Parliament is preparing to put South Africa’s auction industry under the microscope over concerns that auctions are being used to undervalue assets, shut out local buyers and potentially undermine the country’s economic interests.
The Portfolio Committee on Trade, Industry and Competition will engage the auction industry and regulatory bodies on Tuesday over the sale and disposal of strategic and productive assets.
The committee says it wants to establish whether weaknesses in legislation and regulation are allowing abuses in the industry to go unchecked.
Its concerns include alleged corruption and a lack of transparency, the undervaluation of state and productive assets, reduced government control over strategic sectors and barriers preventing transformation in the auctioneering industry.
The committee is also questioning the growing use of online auctions.
Chairperson Mzwandile Masina has warned that online auctions could give foreign buyers an advantage over South African buyers because of exchange-rate differences.
The committee is also concerned about what it describes as a disproportionate acquisition of strategic and productive assets by foreign companies through auctions.
It says this could undermine local businesses and domestic ownership and management of strategic assets.
The committee’s intervention comes amid growing scrutiny of how state-linked and productive assets are valued, marketed and ultimately sold.
The concerns are not entirely theoretical.
In March, Parliament’s Mineral and Petroleum Resources Committee said the Special Investigating Unit was investigating the marketing, valuation and sale of diamonds at state-owned Alexkor.
The probe focuses on the appointment of Scarlet Sky Investments, also known as the Alexander Bay Diamond Company, in 2014 and 2016 to market and sell diamonds for the joint venture between Alexkor and the Richtersveld Mining Company.
The SIU has made referrals for civil recovery, disciplinary action and criminal proceedings against officials who were part of that joint venture at the time of the procurement.
It is still investigating contracts between traders, auctioneers and diamond buyers, as well as possible conflicts of interest.
In 2021, an investigation by the Organised Crime and Corruption Reporting Project reported that the Gupta-linked Scarlet Sky was allowed to auction and sell the diamonds at reduced prices, and that some were sold to a company owned by one of Scarlet Sky’s own shareholders.
Diamond diver and whistle-blower Gavin Craythorne estimated that diamonds worth R783 million were sold for about R414 million in Scarlet Sky’s first year.
OCCRP said it found no evidence that Scarlet Sky, its shareholder or the Guptas profited from the sales. Scarlet Sky’s lawyers have previously said diamond revenue rose from R276 million to R414 million in its first year.
Those allegations relate to a specific company and set of transactions and are not findings against the auction industry as a whole.
The committee now wants to determine whether similar vulnerabilities exist elsewhere in the auction industry.
It says the industry is largely self-regulated, although certain asset classes are subject to government regulation.
That regulatory structure is one of the issues Parliament intends to examine.
The committee wants to establish whether there are gaps in legislation and regulation that allow unscrupulous practices to continue.
It is considering whether a more consolidated legislative framework is needed to strengthen oversight while preserving a fair, transparent and competitive auction system.
Transformation is another major concern.
Parliament says barriers to entry may be preventing historically disadvantaged people from meaningfully participating in the ownership and operation of auction businesses.
The committee has also invited members of the public to provide information about unscrupulous practices, the industry’s transformation record and the impact of auction practices on economic development.
The deadline for written submissions was 30 September.
The committee’s concerns come at a time when auctions have become increasingly digital, allowing buyers to participate remotely and potentially opening South African asset sales to international bidders.
For Parliament, that raises a fundamental question: who ultimately gets to own South Africa’s strategic and productive assets when they go under the hammer?
The committee is expected to hear from auction industry representatives and relevant regulatory bodies on Tuesday.
The outcome could determine whether Parliament pushes for tighter regulation of an industry that can play a decisive role in determining how valuable assets move from one owner to another.
