By all accounts last week’s Team SA performance in Davos was a triumph, riding a wave of renewed interest in SA.
The pitch is winning fans on the back of successful reforms, catalysed by the global attention hosting the G20 is bringing us.
This interest should trigger improved foreign investor interest in SA assets. That is undoubtedly a good thing — foreign investment provides capital to the SA economy to allow companies to invest and expand, driving growth of economic capacity and employment.
Which is why politicians are rightly keen to support the investment pitch for the country.
But there is a big problem. Those investors who do decide to back SA and look to make a substantial investment in companies, perhaps even acquiring control, potentially face a big middle finger. It is time to call our competition regulators what they are: a major obstacle to investment.
Deal making, through which companies acquire other companies, is a critical mechanism for investment. This is especially true for the high quality kind of direct long-term investment that directly finances growth, compared with portfolio investment which, while positive, is more volatile.
We should be aspiring to attract large, dynamic global investors to back SA companies that have high potential for global expansion. They should be welcomed into the country with fanfare. They bring not just capital but know-how on how to accelerate growth and connections to foreign markets.
Instead, any such investor has to contend with a bewildering competition approvals process. And many investors are simply saying no thanks, focusing their attention instead on markets that are far more willing to embrace them.
There was a moment after the creation of the government of national unity (GNU) and the appointment of Parks Tau as trade, industry & competition minister, when there was hope that things would change.
That moment felt like it was becoming action when Tau announced that he would appeal against the Competition Tribunal’s prohibition of the Vodacom/Maziv merger, which many viewed as a blow to investment in broadband infrastructure.
But that momentum was abruptly halted last week when Tau suggested a proposed R100bn BEE fund should be funded in part from the public interest conditions imposed on mergers & acquisitions by the competition authorities.
This is an evolution of the practice that emerged under previous minister Ebrahim Patel of requiring merging parties to set up funds for various public interest objectives as part of merger conditions.
Under Patel these were substantially arbitrary — negotiated by merging parties bilaterally with the minister in return for his blessing for deals. While there is little basis in law for such funds, few merging parties wanted the fight — those that bothered to do deals at all.
Tau’s suggestion dashes hopes that some sense would be brought to how public interest is taken into consideration in competition matters and instead formalises and entrenches one of the worst features of competition policy to have emerged under Patel.
We need a serious reset of what competition policy is meant to do. It should be ensuring that we have a competitive, dynamic economy, with firms able to compete globally. In doing that it should support the case for foreign investors, by showing that it reliably protects competition in SA.
Instead, due to the ambitions of previous ministers who saw in the competition authorities a lever with which to deliver diverse policy objectives, they have become an institution that seems to care little about competition.
Under the guise of public interest considerations, the Competition Commission, and to some extent the tribunal, have become regulators of black empowerment, supplier development and worker rights, among others.
These are done through conditions imposed on mergers, using the clauses in the Competition Act that aim to protect the public interest. The interpretation of the legislation often appears selective, for example by ignoring that one of the public interests the authorities are meant to consider is the ability of national industries to compete in international markets.
It also strays into policy areas that fall far from competition and would surely be better regulated directly, which could be applied universally instead of selectively focusing on those entities that happen to engage in M&A.
I don’t think the cabinet fully appreciates how damaging the competition authorities are to foreign investment and growth.
While we should have many deals across the economy, particularly in our tech industries and other areas potentially capable of rapid international growth, they simply aren’t happening.
I listen often to tales of woe from those involved in venture capital about how they simply can’t get a meeting with the global venture funds that back future giants when their calling card is South African, simply because of the reputation of the competition approvals process.
We need, urgently, to revisit the principles and objectives of how we regulate competition.
We need to understand that the public interest is best served by enabling global investors to back SA companies.
We need to ensure competition economics regains its central role in deciding whether a merger is in the public interest.
If we fail to do that, we will continue to talk with two faces — one in forums such as Davos, and a quite different one when investors actually come knocking.
• Stuart Theobald is chair of research-led consultancy Krutham.
This article first appeared in Business Day.
