnished for further research in this area.

42

CHAPTER TWO: LITERATURE REVIEW

2.1 INTRODUCTION

A review was conducted of the literature pertaining to the difficulties SMEs

face in tackling the anti-competitive behaviour of dominant firms in the

manufacturing sector. The review also considered literature on the efforts of

the Competition authorities in diluting the concentration levels of the South

African manufacturing sector in order to create an environment that is more

conducive to the participation of SMEs.

2.2 THE ANALYSIS OF COMPETITION IN AN INDUSTRY

2.2.1 Overcoming the lack of quantitative data

Rivalry among firms in an industry is important. It ensures that firms are

under constant pressure to innovate and to improve both their productivity

and how they respond to consumer demand (Griffiths, 2000:341; Jenny,

2006:110). This pressure ensures that any advantages not arising from

business reasons do not endure for long and, as a result, consumers benefit

(Roberts, 2002:16; Sakabira & Porter, 2001:310). Spin-offs from competition

in an industry include ensuring there is a larger base of suppliers, that

technology and market information is easier to come by, and that human

resources are developed (Sakabira & Porter, 2001:310). Firms operating in a

competitive environment are also stimulated to develop new products, to sell

existing products into untapped markets, and to reduce operating expenses

(Dutz, Ordover & Willig, 2007:746).

A firm with market power can dilute competition in an industry. The greater

the market power of a firm, the greater is its ability to charge prices in excess

of its marginal costs (Griffith, 2000:338; Motta, 2009:115). Other indicators of

market power include “the ability to depress input prices, to deter entry, to re-

43

distribute profits to oneself from other firms and, importantly, to be able to

sustain [those] profits over time” (Griffith, 2000:338).

A major difficulty in conducting concentration analyses in the South African

manufacturing sector is the lack of data. This difficulty has been identified in

conducting competition policy analyses in African countries in general (Smith-

Hillman, 2007:128). In the absence of publicly available statistics for the

assessment of concentration levels in an industry, it is necessary to rely on

qualitative frameworks to determine how the competitiveness of an industry

is affected by the dominance of large firms. Two frameworks that can guide

an empirical analysis of industry competitiveness are value chain analysis

(Kaplinsky, 2000:121; Kaplinsky, 2004:82; Machaka & Roberts, 2003:700;

Roberts, 2002:4) and Porter’s Five Forces Framework (Gamble & Thompson,

2009:42; Grundy, 2006:213; Narayanan & Fahey, 2005:208).

2.2.2 Value chain analysis

Value chain analysis is a framework for ascertaining the competitive structure

of an industry (Altenburg, 2006a:20; Kaplinsky, 2000:121; Machaka &

Roberts, 2003:700). The analysis has its roots in the work of Professor

Michael Porter (Porter, 1979:214; 1980:31) who described how the

profitability of a firm is dependent on the environment in which the firm finds

itself and the strategy the firm has crafted to accommodate this environment

(Porter, 1980:30; Porter & Kramer, 2006:84). A firm’s environment is made

up of the different enterprises a firm comes into contact with (for example,

competitors and suppliers). These enterprises create a value chain, as they

will be involved in all the activities required to create, market and distribute a

product and dispose of it after use (Altenburg, 2006a:6; Gereffi, Humphrey &

Sturgeon, 2006:79; Kaplinsky, 2004:80). It is within a value chain that “firms

both create and shape markets, and the dynamic of market opportunities in

turn shapes firms’ activities” (Roberts, 2002:4).

44

Porter (1979:214; 1980:30) and Porter and Kramer (2011:72) note there are

five ways in which enterprises impact, or exert a force, on a firm in a

particular value chain, and, in so doing, determine the rules of business and

level of competition within an industry as well as the strategies a firm can

adopt to ensure profitability. Porter then distills these forces into a framework,

known as Porter’s Five Forces Framework (or “Porter’s FFF”), a

diagrammatic representation of which is set out in Figure 2.1.

Figure 2.1: The five forces driving industry competition Source: Porter (1980:31).

The value of Porter’s FFF lies in its ubiquity and power in ascertaining the

extent of competition in an industry (Gamble & Thompson, 2009:42; Grundy,

2006:213; Narayanan & Fahey, 2005:208). It is useful in identifying the

distinguishing feature that consistently determines a firm’s success (Kotha &

Orne, 1989:216). One of the reasons for this is because Porter’s FFF

concerns itself with the underlying structure of an industry. It therefore

excludes short-term determinants of profitability, eg fluctuations in commodity

prices, fuel shortages, economic cycles etc, which are of tactical but not of

strategic importance to a firm (Porter, 1980:32). Thus, managers can benefit

from insights generated by Porter’s FFF in developing growth strategies for

45

firms in a particular industry (Griffith, 2000: 338; Grundy, 2006:223;

Narayanan & Fahey, 2005:212).

Analysing the inter-relationships of firms in a value chain is important for

competition policy because such an analysis can reveal the parties who

generate the most profits or who inhibit growth in a value chain (Barnes &

Morris, 2004:791; Kaplinsky, 2000:128, 2004:89; Roberts, 2002:4), as well as

the factors that lead to a concentration of large firms in an industry

(Altenburg, 2006b:517). Thus, value chain analyses have been able to

conclude that it is not the conditions within a manufacturing industry, but

rather conditions in ancillary industries (such as financial services), or

conditions within manufaturers’ consumer base (such as retailers) that allow

large firms to dominate certain sectors (Kaplinsky, 2004:90).

Value chain analysis also overcomes the difficulty highlighted by the National

Agricultural Marketing Council (NAMC, 2008) in its study of competition in the

food value chain. The report (NAMC, 2008:8) argues that while the

Competition Act (Republic of South Africa, 1998) considered dominance

among suppliers in a value chain, it does not consider how competition is

affected by the relationship of players in various sectors of a value chain.

Value chain analysis is also important from a developmental perspective, in

that value chains with high levels social inclusion (for example the

procurement of local, as opposed to imported, content) can contribute to

economic growth, raise tax revenues and assist in alleviating poverty

(Altenburg, 2006a:9, 2006b:515). Finally, the multidisciplinary nature of

value-chain analysis means that assessing the competitive nature of an

industry is not undertaken from pure economic or legal perspectives, but also

includes input from disciplines such as management studies, business

administration and industrial sociology (Altenburg, 2006b: 517; Kaplinsky,

2004:91).

46

2.2.3 The importance of governance in value chains

Value chains can be distinguished in terms of how they are regulated or

governed. Roleplayers in a value chain are said to exert a governance

function, or act as lead firms, if they can control who enters the industry

and/or control the ability of value-chain participants to innovate and grow

(Altenburg, 2006b:517; Kaplinsky, 2000:124, 2004:84; Ponte & Gibbon,

2005:3). Lead firms are also able to induce weaker players in a value chain

to change their operating models (Sturgeon, 2000:10), to adopt quality

standards (Altenburg, 2006:513), to perform activities they do not wish to

perform (Ponte & Gibbon, 2005:3) and to absorb supply chain costs (such as

warehousing) without increasing purchase prices (Altenburg, 2006b:511).

Governance turns a value-chain analysis from a description of an industry

into an analytical tool (Roberts, 2003:15). This is because governance

determines how profits are divided throughout the chain, as well as the

evolution of the chain through new entrants and innovation (Altenburg,

2006b:499; Kaplinsky, 2000). A lead firm’s governance of a value chain is

more likely to be exploitative of subordinate firms where the lead firm has

monopsonistic buying power or where subordinate firms are captive as a

result of buyer-specific investments that make it difficult to supply other

buyers (Altenburg, 2006b:512).

Governance distinguishes buyer-driven chains from producer-driven chains

(Barnes & Morris, 2004:791; Ponte & Gibbon, 2005:22). In buyer-driven

chains, manufacturers are often at the mercy of their customers, such as

large retail chains. In such chains, buyers own and control assets such as

brands, logistical infrastructure and the ability to co-ordinate other players in

a supply chain (Barnes & Morris, 2004:791; Vorley, 2001:3). Food and

clothing manufacturers are examples of manufacturers found in buyer-driven

chains where the buyers control the market and benefit most from the returns

generated in the chain (Roberts, 2002:4). Buyer-driven value chains can

47

impede economic development if the lead firms prevent competition by

keeping consumer prices high or abuse their market power by putting

pressure on the margins of up- and downstream firms (Altenburg, 2006:507).

In producer-driven chains, upstream participants are able to control the

inputs and/or the technology needed for the functioning of the value chain

(Altenburg, 2006a:12; Barnes & Morris, 2004:791; Kaplinsky, 2000:125).

Examples here would include the steel industry where the production and

pricing of the crude steel used in a range of manufacturing and construction

industries is controlled by less than five players. The automotive industry is

another example where original equipment manufacturers control important

technologies, set production standards, control research and development

and co-ordinate the activities of downstream producers, such as component

manufacturers (Barnes & Morris, 2004:791).

2.2.4 Problems of value chain analysis

Most of the literature on value chains refers to global value chains (Altenburg,

2006a:22; Ponte & Gibbon, 2005:4; Gereffi et al., 2006:82). However, value

chains also exist at national and regional levels, and in developing countries,

value chains are often dominated by local firms that serve local customers

(Altenburg, 2006b:507). Likewise Sturgeon (2000:7) argues that an

international dimension is not necessary for the existence of a value chain,

provided it is possible to identify a production network of subordinate firms

that specialise in an aspect of bringing a good or service to market. Thus, a

value chain can be local, regional or international (Sturgeon, 2000:7).

It can be argued that the traditional idea of a value chain with power vested in

lead companies located in developed countries (Altenburg, 2006b:499), is

appropriate in South Africa where the disparaties in wealth and development

have created what former President Thabo Mbeki called the “two nations”

(Beall, Gelb & Hassim, 2005:691) with SMEs located mainly in the

48

marginalised informal sector. Alternatively, the South African economy has

also been likened to “a Belgium within an India” (Boyd et al., 2001:71), with a

developed and capital intensive sector existing alongside a subsistence

sector in the same economy.

A number of writers have criticised the categorisation of value chains as

either buyer or producer driven as too simplistic because governance in a

value chain can change when lead firms have their power diluted (Altenburg

2006a:13; Ponte & Gibbon, 2005:22). Nevertheless, the distinction is a useful

for distinguishing how governance patterns can differ across various sectors

(Altenburg, 2006a:13).

Criticisms have also been levied against the usefulness of Porter’s FFF in

making management decisions, especially for managers located in

developing countries. Grundy (2006:214) argues Porter’s FFF is too abstract

to be of practical use to working managers (Grundy, 2006:214) while

Narayanan and Fahey (2005:208) argue Porter’s FFF is so heavily biased

towards developed economies, especially the United States, that it does not

accommodate the realities of doing business in developing economies.

Narayanan and Fahey (2005:213) highlight three areas where anti-

competitive behaviour is likely to be entrenched in developing economies,

and which are overlooked by Porter’s FFF.

First, Porter’s FFF does not account for the costs and risk of doing business

in a particular industry, which are often higher in developing economies due

to the lack of information and the less than optimal functioning of institutions

(Narayanan & Fahey, 2005:213-216). Such costs and risks can, for example,

discourage lead firms in value chains from dealing with SME suppliers

(Altenburg, 2006:513).

Second, Porter’s FFF assumes a high degree of similarity between rivals

within an industry and between rivals and new entrants (Narayanan & Fahey;

49

2005:214). This ignores the reality in many developing countries where

SMEs cannot compete equally as rivals against big business, especially

considering that many big businesses achieve their dominance, not through

being competitive, but rather by being state-supported or protected by the

remoteness of the South African economy (Ramburuth & Roberts, 2009:7).

Finally Porter’s FFF ignores the fact that, in developing economies, the rules

regulating competition are still being developed (Narayanan & Fahey,

2005:216). Because such laws are not in place, businesses do not interact in

an arms length manner as assumed in Porter’s FFF. Thus, because

ineffective judicial systems or high transaction costs may cause supplier

contracts to be unenforceable, firms may engage in private communication

without impunity or rely on socio-political connections (Narayanan & Fahey,

2005:216) or trust (Altenburg, 2006:513). An example of such interaction in

the South African economy is the collective price setting and information

sharing that was regarded as a standard industry practice because it was

encouraged by the Apartheid government for so long (Ramburuth & Roberts,

2009:4; 6).

2.3 THE ROLE OF SMEs IN THE SOUTH AFRICAN ECONOMY 2.3.1 A description of SMEs in the South African economy

Small and Medium Enterprises (SMEs) are categorised by the National Small

Business Act (Republic of South Africa, 1996) in terms of turnover and

numbers of employees as set out in Table 2.1. This description is also

followed in the Competition Act (Kampel, 2007:239).

50

Table 2.1: Categorisation of SMEs

Source: Republic of South Africa (1996:13).

As is the case elsewhere in the world, there is no uniformity among SMEs in

the South African economy (Abor & Quartey, 2010:220; Aliber, Kirsten,

Maharajh, Nhlapo-Hlope & Nkoane, 2006:56; Berry, 2002:113; Kampel,

2007:239; Kesper, 2000:7). Nevertheless, two broad categories of SMEs are

discernable: those SMEs that fulfil a survivalist function as a last resort for

the unemployed, and those that are in existence because an entrepreneur

has identified a business opportunity in the market (Aliber et al., 2006:56;

Ligthelm, 2008:369).

Kesper (2000:13) distinguishes dynamic SMEs from survivalist SMEs on the

grounds that they are formally registered and are subject to labour legislation.

Bradford (2007:96) distinguishes dynamic SMEs by virtue of their having

established book- and record-keeping procedures and processes in place.

Dynamic SMEs further exhibit legal formality in that they pay taxes and

operate within a regulatory framework (Bradford, 2007:113), have a

registered office and engage salaried employees as opposed to family

members (Abor & Quartey, 2010:222). The distinction between the two

categories is important as the SMEs require different forms of intervention for

growth (Aliber et al., 2006:56; Berry, 2002:113). Survivalist SMEs are best

assisted with welfare policies (Kesper, 2000:7) and collectivist initiatives

(Ligthelm, 2008:369). Policies that tackle constraints in the structure of the

national economy, notably high industry concentration levels, are better

suited to support dynamic SMEs (Kesper, 2000:26).

Micro Small Medium

Turnover ≤ R150 000 R2 – R25 million R4 – 50 million

Number of employees ≤ 5 people 5-100 people 100-200 people

51

Several writers have highlighted the factors that need to be in place for SMEs

to either start up or expand in a particular industry. An important factor is

government policies that are designed to place SMEs in positions where they

can compete against larger firms without being disadvantaged by their small

size (Van Stel, Storey & Thurik, 2007:172). While such policies are relatively

easy and inexpensive to draft, they require dedication and resources to

achieve their purpose (Berry, 2002:113) as well as detailed and current

information on SMEs to ensure their appropriateness to SME needs (Berry,

2002:118).

Examples of supportive policies include competition, export and marketing

assistance, and procurement policies (Berry, von Blottnitz, Cassim, Kesper,

Rajaratnam & van Seventer, 2002:86; Jenny, 2007:135). Anti-monopoly

policies can also support SMEs if they are designed to assist SMEs in

entering into, or expanding their businesses in markets dominated by

monopolies (Berry et al., 2002:85; Dutz et al., 2000:743). Kesper (2000:8)

argues that supportive measures for dynamic SMEs will be ineffective unless

the Apartheid-legacy high-concentration levels in the industrial, retail and

financial sectors are addressed. An example of this can be seen in the South

African grain storage industry, where formerly state-funded grain silos

became concentrated among a small number of private-sector players after

the privatisation of the former state-owned grain co-operatives in the late

1990’s (Traub & Jayne, 2008:225). Kesper’s (2008:8) call resonates with a

World Bank survey cited in Dutz et al. (2000:744) of over 3 000 SMEs in 20

emerging economies through which it was found that anti-competitive

practices by government and the private sector are the “strongest and most

statistically significant” barrier to the growth of businesses in an industry.

Jenny (2007:132) also indicates that domestic companies in developing

countries are, themselves, often the sources of anti-competitive behaviour.

SMEs also require access to inputs such as raw materials, logistics-related

facilities and resources, and production sites (Berry et al., 2002:85; Dutz et

52

al., 2000:743). Very often the provision of such inputs is monopolised in

developing countries (Dutz et al., 2000:744; Jenny, 2007:135) and this can

dilute the effectiveness of competition policies designed to support SMEs

(Berry et al., 2002:86-87).

Access to markets is a further area where SMEs require support. The lack of

demand for the goods and services produced by SMEs has been identified

as a primary constraint to their development (Luiz, 2002:55). Thus, support

measures for SMEs will be ineffective if the markets for goods and services

produced by SMEs are monopolised (Berry et al., 2002:98).

Creating the opportunity for SMEs to subcontract to larger businesses is one

way of opening up markets for SMEs (Berry, 2002:112; Luiz, 2002:56;

Mohamed & Roberts, 2008:42). Korea is cited as a successful example

where support to SMEs takes the form of assisting them to supply larger

businesses. In that country, an explicit government policy to increase the

participation of SMEs in an economy that was dominated by large, vertically

integrated firms in the 1970’s was instrumental in achieving income equality

(Berry, 2002:112). In Japan, it was found that strong vertical and horizontal

linkages with big businesses allowed SMEs to achieve technology upgrades

(Berry, 2002:115). In South Africa, however, procurement initiatives from

SMEs in the metals and engineering industries have been less successful.

Large firms in those industries, despite having introduced supplier

development programmes, are reluctant to develop SMEs as suppliers of key

production inputs, arguing that SMEs lack the capacity to continuously deliver

the required quality to them (Mohammed & Roberts, 2008:35). As a result of

this lack of confidence, big business has limited its procurement from SMEs

to non-core services, such as catering and cleaning (Mohamed & Roberts,

2008:37), a finding that resonates with earlier research, in particular that of

Berry et al. (2002:89). The effect of SMEs being relegated to providing non-

core goods and services has constrained the effectiveness of supplier

53

development programmes in helping SMEs grow in the industry (Mohamed &

Roberts, 2008:42).

SME concerns are more likely to be heard and acknowledged by policy

makers if SMEs are co-ordinated to speak with one voice (Berry, 2002:114).

Such co-ordination is currently lacking in South Africa (Timm, 2010:para 1)

and is preventing small businesses from taking on cartels in their industries

(Timm, 2010:para 2).

A greater awareness of competition matters among SMEs can also assist in

tackling anti-competitive behaviour in an industry. Awareness can arise from

increasing the credibility of a country’s Competition authorities through

successful sanctioning of anti-competitive conduct as well as by educating

citizens through competition advocacy (Cook, 2002:553; Jenny, 2007:111). A

culture of awareness can also develop through public debate on competition

matters founded on facts, as opposed to abstracted and generalised

theoretical arguments (Jenny, 2007:133). Developing such a culture takes

time as it entails “changing the mindset of politicians, the bureaucracy, the

business community and the public” (Jenny, 2007:135).

2.3.2 The appropriateness of using Competition legislation to

achieve socio-economic objectives

The Competition Act (1998) has been criticised for its broad range of

objectives. Reekie (1999:258) argues that the Act’s socio-economic

objectives, such as the promotion of SME participation in the economy,

should fall outside the scope of the competition legislation as these can be

achieved through other instruments. He argues, for example, that the social

imbalances created by Apartheid can best be achieved by removing the

legislation that favoured one race group above others or through fiscal

redistribution and the reallocation of state assets (Reekie, 1999:259). Reekie

(1999:260) also argues that the socio-economic objectives make it difficult to

54

determine how Competition authorities will act as these objectives are

determined using subjective criteria.

In this respect, Reekie (1999) supports a narrow definition of Competition

policy that essentially limits the objective of Competition legislation to the

promotion of efficiency in the economy and the protection of consumer

welfare. His reasoning mirrors that of the United States legislators. Thus the

1992 USA Department of Justice Horizontal Merger Guidelines state that the

primary aim of Competition policy is purely economic efficiency and

consumer welfare (Chabane, 2003:5; Theron, 2001:616) and that socio-

economic objects, (such as those outlined in (c) to (f) of section 2 of the

Competition Act) fall outside this ambit.

This narrow approach was developed in the United States and is known as

the Chicago School approach (Cook, 2002:547; Fox, 2003:152; Jones &

Sufrin, 2011:23). The Chicago School is tolerant of the existence of

monopolies in an economy and justifies them on the grounds that certain

business activities require economies of scale and hence concentration is

unavoidable in certain industries (Cook, 2002:547). Monopolies are also

justified if they arise through superior performance such as being able to

improve efficiency through just-in-time and total quality management systems

(Griffith, 2000:340).

A logical extension of the efficient monopoly argument is that the Competition

authorities should not interfere in such monopolies unless consumer welfare

suffers due to high prices or reduced output, even if this monopoly has the

effect of creating high barriers to entry for new competitors or preventing

existing competitors from growing to the extent that they are forced to leave

the industry (Fox, 2007:227; Jones & Sufrin, 2011:24).

However, there is no agreement on the Chicago School approach and, in

particular, no agreement that Competition policy should not focus on socio-

55

economic objectives such as the objective to increase the participation of

SMEs in an economy. European Union Competition legislation, for example,

allows the Competition authorities to intervene in an industry in order to

facilitate the participation of SMEs (Kampel, 2005:20). Thus, European Union

legislation takes more than just economic efficiency into account and, in

assessing the anti-competitive effect of a monopoly, Competition authorities

consider not only the impact on consumer welfare, but also the impact on the

“competitive structure and dynamic of the market” (Fox, 2003:155). The

European approach, which has also been called the Ordoliberalist approach,

(Jones & Sufrin, 2011:37), recognises that a monopoly may be anti-

competitive if it restricts access to a particular market (Fox, 2003:155) or to

the resources that will allow an SME to compete (Jones & Sufrin, 2011:17).

