Sunday, January 16

Large companies continue to dominate major sectors – CompCom


Large companies in industries such as agricultural inputs, agricultural processing, healthcare, sin industries (alcohol, gambling, and cigarettes), and communications continue to enjoy a high concentration of ownership and dominance over certain sectors of the country’s economy, despite from post-apartheid efforts to unbundle clusters and the enactment of the Competition Act of 1998, which was intended to help introduce new players.

This is in accordance with the findings of the Competition Commission’s first Concentration Tracking Report, which seeks to measure levels of concentration and participation in the South African economy. It was released on Tuesday.

Moneyweb Insider Gold

Join heated discussions with the Moneyweb community and get full access to our market indicators and data tools while supporting quality journalism.

R63/month or R630/year

SUBSCRIBE NOW

You can cancel anytime.

According to the report, 69.5% of the 144 sectors of the economy are still highly concentrated by large companies, and 40.3% of these sectors are reportedly dominated by a single company.

And less than 10% of the country’s economy sectors have managed to have decentralized markets since the dawn of democracy.

To gain insight into ownership levels and trends in the SA economy, the study uses data collected from more than 80 organizations, such as the South African Revenue Service, Statistics SA, and the commission itself.

The big shot will continue to grow

One of the key findings is that markets that are already highly concentrated tend to be more likely to see an increase in concentration in the future.

“What we found was that, when tracked over a five to 10 year period, highly concentrated markets with one dominant company were three times more likely to have seen increases in concentration during that period than decreases in concentration.” said James Hodge of CompCom. Chief economist.

“This is in stark contrast to unconcentrated or moderately concentrated markets where there is a greater likelihood that they will become less concentrated over time,” he added.

The study noted that the agricultural inputs, agricultural processing, sin industries, healthcare, communications, upstream steel value chain and financial services sectors have seen increases in concentration over the past five to ten years.

Barriers to enter

The report said that the increase in concentration in already highly concentrated sectors is consistent with notions that dominant companies maintain their dominance by instituting exclusionary entry barriers that mark new players and make it difficult for them to succeed in their sectors.

Read: CompCom cracks down on domain abuse

To alleviate this, the report called for measures to reduce ownership concentrations and begin to shrink in markets with dominant companies.

“The finding also suggests that proactive measures are needed to ensure that markets are not concentrated in the first place. This could require greater vigilance in merger control, ”the study noted.

Markets continue to close SMEs out

The Concentration Tracker Report also indicated that the economy is experiencing considerably low levels of participation in concentrated sectors.

Compounding this situation is the relatively higher exit rates of small and medium-sized enterprises (SMEs) in recent years.

According to the report, SMEs between 2012 and 2015 saw an average exit rate of 8% compared to large companies, which recorded an exit rate of only 3% in the same period.

SMEs simply don’t stay and stay in business long enough, and the report notes that SA’s stagnant economic growth over the past five years, as well as existing barriers to entering concentrated markets for SMEs, are largely the culprits of this part.

Read: South Africa’s economy shrinks 1.5% in Q3, more than expected

Trade, Industry and Competition Minister Ebrahim Patel said that while the report has been helpful in gathering data that presents a sobering picture of who owns South Africa’s economy, this is not an opportunity to hit big business. .

“If we look at economic concentration, we don’t see this as an argument against big business,” he said.

“South Africa needs great local players who can be our champions in global markets, [players] that they can produce goods at competitive prices and available to South Africans, ”added Patel.

Instead, the minister said the report should be seen as a source of information on how concentration in sectors has kept SMEs out of markets and consequently affected economic growth rates and limited job creation. .

Going forward

In an effort to lower concentration levels, CompCom has made several recommendations throughout the report.

Some of the key recommendations relate to reforming competition policy in the public sector, increasing funding and support for SMEs that will help ensure success, as well as gaining support and buy-in for transforming markets. from the private sector.

The current report, which serves as a baseline report, will be updated every two years with new data to track concentration and participation levels and trends.

Read: Proposed ‘radical’ and ‘far-reaching’ Competition Law changes


www.moneyweb.co.za

Leave a Reply

Your email address will not be published. Required fields are marked *