A new Competition Commission report indicates gambling is skewed

Harare – Key economic sectors in South Africa – including retail pharmacy, gambling and fishing rights – have remained highly concentrated, a new study by the Competition Commission shows, further flagging the failure by certain licensing processes to spread ownership across the sectors.

The report, ’Measuring Concentration And Participation in The South African Economy: Levels and Trends’, notes that out of 144 sectors examined, about 69.5 percent were “highly concentrated”m with 40.3 percent of these classified as “highly concentrated with a presumptively dominant” firm. Only about 9.7 percent of the surveyed sectors “were found to have unconcentrated” markets.

Licensed industries such as gambling, retail pharmacy and others were highly characterized by merger and acquisition activity which has only served to increase concentration in the sectors. The report notes that gambling industry has effectively seen three companies (HCI/Tsogo Sun, Sun International and Goldrush ) “control vast parts of the industry due in large part to licensing and past merger” activity.

“Tsogo Sun and Sun International control over 80 percent of casino gambling and have through mergers and new licenses control of 77.5 percent of Limited Payout Machines (LPMs). Gold Rush’s purchase of Crazy Slots in 2016 helped to strengthen its position in the LPM segment,” – said the report.

In the fishing rights category, the Competition Commission’s study identified that the licensing process, “typically reduces concentration and expands the spread of ownership, but consolidation between rights owners typically reduce that spread” of ownership.

For example, the recent hake in-shore trawl allocation had reduced the top 3 concentration ratio from 66 percent to 48 percent. For rights that have not been re-allocated since 2005, there has been an increase in the concentration ratio from 66 percent to 74 percent for deep-sea hake and from 28-29 percent to 44-45 percent for anchovies and pilchards.

In the retail pharmacy sector, two largest pharmacy chains identified as Clicks and Dischem, “have rapidly grown their market share over the past five years through the acquisition of licensed independent pharmacies and the granting of new pharmacy licenses,” often in shopping malls or convenience centres.

The commission underscored that acquisitions of individual pharmacies typically escape scrutiny as the transaction size falls below the merger thresholds, and might “pose challenges in determining a substantial lessening of competition”.

As per Administrative Tax Data from the South African Revenue Services (Sars), 95 percent of firms in 2016 were small, medium enterprises (SMEs), but they only accounted for 24 percent of turnover. This is compared to large corporates that made up just five percent of firms on Sars books in 2016 yet comprised 76 percent of total turnover. This has been interpreted under the Competition Commission’s report to be reflective of “how concentrated and inequitable” the South African economy is. The report thus shows that South African SMEs have “greater entry and exit rates” than larger firms.

“The skewed economic structure in South Africa is evident from the fact that amongst tax-paying firms, SMEs contribute only 24 percent of total firm turnover relative to the 50-60 percent cited by a recent OECD study.”

Moreover, the skewed economic structure of South Africa’s economy will “constrain employment generation and contribute to household inequality” at a time the jobs market is shrinking.

Source: iol.co.za

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