Khula Enterprise Finance & Competition Commission on their Annual Reports 2010/11

Economic Development

13 October 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

Khula Enterprise Finance, a development financing institution, noted that its performance in 2010/11 had been negatively impacted on by the economic crisis. Factors leading to a reported net loss of R85.51 million included lower than usual revenue streams and higher than normal bad debt expense, both of which were due to poor economic conditions. At present, limited financial resources and a restrictive wholesale mandate limited Khula's growth.

Committee members asked a number of questions about Khula's merge with the South African Micro-Finance Apex Fund (SAMAF) and the small business activities of Industrial Development Corporation and the creation of the new Khula Direct. What had been the impact of the merger on the Board and on staff? Questions were asked about the efficiency of the non-bank retail financial intermediaries and micro-financing institutions system. Was it not better for Khula to provide loans to SMMEs and small entrepreneurs directly rather than through these financing entities, some of which were charging very high and unaffordable interest rates? Committee members asked if Khula linked up and worked with provinces and municipalities in their efforts to achieve the objectives of the New Growth Path and in the development of local economic initiatives. To what extent did Khula and the Industrial Development Corporation (IDC) work to coordinate efforts to ensure that there was no duplication of work? Khula reported that it was currently liquid in that it was able to meet its current obligations but it did not have any liquidity for growth.

The Khula board chairperson said ideally Khula should have as many as 100 branches across the country that granted loans from as little as R1000 to R100 000. People should be able to go to these branches to get training and mentoring on issues such as savings. No progress would be made if Khula continued to outsource the problem and work to micro-financing institutions. People from the micro-financing institutions should be trained and employed by Khula to work in Khula offices to help people. This was the approach taken in other parts of the world. If people continued to have to interact with MFIs then he "would bet his life" that nothing would change in the next five years. The additional support that people could get from these branches was crucial. People should not just be given credit but should be educated on how to save too. Khula would reject any proposals that were to the contrary.

The Competition Commission presented information on its caseload and the number of cases currently under investigation, as well as information on mergers approved by the Commission, including the Walmart / Massmart merger. One major settlement was the Pioneer food settlement in which Pioneer had had to pay a fine of R500 million. The Commission received its sixth consecutive unqualified report.

Members asked how the Commission prioritised which cases it took on; about its procedures when receiving and investigating complaints; why it had under spent; its opinion on the possibility of ring-fencing procurement of certain government tenders, such as catering services, to ensure smaller, developing entities an opportunity to secure contracts; what impact the current Constitutional Court case would have on the Commission's work; who would pay the costs for this case; and why the Competition Amendment Bill had not been promulgated. One of the conceptual problems was the courts tended to view the rights of the businesses versus the Competition Commission. This was not the case, instead it was the business on the one side and the consumer on the other.

 

Meeting report

Khula Enterprise Finance Ltd Annual Report 2010/11
Mr Malose Kekana, Khula Chairperson, noted its mandate included the maximisation of access to finance for small and medium enterprises (SMEs); to maximise its development impact and to provide financial sustainability. Highlights for the year included the approval of the Khula Direct business plan and securing funding for the pilot phase of the Plan; the establishment of a Post-Investment Monitoring Unit; strengthening of stakeholder relations; exploring other avenues to secure funding and the repositioning of the wholesale lending model. Khula had also aligned its strategy to the government's New Growth Path.

Khula's performance in 2010/11 was negatively impacted by the economic crisis. Overall performance was also affected by the reduced allocation of capital by the shareholder and reduced lending through Khula's intermediaries, due largely to the economic crisis. The low interest environment negatively affected revenue streams. There was higher than normal bad debt provision, also due to poor economic conditions, and this impacted on profits for the financial year.

Khula received an unqualified report from the Auditor-General. The company's revenue decreased by 13.25% as a result of decreased lending activity. Operating expenditure was maintained by not filling staff vacancies. Provision for bad debt increased by 178.9% because of write-offs of Retail Financial Intermediaries and the impairment of RFI net book values below investment values. The impact of these factors on the bottom line was that the Khula group suffered a loss of R129.09 million before tax, and R85.510 million after tax (due to a deferred tax reversal).

