Competition Commission & NCC’s contribution to government’s COVID-19 response

Meeting report

Briefing by the Competition Commission (CC)
Mr Tembinkosi Bonakele, Commissioner, CC, said that it was well-known that Covid-19 was a huge public health challenge but it also presented significant economic and social challenges. There was likely to be increasing numbers of corporate mergers, so competition regulation would need to be re-focused to promote access to markets by small and historically disadvantaged firms, and protect consumers and businesses. The CC had been working remotely since the start of the lockdown. It had been prioritising work on regulations, block exemptions, investigations, mergers and advocacy.

Mr Bonakele explained that the regulations on excessive pricing prohibited any increase in the price of essential goods such as food and medical supplies that could not be justified by a corresponding increase in the input costs of these goods. Block exemptions had been granted to assist five sectors: healthcare, banking, retail property, hotels and wholesale liquid fuel. The Commission had received 1354 complaints or tip-offs since the start of the lockdown, mostly from Gauteng, and mostly related to excessive pricing of basic food products, masks and sanitizers.
He discussed four completed investigations including the investigation of Dis-Chem Group. The Commission encouraged firms to reach settlements in order to speed up the processing of excessive pricing cases. In most settlements, firms had undertaken to correct prices and make a donation to a public interest organisation or the Solidarity Fund that exceeded the excess profits earned. It was not practical to refund consumers, however. The Commission was monitoring the price of food: the price of bread was expected to increase because of the higher price of imported wheat, but the maize price was expected to drop thanks to a bumper crop, and the price of fresh produce was already dropping in response to lower demand from restaurants.

In its non-Covid-19 related work, the CC was assessing the acquisition of mobile network operator (MNO) Cell C, silo storage provider Suidwes and mining company South32. Settlements with MNOs Vodacom and MTN had been arranged, reducing the cost of data by up to 30%. The Commission had also introduced the idea of lifeline data and zero-rating for public interest purposes. Regulations restricting the abuse of power by dominant suppliers had been published and a settlement had been reached which would see Pick ‘n Pay and Shoprite Holdings phase out exclusivity clauses in their leases, bringing in competition from independent retailers.

Discussion
Mr M Cuthbert (DA) asked for the CC’s projection for inflation in 2020, given the South African Reserve Bank’s (SARB) projection of 3.6%. Was the Commission’s projection in line with the SARB?

Mr Bonakele replied that the CC did not project inflation independently, it followed the SARB projections.

Mr James Hodge, Chief Economist, CC, added that the Commission was monitoring inflation in food and other basic items.

Ms Y Yako (EFF) commended the CC for its actions against the major supermarkets. She suggested that the Commission should monitor social media more closely, as that was where most complaints were expressed.

Mr Hardin Ratshisusu, Deputy Commissioner, CC, replied that the Commission’s social media presence would be expanded.

Ms Yako observed that there was excessive pricing in many areas, such as cellphone accessories, which were beginning to trade again as the lockdown regulations were lifted.

Mr Hodge replied that the focus had been on essential items but other industries would be monitored too.

Ms R Moatshe (ANC) asked how the penalty imposed on Mopani Pharmacy in Mbombela compared to the extra revenues generated by excessive pricing.

Mr Ratshisusu explained that generally, penalties fully recovered the extra revenue and added a fine.

Ms Moatshe asked what lessons had been learned during the lockdown and what measures it would implement going forward.

Ms B Mathevula (EFF, Limpopo) asked the CC to investigate the price of maize in Vuwani, Malamulele, Vhembe and Giyani municipalities.

Mr Ratshisusu replied that the food price was being closely monitored. He noted that it could take investigators some time to gather evidence due to the lockdown.

Mr Hodge added that there had been an increase in maize prices going into May due to stock shortages, but a bumper crop was expected to bring prices down dramatically.

Ms J Hermans (ANC) commended the CC for its work. The pandemic had shown that it was possible to speed up the delivery of government services. She observed that in some excessive pricing cases, such as Main Hardware, customers were refunded, whereas in other cases they were not. Could the Commission explain the inconsistency?

Mr Ratshisusu replied that the Commission was continually refining its response to excessive pricing. The Main Hardware case was an early case. In future, for consistency, donations would be requested, in addition to a penalty.

Mr W Thring (ACDP) welcomed the settlements with MNOs to reduce the cost of data and with supermarket chains to end exclusive leases. He asked for clarity on the 20% cap on excessive pricing corrective action: if it was a cap on the penalty, it was very minimal.

