For South Africans, it may the most important issue facing the 16-month-old government of President Nelson Mandela: how to provide investment and job opportunities for the majority of the population excluded from business under apartheid. The government's controversial answer is a proposed competition law aimed at scaling back the influence of white-run conglomerates that still dominate everything from mining to food processing. Says Pierre Brooks, competition board chairman: "We want to have a level playing field for black and white, local and foreign [investors]."
The government's proposals, still under discussion and not yet public, are already stirring a hot debate. Anglo American Corp., the biggest conglomerate, has warned the government not to threaten business confidence. A lobby group, Business South Africa, fears the government could order conglomerates "to sell `x' and `y' holdings to the following black people, who don't have any money," says its director, David Brink. So far, the government seems to be taking a judicious approach. Sources expect Pretoria to step up penalties for anticompetitive actions and push for spin-offs without directly ordering conglomerates to break themselves up (table). The proposals will be presented to parliament by early next year.
South Africa's economy is ripe for dramatic restructuring. Under apartheid law and international sanctions, the country's white-owned businesses were protected by tariffs and subsidies. Barred from taking money overseas, the cash-rich companies had little choice but to diversify locally. They added to their holdings as foreign companies divested. Today, five conglomerates control about 80% of the Johannesburg Stock Exchange's $225 billion market capitalization, estimates McGregor Information Services, a Johannesburg-based consulting company. They include such giants as Anglo American, with major interests in mining, steel, timber, food, and property, and Rembrandt Group Ltd., which has stakes in banking, forestry, packaging, tobacco, and distilling.
The government's goal is to loosen the conglomerates' grip to allow room for startups owned by black entrepreneurs. It also hopes to encourage spin-offs so that both black and foreign investors can buy into more established businesses. Whether that will be done through tax incentives or a more direct approach isn't yet decided. Another aim is to encourage competitive pricing, innovation, and other strategies to get industry into shape to face international rivals.
To show goodwill and fend off government interference, some groups have already begun to spin off units. Anglo American, for example, has divided its Johannesburg Consolidated Investment Co. into three parts, offering to sell black-owned consortiums two of the units for up to $830 million each. If the deals go through, the new owners would gain stakes in major national newspapers and South African Breweries Ltd., the country's biggest brewery.
"BORN AND RAISED." But the government is expected to push further by requiring companies to disclose cross directorships and investments in each other. It also plans to crack down on price fixing and collusion, enforcing tougher penalties. Says Trade & Industry Minister Trevor Manuel: "Our conglomerates were born and raised under the perverse circumstances of a particularly uncompetitive past."
To be sure, taking on the conglomerates is not the only route to restructuring South Africa. The government is already dismantling tariffs and considering lifting foreign exchange controls to allow companies to invest outside the country. It wants to find ways to boost sources of venture capital. A campaign to privatize state-owned companies may also get under way.
With economic growth running at 3% to 4% this year, and unemployment among blacks a dismal 30%, reshaping South Africa's economy will take years of work. Promoting competition may be controversial, but it's a crucial first step.
Squeezing The Giants
The South African government is developing a controversial law to promote competition and loosen the control of big conglomerates. Key proposals:
-- Strengthen penalties for collusion and abuse of market dominance
-- Create a new independent board to investigate allegations
-- Discourage cross-investments and cross-directorships between conglomerates
-- Allow civil damages for businesses injured by anticompetitive practices