The European approach also recognises that the anti-competitive behaviour

of a monopoly can extend beyond customers to also include other market

participants such as buyers and sellers (Fox, 2003:156). Inherent is also the

idea that in an economy small firms may need to be protected against

monopolies if there needs to be a “dispersal of power” (Jones & Sufrin,

2011:17), or to use the words proffered by the ANC (1992: paragraph 145) to

“democratis[e] the economy and empower the historically oppressed”. One of

the reasons the European approach to competition policy evolved differently

to that in the United States is that the European Union had a higher

prevalence of monopolies, such as State-Owned Enterprises, which do not

owe their dominance to competitive factors (Vickers, 2007:6).

The aforementioned distinction between the Chicago School and the

Ordoliberalist European approaches to competition is simplistic. It ignores, for

example, the important Structure → Conduct → Performance (“SCP”)

paradigm, which provides that a firm’s conduct (i.e. whether it behaves in

anti-competitively or not) is determined by the structure of the market, and

conduct then determines performance (or profitability) (Jones & Sufrin,

2011:12). An exhaustive analysis and critique of the different schools of

competition analysis is beyond the scope of this study. However, the

56

distinction between the Chicago School and the European approaches does

highlight the role of competition policy in supporting SMEs.

It can be argued that the Ordoliberalist European approach is more

appropriate for developing economies which are often dominated by big

business. The Chicago School’s justification of efficient monopolies is

problematic in South Africa where many of the current dominant firms

achieved their dominance through state support and by being artificially

shielded from competition, for example, by high tariff barriers, geographical

remoteness or discriminatory practices such as Apartheid (Cook, 2002:550;

Ramburuth & Roberts, 2009:7). This creates the situation where, unless the

state can regulate big business such dominant firms will be allowed to retain,

and in fact strengthen, their power to “exploit and exclude” (Fox, 2007:229).

This has been the reason why the introduction of deregulation and the

reduction of state support for monopolies has not encouraged competition

and has instead entrenched the position of the current monopolies (Chabane

et al., 2006:573; Dutz et al., 2000:744; Fox, 2007:551; Ponte & van Sittert,

2007:460).

South Africa is not alone in introducing macro-economic goals in its

competition policy; rather this is part of a trend in international competition

policy where developing countries are creating and adopting competition

policies that are unique to their circumstances (Chabane, 2003:5; Dabbah,

2010:308; Theron, 2001:615). Theron (2001:618) argues that a number of

factors characterise developing economies which advocate for the adoption

of socio-economic objectives in competition legislation. These include “small

domestic markets, shallow financial sectors, histories of activist state

intervention and extensive government regulation” (Theron, 2001:646).

Thus, the recommendation has been made that in developing countries,

competition policy should be broad-based and include measures to dismantle

monopolies and empower small companies to enter and/or grow in

57

concentrated industries (Dutz et al., 2000:745; Fox, 2007:223). The need to

dismantle monopolies is especially required in industries that provide key

business inputs, services and infrastructure (Dutz et al., 2000:744).

Accordingly, when assessing the impact of monopolies on their economies,

developing countries should take a broad approach to considering the anti-

competitive effects of a concentrated industry that looks beyond impacts on

consumer welfare but also considers behaviour that prevents new entrants

from entering and growing in industries currently dominated by big business

(Kampel, 2005:22). In his assessment of the South African competition

regime, Wise (2003:19) is of the opinion that the Competition Act (Republic of

South Africa, 1998) is wide enough to encompass this approach. He argues

that the concept of “efficiency” in the Act is a dynamic one that includes

concerns of “entry and mobility” (Wise, 2003:19) in the economy.

While there may be compelling arguments for competition policy to adopt a

pro-SME aproach, the matter is not without problems. Such an approach can

be seen as being unduly suspicious of big business (Jones & Sufrin,

2011:17) and may conflict with the objective of creating a more competitive

economy (Kampel, 2005:21). Protecting SMEs from having to compete on an

equal footing against large firms may also run contrary to consumer welfare if

those large firms are already competing against each other for the

consumer’s wallet with low prices and a wide range of goods and services

(Kampel, 2005:21-22). Thus, there are grounds for arguing that competition

policy should focus on protecting competition and consumers, but not

competitors (Fox, 2003:149; Jones & Sufrin, 2011:17), even if these

competitors are SMEs. The reason for this is that any attempt at protecting

competitors can very easily lead to the protection of competitors from

competition itself (Fox, 2003:162).

The rejoinder to the argument against protecting competitors is that in many

liberalised developing countries, SMEs are starting from such patently unfair

58

positions. Accordingly, unless such SMEs are provided with some

assistance, competition policies will simply serve to entrench the position of

companies who were protected before the economy was deregulated (Fox,

2003:163, 2007:215).

2.4 STATEMENT OF RESEARCH QUESTIONS

Two primary research questions arise from the literature study. Each primary

research question is supported by a number of secondary research questions

designed to provide the detail needed to answer the primary research

question as follows.

First primary research question: To what extent are SME manufacturers

constrained by anti-competitive behaviour in the agri-food and steel value

chains?

The first primary research question is supported by the following secondary

research questions:

1. What individual cases of anti-competitive behaviour have been

reported?

2. What type of entities are accused of anti-competitive behaviour?

3. What type of entities are making allegations of anti-competitive

behaviour?

4. What types of anti-competitive behaviour are being alleged?

5. What is the duration of, and justifications for, anti-competitive

behaviour?

Second primary research question: Should the Competition authorities focus

on protecting SMEs as competitors?

59

The second primary research question is supported by the following

secondary research questions:

1. What is the impact of anti-competitive behaviour on SMEs?

2. In what instances were investigations into anti-competitive behaviour

triggered by Competition Commission investigations?

3. How can tools such as structural remedies and the Corporate

Leniency Policy assist in creating an economy that is more supportive

of SMEs?

4. What are the attitudes of Competition authority officials and experts

on the role of competition policy towards SMEs?

60

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter explains the rationale regarding the research methodology

chosen for the study. The objective of the study was to build a database to

provide descriptive information of the allegations and incidents of anti-

competitive behaviour against SMEs in two value chains in the South African

manufacturing sector, namely the agri-food and the steel value chains. The

study builds on the methodology used by Clarke, Evenett and Lucenti

(2005:1032) to construct empirical records of anti-competitive conduct in

developing economies.

3.2 Philosophical foundations

The research process consists of a number of stages, which can be likened

to the layers of an onion (Saunders, Lewis & Thornhill, 2003:83), or to the

levels in a hierachical pyramid (Maylor & Blackmon, 2005:155). The

outermost, or the topmost, level is the most abstract and subsequent levels

become ever more concrete so as to more accurately define the research

process. There is no clearly defined ranking of the different elements of the

research process (Maylor & Blackmon, 2005:155), such that some writers

(Maylor & Blackmon, 2005:156; Wilson, 2010:7) begin with the research

approach as the first layer followed by the research philosophy, whereas

other writers (Saunders et al., 2003:83) reverse the order of those first two

layers. In this chapter, the approach of Maylor and Blackmon (2005) and

Wilson (2010) has been adopted.

The research approach indicates the general logic for answering the

research questions (Blackmon & Maylor, 2005:154) and can take one of two

forms. In the inductive approach, the starting point is the observation of

phenomena or data, and from this conclusions and generalisations are drawn

61

such that a new theory can be constructed (Saunders et al., 2003:85; Wilson,

2010:7; Zikmund, 2003:47). An example of this form of reasoning would be to

induct from data recording the profit margins of SMEs the generalisation that

most SMEs have low profit margins. By contrast, deductive reasoning entails

concluding that a fact or characteristic will apply to an individual instance

based on a general premise that has been accepted (Zikmund, 2003:46). An

example of deductive reasoning would be to deduce that a particular SME

will pay high prices for steel from the theory that most SMEs lack the

bargaining power to procure competitively-priced inputs. Thus, where the

inductive approach commences from observation, the deductive approach

commences from a theoretical foundation that is then tested against reality

(Saunders et al., 2003:86).

Once the research approach has been selected, the research philosophy

then provides the ground rules (Maylor & Blackmon, 2005:154) that

determine the type of knowledge that will be acceptable for the reseach

(Saunders et al., 2003:83; Wilson, 2010:9-10) as well as how such

knowledge will be developed (Saunders et al., 2003:83). The two main

research philosophies are positivism and interpretavism (Saunders et al.,

2003:83-84; Wilson, 2010:10-11), whereas Maylor & Blackmon (2005:140)

term these as the scientific and the ethnographic approach respectively.

Positivism is based on the belief that the researcher is independent from

what is being observed, that data is collected in an unbiased manner using a

structured and easily replicated methodology and that the research results

are objective (Saunders et al., 2003:83; Wilson, 2010:10). The positivist

approach further seeks to derive a generalised conclusion from the data

(Saunders et al., 2003:83). Under the interpretavist approach, the researcher

interacts with what is being researched and the research is seen as both

collaborative and participatory (Wilson, 2010:11). Unlike the positivist

approach, which tends to measure what is being studied (Maylor &

Blackmon, 2005:144), the interpretavist approach strives to understand the

62

reasons behind, or the motivations for, the phenomena under investigation

(Saunders et al., 2003:84).

Once the research philosophy has been selected, it is necessary to decide

on the methodology for collecting and analysing the data. In this respect,

quantitative research methodologies can be distinguished from qualitative

research methodologies. Quantitative methodologies examine data that is

numeric, or which can be quantified (Saunders et al., 2003:327) and which is

drawn from a large and representative sample (Wilson, 2010:14). The data is

usually analysed using statistical techniques (Saunders et al., 2003:327;

Wilson, 2010:15). Qualitative methodologies entail the analysis of non-

numeric data, which may be narrative, auditory or visual (Wilson, 2010:13).

Thus, while the objective of quantitative analysis is to quantify the data under

observation, qualitative analysis seeks to uncover the meaning behind the

data (Zikmund, 2003:111). There is no standard technique for analysing

qualitative data (Saunders et al., 2003:379; Wilson, 2010:255) and

techniques include narrative analysis, content analysis, analytic induction,

semiotics and grounded theory as well as quantitative analysis (Maylor &

Blackmon, 2005:364; Saunders et al., 2003:393).

An inductive approach was chosen for this study, as the study sought to

generalise the impact of anti-competitive behaviour on manufacturing SMEs

from specific instances of anti-competitive behaviour in the agri-food and

steel value chains. The research can further be located within the positivist

research philosophy. The data was collected from all English language

newspaper articles and Competition press releases published within a certain

period using an electronic data base. Hence the data collection was unbiased

and conducted in a structured manner. The collection of the data was based

on the methodology of Clarke et al. (2005:1032) and the analysis was based

on the methodology of Franzosi (1989:276; 1994:106; 1998:82; 2010b:603)

and Clarke et al. (2005:1032). Hence both the data collection and analysis

can be replicated by future researchers.

63

The intention of the research was also to extract descriptive information of

anti-competitive behaviour and information on the actors involved from the

data. The intention was not to interpret the intentions of the creator of the

texts (Elliott, 2005:41; Henning, van Rensburg & Smit, 2007:17), as would

have been the case with an interpretavist approach.

As the data was narrative in nature, a qualitative methodology, more

specifically content analysis, was adopted to analyse it. Qualitative

methodologies are suited to narrative data (Hyde, 2000:82) that cannot be

“easily handled by statistical procedures” (Schurink, 2003:3). The data can

be termed secondary data, as it had not been compiled for the purpose of the

study, as is the case with primary data (Maylor & Blackmon, 2005:135;

Zikmund, 2003:741). In this instance, the data had been compiled for

reasons unrelated to the study, namely either to inform the public of

developments in the South African economy (in the case of newspaper

reports) or to provide more detail on cases under Competition Commission

consideration (in the case of the press releases). Because the data had been

prepared for purposes other than the current study, it was necessary use the

qualitative technique of content analysis to convert it into a format suited to

achieving the research objectives (Zikmund, 2003:137).

Qualitative data analaysis has been described as a “stream of activities”

(Boeije, 2010:77) in terms of which data is segmented into categories that

are then codified and reassembled into categories that are related to each

other. In the current study, the data was segmented using the story grammar

coding categories developed by Franzosi (1989:264; 1994:106; 1998:82;

2010a:28 & 2010b:602) and also used by Wada (2005:92). In keeping with

Franzosi’s methodology (1989:276; 1994:106; 1998:82; 2010b:603), the

results of the coding exercise were then quantified to determine the number

of occurrences of anti-competitive actions, as well as the actors and the

64

subjects of those actions. Accordingly, both qualitatitive and quantitative

techniques were used to analyse the data.

3.3 Research design

The research design was based on the methodology used by Clarke et al.

(2005), and referred to by Brusick and Evenett (2008:272) and by Jenny

(2006:113), to construct a database of English language newspaper articles

and press releases of allegations, or reported incidents, of anti-competitive

practices in developing countries. In this instance, the scope of the study was

restricted to the South African manufacturing sector and the database

contained only English language newspaper articles and Competition

Commission press releases published in South Africa during the period 1

January 2005 to 31 March 2011. The database constructed in this study

therefore adds information from the South African manufacturing sector to

the empirical record being constructed by Clarke et al. (2005:1030).

Databases containing empirical evidence of anti-competitive behaviour are

important in developing countries, where competition policy and enforcement

are relatively new. Jenny (2007:133) values such databases for stimulating

public debate that is grounded on facts, as opposed to abstract and

theoretical arguments.

3.4 Research method

3.4.1 Electronic search tool

The electronic research tool, Newsmonitor, was used to search for

newspaper articles that fell within the time period of the study. This differs

from the methodology undertaken by Clarke et al. (2005: 1032), who used

the electronic database, Lexis-Nexis Professional. However, as Lexis-Nexis

Professional was not available at the University of Johannesburg,

65

Newsmonitor was chosen. The latter provides a media tracking service of the

main English language press publications in South Africa and offers an online

print media archive that is easily accessible at an affordable cost.

Electronic databases have the advantage of being exhaustive, as the

“computer does not ‘forget’ or even ‘overlook’ even the smallest article”

(Schafraad, Wester & Scheepers, 2006:459). Furthermore, electronic

databases are easy to search (Schafraad et al., 2006:460) and they allow for

the searching of multiple newspaper sources using a single keyword (Earl,

Martin, McCarthy and Soule, 2004:75). Searching newspaper sources, in

turn, allows for the research to extend over a broader range (Earl et al.,

2004:74). Electronic databases are suited for research that covers relatively

recent events, where only the verbal content of newspaper articles is being

analysed (Schafraad, 2005:462) and where alternative methods of data

collection would be time consuming and expensive, such as case studies

(Earl et al., 2004:66).

The database of articles sourced from Newsmonitor was supplemented with

media releases published by the Competition Commission on its website

during the period 1 January 2005 to 31 March 2011. To the extent that the

media reports were unclear or lacked sufficient detail on the anti-competitive

behaviour being reported on, these reports were cross checked (Zikmund,

2003:138) against the press releases. This tactic was used to overcome a

typical shortcoming of using secondary data, namely that such data may not

always be accurate (Zikmund, 2003:138). Clarke et al. (2005: 1034) also

highlighted the limitation of inaccuracy in their study by noting that journalists

often lacked sufficient knowledge of competition policy and law to accurately

report on anti-competitive allegations or instances.

In the present study, as was the case in the study conducted by Clarke et al.

(2005:1056), such inaccuracies related particularly to the identification of the

anti-competitive behaviour. Thus, where there was a difference in the

66

information provided by the two sources, preference was given to the press

release, being information derived from a primary source, namely the

Competition Commission. In this way, the current study was able to

overcome a limitation identified, but not resolved, in the study by Clarke et al.

(2005:1034).

It must be noted that it was not possible to rely entirely on Competition

Commission press releases, as these releases often did not cover all

allegations of anti-competitive behaviour. Furthermore, the extent of the

information provided in the releases was not consistent, as some releases

provided only brief descriptions of the matter under Competition Commission

scrutiny. The newspaper reports also had the advantage of recording factual

information relating to the anti-competitive behaviour that was obtained from

interviewing business owners, legal and economic experts and consumers,

as well as from recording evidence such individuals gave in Tribunal and

court hearings that were open to the media. In this way, newspaper reports

were able to provide “richer and more detailed information on the

characteristics of [the subject matter of the reports]” (Elliott, 2005:41), in this

case, allegations and instances of anti-competitive behaviour.

As newspaper reports and Competition Commission press releases do not

always indicate whether the entities being reported on are SMEs, the

secondary data was further supplemented by accessing the Who Owns

Whom electronic database. This database details the number of employees

and turnover levels of companies operating in the South African economy.

From this information it would be possible to determine if a particular entity is

an SME, as the National Small Business Act (Republic of South Africa, 1996)

categorises SMEs as entities employing no more than 200 people or who

have turnovers of less than R50 million.

67

3.4.2 Data collection

Secondary data has the advantage of being easily accessible, and at

relatively little expense (Zikmund, 2003:136). In this study, the intention was

to develop as broad a database as possible of instances and allegations of

anti-competitive behaviour against SMEs in the two value chains. Without

secondary data, this would have entailed a time-consuming and expensive

process of collecting primary data by way of interviewing people at individual

SMEs across South Africa. Secondary data also assists in fact finding by way

of “collecting descriptive information to support decision making” (Zikmund,

2003:138). Thus, in this study, newspaper reports and press releases were

analysed to obtain anecdotes of instances of anti-competitive behaviour

against SMEs in the South African economy.

In constructing their database, Clarke et al. (2005:1033) adopted the practice

of using a pre-determined list of anti-competitive practices, such as “tying,

price fixing, barriers to entry” etc. That practice was not adopted in this study

as attempts to use it yielded very few and scattered results on the

Newsmonitor database, possibly due to the fact that the South African media

currently reports on anti-competitive practices using general terminology. In

addition, all the results referred to instances of anti-competitive behaviour

being investigated by the Competition Commission. Accordingly the decision

was taken to construct a database for this study from articles found in a

subsidiary database created by Newsmonitor entitled “Competition

Commission”. The effect of this decision, however, is that the database for

this study, unlike that constructed by Clarke et al. (2005:1032), contains only

reported instances of anti-competitive behaviour that have come to the

attention of the Competition authorities.

All articles in the subsidiary Newsmonitor database entitled “Competition

Commission” were scanned to select those articles for further analysis that

reported on instances of anti-competitive behaviour falling within the agri-

68

food and steel value chains. Reference was made to the value chains set out

in Figures 1.1 and 1.2 (Chapter 1) in determining whether reports of anti-

competitive behaviour fell into those chains. As was the practice with Wang

et al. (2009:596) and Archbold et al. (2006:631), repeated articles and

editorials were not included.

3.4.3 Data analysis

There are two main types of content analysis, namely analysis that focuses

on the explicit or manifest content of the text being studied to obtain

information on what happened and why, and analysis that addresses the

form, or latent content, of the narrative (Babbie, 2007:325; Elliott, 2005:38).

The former approach was adopted in this study because the intention was to

obtain a quantitative description (Zikmund, 2003:248) of reports of anti-

competitive behaviours and the entities engaged in and affected by such

behaviour. This approach also has the advantage that of being replicated as

the units of analysis of what is being investigated remain constant throughout

the research, unlike is the case when the underlying meaning of the text is

being studied (Babbie, 2007:325).

Content analysis is a popular tool for conducting research using mass media

as a database (Wimmer & Dominick, 1987:165). Content analysis is a way of

converting text into numerical units that can be analysed quantiatively

(Wilson, 2010:266) and accordingly lends itself to the tracking and recording

of social change (Archbold, Lytle, Weatherall, Romero & Baumann,

2006:632; Earl et al., 2004:76; Wimmer & Dominick, 1987:165). Thus, in this

study, content analysis was used to study social change in the form of the

effect of anti-competitive behaviour on SMEs. Content analysis commences

by identifying a unit of analysis (in this case it was either a newspaper article

or a press release), determining codes that will be applied to the text,

applying those codes and then tabulating the results in a format that is

conducive to quantitative analysis (Wilson, 2010:267).

69

Thus, the newspaper articles and press releases identified from the data

collection process were read and screened (Archbold et al., 2006:632; Danso

& MacDonald, 2001:119; Magzamen et al., 2001:155; Wang et al., 2009:595)

for the central theme of anti-competitive behaviour against SMEs in the agri-

food and steel value chains. The data was then systematically analysed by

means of coding (Archbold et al., 2006:633; Magzamen et al., 2001:155).

Codes are categories used to extract information from a data source

(Archbold et al., 2006:633; Franzosi, 1989; 265; Miles & Huberman, 1994:56;

Zikmund, 2003:735). The codes assisted in comparing the data in an

individual clipping or press release against the literature and other articles

and press releases to ascertain “themes, ideas, concepts, interpretations and

propositions” (Whitehead & Kotze, 2003:79) that are common as well as

contradictory.

The codes were developed to facilitate the analysis of the data as follows:

The types of anti-competitive acts being alleged and the lines of

business in which such allegations arise (Clarke et al., 2005:1035).

This analysis reflected which types of anti-competitive behaviour were

prevalent as well as if there was a pattern to the prevalence of certain

types of anti-competitive behaviour in certain lines of business.

The individuals or entities making allegations of anti-competitive acts

(Clarke et al., 2005:1037). This indicated whether allegations were

being made by SMEs, large enterprises, government departments,

academics or civil society.

Alleged sources of the anti-competitive behaviour in an industry. This

indicated the extent to which large businesses were being blamed for

anti-competitive behaviour.

There are three types of coding: open, axial and selective (Saunders et al.,

2003:399-400; Wilson, 2010:259). Open coding entails identifying concepts

within the data by means of labels (Maylor & Blackmon, 2005:354; Wilson,

70

2010:259), axial coding occurs when relationships are drawn between

different data categories (Saunders et al., 2003:400; Wilson, 2010:259) and

selective coding entails identifying a central category that reflects the main

intention of the research (Saunders et al., 2003:400; Wilson, 2010:259).

An open coding strategy was adopted in the analysis. This entailed breaking

up the newspaper article or press release text into distinct segments and

attaching labels to those segments such that similar segments could be

grouped together (Henning et al., 2007:130). As is a common practice with

open coding, the entire newspaper article and press release was read before

codes were applied to the text (Boeije, 2010:96; Henning et al., 2007:131).

