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Development, politics, competition and bread: Lessons from South Africa

Andrew Myburgh's picture

credit: 10btraveling, Flickr Creative CommonsBread, civil society, bank charges, and Competition Authorities: what do these have in common? The surprising answer is that these elements help explain how South Africa’s Competition Authorities have become a standout success in the country’s economic policy making. Nowadays, competition policy forms a central pillar of South Africa's development strategy, and the South African Competition Authorities command substantial respect and widespread support. A crucial ingredient to this success has been the Competition Authorities’ strategic use of convening power to rally stakeholders, focus public discussion, and deliver tangible results.

This is best illustrated by looking back to a cold winter’s morning in 2007. One of South Africa’s most powerful businessmen walked nervously into the Competition Authorities hearing rooms. He was the CEO of one of the country’s largest companies and had come to admit his firm’s involvement in a bread cartel and consent to pay a fine equal to 5% of his company’s revenues. While the fine was substantial, the reception he received outside of the hearings was arguably more severe. The revelation of what his company had done sparked the ire of the media, consumer groups, trade unions, and other civil society groups. The country’s Human Rights Commission even accused the firm of breaching consumers’ basic human rights, calling the cartel members ’ actions akin to thieves at the dinner table. A few months after the hearings, the CEO resigned.

The CEO’s resignation was driven by a growing consensus in the business community that engaging in cartel activities was scandalous, a reversal for the country’s clubby business culture in which cartels have long been accepted as normal business practice.  This change no doubt reflected the engagement of civil society. An engagement that was so intense it was said that the work of South Africa’s Competition Authorities has taken on the “flavor of a social movement” (D. Lewis, 2012 “Thieves at the Dinner Table: Enforcing the Competition Act”). The involvement of civil society was a testament to the careful work of the authorities’ advocacy teams to educate and empower these groups to become effective champions of competition law and policy. This engagement was only possible because hearings were open to the public. This gave the media and the society a window through which they could see the conduct that firms were engaging in, while the hearings themselves gave civil society groups a point around which they could rally their efforts.

The Competition Authorities put this same approach to good use in the banking sector. In 2006, they carried out an enquiry into retail banking and the national payments system. This included public hearings that resulted in a set of recommendations aimed at increasing competition and strengthening consumer protections. The objectives of these recommendations included protecting consumers from punitive fees, making it easier for customers to move their accounts between banks, and facilitating access to the payment system for non-bank financial institutions. They were not binding and so would only be implemented if other agencies were persuaded of the need for reform. At first it appeared that on this measure the hearings had failed. None of the panel’s recommendations were immediately implemented amidst resistance from established interest groups.  However, all was not lost.

The open hearings had led to a dramatic increase in the public’s awareness of competition issues in the sector. In the years since, this has led to ongoing pressure from the media and civil society for reform. The Competition Authorities themselves have continued to promote the enquiry’s findings in their meetings with government agencies involved in the sector. Like the two points of a bull’s horns, pressure from the Authorities and the public have worked together to push back opposition to reform. This has opened a path towards the slow but steady implementation of the panel’s recommendations. In the last few years the consumer protection issues raised by the enquiry have been taken up by a newly formed Consumer Commission; regulations to strengthen competition between banks are being developed; and the Central Bank is considering wide-ranging reforms to the payment system (Trudi Makhaya, 2012 “Towards a Competition Culture—Advocacy and Outreach in the South African Competition Regime”)

To me, the South African Competition Authorities’ success highlights the power of open hearings, transparency, and effective engagement with stakeholders in helping Competition Authorities effectively enforce competition laws and advocate for competition policy reform. Indeed, this experience shows the strong complementarities between these two activities. They work together to open markets by removing private and public restraints to competition putting Competition Authorities in a position where they can play a role in the design of government policies that affect how markets work.

To learn more about the work that the World Bank Group is doing providing advice to Competition Authorities and Governments around the world, see this link.
 

Thank you to Martha Licetti and Graciela Murciego for their inputs.
 

Comments

Submitted by Jeff on

Innovation is driven by many things. The fastest path is often that which is driven by outside forces that directly impact enterprise profitability as outlined in this article. I'm a student of the retail banking industry and see the same outside forces of change. In several studies on retail banking the cost per transaction on mobile is so much lower than at retail, that banks are starting to rethink how they relate to customers. While different from the situation in South Africa, it points to the dynamics of change and how they shift the way we all behave.

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