Zambian Competition Authorities Finalise Guidelines for New Merger Regulations

zambiaThe Competition and Consumer Protection Commission (“CCPC”) recently published the CCPC Guidelines for Merger Regulations 2015 (the “Guidelines”).[1]

The Guidelines are binding on all “persons” regulated under the Competition and Consumer Protection Act, No 24 of 2010 (the “Act”) insofar as the provisions of the Guidelines are not “inimical” to the Act.

An extensive definition of what constitutes a “merger”

In terms of the Act, a merger is defined as “a transaction between two or more independent parties which results in one party acquiring an interest in the other party”.[2]An “interest” may be acquired through the acquisition of shares, assets or through an agreement such as a joint venture.

The Guidelines confirm that the acquisition of a ‘material interest’ is likely to be considered as a merger. Furthermore, the acquisition of “control” can include indirect control such as the case where minority shareholders are able to exercise veto rights or in the case where a supplier may exercise control over a downstream customer as a result of a long term supply agreement.

The Guidelines have also confirmed that for purposes of establishing an “acquisition”, even a lease agreement over an asset can be considered to be an ‘acquisition’ in certain circumstances. The lease over the asset must, at a minimum, change the competitive situation in the relevant market.

The Guidelines have, therefore, caste the Zambian merger control net broadly in respect of establishing whether control has been acquired (or relinquished).

Clarification regarding joint ventures (“JVs”)

Notably, the Guidelines dedicate a substantial portion to agreements such as JVs. The CCPC has taken a robust approach to JVs and generally JVs will, if the financial thresholds are met, be required to be notified, unless they are “auxiliary” to the activities of their parent enterprises.

A JV will be considered to “auxiliary” if the JV fulfils a specific purposes for their parent company, as opposed to a “full function” JV which operates as an autonomous economic entity on an indefinite basis.


Confusion regarding transactions involving foreign enterprises

As far as transactions involving foreign entities are concerned, there appears to be some anomalies in the Guidelines as illustrated by the two scenarios envisaged below.

In the first scenario, the Guidelines state that when a domestic (Zambian) enterprise “falls within the control of a foreign enterprise”, notification will only be required if the “operation has an effect on competition in Zambia”. This requirement seems to place the cart before the horse to some extent in the sense that a competition analysis needs to be performed simply to establish whether the transaction should be notified in the first place. In other words, it appears that if a foreign parent company acquires a domestic company, the merger will not have to be notified (despite meeting all other requirements of a mandatorily notifiable merger), if the proposed transaction would not have an impact on the competitive environment in Zambia.

The second scenario envisaged by the Act, is when a foreign company acquires another foreign company, but where at least one of the parties to the proposed transaction has a “local connection” to Zambia. For instance, a local connection may exist if the foreign entities have subsidiaries based in Zambia or derive at least 10% of its sales in Zambia for a period of at least three years.

In the latter scenario, the mere existence of a local connection is sufficient to trigger a merger notification requirement and no evaluation on the impact of the proposed transaction on competition needs to be considered.

It is likely that the two scenarios should be interpreted simply to confirm that there must be an effect on Zambian commerce before a merger notification requirement is triggered.

Possibility of pre-notification

The Guidelines also make provision for a pre-notification consultation with the CCPC for purposes of clarifying matters such as whether a transaction constitutes a merger or should be notified, as well as obtaining advice in relation to calculating annual turnover, value of assets or market shares.

Risks of prior implementation

Importantly, the Guidelines expressly state that prior implementation of a mandatorily notifiable merger may be result in the firms being liable to a fine of up to 10% of their annual turnover. In this regard, the Guidelines do not limit the ‘10%’ to turnover derived in, into or from Zambia.

The Guidelines further provide for a number of procedural aspects to merger notifications including, inter alia, timelines and the forms required to be completed.


Details on the assessment of a merger by the CCPC

As to the substantive evaluation of a merger the Guidelines provide significant guidance.

As a point of departure, the Guidelines recognise the types of mergers and theories of harms which are common to most established competition regulatory regimes.

The Guidelines recognise that most vertical and conglomerate mergers do not raise competition concerns, although there are of course exceptions, especially when a merger can give rise to foreclosure effects.

Importantly, like many African jurisdictions, the CCPC will assess the public interest impact of a proposed merger when deciding whether to approve the merger or not.

The public interest provision is drafted slightly differently to many other legislative instruments containing similar provisions.

In terms of the Guidelines, the CCPC will evaluate whether a merger, which has failed the competition test, should proceed on the basis that there are public interest grounds which justify the approval. The Guidelines do, however recognise that even a pro-competitive merger could be prohibited on public interest grounds. The Guidelines give no more guidance as to how public interest grounds will be considered or evaluated.

The Guidelines provide substantial additional information in relation to how the CCPC will evaluate the various factors taken into account when evaluating the impact of a merger. Some of these factors include:

  • market definitions;
  • market concentrations;
  • counter-factual;
  • market entry, import competition;
  • counter veiling buying power;
  • removal of a vigorous and effective competitor; and
  • and effective remaining competition post merger

The Financial thresholds

On a final note and of considerable importance, the Guidelines, together with the Annexure to the Guidelines, prescribe low financial thresholds for mandatorily notifiable mergers.  In terms of the Guidelines, the combined asset value or turnover figures for merging parties must be at least 50 million fee units to constitute a mandatorily notifiable merger.

The Annex to the Guidelines indicates that 15 million Kwatcha would amount to 50 million fee units, 15 million Kwatcha being approximately (US $ 1 470 000).

The Guidelines also cater for the calculation of filing fees.

[1] See the CCPC’s Guidelines:

[2] See Section 24 of the Act.

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