The coding categories were based on the story grammar framework of

subject, verb, object developed by Franzosi (1989:276; 1994:106; 1998:82;

2010b:603; Wada, 2005:92) to analyse the content of narrative data such as

newspaper articles. Franzosi’s methodology was chosen, as this

methodology is primarily suited to analysing the content of newspaper

articles, as opposed to other forms of narrative text such as interviews, and

also allows for a large body of text, for example all newspaper articles on a

particular topic, to be analysed (Elliott, 2005:40).

In analysing each newspaper article or press release, each allegation or a

reported incident of anti-competitive behaviour, was categorised into the

story grammar structure of who (the subject, or the actor being accused of

anti-competitive behaviour), did what (the verb, or the anti-competitive

behaviour), to whom (the object complaining of being prejudiced by the anti-

competitive behaviour), when (the time), where (the place, or in this study,

the subsector of the economy) and why (being any motivation given for the

behaviour) (Franzosi, 2010a:43; Wada, 2005:92). The aforementioned

categories can be characterised as descriptive (Boeije, 2010:103), as they

served to label categories such as people, events and actions.

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Once the information was extracted from the articles using the codes, the

information was quantified (Franzosi, 1989:265; Wada, 2006:92) i.e. the

types of anti-competitive conduct being alleged (or reported) by individual

actors against SMEs were quantified. In addition, the subsectors of the

economy most prone to anti-competitive behaviour, or allegations of such

conduct, as well as if any time pattern was quantified.

3.5 Ethical considerations

The data relied on for the study was publically available, either in the form of

newspaper articles, or press releases published on the Internet. There were,

accordingly, no ethical considerations pertaining to privacy, even where

individuals were quoted. There were ethical considerations in the structuring

of the study in order to ensure that the opinions drawn from the data were

accurate. These were met by meticulously recording the sources from which

the data was extracted, thereby allowing other researchers to double check

the research, and by relying on established methodologies, for example

those developed by Franzosi (1989; 1994; 1998; 2010a; 2010b) for analysing

newspaper articles.

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CHAPTER FOUR: PRESENTATION OF FINDINGS 4.1 Introduction

This chapter presents the findings of the study, according to the two

primary research objectives and their supporting secondary objectives.

The first primary research objective was to determine the prevalence of

anti-competitive behaviour against SMEs in the South African agri-food

and steel value chains. The secondary objectives, which provide the detail

needed to answer the first primary research objective, are set out in

section 4.2 as follows: section 4.2.1 details the instances of anti-

competitive behaviour reported in the two value chains, section 4.2.2. details the entities being accused of anti-competitive behaviour and

section 4.2.3. notes the entities making the allegations of anti-competitive

behaviour, section 4.2.4. lists the types of anti-competitive behaviour

reported and section 4.2.5. outlines the duration of, and justifications for,

the anti-competitive behaviour.

The second primary research objective was to ascertain whether there

was a need for the Competition authorities to focus on protecting SMEs as

competitors. The findings required to answer this research objective are

set out by the secondary objectives in section 4.3. as follows: section 4.3.1. details the impact of anti-competitive behaviour on SMEs, section 4.3.2. outlines the effect of tools such as structural remedies and

corporate leniency policies that can assist the Competition authorities in

creating an economy more supportive of SMEs and section 4.3.3. highlights the attitudes of Competition authority officials and competition

policy experts on the role of competition policy towards SMEs.

73

Only two value chains in the South African manufacturing sector are

considered in this study. As explained in section 1.1.1.1, these value

chains were chosen because high levels of industry concentration are

restricting the growth of SMEs and because they fit into three of the four

priority sectors chosen by the Competition Commission for investigation.

The Food and Agro-processing priority sector covers the entire agri-food

value chain as set out in Figure 1.1. Thus, all cases of anti-competitive

behaviour identified in the secondary data as falling in the agri-food value

chain have been characterised under the Food and Agro-Processing

sector in this chapter. The steel value chain, as set out in Figure 1.2,

straddles two of the Commission’s priority sectors. This is because steel is

both an important manufacturing input and hence instances of anti-

competitive behaviour would fall within the Commission’s Intermediate

Industrial Products priority sector. In addition, manufacturers also produce

steel and steel products that are used in the construction industry.

Accordingly, instances of anti-competitive behaviour in that industry are

categorised under the Commission’s Infrastructure and Construction

priority sector.

4.2 The extent of anti-competitive behaviour against SMEs in the agri-food and steel value chains

4.2.1 Cases of anti-competitive behaviour

During the period 1 January 2005 to 31 March 2011, 29 instances of anti-

competitive conduct were reported in the agri-food and steel value chains.

Appendices 1a to 1c provide more detail on these cases, namely the

names of the actors (or entities accused of anti-competitive conduct) and

the complainants (or the entities alleging anti-competitive conduct).

The majority of cases considered (19), were in the Food and Agro-

Processing sectors, and of these, the majority were in the staple food

74

subsectors, namely, six cases in the grain subsector and three in the

poultry sector. In respect of the steel value chain, seven cases were

reported as falling within the Infrastructure and Construction sector with

the remaining three falling into the Intermediate Industrial Products sector.

Table 4.1 sets out the cases according to the Competition Commission’s

priority sectors.

Table 4.1: Identification of cases considered according to priority sector

Priority sector Cases considered Number

Food and Agro-Processing

Agri lime; ammonia-based fertilisers; animal feed; beer; bread; dairy products; fruit; grain storage (two cases); maize milling; maize products; phosphoric acid; poultry (three cases); retail of staple foods; rooibos; tobacco; wheat milling

19

Infrastructure & Construction

Electrical cables; mesh reinforcing; mining roof bolts; steel reinforcing; wire (three cases) 7


Excessive pricing; scrap metal; steel cartel 3

Total cases considered 29

4.2.2 Entities accused of anti-competitive behaviour

The secondary data did not always indicate whether the entities accused

of anti-competitive behaviour were SMEs. Reference was then made to

the electronic database, Who Owns Whom, which details the number of

employees and turnover levels of companies operating in the South

African economy. However, Who Owns Whom is not an exhaustive

reference guide, as it only provides detail in respect of companies where it

can source information.

The National Small Business Act (Republic of South Africa, 1996)

categorises SMEs as entities employing no more than 200 people or who

have turnovers of less than R50 million. The Who Owns Whom database

was consulted to ascertain the number of employees and turnovers of the

entities listed in Table 4.2. Where the database indicated either that the

company employed less than 200 people, or had a turnover of under R50

75

million, the entity was classified as an SME for the purpose of this study.

However, where the entity employed less than 200 employees but had a

turnover in excess of R50 million, it was not classified as an SME. The

Who Owns Whom search revealed a further three SMEs.

Table 4.2: Details of companies from Who Owns Whom database

Company Number of employees Turnover Classify as

SME? Abedare Cables 630 No information No Agriwire No information No information Uncertain Alvern Cables 346 No information No Ben Jacobs Iron & Steel 31 No information Yes Coetzee & Coetzee No information No information Uncertain Hi Pistorius No information No information Uncertain

Hendok Wireforce Steelbar No information No information Uncertain

Kalkor No information No information Uncertain

Koedoespoort Reinforcing Steel No information No information

Uncertain

Ladismith Cheese No information No information Uncertain

Lancewood 170 R424 million No Milkwood Dairies No information No information Uncertain

Plaaslike Boerdienste No information No information Uncertain

Power Metal Recyclers 200 No information Yes SA Metals Group 820 R2 billion No Tulisa Cables 119 No information Yes Videx Wire Products No information No information Uncertain Woodlands Dairy 309 R1.4 billion No

Source: Who Owns Whom (2011).

Table 4.3 presents the cases in terms of whether the entities being

accused of anti-competitive conduct were SMEs or large entities. Such

entities were further categorised in terms of where they fell in the value

chain, namely whether they were manufacturers, suppliers or competitors.

In the majority of cases, the entities being accused of anti-competitive

behaviour were manufacturers themselves 30, followed by four cases

where the entities were suppliers of either raw or finished materials and

three cases where the entities were buyers of goods produced by other

manufacturing entities. In four cases the entities being accused of anti-

76

competitive conduct were manufacturing companies that were owned by

companies in the construction sector.

Table 4.3: Type of entities accused of anti-competitive behaviour Value chain Subsector Entity


Agri Lime Ammonia-based fertiliser Animal feed Beer Bread Cigarettes Dairy products Fruit exports Grain storage Grain storage Maize milling Maize products Phosphoric acid Poultry: eggs, broilers & chicks Poultry: breeding stock Poultry: feed & products Retail of staple foods Rooibos Wheat milling

Manufacturers* Large manufacturers SME manufacturers Large manufacturer Large manufacturer Large manufacturer Large manufacturers Large suppliers Large suppliers Large suppliers Large manufacturers & SME manufacturers Large manufacturers Large manufacturers Large manufacturers & SME manufacturers Large producers Large manufacturers Large buyers Large buyer Large manufacturers & SME manufacturers


Electrical cables Mesh reinforcing Mining roof bolts Steel reinforcing Wire: wire products Wire: galvanised wire products Wire: wire rod

Large manufacturers & SME manufacturers Large manufacturer & construction companies Large manufacturers & construction companies Large manufacturers & SME manufacturers Large manufacturers & SME manufacturers Large manufacturers & manufacturers* Large manufacturer & Large competitor


Excessive pricing Scap metal Steel cartel

Large manufacturer & large supplier Large & SME manufacturers & construction companies Large manufacturers & construction companies

Summary Manufacturers 30 Large manufacturers 21 SME manufacturers 8 Suppliers 4 Large suppliers 4 SME suppliers 0 Buyers 3 Large buyers 3 SME buyers 0 Construction companies 4 *Indicates entities of which it was not possible to determine the size

In eight cases SMEs were accused of anti-competitive behaviour. Four of

these cases were in the Food and Agro-Processing sector and in three of

these cases the SMEs acted in concert with large manufacturers. These

77

were the maize milling, wheat milling and poultry: eggs, broilers and chicks

cases. There were four cases in the steel value chain where SMEs were

accused of anti-competitive behaviour, in each instance in concert with

large manufacturers. There were no SMEs accused of anti-competitive

behaviour in the supplier and buyer categories.

Details of the aforementioned cases are provided in Appendices 4a and

4c.

In four instances construction companies were accused of anti-competitive

behaviour in the manufacturing sector. These construction companies own

subsidiaries that manufacture key materials required in the construction

industry, namely: mesh reinforcing, mining roof bolts, scrap metal and

steel cartel cases. Table 4.4 summarises the involvement of construction

companies in cases of anti-competitive behaviour investigated by the

Competition Commission.

Table 4.4: The involvement of construction companies in anti-competitive behaviour in the manufacturing sector Cases investigated Construction Company Manufacturing subsidiary Mining roof bolts Aveng Africa Duraset

Murray & Roberts RSC Ekusasa Steel Murray & Roberts Cisco Mesh Reinforcing Aveng Steeldale Mesh

Murray & Roberts BRC Mesh Reinforcing Total cases per construction company

Aveng 2 Murray & Roberts 3

4.2.3 Complainants of anti-competitive behaviour

Table 4.5 distinguishes the complainants in terms of whether they were

SME or large entities. In each case the entities are further categorised in

terms of where they sit in the value chain, namely whether they are

manufacturers, buyers or suppliers. Where the investigation was initiated

by the Competition Commission itself, eg following an industry

investigation or a merger or leniency application, there would have been

78

no complainant instigating the investigation. Hence, the complainants in

these cases are recorded as “NA” for “not applicable”.

Table 4.5: Categorisation of complainants Value chain Subsector Entity


Agri Lime Ammonia-based fertiliser Animal feed Beer Bread Cigarettes Dairy products Fruit exports Grain storage Grain storage Maize milling Maize products Phosphoric acid Poultry: eggs, broilers & chicks Poultry: breeding stock Poultry: feed & products Retail of staple foods Rooibos Wheat milling

NA (Competition Commission initiated) SME manufacturer Large buyer (government entity) Large buyer NA (Competition Commission initiated) Large manufacturer (competitor) NA (Competition Commission initiated) Large buyers & SME buyers SME buyer SME buyer SME manufacturers & SME buyers NA (Competition Commission initiated) SME manufacturers & SME buyers NA (Leniency application) Large manufacturers (competitors) Large manufacturers (competitors) NA (Competition Commission initiated) SME supplier* NA (Competition Commission initiated)


Electrical cables Mesh reinforcing Mining roof bolts Steel reinforcing Wire: wire products Wire: galvanised wire products Wire: wire rod

NA (Competition Commission initiated) NA (Leniency application) Large buyers (mining houses) NA (Merger investigation) Large & SME buyers (retailers) Large buyers (mining houses) & Large manufacturer Large manufacturer & SME manufacturers


Excessive pricing Scap metal Steel cartel

Large buyers (mining houses) NA (Merger investigation) NA (Competition Commission initiated)

Summary

SME Entities SME Manufacturers SME Buyers SME Suppliers

9 4 6 1

Large entities Large manufacturers Large buyers Of which mining houses Large suppliers

11 5 6 3 0

Of the 9 instances where SME entities were recorded as complainants,

five instances entailed SME manufacturers. In the majority of cases (6),

the SME complainants were buyers. Of the 11 instances where large

entities were recorded as complainants, five of the complaints were

manufacturers. Of these five, three were competitors of the entities being

accused of anti-competitive behaviour, namely Japan Tobacco

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International in the cigarette case and Supreme Poultry and Country Bird

in two of the poultry cases. Also noteworthy is of the six buyers who

lodged complaints of anti-competitive behaviour, three were major mining

houses, namely in the mining roof bolts, galavanised wire and excessive

pricing cases. Details of the aforementioned cases are provided in

Appendices 4a to 4c.

4.2.4 Types of anti-competitive behaviour

Table 4.6 sets out the types of anti-competitive conduct found in each

value chain. In keeping with Chapter 2 of the Competition Act (Republic of

South Africa, 1998), the categories of anti-competitive conduct are divided

into those that fall under Restrictive Practices, and those that fall under

Abuse of Dominance. Most of the allegations fall into the Restrictive

Practice category. Price fixing and market allocation are the most

commonly alleged categories of anti-competitive conduct in the Restrictive

Practices category, while exclusionary conduct is the most commonly

alleged anti-competitive practice under the Abuse of Dominance category.

80

Table 4.6: Total number of allegations of anti-competitive behaviour per priority sector

Anti-Competitive behaviour




Total

Abuse of Dominant Position Abuse of dominance 1 1 Excessive pricing 2 1 3 Exclusionary conduct 11 1 12 Price discrimination 3 1 4

Restrictive practices Allocation of markets 8 6 2 16 Category management 1 1

Collusion 3 4 1 8 Fix trading conditions 1 2 3 Information exchange 5 1 1 7

Minimum retail price 1 1 Price fixing 10 5 2 17 Restricted relationship 1 1

SUMMARY Total: Abuse of dominance 20 Total: Restrictive practices 54

Total: All anti-competitve conduct 74

Appendices 5a to 5c provide greater detail on the instances of anti-

competitive behaviour reported.

The most common form of anti-competitive conduct in the Food and Agro-

Processing sector is exclusionary conduct. Table 4.7 lists the instances of

exclusionary conduct, and indicates whether SMEs were among the

entities accused or complaining of such conduct.

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Table 4.7: Instances of exclusionary conduct in the Food and Agro-Processing sector

No Case Entities accused SME accused SME complainant 1 Beer SAB - - 2 Rooibos Rooibos Ltd - Supplier*

3 Dairy Clover, Nestle, Parmalat, Ladismith, Woodlands, Milkwood

- SME supplier

4 Ammonia fertiliser Sasol - SME manufacturer

5 Grain storage Senwes - SME buyer

6 Maize milling

Pioneer, Tiger Brands, Foodcorp, Premier Foods,

SME manufacturer (maize mills)

SME manufactures SME buyers

7 Bread Pioneer Foods - SME retailer

8 Poultry: breeding stock

Astral and Elite Breeding - -

9 Poultry: eggs

Rainbow, Astral, Afgri, Pioneer, Supreme Poultry, Sovereign Foods

SME producers

10 Retail of staple foods

Pick n Pay, Spar, Woolworths, Shoprite, Massmart, Metcash

- SME manufacturers

11 Cigarettes British American Tobacco - -

*Size of entity unknown

In the steel value chain, instances of market allocation, collusion and price

fixing commonly occurred together. These are set out in Table 4.8. Also

set out in this table is the trigger that sparked the case, namely whether

the case was initiated as a result of a complaint, or as a result of the

Competition Commission initiating the case from its own investigations or

arising from a merger application or a corporate leniency application.

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Table 4.8: Instances of cartel behaviour in the steel value chain

Case Market allocation

Collusive tendering

Price fixing Accused Trigger

Electrical cables X X X Large & SME

manufacturers CompCom inquiry

Mining roof bolts X X Large manufacturers,

Construction companies

Complaint: Mining companies

Steel reinforcing x

Large & SME manufacturers, Construction companies

Merger investigation

Wire products X X X Large & SME

manufacturers Complaint: Retailers

Galvanised wire X X X Large & SME

manufacturers


Wire rod X Large manufacturers Complaint: Large & SME manufacturers

Mesh reinforcing X X Large manufacturers &

construction companies Leniency application

Steel cartel X X Large & SME manufacturers, Construction companies


Scrap metal X X X

Large & SME manufacturers, Construction companies


4.2.5 Duration of, and justifications for, anti-competitive behaviour

Table 4.9 details instances where cartels were found to be in existence for

a number of years. Only those cases where the secondary data provided

details of duration are given. Noteworthy is that of the nine cases listed,

five entailed SMEs participating in cartel behaviour. Long-standing cartels

were most prevalent in the Food and Agro-Processing sector, where six

cases are reported. In four of these cases, the participants justified their

cartels with reference to the legacy of former state control in their

industries. These include the maize products, maize milling and wheat

milling cases, all of which occurred in industries where there was an

established practice holding regular discussions at the offices of an

industry body, namely the Chamber of Milling. At such discussions, parties

submitted commercially sensitive information and disaggregated

information in terms of product sales, pack sizes and customers.

83

Table 4.9: Duration of, and justification for, anti-competitive behaviour

Priority Sector Case Duration

(years) Period Justification

Food and Agro-processing

Ammonia fertiliser Maize products Wheat milling Maize milling Bread Animal feed

9 8 8 8 7 2

1996-2005 1999-2007 1999-2007 1999-2997 1999-2006 2009-2011

Non given Previously-regulated industry Previously-regulated industry Previously-regulated industry Previously-regulated industry Non given


Wire products Galvanised wire Mining roof bolts

7 7 6

2001-2008 2001-2008 2002-2008

Increase buying power against Arcelor Mittal Cartel ensured no substandard products imported Non given

In one instance, SMEs justified their cartel on the grounds that this gave

them buying power against a dominant upstream supplier. Thus, in wire

products case, ten small wire manufacturers, each with Mr Rick Allen

(“Allen”) as the main shareholder, organised themselves into a cartel.

Allen justified the cartel, arguing it was a buyers’ group organised to gain

bargaining power against the vertically integrated steel mills, namely Cape

Gate, Scaw and Arcelor Mittal SA. Allen alleged, further, that wire

production was a profitable output market for the steel mills, who therefore

were supplying their own wire manufacturers with steel. Thus Allen argued

that one of the accused, Consolidated Wire Industries, which had

subsequently sought immunity from the Competition Commission, was co-

owed by two major steel mills, Arcelor Mittal SA and Scaw Metals. The

case also revealed the extent to which the market is dominated by the big

firms through the ownership of small subsidiaries.

4.3 The need for a specific focus on SMEs by the Competition authorities

4.3.1 Impact of anti-competitive behaviour on SMEs

Table 4.10 summarises how SMEs were affected by complaints of anti-

competitive behaviour investigated by the Competition Commission.

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Table 4.10: Summary of the impact of anti-competitive behaviour on SMEs

Trigger Food and Agro-Processing



Total

Details not reported 5 4 9 SME restricted 6 1 2 9 SME part of cartel 4 2 6 SME threatened 2 1 3 SME fought case 1 1 SME triggered alert 2 2 Unclear if SME part of cartel 1 1 2

Total 20 9 3 32

Seven categories were devised to describe how SMEs were impacted by

the behaviour:

Details not reported – there were nine cases where the impact

on SMEs was not reported.

SMEs restricted – there were nine instances where the

sustainability or the growth of SMEs was restricted by anti-

competitive behaviour, for example through the charging of

excessively high prices for manufacturing inputs.

SMEs threatened – this category refers to cases where there

were reported instances of SMEs actually being threatened by

companies engaged in anti-competive behaviour, but excludes

instances where SMEs also subsequently succumbed to

engaging in anti-competitive behaviour as a result of such

threats. Threats against SMEs included black listing or exclusion

from supply. Three instances were reported.

SMEs part of cartels – there were six instances where SMEs

were party to anti-competitive conduct, as they were part of

cartels in the industry.

SME fought case – in one instance an SME fought the case at

the Competition Tribunal after the Competition Commission

failed to find evidence of anti-competitive behaviour.

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SME triggered an alert – in two instances the Competition

Commission case was initiated by an SME alerting the

Commission to the existence of anti-competitive behaviour in its

market.

Impact on SME unclear – in two instances it was not possible to

ascertain the size of the entities engaged in anti-competitive

conduct from the secondary data.

Details of the impact of anti-competitive behaviour on SMEs is set out in

Appendices 6a to 6c.

It must be noted that while there were 29 reported cases of anti-

competitive behaviour, Table 4.10 lists 32 instances impacts. This is due

to impacts being recorded twice in three cases. In the agri lime case, it

could not be determined if the participants were SMEs. Hence in that case

the impact on SMEs was recorded both as “Unclear if SME part of cartel”

and as “SME restricted” as agri lime is a key input for SMEs. Likewise

each of the dairy and the bread cases was triggered by an alert from an

SME, but SMEs were also threatened in those cases.

