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Report: 'How we get ripped off in South Africa'

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by Deshbhakt, Jun 20, 2012.

  1. Deshbhakt

    Deshbhakt Senior Member

    Jun 20, 2012
    Joined: Jan 22, 2008
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    Maybe we need to prepare a similar report for Tz as well?

    We know we're getting ripped off, but how and why? And is there anything we can do about it?Neil Rankin of the Wits School of Economics calls it 'the South African story' - relatively few competitors, relatively large market shares, and relatively large mark-ups in various sectors. The legacy of an economy built on mining, and closed to the world market till 1996, has left us with a landscape inhabited by lumbering giants - corporates, parastatals and conglomerates - all resting secure in the knowledge that their consumer meal tickets lack the capacity and confidence to speak out against being ripped off. And right they are, to a certain extent.

    The South African public knows how to complain about skyrocketing prices, gripe about disproportionate fixed costs, and moan about fees and charges all the way to the bank. But beyond that, we're apathetic and unaware. We know we're being screwed, but we don't have a clue why or how.

    Here are just some of the areas where we can increase our knowledge, with the hope that it will empower...

    Banking Fees

    'I have absolutely no doubt that South African banking fees are probably the highest in the world,' says Barrie Terblanche, author of Starting Your Own Business in South Africa. Frustrated that no research seemed to exist on the subject, a few years ago Terblanche undertook the project of emailing different banks around the world, asking them for quotations on a simple basket of services.

    'I did comparisons with countries of similar economic standing, like Brazil and Malaysia, as the banks had said it was unfair to compare us to developed markets like the UK or Australia,' he says. 'And the results were shocking. Just to use one example, the Malaysian, Thai, and Brazilian banks charge nothing for depositing R100,000 in one month, whereas the SA banks charged close to R1,000 at the time of research.'

    And then there's the complexity of the fee structure, which Terblanche is convinced is 'part of the ruse to keep prying eyes away'. Terblanche says that when these figures were put to the banks, they came back with the rather pitiful reply that currency rates could warp real costs to customers, despite the fact that the price differences were so large that purchasing power would not change the overall picture. The banking fraternity's final argument was apparently: if SA banks are indeed making so much money, why isn't there more interest from international banks in the SA market?

    That was of course right before Barclays announced a purchase in a piece of Absa, and the Chinese bought a large share in Absa. The Banking Enquiry of 2008, conducted by the Competitions Commission, did yield some reforms, admittedly. 'But it is perhaps the arrival of Capitec, who've shown you can charge a third of the fee and still be profitable, that has really shaken the big four,' says Terblanche. Consumers who have moved to Capitec, and use it in combination with a Discovery card, have found they have negative fees, earn interest, and have all the services they need.

    Cellphone Operators
    According to the report 'Africa Prepaid Mobile Price Index 2012' released earlier this year by Research ICT Africa, it's official: cellphone operators are ripping South African consumers off. Our costs put us in 32nd place out of 46 countries in Africa, with our prepaid rates being 360% more expensive than those of our neighbour Namibia.

    Apparently, not so long ago, South Africa and Namibia shared the same mobile termination rates and had similar user prices. Namibia today enjoys amongst the cheapest rates in Africa, as a result of slashing its termination rates to cost, which enabled competition. Termination rates have a dubious history in South Africa, and have often been the reason given by the Independent Communications Authority (Icasa) as to why providers aren't able to lower their costs.

    'The truth is, is that the rate was arbitrarily agreed on by government, Telkom, and the cell phone providers,' says Terblanche. 'There was no economic basis for the R1.20 figure; the actual cost is negligible, probably around 12 cents.' As this agreement was written into law, the Competition Commission couldn't do anything about it, explains Terblanche. 'But when economists and various watchdog bodies delivered an outcry, Icasa announced that they'd gradually reduce the fee between 2011 and 2013.'

    Cell C and Vodacom are showing promising signs of starting a price war with the R0.99 per second prepaid deal. With a telecommunications rant not being complete without a mention of our favourite parastatal, Telkom, don't forget to keep a watch for outcomes following the R3-billion fine it received in February when its cable-tying antics were declare anti-competitive.

    Petrol Prices
    The Executive Director of the South African Petroleum Industry Association (Sapia), Avhapfani Tshifularo, assured the public in a recent Newswatch interview that it is the price of crude oil that has the largest impact on the price at the pumps; more than 50%.
    'The average Brent crude oil price has been unnaturally high and on average above R125 per barrel from March, largely as a result of market reaction to US sanctions on Iran. Also, since international prices are quoted in the US$, the exchange rate to the Rand will always be a determining factor of the local fuel prices,' he said.