In conclusion, Khula said that limited financial resources and a restrictive wholesale mandate limited its impact and sustained growth.

Discussion
Mr Z Ntuli (ANC) asked how many people and businesses had been mentored and given money by Khula that had been successful. Was it possible to measure this?

Mr Kekana replied that detailed beneficiary information was a serious omission from the Annual Report. Khula did not have this information at present but had disbursed over R1.4 billion over the past five years which had benefited approximately 6000 businesses. Khula would need to submit this information to the Committee at some time. More than 70% of beneficiaries were black African owned businesses and black people and more than 50% of beneficiaries were women. Most people who participated in the mentorship programme were people who received loans from Khula. Longitudinal studies as to the current status of these people had not been done but should and would be.

Mr Ntuli asked if Khula was involved in the Industrial Development Corporation (IDC) task team to consider the use of vacant buildings in industrial parks.

Mr Ntuli said that people in the townships often could borrow money only at very high and unaffordable interest rates. If people from the township wanted to borrow more than R300 000 they could not as they were considered too high risk to lend to. What was Khula doing to assist these people? Ithala Development Finance Corporation was operating in KZN but charged very high interest rates.

Mr Kekana replied that Khula was aware of IDC. Property managers were careful to collect information daily so that it was familiar with what was going on. Khula and IDC would continue to work together to avoid any potential duplication. The entities needed to coordinate their activities as tenants had become quite impatient with the merger and the consequent failure of the Department of Trade and Industry to follow through on promises made when properties were transferred.

Mr Kekana said that one aspect of Mr Ntuli's question related to the issue of giving people adequate mentoring and support to ensure their business success. Khula had found that many tenants of these properties and developmental financing institutions were not receiving mentoring or support from Khula. This was a significant anomaly. It was important to know who was operating in Khula's buildings and that support was being offered to help people run developmental and sustainable enterprises. Khula was looking at how it could offer effective mentoring and ways of linking entrepreneurs to the markets. Many people had excellent products but were not at present able to access the market. Khula could also take a political perspective on its expectations on returns and reduce expectations for returns from township properties, to be less than in towns. Townships needed to be transformed from mere "reservoirs of labour" to hubs of economic activity.

Mr Kekana said that Khula needed to create solutions for development in the townships. A lot of products were being imported for sale into the townships that could actually be produced in the townships. There were therefore a lot of gaps for black businesses in the townships to fill by producing those products themselves and obviate the need to import products. Khula wanted to bias its focus towards this kind of investment and development. Khula needed to focus on setting up offices outside of the towns and in the townships so as to encourage activity in these areas.

The Chairperson asked how, and if, Khula interacted with municipalities in this regard. She had seen a beautiful space being wasted in a municipality that had the potential to be developed into something similar to a waterfront on the riverside which would have encouraged economic activity and would have encouraged people to stay close to this local area instead of seeking work in a nearby town. Sometimes these spaces and other buildings could not be used because of the unaffordable rentals. It was a good idea to lower rentals so that people could make use of local spaces. What was Khula's relationship with municipalities and provincially based public entities in synchronising their efforts to achieving the outcomes of the New Growth Path so that there was no duplication of the work being done?

Mr Kekana replied that there were three key stakeholders in the development of people. The one was the people themselves. The other was provincial government which looked at opportunities from one area to another. The other was Khula and the national government departments. Often, the national public finance entities had a relationship with the people directly affected but did not work with the provinces or local government. This was a serious weakness. He himself had been very involved with municipality issues of late and had realised that there were very good ideas for local economic development at this level but little or no capacity to implement these ideas and initiatives. National strategies were often developed without consultation and consideration of existing initiatives and in a top-down fashion. National strategies needed to be responsive to, and pick up on, initiatives and ideas already developed at the local level. Khula would therefore develop a process of working with the provinces and local municipalities. Instances where Khula had worked with municipalities had been the exception rather than the normal course of business. Mr Kekana said that Khula would also be raising the issue of "supply chain management" with government to look at ways in which local businesses could secure tenders that were long enough to offer SMMEs some stability. A lot of people received tenders whose lives were too short. There were also other public entities, such as Ithala, that Khula Direct could work with so that it did not displace these local development corporations.