4.3.1.1 SMEs threatened by anti-competitive behaviour

Table 4.11 sets out the three instances where SMEs were threatened by

anti-competitive behaviour. In two of the cases, the affected SMEs were

manufacturers, while in the third case the affected SMEs were farmers.

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Table 4.11: Instances where SMEs were threatened by anti-competitive behaviour

Case Conduct SME impact

Bread Exclusionary conduct

Price fixing

Pioneer engaged in price wars by forcing independent bakeries to charge the prices it set for bread.

Aim was to prevent competitors from entering into or expanding in markets

Dairy cartel Exclusive supply agreements

Information sharing

Price fixing Restricted

practices

Induced farmers not to supply competitors by threatening to cancel entire delivery contract

Farmers paid a surplus milk quota price, which is less than what they would get on open market

Steel cartel Fix trading conditions

Information sharing

Market allocation Price fixing

SMEs who imported steel were later victimised by steel mills by being refused supplies of urgent steel orders

4.3.1.2 SMEs co-opted into anti-competitive behaviour

Table 4.12 sets out the six instances where SMEs were found to be

participating in anti-competitive conduct. In two of the instances SMEs

were intimidated into participating in the anti-competitive behaviour but in

the other instances such participation was voluntary.

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Table 4.12: Cases where SMEs participated in anti-competitive behaviour

Case Conduct SME participation

Animal feed Collusive tendering SMEs organised themselves into a cartel Maize milling Exclusionary

conduct Market allocation Price fixing

SMEs bullied to become part of cartel Could avoid joining while still small, but

pressure to join increased as SME grew SMEs were threatened not to heed the call from

the Commission to co-operate in investigation Poultry: eggs etc

Allocation of markets

Exclusive supply agreements

Information sharing Price fixing

Agreed not to compete in open market but divide by allocating territories and customers

No evidence of bullying reported

Wheat milling Collusion Market allocation Price fixing

Secret meetings and telephone calls Aim to prevent price wars and discounting Smaller mills intimidated to participate in cartel

Reinforced steel Information sharing Price fixing

Alleged merger application motivated by desire to formalise cartel

Wire products Collusive tendering Market allocation Price fixing

SMEs organised themselves into a cartel

In the wire products case, ten small wire manufacturers were accused of

organising themselves into a cartel. It emerged in the hearings that the

SME manufacturers all had the same shareholder, who in turn was also a

shareholder of the Allens Meshco Group, one of the largest wire

manufacturers in South Africa. The manufacturers alleged they had

organised themselves into a cartel to gain bargaining power against the

vertically intergrated steel mills, namely Cape Gate, Scaw and Arcelor

Mittal SA. It was alleged that wire production was a profitable market for

the steel mills (Mail & Guardian, October 2010). The case also revealed

the extent to which the market is dominated by the big firms through the

ownership of subsidiaries; Consolidated Wire Industries was co-owned by

Arcelor Mittal SA and Scaw.

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4.3.1.3 SMEs restricted by anti-competitive behaviour

Table 4.13 sets out the ten instances where SMEs were restricted by anti-

competitive behaviour. SMEs were restricted either by having to pay high

prices for key production inputs by being foreclosed out of markets.

Table 4.13: Cases where SMEs were restricted by anti-competitive behaviour

Case Behaviour SME impact

SMEs threatened by high input costs Agri lime Market allocation

Price fixing Retail price

maintenance

High input prices threaten viability of farmers

Excess pricing: steel

Excessive pricing High input prices threatened viability of SME manufacturers

Phosphoric acid Excessive pricing Market allocation

High input prices threaten viability of farmers

Poultry feed & products

Allocation of markets

Information sharing

High input prices threaten viability of SME producers

Scrap metal Collusive tendering Fix trading

conditions Market allocation Price fixing

Raised prices for upstream SME manufacturers Undercut prices for downstream scrap suppliers

Restriction of market access to SMEs Grain storage x2 Exclusionary

conduct Price discrimination Collusion on tariffs

Farmers induced not to deal with Senwes competitors

As result, foreclosed market to SME traders

Retail of staple foods

Abuse of buying power

Category management

Exclusive lease agreements Information sharing

Price fixing

Alleged retailers' practices made it difficult for SMEs to supply retailers

Rooibos Exclusive supply agreements

New entrants struggle to enter market because Rooibos has exclusive supply agreements with the four main packers.

SMEs then forced to supply export market which leaves vulnerable to currencly fluctuations

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4.3.1.4 Cases where SMEs were proactive in fighting anti-competitive behaviour

Table 4.14 sets out the three instances where SMEs were proactive in

fighting anti-competitive behaviour. In two of the cases, the SME took the

initiative of providing the Competition Commission with information that

then formed the basis for an investigation by the Commission. In the third

case, the SME fertiliser blenders, Profert and Nutri Flo, succeeded in

proving their case against Sasol for exclusionary conduct and price

discrimination in the ammonia-based fertiliser industry. Sasol was fined

R250 million and ordered to implement structural remedies that included

divesting itself of its fertiliser blending units in order that opportunities

could be created for SME blenders. The ammonia-fertilser case came at

tremendous personal and financial cost to Nutri-Flo. The SME blender

spent R4.5 million over nine years fighting the case. While this cost was

not sufficient to liquidate the SME, Nutri-Flo nevertheless switched to a

different line of business so as not to be reliant on Sasol.

Table 4.14: Instances where SMEs were proactive in fighting anti-competitive behaviour

Case Behaviour SME impact Ammonia fertiliser

Exclusionary conduct

Price discrimination

Fight cost SME R4.5 million Switched to an alternative form of business

Bread Exclusionary conduct

Price fixing

SME alerted Competition Commission to anti-competitive behaviour

Dairy cartel Exclusive supply agreements

Information sharing Price fixing Restricted practice

SME alerted Competition Commission to anti-competitive behaviour

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4.3.2 Cases initiated by the Competition Commission Table 4.15 presents a summary of the cases that were initiated by the

Competition Commission, the majority of which were as a result of market

investigations by the Competition Commission itself followed by two

instances each of cases being initiated as a result of corporate leniency

and merger applications.

Table 4.15: Summary of triggers of Competition Commission investigations of complaints of anti-competitive behaviour

Trigger Food and Agro-Processing



Total

Competition Commission initiated investigation Market analysis 6 1 1 8 Leniency application 1 1 2 Merger investigation 1 1 2

SUMMARY Total cases: 29

Of which initiated by the Competition Commssion: 12

4.3.3 Instances where the Corporate Leniency Policy assisted the Competition Commission Table 4.16 sets out the cases where the Competition Commission was

assisted by its Corporate Leniency Policy. and the Commission obtained

successful prosecutions in four of the cases. No prosecution was obtained

in the dairy cartel case, as this case was dismissed when the SCA ruled

that the Competition Commission had not followed due process.

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Table 4.16: Cases where the corporate leniency policy has assisted the Competition Commission Case Whistle blower Immunity granted Outcome of case

Market Investigations

Dairy Louise Malherbe, SME farmer in Eastern Cape

Clover Dismissed: on a legal technicality

Bread Imraan Mukhadam, SME retailer in Western Cape

Premier Foods

Fines: Pioneer Foods = R195m / Foodcorp = R45.5m / Tiger Brands = R98.8m. Structural remedies: Pioneer Foods

Wheat milling Tiger Brands & Premier Foods

Fines: Pioneer Foods = R500m / Keystone = R6.7m. Structural remedies: Pioneer Foods Settlement discussions: smaller mills

Steel cartel Scaw Metals Group, Scaw SA & Cisco (Murray & Roberts)

Still under Competition Commission investigation

Merger applications

Scrap metal Scaw Metals Group, Scaw SA

Fines: Universal = R18m / Abbedac = R4.9m / Amalgamated Scrap Metals = R3.2m / Power = R12.8m / Reclam = R145m

Corporate Leniency applications

Poultry: eggs Pioneer Foods Still under Competition Commission investigation

Mesh reinforcing BRC Mesh

Reinforcing Refered to Tribunal for adjudication

4.3.4 The role of structural remedies

Eight instances of structural remedies were provided by the secondary

data. Of these eight instances, one was of a mooted structural remedy,

namely in the Competition Commission probe into steel price hikes against

the major steel mills and steel wholesalers (Arcelor Mittal SA, Cape Gate,

Cisco, Macsteel and Trident among others), the newspaper reports

indicated that government would consider divesting Arcelor Mittal SA of its

Vanderbijlpark and Saldanha Bay steel mills if there was evidence of

excessive pricing.

The same structural remedy was imposed in the maize and wheat milling

cases. This was because the same company was found guilty of anti-

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competitive conduct in those instances, namely Pioneer Foods. The

structural remedy against Pioneer Foods was far-reaching as the company

was not only obliged to cease the anti-competitive conduct but also to

change its operations by undertaking a R150 million capital expansion

project and reducing its margins on flour (a key input for SME

manufacturers) and bread (a staple food for consumers) so as to reduce

its gross profit margin by R160 million.

A similar far-reaching structural remedy was imposed in the ammonia-

based fertiliser and phosphoric acid cases. Among other things, Sasol was

ordered by the Competition Tribunal to divest itself of five fertiliser units to

parties approved of by the Tribunal and also to sell fertiliser on an ex

works basis within 100km of its Sasolburg and Secunda plants. The aim of

this remedy was to create more diversity in the production of fertilisers in

the South African markets by dismantling the vertical integration in the

fertiliser industry. It was also the first time that a company had been forced

to sell off business units by the Competition authorities.

A structural remedy was also imposed in the flat steel case. This was a

case brought by two of South Africa’s largest gold mining houses, DRD

Gold and Harmony Gold. In addition to imposing a fine for excessive

pricing, which was subsequently overturned on appeal, the Competition

Commission also ordered Arcelor Mittal SA not to impose any conditions

on the use or resale of steel sold from its steel mills. These remedies were

to counteract Arcelor Mittal SA’s practice of prohibiting the resale of steel

on the domestic South African market in order to reduce local steel

volumes. Arcelor Mittal SA was also ordered to make public its steel

prices, rebates and discounts for flat steel.

Appendix 7 provides more detail on cases where structural remedies

were imposed.

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4.3.5 Attitudes towards SMEs

Table 4.17 summarises the opinions expressed by Competition

Commission staff and experts on whether there is a role for competition

policy in protecting competitors such as SMEs. The majority of

commentators were reported as being supportive of the narrow Chicago

School approach. According to this approach, the primary objective of

competition policy is to create competition in an economy so that

consumer prices remain low. This objective can be at the expense of

SMEs in situations where economies of scale can be achieved by large

companies.

Table 4.17: Summary of attitudes to the role of competition policy Commentator View taken Quotes Source

Menzi Simelane

Competition Commissioner

Protecting consumers not mean

cheap prices, but rather diversity

of choice brought on by a lack of

collusion

"What you really need in any economy is a

flea market approach across the board…

that approach is necessary to encourage

new players to enter the market"

Finweek,

2 March 2005

Shan Ramburuth


Country needs "business-owner

martyrs" to step forward and take

a sense for personal responsibility

for fighting the cases

"Mukkadam is like a folk hero in the

community for blowing the whistle and

more should do it"

The Star,

14 February 2008

Mandla Maleka

Eskom chief economist

Investigations by Comp authorities

would lead to price corrections

over time and that would benefit

the economy

Sowetan,

2 March 2008

Rosalind Lake

attorney, Deneys Reitz

What is good for consumers is not

good for competitors, especially

small competitors

"Consumers will benefit from the

economies of scale that a few large

companies can offer, but not a large

number of small competitors"

Jac Marais

attorney Adams & Adams

Competing objectives in Act, thus

can have protection of consumers

at expense of supporting SMEs cos

bigger firms are often more

efficient and can lead to lower

prices for consumers

Engineering News,

4 February 2011

Table 4.18 summarise the opinions expressed by experts on the

accessibilty of the Competition Act to SMEs and solutions proposed to

assist SMEs. Cost and the time taken for the Competition authorities to

complete their investigations emerge as the main difficulties.

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Table 4.18: Summary of opinions on the accessibility of the Competition Act for SMEs Problems identified Problem details Solutions proposed Cost of bringing a case to the authorities

Fees of lawyers, economists & expert witnesses

Cost of case at least R1 million SME can’t claim damages for loss

suffered due to anti-competitive conduct

Financial assistance for SMEs Legal Aid body for SMEs

Time take to resolve case

Commission took 2 years to investigate ammonia fertiliser case and refer to Tribunal

Tendency among lawyers to prolong cases on technicalities

Cartel accused drag out cases so can continue with conduct and delay payment of fine

By time hear case, complainant no longer in business

Propose charging interest from date fines are levied to reduce opportunistic appeals

Navigating technicalities

Investigations not adhering to due legal process have been over-ruled by recent SCA and CAC decisions

As a result, the Commission will not longer be able to initiate industry-wide investigations

The need to adhere to due legal process will encourage delays on legal technicalities

SMEs need to pay for experts to interpret the Competition Act and navigate its procedures for them

Competition Commission has improved its procedures, practices and administrative capabilities to ensure due legal process followed

Appendices 8a and 8b provide more detail on the aforementioned opinions.

4.4 Conclusion

The impact of anti-competitive behaviour on manufacturing SMEs in the

South African agri-food and steel value chains is complex. While there are

instances showing the detrimental impact of anti-competitive behaviour on

SMEs, SMEs themselves are also guilty of anti-competitive behaviour and,

in some instances, engaged in such behaviour voluntarily. Furthermore,

anti-competitive behaviour does not only affect SMEs but also big

businesses, notably the mining houses. The findings also revealed the role

of the Competition authorities in proactively tackling anti-competitive

behaviour, either through initiating investigations on their own accord or by

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imposing structural remedies that have the effect of dismantling the

monopolies that give rise to anti-competitive behaviour.

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CHAPTER FIVE: DISCUSSION OF FINDINGS 5.1 Introduction

This chapter discusses the findings of the study as divided into the two

primary research objectives. The first primary research objective was to

ascertain the extent of anti-competitive behaviour against SMEs in the

South African agri-food and steel value chains. The findings of this

research objective, together with its supporting secondary objectives, are

discussed separately for each of the value chains.

The second primary research objective was to determine whether there is

a need for the Competition authorities to protect SMEs as competitors.

Once again this research objective was supported by secondary

objectives designed to provide the detail needed to answer it. The agri-

food and the steel value chains are discussed together in answering the

second primary research objective.

5.2 The extent of anti-competitive behaviour against SMEs in the agri-food value chains 5.2.1 Cases of anti-competitive conduct

The cases in the agri-food value chain considered in the findings have

been placed on a simplified value-chain diagramme in Figure 5.1. The

diagramme shows the cases fell both at the pre-production and the post-

production levels of the value chain and also lists the entities accused of

anti-competitive behaviour. The fruit export case has been excluded from

the diagramme as it refers to an allegation yet to be investigated by the

Competition Commission.

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Input suppliers

Silos

Farmers

Agro-processingWheat/Maize Milling

Retailers

Consumers

Fertiliser• Agri Lime - SME & Large manufacturers• Ammonia fertiliser – Sasol

• Phosphoric acid – Sasol Animal Feed• Animal feed – SME manufacturers• Poultry: feed – Astral, Pioneer, Country Bird,

Rainbow, Afgri and industry organisations

Breeding stock• Poultry: breeding stock – Astral & Elite Breeding

Pre-Production

Production

Post-Production

Dairy

• Grain storage – Senwes• Grain storage – Senwes and others

Dairy cartel – Clover, Parmalat, Nestle, Ladismith, Woodlands, Lancewood, Mikwood

Grains• Maize milling – Pioneer,

Tiger Brands, other millers including SMEs

• Wheat milling – Pioneer, Tiger Brands, Foodcorp, Premier Foods, SME miller

Grains• Bread – Pioneer • Maize products – Pioneer Foods,

Foodcorp, Tiger Brands, PremierBeverages• Beer – SAB • Rooibos – Rooibos LtdOthers• Cigarettes – BAT• Poultry: broilers, eggs & chicks –

Rainbow, Astral, Pioneer, Sovereign Foods, Supreme Poultry & SMEs

Retail of staple foods – Pick n Pay, Spar, Woolworths, Shoprite, Massmart, Metcash

Figure 5.1: Cases considered in the agri-food value chain

The prevalence of oligopolies in the agri-food value chain has been

reported in the literature (cf. Abu & Kirsten, 2009:355; Cutts & Kirsten,

2006:328-9; Mkhabela & Mndeme, 2010:123; Watkinson & Makgetla,

2002:10). Oligopolies are not per se anti-competitive, however, they can

be conducive to anti-competitive conduct due to the small number of firms

in a leading position in that market (Jones & Sufrin, 2011:11).

The cases provide evidence that oligopolies in the agri-food chain are

conducive to anti-competitive behaviour at post-production level, namely

mills procuring grain from farmers (in the maize milling, maize products

and wheat milling cases); grain silos procuring grain from farmers (in the

grain storage cases); milk processors procuring milk from farmers (in the

dairy cartel case); and supermarkets procuring staple foods from farmers

and manufacturers (in the staple foods case). In addition, as set out in

Table 4.9, cartels in these instances were among the longest of duration

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of those reported in the study, a factor attributed to the legacy of state

support in that value chain (cf. Mather, 2005:610; Ramburuth & Roberts,

2009:5).

The extent of anti-competitive behaviour in the grain value chain bears out

the remark made by Traub and Jayne (2008:234) that there should have

been a greater awareness of the highly concentrated nature of this chain

when it was deregulated. These cases therefore act as a warning to the

adoption of a strict Chicago School approach to competition policy, which

favours a non-interventionist approach to monopolies (Cook, 2002:547;

Fox, 2003:152; Jones & Sufrin, 2011:213). An NAMC study (Louw et al.,

2010b:109) has concluded that SME millers need to be protected against

larger players in the grain industry if such smaller players are to compete

against the larger players.

In addition to anti-competitive behaviour being found downstream in the

agri-food value chain, anti-competitive behaviour was also reported at the

upstream level, namely the production of fertiliser, animal feed and poultry

breeding stock. This is an indication of the agri-value chain also having

producer-driven characteristics, as the upstream participants control the

inputs needed for the functioning of the value chain (Altenburg, 2006a:12;

Kaplinsky, 2000:125). The number of upstream cases show that anti-

competitive behaviour is not limited to one area of the chain. The extent

and complexity of anti-competitive behaviour in the chain reveals that the

description of the agri-food value chain as buyer-driven has been too

simplistic, a warning that was made in the literature (Altenburg, 2006a:13;

Ponte & Gibbon, 2005:22).

5.2.2 Entities accused of anti-competitive conduct

While the majority of entities accused of anti-competitive behaviour in the

agri-food value chain were large manufacturers, SMEs were also accused

99

of such behaviour in four instances. In the maize milling, wheat milling and

poultry: eggs, broilers and chicks cases SMEs acted in concert with the

large manufacturers, while in the animal feed case they acted

independently of big business. SMEs reported they were bullied into

participating in cartels in the maize and wheat milling cases. This is an

indication of the hostile environment in which the SMEs operate, and of

the fact that in an industry where anti-competitive behaviour is rife, SMEs

often have to adopt such behaviour to survive (Iheduru, 2004:21). The

bullying of SMEs has been identified as being common in monopolistic or

oligopolistic markets (Dabbah, 2010:297-298).

In the agri-lime, animal feed and poultry: broilers, eggs and chicks cases

there was no evidence of SMEs being compelled to participate in anti-

competitive behaviour, and hence it can be assumed that SMEs voluntarily

participated in such behaviour. These cases act as a warning to an

Ordoliberalist approach to competition policy (Jones & Sufrin, 2011:37),

where the protection of competitors can easily lead to the protection of

competitor from competition itself (Fox, 2003:162).

Several cases in the agri-food value chain are characterised as having the

same entity being accused of anti-competitive behaviour, notably Sasol in

two fertiliser cases, and Pioneer Foods in all of the grain-processing

cases. Premier Foods, Tiger Brands and Foodcorp were also accused of

anti-competitive behaviour in all of the grain processing cases, except

bread.

5.2.3 Complainants of anti-competitive conduct

SME manufacturers featured among the complainants who initiated cases

at the Competition Commission in the bread, maize milling and ammonia-

based fertiliser cases. The fact that SMEs initiated only three of the cases

does not mean that SMEs were not affected by anti-competitive behaviour

100

in the other cases. SMEs benefited from the cases that were initiated by

the Competition Commission itself, as they did not need to lodge a

complaint, and if necessary, fight it. Thus SME manufactures benefited

from the Competition Commission initiating an investigation into wheat

milling and the retail of staple foods cases, SME farmers benefited from

the dairy and agri-lime cases, and SME retailers benefited from the maize

products case. SMEs also benefited from cases where government and

big business fought against anti-competitive behaviour, namely the poultry

breeding stock, poultry feed and animal feed cases.

SMEs were proactive in tackling anti-competitive behaviour in two cases.

In the bread cartel case it was an independent SME bakery that alerted

the Commission to Pioneer forcing rival bakeries to sell bread at the prices

it had set, failing which it would force them out of the market by

threatening to stop their flour supplies (Crotty, 2010). The other was the

ammonia-based fertiliser case where two SME fertiliser blenders, Nutri-Flo

and Profert, fought the case against Sasol at the Competition Tribunal.

The case came at great financial cost to the SMEs and, while the

Competition Tribunal ruled in favour of the SMEs, the SMEs did not

continue the fight when Sasol took the case on appeal. The experience of

the aforementioned SMEs is indicative of the need to acknowledge the

reality that SMEs cannot be seen as competing equally as rivals against

big business (Narayanan & Fahery, 2005:214), especially when they act

against big business, like Sasol, that achieved their dominance as a result

of state support (Ramburuth & Roberts, 2009:7).


