News & Analysis of competition-law developments from the Leading African Antitrust Resource
Author: andreasstargard
Director, Primerio Ltd. and Partner, EU Advocate SPRL. Competition Law and Antitrust. Advise companies on European, U.S., and international antitrust and related legal matters.
The Western Australian government has signed a Memorandum of Understanding with COMESA.
Colin Barnett signed the papers yesterday, January 31, 2014. COMESA dutifully posted a news release on its web site, albeit misspelling the W. Australian premier’s name (“Colin Barnnet“).
Setting aside the embarrassing PR SNAFU, we expect the MoU to have little to no effect on competition enforcement by the COMESA Competition Commission. The MoU appears to us to be primarily minerals-focussed (we note that this should come as no surprise, given the mineral-rich COMESA members and the fact that Western Australia is the world’s second-largest iron ore producer). The six so-called “thematic areas” of the MoU are: fiscal frameworks and mineral policy, strengthening human and institutional capacities, collection and management of geo-scientific information, research and development, environmental and social issues; and linkages, diversification and cluster development. Antitrust/competition is nowhere to be found.
That said, Western Australian companies may choose to invest more in the region and therefore somewhat increase the merger notification statistics, which have been lackluster to date.
The South African Competition Commission (“Commission”) has recently announced that it has concluded its investigation into the major retail grocery stores, namely Shoprite Holdings Ltd, Woolworths Holdings Ltd, the Spar Group Ltd and Pick ‘n Pay Stores Ltd, as well as wholesale retailers, Massmart Holding Ltd and Metcash Trading Africa (Pty) Ltd for alleged contraventions of the Competition Act in relation to exclusive lease agreements.
By way of factual background, the Commission initiated an investigation in 2009 against Shoprite, Woolworths, Spar, Massmart, Metcash and Pick ‘n Pay in which the Commission examined various competition concerns including buyer power, category management, information exchange and long-term exclusive lease agreements. The Commission’s initial investigation uncovered no evidence of competition contraventions, yet subsequently the Commission decided to focus its investigation on the long-term exclusive lease agreements, evaluating whether they could potentially give rise to contraventions of abuse of dominance and restrictive vertical practices.
The Commission’s investigation failed to find sufficient evidence to meet the tests set out in the Competition Act to proceed with the investigation. As a result, the Commission has decided not to refer the matter to the Competition Tribunal, concluding that “on the basis of the evidence before the commission, the anti-competitive effects of the conduct could not be demonstrated conclusively.“
More countries may enter the mix of players – but at the platform level, competition may have stagnated
As we reported last month, the mobile payments sector is going gangbusters on the African continent. Kenya is ahead of the game, but other countries are closing in.
Kenya itself is considered by many to be at the forefront of the African mobile-payments universe, with its M-Pesa mobile-currency system often touted as the most developed mobile-payment system in the world. The Economist asked rhetorically: “Why does Kenya lead the world in mobile money?”, pointing out that roughly 25% of Kenya’s GDP flows through the mobile service, with over 17 million users in Kenya alone. The WorldBank has commented that “Mobile payments go viral [with] M-PESA in Kenya.”
Earlier this week, South African media outlet Business Tech published an interesting comparative piece on the issue, entitled “Africa leads in mobile banking“. The article shows (also graphically, see below) how and South Africa are close rivals to the Kenyan leadership in the mobile payments industry:
Image credit: Business Tech
What triggered the article is the release of the MEF-Africa reporton mobile payments on the continent, which provides much of the content of the Business Tech piece.
One of the key developments highlighted is that M-Pesa’s platform may soon see a major upgrade in South Africa (where it is run by Vocadom and Nedbank), according to the article, linking the system directly with the brick-and-mortar banks’ platforms. This may either (1) cement the relative market dominance of M-Pesa or (2) spur further innovation and enhance the overall competitiveness of the still rather young industry.
The sector has recently been the subject of significant attention from the Commission, the South African health minister in particular, and the S.A. government in general. In spite of the perilous state of South Africa’s public health system, the government appears to have invested more time in deflecting from the obvious problems in the public branch by subjecting the private sector to a costly investigation. From a procedural-history point of view, it is interesting to note that the market inquiry provision was brought into effect by way of Section 6 of the amended South African Competition Act. Although there were other areas of the legislation to be amended, it is noteworthy that only the market inquiry provision was brought into effect.
Many have suspected that the motivation behind the private healthcare inquiry was based on aspirations from outside the ambit of the Commission, particularly since the launch of the South African government’s National Health Insurance policy scheme (designed to achieve the noble aim of universal health insurance coverage, not entirely unlike the United States’ “Obamacare” effort) may ultimately cause the demise of a robust private healthcare sector.
Independence of Commission questioned
With this in mind, what is perhaps most interesting is a recent public submission made by the newly appointed 37-year old Acting Competition CommissionerTembinkosi Bonakele in the South African media. In an article co-authored with Ms. Paremoer, the Commission principal responsible for the healthcare inquiry, entitled “Market inquiries an important advocacy tool” (also published in the Sunday Times), Bonakele attempts to deflect any suggestions of government involvement in (or other ministerial influence over the pursuit of) the market inquiry. This approach seems at odds with Mr Bonakele’s predecessor, Shan Ramburuth – who was unceremoniously let go by the same government in a public display of shaming last year – in seeking to justify the motivation behind the private healthcare inquiry. (We note that the present government has an apparent history of “letting go” unruly cabinet members in unusual and rather bombastic fashion, see here and here.)
