Companies have been warned: the proverbial smoke-filled meetings between South Africa's cartels are in for a clean out.

"Though activities construed as collusive behaviour have occurred, they're the actions of individuals for personal gain"

The picturesque Assagay Hotel, between Pietermaritzburg and Durban, was perhaps an unlikely meeting place for KwaZulu Natal's milling and bread cartels. Maybe it was the out-of-town quietness that attracted managers from companies like Tiger Brands and Premier Foods to fix their prices from 1999 to 2000. Another secret meeting place was the Pietermaritzburg Collegians Club. The Howick Wimpy served as their final meeting place, on 24 January 2007, before the competition commission spoilt their party.

It was here that the cartel club discussed details, contained in a Tiger Brands' dossier, of how they would allocate markets and achieve higher prices ? for example, how to raise the cost of toaster bread to R4.20 a loaf.

The result: it cost Tiger Brands CEO Nick Dennis his job, but it was shareholders who had to bear the brunt of a R98-million fine while consumers were slapped with higher bread prices. Now managers and directors engaged in similar activities could end up behind bars for 10 years or be fined R500 000 under the Competition Amendment Act, which comes into force in March next year.

Harsh new laws for cartels

Incidentally, it was the bread cartels' attitude to the fines that infuriated policy makers and led to the harsh new laws. "When the bread cartels, namely Tiger Brands, were fined, bread prices were pushed up shortly afterwards. It was their complete disregard that sparked moral outrage. If they'd played ball, criminalisation wouldn't have been effected," says competition commission CEO Shan Ramburuth. Cosatu shouted with the loudest voice at the time.

Similar scenes of anticompetitive behaviour are playing out in other industries. In the construction sector, which is under investigation, bid-rigging and collusion is rife. For example, in some of the big infrastructure projects, the directors or project managers of construction company A will say to company B: "You bid for Cape Town or Durban and we will bid for Johannesburg", so they don't have to compete. "The construction companies are a bit like the mafia. The big five are the biggest culprits," says Ramburuth.

Murray & Roberts, Group Five, Wilson Bayly Holmes-Ovcon, Aveng, Basil Read and Stefanutti Stocks are in the commission's sights. So, too, are companies that contribute to the input costs of construction (like cement, bricks and steel). This anticompetitive behaviour has apparently pushed up the costs of infrastructure projects, including the World Cup stadiums. According to the Labour Research Service, the cost of the stadiums rose from R2.3-billion in 2004 to R8.35-billion by October 2006, and the latest figure stands at R17.4-billion.

Construction firms rig bids

"Bid-rigging affects government coffers and cheats taxpayers. It also pushes up the spending bill of infrastructure projects," explains Ramburuth. A big part of SA's industrial policy is creating jobs. Government's R787-billion infrastructure spend, however, unfortunately opens the door for abuse.

"International experience has shown that there's a tendency in construction firms to rig bids when there is huge infrastructure spend involved," says Ramburuth. "We've cast the net wider so companies could end up being fined more than once, depending on the projects being investigated."

Murray & Roberts denies these allegations, saying: "Though activities that can be construed as collusive behaviour have occurred, they are the independent actions of individuals for personal gain." It has lodged a complaint with the department of trade & industry (DTI).

Most of the other construction companies won't comment on the accusations, writing them off for now as "speculation". Aveng CEO Roger Jardine says the market will be kept informed if further issues arise from the investigation.

The construction giants are not alone. Three years ago, the commission identified three other areas of focus: financial services (banking); food; intermediate industrials (all products that go into manufacturing). For example, the banks, which came under competition fire recently for high fees, could face further scrutiny under the new law for complex monopolies.

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