Two myths about the economy

Ben Levitas takes issue with the view that 'over-concentration' and the 'skills shortage' are responsible for our malaise

When President Cyril Ramaphosa appointed Trudi Makhaya as his economic advisor, she is reported to have laid the blame for our new ailing economy on a lack of competition (or on over concentration which favours conglomerates) and on a lack of skills to unlock development.

These oft expressed sentiments by economists and commentators have become widely accepted as uncontested truths.

According to Makhaya, a former deputy head of the Competition Commission these are the main issues that continue to constrain the economy: “We have some great companies, but in in general I don’t think the environment for doing business is all that great.”

It has often been argued that our banking system is too concentrated in the hands of four major players, yet I would counter that this has not stopped new entrant like Capitec from making huge inroads and really shaking up the industry, or Investec and more recently Discovery Bank. Relative to the size of our economy, I would contend that we have a highly efficient and competitive banking and financial system.

The mining industry was heavily concentrated in the hands of Anglo-American, which at one stage prior to 1994 controlled over 75% of the capitalisation of the JSE. The situation now is much more fragmented and decentralised.

If we are to rectify our economy and attract the $100 billion in investment into the country over five years, that we need to break the recession into which we have fallen, we need to be clear about what the issues or problems are, and I beg to challenge these widely held opinions.

While the Competition Commission has an undoubted role to play, particularly in eliminating collusion between suppliers to elicit higher prices, I contend that it has been too fervent and punitive in its fines, and that the damage caused has in fact had the unintended consequence of weakening the players and reducing competition even further.

The local construction industry was well served by many technically strong, well-financed companies of international repute, such as Murray & Roberts, Aveng, Group Five, Steffanuti Stocks, WBHO and many more. Today the construction industry is in turmoil and falling into ruin. Almost all these firms are losing money hand over fist and have shed huge reserves of skills. Playing an undoubted role have been both the overzealous fines following the 2010 World Cup collusion debacle and, I would be so bold to allege, corruption in the awarding of tenders to comply with unintelligible BBEEE demands. This has allowed unqualified new entrants into the market offering lowered standards of delivery. The human cost in terms of lost jobs and skills, in this once highly productive sector, is nothing short of calamitous.

Another industry that has fallen on hard times is the plastic piping industry. This is the industry that provides infrastructure for sewage, sanitation, water treatment and reticulation. It was once served by mighty companies such as Marley, Main Industries, The Dawn group and so on, all trading with revenues of billions. They were also implicated by the Competition Commission in collusion and required to pay heavy fines. Even though this was a fitting and proper recourse for collusion, the consequence has been that scarcely any of these powerful manufacturers have survived and competition and even continuity of supply has suffered irrevocably as a result.

Where the Competition Commission could have been more active, was with State Owned enterprises, particularly SAA, where it was largely absent. This allowed SAA to compete on an unequal playing field, subsidised by taxpayer funds, while it competed unfairly against privately funded companies. Had the Commission intervened timeously, many millions of Rands of state funding could have been better diverted into more productive areas.

Stated bluntly, state intervention has played a significant contributing factor to reducing competition. I however contend that in almost every sphere of private enterprise, where government interference is absent, there are enough players to ensure that there is sufficient competition.

Regarding skills, there is now an abundance of construction skills and manufacturing skills available, from the pool of all these people who have lost their jobs in these industries. Granted many of these skilled people are now older, but they could be harnessed to train the younger generation. I dare say, this is where government energy should be focussed.

Unfortunately, training young people in artisan skills is an area that the government has not crowned itself in glory. The government absolved itself of the responsibility of training artisans and passed the buck to private companies through the SETA system, which has been an abysmal failure. I’m assuming that this is what Makhaya meant when she said that; “Most companies would achieve far more if they didn’t have to work so hard on the people they got.”

In conclusion, to get our economy back on its feet again, let business get on with what it does best, competing with other companies to offer the products and services that they sell on the most competitive terms and reduce government intervention to a minimum. We have sufficient skills and we have sufficient competition to compete against any economy if only government provided policy certainty!