Corporate conspiracy driving poverty

05 September 2016 - 08:20 By LEONIE WAGNER and GRAEME HOSKEN
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Greedy businessmen in collusion and running cartels are driving millions of people into poverty.

Mother with child begging. File photo.
Mother with child begging. File photo.
Image: Beeld/Alet Pretorius/ Gallo Images

Until this year, businesses caught colluding and fixing prices could only be fined.

The biggest fine issued to date is the R1.5-billion steelmaker Arcelor Mittal was slapped with last month by the Competition Tribunal.

But the new Competition Amendment Act makes provision for managers and company directors to be imprisoned for stifling competition.

The World Bank recently reported on its analysis of four of 70 cartels detected by the South African Competition Commission between 2005 and 2015.

It shows that if cartels operating in the maize, wheat, poultry and pharmaceutical sectors were to be broken up, more than 200 000 people would be raised out of poverty.

Cartels operating in the wheat sector overcharge on products by between 7% and 42%, in poultry [25%] and in pharmaceuticals [between 10% and 15%].

The inflated charges result in price increases in these sectors of an average of 10%.

Products from these sectors make up a large proportion of the expenditure on food of the poor.

"Spending on wheat, maize, poultry and pharmaceuticals accounts for 15.6% of the consumption basket of the poorest 10% of the population," said the World Bank.

Spending on wheat-derived products accounts for the biggest portion of the basic-food costs of poor people.

The World Bank, using data from the South African Income and Expenditure Survey of 2010-2011, said prices inflated by collusion led to poor households having to go without medicines so that they could eat.

In South Africa cartels operate on an average of eight years, the participants usually involved in up to five other cartels in multiple sectors.

"In the World Economic Forum's 2015-2016 Global Competitiveness Report, South Africa ranked 13th among 140 countries in terms of the effectiveness of its anti-monopoly policy."

Its relatively high rating is attributable, says the bank, to the Competition Commission's leniency policy, which provides for whistle-blowers to be given immunity from prosecution.

To date more than 500 leniency applications have been made to the commission.

Although South Africa's cartel detection rate is among the world's best, with 33% of such operations exposed compared to only 13% in Europe, those discovered are the merely the tip of the iceberg.

"The situation is really bad," said Competition Commission spokesman Itumeleng Lesofe.

"There are cartels in almost every sector of the economy. The commission has uncovered cartels in food, infrastructure and construction, automotive, healthcare, financial services and energy."

Lesofe said the commission's leniency policy was instrumental in uncovering cartels because it gave those involved an opportunity to "spill the beans in exchange for immunity".

He said the commission welcomed the new Competition Amendment Act.

In terms of the act, the commission has a legal obligation to refer cases to the Competition Tribunal for prosecution "but we are open to negotiations", said Lesofe.

"We have limited resources and it's not in our best interest to be in court fighting with firms. It's costly and time-consuming."

Simon Roberts, director of the Centre for Competition, Regulation and Economic Development at the University of Johannesburg, said prices in South Africa, as internationally, were generally marked up by 15% to 25% more than if there had been no collusion.

Food pricing expert Merwyn Abrahams, of the Pietermaritzburg Agency for Community Social Action, said a study that looked at the effects of food-price inflation on low-income households showed that last month the cost of their food basket increased by R318.67 compared to last year to R1,942.42 - its highest ever.

"Maize meal was the main driver of food inflation, with the cost of a 25kg bag increasing by 39.6% compared to last year," Abrahams said.

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