Just what is going on with competition policy in SA? Is it actually contributing to the kind of economy we want?

There is much upset after the Competition Tribunal blocked a merger between Vodacom and Maziv. All kinds of negative consequences have been highlighted by commentators and the companies involved, including billions of lost investment in infrastructure and improved connectivity, especially in rural areas and townships.

The tribunal has yet to publish its reasons but the Competition Commission had recommended a rejection on the grounds that it would lessen competition and create the incentive to disadvantage rival mobile networks.

The companies argue (some, but not all, competitors have agreed) that without such tie-ups there is no way the capital can be invested to bulk up backbone infrastructure. Talk of appeals is already in the air.

The problem is that the decision, and the outrage about it, add to the perception of investors that SA’s competition regulation is extremely hard to navigate. Both foreign and local investors will see SA as a high-risk jurisdiction for deals implying high transaction costs. Many will be discouraged from even attempting to invest.

That is bad for the country because it means investment flows will go elsewhere at a time when we very much need foreign investors to be backing our companies.

The public benefit of investment is generally poorly understood. Any investment is an effort to generate returns. The investment itself enables companies to grow and is fundamental to increasing the capacity of the economy and therefore economic growth.

Returns create incomes for investors but also more capital to invest. This is true even in M&A transactions — a buyer gives a wad of capital to the previous owners for them to allocate to new investment. The new acquirer has acted on the view that it can generate more value from the company than the seller. Lots of that going on across an economy accelerates growth. It is particularly meaningful when foreign investors are doing the buying because it adds to the total stock of capital in the economy.

The latest noise comes after the Competition Commission was embarrassed in the Competition Appeals Court over its long-running and dogged effort to prove a giant conspiracy between banks to manipulate the rand.

The conspiracy was a fiction and the Competition Appeals Court eventually threw out much of the commission’s case early this year. That followed several years in which the banks repeatedly tried to obtain a proper case against them. This was pursued by the commission’s cartels division, rather than its deals team, but it still contributed to the perception that the commission is hard to fathom.

Several other M&A transactions have faced hard-to-predict conditions that have been imposed, particularly in light of public interest concerns. These concerns were substantially changed in a 2018 amendment to the Competition Act, which introduced clauses regarding the impact of deals on ownership by historically disadvantaged individuals.

One bizarre outcome of the application of those concerns was an initial recommendation by the commission to block an attempt by Grand Parade Investments to sell its Burger King franchise in 2020 to a foreign buyer on the grounds that it would lessen black ownership.

That implied a black-owned company would be permanently disadvantaged in the market for buying and selling assets because it would have a much more limited audience for disposals. There was outrage then too, but an arrangement was eventually reached with the commission, in that the buyer would implement an employee ownership scheme, that allowed it to go ahead.

The hardly guarded view of lawyers advising firms has been that the commission was heavily influenced by Ebrahim Patel, the previous minister of trade, industry & competition and before that economic development, under whom the commission has fallen for the past decade.

Patel had a reputation for interfering and pushing an agenda of directly negotiated political wins, particularly for labour. Lawyers took to taking clients to talk to him as a first step of a transaction. But generally, these views have not held about the tribunal, which does not quite have the status of a court, but functions rather like one. It has a diverse panel including very experienced academics and lawyers.

Back in the post-1994 period when competition policy was first developed, it was all about turning around the apartheid economy, characterised by high levels of government direction, concentration and protection. The siege economy of apartheid had developed without international competition and at huge cost to the consumer. The country needed to somehow pivot to become competitive and outward looking. Competition policy was a key part of the strategy.

A competitive economy is clearly in the public interest and the competition authorities can help deliver it. But we are putting that at risk by making it much more expensive to do deals because of the risks of unpredictable outcomes from the commission and tribunal.

The new trade, industry & competition minister may want to look afresh at how the public interest is being served holistically by the competition regulation system. It looks like improvements can be made.

Stuart Theobald is chair of research-led consultancy Krutham (formerly Intellidex).
This article first appeared in Business Day.