Single Brush Stroke Stops Paints Cartel in its Tracks

Three years after an intricate East-African antitrust saga involving global European and Asian paint manufacturers, the industry is in the region’s competition-law news again.

By Andreas Stargard

Upon receiving allegations, in 2018, of cartel-like practices among paint manufacturers and undisclosed distributors, the Competition Authority of Kenya (CAK) launched an investigation into the companies suspected of breaching competition rules. These investigations later uncovered that four firms, namely: Crown Paints, Basco Products Limited, Kansai Plascon and Galaxy Paints were deemed guilty of collusion and price-fixing, subjecting the purchasers to unreasonably high prices for various paint brands. The CAK has since revealed its findings to the Kenyan Parliament.

Crown Paints has a flagship brand called DuraCoat, which includes paint products for both interior and exterior finishing (painting and waterproofing). Dura Brands’ exposed collusion with the other three companies sparked fears that consumers had been buying these products at artificially inflated prices. This is particularly significant given that Crown Paints is listed on the Nairobi Securities Exchange and is a heavyweight in the local Kenyan paints market, with further regional subsidiaries in Uganda and Tanzania (all COMESA member states).

Ruth Mosoti, Primerio Ltd.’s Kenyan competition practitioner, notes that the “CAK ultimately found that all four companies were in direct contravention of section 31 of the Competition Act, which addresses restrictive trade practices that prohibit companies from colluding with one another in order to determine product prices, as well as control when and to whom they will offer pricing discounts. The CAK alleges that these are all anti-competitive behaviors that are to the detriment of the consumer as well as other, outside competitors.”

In its Annual Report to Parliament, the CAK noted: “The investigations with respect to three other paint manufacturers and distributors were concluded in July 2019 with the Authority making a preliminary finding that the parties were involved in an anti-competitive agreement on prices, discount structure and transport charges.”

In line with section 36(c) and (d) of the Act, the CAK is entitled to impose financial penalties “to remedy or reverse the infringement or the effects thereof” which may span “up to ten percent of the immediately preceding year’s gross annual turnover in Kenya of the undertaking or undertakings in question”.

Of the four Companies, Basco Products Limited was the only company that did not challenge the CAK’s preliminary ruling and paid a penalty amount of Sh20.799 million. The company further agreed to abstain from committing any similar breaches in the future. While the other subject companies initially appealed the decision handed down by the CAK, AfricanAntitrust.com editorial staff have now learned that up to 3 of the accused firms have opted to settle, having withdrawn their appeals.

COMESA

It is also pivotal to note that on the 25th of February 2021, the COMESA Competition Commission (CCC) issued a cautionary note specifically pertaining to the consequences of forming artificial barriers to free trade, such as collusive practices and other horizontal agreements hindering competition.

The CCC — in its recent bid to become a fully-fledged competition enforcement agency that investigates not only merger activity (as it had done primarily so far) but also pursues hard-core antitrust offences such as cartels — made reference to Article 16 of the Regulations, prohibiting “all agreements between undertakings, decisions by associations of undertakings and concerted practices which: (a) may affect trade between Member States; and (b) have as their object or effect the prevention, restriction or distortion of competition within the Common Market”.

The Kansai paint allegations described above would fit the bill, but we shall see what cartel matters the CCC will pursue going forward, and in which industry segments… The CCC has stated that it “…will work closely with the national competition authorities in the Member States to ensure that offenders are detected, investigated and punished”. Furthermore, there is particular focus on “hard enforcement through screening, detection, investigation and punishment of offenders”.

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