Cartels are seen as the most harmful of the anti-competitive practices because of their ability to significantly reduce competition in markets and their negative impact on consumer welfare. The cost of this practice can amount to billions of Rands.
The survey conducted by the World Bank and the African Competition Forum “Breaking down Barriers: Unlocking Africa’s Potential through Vigorous Competition Policy” identifies five products most affected by cartels in Africa, all of which have been subject to investigation and prosecution in South Africa. These are fertilisers, food, construction materials, pharmaceuticals and construction. The report is based on data gathered from 27 African countries.
A cartel is recognised in the Competition Act as group of formally independent producers whose goal is to increase their collective profits or keep out competition by means of price fixing, limiting supply, dividing up regions, or bid rigging. Cartels usually occur in oligopolies, where there are a small number of sellers.
It is difficult to quantify the cost to the economy and consumers caused by a cartel because a number of variables may have to be considered. But it is possible to get a broad estimate. The report showed that African consumers paid more for products in many cases than those in other countries, usually because of a lack of competition.
It is difficult to quantify the cost to the economy and consumers caused by a cartel because a number of variables may have to be considered. But it is possible to get a broad estimate. The report showed that African consumers paid more for products in many cases than those in other countries, usually because of a lack of competition.
The report said that in most cities in countries selected for research staple food prices including white rice, white sugar, frozen chicken, bread, butter, flour, milk, potatoes and eggs were at least 24% higher than in the rest of the world.
The Competition Commission in its publication “15 years of Competition enforcement – the People’s Account” has estimated, based on a 9.7% the price difference between the cartel period and the non-cartel period, that intervention in the cement sector led to consumer savings in the range of R4,5bn to R5,8bn for the period 2010 to 2013.
South African Local Government Association in a presentation to the Department of Economic Development estimated that the Construction Cartel members over charged municipalities and private companies from 10% to 30% for work done.
Cement producers Afrisam, Lefage SA and PPC were found to have been involved in a cartel in South Africa in which participants allocated market to producers in each province, agreed on pricing of different cement products, agreed to close some cement depots and scale back of marketing and agreements on discounts offered. According the Competition Commission’s complaint referral, the three companies mentioned above and other competitors agreed to collude and divide up cement markets in South Africa, Lesotho, Botswana, Namibia and Swaziland.
When it comes to precast concrete, the Commission has estimated a 51% to 57% overcharge in the Durban area, and 16.5% to 28% increase for Johannesburg.
This figure was arrived at by estimating the amount the cartel overcharged by calculating the difference between the actual prices charged and the price that would have been charged without the cartel (the counterfactual price). These consumer overcharge estimates are very high by international comparison where a survey in the World Bank report found that only five percent of cartels have resulted in overcharge estimates that exceed 50%, and most overcharge estimates are in the order of 15 % to 25 %.
In the 2015/2016 financial year, the largest penalty was R103.98m imposed on Nippon Yusen Kabushiki Kaisha. Nippon Yusen Kabushiki Kaisha and Wallenius Wilhelmsen Logistics AS admitted that they had colluded on prices and divided markets for the sea transportation of vehicles, equipment and machinery. The second largest penalty of R95.70m was imposed on Wallenhuis Wilhelmsen Logistics AS. Nippon Yusen Kabushiki was fined separately for colluding with a company to divide up markets.
The firms customers affected by the collusion with regards to tenders are: Toyota Motor Corporation, Toyota SA Motors, Volkswagen, Volkswagen SA, Nissan Motor Corporation, Daihatsu Motor, Honda Motor Company, BMW SA, Auto Alliance, Volvo Construction Equipment, Ford Motor Company of Southern Africa, General Motors and the Mitsubishi Motor Corporation.
In the case of fertilizer, essential for the growth of the agricultural sector, 58% of the African countries studied have one supplier with more than half the market. The report report says Zambia saw savings of $21m in 2013 from ending a bid rigging cartel.
Boosting competition in food staple markets is expected to have a positive effect on poor people. In South Africa, sanctioning of the cartels in wheat, maize, poultry and pharmaceuticals helped lower the retail prices of these goods that form a 15.6% share of the consumption basket of the bottom 10% of the poor, said Guang Zhe Chen, World Bank country director for South Africa. He said this lifted the purchasing power of the poor by 1.6%, took some 202,000 people above the poverty line, and lowered the national poverty rate by 0.4 percentage points.
- Content and graphics sourced from report by World Bank and African Competition Forum