K. November

Updated 24 November 2009
* Latest additions

* Government wants more control of gambling
A recent study excluding the national lottery found that the gambling sector contributes 0.93% to total GDP and provides 0.9% of total employment. Provinces benefit from tax revenues from gambling casinos. But the urge to regulate in order to improve citizens’ behaviour is always strong. Trade and industry deputy DG Zodwa Ntuli says proliferation of gambling activity means we are making it too accessible to the poor who may not be able to afford it. “We want to control this.” Minister Rob Davies has put a moratorium on licensing any new gambling activity. He wants to see the outcome of an impact assessment study. Do accessible forms of gambling like the national lottery harm the poor who participate in them, even when it is unaffordable? The hearings relate to socioeconomic effects, misleading advertising, regulation of cross-border gambling and the effectiveness of the regulatory environment. What about freedom of choice? What about caveat emptor – let the buyer beware? In this already overregulated economy, it seems vanishingly unlikely that extra regulation by the state will add value. (BD 17.11)

* Health department ignores rule of law
For the first time in Dis-Chem’s 31-year history, the department of health has denied the group a licence, ostensibly under pressure from pharmacies in the surrounding Port Elizabeth area. The group opened its Cape Road store anyway, only offering toiletries and other unregulated medicines to its clientele. Customers are complaining that they have to pay higher prices for medicine at smaller pharmacies. Operations director Brian Epstein accuses the health department of anti-competitive behaviour and may have to approach the competition commission. One facet of the rule of law requires equal treatment by government of all applicants meeting the specified requirements for a licence. “Based on the extensive research we conduct before we open any of our stores, we conform to the criteria employed by the Department of Health that are used to decide whether or not to grant a licence,” Epstein said. Health department should serve consumers rather than retailers, and should treat all retailers equally. (BR 18.11)

* New electricity buyer is urgently needed
The Ipsa group’s combined heat and power plant in Newcastle stands idle because the company has been unable to sign a power purchase agreement with Eskom. Energy group CIC, developers of a coal-fired power station in Mmambula, Botswana, has been pursuing Eskom for a power purchase agreement, with no success. Independent groups have now put their hopes on the electricity regulations on new generation capacity that energy minister Dipuo Peters published in August. These define how an independent power producer (IPP) and an electricity buyer will enter into a power purchase agreement. Clipping Eskom’s influence, the regulations stipulate that a system operator will be responsible for activities related to procurement. IPPs can build power stations cheaper than Eskom and operate them more efficiently than the power utility. They also have better access to funding than Eskom. The minister’s plans to set up an independent systems operator should be implemented fast. (BD 19.11)

* Anti-dumping duties are a bad idea
European Union trade officials have rejected a plan to extend so-called anti-dumping duties levied on shoe imports from China and Vietnam. Anti-dumping duties are generally a bad idea. There may be a case for protecting an industry of strategic importance. But shoes are less strategic even than yoghurts. If Beijing wants to subsidise European consumers’ shoe habits, by sending footwear halfway around the globe, it should be able to do so. Shoemaking is not an industry with high barriers to entry, nor one where predatory pricing delivers an unfair competitive advantage. Such taxes also encourage retaliation and harm international trade. Their protection encourages producers to focus on rent-seeking rather than on becoming more competitive themselves. Europe and South Africa have traditionally made heavy use of anti-dumping taxes and other barriers to entry. Such murky and capricious trade laws need reform. (FT 20.11)

Constitutional expropriation for Zim but not SA – 17 November 2009
Government is pursuing two different approaches to land expropriation. Trade and industry minister Rob Davis has announced a proposed bilateral deal with Zimbabwe to block further seizures of land and companies’ properties. Expropriation only for public purposes, under due process of law and against prompt and adequate compensation equal to the market value, and the right to prompt review by a court or other independent impartial forum. Meanwhile rural development and land reform minister Gugile Nkwinti discussed recently established average prices of farmland per hectare, hinting that this route would be followed in future in place of the willing buyer willing seller concept. He took a stab at game farmers gobbling up arable farmland that could be used for maize and potatoes. It will be richly ironical if South Africans farming in Zimbabwe gain better protection of their property rights while losing protection locally. (BR 11.11, ST 15.11)