The Chairperson said that a lot of mines had been abandoned without having been rehabilitated and were a hazard. The local community could be deployed to rehabilitate mines thus creating jobs in these areas. There were various opportunities in the Free State for resuscitating businesses. These were small projects that Khula could assist with. It was therefore important that Khula worked with provinces and municipalities in these areas. He did not mean that Khula should give funds out to these entities, as the funds would just disappear, but that Khula should work to partner with and support the entities with mentorship.

Mr Ntuli asked how the interest rate charged by the non-bank RFIs was determined.

Mr Khululi Mazibuko, Chief Investment Officer, Khula, replied that the difference between the interest rate that RFI got from Khula, and the rate that it charged its borrowers was about 3%. Khula tried to influence the pricing so that benefits were passed on to people.

The Chairperson asked how the merger had affected the overall day to day running of Khula. On the one hand there was Khula Direct and on the other was the normal business of Khula. What was the role of the Board now that the merger was under way?

Mr Willie Fourie, Acting Managing Director, Khula, replied that the merger had had an impact on capacity. The jobs were getting done but the merger had stretched staff and put extra strain on them. The next step was to appropriately determine new structure and fully staff these structures. Structures should be fully staffed by the middle of 2012 at the latest. Staff uncertainty was a major problem. People feared change despite being given assurance that they would not lose their jobs. Management had possible lapsed a bit on managing this as management itself was uncertain of the process. A "change manager" had been employed to deal with the psychology of the merger and advise Khula on the way forward.

The Chairperson said it would be interesting to get the job description of this person as she had not heard of this position before.

Mr Fourie said the merger had also had positive effects. A closer working relationship had been developed with IDC and Khula had begun discussions with IDC on how it could link in with their projects. A closer working relationship meant that Khula would have better communication with municipalities and local economic development initiatives. As Khula developed new procedures it had the opportunity to learn from and tap into IDC's expertise and also its clients. The impact of the merger was also being felt in a positive way.

Mr Kekana said there were three tiers of SMMEs. Eighty percent of SMMEs were small or survivalist and often unregistered businesses. These were the people with a lot of complaints and who had not been assisted in the last 17 years. Some of them had been driven out of business as big shopping centres moved into their areas. Foreigners setting up businesses had also been an issue for them. These were the realities on the ground that Khula needed to respond to. The second tier, constituting 5-10% of SMMEs, was small SMMEs, who were registered for tax and had capacity to grow. Medium enterprises constituted 5% of SMMEs. Khula needed to consolidate the extent to which it responded to the bottom tier in order to change the face and context within which these black businesses in townships and rural areas operated, leading them to markets. Khula did not have a minimalist approach to this. The new Khula needed to be a serious institution in terms of capitalisation. Mr Kekana felt strongly that government had a big roll to play in terms of granting funds. Government had to intervene to build a large number of SMMEs that would one day become self-sustainable.

The Chairperson said that government was investing a lot of money in micro-financing institutions (MFIs) but the problem was with how they used this money. Khula and South African Micro-Finance Apex Fund (SAMAF) did not have direct links to the people but were linked to the people through MFIs which were gaining a lot of money from the interest they charged. Some of them were charging as much as 40% interest. For example, there was a group of women in Khayelitsha who were selling clothes but who could not make a profit because everything they earned had to be paid back to the MFI. Khula was operating through MFIs but what were these MFIs doing with the money? Why could the money not be given to the people who really needed it? The Chairperson wished that Khula Direct could come up with a model to overcome these challenges.

Mr Kekana replied that ideally Khula should have as many as 100 branches across the country that granted loans from as little as R1000 to R100 000. Women, such as the ones mentioned by the Chairperson, should also be able to go to these branches to get training and mentoring on issues such as savings. No progress would be made if Khula continued to outsource the problem and work to MFIs. People from the MFIs should be trained and employed by Khula to work in Khula offices to help people. This was the approach taken in other parts of the world. If people continued to have to interact with MFIs then he would bet his life that nothing would change in the next five years. The additional support that people could get from these branches was crucial. People should not just be given credit but should be educated on how to save too. Khula would reject any proposals that were to the contrary.

