Abstract
Barriers to entry reduce the prospects, scope, and pace at which potential competitors can enter a market and compete. In terms of industrial organisation theory, barriers to entry constitute various structural factors inherent to the nature of the industry, as well as strategic barriers which result from the conduct of market participants. In South Africa, dynamics of market entry and participation are also shaped by socio-economic policy imperatives to achieve greater inclusion of historically disadvantaged persons. In this regard, various sector initiatives and policies, including competition law and Broad-Based Black Economic Empowerment (B-BBEE) legislation, have focused on measures that facilitate greater inclusion of new entrants in value chains, amongst other goals.
This research focuses on the petroleum and liquid fuels value chain as a key economic sector in which there has been significant government and industry intervention to achieve greater inclusion. Using qualitative information drawn from both primary research interviews and secondary industry information, the research analyses the nature and extent of barriers to entry in the industry for smaller market participants, and whether the Petroleum and Liquid Fuels Charter (LFC) and B-BBEE have been adequate tools to address barriers to entry in the petroleum industry value chain. The analysis considers the period from 2000 to 2020 which is the period over which the relevant policy tools have been in place, focusing specifically on enterprise and supplier development aspects of B-BBEE and LFC as the objectives that speak specifically to the development of smaller market participants. The research finds that a range of barriers to entry impede racial inclusion (transformation) and competition in the industry, particularly at the wholesale and retail level. These barriers include costs of entry and access to finance, access to customers, a cumbersome regulatory framework, and a lack of access to and ownership of key infrastructure. The study concludes that the LFC process has not done enough to reduce barriers to entry, as it did not focus on addressing these specific structural and strategic barriers to entry.