    For those of us wondering how much goes into government coffers - particularly in light of the road tolls saga - the figure is roughly 30% of the per litre petrol price. 'The Road Accident Fund takes up a big chunk of this,' says Tshifularo. 'Taxes are the only thing that South Africa can control; everything else is dictated by market forces, especially international market forces.'

    This is a useful clarification, and important in correcting any unfactual assumptions. The cynical amongst us might be tempted to ask how that Road Accident Fund is coming along...

    Medical Aid
    We know that private health care is expensive, and understand that in a country where state provision is less than satisfactory, private health insurance is a necessary fixed monthly cost. But when we hear reports of 'concerning trends regarding increasing payments to medical scheme trustees', we cannot help but wonder whether our money is in healthy hands.

    An article published by TimesLive in September last year reported the head of compliance and investigations at the government regulator, the Council for Medical Schemes, Stephen Mmatli, saying that ten of South Africa's 100 medical schemes together spent more than R28 million on their trustees last year.

    'Medical aid schemes are supposed to be not-for-profit entities,' says Mmatli. 'The trustee remuneration is meant to be a stipend, and not increase non-health costs of medical aid, as individuals line their pockets.'

    Apparently, they have all been told to acquire a fresh set of board members. In this complex arena, it's difficult to know if and how we are being ripped off. Is it ethical for Discovery Health to be earning profits of R1.357 billion in a supposedly non-profit industry? 'Without full information we cannot make any non-speculative conclusions,' says economist Mike Herrington. 'The only person who knows that is Adrian Gore himself, so short of calling him up, the South African consumer isn't to know.'

    Incidentally, the hospitals aren't doing too badly either - private hospitals like Netcare and Mediclinic earn above average profits and medical costs escalate above inflation.

    Car Prices
    According to a study commissioned by WesBank and conducted by research firm KA Smart, the price of a new, basic entry-level car in South Africa is R149,900, the most expensive after Brazil. We pay more for our cars than people do in Australia, Germany, the US, the UK, and China, with the same car costing R106,000 in the US and R101,000 in China.

    Some notable price discrepancies include the cost of the Porsche 911 Turbo, which costs R2,033,000 in South Africa, and a mere R1,240,110 in the UK. Sure, we understand the disclaimer that there are many factors that determine what we pay for our cars. Import duties are a large part - currently new cars being brought into SA are slapped with a 36 percent customs duty, and even the ones built here use imported components, which are also taxed. Then there are things like carbon taxes - though apparently the emissions tax is a bit of a government fabrication, with the SABS possessing no equipment or testing procedure to test exhaust gases, and our fuel is below standard as well.

    Chris de Kock, executive head of sales and marketing at WesBank, said the relative high cost of owning and running a car in SA boils down to a mixture of high labour and transport costs, unfavourable exchange rates, small local scales of production, high taxes and compliance, and government incentives. Tariffs are required to protect manufacturing jobs in SA and hopefully make local vehicle manufacturing competitive one day. It seems to explain a lot, though does it really explain why a VW manufactured in Uitenhage is shipped to Australia and sold at a 30% lower price?

    The Harsh Reality
    Economics 101 exposes the harsh reality to us that pricing does come down to supply and demand. So we can't always be outraged when consumer goods cost more here than they do overseas.

    'As a rule of thumb, you should be able to get a product for around ten to twelve times the US dollar price. This takes into account the product cost, shipping, insurance and warranties, and a fair supplier margin,' comments a writer on the IT blog When it comes to our local retailers and their margins, we can probably assume a certain level of outrage - Truworths earned margins of 35% in 2011, making it one of the highest profit earners in the world. Fortunately, the Competition Commission is hot on the heels of any company trying to do a cartel dirty - as Premier Foods and Sasol, to name a few, found out the hard way.

    So perhaps the best thing for us to do is to familiarise ourselves with the work of the Competition Commission and follow up on the outcomes of various cases. And when they are long in coming, or less than satisfactory, we can make our voices heard, and let South African business know that we are no longer prepared to be sitting ducks, accepting high prices, poor service, and less competition than might be expected in a modern economy.

  2. MwanaHaki

    MwanaHaki R I P

    Jun 22, 2012
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    Loading.... will comment after reading.
  3. n

    nunu Member

    Jun 24, 2012
    Joined: Apr 11, 2011
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    Sure Private schools and water and electricity among others. A similar study need to be done in Tz for comparison purposes