A recent report published by the South African Competition Commission has been blasted by economists, who call some the data published “misleading”.
The report, entitled “Measuring Concentration And Participation in The South African Economy: Levels and Trends”, painted a picture of a country where nearly 70% of the sectors are “highly concentrated” – in other words with little competition.
144 sectors were examined in the report, which showed that 40.3% of those sectors marked “highly concentrated” fell into the ‘highly concentrated with a presumptively dominant corporation or firm’ group.
Most glaring was the information published about the retail pharmacy, fishing rights and gambling segments.
According to the report, it is because there is such a high level of movement in these sectors – mainly mergers and acquisitions – that competition is low.
Competition in South Africa’s Gambling Industry
Having a quadruple amount of the market share of their biggest competitors, Tsogo Sun and Sun International were mentioned at length in the Competition Commission’s report. Goldrush was also mentioned as one of three companies that “control vast parts of the industry due in large part to licensing and past merger” activity.
The report went on to say that Sun International and Tsogo Sun control over 80% of South Africa’s casino gambling industry.
“Through mergers and new licenses [Tsogo Sun and Sun International] control over 77.5 percent of Limited Payout Machines (LPMs),” the report reads.
It also noted that Gold Rush’s purchase of Crazy Slots in 2016 helped strengthen the group’s position in South Africa’s LPM segment.
Tsogo Sun Gaming, the casino arm of Tsogo Sun is considered one of South Africa’s premier casino and entertainment groups. Its properties across the country include the SunCoast Casino on Durban’s Golden Mile, and MonteCasino and Gold Reef City, two of Gauteng’s most popular resorts.
Sun International owns the region’s most prestigious casino and hotel resorts, its flagship Sun City. Other Sun International destinations include the Boardwalk in Port Elizabeth, Carnival City in Gauteng, and the Cape Town-based GrandWest Casino.
Competition in South Africa’s Retail Pharmacy Sector
When it comes to retail pharmacy chains in South Africa, two names were mentioned in the report: Dischem and Clicks.
According to the report, both these brands, “have rapidly grown their market share over the past five years through the acquisition of licensed independent pharmacies and the granting of new pharmacy licenses.” These types of acquisitions traditionally take place in convenience centers or shopping malls where independent pharmacies were already located and established.
The report was critical of the fact that the acquisition of these smaller, private pharmacies went under the radar and thus managed to avoid tough regulatory scrutiny since they fell under merger thresholds. The result, said the report, was that these smaller acquisitions added to the “substantial lessening of competition.”
Competition in South Africa’s Fishing Rights Industry
The Commission report also turned its attention to South Africa’s fishing and trawling rights category.
In particular, it said that the licensing process in this sector “typically reduces [competition] concentration and expands the spread of ownership, but consolidation between rights owners typically reduce that spread” of rights ownership.
The report gave the example of the recent hake in-shore trawl allocation. It said that this allocation had reduced the top three concentration ratio from the previous sixty-six percent to a much lower forty-eight percent.
Why Economists Aren’t Happy with the Report
While some South African economists agree that there are some parts of the country’s economy which are unduly concentrated, they claim that this is an excuse to impose interventionist legislative decrees that will have the opposite effect of what they hope to achieve. They say that this has been proven in the past two decades.
Also, many market analysts have a problem with the Commission’s method of calculation in its report.
The Daily Maverick uses the South African airline industry as an example of misleading data published in the report:
“The report describes the industry as “relatively concentrated”, particularly on some of the thinner routes,” writes the newspaper. “But nowhere does the report mention that the reason why new airlines are struggling to establish themselves is because the government has been stuffing the state-owned airline full of taxpayers’ cash for the past decade.”