A new international rule of law index – 17 November 2009
The DA monitors 20 international indices. These rank countries in six key areas – governance, economic development, poverty and inequality, education, information technology and global interconnectedness, and the environment. SA is sliding internationally and moved up in only three of the indices – the hunger index, the gender gap index and the mother’s index. The country’s economy is becoming less free and open, the country is deteriorating when it comes to transparent governance and citizens are not provided with a proper education. Now the World Justice Project is organising another index to advance the rule of law, and by 2011 it will cover 100 countries. South Africa does well in various areas and less well in other areas. Mondli Makhanya says government should not treat this new index as it did the African Peer Review Mechanism – our very own brainchild – which we killed because the independent who ran it dared make some adverse findings against our good republic. (BD/BR 12.11, ST 15.11)

Challenging affirmative action – 17 November 2009
Trade union Solidarity is taking ten lawsuits to the Labour Court, seeking to reverse the “practice of putting ideology above service delivery”. Nine of the cases are against the SA Police Service. Solidarity’s Dirk Hermann said the cases not only constitute discrimination against the union’s members, but prejudice the public in general. He said it was common practice for SAPS to leave vacant posts unoccupied or even phase them out rather than hire qualified white people. Affirmative action in the SAPS is incongruent with the government’s plan to prioritise crime fighting. The SAPS practice is gradually being applied at local government level and at Telkom, where AA policies put white people at a distinct disadvantage. Acting Black Management Forum president Tembakazi Mnyaka said the union should seek another argument. Transformation is a constitutional imperative meant to right the wrongs of the past – it is not affirming incompetence. Hermann pointed out that Solidarity would support AA if it was “input focused with the focus on providing training and development to designated groups. The problem is that the focus in on the numbers.” (BR 13.11)

Another cartel exposed – 17 November 2009
Until 1996 a lawful cement cartel existed and was regulated by exemptions to the competition legislation. In disclosures to the Competition Commission, Pretoria Portland Cement revealed a cartel agreement since 1996 to maintain each producer’s market share thereafter. The agreement was implemented until this year through highly disaggregated sales information each producer submitted to the Cement and Concrete Institute of South Africa through an audit firm appointed by C&CI. PPC may have caught the three other major cement producers off guard in seeking conditional leniency from prosecution under the Competition Act. PPC applied for leniency shortly after the commission raided and seized documents from cement producers’ premises as part of its investigation of possible collusion. Leniency is not guaranteed. The Competition Commission has recently become very active in probing anticompetitive behaviour in various fields. Whether the benefits will flow as higher state revenues or as lower consumer prices is yet to be seen. (BR 11/12.11)

ILO Convention 181 won’t help – 10 November 2009
International Labour Organisation Convention 181covers the temporary employment services industry. It recognizes the role employment agencies may play in a well-functioning labour market and the need to protect workers against abuses. The Federation of Unions of SA wants government to adopt this convention as a first step towards a worthwhile regulatory regime. The real issue is not regulation alone, but enforcement, which needs to cover both administrative aspects such as registration and licensing and conditions in the workplace such as hours of work and period of placements. Fedusa feels it best to encourage improved efficiency in the national labour market. This is more constructive than calling for banning labour brokers. Since its drafting in 1997, 21 countries have ratified Convention 181, including Algeria, Ethiopia and Morocco in Africa. But it militates against liberalisation of the formal labour market and would tend to increase regulation and inflexibility in the informal labour market. (BR 3.11)

Mines won’t be nationalised – 10 November 2009
ANC secretary-general Gwede Mantashe says our existing law speaks to mineral deposits reverting to the state. The Freedom Charter, which is an ANC document, speaks to the mineral wealth beneath the soil, and does not say anything about the nationalisation of the mines. The ANC has been at pains to reassure investors that it has no plans to take ownership of privately owned mines. ANC treasurer-general Matthews Phosa told European business people that the ANC is committed to conservative economic policies that did not include nationalisation. Deputy President Kgalema Motlanthe clarified the party’s position while addressing the Chamber of Mines annual general meeting. Deputy science and technology minister Derek Hanekom did the same at the MINE-Tech International 2009 conference in Johannesburg. The matter will be debated between the ANC and its more leftist allies ahead of the upcoming alliance summit. (BD 4.11)

State intervention hampers growth – 10 November 2009
The World Trade Organisation released its trade policy report on SA. Unemployment and poverty remain SA’s most pressing problems, and electricity supply shortages threaten near-term growth prospects. Opening up the economy to greater competition in services would help. So would a policy
to deal with currency volatility, since a fluctuating exchange rate can be taken as a sign of weak fundamentals. State intervention in manufacturing has led to a misallocation of resources and low profitability in the sector, says the report. Development of the manufacturing sector is also hampered by the high cost of inputs and intermediate goods, partly because of the lack of competition in various sectors. This highlights the importance of competition policy in SA. Likewise, state intervention renders the supply of key services both inefficient and costly. For sustainable economic growth, SA also needs to deal with structural problems such as poor education, HIV/AIDS and crime. (BD 6.11)