The predominant type of anti-competitive conduct found in the Food and

Agro-Processing sector was exclusionary conduct. This conduct can only

be performed by an entity that holds a dominant position an industry. This

is an indication that dominant players are restricting the development of

101

other players in the industry and lends credence to an Ordoliberalist

approach to competition policy that the Competition authorities should play

an interventionist role in supporting SMEs (Jones & Sufrin, 2011:37).

SME manufacturers were complainants or affected by such exclusionary

behaviour in the ammonia fertiliser, maize milling and the retailing of

staple foods cases. This exclusionary conduct has the effect of denying

SME manufacturers access to markets, which has been identified in the

literature (cf. Berry et al., 2002:98; Luiz, 2002:55) as a key constraint to

the development of SMEs. However, Table 4.7 also indicates that SMEs

were participants in cartels in which anti-competitive behaviour was

practiced in three instances, namely the dairy, maize milling and poultry:

eggs, broilers and chicks cases.

After exclusionary conduct, price fixing and allocation of markets are the

types of anti-competitive conduct most commonly practiced where there is

a cartel in existence (Competition Commission, 2009b:43; Jones & Sufrin,

2011:802). Price fixing and market allocation occurred in the agri-lime,

maize milling, wheat milling and poultry: eggs, broilers and chicks cases.

Both types of conduct also occurred in the beer case. However, this case

cannot be seen as a cartel as only one entity, SAB, was accused of the

conduct.

5.3 The extent of anti-competitive conduct against SMEs in the steel value chain

5.3.1 Cases of anti-competitive conduct identified

The cases considered in the steel value chain have been placed on a

simplified value-chain diagramme in Figure 5.2. The diagramme, which

also lists the entities accused of anti-competitive behaviour, shows that the

102

majority of cases fell at the production of either primary steel or products

from steel products that are then sold into mining, construction or other

industries.

Raw material sourcing

Steel production

Wholesale

Manufacturing

Scrap Metal – Large & SME manufacturers

• Excessive pricing – Large manufacturers & suppliers

• Steel cartel – Large manufacturers, &

suppliers and construction companies

Manufacturing for sale into mining industry

Manufacturing for sale into construction sector

• Steel reinforcing – Large & SME manufacturers, construction companies

• Mesh reinforcing – Large manufacturers & construction companies

• Mining roof bolts– Large manufacturers & construction companies

• Galvanised wire – Large & SME manufacturers

• Electrical cables – Large & SME manufacturers

• Wire products – Large & SME

manufacturers• Wire rod – Large manufacturers

Figure 5.2: Cases considered in the steel value chain

5.3.2 Entities accused of anti-competitive conduct

The steel value chain, a typical producer-driven value chain, is

characterised by a concentration of power upstream at steel production

(Kaplinsky, 2000:125), while downstream users are fragmented and have

little bargaining power in price negotiations (Bezuidenhout & Cock,

2009:95). Thus large manufacturers feature as the accused in each of the

cases considered in the steel value chain. However, in six of the ten cases

SME manufacturers also participated in anti-competitive behaviour,

namely the electrical cables, steel reinforcing, wire products, galvanised

wire, steel cartel and scrap metal cases. Unlike the cases considered in

the agri-food value chain, there was no evidence of SME manufacturers

being bullied into the collusion.

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The participation of SME manufacturers is indicative of how SMEs, if they

find themselves in a value chain with a monopolistic business culture,

need to take on that culture if they wish to survive (Iheduru, 2004:21). An

example of this can be seen in the wire products case. In that case SME

manufacturers were motivated to collude by the need to increase their

bargaining power in a producer-driven value chain. Accordingly, ten small

manufacturers organised themselves into a cartel to gain bargaining

power against the vertically integrated steel mills Cape Gate, Scaw and

Arcelor Mittal SA. It was alleged that wire production was a profitable

output market for the steel mills (Mail & Guardian, October 2010). It

emerged in the hearings that the SME manufacturers all had the same

shareholder, who in turn was also a shareholder of the Allens Meshco

Group, one of the largest wire manufacturers in South Africa. The case

also revealed the extent to which the market is dominated by the big firms

through the ownership of subsidiaries; Consolidated Wire Industries was

co-owned by Arcelor Mittal SA and Scaw.

Using the Porter’s Five Forces Framework (Porter’s FFF), the actions of

Allens Meshco buyers group can be described as set out in Figure 5.3.

The effect of the buyers group was to entrench anti-competitive behaviour

in the industry.

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BEFORE AFTER

Barrier to entry

Wire manufacturing industry

New entrants

BuyersSupplier

Substitutes

Buyers of steel are numerous, and many are SMEs, hence lack bargaining power

Wire is produced from steel, hence no substitutes available

Vertically integrated steel mills: produce steel and convert this into wire = bargaining power

Wire manufacturing industry

New entrants

BuyersSupplier

Substitutes

Bargaining power increased due to SMEs forming a ‘buyers club’ in the form of Aliens Meschco

No substitutes available, save expensive imports

Number of suppliers increased from 1 to at least five = decrease in bargaining power

Barrier to entry remains: new entrants still not able to enter industry

Barrier to entry

Figure 5.3: Actions of Allens Meshco in order to counteract anti-competitive conduct in the wire industry

The diagramme above shows how a barrier to entry to new wire

manufacturers was created because the steel mills were selling wire from

steel they had produced. This also negatively affected buyers of steel, as

they were too numerous to gain the power needed to bargain on prices

with the steel suppliers. A group of SME buyers reacted to this industry

structure by creating a buyer’s group. However, this action did not remedy

the anti-competitive structure of the industry in that barriers to entry to new

wire producers remained. In addition, other SME buyers, who were not

part of the buyer’s group, did not benefit from the group’s buying power.

The steel value chain was also noteworthy for instances where the entities

accused of anti-competitive behaviour included manufacturing entities that

were subsidiaries of construction companies. These were the mining roof

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bolts, steel cartel and mesh reinforcing cases. This is indicative of vertical

integration in the construction industry facilitating collusion, a danger that

was highlighted by the Competition Commission (Competition

Commission, 2008) in the steel reinforcing case. In that case, the

Competition Commission refused an application by a number of SME

manufacturers to merge with Aveng. The application was seen as a way of

formalising a cartel and therefore declined. A further case of vertical

integration involved Arcelor Mittal SA (AMSA), the country’s largest steel

producer. In the flat steel case it was alleged that AMSA’s 50% ownership

of Macsteel, a steel wholesaler, allowed AMSA to control the supply of

steel on the domestic market.

5.3.3 Complainants of anti-competitive conduct

Save for one case, namely the wire rod case, SME manufacturers were

not among the complainants who triggered Competition Commission

inquiries in the steel value chain. However, as is the case in the agri-food

value chain, SME manufacturers, benefited from the cases initiated by big

business or the Competition Commssion. Noteworthy is the excessive

pricing steel case, as flat steel is a key manufacturing input for

downstream steel users that include SMEs. While the Competition

Tribunal found against AMSA in this case, it was remitted back to the

Competition Tribunal in 2007 by the appeal court with an order that the

Tribunal reconsider its excessive pricing determination. The matter

remains unresolved, and the case has been used to criticise the efficacy of

competition policy in curbing abuse of dominance in the steel industry

(Bezuidenhout & Cock, 2009:102). The case also shows that the

Competition authorities have been less effective in tackling anti-

competitive practices in the steel value chain than they have in the agri-

food chain.

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The steel value chain was also noteworthy for the number of cases where

large mining houses were listed as complainants. There were four of these

cases, namely the mining roof bolts, galvanised wire, steel cartel and

excessive pricing cases. The presence of mining houses as complainants

highlights that anti-competitive behaviour in the steel value chain did not

specifically affect SMEs.


Allocation of markets and price fixing emerged as the most common types

of anti-competitive behaviour in the steel value chain. These, together with

collusive tendering, are commonly found together where parties are acting

in a cartel (Competition Commission, 2009b:43; Jones & Sufrin,

2011:802). As noted in Table 4.7, these types of anti-competitive

behaviour were found in nine of the ten cases considered in the steel

value chain.

5.4 Answering of the first primary research objective

5.4.1 Extent of anti-competitive conduct in the agri-food value chain The agri-food value chain was characterised by a prevalence of

oligopolies, particularly at grain and milk processing level and at the level

of retail of staple foods. There was also evidence of Sasol monopolising

the fertiliser industry. These entities attribute their dominance to a legacy

of state support in the industry (Mather, 2005:610, Ramburuth & Roberts,

2009:5), which had the effect of closing the market to new entrants (Traub

& Jayne, 2008:225) and so limiting competition (Abu & Kirsten, 2009:353).

Cartels in the agri-food chain were also among those of the longest in

duration, a further factor indicating the enduring legacy of previous state.

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A further characteristic of the agri-food value chain was the predominance

of exclusionary conduct among the types of anti-competitive conduct.

Such conduct can only be practiced by entities who are dominant players

in their industries (Republic of South Africa, 1998: Section 7). The

dominant players also made their presence felt by bullying SMEs to

participate in anti-competitive conduct in a number of instances. Such co-

option of smaller players into anti-competitive conduct is common in value

chains dominated by monopolies or oligopolies, where the survival of

small firms can be threatened if they do not slot into prevailing anti-

competitive practices (Dabbah, 2010:297-298).

5.4.2 Extent of anti-competitive conduct in the steel value chain

The steel value chain has been described as producer-driven, as power is

concentrated upstream at the level of primary steel production (Kaplinsky,

2000:125). As a result of this concentration, primary steel producers can

charge excessive prices thereby increasing the input prices for

downstream players and so restricting their profitability (Machaka &

Roberts, 2003:702).

An excessive pricing case in the steel value chain is noteworthy for the

lack of impact it has had on the industry. While the Competition Tribunal

found AMSA guilty of abuse of dominance, the steel producer challenged

the decision on appeal, and was also able to increase steel prices four

times in one year while the case was pending (Bezuidenhout & Cock,

2009:100). The case has highlighted how difficult it is to challenge anti-

competitive behaviour in the steel industry. One economic expert noted

the case was only possible because the two mining houses had the

resources needed to take on Arcelor Mittal SA (Business Day, 2008:para

8).

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5.5 The need for the Competition authorities to focus on SMEs

5.5.1 Impact of anti-competitive conduct on SMEs

In assessing whether the Competition authorities should focus specifically

on SMEs, it is helpful to determine whether SMEs are uniquely impacted

by anti-competitive conduct. Table 4.13 shows SMEs have been restricted

by anti-competitive conduct in two ways: by having to pay a high price for

manufacturing inputs and by being foreclosed out of important markets. In

the agri-food value chain, the majority of cases related to SMEs being

foreclosed out of markets. This can be seen as an indication of the buyer-

driven nature of that chain, where downstream buyers use their power in

the value chain to control the value chain. Access to markets has been

identified as a major constraint to SME development in South Africa (Berry

et al., 2002:98; Luiz, 2002:55).

SMEs were also victimised by having to pay high input prices in the steel

value chain. Thus in the steel cartel case, it was alleged that AMSA,

together with other steel mills (Cape Gate, Cisco, Highveld Steel and

Vanadium and Scaw Metals) and major steel distributors (Barlowold

Robor, Pro Roof Steel, Kulungile Metals, Trident Steel and Macsteel) were

victimising SME manufacturers who had imported steel to avoid paying

import-parity prices by denying those SMEs urgent steel deliveries. This

threatened the sustainability of the SMEs, as it prevented them from

expanding their production and increasing their product range to include

different types of steel products.

AMSA was found by the Competition Commission to be super dominant in

the steel industry. This anti-competitive behaviour is indicative of the

producer-driven nature of the steel value chain, where power in the value

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chain is concentrated upstream, and downstream manufacturers have little

bargaining power in price negotiations (Bezuidenhout & Cock, 2009:95). In

addition, the practice of import parity pricing is cited as restricting the

ability of SMEs to expand, this practice has also been cited in the literature

as a major constraint to the development of the downstream

manufacturing sector (Kesper, 2000:24; Roberts, 2003:702).

Three cases were reported where SMEs were threatened by anti-

competitive behaviour. Such behaviour had the effect of excluding the

SMEs from the market. In the first case, the dairy cartel case, an SME

farmer alleged that two of South Africa’s main milk processors (Parmalat

and Nestle SA), as well as an SME milk processor (Ladismith Cheese),

threatened to cancel the delivery contracts of dairy farmers who sold

surplus milk to independent buyers after having met their milk quotas to

the aforementioned milk buyers. The actions of the milk buyers reflect the

buyer-driven nature of the agri-food chain, where power is vested at buyer

level. The case is also illustrative of the oligopolistic nature of the dairy

value chain (Cutts & Kirsten, 2006:328-9; Mkhabela & Mndeme, 2010:123)

where a small number of players control the market for a large number of

farmers.

In the other two cases, the threat to SMEs came from upstream in the

value chain, in that SMEs were threatened with cuts in the supply of key

raw materials needed for their manufacturing operations. In the bread

case, the SME, being an independent bakery in the Western Cape, was

threatened with flour supply cuts by Pioneer Foods if it did not charge the

bread prices that Pioneer Foods had set. Pioneer Foods was found by the

Competition Commission to be dominant in the Western Cape.

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5.5.2 Facilitating the participation of SMEs

This section considers the tools available to the Competition authorities in

creating a more competitive environment in the agri-food and steel value

chains and whether, in so doing, they also created a more supportive

environment for SMEs. These tools include the power of the Competition

Commission to initiate investigations without a prior and formal complaint,

the use of the Corporate Leniency Policy to crack open cartels and the use

of structural remedies in diluting monopolisitic markets. The section ends

with an overview of the opinions expressed by experts in competition law

and policy on the role of the Competition authorities towards supporting

SMEs.

5.5.2.1 Investigations initiated by the Competition authorities

Of the 29 cases considered in the findings, 12 were initiated by the

Competition Commission. The majority of these, namely eight, were

initiated as a result of a market analysis conducted by Competition

Commission. The areas for investigation were chosen by virtue of their

falling within the priority sectors of the Competiton Commission. The

advantage of the Competition Commission initiating its own market

inquiries is that allegations of anti-competitive conduct that could affect

SMEs can be investigated without the SME having to expend time and

resources in lodging and, if necessary, fighting a complaint.

5.5.2.2 Impact of the Corporate Leniency Policy

The Competition Commission’s Corporate Leniency Policy is also an

important trigger for investigations. Leniency polices grant immunity to the

first firm to blow the whistle on a cartel (Jones & Sufrin, 2011:801) and

therefore assist Competition authorities in uncovering cartels that may not

be easy to detect (Motta, 2009:193; Moodliyar, 2008:158). It is a condition

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of being granted immunity that the company must make a full disclosure of

the nature of anti-competitive behaviour, as well as of the players involved.

The policy supports the Competition Commission in securing a

prosecution arising from its investigations into anti-competitive behaviour.

Once again, SMEs benefit from not having to expend resources and time

to lodge complaints and fight those complaints at the Competition

Commission. The leniency policy was used in the mesh reinforcing and

the poultry: eggs, broilers and chicks cases. In each case immunity from

prosecution was granted to an entity accused, or likely to be accused, of

anti-competitive behaviour, namely BRC Mesh (a subsidiary of Murray &

Roberts) in the mesh reinforcing case, and Pioneer Foods in the poultry:

eggs, broilers and chicks case.

5.5.2.3 Impact of structural remedies

Structural remedies allow the Competition authorities to intervene in a

market place with measures that control how a firm will do business in the

future and are typically used to dilute the monopoly power of dominant

firms (Motta, 2009:69). Such remedies are premised on the understanding

that without intervention by the Competition authorities, it would not be

possible for new firms to enter a market (Motta, 2009:69).

One example of the implementation of a far-reaching structural remedy

was the one imposed on Sasol in the ammonia fertiliser and phosphoric

acid cases. Among other things, that remedy compelled Sasol to divest

itself of its fertiliser blending units and to sell those units to entities

approved of by the Competition Commission, and also to sell fertiliser on

an ex works basis within 100km of its Sasolburg and Secunda plants. This

remedy, the aim of which was to dismantle vertical integration by Sasol in

the fertiliser industry, was the first time that a company had been forced to

sell off business units by the Competition authorities. SMEs stood to

benefit as there would be opportunities for new entrants to enter the

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fertiliser blending industry, while farmers stood to benefit from the lower

prices arising from increased competition.

Using the Porters Five Forces Framework, the impact of the remedy on

the industry can be demonstrated diagrammatically as set out in Figure 5.4.

BEFORE AFTER

Barrier to entry

Fertiliser blending industry

New entrants

BuyersSupplier

Substitutes

Buyers are numerous, and many are SMEs, hence lack bargaining power


Supplier vertically integrated: produces raw material and blends fertiliser = bargaining power

Fertiliser blending industry

New entrants

BuyersSupplier

Substitutes

Bargaining power increased due to competition in the market


Number of suppliers increased from 1 to at least five = decrease in bargaining power

Barrier to entry shattered: the sale of of 5 Sasol blending plants allows for at least 5 new entrants unrelated to dominant players

Figure 5.4: Effect of the structural remedy in Sasol ammonia fertiliser case

The effect of the structural remedy can be seen as interventionist in

nature, as the Competition authorities sought to intervene in the structure

of the South African fertiliser industry. This interventionist role is more in

keeping with the Ordoliberalist approach to competition policy, which

compels the Competition authorities to consider not only consumer

welfare, but also the structure and dynamics of a particular industry (Fox,

2003:155) and in particular also the barriers preventing new entrants into

the market (Kampel, 2005:22). Structural remedies have been welcomed

by legal commentators who described them as “far more extensive and

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effective [in dismantling anti-competitive practices] than the once-off

payment of a penalty” (Business Day, August 2010).

5.5.2.4 Attitudes towards SMEs

The Competition Act (Republic of South Africa, 1998) was drafted with a

developmental approach in mind, as among its objectives are the

facilitation of the participation of SMEs in the economy (section 2(e)) and

promoting a wider spread of ownership in the economy, particularly of

previously disadvantaged individuals (section 2(f)). Nevertheless, the data

reflects that the dominant thinking among the Competition authorities, and

competition experts, leans towards the Chicago School approach than the

developmental approach suggested by the objectives of the act.

The first Competition Commission, Advocate Menzi Semelane who held

office from 1999 to 2005, appeared to adopt an approach sympathetic to

SMEs. Advocate Simelane was quoted as saying that the role of

competition policy is to create a “flea market” (Fin Week, March 2005:para

4) type of economy in which there is a diversity of choice brought on a by

a lack of collusion and an openness to new entrants into an industry. He

further saw the objective of competition policy not as leading to low prices

for consumers, but rather as creating a diversity of choice brought on by a

lack of collusion. Advocate Simelane’s successor, the current Competition

Commission Comissioner, Mr Shan Ramburuth, appears to have adopted

an approach more in line with the Chicago School. Mr Ramburuth was

quoted as saying that South Africa needs “business-owner martyrs to step

forward and take a sense of personal responsibility” (The Star, February

2008: para 6) and bear the costs for fighting anti-competitive cases. He

was commenting on the role played by Mr Imraan Mukkadam, the SME

retailer in the Western Cape who alerted the commission to anti-competive

practices by the country’s major millers in the bread industry.

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Mr Ramburuth’s sentiments are echoed by legal experts, with attorney Ms

Rosalind Lake stating that “what is good for consumers is not good for

competitors, especially small competitors” and attorney Mr Jac Marais

arguing that consumers can be protected at the expense of SMEs, as

bigger firms can often produce goods and services more efficiently than

SMEs (Engineering News, February 2011:para 5). None of comments

cited above were made in an academic context, and hence cannot be

seen as official statements of policy direction. However, because the

statements appeared in newspapers, they nevertheless send a signal to

the public of how SMEs will be viewed by the Competition authorities.

Further evidence a Competition law interpretation that is inimical to SMEs

was found in the recent curtailment of the Competition Commission’s

investigative powers by the SCA in the dairy cartel case and the CAC in

the phosphoric fertiliser case. These rulings were subsequently followed

by the Competition Tribunal in the beer case. In both of the

aforementioned instances, the appeal court ruled that the Competition

Commission may no longer launch industry-wide investigations when anti-

competitive behaviour is suspected in a particular subsector (SCA,

2010:12). Instead the Commission should, unless it obtains additional

evidence, restrict its investigations to the original complaint submitted to it

(CAC, 2011:23; SCA, 2010:12). This strict legal approach has been

criticised for opening a legal loophole (Bleby, 2011:para 8; Marais,

2010:para 11) that will lead to the delay in cases, which will further

prejudice SMEs.

The data also revealed the Competition Act is not accessible to SMEs,

mainly as a result of the cost and time needed to see a complaint to

finality. This is particularly the case as the SME is not matched in

resources as against a big corporate. An example is the SME fertiliser

blender, Nutriflo, an SME fertiliser blender, which spent R4.5 million over 9

years to battle Sasol (The Star, February 2008). While NutriFlo was not

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liquidated as a result of taking on the battle, the company did have to

switch to a different line of business as a result of the battle.

5.6 Answering of the second primay research objective At the heart of this study is a perennial question to competition policy,

namely whether it is sufficient for competition policy to concern itself with

protecting competition as a process, or whether there is also a need to

protect individual categories of competitors such as SMEs (Fox, 2003:149;

Jones & Sufrin, 2011:17). This issue has been discussed in the literature,

where the dichotomy between two approaches to competition policy was

presented. These are the Chicago school, which places reliance on

market forces to select the firms that can most efficiently satisfy consumer

demand at the lowest cost, even if this can be achieved by monopoly

structures at the expense of SMEs. (Cook, 2002:547; Fox, 2003:152;

Jones & Sufrin, 2011:23). The Ordoliberalist European approach takes a

different view and recognises that an economy should be more than just

efficient, but also achieve developmental objectives that are relevant in a

particular jurisdiction (Fox, 2003:155). Accordingly, it may be necessary

for the Competition authorities to intervene in an economy to achieve

developmental objectives, such as protecting the economic freedom of

SMEs to enter into, and compete in, a market (Fox, 2003:156; Jones &

Sufrin, 2011:17).

