The South African Economy is the most developed and most diversified economy within the African continent. It is currently the 2nd largest economy in Africa, 2nd only to Nigeria, the most populated country in the continent; to which we surrendered our economic pole position about two years ago.
The South African economy accounts for almost a quarter (24%) of the combined Gross Domestic Product (GDP) of Africa and is generally viewed by the World Bank as an upper-middle-income country. It is one of only four countries in the continent to be designated as such, the others being Botswana, Mauritius, and Gabon.
Despite the large size and diverse nature of the South African economy, the economy has been chronically under-performing, because of several economic factors, some of which are as a direct result of legacies of the Apartheid Era Government policies and practices. In 2016, the economy is estimated to have just managed a paltry 0.5% growth. It is projected to marginally improve in 2017 to just about 1.3%, far less than the minimum of 5% year on year growth the country needs to be able to address the massive socio-economic backlog of our nation.
Those apartheid era legislative policies and practices were intentionally meant to benefit a small sector of the South African population, at the expense of the majority who were only meant to be a perpetual reserve of cheap unskilled or semi-skilled labour, and consumers in the economy, with little or no ownership and control of the key industries in the economy.
Since the fall of apartheid and the fall of sanctions, from 1996 to date, the South African economy has tripled in size to about $400 billion, and the Foreign Exchange reserves have also improved from around $3bn to about $50bn. This massive economic dividend of the new democratic order post-1994 has not exactly filtered broadly in the broader economy and making a tangible difference to most of the citizenry.
One of the reasons for the inadequate ‘trickle factor’ from the economic gains of the past 20 years or so, is that key economic sectors in South Africa are still concentrated in the hands of the few. This is from ownership and control point of view.
Further, the key players within those industries are seemingly involved in massive anti-competitive behaviour with lots of cartels and collusive practices that are designed to ‘squeeze out’ small players and/or discourage entry by new players, especially those from previously disadvantaged population groups.
Whilst there has been chronic perception that anti-competitive behaviour was very rife in many of the key economic sectors, in the recent times, the Competition Commission is doing an excellent job in unearthing or uncovering these destructive and unpatriotic collusive practices. The wrong doers have therefore been brought to book and given massive penalties that are meant to be a deterrent to others who are engaged in similar practices.
In recent times, the Competition Commission has uncovered these anti-competitive cartels and collusive practices within the Construction and Bread Industries. In this past week, SAA has been found to have been involved in massive anti-competitive practices, attracting a massive R1 billion-plus fine.
Also, this week, the Competition Commission has found that currency traders from 17 commercial banks, including some of our Big 5 banks (Standard Bank, Investec, Absa etc.) have since 2007 been involved in massive anti-competitive, collusive behaviour that has resulted in the manipulation and profiteering from our currency trade in the international markets.
The anti-competitive behaviour allegations against Commercial Banks by the Competition Commission are reportedly quite strong, to a point where the matter has now been referred to a Competition Tribunal for prosecution. These banks face possible fines that can go up to 10% of the annual turnover for each of the banks revenues that are made within the South African economy. ABSA may escape the fine because they are reported to have been ‘whistle blowers’ and have co-operated with the Competition Commission to help uncover the extent of the ‘rot’ involving the other banks.
Enough about the other sectors of the South African economy, this is a Healthcare Blog and I should address the anti-competitive practices and collusive practices within the South African Healthcare Industry. The South African healthcare industry is a massive industry, with various inter-related markets that influence each other in terms of cost, price and service demand.
The Healthcare Industry is one of the most non-transformed sectors of our economy, with a concentration of ownership and control being a common feature. There are lots of cartels that collude in various ways, consequently affecting pricing negatively; also, affecting the cost of service and service demand. There are serious industry barriers to entry by new entrants; as well as lots of perverse incentives and conflicts of interest.
Just to demonstrate the concentration of some sectors of the private healthcare industry, in 2012, three hospital groups accounted for 87% of the hospital market; three healthcare administrators accounted for 78.2% of the market; and three medical schemes accounted for 55.5% of the total number of medical scheme beneficiaries.
In the 2011/2012 financial year, the annual healthcare expenditure in South Africa was R248bn, made up of public healthcare sector expenditure of R122bn (49.3%); private healthcare sector expenditure R120.8bn (48.6%) and NGO/Donor Funding expenditure of R5.3bn (2.1%).
Of serious concern is the fact that the Private Healthcare Sector, which consumed almost equal amount as the Public Healthcare Sector in 2012. It serviced only 17% (8.7 million SAns) of the population, mostly high-income individuals that can afford medical scheme premiums; as opposed to the Public Healthcare Sector that serviced about 83% (42.5 million SAns) of the population.
Further, the per capita healthcare spent in the Private Healthcare sector in 2012 was R13 800.00, as opposed to R2800.00 in the Public Healthcare Sector. In terms of available hospital beds, in 2012, the private healthcare sector had more beds available for 17% of the population at 3.5 beds/1000 people, as opposed to the public healthcare sector that serviced 83% of the population at 2.1beds/1000 people.
