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SOUTH AFRICA: Price Fixing Can Land Company Directors in Jail

CAPE TOWN, Sep 2 2009 (IPS) - A series of high-profile cases in which big South African companies have been found guilty of fixing the prices of even basic foodstuffs have led to the adoption of a new law that will allow directors and managers to be sent to jail for 10 years or receive a fine of 45,000 euros.

Despite considerable resistance from big business, the Competition Amendment Bill was signed into law this past weekend. This follows a series of scandals in which market-dominant companies formed anti-competitive cartels in various sectors of the South African economy.

One example involves the prices of wheat and flour dropping since June 2008 but the price of bread still staying put. The collusion seldom happens with luxury goods and services but rather with basic foodstuffs, building materials and medicine — items that people need.

On top of this comes prohibitive banking and cellphone costs – all investigated by the Competition Commission of South Africa – that hamper economic empowerment.

In the past few years companies inflating the consumer prices for milk, bread, medicines (through collusive tendering), steel, cement, soda ash, piping, gas, fertiliser, bicycles and local airline tickets have been exposed through the diligent work of the Competition Commission.

This statutory body is empowered to investigate, control and evaluate restrictive business practices, abuse of dominant market positions and mergers in order to achieve equity and efficiency in the South African economy.

Guilty companies have so far been fined up to 22 million euros, paid over to the national treasury. The commission could in the past not demand more than 10 percent of companies’ turnover for the previous financial year and individuals could not be prosecuted. As a result, consumers probably ended up paying the fines through “unavoidable” price increases.

The new law is aimed at addressing these problems, among others by introducing criminal liability for directors and managers who cause firms to engage in anti-competitive behaviour.

“People focus on corruption in the government, but these corporations’ executives are criminals, stealing from the poor. They should be prosecuted,” insisted Prof Jacklyn Cock, of the department of sociology at the University of the Witwatersrand in Johannesburg.

The one direct result of price fixing is probably best put by health24.com’s Dr IV van Heerden. Staple foods, often fortified with various essential vitamins, are vital to the health and productivity of the population but, with ever-rising prices, even basic foods like bread and maize meal are becoming unaffordable to those people who need them most.

“This will probably mean that the gains made in overall nutrition (in South Africa), which were reported at 2008’s Nutrition Congress in Pretoria, will be reversed. This is the real tragedy of the food price-fixing scam,” van Heerden writes.

But despite this direct effect on the poor, few demonstrations have been seen in response to the scandalous behaviour of the corporations.

The law was preceded by critical media editorials and opinion pieces, sometimes in tandem with readers’ letters and text messages, complaining about the collusion. The country’s largest trade union, the Congress of South African Trade Unions (COSATU), also held a protest march in Johannesburg in 2008.

But widespread protest has not been seen. According to Cock, not enough people read newspapers or are aware of how they are being exploited. “Also, the chain of production is obscure and complicated, and people probably feel overwhelmed by the complex nature of corporations,” she explains.

Richard Pithouse, who teaches politics at Rhodes University in Grahamstown, South Africa, says people are outraged about high food prices and are becoming more desperate.

He cites a recent protest in the east coast city of Durban by about 100 members of the South African Unemployed People’s Movement who walked into two supermarkets, ate food and refused to pay for it to highlight the unaffordability of food.

“This wasn’t specifically about price fixing because people don’t always see the link between high prices and price fixing,” he says. “But it is a classic case of civil disobedience – they were organised and willing to be arrested.”

According to him South Africa has an incredible rate of protest when people are directly confronted by injustice – when it’s obvious and the culprits, especially government officials, are easily identifiable.

“At the moment only trade unions and social movements are aware of the price-fixing issue,” adds Pithouse. “The social movements are currently not that organised around the issue because of a lack of resources and the daily crisis they face.”

His guess is that if the social movements (with their hands-on approach) and trade unions (with their access to information and organisational skills) could link up, they could challenge the corporations and take them head on. “Many people don’t have food and other bare necessities, so protests should pick up.”

Recently the Competition Commission initiated a large-scale investigation against the major South African supermarket chains, prompted by concerns raised by various stakeholders and the public.

This entails looking at the concentration of buyer power, long-term exclusive lease agreements, category management (through which one competitor is given the task to manage the placement, promotion and pricing of other competitors’ products, on a category-wide basis) and information exchange.

The commission is concerned that the retailers could be exchanging price-sensitive information, which may have an impact on competition. If so, this case will be referred to the Competition Tribunal for adjudication.

Shan Ramburuth, commissioner at the Competition Commission, says cartels by their very nature substantially eliminate or restrict competition.

“Society and customers suffer as a result. The conduct of the respondents is no different. They have artificially manipulated prices and tendering in such a way that the respondents’ customers were deprived of competitive choices,” indicates Ramburuth.

Last year, delegates at the National Anti-Corruption Summit 2008 strongly supported moves to make price fixing a crime. This has now happened with the promulgation of the Competition Amendment Bill.

But, apart from corporate threats to challenge the act in court, the commission in the past raised some concerns about the implementation of the law in a country which has seen state capacity falter.

The commission’s Nandi Mokoena – who told delegates at the summit that her organisation regarded price fixing as theft – expressed reservations about making managers criminally liable on the grounds that it will weaken rather than strengthen the commission’s work.

She argued that the commission had thus far operated within the framework of civil law, where the burden of proof is less stringent than in criminal law. As the commission lacks the capacity to deal with criminal investigations, this responsibility will fall on an already overburdened criminal justice system.

The change might also discourage firms from making use of the commission’s corporate leniency policy, similar to the plea-bargaining system, which it credits for much of its success. Furthermore, the commission and legal experts worried that the law might not pass the constitutional test, even though they supported the legislation in general.