The cases considered have shown that SMEs were not alone in being

affected by anti-competitive conduct. However, while the impact of anti-

competitive behaviour on SMEs was not unique, the experience of SMEs

in tackling anti-competitive behaviour was unique. The findings reported

that SMEs lacked the resources needed to tackle anti-competitive

behaviour, and to sustain an action once it has been initiated. As set out in

Table 4.18, the costs of paying for legal and economic experts are

onerous, SMEs may not be able to survive the time needed to fight a case

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at the Competition authorities and they may not be skilled enough on

interpreting the technicalities of successfully concluding a case. Another

unique experience of SMEs is that they are often bullied to participate in

anti-competitive behaviour. A number of instances of this were reported in

the agri-food value chain.

In commenting on the applicability of Porter’s FFF to developing

economies, Narayanan and Fahey (2005:214) warned that in such

economies SMEs could not be seen in the same light as bigger

businesses, especially if such larger entities had achieved their dominance

through state support (Ramburuth & Roberts, 2009:7). Applying this

concept to the field of competition policy, one can argue that SMEs as

litigants should not be seen in the same light as bigger businesses. Thus,

because the demand on SMEs’ resources, skills and time is greater when

fighting cases before the Competition authorities, it is arguable that the

Competition authorities should adopt a more Ordoliberalist approach and

be more accommodating of SMEs as litigants than they are of bigger

businesses. However, the fact that SMEs were also reported as voluntarily

engaging in anti-competitive behaviour highlights a danger in making

specific concessions towards SMEs and the Competition authorities

should heed the warning of Fox (2003:162) that if they adopt this

approach, they could end up protecting SMEs from competition itself.

The findings also highlighted the tools at the disposal of the Competition

authorities in creating a more competitive environment. These tools

include the fact that the Competition authorities can initiate market

investigations on their own accord, that they are assisted in these

investigations by a Corporate Leniency Policy, and that they can order

structural remedies, which allow the authorities to intervene in an industry

to dilute the power of dominant companies. The findings show that by

using these tools, the Competition authorities in using these tools have

been able to facilitate the participation of SMEs in the economy, without

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making this a specific focus. This is due to the fact that by focussing their

efforts on the priority sectors, the authorities have initiated investigations

into anti-competitive behaviour in industries where SMEs will likely be

affected by such behaviour. Notable here are the Competition Commission

initiated investigations into the steel cartel and into the maize and wheat

milling industries. The fact that the authorities have initiated such

investigations has saved SMEs the cost and time of lodging and fighting

complaints at the Competition Commission. In addition, certain of the

structural remedies imposed also had the effect of creating a more

conducive environment for SMEs. Notable here is the structural remedy

introduced in the fertiliser industry.

The Competition Commission’s power in respect of market investigations

was curtailed by recent Supreme Court of Appeal and Competiton Appeal

Court decisions. The effect of these decisions was to limit the Competition

Commission’s power to refer cases to the Competition Tribunal for

adjudication only in respect of entities for which it had evidence of anti-

competitive conduct (CAC, 2011:23; SCA, 2010:12). These decisions

further limit the ability of the Competition Commission to use the tools at

its disposal to support SMEs, as they will make it harder for the

Commission to tackle cartels and also allow cases to be dragged out on

technicalities (Bleby, 2011:para 8; Marais, 2010a:para 11). The

Competition Commission has since announced it will appeal the CAC

decision in order to obtain more clarity on its powers of investigation

(Competition Commission, 2011c:1).

The aforementioned tools have provided the Competition authorities with

the scope to create an economy that is more conducive to the participation

of SMEs, but without making specific concessions for SMEs as litigants in

competition matters. A number of these tools are new, notably the

Corporate Leniency Policy and the right of the Competition Commission to

investigate anti-competitive behaviour on its own account. The novelty of

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these tools also means that their ambit has yet to be clarified, as is noted

by the Competition Commission’s intention to appeal the recent court

decisions curtailing its powers of market investigation. It had been noted in

the literature that it was premature to judge the performance of the

Competition authorities in coming to the assistance of SMEs. Following on

this it is, accordingly, premature to recommend whether the South African

Competition authorities should adopt a more interventionist approach in

achieving the objectives set out in the Competition Act (Republic of South

Africa, Section 2) of facilitating the participation of SMEs in the South

African economy.

5.7 Limitations of the study

The study is limited to the manufacturing sector of the South African

economy, in particular to only the agri-food and steel value chains within

that sector, whereas the Competition Tribunal and Commission are active

within all sectors of the economy. Accordingly, the study does not provide

a true reflection of anti-competitive activity in the South African

manufacturing sector, nor the economy as a whole. The study further

considers a very narrow set of cases in assessing the performance of the

Competition authorities in assisting SMEs, and accordingly cannot make a

more generalised assessment of the performance of the authorities.

A further limitation arises from the way in which the database was

constructed, in that only articles in the Newsmonitor subsidiary database

entitled “Competition Commission” were considered. As a result of this,

only those cases under Competition Commission inquiry, as reported on

by the press, were investigated. Thus instances of anti-competitive

behaviour, which have not yet come to the attention of the authorities,

were not included. The result of this is that there could be far more

extensive anti-competitive behaviour in the agri-food and steel value

chains than is reported on in this study. The newspaper reports, while

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providing rich anecdotal data on the cases under consideration, were also

lacking in certain detail. For example, it was often not possible to ascertain

if an entity was an SME. Accordingly, the findings may not provide an

accurate indication of anti-competitive behaviour against manufacturing

SMEs. The findings also referred to cases where manufacturing entities

were owned by construction companies to the extent that this information

was reported in the newspapers. However, an exhaustive assessment of

the extent of vertical integration between manufacturing and construction

companies was beyond the scope of this study, and accordingly the study

may under-report the extent to which construction companies are

contributing to anti-competitive behaviour through the vehicle of their

manufacturing subsidiaries.

The limitations of the research methodology chosen were highlighted by

Clarke et al., (2005:1034), who wrote that newspaper databases may

contain allegations of anti-competitive practices, many of which may not

be proven or true. Furthermore, newspaper articles may not accurately

define the anti-competitive practice being complained of because the

parties complaining of an anti-competitive practice, or the journalists

recording this complaint, are not schooled in competition matters (Clarke

et al., 2005:1034). The implication of these limitations is that the findings

may not accurately portray the extent and types of anti-competitive

behaviour in the manufacturing sector. These limitations have also been

identified by other writers. For example Earl et al. (2004:72) report that

newspapers report selectively on events, and reporting often contains

errors of omission or the misrepresentation of information. Nevertheless

Earl et al. (2004:77) note that the limitations of newspaper data is no more

of a limitation than the nonresponse bias generally experienced with

surveys.

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5.8 Summary and conclusion

The findings show that anti-competitive practices that became entrenched

in the agri-food and steel value chains under the Apartheid have endured

after the value chain was deregulated (in the case of the agri-food value

chain) and state support ceased (in the case of both value chains). This

has been to the detriment of SMEs, which have struggled to enter and

become profitable in those value chains, and has also been to the

detriment of consumers who have had to pay high prices for consumer

goods in those value chains. Such anti-competitive conduct has been to

the detriment of both SMEs and larger businesses as well as consumers.

It has also been a consequence of the pervasiveness of anti-competitive

conduct in the two value chains that SMEs have become both victims and

perpetrators of such conduct.

In the light of the pervasiveness of anti-competitive conduct the question

arises whether the Competition authorities should specifically focus on

protecting SMEs as competitor in fulfilling the objectives set out in the

Competition Act (Republic of South Africa, 1998:Section 2). The findings

have shown that SMEs cannot be seen as equal litigants to bigger

businesses in fighting cases before the Competition authorities. This is

because the drain on the resources, time and skills of SMEs is far greater

than on larger businesses. However, the Competition authorities, in using

tools such as market inquiries, the Corporate Leniency Policy and

structural remedies have assisted SMEs.

An example can be seen in the structural remedy imposed on Sasol which

will make it easier for SMEs to enter into the blending and marketing of

fertiliser. In addition, cases intiated arising from the Competiton

Commission’s inquiries into the economy, notably the milling and steel

cartel cases, have saved SMEs the cost and effort needed to bring cases

to the authorities. Thus the Competition Commission has prioritised key

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sectors that will be instrumental to the growth of the South African

economy and in which there is significant potential for the expansion of

SMEs. By focussing on these sectors, the Commission has been able to

direct its scarce resources to where they will make the most impact.

The aforementioned tools are relatively new. Accordingly, it is still

premature to assess the performance of the Competition authorities in

coming to the assistance of SMEs and, following from this, to recommend

whether the authorities should adopt a more interventionist approach in

achieving its objectives of facilitating the participation of SMEs in the

South African economy.

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CHAPTER SIX: CONCLUSION AND RECOM-MENDATIONS

6.1 Introduction

This chapter summarises the major findings of the study and proposes

recommendations for the field of competition policy and suggests topics

for future research.

6.2 Objectives of the study and major findings

The study had two primary objectives. The first was to ascertain the extent

of anti-competitive behaviour on SME manufacturers in the agri-food and

steel value chains. The agri-food value chain was characterised by a

prevalence of oligopolies and monopolies that could be attributed to a

legacy of state support in the industry and which had the effect of closing

the market to new entrants. Cartels in the agri-food chain were among the

longest in duration, indicative of the enduring legacy of previous state.

SMEs in this value chain were also bullied into participating in anti-

competitive behaviour. While there was evidence of SMEs voluntarily

engaging in such behaviour, the bullying of SMEs in the agri-food chain

was indicative of a hostile environment that was not conducive to the

growth of SMEs.

In the steel value chain anti-competitive conduct was noticeable upstream

at the level of primary steel production, as steel producers were able to

charge excessively high prices. This practice increased the input prices for

downstream players and so restricted their profitability. The practice also

stimulated downstream players, for example wire manufacturers, to

engage in cartel-like behaviour to increase their bargaining power against

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the dominant primary steel producers. SMEs were less active in tackling

anti-competitive behaviour in the steel value chain than in the agri-food

value chain. Such participation by smaller players in anti-competitive

behaviour is common in value chains dominated by monopolies or

oligopolies. Also noteworthy among the findings was the role of major

mining houses in fighting anti-competitive behaviour, in particular in the

excessive pricing case.

The Competition authorities were not as successful in bringing dominant

players to book in the steel value chain as they were in the agri-food value

chain. In the agri-food value chain, structural remedies imposed on Sasol

and Pioneer Foods had the effect of creating a market structure that was

more conducive to the participation of SMEs. However, in the steel value

chain, an attempt, after a multi-year battle, to hold AMSA to account for

excessive pricing has been delayed by a lengthy appeal process. This is

indicative of the difficulties faced by industry players and the Competition

authorities in tackling anti-competitive conduct.

Accordingly, in addressing this research objective was addressed by

identifying and quantifying the individual cases of anti-competitive

behaviour, as well as the types of entities accused and complaining of

such behaviour. From this the conclusion was drawn that anti-competitive

behaviour that was engendered under Apartheid, as a result of state

support and regulation, continues to be prevalent in the modern South

African economy. This has created an economy that is hostile to SME

participation, such that SMEs themselves often need to engage in

prevailing anti-competitive practices to survive.

The second primary research objective was to ascertain whether the

South African Competition authorities should focus on protecting SMEs as

competitors to fulfil an objective of the Competition Act (Republic of South

Africa, 1998) that they facilitate the participation of SMEs in the South

124

African economy. The study found that anti-competitive conduct in the two

value chains was as detrimental to bigger businesses as it was to SMEs.

However, SMEs faced unique difficulties in bringing cases of anti-

competitive behaviour to the attention of, and fighting the cases before,

the Competition authorities. The difficulties faced by SMEs support the

argument that the Competition authorities should single out SMEs as a

category of litigants for targetted support. The danger of this approach,

however, is that the authorities could end up protecting SMEs from

competition itself, in particular because SMEs are already voluntarily

engaged in anti-competitive in a number of instances.

There is considerable scope for the Competition authorities to facilitate the

participation of SMEs in the economy using tools such as market inquiries,

relying on the Corporate Leniency Policy and imposing structural remedies

on dominant players without necessarily having a specific focus on

protecting SMEs. The aforementioned tools are relatively new, and their

ambit is still being delineated, as is indicated by the Competition

Commission’s recent announcement to appeal the rulings that constrain its

ability to conduct market investigations. Until such time as the Competition

authorities’ use of the aforementioned tools has matured, it will be

premature to recommend whether the South African Competition

authorities should adopt a more interventionist approach in facilitating the

participation of SMEs in the South African economy.

Thus the second research objective was addressed by identifying and

quantifying the various ways in which SMEs were impacted by anti-

competitive behaviour, by identifying and quantifying the manner in which

the Competition Commission tackled anti-competitive behaviour, and

finally by identifying the attitudes of experts on the role of competition

policy in supporting SMEs. From this the conclusion was drawn that while

SMEs were not uniquely impacted by anti-competitive behaviour, they did

face unique hurdles as litigants. Nevertheless, the Competition authorities

125

should be cautious in creating a specific focus on SMEs, as SMEs

themselves are often participants in anti-competitive behaviour. Rather

more time is required to assess the impact of the Competition authorities

in creating an economy that is conducive to the participation of SMEs

through the use of tools such as market inquiries, the Corporate Leniency

Policy and structural remedies.

6.3 Recommendations for the field of competition policy

It is one of the objectives of the Competition Act (Republic of South Africa,

1998) that the Competition authorities assist in facilitating the participation

of SMEs in the South African economy. However, there is little policy

direction on how the authorities may achieve this objective, nor has this

topic been extensively researched.

The findings also indicate that SMEs face unique difficulties in fighting

cases before the Competition authorities. Thus, a further recommendation

would be to explore the solutions proposed by legal and economic experts

on competition policy to make the Competiton authorities more accessible

to SMEs. These solutions include setting up a Legal Aid body for SMEs

and streamlining the authorities’ procedures, practices and administrative

capabilities such that they will be more accessible to SMEs. Other

proposals include charging interest from the date that fines are levied to

reduce the opportunistic appeals that delay the resolution of cases beyond

the capacity of SMEs to continue fighting them.

6.4 Suggestions for future research

The current study had a narrow focus, in that it was restricted to cases in

the South African agri-food and steel value chains that were being

126

considered by the Competition Commision. Future research could include

all cases currently under Competition Commission consideration. This

would give a truer reflection of anti-competitive practices in the South

African economy, and their impact on SMEs, in particular because many

sectors in the economy are interlinked. For example, the current

Competition Commission inquiry into the banking industry is also of

relevance to SMEs, as a lack of funding is a key constraint for SMEs.

Furthermore, the manufacturing sector is linked to other sectors in the

economy, notably the construction sector, as was indicated in the findings,

and to the retail sector. Research that includes these sectors can then

also place anti-competitive practices in the manufacturing sector in

context, namely whether the manufacturing sector is more prone to anti-

competitive conduct than other sectors in the economy.

There has been very little literature published on the competitive structure

of the agri-food and steel value chains. The literature that has been

published, has been produced by a small number of academics.

Deepening the academic study on the competitive structure of important

value chains will assist in a better understanding of the structure of the

South African economy, and in particular assist businesses in

understanding what conduct can be viewed as anti-competitive. It will also

assist the Competition Commission in its market investigations, notably in

deciding on areas for future investigations.

There is also a need for more research on the role of competition policy in

facilitating the participation of SMEs in the South African economy, in

particular because this is one of the objectives of the Competition Act

(Republic of South Africa, 1998). Very little literature has been found on

this topic, despite its relevance for the transformation of the South African

economy.

127

6.5 Conclusion

The South African Competition Act (Republic of South Africa,

1998:Section 2) has as one of its objectives to facilitate of the participation

of SMEs in the economy. Despite being in existence for just over ten

years, the Act has not been successful in diluting the dominance of big

business in the agri-food and steel value chains of the South African

manufacturing sector. It is in this context that the study sought first to

create a descriptive picture of the extent of anti-competitive behaviour in

the two value chains chosen, and its impact on SMEs and, following from

this, to determine whether it was necessary for the Competition authorities

to focus specifically on supporting SMEs as competitors to achieve the

objectives of the Act.

The study revealed that SMEs were not unique in being constrained by

anti-competitive behaviour, as bigger businesses were similarly affected.

In addition there were also instances where SMEs were voluntary

participants in anti-competitive conduct. These findings motivate against

the Competition authorities focussing specifically on SMEs, in particular

because there is the danger that they could protect SMEs from

competition itself. However, it was also found that SMEs face unique

difficulties in bringing cases to the Competition authorities. In addition, the

instances of SMEs being bullied to participate in anti-competitive conduct

reflect the hostile environment in which SMEs operate.

In ascertaining whether the Competition authorities should focus

specifically on assisting SMEs, it is necessary to consider the tools the

Competition authorities can use to create a more competitive environment

without having a specific focus on SMEs. These tools include market

inquiries, the Corporate Leniency Policy and structural remedies to dilute

the market power of dominant entities. The aforementioned tools are still

relatively new and their ambit is still being delineated. Accordingly, until

128

such time as the Competition authorities’ use of the aforementioned tools

has matured, it will be premature to recommend whether the South African

Competition authorities should adopt a more interventionist approach in

facilitating the participation of SMEs in the South African economy.

129

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Appendix 1: Literature search on the South African agri-food value chain Database: Business Source Premier

Search category: SME AND South Africa AND milling

Result: The search was limited to articles published between 2000 to 2011 and

yielded 1 article namely:

1. Abu, O. & Kirsten, J.F. (2009). Profit efficiency of small- and medium-

scale maize milling enterprises in South Africa. Development Southern

Africa, 26(3):353-368.

Database: Business Source Premier

Search category: SME AND South Africa AND grain


yielded no articles.


Search category: South Africa AND agriculture AND deregulation


yielded nine articles ranked according to relevance. All the articles were scanned

and the following were relevant to the study:

1. Abu, O. & Kirsten, J.F. (2009). Profit efficiency of small- and medium-

scale maize milling enterprises in South Africa. Development Southern

Africa, 26(3):353-368.

145

2. Mather, C. & Greenberg, S. (2003). Market liberalisation in post-

Apartheid South Africa: The restructuring of citrus exports after

“deregulation”. The Journal of Modern African Studies, 43(3):367-397.


Search category: South Africa AND price transmission


yielded two articles. Both articles were scanned and the following were relevant

to the study:

1. Cutts, M. & Kirsten, J.F. (2006). Asymmetric price transmission and

market concentration: An investigation into four South African agro-

food industries. South African Journal of Economics, 74(2):323-333.

2. Alemu, Z.G. & Ogundeji, A.A. (2010). Price transmission in the South

African food market. Agricultural Economics Research, Policy and

Practice in Southern Africa, 49(4):433-445.


Search category: South Africa AND supermarket AND SME


yielded one article:

1. Mather, C. (2005). The growth challenges of small and medium

enterprises (SMEs) in South Africa’s food processing complex.

Development Southern Africa, 22(5):607-622.

146

Database: JStor

Search category: SME AND South Africa AND milling

Result: The search was limited to articles published between 2000 to 2011. The

search yielded one article on biofuel production, which was not relevant to the

study.

Database: JStor

Search category: SME AND South Africa AND grain

Result: The search was limited to articles published between 2000 to 2011. The

search yielded 11 articles, all of which were scanned, but none were relevant to

the study.

Database: JStor

Search category: South Africa AND agriculture AND deregulation


yielded 192 articles ranked according to relevance. All the articles were scanned


1. Carmody, P. (2002). Between globalisation and (post) Apartheid: The

political economy of restructuring in South Africa. Journal of Southern

African Studies, 28(2):255-275.

2. Mather, C. & Greenberg, S. (2003). Market liberalisation in post-

Apartheid South Africa: The restructuring of citrus exports after

“deregulation”. The Journal of Modern African Studies, 43(3):367-397.

147

Database: JStor

Search category: South Africa AND price transmission


yielded 627 articles ranked according to relevance. The first 300 articles were

scanned and the following were relevant to the study:

Iheduru, O.C. (2004). Black economic power and nation-building in post-

Apartheid South Africa. The Journal of Modern African Studies, 42(1):1-30.

148

Appendix 2: Literature search of articles on the South African steel value chain Database: Business Source Premier

Search category: steel AND South Africa


yielded 706 articles ranked according to relevance. The first 300 articles were


1. Bek, D., Binns, T., & Nel, E. (2004). “Catching the development train”,

perspectives on “top-down” and “bottom up” development in post-

Apartheid South Africa. Progress in Development Studies. 4(1):24-46.

2. Bezuidenhout, A. & Cock, J. (2009). Corporate power, society and the

environment: A case study of Arcelor Mittal South Africa. Transformation:

Critical Perspectives on Southern Africa, 69(1):81-105.

3. Machaka, J. & Roberts, S. (2003). The DTI’s new “Integrated

Manufacturing Strategy”? Comparative industrial performance, linkages

and technology. South African Journal of Economics, 71(4):679-703.

4. Roberts, S. & Rustomjee, Z. (2010). Industrial policy under democracy:

Apartheid’s grown-up infant industries. Iscor and Sasol. Transformation:

Critical Perspectives on Southern Africa, 71(1):50-75.

5. Roberts, S. (2004). The role for competition policy in economic

development: The South African experience. Development Southern

Africa, 21(1):227-243.

149

Database: JStor Search category: steel AND South Africa


yielded 2 472 articles ranked according to relevance. The first 300 articles were


1. Boyd, L., Spicer, M. & Keeton, G. (2001). Economic scenarios for South

Africa: A business perspective, Daedalus, 130(1):71-99.




3. Firoz, A.S. (2011). Steel industry in turmoil: structural crisis of the 1990’s.

Economic and Political Weekly, 38(15):1493-1504.

4. Freund, B. (2007). South Africa: The end of Apartheid and the emergence

of the “BEE elite”. Review of African Political Economy, 34(114):661-678.

5. Iheduru, O.C. (2004). Black economic power and nation-building in post-

Apartheid South Africa. The Journal of Modern African Studies, 42(1):1-

30.

