Are multinational companies in the automotive industry in South Africa stifling growth?

Kate Elliott, CEO of Right to Repair SA, and a strong proponent for advocating for consumer choice and a free market which encourages fair competition, said the reality is that under certain conditions, totally free markets often fail to deliver optimal results.

One reason for this is harmful conduct by firms that have grown too big and that are in a position to unilaterally abuse their size and/or collaborate with their competitors to engage in collusive activities. She said this is where competition law comes to the fore, to ensure and sustain a market where vigorous but fair competition will result in the most efficient allocation of economic resources and the production of goods and services at the lowest price. “It’s designed to create a level playing field, where both big and small business can compete fairly and effectively,” she said.

Elliott said there is no doubt that the importance of robust competition law and policy becomes even more important in emerging markets. “One of the pressure points in an emerging market is the presence of multinational companies (MNCs) which can be both hero and villain.”

In the context of the automotive industry, the third-largest sector in the national economy, the multinational contingent, is for the most part represented by the original equipment manufacturers (OEMs). “While we appreciate MNCs may be highly beneficial to emerging economies by assisting in the modernisation of their economies and industries by transferring technology, know-how and skills, by providing access to export markets, by intensifying competition, or by making available goods and services that are better and/or cheaper than those offered by local producers, that is not always a given.

“In some instances, MNCs can stifle economic development by locking in host economies in low-value added activities and by crowding out local investments and jobs. Furthermore, anti-competitive practices of MNCs may reduce consumer welfare and MNCs may help build consumption patterns that are unsuited for host countries.”

She said through robust competition policy, we need to ensure that the relationship is one of mutual benefit rather than a one-way drain of funds out of the country with no real benefit to the local economy.

Elliott said it is a mistake to ignore the repair and service sector. “There are about 12.7 million vehicles on the road in South Africa, and all of these will need to be serviced and repaired during their lifetimes. Opening up this market to small and medium enterprises, which are often owned by previously disadvantaged individuals, will help to create vitally important broad-based economic growth within the sector.

“Furthermore, vehicle workshops that are operating in a truly competitive market will provide better and more affordable services and repairs. Accordingly, the importance of having a truly competitive automotive aftermarket is twofold. It will ensure access to the market for the previously disadvantaged, creating jobs contributing to the alleviation of poverty, and secondly, if the sector is operating at maximum efficiency, the cost savings will have an impact on all sectors of the economy, much as the petrol price does.

“We have the tools already in place to create a healthier economy in this sector. Let us not miss this opportunity to stimulate growth and employment. It is abundantly clear that we should support the implementation of the guidelines to their fullest extent, and this needs to remain a key focus of government moving forward,” she concluded.

Source: Jacqui Moloi / findleypr.co.za