The Chairperson agreed that people needed to be deployed and that desk-top managers were a problem. The Committee would follow up with Khula on these ideas. There were some people in the poor, rural areas that were able to save, so it was not true that people in these situations could not save. People needed to be encouraged to save, as it was possible.

The Chairperson said there seemed to be too many resignations at Khula in 2010 and asked what the reasons for the resignations were.

Mr Kekana replied that most resignations were as a result of the changing Board. Only two people had resigned from the newly formed Board. Staff resignations had occurred as a result of the merger too.

The Chairperson said they had heard from SAMAF that many people had left because of the uncertainties accompanying the merger.

Ms Tsotetsi asked if Khula had sufficient capacity. Was there sufficient capacity for Khula to deliver as it has planned? Two pilot projects had just been established in East London and Tshwane. Were these fully capacitated? In order to do the oversight on these projects, the Committee needed the relevant time frames and objectives of the projects.

Mr Ntuli asked if these projects fell away because of the merger or if they were going to continue under the merger.

Mr Kekana replied that these pilot projects were a very big part of the merger and so Khula would be continuing with them.

The Chairperson asked if Khula was liquid. Did Khula need more money for Khula Direct?

Mr Kekana replied that Khula Direct was undercapitalised and needed funds to grow. It was discussing this with National Treasury and IDC. Currently, Khula was liquid in that it could meet its current commitments but had no liquidity for growth.

The Chairperson responded that they would discuss this again during the first and second quarterly reports.

The Chairperson congratulated Khula on consistently producing unqualified audit reports.

Competition Commission Annual Report 2010/11
Mr Shan Ramburuth, Commissioner at the Competition Commission, presented the number of new complaints received from the public, the number of cases investigated and the number of cases carried over from the previous year. The four priority areas of the Commission and the respective major cases being dealt with were the food and agro-processing sector (Pioneer settlement); the infrastructure and construction sector (fast track settlement process); intermediate industrial products (Sasol settlement) and the financial services sector (banking enquiry). The Pioneer food settlement was R500 million. Pioneer had also agreed to adjust its pricing of flour and bread to reduce its gross profit margin by R160 million and increase its capex by an additional R150 million.

The Commission approved 200 mergers without conditions and 14 with conditions attached while two intermediate-size mergers had been prohibited. Anticipated job losses from mergers involved 2775 employees. These were mainly as a result of the Metropolitan and Momentum merger (1500 employees) and the Rhodes Foods and Del Monte Fruit merger (1037 employees). The various issues raised by the acquisition of Massmart by Walmart, such as the possible impact on employment and the effect of Walmart's procurement strategies on local manufacturing, were presented. The Commission had recommended approval of the large merger given assurances from the companies to honour union agreements, abide by labour law, and source products locally.

The Competition Commission had participated in a number of international forums on competition law and practices and had received impressive international recognition. One example was the Commission was awarded 'Agency of the year' in Africa, Asia and the Middle East by the Global Competition Review. The Commission had collaborated with a number of African countries in the past year. One such collaboration was in a joint food project with Zambia and Egypt on vegetable oils, milling, fertilizer and the informal sector.

The Commission's total expenditure for the financial year was R141 million, and total revenue was R162.8 million, resulting in a surplus of R21.7 million.

The top five risks identified by the Commission were: unmanageable caseload; harm to its reputation; undermining of its independence; the under/over spending and mismanagement of funds and the impact of adverse decisions by the courts on the Commission's powers and procedures.

Discussion
Chairperson congratulated the Commission on its unqualified audit report but noted the "matters of emphasis" that needed to be corrected.

Mr Ntuli said that companies involved in mergers had money and were able to pay penalties and continue with their business as usual as long as they still got their profits. How could the Committee and Parliamentarians assist the Commission with closing the loop holes that made it possible for these companies so as to prevent this from happening? How could these laws be tightened?

Mr Ramburuth replied that this was a very hard question to answer because although there were instances in which law could be written more clearly, no matter how the law was written, there would always be a clever lawyer who would be able to come up with a different interpretation. It was only over time, as jurisprudence developed and as courts took decisions, that laws became clarified and loopholes were closed. This was particularly the case with competition law.