6. Nel, E., Hill, T.R., & Goodenough, C. (2004). Global coal demand, South

Africa’s coal industry and the Richards Bay coal terminal. Geography,

89(3):292-297.

7. Seekings, J. (2007). “Not a single white person should be allowed to go

under”: Swartgevaar and the origins of South Africa’s welfare state, 1924-

1929. Journal of African History, 48(3):375-394.

8. Tybout, J.R. (2000). Manufacturing firms in developing countries: How well

do they do and why? Journal of Economic Literature, 38(1):11-44.

9. Wilson, F. (2001). Minerals and migrants: how the mining industry has

shaped South Africa. Daedalus, 130(1):99-121.

150

Database: JStor Search category: steel AND South Africa AND SME

Result: The search was limited to articles published between 2000 to 2011

and yielded 13 articles ranked according to relevance. All the articles were


1. Jeppesen, S. (2005). Enhancing competitiveness and securing equitable

development: Can small, micro and medium-sized enterprises (SME) do

the trick? Development in Practice. 15(3/4):463-474.

151

Appendix 3: Literature search of articles on South African competition policy and SMEs Database: Business Source Premier Search category: competition AND South Africa AND SME




1. Jeppesen, S. (2005). Enhancing competitiveness and securing

equitable development: Can small, micro and medium-sized

enterprises (SME) do the trick? Development in Practice. 15(3/4):463-

474.


Search category: competition policy AND South Africa




1. Bezuidenhout, A. & Cock, J. (2009). Corporate power, society and the

environment: A case study of Arcelor Mittal South Africa.

Transformation: Critical Perspectives on Southern Africa, 69(1):81-105.

2. Boyd, L., Spicer, M. & Keeton, G. (2001). Economic scenarios for

South Africa: A business perspective, Daedalus, 130(1):71-99.

3. Chabane, Goldstein & Roberts (2006). Changing face

152

4. Ezrachi, A. & Gilo, D. (2010). Excessive pricing, entry, assessment and

investment: Lessons from the Mittal litigation. Antritrust Law Journal,

76(3):873-897.

5. Hartzenberg, T. (2006). Competition policy and practice in South

Africa: Promoting competition for development. Northwestern Journal

of International Law & Business, 26(3):667:684.

6. Theron, N. (2001). The economics of competition policy: merger

analysis in South Africa. The South African Journal of Economics,

69(4):614-658.

7. Roberts, S. (2004). The role for competition policy in economic

development: The South African experience. Development Southern

Africa, 21(1):227-243.

8. Rangasamy, L. (2005). The extent of anti-export bias in the South

African economy in the 1990’s. Development Southern Africa,

22(4):569-588.

9. Wise, M. (2003). Competition law and policy in South Africa. OECD

Journal of Competition Law and Policy, 5(4):7-69.

Database: JStor

Search category: competition AND South Africa AND SME




1. Gumede, V. (2004). Export propensities and intensities of small and

medium manufacturing enterprises in South Africa. Small Business

Economics, 22(5):379-389.

2. Jeppesen, S. (2005). Enhancing competitiveness and securing

equitable development: Can small, micro and medium-sized

153

enterprises (SME) do the trick? Development in Practice. 15(3/4):463-

474.

3. Ponte, S. & van Sittert, L. (2007). The chimera of redistribution in post-

Apartheid South Africa: “Black Economic Empowerment” (BEE) in

industrial fisheries. African Affairs, 106(424):437-462.

Database: JStor

Search category: competition policy AND South Africa




1. Boyd, L., Spicer, M. & Keeton, G. (2001). Economic scenarios for

South Africa: A business perspective, Daedalus, 130(1):71-99.




3. Iheduru, O.C. (2004). Black economic power and nation-building in

post-Apartheid South Africa. The Journal of Modern African Studies,

42(1):1-30.

4. Schneider, G.E. (2000). The development of the manufacturing sector

in South Africa. Journal of Economic Issues, 34(2):413-424.

5. Seekings, J. (2007). “Not a single white person should be allowed to go

under”: Swartgevaar and the origins of South Africa’s welfare state,

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294.

2. *Calgagno, C. & Walker, M. (2010). Excessive pricing: towards clarity

and economic coherence. Journal of Competition Law and Economics,

6(4):891-910.

3. Coetser, P. (2008). A practitioner’s riposte on defining dominance.

Competition Law International, 4(28):28-29.

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countries: A critical assessment of the challenges to establishing and

effective competition law regime. World Competition, 33(3):457-476.

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convergence, networking or state sovereignity. Acta Juridica,

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6. Fox, E. (2000). Equality, discrimination and competition law: Lessons

from and for South Africa and Indonesia. Harvard International Law

Journal, 41(2):579-594.

7. Hartzenberg (2006). Competition policy and practice

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61.

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between public and private enforcement in competition law: A

comparative analysis of South African, European Union and Swiss

Law. South African Law Journal, 127(1):141-162.

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in South Africa. Journal of Competition Law and Economics, 4(3):871-

892.

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priority sectors and training needs. World Competition, 27(4):651-674.

16. Trebilcock, M.J. & Iacobucci, E.M. (2010). Designing competition law

institutions: Values, structure an mandate. Layola University Chicago

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17. Visser, C. (2004). Overview of the Competition Act (Part 1). Juta’s

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156

Appendix 4a: Cases considered in the study categorised according to the Competition Commission’s priority sectors

Priority Sector Sub-sector Case Actor Actor type Actor - detail Complainant Complainant type Complainant detail

Food & Agro-

ProcessingAnimal feed Animal feed Zedek Trading, Anix Trading SME manufacturers small feed manufacturers National Treasury Government buyer Government department

Food & Agro-

ProcessingBeverages Beer SAB Miller Large manufacturer

SAB controls 87% of SA beer

marketBig Daddy's Group Large buyer Independent distributor

Food & Agro-

ProcessingBeverages Rooibos Rooibos Ltd Large manufacturer

Rooibos Ltd controls 95% of

local marketCoetzee & Coetzee

Supplier - size

unknown

One of 8 players in upstream tea

market

Food & Agro-

ProcessingDairy Dairy products

Clover, Clover Industries, Parmalat, Nestle,

Ladismith Cheese, Woodlands, Lancewood,

Milkwood

Large manufacturers First four process 65% - 80%

milk in SACompCom initiated NA Small supplier

Food & Agro-

ProcessingFertiliser Agri lime

Hi Pistorius & Co, Kalkor, Plaaslike

Boeredienste, Fertiliser Association of SA,

Grasland Ondernemings

Manufacturers - size

unknown

Manufacture and supply agri

lime to farmersCompCom initiated NA CompCom

Food & Agro-

ProcessingFertiliser Ammonia-based Sasol Nitro, Omnia, Kynoch/Yara Larg manufacturers

Sasol sole local producer of

ammonia and operates at

every level in fertiliser supply

chain

Nutri-Flo, Profert SME manufacturersSmall blenders and distributors of

fertiliser

Food & Agro-

ProcessingFertiliser Phosphoric acid Foskor, Sasol Large manufacturers

Foskor is main local supplier

of phosphoric acid and

exports most of it

Animal feed

manufacturers, farmers

SME manufacturers

SME buyers

Food & Agro-

ProcessingFruit Fruit exports

Mediterranean Shipping Company,

Safmarine, Maersk, Pacific International,

CSAV SA, DAL Deutsche SA, MISC Berhad,

Mitsui Osk Lines

Large suppliers

Major suppliers of shipping

services to farmers & agro

processing exporters

Fruit SALarge buyer

SME buyersIndustry body for fruit exporters

Food & Agro-

ProcessingGrain Grain storage Senwes, Afgri, Suidwes, NWK, OVK, VKB Large suppliers

Main silo owners in South

AfricaCTH Trading SME buyer Small grain trader

Food & Agro-

ProcessingGrain Grain storage Senwes Large supplier

Senwes dominant in silo

storage CTH Trading SME buyer Small grain trader

157

Appendix 4b: Cases considered in the study categorised according to the Competition Commission’s priority sectors


Food & Agro-

ProcessingGrain Maize milling

Pioneer Foods, Tiger Brands, Foodcorp

(Ruto Mills), Premier Food, Goodrich

Milling, Progress Milling, Pride Milling,

Westra Milling, Brenner Mills, Blinkwater

Mills, TWK Milling, NWK Milling, Carolina

Mills, Kalel Foods, Bothaville Milling,

Paramount Mills, Keystone Milling

Large manufacturers

SME manufacturers

First four are SA's big four

consumer food groups, rest

are small millers

Small bakers and retailersSME manufacturers

SME buyers

Food & Agro-

ProcessingGrain Maize products

Pioneer Foods, Foodcorp, Tiger Brands,

PremierLarge manufacturers

SA's big four consumer

groupsCompCom initiated NA NA

Food & Agro-

ProcessingGrain Bread Pioneer Foods Large manufacturer

Pioneer is dominant in the

Western Cape marketCompCom initiated NA NA

Food & Agro-

ProcessingGrain Wheat milling


(Ruto Mills), Premier Food, Goodrich Milling

Large manufacturers

SME manufacturer (Goodrich)

Big four control 90% of wheat

milling, Goodrich a small

miller

CompCom initiated NA NA

Food & Agro-

ProcessingPoultry Poultry: breeding stock

Astral Operations (Ross Poultry, National

Chicks, Meadow Feeds) and its subsidiary

Elite Breeding Farms (which is a

partnership between Astral & Country Bird)

Large manufacturers

Astral owns 82% of Elite,

which supplies parent

breeding stock to both

partners / Astral dominant in

market

Country Bird and Supreme

PoultryLarge competitors

Food & Agro-

ProcessingPoultry

Poultry: eggs, broilers

& chicks

Rainbow Farms, Astral Foods, Supreme

Poultry, Pioneer Foods, Afgri, Soveriegn

Foods, Pioneer, Hyline SA, Avichick,

Eggbert, Top Lay, Fair Acres, Heidel Eggs,

Lund Eggs, Waterglen Pluimvee, Paardebert

Flinkwink, Outeniqua Eggs, Golden Yolk,

Rosendal, Nantes Eggs, Eikenhof, Elkana,

Windmeul Eggs, Morningside, Sunrise Eggs,

Eden Rock, Cocorico, Daybreak Farms

(Afgri)

Large manufacturers

SME manufacturers

First seven are listed

companies, remainder are

smaller players

CLP NA

Food & Agro-

ProcessingPoultry

Poultry: feed &

products

Nulaid (Pioneer), Rainbow Chickens, Astral

Foods, Country Bird, Afgri, SAPA, AFMALarge manufacturers


PoultryLarge competitors

Food & Agro-

ProcessingRetail Staple foods

Pick n Pay, Spar, Woolworths, Shoprite

Checkers, Massmart, MetcashLarge buyers

The first 4 are supermarkts

with 65% of the low-margin

retail market, the other 2 are

wholesalers

CompCom initiated NA NA

Food & Agro-

ProcessingTobacco Cigarettes British American Tobacco SA Large manufacturer BATSA has 90% market share

Japan Tobacco

InternationalLarge competitor

JTI second largest cigarette

manufacturer in SA with 4.7%

market share

158

Appendix 4c: Cases considered in the study categorised according to the Competition Commission’s priority sectors


Infrastructure &

ConstructionElectrical cables Electrical cables

Abedare Cables (Altron), Southern Ocean

Electric Wire Company (Ocean Holdings),

Alvern Cables, Tulisa Cables

Large manufacturers

SME manufacturer (Tulisa)

First 2 are subsidiaries of

listed entities

CompCom initiated

inquiry NA NA

Infrastructure &

ConstructionSteel Mining roof bolts

RSC Ekusasa Mining (Murry & Roberts),

Africa Duraset (Aveng), Dywidag Systems

International, Videx Wire Products

Large manufacturers


First 2 are subsidiaries of

construction companies,

Dywidag is German owned.

De Beers, Goldfields,

Harmony, Anglo, Lonmin,

Sasol Mining

Large buyers Major SA mining houses

Infrastructure &

ConstructionSteel Steel reinforcing

Aveng (Africa), Koedoespoort Reinforcing

Steel, Witbank Reinforcing and Wire

Products, Nelspruit Reinforcing Supplies,

Silverton Reinforcing and Wire Products

Large manufacturers

SME manufacturers

Proposed mergers with Aveng

seen as way to formalise

cartel

Merger investigation NA NA

Infrastructure &

ConstructionSteel Wire: wire products

Cape Gate, Allens Meshco, Hendok,

Wireforce Steelbar, Agriwire, Agriwire

North, Agriwire Upington, Cape Wire,

Forest Wire, Independent Galvanising,

Associated Wire Industries, Consolidated

Wire Industries (Scaw)

Large manufacturers

SME manufacturers

10 of accused have same

shareholder, Rick Allen / CWI

jointly owned by AMSA and

Scaw

CKW Wire Products /

Overberg Agri Co-op

Large retailer

SME retailer Wire importer

Infrastructure &

ConstructionSteel

Wire: galvanised wire

products

Allens Meshco, Wireforce Steelbar,

Hendok, Galvwire, Independent Galvanising

and Meshrite

Large manufacturers

Manufacturers - size

unknown

Allens Meshco is one of

biggest manufacturers of

wire products in SA

Harmony Gold, African

Cable, Malasela

Technologies, Barnes

Fencing

Large buyers

Large manufacturer

Infrastructure &

ConstructionSteel Wire: wire rod Arcelor Mittal, Allens Meshco

Large manufacturer

Large competitor

AMSA is dominant in supply

of low-carbon wire rod

Barnes Fencing, FG

Quality Tubes, Dunrose

Large manufacturer

SME manufacturers

Barnes is a large, family-owned

business

Infrastructure &

ConstructionSteel Mesh reinforcing

Steeldale Mesh (Aveng), Reinforcing &

Mesh Solutions (Capital Africa Steel),

Vulcania Reinforcing, BRC Mesh

Reinforcing (M&R)

Large manufacturers

Construction companiesLeniency application NA NA

Intermediate

Industrial ProductsSteel Excessive pricing Arcelor Mittal and Macsteel

Large manufacture

Large supplier

AMSA dominant in the steel

industy, Macsteel markets

Mittal's products

internationally

Harmony Gold and DRD

GoldLarge buyers Major SA gold miners

Intermediate

Industrial ProductsSteel Steel cartel

Arcelor Mittal, Cape Gate, Cisco (M&R),

Scaw Metals, Barloworld Robor, Pro Roof

Steel, Kulungile Metals, Trident, Macsteel,

Highveld Steel & Vanadium,

Large manufacturers

Construction companiesAlleged cartel CompCom initiated NA NA

Intermediate

Industrial ProductsSteel Scrap metal

SA Metal & Machinery, National Scrap

Metal, Ben Jacobs Metals, Power Metals

Recyclers, Universal Recycling, Ton Scrap,

Scaw SA, Scaw Metals Group, Amalgamated

Scrap Metals Recycling, Abbedac Metals,

Ben Jacobs Iron & Steel, Cape Town Iron &

Steel Works, The New Reclamation Group

Large manufacturers

SME manufactuer (Ben Jacob,

Power Metals)


Collect, process and supply

ferrous and non-ferrous scrap

metal used to make steel and

aluminium

Merger investigation NA NA

159

Appendix 5a: Types of anti-competitive behaviour

Priority Sector Sub-sector Case Actor ComplainantAction (anti-competitive

conduct)Action detail Impact

Food & Agro-

ProcessingAnimal feed Animal feed Zedek Trading, Anix Trading National Treasury Collusive tendering

Food & Agro-

ProcessingBeverages Beer SAB Miller Big Daddy's Group

Exclusionary conduct, Market

allocation, Price discrimination,

Price fixing

SAB requires retail outlets not to

deal with SAB competitors for the

manufacture and sale of beer and

distribution of liquor

Gives SAB control over the

production and distribution of

beer,

Food & Agro-

ProcessingBeverages Rooibos Rooibos Ltd Coetzee & Coetzee Exclusive supply agreements

Exclusive agreements with the

four big tea packers, also to

ensure loyalty grants volume

discounts rewarding a packer if its

purchases exceed it annual

New entrants in upstream market

find it difficult to enter cos

Rooibos has exclusive supply agmt

with the four main packers:

National Brands, Joekels, Unilever,

Food & Agro-

ProcessingDairy Dairy products

Clover, Clover Industries, Parmalat, Nestle,

Ladismith Cheese, Woodlands, Lancewood,

Milkwood

CompCom initiated

Exclusive supply agreements,

Information sharing, Price fixing,

Restricted practice

Induced farmers not to supply

competitors - threatened to cancel

entire delivery contract

Food & Agro-

ProcessingFertiliser Agri lime


Boeredienste, Fertiliser Association of SA,

Grasland Ondernemings

CompCom initiatedMarket allocation, Price fixing,

Retail price maintenance

Fertiliser is biggest input in

production of crops / Competitive

pricing needed for increased food

production - Thembisile Bonakele

Food & Agro-

ProcessingFertiliser Ammonia-based Sasol Nitro, Omnia, Kynoch/Yara Nutri-Flo, Profert

Exclusionary conduct, Price

discrimination,

Fertiliser is biggest input in

production of crops / Competitive

pricing needed for increased food

production - Thembisile Bonakele

Food & Agro-

ProcessingFertiliser Phosphoric acid Foskor, Sasol

Animal feed


Excessive pricing, Market

allocation

Foskor charges export parity ie an

additional cost of +-75% of freight

costs to India

Food & Agro-

ProcessingFruit Fruit exports


Safmarine, Maersk, Pacific International,

CSAV SA, DAL Deutsche SA, MISC Berhad,

Mitsui Osk Lines

Fruit SA Price fixing

Eight shipping lines announced

the same container surcharge

($150) at the same time

Higher surcharge cost fruit

industry R12.5m/month

Food & Agro-

ProcessingGrain Grain storage Senwes, Afgri, Suidwes, NWK, OVK, VKB CTH Trading Collusion in grain storage tariffs

Shan Ramburuth - shows how

pricing at consumer level is

indicative of entire value chain:

bread & flour producers and grain

Food & Agro-

ProcessingGrain Grain storage Senwes CTH Trading

Exclusionary conduct, Price

discrimination

Senwes denied grain traders

benefit of yearly grain storage

discount they had previously

enjoyed / charge those producers

who agree to sell grain to it a

Induces farmers not to deal with

Senwes competitors, prevents CTH

and other traders from expanding

in market for trading grain by

foreclosing the supply of grain

160

Appendix 5b: Types of anti-competitive behaviour



Food & Agro-

ProcessingGrain Maize milling


(Ruto Mills), Premier Food, Goodrich

Milling, Progress Milling, Pride Milling,

Westra Milling, Brenner Mills, Blinkwater

Mills, TWK Milling, NWK Milling, Carolina

Mills, Kalel Foods, Bothaville Milling,

Paramount Mills, Keystone Milling

Small bakers and retailersExclusionary conduct, Market

allocation, Price fixing

bullying to remain in cartel price

refused to supply markets to gain

advantage over smaller players

Food & Agro-

ProcessingGrain Maize products

Pioneer Foods, Foodcorp, Tiger Brands,

PremierCompCom initiated Information, Price fixing

Submit commercially sensitive

information, receive

disagreggated infor ito product

sales, pack size, customer,

province

Food & Agro-

ProcessingGrain Bread Pioneer Foods CompCom initiated Exclusionary conduct, Price fixing

Engage in price wars to prevent

competitors enter into or expand

in markets / Aim to force

independent bakeries to charge

Pioneer prices or force out of

Higher prices, less choice, inferior

products

Food & Agro-

ProcessingGrain Wheat milling


(Ruto Mills), Premier Food, Goodrich MillingCompCom initiated

Collusion, Market allocation, Price

fixing

Secret meetings & telephone calls,

aim to prevent price wars and

discounting

Food & Agro-

ProcessingPoultry Poultry: breeding stock

Astral Operations (Ross Poultry, National

Chicks, Meadow Feeds) and its subsidiary

Elite Breeding Farms (which is a

partnership between Astral & Country Bird)


Poultry

Allocation of markets, Excessive

pricing, Exclusionary conduct,

Fixing trading conditions

Agreed not to compete in open

market but divide by allocating

territories and customers

Food & Agro-

ProcessingPoultry

Poultry: eggs, broilers

& chicks

Rainbow Farms, Astral Foods, Supreme

Poultry, Pioneer Foods, Afgri, Soveriegn

Foods, Pioneer, Hyline SA, Avichick,

Eggbert, Top Lay, Fair Acres, Heidel Eggs,

Lund Eggs, Waterglen Pluimvee, Paardebert

Flinkwink, Outeniqua Eggs, Golden Yolk,

Rosendal, Nantes Eggs, Eikenhof, Elkana,

Windmeul Eggs, Morningside, Sunrise Eggs,

Eden Rock, Cocorico, Daybreak Farms

(Afgri)

