Does prioritisation contribute to effective regulatory governance in developing countries? Insights from the Competition Commission South Africa Mark Burke Centre for Competition, Regulation and Economic Development 2nd Annual Competition and Economic Regulation Conference, Southern Africa Avani Victoria Falls Resort, Livingstone, Zambia 11 & 12 March

Introduction Effective regulatory governance involves having the capabilities to execute your mandate as a regulatory agency in a way that produces the envisaged policy outcomes Paper is based on research that examined whether the implementation of the prioritisation strategy contributed to the development of dynamic capabilities in the Competition Commission South Africa (CCSA) It is assumed that strategy implementation and prioritisation contribute to the effectiveness of regulators, and by extension, regulatory governance Effective regulatory governance, through effective competition agencies are particularly important in developing countries usually characterised by high levels of economic concentration with high barriers for new entrants This is pertinent to competition agencies in developing countries that are concerned not only with efficiency outcomes, but also distributive outcomes with limited resources 1 Based on research report prepared as part of Masters in Public Management and Development 1

A note on method… Qualitative, inductive research strategy adopted with a case study research design Involved both primary and secondary data collection:- Primary – 11 interviews Secondary – CCSA documentation, and literature related to strategy implementation and prioritisation in economic regulators with specific reference to competition agencies Three phases of analysis:- Phase 1 – analysis of internal documents and literature; created an initial coding structure based on emerging and relevant themes Phase 2 – analysis of interviews; further refined codes based in emerging themes pertaining to identified dynamic capabilities Phase 3 – analysis focused on significance of dynamic capabilities

Regulatory governance and the proliferation of competition regimes Emergence of governance through regulation:- Move away from direct government intervention towards arm’s length control Reliance on institutions that adopt technocratic and judicial approaches Resurgence of ‘institutionalisms’ in economics, social and political sciences – “institutional arrangements and social processes matter (Powell & DiMaggio, 1991) Underpins the proliferation of competition regimes:- 9 jurisdictions with competition law and six with agencies in 1990 – by 2013, there were 127 jurisdictions with a competition law and 120 with operational competition agencies Overall purpose of competition policy is to protect competition in order to produce allocative efficiency that leads to broader economic and social gains Goals of competition law are both economic and equity

Agency effectiveness and strategic planning Competition agencies are integral part of the institutional arrangements set out to operationalise competition policy and law Good planning and prioritisation deemed to be pre-conditions for effectiveness of agencies Competition Commission South Africa (CCSA) established in 1999 to promote (among others) both efficiency and broadening of participation, given the history of exclusion based on race in the country CCSA started strategic planning process in 2006 with a view to improve its enforcement capacity and outcomes, and has since been through 3 major planning cycles

2006 – 2009 (1 st Generation Strategy) 2009 – 2014 (2 nd Generation Strategy) 2015 – 2020 (3 rd Generation Strategy) External Environment  Expanding economic activity  Competition policy review  Increasing sophistication  Impact assessment  Increasing profile  Global economic crisis  Implementation of changes to the Competition Act  Strategic engagement opportunities  Increasing expectations  Re-alignment of regulatory institutions to promote efficiency  Growing importance of BRICS nations  Infrastructure-led growth  Implementation of changes to the Competition Act Internal Environment  Sound governance arrangements  Structure  Human resource  Culture and climate  Information and knowledge management  Continued organisational growth and expansion  Empowering middle management  Leading and managing change  Information and knowledge management  Streamlining business processes  Human capital development and management  Effective leadership and management  Improving resource management Strategic Priorities  Increase staff morale and motivation  Align organisational structure and work processes to the Strategy  Defining and clarifying the Commission’s approach and methodology  Establish the Commission as a centre of information, knowledge and expertise  Ensure effective advocacy and communication  Achieve demonstrable competitive outcomes in the economy  Improve competitive environment for economic activity  Realise a high-performance competition regulatory agency  Effective competition enforcement and merger regulation  Strategic collaboration and advocacy  A high-performance agency

Strategic planning and prioritisation CCSA’s strategy is premised on a prioritisation of work, given limited resources Prioritisation refers to “a process of deciding what type of activities, enforcement actions, advocacy initiatives, or in general competition policy measures a competition agency might pursue in a given period of time” (UNCTAD, 2013) Over time the CCSA’s approach has become more sophisticated with reference to the use and application of criteria and the regulatory instruments used in the process

Onward Criteria Selection of sectors involved two-step process to determine competition concerns and alignment to government policy and priority sectors:  Prioritising cases involved and assessment of competition issues, priority sector, and additional criteria if complaint is outside of priority sector (including extent of harm; etc) Selection of sectors based on:  Impact on low-income consumers  Competition concerns  Alignment to government’s economic policy and sector priorities Criteria for prioritising investigations include (SCREEN):  Sector,  Competition issue,  Resources,  Extent of harm,  Enforcement capability  Net result Selection of sectors based on:  Impact on low-income consumers  Competition concerns  Alignment to government’s economic policy and sector priorities In order to broaden scope of prioritisation the CCSA took into account  Income and Expenditure Survey (IES)  Sector and Industry contribution to GDP  Government’s Medium Term Expenditure Framework (MTEF)

Onward Sectors  Financial services  Infrastructure and construction  Food, agro-processing and forestry  Telecommunications  Intermediate industrial products Priority for investigation:  Infrastructure inputs into construction  Mineral resources and inter-mediate industrial products  Food and agro- processing  Telecommunications Priority for advocacy  Banking  Construction services  Public transport Priority for market enquiries  Healthcare Sectors  Food and agro-processing  Intermediate industrial products for  Financial services  Media  Energy (Renewable Energy and Industrial Gases)  Private healthcare Instruments  Investigations  Impact assessment  Monitoring  Market inquiry  Scoping  Advocacy

Prioritisation and dynamic capabilities Collection of information and research over time; learning through scoping studies, impact assessments, case investigation – deep sectoral knowledge and expertise Sector expertise Priority setting and prioritisation has become institutionalised and embedded – has become a way things are done; making choices about competing demands Priority setting expertise Initiatives and cases are increasingly treated as projects; growing ability to plan, budget, organise and resource initiatives Project management capability Capabilities enable: ► Sensing opportunities ► Seizing opportunities ► Re-configuring the organisation’s resource base

Prioritisation and dynamic capabilities Sensing opportunities:- Fast Track Settlement Project cited as example of how the CCSA was able to identify opportunities for enforcement by having detected wide- spread collusive behaviour in the construction sector Seizing opportunities:- Health Inquiry cited as example whereby CCSA took advantage of concerns by government regarding the sector being “neither efficient nor fair” to set up the inquiry Re-configuring the resource base:- Project management contributes to the CCSA’s ability to reconfiguring its resource base, by:- Being able to draw on resources from across the organisation Projects are temporary so resources can be re-deployed where needed Projects provide opportunities for learning and replication

Conclusions Strategic planning and prioritisation has strengthened the internal capabilities of the CCSA to execute its mandate, but has this contributed to effective regulatory governance with reference to the intended policy outcomes? Broadening participation is an explicit policy goal and is dependent on addressing high levels of concentration and control, and entrenched positions of incumbents While track record on CCSA has a solid track record in merger regulation and anti-cartel enforcement, but less so in enforcing abuse of dominance due to range of factors, including interpretations of law between the Competition Tribunal and the Competition Appeal Court, the time it takes to conclude cases, and procedural challenges by well-resourced parties Thus, internal capability may be a necessary condition for effective performance by the competition authority, but not a sufficient condition for effective regulatory governance