In November 2013, the Competition Commission initiated a market enquiry into the private healthcare sector by issuing a Government Gazette with clear Terms of Reference, because it had reason to believe that there were features of the sector that prevented, distorted or restricted competition. It further believed that conducting the enquiry would assist it in understanding how it could promote competition in the Healthcare Sector with the intention to further the Competition Act.
The legal basis of the Private Healthcare Industry market enquiry draws from Chapter 4 of the Competition Act 89 of 1998, in keeping with Sections 2 and 21 of the Act respectively. The Section 21 of the Act calls on the Competition Commission to inter-alia implement measures to increase market transparency, advise and receive from any regulatory authority.
Furthermore, to fulfill those functions, and in line with the purpose of the Act, Chapter 4A of the Act enables the Commission to conduct a market enquiry in respect of the general state of the competition in a market for particular goods and services, without necessarily referring to the conduct or activities of a particular named firm. A market enquiry is thus a general investigation into the state, nature, and form of competition in a market, rather than a narrow investigation of specific conduct by any particular firm.
The focus of the Private Healthcare market enquiry has been classified to look into the following industry components:
- Financing of Healthcare or Funding Mechanisms
- Suppliers of Healthcare Goods and Services
- Agents who are mainly advisors to consumers on consumption of healthcare services or products
The market enquiry has spent over two years listening and reviewing stacks of submissions from a wide variety of relevant private healthcare industry stakeholders, and I must also say that the market enquiry was not welcomed with open arms by the various stakeholders and interest groups.
At the beginning, after the market enquiry gazette and terms of reference were published, there were some powerful industry associations and interest groups who felt threatened by the impending market enquiry, and they opted to use every available trick and legal means possible to try and sabotage the market enquiry from commencing, however their selfish attempts were eventually rendered unsuccessful.
One of the interesting market enquiry submissions came from the World Health Organisation and Organisation For Economic Cooperation and Development Head, Mr. Francesca Colombo who revealed that South Africa has one of the most expensive private healthcare systems in the world. He revealed that in their study, 41.8% of the SA total healthcare expenditure was on Private voluntary healthcare Insurance, more than any OECD country, yet it only catered for 17% of the population.
He further revealed that amongst the OECD countries, SA had one of the lowest GDP per capita, and as such, it was expected that hospital prices in SA would be significantly lower, but this was not the case. He mentioned that General Prices for Goods and Services in SA were 53% lower than in other OECD countries, yet SA annual price increases in selected hospital services were 6.5% above headline/general inflation between 2011 and 2013. He also reported that 54% of total claims to medical schemes in 2011 were for surgical services, and that percentage increased to 60% in 2013, and the main driver of the increase was the medical specialists.
One of the peculiarities of the Healthcare industry is that the normal demand and supply of the market economy do not really work well. The industry is very prone to various forms of market failure, affecting both purchasing and supply of hospital services. The sector is characterised by many areas of Imperfect Information, specifically asymmetric information between consumers of service and suppliers of the services.
Some of the unique issues that distort the normal supply and demand market economy dynamics are the following:
- Consumers are often not price sensitive, as they are often not primary payers; but payments are made by medical schemes or government at the point of service.
- The decision to consume services is often emotional and necessary purchase decisions, for which they have little knowledge to make informed decisions.
- The healthcare products and services are often complex, with greater reliance on the middle man or agents.
- There are often lots of conflicts of interests (including undisclosed perverse incentives) by the advisors or agents in the purchasing decisions that are made by consumers they advise.
As a healthcare-professional and healthcare entrepreneur who has been trying to break into the various markets within the private healthcare sector, I cannot wait for the Market Enquiry into the Private Healthcare industry to conclude its work and issue a report on its industry anti-competitive behaviour findings.
I am particularly looking forward to seeing concrete recommendations on how the industry will be de-concentrated, made more transparent and more competitive allowing for more new entrants, as I sincerely believe the more competition that is allowed, the consumers will be the ultimate winners as prices of goods and services should come down, consequently the massive year-on-year above-inflation medical scheme annual premiums increases will also come down.
Even if the market enquiry does come up with solid, forward-looking recommendations that can transform the industry towards a more transparent and competitive one, the current players who are enjoying the status quo will not take it lying down, and they will surely use every trick to question and frustrate their implementation.
It was, therefore, music to my ears that at the SONA 2017 speech by President Jacob Zuma, he reported that on the 1st May 2016, he signed into law criminalisation of cartels and collusive practices, and the aim is to deconcentrate those industries where small groups control most of the industry resulting in anti-competitive behaviour.
I was also happy to hear that as part of the envisaged Radical Economic Transformation, there will be a legislative amendment to the Competition Act that will be tabled in Parliament by the Department Of Economic Affairs later this year, which hopefully will drive the following broad economic goals:
- De-concentration of ownership and control;
- More inclusive economy;
- Opening of economy to new players; and
- More competitiveness.
The healthcare industry has been a very closed industry for too long, where many who wanted to come in have been deliberately closed outside, and so the findings and recommendations of the market enquiry, as well as the legislative and regulatory stick must be used, as the industry incumbents will not easily loosen up their selfish grip on this very lucrative business sector. We wait with bated breath for the positive outcomes of the private sector market enquiry.