CLP

Allocation of markets, Exclusive

supply agreements, Information

sharing, Price fixing

Companies carved out territories

so as not to compete on open

market,

Charge higher prices to consumers

than independent manufacturers -

up to 25% above smaller feed

producers

Food & Agro-

ProcessingPoultry

Poultry: feed &

products

Nulaid (Pioneer), Rainbow Chickens, Astral

Foods, Country Bird, Afgri, SAPA, AFMA


Poultry

Allocation of markets, Information

sharing

Companies carved out territories

so as not to compete on open

market,

Charge higher prices to consumers

than independent manufacturers -

up to 25% above smaller feed

producers

Food & Agro-

ProcessingRetail Staple foods

Pick n Pay, Spar, Woolworths, Shoprite

Checkers, Massmart, MetcashCompCom initiated

Abuse of buying power, Category

management, Exclusive lease

agreements, Information sharing,

Price fixing

high food prices for consumers

Food & Agro-

ProcessingTobacco Cigarettes British American Tobacco SA

Japan Tobacco

InternationalExclusionary conduct

alleged excluding JTI from retail

channels, BAT violated

competition laws by negotiating

promo displays at points of sale,

providing incentives to retailers to

161

Appendix 5c: Types of anti-competitive behaviour



Infrastructure &

ConstructionElectrical cables Electrical cables

Abedare Cables (Altron), Southern Ocean

Electric Wire Company (Ocean Holdings),

Alvern Cables, Tulisa Cables

CompCom initiated

inquiry

Collusive tendering, Market


Infrastructure &

ConstructionSteel Mining roof bolts

RSC Ekusasa Mining (Murry & Roberts),

Africa Duraset (Aveng), Dywidag Systems

International, Videx Wire Products



Sasol Mining


allocation

Each agree not to sell to other's

mines, market allocated 25%,

collude on tenders

Infrastructure &

ConstructionSteel Steel reinforcing

Aveng (Africa), Koedoespoort Reinforcing

Steel, Witbank Reinforcing and Wire

Products, Nelspruit Reinforcing Supplies,

Silverton Reinforcing and Wire Products

Merger investigation Information sharing, Price fixing

Infrastructure &

ConstructionSteel Wire: wire products


Wireforce Steelbar, Agriwire, Agriwire

North, Agriwire Upington, Cape Wire,

Forest Wire, Independent Galvanising,

Associated Wire Industries, Consolidated

Wire Industries (Scaw)

CKW Wire Products /

Overberg Agri Co-op



alleged cartel prevented wire

importer from entering market

Infrastructure &

ConstructionSteel

Wire: galvanised wire

products


Hendok, Galvwire, Independent Galvanising

and Meshrite


Cable, Malasela

Technologies, Barnes

Fencing



collusive tendering of cable

armouring wire / agree on

tendering prices before hand so

that selected firm will win

alleged cartel prevented wire

importer from entering market

Infrastructure &

ConstructionSteel Wire: wire rod Arcelor Mittal, Allens Meshco

Barnes Fencing, FG

Quality Tubes, Dunrose

Exclusionary conduct, Market

allocation, Price discrimination

Infrastructure &

ConstructionSteel Mesh reinforcing

Steeldale Mesh (Aveng), Reinforcing &

Mesh Solutions (Capital Africa Steel),

Vulcania Reinforcing, BRC Mesh

Reinforcing (M&R)

Leniency application Market allocation, Price fixing

Intermediate

Industrial ProductsSteel Excessive pricing Arcelor Mittal and Macsteel


GoldExcessive pricing

Intermediate

Industrial ProductsSteel Steel cartel

Arcelor Mittal, Cape Gate, Cisco (M&R),

Scaw Metals, Barloworld Robor, Pro Roof

Steel, Kulungile Metals, Trident, Macsteel,

Highveld Steel & Vanadium,

CompCom initiated Cartel

Fix trading conditions, Information

sharing, Market allocation, Price

fixing

small manufacture argues cant

branch into new product cos of

cost of steel / afraid to give

names for fear of victimisation /

tried to import but impractical cos

need different types of steel and

Intermediate

Industrial ProductsSteel Scrap metal

SA Metal & Machinery, National Scrap

Metal, Ben Jacobs Metals, Power Metals

Recyclers, Universal Recycling, Ton Scrap,

Scaw SA, Scaw Metals Group, Amalgamated

Scrap Metals Recycling, Abbedac Metals,

Ben Jacobs Iron & Steel, Cape Town Iron &

Steel Works, The New Reclamation Group


Collusive tendering,Fix trading

conditions, Market allocation,

Price fixing

Bid rigging in sale of wagons,

tanks and coaches by Spoornet,

Reclam had wanted to buy then

direct from spoornet but they were

put out to auction, colluded to

ensure spoornet would not auction

in future: made inflated offer and

colluded with other players that

only very low bids were given at

Industry vital to primary and

secondary metal conversion

industries / facilitated allocation

of customers, suppliers and

territories

162

Appendix 6a: Impact of anti-competitive behaviour on SMEs

Priority sector Subsector Actor Complainant Reported SME impact Stage

Food & Agro-

ProcessingAgri lime


Boeredienste, Fertiliser Association

of SA, Grasland Ondernemings

CompCom initiated - part

of food value chain

investigation

SME restricted: high input prices threaten

viability Cartel

may include SMEs

Under Comp Com investigation

Food & Agro-

Processing

Ammonia-based

fertiliserSasol Nitro, Omnia, Kynoch/Yara Nutri-Flo, Profert SME fought case

Fine: Sasol = R250m Dismissed:

Omnia / Kynoch

Structural Remedies: detail

provided

Food & Agro-

ProcessingAnimal feed Zedek Trading, Anix Trading National Treasury SME part of cartel: colluded on tenders

Fine: Zedek = R40 000 / Anix =

R20 000

Food & Agro-

ProcessingBeer SAB Miller Big Daddy's Group Details not reported Dismissed: technicality

Food & Agro-

ProcessingBread Pioneer Foods

Bakery in Mossel Bay and

Imraan Ismail Mukkadam

SME alerted Comp Com

SME threatened - Pioneer threatened to

stop supplying independent bakeries if

they did not charge the Pioneer prices

Fines: Pioneer = R195m / Foodcorp =

R45.5m / Tiger Brands = R98.8m.

Immunity: Premier

Food & Agro-

ProcessingCigarettes British American Tobacco SA

Japan Tobacco

InternationalDetails not reported

Complaint dismissed: insufficient

evidence

Food & Agro-

ProcessingDairy products

Clover, Clover Industries, Parmalat,

Ladismith Cheese, Woodlands,

Lancewood, Nestle SA, Milkwood

Louise Malherbe

SME alerted CompCom SME

threatened: Suppliers threatened with

cancellation of entire delivery contract if

did not supply Clover or Parmalat

Dismissed: technicality

Food & Agro-

ProcessingFruit exports


Safmarine, Maersk, Pacific

International, CSAV SA, DAL

Deutsche SA, MISC Berhad, Mitsui

Osk Lines

Fruit SA Details not reported Under Comp Com investigation

Food & Agro-

ProcessingGrain storage

Senwes, Afgri, Suidwes, NWK, OVK,

VKBCTH Trading

SME restricted: CTH foreclosed out of the

marketUnder Comp Com investigation

Food & Agro-

ProcessingGrain storage Senwes CTH Trading

SME restricted: Senwes charges farmers

who don’t deal with it higher storage fee /

Senwes forecloses grain supplies, creating

barriers to entry for other traders

Remedy: on appeal

163

Appendix 6b: Impact of anti-competitive behaviour on SMEs


Food & Agro-

ProcessingMaize milling

Pioneer Foods, Tiger Brands,

Foodcorp (Ruto Mills), Premier

Food, Goodrich Milling, Progress

Milling, Pride Milling, Westra

Milling, Brenner Mills, Blinkwater

Mills, TWK Milling, NWK Milling,

Carolina Mills, Kalel Foods,

Bothaville Milling, Paramount Mills,

Keystone Milling

Small bakers and retailers

SME part of cartel: Threatened not to

approach commission, while small could

avoid joining, but as grew pressure to join

increased

Fines: Pioneer = R500m / Keystone =

R6.7m. Immunity: Tiger

Brands, Premier Foods.

Structural remedies Settlement

discussions: smaller mills

Food & Agro-

ProcessingMaize products

Pioneer Foods, Foodcorp, Tiger

Brands, PremierCompCom initiated Details not reported Settlement discussions

Food & Agro-

ProcessingPhosphoric acid Foskor, Sasol

Animal feed


SME restricted: raised input costs,

restricted choice of raw material suppliers

Fine: as per ammonia fertiliser

case

Structural remedies as per

ammonia fertiliser

Food & Agro-

Processing

Poultry feed and

products

Nulaid (Pioneer), Rainbow

Chickens, Astral Foods, Country

Bird, Afgri, SAPA, AFMA


Poultry

SME restricted: raised key input prices by

25%

Referred to Tribunal

Immunity: Pioneer

Food & Agro-

Processing

Production and sale of

eggs, broilers & chicks

Rainbow Farms, Astral Foods,

Supreme Poultry, Pioneer Foods,

Afgri, Soveriegn Foods, Pioneer,

Hyline SA, Avichick, Eggbert, Top

Lay, Fair Acres, Heidel Eggs, Lund

Eggs, Waterglen Pluimvee,

Paardebert Flinkwink, Outeniqua

Eggs, Golden Yolk, Rosendal,

Nantes Eggs, Eikenhof, Elkana,

Windmeul Eggs, Morningside,

Sunrise Eggs, Eden Rock, Cocorico,

Daybreak Farms (Afgri)

Lenience application SME part of cartelUnder Comp Com investigation

Immunity: Pioneer

Food & Agro-

Processing

Production of breeding

stock

Astral Operations (Ross Poultry,

National Chicks, Meadow Feeds)

and its subsidiary Elite Breeding

Farms (which is a partnership

between Astral & Country Bird)


PoultryDetails not reported


Immunity: Pioneer

Food & Agro-

ProcessingRooibos Rooibos Ltd Coetzee & Coetzee

SME restricted: New entrants struggle to

enter market cos Rooibos has exclusive

supply agmt with the four main packers.

SMEs then forced to supply export market

which leaves vulnerable to currencly

fluctuations

Fine: Rooibos = R15m

Food & Agro-

ProcessingStaple foods

Pick n Pay, Spar, Woolworths,

Shoprite Checkers, Massmart,

Metcash

CompCom initiated -

inquiry into food value

chain

SME restricted: alleged retailers'

practices made it difficult for SMEs to

supply retailers

Dismissed: insufficient evidence /

Exclusive lease agmts under

investigation

Food & Agro-

ProcessingWheat milling

Pioneer Foods, Tiger Brands,

Foodcorp (Ruto Mills), Premier

Food, Goodrich Milling

Small bakers and retailers

SME part of cartel: Keystone presented

evidence that smaller mills intimidated to

play along with cartels

Fines, Immunity and Remedies:

as per maize milling case

164

Appendix 6c: Impact of anti-competitive behaviour on SMEs


Infrastructure &

ConstructionElectrical cables

Abedare Cables (Altron), Southern

Ocean Electric Wire Company

(Ocean Holdings), Alvern Cables,

Tulisa Cables

CompCom initiated

inquiry Details not reported Under Comp Com investigation

Infrastructure &

Construction

Galvanised wire

products


Hendok, Galvwire, Independent

Galvanising and Meshrite


Cable, Malasela

Technologies

Cartel may include SMEsMerged with CWI & Cape Gate

case

Infrastructure &

ConstructionMesh reinforcing

Steeldale Mesh (Aveng), Capital

Africa Steel, Vulcania Reinforcing,

BRC Mesh Reinforcing (M&R)

Lenience application Details not reported


Leniency: BRC Mesh (Murray &

Roberts)

Infrastructure &

ConstructionMining roof bolts

RSC Ekusasa Mining (Murry &

Roberts), Africa Duraset (Aveng),

Dywidag Systems International,

Videx Wire Products



Sasol Mining

Details not reportedFine: Duraset (Aveng) = R21.9m

Leniency: RSC (Murray & Roberts)

Infrastructure &

ConstructionSteel reinforcing

Aveng (Africa), Koedoespoort

Reinforcing Steel, Witbank

Reinforcing and Wire Products,

Nelspruit Reinforcing Supplies,

Silverton Reinforcing and Wire

Products


SMEs part of cartel: alleged that merger

application motivated by desire to formalise

cartel


Infrastructure &

ConstructionWire products


Wireforce Steelbar, Agriwire,

Agriwire North, Agriwire Upington,

Cape Wire, Forest Wire,

Independent Galvanising,

Associated Wire Industries,

Consolidated Wire Industries

(Scaw)

CKW Wire Products /

Overberg Agri Co-op

SME part of cartel: Comp Com alleges

smaller players organised themselves into

a cartel


Infrastructure &

ConstructionWire Rod Arcelor Mittal, Allens Meshco Barnes Fencing Details not reported Under Comp Com investigation

Intermediate

Industrial Products

Excessive pricing: flat

steelArcelor Mittal and Macsteel


Gold

SME restricted: high input prices threaten

viability

Ruling overturned by

CAC:Tribunal to rework excessive

pricing methodology

Intermediate

Industrial ProductsScrap metal

SA Metal & Machinery, National

Scrap Metal, Ben Jacobs Metals,

Power Metas Recyclers, Universal

Recycling, Ton Scrap, Scaw SA,

Scaw Metals Group, Amalgamated

Scrap Metals Recycling, Abbedac

Metals, Ben Jacobs Iron & Steel,

Cape Town Iron & Steel Works, The

New Reclamation Group


SME restricted - raised input prices for

upstream users, prices uncompetitive for

downstream suppliers

Fines: Universal = R18m / Abbedac =

R4.9m / Amalgamated Scrap Metals

= R3.2m / Power = R12.8m / Reclam

= R145m Immunity: Scaw

Metals, Scaw SA, Cisco (Murray &

Roberts)

Intermediate

Industrial ProductsSteel cartel

Arcelor Mittal (AMSA), Cape Gate,

Cisco (M&R), Scaw Metals,

Barloworld Robor, Pro Roof Steel,

Kulungile Metals, Trident,

Macsteel, Highveld Steel &

Vanadium,

CompCom initiated -

probe steel price hikes

SME threatened: SMEs who imported

steel were later victimised by steel mills

by being refused supplies of urgent steel

orders


165

Appendix 7: Cases where structural remedies were imposed

Case Actor Stage Structural remedies


Flat steel Arcelor Mittal and Macsteel Ruling overturned by CAC:Tribunal to rework excessive pricing methodology

Tribunal orders: 1] AMSA may not impose conditions on use/resale of flat steel products 2] AMSA may not make agreements iro use/resale of products 3] Mittal to waive any such conditions 4] Mittal to make public its list prices, rebates, discounts for flat steel 5] AMSA to pay the costs of the complainants

Steel Arcelor Mittal (AMSA), Cape Gate, Cisco (M&R), Scaw Metals, Barloworld Robor, Pro Roof Steel, Kulungile Metals, Trident, Macsteel, Highveld Steel & Vanadium,


Government may consider divestiture AMSA found guilty of excessive pricing


Rooibos Rooibos Ltd Fine: Rooibos = R15m Rooibos to unwind exclusive agreements that guarantee it market dominance

Ammonia-based fertiliser

Sasol Nitro, Omnia, Kynoch/Yara Fine: Sasol = R250m Dismissed: Omnia / Kynoch Structural Remedies: detail provided

Sasol to: 1] Sell 5 fertiliser blending units 2] Sell fertilisers at ex-works basis from Sasolburg & Secunda & wi 100km radius 3] Not differentiate in pricing of fertiliser other than on standard commercial terms such as volume & off-take commitments that are transparent to all customers, 4] Separate ammonia plants & businesses from Sasol Nitro 5] Cease importation of ammonia except where neccessitated by plant disruptions 6] Report on compliance annually

Phosphoric acid Foskor, Sasol Fine: as per ammonia fertiliser case Structural remedies as per ammonia fertiliser

Structural remedy as per ammonia fertiliser case, Foskor agree to stop excessive pricing

Grain storage Senwes Remedy: on appeal Senwes to: 1] declare differentiated silo tariffs prohibitied 2] offer servies to all buyers on same t&cs irrespective if they sell grain to senwes 3] interdict senwes from committing prohib practices 4] order senwes pay admin penalty of 10% turnover

Maize milling Pioneer Foods, Tiger Brands, Foodcorp (Ruto Mills), Premier Food, Goodrich Milling, Progress Milling, Pride Milling, Westra Milling, Brenner Mills, Blinkwater Mills, TWK Milling, NWK Milling, Carolina Mills, Kalel Foods, Bothaville Milling, Paramount Mills, Keystone Milling

Fines: Pioneer = R500m / Keystone = R6.7m. Immunity: Tiger Brands, Premier Foods. Structural remedies Settlement discussions: smaller mills

Pioneer to: 1] reduce bread and flour margins to reduce gross margin by R160m 2] increase capital expenditure by R150m 3] implement compliance programme 4] ongoing co-operation with Comp Com / CompCom invited small millers to come forward and negotiate settlement agreements

Wheat milling Pioneer Foods, Tiger Brands, Foodcorp (Ruto Mills), Premier Food, Goodrich Milling

Fines, Immunity and Remedies: as per maize milling case

Structural remedy as per maize milling case

166

Appendix 8a: Summary of opinions on the accessibility of the Competition Act for SMEs Problem Actor SME support required Details on the support Commentary on the support Newspaper

Cost

Jean Meijer

attorney, Bowman Gilfillan

director

Financial assistance for SMEs

Cost of lawyers, economists and

expert witnesses: atleast R1m to take

case to Comp Tribunal, a case with

potentially high fines, could cost 5

times more and last years

"When a corporate is facing anti-

competitive charges, there are serious

risks involved, including potential

reputational damage, civil claims and

large fines. Thus companies are prepared

to throw significant resources at a case."

Financial Mail

7 Sept 2007

CostDavid Lyle

director of NutriflowFinancial assistance for SMEs

Nutriflo spent R4.5m and 9yrs

battling Sasol

The Star

14 Feb 2008

CostTrudi Hartzenberg,

Economist, Trade Law CenterFinancial assistance for SMEs

Excessive pricing case against Mittal

only possible cos Harmony and DRD

Gold had deep pockets.

Case was initiated in 2001Business Day

30 Oct 2008

Cost

Imraahn Mukkadam

retailer supplying informal

markets

Financial assistance for SMEs

Act does not allow SME to claim

damages for loss suffered aro of anti-

competitive behaviour

CompCom should set up a legal aid body

to cover legal fees incurred by SME in

bringing case to authorities

The Star 14 Feb

2008

Customer indifferenceClients of construction firms,

Murray & Roberts and Aveng

Clients of cartel participants to

take legal action

No legal action by clients - even gvt

dept - against construction firms

acting in a cartel / Hardly any legal

public opprobrium, unlike as in bread

industry

Comp Auth can only go so far in stamping

out collusion.

Business Report

26 March 2009

Facilitation of investigationsHeather Irvine

attorney Deneys Reitz

SCA ruling limiting CompCom

investigative powers

CompCom may not go on a "fishing

expedition" to widen the net of

potential transgressors

"A suspicion against some cannot be used

as a springboard to investigate all and

sundry" - SCA

Business Times

17 Oct 2010

Facilitation of investigationsShan Ramburuth,




CompCom can only issue summons to

produce docs etc after fully

investigating complaint, summons

may not be wider than complaint to

which it relates

Ruling will encourage companies to delay

the findings of the CompCom by pursuing

technical points.

Business Times

17 Oct 2010

Facilitation of investigationsLulama Mtanga

attorney Bowman Gilfillan



CompCom will no longer be able to

launch industry wide investigations

when anti-comp behaviour

suspected in particular sector

But Mtanga also said CompCom had

improved its procedures, practices and

admin capabilities, so more recent

investigations will not be affected by

issues raised in SCA ruling

Business Times

14 Nov 2010

Lack of knowledge

David Lewis

Tribunal chair

Denis Davis

Judge President of CAC

Need for experts to interpret Act

Small businesses suffer who cant

afford to pay for the experts to

navigate the technicalities

Lewis, economist, adopts an economics

interpretation, Davis looks to the

technicalities of the law

Financial Mail

7 Sept 2007

167

Appendix 8b: Summary of opinions on the accessibility of the Competition Act for SMEs Problem Actor SME support required Details on the support Commentary on the support Newspaper

Lack of knowledgeJac Marais

attorney Adams & Adams

s10(3)(b)(ii) allows for preferential

agreements with large companies

that promote SMEs

Lack of awareness means provision is not

being used.

Engineering News

4 Feb 2011

New remedyShan Ramburuth,

Competition CommissionerCorporate leniency policy

Aimed at eradicating and preventing

cartel and collusive activities,

companies come forward voluntary

to declare involvement in anti-comp

activities

As at Sept 2010, investigating 98 CLP cases Business Day

10 Sept 2010

New remedyShan Ramburuth,


Independent Bid Determination

Certificate for public procurementIntroduced by Treasury

All bidders for public tenders to confirm

have not colluded on the tenders

Business Day

10 Sept 2010

TimeJim Foot

owner of Nationwide

Larger companies can afford to

drag out cases on technicalities

Won case at Tribunal but Sasol took

on appeal

"When we were told that the case could

be kept in the legal process for 5-10 years,

or 'as long as necessary', we decided to cut

our losses and shut down."

Financial Mail

7 Sept 2007

TimeJohan Coetsee

director of Profert

Took nearly 2 yrs for CompCom to

investigate the Profert complaint

and refer it to the Tribunal

Profert director, Johan Coetsee: "if you

rely on the competition authorities to

assist in solving commercial disputes, you

wont get anywhere, and if you do, you

could be out of business by the time

something happens. It's really a four-year

process."

Financial Mail

7 Sept 2007

TimeDenis Davis

Judge President, CAC

Milk cartel case, argued collusion

cases should be heard

expeditiously

Lash out at tendency in legal fraternity to

prolong cases indefinitely

Business Day

2 Dec 2008

TimeNorman Manoim,


Propose charging interest from

date fines are levied to reduce

opportunistic appeals to CAC

of 13 opposed probihited practice cases,

2= 5yrs, 2= 3yrsSoda ash - 9yrs, excessive

steel pricing btw Harmony and Mittal

=7yrs before settled out of court, BAT/JTI

case = 6 yrs, milk processors started 5yrs

ago, now hovering btw SCA and Const

Court on jurisdictional point

Business Report

21 Oct 2010

TimeNorman Manoim,


Cartel cases make sense for the

accuser to drag out so they can

continue with the activity and

delay payment of fine

Problem by time hear the case, the

complainant may no longer be in business

in the same sector - eg 2003 complaint by

small firm only heard in 2010

Business Report

21 Oct 2010

TimeGrain SA

industry body

Commission's delay in deciding

whether farmers can pool maize

and sell to highest bidder

prejudicing SME farmers

11 800 SME farmers at risk in a season with

bumper 13m ton harvest.

Business Day

11 Nov 2010