Mr Bukhosibakhe Majenge, Chief Legal Counsel, CC, explained that the basis for the 20% gross margin cap that the Commission imposes as a remedy in the settlement agreements comes from the pre COVID-19 gross margin. Before the onset of the pandemic and the declaration of the national disaster, this is where the gross margins for these essential products were. Post this; there was a very sharp escalation of that margin. “That is a benchmark of that we have based on what prevailed in the market before covid-19 hence the 20%”.

Mr Bonakele apologised in advance if they had missed any of the questions but he believed his colleagues answered the questions comprehensively. On this last matter, the short answer on whether this was a cap or a percentage reduction is that it is a cap as explained. He further emphasised that, “when we say we want to avoid duplication between CC and the National Consumer Commission, we are not suggesting that there will never be investigations that may be pursued by the same company against the two agencies if there are in fact sufficient grounds to do so because both these institutions do have a statutory mandate to discharge. But we do this is in a cooperative and responsible manner”.

Mr Bonakele noted that there were many questions on organisational issues and about how the CC is working. We have had to shift people from existing programmes to focus on COVID-19 so the 75 that Khanyi was mentioning is not people who were ready standing waiting for COVID-19 cases. Our screening unit is only about 5 people but with this we had to ramp this up by asking people from other divisions to stop what they are doing and focus on turning around these cases quite quickly.

Mr Bonakele said there are big picture issues we might not exhaust Chair because they are really debates rather than questions. For example, some of the questions from Honourable Macpherson about what happens post COVI-19 in terms of airlines and other sectors of the economy is going to be interesting to watch. My own view is that we have both a market problem i.e. conditions in the market now that may lead to higher prices but we also have a structure problem where you are going to have concentration and concentration usually results in higher prices so that is something also that the CC has to watch very closely. Similarly, Honourable Mulder raised a question about what happens to mergers that are in a way forced by COVID-19 constraints. That is a very difficult question and we are discussing it. What happens to jobs? Balancing between allowing a certain level of concentration just to maintain jobs is going to be tough calls. I don’t think there are ready made answers. I think we can only appreciate the views expressed by Honourable Members and promise to act in the best interest of South Africa. Sometimes it is the case that we have to relax competition rules because there are other public interest issues that are important but we should never lose sight of the benefits of competition especially to consumers in terms of prices; to small businesses in terms of their access to markets. In the end, it is a balancing act. These questions about efficiencies and turn around asked by members are questions that commissioners ask all the time. On average we take about three years to complete an excessive price investigation. We have asked our people to complete these investigations in a week. Everybody has had to change completely. This in fact is shocking companies. When we give them 48 hours to respond to excessive pricing charges; that is a huge ask. So the turn around is not only a constraint on the Commission but also complaints from the respondents. In fact I am expecting some of them to appeal the Tribunal decision just on the basis of time that they have to respond to these. The balancing is not an exact science. Overall, we should be happy that the inflation in SA is low. Without claiming all the credit for that, the early interventions by the CC and consumer protection authorities, we have been able to send a message. The situation is not perfect but the numbers coming from Stats SA on the inflation are a testimony to this and is encouraging

Mr Bonakele said “we do know that prices do go up sometimes and Honourable Mantashe raised this point that when they go up what do we do? Do we say this is input costs or imported inflation? No, we dig deep. We get into the details to understand what was the percentage of that input cost increase and what is the percentage of the actual price and what are the margins and what has been the change in the margins over that period of time. We have technical teams working with our prosecuting teams to make that when we decide to bring a case it is a solid one and also to make sure people don’t pool wool over our eyes”.

Mr Thring observed that the both the CC and the National Credit Regulator had investigated Dis-Chem, despite attempts to avoid duplication of effort. What systems were in place to prevent duplication?

Mr S Mbuyane (ANC) appreciated the collaboration between the CC and the NCC. Where they investigated the same firm, did they open separate cases or work together on a single case?

Mr Ratshisusu replied that there was a joint operations team. The CC and the NCC did sometimes investigate the same company, such as Dis-Chem, using the slightly different standards of the Competition Act and the Consumer Protection Act.

Mr D Macpherson (DA) asked whether the CC was looking to extend the scope of the block exemption to other property sectors.

Mr Hodge replied that even with the exemptions, there was still a lot of disagreement between property owners and tenants on how to fairly distribute the negative effects of the lockdown. The Commission had given input to the Department of Trade, Industry and Competition (DTIC) on the extension of the exemptions, especially to help small firms which could benefit from collective negotiation. The exemption already stipulated that property owners make a special provision for small businesses.

Mr Macpherson was concerned about the emergence of a narrative that all companies were profiteering from Covid-19 and called on the Commission to counter this narrative. Airlines, for example, would have to increase their prices because they would have to sell fewer tickets to enforce social distancing.

