Business Day: JOHN DLUDLU: Patel’s move to allow small business co-operation is on the money
The interventions could give these firms a chance to grow in sectors dominated by large firms and anticompetitive SOEs
It is not fashionable to praise SA government ministers, especially trade, industry & competition minister Ebrahim Patel, for their interventions in the economy. But his announcement last Wednesday of a proposal that small firms be allowed to co-operate at times without fear of falling foul of the competition authorities is long overdue and deserves praise.
Over the years Patel has made many enemies, especially in business, due to policies such as the now watered-down push towards localisation-driven industrialisation. His cabinet colleagues have often undermined his strategies, and he hasn’t had much support from the governing party and its political high-ups.
On August 31 Patel invited the public to comment on proposed amendments to regulations contained in the Competition Act. In terms of his proposal, small and medium-sized businesses will be given a block exemption enabling them to collaborate in particular areas in a bid to promote the segment’s recovery and growth.
Permitted exemptions include allowing small firms in a sector to collaborate on joint purchases and selling; collaboration on research & development; collective negotiations with large buyers; commercialisation and standardisation agreements; and production agreements.
This intervention — partly in support of the government’s economic reconstruction and recovery plan — is welcome, and better late than never. It deserves the support of all advocates of a thriving small business segment of SA’s economy.
If applied correctly, with appropriate and rigorous monitoring, these interventions will give small businesses a fighting chance to grow and penetrate sectors dominated by large firms and anticompetitive state-owned enterprises.
Patel’s proposed exemptions, which are likely to be opposed by beneficiaries of SA’s highly concentrated economy, show the benefits of evidence-based policy-making — a rare feat for this government. The amendments were informed in part by a study conducted by the Competition Commission, one of few SA economic regulators that appear to know what they are doing. The study showed the devastating effect Covid-19 lockdowns had on small business.
Patel’s competition law interventions have been a blessing to small businesses. Under his stewardship the anticompetitive brigade has been rattled. For instance, thanks to the work of the commission car owners can now choose where to service their vehicles or have them panel-beaten, a change that has bolstered auto body shops that are largely dominated by small business owners. This has freed them from the clutches of original equipment manufacturers and insurance companies.
Patel’s latest exemptions, which follow the scrapping of evergreen lease agreements, will have a profound transformative effect, greater even than the creation of a stand-alone department of small business development has achieved since its inception.
Apart from his interventionist instincts, Patel owes his competition regulation success to an activist commissioner, Tembinkosi Bonakele, whose tenure ended last week. With Patel’s political support Bonakele has used competition law to force down data prices, clamp down on collusive practices by large firms and open up closed markets.
It is true that all laws and regulations are subject to abuse. But this is no excuse to stop the implementation of these exemptions. By their very nature small businesses aren’t positioned to form anticompetitive cartels that might grow to the point of being able to abuse their dominant power under the watchful eye of the commission and other sectoral watchdogs.
These exemptions also show the progressive application of public interest in competition law — a controversial provision in the law. Two years ago, when the Covid-19 pandemic was raging, the commission allowed a few industries, including banking and health players, to collaborate on a specified basis for a limited period to help soften the hardship suffered by households and businesses. The sky did not fall in. When some retailers and pharmacy stores exploited the pandemic to make a quick but unethical buck the commission was quick to clamp down on this unscrupulous conduct.
The proposed exemptions must be accompanied by vigilant monitoring, and business associations should form part of the economic competition neighbourhood watch to stop abuse.
Unfortunately, Patel’s industrialisation drive hasn’t always been successful, due to the myopic approach of some of his colleagues. A case in point is former health minister Zweli Mkhize’s HIV antiviral tender, issued with a lifespan of a few years. Wittingly or unwittingly, this had the effect of favouring foreign multinationals, which have scale.
Fortunately, a piece of this tender was won by Aspen Pharmacare, SA’s home-grown multinational. A longer tender life, say for 10 years, would have allowed local manufacturers to build domestic capacity with the prospect of tie-ups with small and black industrialists as well as job creation.
The problem is that Patel is just a minister, not a president. His power to get his cabinet colleagues to see his vision is limited. Only his boss, President Cyril Ramaphosa, can lean on other ministers to support the industrialisation initiative.
But that is seemingly a long shot. He has only agreed to a relaxation of localisation requirements in his energy crisis plan, implying that a forceful push towards full-scale industrialisation is a long way away.
Inevitably, there will be resistance to Patel’s block exemptions for small businesses to co-operate towards growth. He shouldn’t balk though. He should stand his ground and consider a longer exemption period — say 10 years — with a review after five years.
This is one of those occasions when the competition law can be used to promote competition, and consumers will be the ultimate beneficiaries.
• Dludlu, a former Sowetan editor, is CEO of the Small Business Institute.
By Business Day – https://www.businesslive.co.za/bd/opinion/columnists/2022-09-06-john-dludlu-patels-move-to-allow-small-business-co-operation-is-on-the-money/