Another economic punch in the gut

Michael Cardo says the Competition Amendment Bill is deeply flawed and destructive

Speech by Michael Cardo MP, DA Shadow Minister of Economic Development, 2nd Reading Debate: Competition Amendment Bill. National Assembly, 23 October 2018, 14h00

The Competition Amendment Bill: A flawed bill, a flawed process, a flawed institution

Honourable Speaker

A flawed bill

The Competition Amendment Bill is a flawed bill emanating from a flawed process that will empower a flawed institution – the Competition Commission – to ride roughshod over the economy.

The ANC is going to beat the same drum over and over again today.

They are going to say that this bill will transform the economy, make it more inclusive, and help “our people”.

It will do nothing of the sort.

Making the economy more inclusive isn’t about using a competition regulator to create a new market structure.

Economic inclusion is about broadening the skills base. It’s about radically transforming our labour

laws to create jobs. It’s about improving access to

capital and credit for unbanked entrepreneurs. It’s about cutting red tape for owners of small- and medium sized businesses, and paying them on time.

The Competition Amendment Bill puts too great a burden on the competition authorities to solve South Africa’s economic problems. It gives them too much power. And the bill codifies a trend of ministerial interventionism that will undermine the regulators’ independence.

These are its most serious defects:

Firstly, Section 18A enables the President to appoint a committee with the power to decide whether an acquisition by a “foreign acquiring firm” is in the interests of national security. This should have been the subject of standalone legislation on foreign investment, not grafted onto the Competition Act as a stopgap measure. As it is, “national security” is badly and broadly defined. There is a new, onerous, murky process for mergers involving foreign firms that is likely to have a chilling effect on large transactions. It will create uncertainty and disincentivise foreign investment at the very time that President Ramaphosa has embarked on a $100 billion investment drive.

Secondly, the abuse of dominance provisions could disincentivise medium-sized businesses from growing their market share. The ill-conceived precepts on buyer power could result in upward pressure on consumer pricing. Coupled with the muddled definition of price discrimination and the reverse onus provisions in Section 9 (3), they could have the unintended consequence of discouraging dominant firms from doing business with small- and medium sized enterprises.

Thirdly, the new merger control provisions institutionalize a power-grab by the Minister, who can now participate in any merger proceedings before the competition authorities on public interest grounds. The Minister will gain access to confidential company information. For years, the current Minister has been using his powers of intervention to extract rent from large firms – acting as a sort of glorified corporate social responsibility officer and undermining the competition authorities’ autonomy in the process. Now, even smaller firms will be in the firing line.

Fourthly, the new market inquiry provisions effectively turn the Competition Commission into the Minister’s research department, by enabling the Minister to require the Commission to conduct such inquiries. The Commission now has wide-ranging and drastic powers to remedy structural features believed adversely to effect competition in a market. These include the power to issue binding orders. The effect of these changes will be to turn market inquiries into a costly, punitive, hydra-headed monster.

Fifthly, the removal of a ‘yellow card’ for contraventions of the Act that aren’t cut-and-dried, and the introduction of a ‘red card’ for both outright and potential violations, will make it difficult for companies to monitor compliance. This may stifle dynamic competition by efficient large firms.

In sum, the Competition Amendment Bill is bad for the economy. It will undermine growth and jobs. It will introduce regulatory uncertainty, increase the cost of doing business and deter foreign investment.

A flawed process

The bill is the product of a flawed process. It has been rammed through Parliament with all the finesse of security officers in white shirts exiting this chamber.

At every turn in the concertinaed legislative process, ANC MPs have behaved like supine, executive-minded lapdogs on a short ministerial leash. When I tried to engage the Minister on the substance of the bill, the committee chair – three quarters lapdog, one quarter Rottweiler – prevented me from asking questions.

In short, the members to my right have jollied this bill along without any serious attempt to interrogate it.

Instead, they have lifted their paws, wagged their tails, and effectively urinated on Parliament in order to ingratiate themselves with the executive.

We know this because on 15 October, the Parliamentary Counsellor to the Deputy President wrote to the Speaker instructing her to prioritise and finalise 18 bills before the end of the year. One of them was the Competition Amendment Bill. And exactly one week later, here we are.

The lapdogs have obliged.

A flawed institution

Finally, we should be wary of giving all manner of new powers to the Competition Commission, a body whose integrity is in question.

The Minister prefers to adopt a “see no evil, hear no evil, speak no evil” approach to the Commission.

He still hasn’t responded to my request for an independent inquiry into allegations of corruption and maladministration at the regulator.

Yet we know that Anthony Ndzabandzaba, a former Commission employee who now runs his own law firm, is at the centre of a patronage network at the Commission, aided and abetted by the Commissioner and the head of cartels.

We know that his law firm, Ndzabandzaba Attorneys, has made a killing out of the Commission over the past three-and-a-half years. The firm has received R72 million in payments from the Commission since January 2015, and was channeled 31 out of 44 cartel cases over a two-year period.

Today I can reveal that of the Commission’s R40 million irregular expenditure in 2016/17, R13 million – or one third – made its way to Ndzabandzaba.

In 2017/18, of the Commission’s R86 million irregular expenditure, over R29 million – again, one third – went to Ndzabandzaba.

We know that Mr Ndzabandzaba is a regular visitor to the Commission’s offices. We know that his invoices are fast-tracked for payment. We know that he plays the starring role at dawn raids conducted by the Commission. And we know that he is a very enthusiastic promoter of Century Technical Solutions, the forensics service provider that was on the receiving end of R15 million in irregular expenditure from the Commission in 2017/18.

There is a rotten smell over the Commission’s office in Meintjies Street, and the Minister won’t make it go away by holding his nose.

His priority should be to fix a flawed institution, not to act as the cheerleader of a flawed bill.

The Competition Amendment Bill will not help the 10 million South Africans who are locked out of the economy because of this government’s job-destroying policies. And for that reason, the DA opposes it.