Mr Bonakele replied that both market and structural forces were behind the expected price increases in the airline sector. The Commission would be watching this very closely.

Mr Macpherson asked the Commission to respond to Dis-Chem’s public accusation that it was being used as a scapegoat.

Mr Hodge denied that Dis-Chem was being scapegoated. The Commission had an obligation to enforce the Act. All major retailers were engaged prior to the regulations coming into effect. It was hoped that averting price increases in the major chains would keep prices stable throughout the whole economy.

Mr Macpherson asked for a report on the total number of cases of different types of infringements that had been investigated.

Mr Mbuyane asked how the measures taken to mitigate the effect of Covid-19 were affecting the CC’s ability to deliver on its mandate.

Mr Mbuyane asked whether Vodacom and MTN had begun to reduce their data prices and implement lifeline data and zero-rating services yet, and was the supermarket chains’ compliance with the non-exclusive lease agreement being monitored?

Ms P Mantashe (ANC) also wanted to know about this.

Mr Hodge replied that the agreements with MNOs and supermarket chains included monitoring provisions, and the Commission was monitoring them directly and indirectly through social media. It was also important to publicise these agreements, especially the non-exclusive lease agreements, so that the public could take advantage of them.

Mr J Mulder (FF+) asked how the CC would assess mergers resulting from the lockdown, especially where new monopolies could lead to job losses.

Mr Mmoeimang (ANC, Northern Cape) asked if the Commission envisaged any interventions to address the expected consolidation of the airline industry.

Mr Hodge replied that the Commission was reviewing its merger control procedures to better manage mergers due to lockdown. In the case of airlines, while the Commission was aware of their problems, it was not difficult to emerge from liquidation and relaunch the airline. The biggest challenge would be to ensure that re-entry was possible. He stressed that many companies would have short-term debt issues even if their fundamentals were sound. In such cases, business rescue was an alternative to a merger. Small and historically disadvantaged businesses were the main concern.

Ms Mantashe asked whether the CC would be able to tell if the rise in the price of bread was justified by the rise in the price of imported wheat.

Mr Bonakele replied that the Commission dug into the relevant data to determine the source of price increase, so it would know what percentage of the wheat price increase could be justified by higher import prices.

Ms Mantashe asked what percentage of South Africa’s wheat was imported. Could the CC intervene in the bread price?

Mr Hodge said that about 50% of wheat was imported. At the moment, stocks were depleted so all wheat was imported. The Commission was engaging with the DTIC on lowering the import tariff, but it was also important to ensure that local farmers still had an incentive to plant a new crop next month.

Ms Mantashe observed that the overwhelming majority of complaints received by the Commission came from major urban areas. Beyond the obvious fact of greater population, why was the number of complaints from these areas so much higher than from rural provinces?

Mr Mbuyane asked whether the Commission’s advocacy efforts had reached all nine provinces.

Ms Mathevula asked how the Commission was reaching out to rural areas. How many investigators did the Commission employ? Did they have plans to open provincial and district offices?

Ms Khanyisa Qobo, Divisional Manager, Advocacy, CC, replied that in addition to the standard online channel for complaints, the Commission had opened an SMS hotline in response to the lockdown which had been well used. The Commission had only one office, which was in Pretoria. The excessive pricing team comprised 75 staff members of whom 47 were investigators. She conceded that there was definitely room to increase the public’s awareness of their rights and methods of redress.

Mr Bonakele added that staff had been shifted in response to the lockdown as different tasks had become more urgent. For example, not all 75 members of the excessive pricing team were originally on that team. The screening unit had also been expanded.

Ms Mathevula asked about what happened after a complaint was laid. How did the complainant receive feedback? She had waited two weeks to get a response from the CC to her complaint about maize prices in Limpopo.

Ms N Motaung (ANC) also wanted to know about how a complainant received feedback.

Ms Qobo replied that it took 3-5 days to open a case and gather further information from the complainant. She apologised for the delays that Ms Mathevula had experienced. It was possible that it was due to an IT glitch.

Mr Mbuyane asked what the turnaround time on complaints during lockdown was,

Ms Motaung also wanted information on the turnaround time for investigations.

Ms Qobo replied that once a respondent had been informed by the Commission about a complaint against them, they were given 48 hours to respond in writing.

Mr Bonakele added that excessive pricing investigations usually took a number of years. Now, investigators were being asked to complete them in a week. This meant that their work changed completely. Expecting a company to respond within 48 hours was also very onerous, and the Commission was also expecting some appeals against its findings.

Mr Mbuyane observed that 35 out of 1354 complaints had been finalised. What was happening with the remainder?

