TAKE2: Price-fixing as a solution to xenophobia

Collusion appears to be the South African way of doing business. If it’s not bakeries, it’s milk producers; if it’s not steel manufactures, it’s construction companies.

Now it has been touted as a solution to xenophobic violence in Guguletu.

This week, Somali and South African shop owners in Guguletu held a series of meetings to solve disputes that had the potential to spill over into xenophobic violence, like last year’s attacks on foreign traders in the townships. At these meetings, the traders agreed to effectively fix prices on basic goods like bread, milk and paraffin.

However, this is not even a negotiated price—the Somalis are being forced to raise their prices to match those of their South African counterparts. It was a choice between agreeing to fix prices or being run out of town, as was threatened recently when local traders presented their Somali counterparts with a handwritten letter giving them seven days to move out of the area. On the same day, a Somali shop owner was shot dead after four men entered his shop and demanded money, cigarettes and airtime.

I wonder what Competition Commissioner Shan Ramburuth would say—he has repeatedly stated that collusion and cartel activity is rife in South African business and needs to be rooted out.

Imagine if your competitor threatened to run you out of town if you didn’t raise your prices to match to his, thus eliminating any competition from the market. What message is this sending out: because you were not born here, we will punish you for running your business more efficiently than we do, or how dare you offer your customers a better deal?

Research by the City of Cape Town has highlighted the competitive edge that foreign businessmen have in South Africa as a major driver of xenophobia. The research suggested that this could be attributed to a lack of business skills among local traders. It appears that training and education in business skills is the solution to this problem, not price-fixing that is being implemented by force.

Collusion is a crime, no matter what the reasoning behind it, and the loser at the end of the day is the consumer.