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Competition watchdog moves to redress SA’s ‘digital deficits’

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The Competition Commission (CompCom) is looking to regulate South Africa’s digital economy by redressing the “digital deficits” that have been exposed by the COVID-19 pandemic.

The commission this month published a paper titled “Competition in the Digital Economy” which details how it will regulate the country’s digital economy.

This paper sets out the ways in which SA’s competition laws can be implemented to achieve equitable outcomes in the digital economy and the Competition Commission’s intentions in this regard.

In the paper, the competition watchdog says the arrival and rapid rise of the digital economy presents SA with an opportunity to reverse the pervasive, triple scourge of unemployment, inequality and poverty.

It points out that in order to harness the promised benefits of digitalisation, SA must create a commercial and regulatory environment designed to extract those benefits and distribute them in a way that ensures inclusive economic growth, that is (1) increased and meaningful employment, (2) equality and (3) shared prosperity.

“Unfortunately, for all its promise, the digital economy in developing countries already threatens a new era of global concentration and, with it, the further marginalisation of vulnerable countries and businesses,” says the commission.

“Therefore, intentional regulation is required to avoid outcomes that could harm the development of small businesses, consumers and ultimately the economic growth so needed in South Africa’s developing economy.”

According to the commission, the need for intentional regulation has become all the more urgent with the advent of COVID-19, which is set to move more products and services online at a rapid pace.

Monopoly moves

Commenting on the move, Dr Alison Gillwald, executive director of Research ICT Africa, says the Competition Commission’s recognition of the critical competition issues related not only to the digital economy but to the process of digitalisation (and increasingly datafication) that underpin the operation of all sectors, even those not explicitly offering online services or products or using digital platforms to procure, market or sell goods, is an important development.

She says this will not only mean getting more formal and informal sector activity online but also increasingly the consumer base of the economy through digital inclusion, with the range of well-documented social and economic positive effects associated with that.

“This will be a critical lever in South Africa’s post-COVID-19 economic reconstruction and to position South Africa optimally to benefit from the African Continental Free Trade Agreement.”

However, she says it is also important that while improving digital readiness domestically, SA acknowledges the globalised nature of digitalisation and datafication that will increasingly require global cooperation to implement regulation, as well as governance and to make what are effectively global monopoly platforms (Google, Amazon, Facebook, Apple and Microsoft) accountable and governable (including payment of taxes in countries where revenues are generated even if they do not have physical presence).

According to Gillwald, the platformisation of the global economy (and which South Africa wants to encourage locally) operates through dynamic multi-sided markets, using dynamic efficiency models, that regulators need to apply too in their regulatory modelling, rather than traditional static efficiency models.

“That could inhibit innovation and economic development. What appears as monopoly and anti-competitive markets may actually be complementary markets that enable the development of local markets, but indeed be anti-competitive to other local markets,” she says.

Team effort required

On the other hand, Ofentse Dazela, director for pricing research at Africa Analysis, comments: “Unfortunately, local authorities will not find it easy to try and regulate the digital economy alone, and I doubt if ICASA [Independent Communications Authority of SA] or CompCom will succeed in their efforts to try and arrest a new era of perceived global concentration that they think will marginalise vulnerable countries and businesses.”

Dazela believes SA needs to be very circumspect on what it is in particular that the country needs to guard against in the digital era, and in so doing, avoid a knee-jerk reaction blinded by the need to unlock new employment opportunities, ensuring equality and shared prosperity in this space.

He notes that depending on which shape the envisaged regulations will eventually take, they can, indeed, have a detrimental effect on the appetite of investment in this space.

“Too strict regulations could also be a damper on innovation, and this could slow down traction that is already starting to take shape in this arena.

“The digital services are in fact application-based solutions; this means global competition is inevitable. If any country is going to set strict boundaries on who and to what extent they can participate in this area, then this is going to have an adverse effect on the digital economy.

“The painful reality is that it is mostly big players, whether rooted locally or elsewhere outside the country with big pockets, that will be able to use their financial muscle to revolutionise this market quickly, rather than later,” Dazela says.

“I think our efforts will really be best employed preparing our businesses to take advantage of this new digital era, instead of taking a position of trying to vigorously police this space.

“I do, however, agree that we need to lay down some sort of legal framework for the digital economy, but our agenda in doing so should solely be driven by the need to grow the economy in its entirety; any other politically or social-charged posture will dissuade growth in this space.”

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