SA Competition Commission: Township Mall Investigation Targets Exclusionary Practices

• South Africa's Competition Commission will consider market-conduct probes into malls in predominantly Black urban and rural areas.
• The probes will investigate exclusionary practices that hinder small, independent retailers from trading effectively.
• This initiative stems from the Commission's new report on rural and township economies, which identified significant market and regulatory barriers.
• Previous findings from a 2019 grocery retail inquiry highlighted long-term, exclusive leases as a barrier to competition and SME access.
• The township economy is valued at approximately R900 billion annually and houses about 40% of South Africa's population.

Consequently, legal professionals advising retail landlords, mall developers, or anchor tenants operating in South Africa's township and rural areas should meticulously review existing lease agreements and operational practices for potential antitrust scrutiny, given the Competition Commission's active consideration of market-conduct probes into exclusionary conduct.

The South African Competition Commission is poised to initiate market-conduct probes targeting shopping centers and malls situated within predominantly Black urban communities and rural regions. This significant move follows the release of the Commission's inaugural report on rural and township economies, published on Thursday in Johannesburg. The investigation aims to address practices that hinder small, independent retailers from operating effectively in these areas, specifically focusing on exclusionary conduct by mall operators.

The findings from this new report will serve as a foundational tool for the antitrust authority, guiding its future assessments of economic activity within these vital regions. The Commission explicitly noted that these areas are “characterised by significant market and regulatory barriers,” underscoring the systemic challenges faced by businesses attempting to thrive there. This proactive stance by the Competition Commission signals a deeper scrutiny into the operational dynamics of retail spaces in South Africa's township economy.

The Commission's current focus on exclusionary practices in township malls builds upon previous antitrust efforts, specifically calling for “follow-up work on the implementation of the recommendations of previous market inquiries.” This includes insights from its 2019 study into grocery retail, which revealed that long-term, exclusive lease agreements between landlords and major anchor tenants significantly stifled competition and created substantial barriers for smaller retailers seeking entry into shopping centers.

The latest report identifies specific exclusionary practices, such as unequal procurement conditions and discriminatory supply agreements. These arrangements are found to disproportionately disadvantage small and medium enterprises (SMEs) and businesses owned by the Black majority. Furthermore, the Commission highlighted that regulatory burdens often weigh heavily on smaller, less formal businesses, which typically lack the necessary resources to navigate complex compliance systems. This not only impedes the growth of local enterprises but also negatively impacts the variety and quality of goods available to consumers in these communities.

To foster a more equitable and competitive environment, the Commission suggests implementing competition-friendly rules. These reforms could simplify licensing and permitting processes for businesses, standardize procedures, enhance transparency in operations, and promote credible service standards for decision-making bodies. Such measures are crucial for improving SME access to township malls and fostering a more inclusive retail landscape. Consequently, legal professionals advising retail landlords, mall developers, or anchor tenants operating in South Africa's township and rural areas should meticulously review existing lease agreements and operational practices for potential antitrust scrutiny, given the Competition Commission's active consideration of market-conduct probes into exclusionary conduct.

Township and rural areas, historically shaped by apartheid-era policies that forcibly relocated people of colour, continue to be among South Africa’s most impoverished regions, frequently enduring disruptions to essential services like power and water. Despite these challenges, these markets are increasingly recognized as key strategic areas for established businesses, including major listed banks and retailers. These entities are actively seeking new revenue streams in underserved markets and aiming to stimulate growth in the continent’s largest economy, which has experienced annual expansion rates below 1% for over a decade.

The economic potential of these regions is substantial, with the township economy alone estimated to be worth approximately R900 billion ($56 billion) annually, according to research cited by the Public Investment Corporation and 27four Investment Managers. These areas are home to about 40% of South Africa’s total population, making their economic development critical. The Competition Commission emphasizes that risk-proportionate regulation is essential for stimulating trade and fostering growth among local businesses.

The Commission's report also sheds light on the operational realities of independent and informal businesses, noting that most do not operate in formal settings. While 54% of these businesses had not attempted to transition to a formal environment, they expressed a clear interest in doing so. For those businesses that did try to formalize, high rental costs emerged as the most frequently cited barrier, affecting both townships and rural towns. This underscores the need for interventions that address both exclusionary practices and the high cost of entry for SMEs seeking to establish a presence in formal retail spaces.

Lawyers advising retail landlords, mall developers, or anchor tenants in South Africa's township and rural areas should review their lease agreements and operational practices for potential antitrust scrutiny, as the Competition Commission is considering market-conduct probes into exclusionary conduct.

Source: Original reporting via Bloomberg