Ms Qobo replied that 697 out of 1354 complaints had been declared relevant. 301 of these had been finalised, with various outcomes.

Ms S Boshoff (DA, Mpumalanga) asked whether the block exemptions were likely to remain after lockdown.

Mr Hodge replied that most of them would be phased out as lockdown ended. It was possible that they would enable co-operative behaviour that could lead to cartel behaviour in the future. The Commission was however working on Section 4 regulations that were co-operative and pro-competitive.

The Chairperson asked any follow-up questions to be submitted in writing.


Briefing by National Consumer Commission (NCC)
Ms Thezi Mabuza, Acting Commissioner, NCC, said that the NCC had advised the DTIC that it expected to see excessive pricing during the lockdown. It had launched a toll-free hotline and after a national radio awareness campaign, it had received 2533 complaints, of which 1618 related to excessive pricing. The overwhelming majority of complaints had come from the Western Cape, Gauteng and Kwazulu-Natal, and an increasing percentage of the complaints concerned food and hygiene products. The NCC had been assisted by Nestle fieldworkers to collect price data, which had been aggregated with data from Statistics South Africa to identify trends. To date, 127 investigations into excessive pricing had been approved and 29 had been completed. 11 out of 29 investigations had been closed, either because a settlement had been reached or no breach of the regulations had been found. She went into some detail on the status of eight matters that had been settled or referred to the Competition Tribunal, including the investigation of Dis-Chem, noting the NCC’s co-operation with the CC in that case. She gave a breakdown of the financial impact and the benefits of the measures taken in response to Covid-19. In total, 4.6% of the NCC goods and services budget had been set aside for these measures. She described some of the challenges facing the NCC under lockdown. These included dwindling numbers of complaints coming from rural areas (which might indicate that their complaints are not being addressed), the difficulty of investigating and ensuring compliance in the informal sector, inconsistency in the enforcement of the regulations in different provinces, and administrative hurdles (for example, the need to attach a physical signature to a complaint when filing it with the Tribunal). She noted that the awareness campaigns needed to go further and suggested the use of community radio. It was also important that all suppliers, including those in the informal sector, were subject to the same regulation in practice as well as in theory. She called for special rules to allow consumers to sign off on a complaint without needing an email address or physical signature.

Discussion
Due to time constraints, committee members’ questions could not be answered during the meeting. The NCC was instructed to supply written responses.

Mr Thring asked what was being done to ensure consistent enforcement of the regulations across different provinces.

Mr Thring asked what was being done to address the problem of investigating the informal sector. The law must apply equally in both the formal and informal sectors. This was especially important since some big companies operated in the informal sector through fronting.

Mr Mbuyane asked what was being done to address the inconsistency in the enforcement of the regulations across different provinces. What were the reasons for the inconsistency?

Mr Mbuyane asked about the status of the investigations that had been approved but not yet completed.

Mr Mbuyane asked who was monitoring the compliance of Mopani Pharmacy with the settlement agreement that had been reached. Would the administrative fine be paid to the NCC or to the Solidarity Fund?

Mr Mbuyane doubted that email certificates would be able to reach many spaza shops in rural areas. How else was the NCC attempting to reach them?

Ms Mantashe also wanted to know what the NCC was doing to reach rural areas.

Ms Mantashe was concerned that there was no reference to any individual small businesses in either the CC or the NCC’s presentations.

Ms Hermans appreciated the NCC’s recognition of the problem of regulating the informal sector, as this sector served the most vulnerable citizens. She hoped that the lesson learned would be that government needed to increase its footprint in this sector to protect vulnerable consumers.

Ms Hermans asked what else the NCC considered to be part of its mandate, other than pricing.

Mr Mulder asked why such a large percentage of the completed investigations were about hand sanitizers and masks, rather than food.

Ms Mathevula asked if the NCC had considered using local radio stations to reach rural areas.

Ms Mathevula asked what the NCC was doing to protect the identity of consumers who lay complaints.

Mr Mmoeimang asked for more detail on the complaints received from the Northern Cape.

Ms Motaung asked what the NCC had learned from operating under the lockdown, and what measures were they putting in place to prevent price hikes?

The Chairperson asked whether there would be time for the NCC to respond to the members’ questions.

Mr Andre Hermans, committee secretary, explained that the meeting would have to be formally adjourned at the scheduled time for broadcasting reasons, but the NCC’s responses could still be heard thereafter.

Mr Cuthbert called for consistency on whether question and answer sessions could continue after the formal adjournment of the meeting.

Mr Mbuyane and Ms Hermans said that the meeting should end at the scheduled time.

The NCC was instructed to answer members’ questions in writing, and the meeting was adjourned.