Mr Ntuli asked why the Commission had under spent.

Ramburuth replied that under spending was a result of the "fast-track settlement" [for construction firms involved in collusive bidding practices] for which it had applied for additional funding. The difficulty arose when this money came in late and, although everything had been set up, the project started late and all the money could not be spent in the remaining time.

Mr Ntuile asked if the long term effect of mergers on job losses and other factors could be foreseen at the time of the merger. Was it possible to continue imposing and updating conditions on the merged company even after the merger?

Mr Ramburuth said with the law of mergers, conditions could only be placed on a party in relation to that merger. It was most likely that anything that happened in the company after three years would not be merger-specific. A company could not be held to some behaviour indefinitely but only to issues arising specifically out of the merger.

Mr Ntuli asked if government could ring-fence the procurement of tenders to supply public entities, such as catering services, to ensure that smaller, developing entities, that were often unable to compete with the bigger companies, were able to secure contracts. Could certain tenders not be set aside for smaller entities so that government could, in that way, contribute to job growth?

Mr Ramburuth replied that this was a policy issue that parliamentarians and policy makers were entitled to argue for and justify. They would have to argue that there was a certain public interest that made it important that a tender was offered only to a particular class of people. It was most likely however that contracts awarded in this manner would be anti-competitive because they would not necessarily offer the cheapest price at the best quality and with the fastest turnaround time. For most procurers, it was the needs of the receiver of the goods or services that were considered primary and not the needs of the supplying party.

Ms Tsotetsi asked for information about the gender, races and institutional backgrounds of the 14 graduates participating in the graduate training programme.

Mr Ramburuth replied that he did not have these figures offhand but that he could send the information to the Committee.

Ms Tsotetsi said that the Commission should be considered for awards because it had received six years of consecutive unqualified reports.

Ms Totetsi asked why the audit and risk committees were separated and how they would function if they were separated.

Mr Ramburuth replied that the risk committee had been set up as a sub-committee of the audit committee and not as a separate committee.

The Chairperson asked what influenced the Commission's prioritisation of cases.

Mr Ramburuth replied that this was the major strategic planning issue that the Commission had dealt with. In his view, it was the one thing that the Commission did that had helped it become more effective in a short period of time. Instead of trying to do a little bit of everything, the Commission had worked out a set of criteria to identify major priority areas. The Commission decided that it needed to tackle issues that arose in markets that affected poor people such as food markets and pharmaceutical markets. The Commission had factored in from where most of its complaints came and what people were complaining about the most and the kinds of cases previously dealt with by the Commission. It also factored in government policy, such as industrial policy and the New Growth Path so that the Commission could play a role in advancing these policies. The costs of doing business, such as bank charges and telecommunications costs, all of which made the costs of doing business much higher, were also a factor in prioritising cases. The Commission's strategic planning document outlined its thinking behind the selection of priority areas

The Chairperson asked if the Commission had any influence over which areas were targeted with the Fund set up with money received from the Pioneer settlement or if this was left to the Department of Agriculture or the Department of Economic Development?

Mr Ramburuth replied that the funds were to be administered by the Industrial Development Corporation. However, IDC had already worked quite closely with the Commission and would continue to do so as it was the Commission that had put together all the information around the fund. The Commission therefore would have some influence over how the Fund would be structured and disbursed to businesses

The Chairperson said that the Commission had been more successful with cases involving the mergers of bigger companies. What did this mean for our country, especially insofar as small businesses were concerned?

The Chairperson noted that the Commission had set up a 5% provision for the possibility of not succeeding. Why was the figure 5%?

Mr Ramburuth replied he thought that this figure was very ambitious as litigants in most cases in reality had a 50/50 case. Under the current resource constraints however the Commission had obvious incentives to take on winning cases. This could not always be done up front but often had to be investigated first. Once it was found whether or not there was enough evidence, the case would be taken further. Cases that the Commission did take further, were the cases which it generally believed it had a better chance of winning.