Taxation and government spending hamper growth – 10 November 2009
Sanlam chief economist Jac Laubscher told parliament’s finance cluster committee that MPs have no choice but to either cut government spending or increase taxes. But there is little room to increase taxes, so the emphasis should fall on cutting spending. The tax to GDP burden has risen considerably above government’s benchmark 25 percent to 32 percent. The average for middle-income countries such as SA is 18.2 percent of GDP. Higher tax burdens lead to higher government expenditure which is “generally not good for growth” because growth tends to come from the private sector. “The more you increase the government stake of available resources, you end up with lower growth. Smaller governments are generally better for economic growth performance.” Expenditure to GDP in SA is 30.1 percent versus 18.6 percent average in middle-income countries, so it has to be aggressively reduced. He suggested clipping state welfare spending. (BR 4.11)

Liberalise the working environment – 03 November 2009
Crime is cited as the biggest obstacle to doing business in SA, and the World Economic Forum ranks SA last among 133 rated countries. Regulations are also a major concern. Analysts say SA has complex labour laws, which make it difficult for business. A whole raft of more complex laws will be implemented next year, such as the Consumer Protection Act and the New Companies Act. The department of labour and other departments are taking a stronger line and the trend to release more laws is not on the decline. Although the WEF Global Competitiveness Survey ranked SA in 45th place overall, SA came 90th in labour market efficiency, 125th in inflexible hiring and firing practices, 123rd in lack of flexibility in wage determinations by companies, and 121st in poor labour-employer relations. These are appalling statistics. They highlight the need for government to change course and work with business to liberalise the working environment and attract more investment into the economy. Instead of targeting industries for intervention, the government should be listening and supporting industries to develop and grow. (BD 26.10)

Eighteen months for jumping a red light – 03 November 2009
Machine operator Sizwe Shezi was witnessed jumping a red light after using a turning lane to overtake a queue of three cars. Traffic officers informed him that he was going to be arrested. He said they were wasting his time and should rather issue him with a fine. Then he sped off and they couldn’t catch him, but he was arrested later that day. In court he pleaded not guilty to a crime, conceding that he had ignored the traffic light but saying he had checked for cars first. The magistrate found that Shezi had displayed “a gross recklessness and a total disregard for the law and other road users.” He suspended his driving licence for two years and sentenced him to three years’ imprisonment, suspending half for five years. Later Shezi’s appeal was rejected and he began serving his sentence at Mtunzini Prison. Eighteen months in jail for jumping a red light! So much for the “old order” involving mere traffic fines to modify “victimless” motoring behaviours that cause no injury to people or damage to property. Traffic misdemeanours are now serious crimes, no doubt to the satisfaction of many. (Star 27.10)

Reaching for secure land title in former homelands – 03 November 2009
The North Gauteng High Court has found various sections of the Communal Land Right Act to be unworkable. The act was promulgated in 2004 but never implemented. It aimed to unlock the economic potential of former homelands by providing investors and residents with secure, bankable tenure. But it gave unelected traditional leaders and the land reform and rural development minister draconian powers to impose decisions that undermine existing property rights. The Legal Resources Centre’s Henk Smit says customary laws and practices should be woven into a formal ownership system, not the other way around. Plenty of legal precedent shows that traditional custom can be adapted to comply with the constitution and statutes for this purpose. It has to be a bottom-up process and that can’t be imposed from above. The case will go to the Constitutional Court early next year. (BDW 31.10)

Labour brokers have everyman’s rights – 03 November 2009
Every person has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law. So says section 22 of our constitution, which would appear to protect labour brokers from governmental banning. Labour broking is already regulated, at least in theory, by the Labour Relations Act. Genuine rights are negative in the sense that they demand only that each of us refrains from harassing others. That would include government whose regulations should aim to help citizens rather than harass them. No one can have a right to ‘decent work’ in the same way that she can have a right to speak freely or to worship the God of her choice. Enforcing Jones’ right to ‘decent work’ necessarily means forcing Smith to provide this ‘decent work’. A political right that cannot even in principle exist without the confiscation of a persons’ labour and property is no right at all; it’s a wrong. (BR 28.10, Boston Globe)

Author: Dr Jim Harris prepares the weekly Regulation Updates from press reports. The updates may be republished without prior consent but with acknowledgement to the author. Views expressed in the updates are the author’s and are not necessarily shared by the members of the Free Market Foundation.