Were you to read the newspaper headlines, you’d imagine that South Africa’s government has, just recently, taken a chainsaw to the bureaucracy slowly throttling the business sector.
“Parks Tau slashes red tape for merger transactions,” said one breathless report in recent days, calling the trade minister’s decision to lift the minimum values under which deals must be vetted by the Competition Commission a “significant relief” for besieged companies.
On the face of it, this isn’t exactly wrong. Until this month, medium-sized companies involved in takeovers or mergers had to seek the commission’s permission if their combined assets exceeded R600m, while for large mergers, the limit was R6.6bn.
Tau has lifted this sharply: up 44% to R9.5bn for large mergers and up 67% to R1bn for “intermediate” mergers. This was such a relief, some critics gushed, because this was “well above inflation”.
Well, yes — but only in the strictly relative sense that Donald Trump could be considered a statesman, or the ANC could be considered the steward of South African moral authority. In other words, only if you take a snapshot at a particular point in time, ignoring context and sprinkling liberally with salt.
The truth is, these increases are far below what they would be if adjusted for inflation.
The first such threshold was introduced in 2001, when large deals of more than R3.5bn had to be submitted to the commission for the green light, and intermediate transactions exceeded R200m.
The levels were adjusted again in 2009 — as merger filings flooded in — with large deals ratcheted up to R6.6bn and intermediate ones to R560m. In 2017, the base for intermediate deals was adjusted to R600m.
This is where some perspective is needed. If you look at what has happened to the economy since 2009, for instance, prices rose by 124%.
So, had the government really wanted to adjust those merger thresholds for inflation, it would have meant that the starting point for large deals would’ve moved to R14.78bn. Similarly, for intermediate deals, the combined assets would have to exceed R1.25bn. (In fairness, against the 2001 levels, Tau’s new R1bn intermediate threshold does exceed inflation.)
The point is this: Tau’s decision to lift the targets is hardly some glorious sign of a renaissance in thinking about the value of business, and the imperative to cut red tape. It is an incremental dilution of the barrier that still leaves our economy, relatively speaking, more constrained than it was 17 years ago.
“Yes, we have seen the thresholds increase, but when it comes to large mergers, it’s a far smaller adjustment when you factor in inflation. And the filing fees have actually increased hugely,” says Ahmore Burger-Smidt, head of regulatory issues at law firm Werksmans.
She says that on the margin, this adjustment has loosened the noose around businesses’ necks, but hasn’t fundamentally lightened the load. And, as she points out, for a large merger, firms have to pay R735,000 in commission fees for the pleasure of having a deal; for an intermediate merger, this fee is now R220,000.
So why is this being hailed as a transformative sign of a less interventionist-minded government now awakened to the need to let business get on with it?
Burger-Smidt says this reflects the innate optimism of many South Africans, desperate for any shimmer of light.
“After living through many years of extremely high hurdles for business to operate, anything that looks like even a small relief is immediately grounds for celebration. And I suppose that is a silver lining,” she says.
None of which suggests that there aren’t real competition concerns. Certainly, concentration in banking, the cellular industry and retailers has raised alarm bells. But the jury is out on whether forcing so many firms to file notifications with the Competition Commission, which can then hold up deals for ages, has altered this power imbalance.
Instead, say critics, it has deterred many investors entirely.
One person whose ambitions have been dashed on the rocks of the competition authorities is Bernard Swanepoel. Back in 2005, when Swanepoel ran Harmony Gold, his hostile takeover of Gold Fields was throttled to death over seven months by the red tape of the Competition Tribunal — before any shareholders even got a say on the offer.
Today, Swanepoel is hardly any less cynical about the authority.
“Over the years, they have encroached deeper into the space that should be occupied by business,” he tells the FM. “Even if you do a small transaction that falls below the threshold, someone can still complain to the commission on ‘public interest grounds’, and it can take months to review everything. By then, your deal is often dead.”
It is this “public interest” category that has proved most confounding for executives. Back in the early 2010s, the government used these “public interest” grounds to wrest a whole series of concessions from Walmart in exchange for supporting its purchase of Massmart. This wasn’t all bad, except that it opened the door to secretive backroom political negotiations between expansion-minded firms and politicians.
Equally confusing was the Competition Tribunal’s decision to initially block Vodacom’s R13.2bn purchase of fibre operator Maziv, despite the parties’ agreement to provide fibre to a million homes in low-income areas and free high-speed internet to 600 schools and police stations. Then, in a dramatic U-turn in July last year, the Competition Appeal Court allowed the merger, with Tau’s support.
Swanepoel says this highlights the lack of predictability in the regime: unless companies have certainty about costs, timelines, and deal rules, they often won’t bother. If anything, the higher deal costs and uncertainty have changed the economics, since buyers will demand a higher return.
“Have we really cut red tape? I’ve seen a lot said about this recently, and I’d like to believe it. But what I’ve seen in the market doesn’t suggest this is the case,” says Swanepoel.
Which isn’t to say Parks Tau did the wrong thing; it was indisputably good for business to hike these merger thresholds.
But like much of the work done by South Africa’s ruling coalition, incremental progress doesn’t get you there — and it doesn’t magic up 8.1-million jobs for people sitting on the side of the road.
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