The Chairperson noted that the Commission had taken a number of adverse court decisions about the Commission's powers and procedures to the Constitutional Court. Legal advice said that the Constitutional Court dealt with constitutional matters. How would this influence the cases that the Commission had already researched? Did they have a constitutional basis? The Chairperson said she had heard the Commission say that people might be discouraged from applying as most of their cases would be challenged and they might end up losing faith in the Commission.

Mr Ramburuth replied that the constitutional basis for their application was that the decision of the Supreme Court of Appeal undermined the complainant's right to complain.

The Chairperson replied that some people would argue that the Commission had structured its complaints processes in such a manner that it was unable to win cases.

Ms Wendy Mkwanzani, Chief Legal Counsel at the Competition Commission, replied that the criticisms were not "how" a complaint was made as these processes were detailed in the Competition Act. The applicant could file a complaint, detail all the relevant information and attach a description of conduct. However, difficulties encountered had to do with the content of the complaint. For example, a company could come to the Commission and complain that it had just discovered that its supplier, who was the only supplier the company could buy a particular item from, sold to the company at a higher price than it offered its competitor and so the company was unable to remain competitive. The decision of the court was that the company did not need to know this specific violation and the reasons for it for a fact but could instead come to the Commission saying that he speculated that there was collusion. Often, when a complainant came to the Commission he did not know whether or not real price discrimination was taking place but only knew, through his own understanding of the conduct, that something could be out of order. The Commission should then be able to conduct a full investigation into such a complaint and determine what gave rise to the complaint. Neither the Commission nor the complainant could be expected to know, at the time the complaint was filed, the reasons giving rise to the complaint. In the example given of the company complaining that it was being charged more for supplies than its competitor, the court said that the Commission should then refer to the Tribunal a complaint dealing only with why the company was being charged more than its competitor. If, during the investigation, the Commission uncovered that there was something giving rise to the conduct, the Commission could not refer it unless it initiated the case from afresh. This gave rise to inefficiency in the system. If the Commission took over a complaint, the Tribunal deemed it would limit some of the rights that a complainant had in terms of the Act. When lodging a complaint with the Commission, the complainant had the right to seek interim relief from the Tribunal. That is, the complainant in the example given above had the right to request the Tribunal to prevent the complainant's supplier from charging him higher prices while the investigation was under way. If the Commission took over the complaint at this point because the complainant's complaint had not detailed everything, or "hijacked it" in the words of the Tribunal's recent decision, then the Commission compromised the complainant's rights to interim relief.

The Chairperson said she understood this but reiterated that the criticism was then of this particular process that led to problems. The Tribunal, who the Committee met with yesterday, supported the Commission's case in the Constitutional Court. The Chairperson asked what the Commission did in the case where the Tribunal decided to drop a case because of a technicality. Did the Commission then follow up with this case to correct the technicality? Was it allowed to do so? Why did it have to go to the Constitutional Court?

Ms Mkwananzi replied that it had referred this matter to the Constitutional Court for it to give clarity on it. The Competition Commission wanted the Constitutional Court to deliver its view on how the statute had been crafted and whether or not it had been appropriately interpreted in terms of the standards that had been set for the Commission's complaints initiations and for complaints that are filed by third parties. At the heart of these cases was were these standards not set so high as to deny third party complainants the right of access to justice and to have their complaints determined. If the complainant had to investigate its own complaint to put forward to the Commission, whose task it was to itself investigate those matters, then was the task of the Commission not being completely undermined? This was the issue for the Constitutional Court to resolve. If the Constitutional Court decided that the problem existed with the interpretation of the statute then the Commission would come back to Parliament to re-look at the statute so as to tighten it up so that it properly balanced everyone's interests.

Ms Mkwananzi said that if the Commission waited for the long appellate processes, what should happen is that some cases would have to go to the Competition Appeal Court which would not be able to rule differently to what the Supreme Court of Appeal had decided. Precedent would send the Commission all the way back and the issue would not be resolved because the Tribunal was bound to apply whatever decision the Constitutional Appeal Court handed down and the Constitutional Appeal Court was bound by the decision of the Supreme Court of Appeal. The Commission held that the problem started with the Supreme Court of Appeal's ruling, at least in one of its cases. Also problematic was the way in which the Competition Appeal Court itself interpreted the decision of the Supreme Court Appeal. This meant that the Tribunal would be bound to apply these decisions to any case that came before it which would result in an unworkable situation. The Commission needed the Constitutional Court itself to determine the issues so that the Commission had guidance on cases where courts had made wrong decisions, and set wrong precedents, which were binding on the Commission and the Tribunal.

