It is not only the government that discourages foreign investment in South Africa with its red tape. Competition Commission recommends imposing conditions to sale of Consol Holdings

If I was an investor……

Headquartered in Johannesburg, and founded in 1946, Consol Holdings operates four glass production facilities. It serves international, regional and domestic customers, principally in the beer, wine, spirits, food and non-alcoholic beverage sectors. In the year to June 30, 2021, Consol reported consolidated revenues of ZAR9.0 billion ($566 million). South Africa represented approximately 90% of revenues, with the balance represented by smaller production facilities in Kenya, Nigeria and Ethiopia.

The manufacturer has been a shinning-light in the South African manufacturing industry and it is no surprise that it became a target for a takeover.

In 2020 Consol suspended the construction of a R1.5 billion production plant in South Africa over concerns about the government’s fondness for booze bans. Ostensibly to ease the burden on hospital emergency wards, the state made alcohol trading illegal four times between March 2020 and August 2021, without ever giving a fixed timeframe for the prohibition. At one stage during the first and longest ban, Consol warned it may be forced to shut glass furnaces, which cost R8 million a day to operate and can’t easily be switched on and off.

Despite the company’s woes, Germany’s Ardagh Group SA agreed to buy the firm for just over R10 billion in November 2021.

Competition Commission approves R10 billion Consol Glass acqusition
In the latest decisions published The Competition Commission has recommended that the Competition Tribunal approve the proposed acquisition of Consol Glass by private group, Ardagh, with certain conditions.

These conditions might not be red tape but they are probative and onerous and certainly would not be an encouragement for future foreign investors if they get sight of them.

We have read numerous articles about red tape delaying investment worth billions in ready-to-go mining-related and other projects, at a time when the South African economy is in desperate need of such projects proceeding, to create jobs and to stimulate economic growth. With an unemployment figure at an all-time high the government still continues to throw up red tape blockades. This is despite President Cyril Ramaphosa, in February 2022, appointing a team to cut bureaucratic red tape in government departments.

Ardagh is a private company registered in Luxembourg. Ardagh manufactures glass packaging (such as beverage bottles and glass jars) and metal packaging products. Ardagh through its subsidiaries is also involved in the supply of glass manufacturing equipment and the sale of glass moulds. Ardagh does not have any glass manufacturing facility in South Africa and only exports its glass products to its customers in South Africa.

The Commission found that the proposed transaction raises significant public interest concerns. In addition, the Commission was concerned about the effect of the merger on the market for food jars and the wide mouth jars.

To remedy this concern, the merging parties agreed to a condition that the merged entity will continue to supply food jars or wide mouth jars.

Now for the discouragement and onerous conditions
With respect to the public interest concerns, the Commission and the merging parties agreed on the following conditions:

a) The Merging Parties will establish a new Employee Share Ownership Programme which will hold 7% of the shareholding in Consol
b) Ardagh will incur all reasonable capital expenditure, including raising necessary debt funding required to finalise the construction of the glass manufacturing facility planned by Consol
c) Ardagh will invest in the construction of a new glass manufacturing facility
d) Ardagh shall procure recycled glass or cullet for use in its operations in the ordinary course,
and will favour HDPs (historically disadvantaged people) in such procurement
e) Within a specified timeframe, Ardagh shall expand Consol’s existing Cullet Owner Driver
f) Ardagh undertakes to support SMME customers through a reduction of minimum order
g) Consol shall increase its pre-merger procurement of cullet from small/HDP vendors
h) Ardagh undertakes to use reasonable endeavours to introduce a new production line of glass
related products

Now for the statement that really pushes home the socialistic views of the current government: The Commission is of the view that the proposed remedies or conditions adequately address the public interest concerns resulting from the proposed merger.

If I was an investor…
If I was an investor I would look at these conditions and say some government department is telling me that I must give away 7% of my company, I am being told who to procure from and who to sell to, I must incur debt to expand, a decision that I might not want to do, I am being told who and how to distribute my product through and then also start another production line, which might not suit my plans. In short the Competition Commission should offer to run my business and I will just fund it and its cronies.

Although red tape is only one of many dimensions of an unfavourable local business and investment climate, it can produce immense costs both for the local private and public sector and therefore create serious disadvantages.

Red tape stands for regulations and rules, administrative processes and procedures that are not or no longer effective in achieving their policy goal, and which therefore produce sub-optimal and undesired social outcomes. Many times, it is specifically the small and medium enterprises which have to pay the highest share of these costs, as regulatory compliance with administrative rules, regulations and procedures involve important economies of scale.

The reduction of local red tape contributes to the improvement of the local business and investment climate by reducing the monetary and time costs of doing business in the country. Resources are released and incentives are created for new investments. As a result, the reduction of red tape helps increase the local efficiency, productivity and competitiveness, leading to the creation of new economic opportunities for the local community.

Will the government recognise these facts? Even Eskom is crying out to remove red tape rules for procurement. But then with an institution that has been so corrupt this might not be wise at this stage, even though current management is trying their best.