Industry concentration and profitability in SA

Industry concentration is often thought to correlate with higher profitability, as dominant firms benefit from market power and economies of scale. However, this dynamic may also stifle competition and innovation. In today’s post, we present the concentration ratios of industries and sub-industries for which Statistics South Africa have published both concentration ratios and profit margins. Aggregate industry figures mask a lot of sub-industry heterogeneity in concentration and profit margins and these figures exclude some of the high concentration industries for which margin data are not published (such as fisheries and forestry). At sub-industry level, we find that the correlation between concentration and profit margins to be very low, with many high concentration industries experiencing low profit margins. In part, this may be explained by the long-term decline in net profit margins in South Africa and the domination of some industries by government-related corporations. Unfortunately, available data make it difficult to assess the extent to which factors might explain overall industrial outcomes.

Footnote

Profit margins can vary significantly year-to-year, so these figures are also likely influenced by the survey years that are available. In a future post, we will delve deeper into the same question for sector sub-industries.

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