Mr Ramburuth added some detail saying that a number of cases were determined based on precedents set in that the outcome was known. Such cases should not have to go through all the various courts as this would take a very long time. At stake were approximately 12 cases that, if dealt in such a way, would take years to fix by which time markets would have changed significantly. The Commission did not want cases to drag on for as many as ten years but wanted to be able to respond to current issues as they arose. One of the conceptual problems of the courts when trying to balance out rights, was that the courts tended to view the rights of the businesses that were being "harassed" by a public agency fining them a lot of money on the one side, and the Competition Commission as a public agency on the other. This was not the case, instead it was a case of business on the one side and consumers on the other. The courts were completely silent on balancing the rights of the consumers who were the Commission's complainants. The courts cast the Commission as a bad public agency that was not following procedure properly. A lot of people had asked the Commission why it did not just follow procedure. The Commission's response to this was that it did follow procedure but that the problem was of a different nature. A good analogy that had been written in the newspaper compared the scenario to a patient who went to the doctor and complained that he had an ache in his stomach and told the doctor that it was appendicitis. When the doctor then cut open the patient and discovered that the patient had stomach cancer, he was unable to deal with the cancer simply because the patient had complained that he thought he had appendicitis. Similar to the case of the doctor, the Commission sometimes found the case to be other than what the complainant had stated in his complaint but, because of the processes, was unable to treat the problem that arose.

Ms Tsotetsi said that, in terms of the Commission's legal services, the Commission's ability to cover only the initial costs of receiving and investigating complaints could be seen as tampering with their powers to fight for the victims and was not in favour of the consumers. If the Commission only assumed the initial cost of the investigation then how did the Commission differ from corruption cases which resulted in a number of people being implicated?

Mr Ramburuth replied that this was precisely the point that the Commission was trying to make

Mr Ntuli asked who would pay the costs if the Commission lost its case.

Mr Ramburuth replied that the Commission would have to pay the costs if it lost the case. If the Commission won this last step of the case it would not be liable to pay the costs of the cases that it had lost in the lower courts.

The Chairperson asked what the reasons were for the Amendment Bill having not being promulgated. What were the reasons for this and to what extent did this impact on the Commission's work?

Mr Ramburuth replied that he did not have further information on the Amendment Bill. The only thing that the Commission would find to be the most useful was a "market inquiry" provision which would afford the Commission the powers to understand the market more broadly than the prosecutorial model allowed for. This would add a lot of value to policy making. One of the reasons the Bill was being held up was because some parties had found some provisions to be unconstitutional.

The Chairperson noted that the Commission's consultant fees had increased threefold. What were the reasons for this? Had this been a factor leading the Auditor-General to conclude that there had been irregular expenditure?

Mr Ramburuth replied that consultants' fees were so high because the number of contested cases before the Tribunal and courts had increased dramatically, meaning that more lawyers and economic expert consultants had to be paid. Secondly, in the period under review there were two or three "dorm raids" in which offices had been raided for evidence, involving the seizing of computers and documents. These had required a lot of technical support and extra resources.

Ms Tsotetsi asked what the difference between corruption and collusion was.

Ms Mkwanzani answered that the Commission did not have jurisdiction over corruption as this fell under the jurisdiction of the criminal system. In cases of collusion, there was the potential for corruption to take place. In a case where corruption and collusion were involved, the Commission would only investigate the collusion charge.

The Chairperson stated that both were tantamount to corruption.

The Chairperson replied that the Committee would follow up on the Amendment Bill issue. It would write a letter to the Speaker on this. The staff complement issue was related to the Commission's budget and would have to be raised with the Department and as part of its Budgetary Review and Recommendation Report (BRRR).

The meeting was adjourned.


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