Punished for success in South Africa

The Competition Commission is sending a damaging message to businesses and potential entrepreneurs in South Africa: if you’re too successful, you will be punished.

This is according to legal researcher at the Free Market Foundation (FMF), Zakhele Mthembu, who has slammed the commission’s final report on the Online Intermediation Platforms Market Inquiry, which took aim at dominant players in South Africa’s digital marketplace and services sector.

The report – published at the end of July – found that popular and successful services like Takealot, Google Search, Mr Delivery, and local classified sites, among others, were all dominating their fields and using this dominance to promote or give preferential treatment to their own products or services.

To counter this, the commission ordered that these businesses change the way they operate – sometimes on a fundamental level.

For example, one of the biggest targets in the inquiry – Takealot – was ordered to split its marketplace business from its retail business so that it could not use its position as a dominant marketplace to promote its own retail products.

It was also ordered to remove limitations on third-party sellers where they could not sell their products at a lower price elsewhere.

While arguments can – and have – been made that certain aspects of the commission’s report are fair and could indeed boost competition in the sector, Mthembu said that the commission has gone too far and is instead “killing the golden goose”.

The commission is essentially punishing successful companies for growing and diversifying, instead of boosting competition by addressing government-controlled barriers.

“Instead of looking at obvious barriers such as regulations and legislation that make doing business in South Africa so burdensome, the commission obsesses over business advantages that firms acquire voluntarily through market interactions,” he said.

“The commission then seeks to punish these businesses for having legitimate market advantages. Instead of seeing competition as a process that is constantly unfolding, the commission thinks the market shares that exist at the time of its inquiries will persist forever in the absence of government interference.”

Mthembu said that the main bug-bear of the commission is the aforementioned “self-preferencing” practiced by the the dominant businesses.

However, he argued that this is an entirely legitimate exercise of property rights.

“If a business owner decides to use their own property to benefit themselves; for example, by selling only their own products rather than those of a competitor, how can this be regarded as a bad or illegal activity? After all, encouraging customers to purchase one’s products rather than those of other businesses is the whole point of a market economy,” he said.

The researcher warned that the commission’s stance and findings risks crippling one of South Africa’s most successful – and growing – industries at a time the country cannot afford to stifle growth. In addition, its stance also risks deterring future investment in the sector.

“If businesses can sign contracts, but the regulator can come and invalidate them later, would that country be attractive to capital for investment? Of course not. The Competition Commission is therefore undermining SA’s economic prospects with its ambitious and unjust regulatory actions,” he said.

According to Mtehmbu, the e-commerce sector in South Africa is forecast to grow at a compound annual rate of 11.9% between now and 2027. The projected growth in 2023 is 7.7%. This compares with annual growth projections for the overall South African economy from now to 2025 ranging from 0.5% to an optimistic 1.6%.

South Africa’s unemployment rate was 32.6% in the second quarter, and 42.1% according to the expanded definition.

“It is safe to say we need growth anywhere we can find it, and we should be protecting and celebrating it instead of punishing it as the Competition Commission seeks to do,” he said.

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