The recent revelations by the Competition Commission on the fixing of bid-offer spreads in foreign currency markets fingered 17 banks. In the political imagination of South Africa, these revelations intersect with increasing calls for financial liberation, the resuscitation of the Bankorp lifeboat scandal and calls to open up the banking sector. Cartels and collusive behaviour are not only prevalent in foreign exchange markets (often seen as far removed from the layman, although the exchange rate as a price has an impact on general prices in any open economy. Least of all an import intensive economy like ours – so it matters).
What does the relevant legislation, the Competition Act of 1998, say about cartels or “restricted horizontal practices”?
Section 4(1)(b) of the Competition Act provides:
4. Restrictive horizontal practices prohibited
(1) An agreement between, or concerted practice by firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if –
(b) it involves any of the following restrictive horizontal practices :
(i) directly or indirectly fixing a purchase or selling price or any other trading condition;
(ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services”.
The Act goes further in its “prohibited practices” to include “a contract, arrangement or understanding, whether or not legally enforceable”. The latter is important, as much of the collusion is not written down in contractually binding documents, but rather under the guise of prayer, on Whatsapp-like instant messaging platforms and in lively pub banter. This may also account for why many firms are quick to isolate this “corrupt” behaviour as isolated market conduct of their employees and not as firm-sanctioned behaviour (even though the bottom line of the firm ultimately benefits).
When Elsies Rivier businessman, Imraahn Ismail-Mukaddam, simultaneously received letters from three bread distributors warning of a price increase, he correctly realised that something was fishy. Rises in the price of the bread, as any small retailer would tell you, should be expected. However, what isn’t expected is the sequence and timing of the rise. Was this an outcome of the crystal ball of a shared fortune teller or Keynesian animal spirits? Neither.
It was an outcome of collaborative, corrupt and anti-poor behaviour by a group of bakeries between 1994 and 2006. The Competition Commission found that among others, Tiger Brands (Albany), Premier Foods (Blue Ribbon) and FoodCorp (Sunbake) had been involved in a collective conspiracy to fix the increases on the price of bread, and more important, the timing of those rises. The fixing included closing down certain bakeries (probably to restrict supply), raising bread prices on the eve of Christmas, and distributing no bread at Christmas in 2006. The meetings to collude happened in many shared spaces; pubs, game ranches and even in kerk vergaderings (church meetings) in the NG Kerk in the Free State. That we don’t refer in our daily conversations to such market conduct as corruption speaks volumes about the sponsorship of particular narratives in the public conversation. Collusion is corruption, finish and klaar.
The reality is that collusion is not only done for fixing the prices of rands for dollars (and vice versa) by men in nice suits in the trading desks of the world. It is also done, like in the case of bread, in church meetings by God-fearing, profit/margin loving men. The entire episode reminds one of a Bible verse which received much prominence in Parliament recently (thanks to one Hon. Luzipo) in the Book of Mark, chapter 11 verse 17;
Wayefundisa, esithi kubo, Akubhaliwe na kwathiwa, Indlu yam iya kubizwa ngokuba yindlu yokuthandaza iintlanga zonke? Ke nina niyenze umqolomba wezihange.
(And as he taught them, he said, “Is it not written: ‘My house will be called a house of prayer for all nations’? But you have made it a den of robbers.”)
So the 17 banks fingered in a recent probe may have used instant messaging to fix prices and not a kerkvergadering, but this behaviour is not new and mirrors that of the bread and milk producers. Others have done it in other, more life-threatening parts of the commercial chain. What it does remind us though, is of a few lessons, least of which is that the South African political economy is a minefield (or a den) for corporate robbers.
We need in our public discourse (the media is often at fault here) to undo a narrative that prioritises public sector corruption at the expense of leaving corporate collusion untouched. One is not saying let us not look at the public purse and wanton corruption there, but we should look at the private sectors’ activities as well. We can and should do both.
Second, this episode reveals the lack of organised and sustained consumer advocacy (especially in the black community) over market conduct. Politicians , as the ANC saw in August 2016, are punished at the ballot box every few years; and enterprises found for bad conduct should receive the same treatment if we are to vote with our wallets; but we often don’t. It took Ford nothing short of a year or so to respond to the reality that their cars were burning, in independent cases of overheating on the same models. The same corrupt market conduct was found in the construction cartel that milked the building needs of the 2010 football spectacle.
Third, there is something problematic with how we have conceptually framed empowerment and/or transformation, which has focused on proxy ownership through trusts, special purpose vehicles; a very entry-ist approach to existing economic interests without creating new ones among black people. A new approach is needed that recognises that established businesses are not going to voluntarily do three things that should be at the centre of our efforts:
Last, as progressive forces, it is important to understand how regulation works. It is often cringeworthy to hear progressive organisations misidentifying the roles of key institutions, even in justified angst in response to some of these challenges. An example of this is the proposed Twin Peaks regulation. The Twin Peaks model of regulating the financial services sector will see the creation of a prudential regulator (regulating banking reserve requirements and other systemic risk mitigation) and a regulator looking at market conduct. The former, it is envisaged, would be housed within the Reserve Bank, and the latter would sit with the Financial Services Board (FSB), which will be transformed into a dedicated regulator of market conduct. As Minister Pravin Gordhan noted in his Budget Speech last week;
“…there is evidence of a collusive culture at trading desks in banks. It is precisely to deal with such abuses that we have proposed a dedicated market conduct regulator, and we hope Parliament will pass this Bill as soon as possible. Collusion must be stamped out whether it is in banking, construction or the bread industry…. (also) more needs to be done to broaden access through more affordable financial services, improve market conduct, ensure employment equity at top management levels, provide procurement opportunities and transform ownership.”
With regard to the latter, it is notable that the minister also mentioned that three new banks had been granted provisional licences and two new stock exchanges (ZAR X and 4AX). We are told that the business models of these new entrants will be based on technological innovation which has “the potential to bring services more cost-effectively to more people”. It is also time to question our assumptions about what an “ideal and competitive” banking sector looks like. On the continent, one finds an array of banking institutions at all levels; national and community level banks, mutual societies, building societies, credit and savings unions, inter alia. So there is no real justification behind the insistence by some that the big four banks and their market control is the ideal state of affairs in our market.
We need to think in more subversive and innovative ways, and speak meaningfully to and of power. If we don’t, we will join the chorus that strengthens the manufactured consent that makes us believe that the South African way of shouting from the rooftops about public corruption while silent or misnaming private sector corruption. We will also sponsor the narrative that four banks bank us all, three ICT players connect us all and four millers feed us all, is the best way. We do so (wittingly or unwittingly) while letting the seemingly God-fearing but clearly profit-seeking among us make South Africa “umqolomba wezihange” (a den of robbers). DM
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Ayabonga Cawe is an economist by training, and aside from a short stint as a researcher at a government agency, he has never been a disciple of market doctrine. He speaks and writes on history, political economy and public policy. A pan Africanist, he earns his keep in the development sector as a project manager, but is often found in watering holes of the city, camera in hand holding court with other restless youth of different persuasions.
"We spend the first year of a child's life teaching it to walk and talk and the rest of its life to shut up and sit down. There's something wrong there." ~ Neil deGrasse Tyson