Ramburuth’s Commission had previously stated expressly, for instance, that the inquiry was intended at least in part to review the sector for collusive behaviour, while Mr. Bonakele now disavows this rationale and claims that any such findings would merely be a side effect of the inquiry (“[o]f course, during such an inquiry, we may come across anti-competitive practices that need to be rooted out”).
In his piece, the Acting Commissioner seeks to reassure those who “remain confused about the […] intended market inquiry,” and states that the “inquiry is not a stalking horse“:
“we are simply seeking to understand how to improve efficiency and competition” in what he calls the “complicated web” of the healthcare industry.
Is this a case of Shakespearean “the [man] doth protest too much”, especially when keeping in mind that the private healthcare sector has previously been acknowledged to be competitive and efficient. Mr. Bonakele has previously emphasised his independence, despite being referred to in the press as Minister “Patel’s man”:
“I haven’t responded to the media debate out there because I don’t think one has to stand on a mountain and say ‘I’m independent’. Actions speak louder than words.” [Source: BDLive]
Acting Commissioner Bonakele
The aim of the inquiry, according to the Acting Commissioner, is to improve competition and efficiency in the sector to such a degree that the ordinary man on the street will have full access. A very noble goal indeed, but when juxtaposed with the fundamental function and intention of the NHI,it is highly contradictory: the private healthcare sector is, by definition, not in the business of providing access to everybody. The public NHI body’s own slogan, on the other hand, shows that the national insurance programme fulfills precisely that role: “NHI is premised on the ideology that all South Africans are entitled to access quality healthcare services.”
What is perhaps of greater concern (with a wider applicability than just the healthcare sector, public or private) to competition-law enforcement in South Africa as a whole, is the confluence of the government’s industrial policy ambitions with otherwise supposedly independent Commission investigations and its competition adjudication based in the pure law & economics of antitrust. As previously reported in our piece on political interventionism in South African competition law, the Commission should seek to demonstrate its complete independence from the cabinet and executive branch as a whole, and avoid falling into the trap FTC Chairwoman Edith Ramirez warned against: the “proper goals” of competition law are best solved when a competition authority is focused on competitive effects and on consumer welfare and its analysis is not “interrupted to meet social and political goals.”
In sum, one must hope that Mr. Bonakele can be taken at his word when he says that, while “[m]aybe people think the minister will use the commission as a tool, but it’s just not possible. This is a legal process we are talking about.“
The settlement was finalized by the Competition Tribual on 18 July 2013. Its terms include, importantly for the latest job-related and divisional developments at Telkom, the functional separation between the company’s retail and wholesale divisions, in addition to other pricing commitments, a fine, and ongoing monitoring obligations under the guidance of the Commission. As reported today, the company has now also issued and implemented a new antitrust/competition compliance policy, its so-called “Competition Settlement Code of Conduct Policy,” reportedlya whopping 25-page document.
In this latest round of compliance efforts, Telkom’s CEO Sipho Maseko is said to have sent out communications to all staff, attempting to alleviate media reports about potential large-scale job cuts. He is cited as follows: “While I can’t predict the future, I can unhesitatingly say the 12 months that lie ahead will be demanding. Challenges await, of this we can be certain. We will have to be on top of our game and tackle the issues that influence our business with focus and purpose if we are to unlock our full potential.”
Competition policy: economic necessity vs. budgetary constraint
Professor Flavien TCHAPGA (Economics, University of Versailles, France) published an intriguing paper on developing effective competition policies in Africa and on the inherent tension this effort faces: their economic necessity on one hand vs. the realpolitik of budgetary constraints on the other hand. His analysis — available in full PDF to our valued [francophone] readers here — focuses on the member countries of CEMAC and WAEMU.
Abstract:
Because of the promises of efficient markets (protection of consumer interests, reduction of poverty, innovation and economic dynamism), competition policy is an attractive issue for Central African Economic and Monetary Community (CEMAC) and West African Economic and Monetary Union (WAEMU) countries. However, appropriate financial resources are essential for its effectiveness. This paper assesses the competition policy implementation in these two regions. In particular, it focuses on the balance between the issues at stake and dedicated financial resources since this could signal governments’ commitment to ensure effective implementation of competition legislation for better market outcomes.
According to various reports, the European Commission (specifically, its top management in the energy DG [Oettinger] and its president [Barroso], as well as others) has caved to the Russian energy powerhouse GAZPROM.
N.B.: (1) Yes, this relates to Africa. (2) And yes, this relates to competition.
It relates to competition because the pending antitrust investigation by Mr. Almunia, already hamstrung, is clearly hampered by this development from its adjacent energy DG. One Commissioner has caved, and another (a lame duck by now, who has already announced his retirement from the entire realm of politics) will not even bring a conclusion to his DG’s investigation into GAZPROM. Putin and his friends at the gas giant have (now successfully) challenged the European energy and competition ministers, effectively saying to them: “We will break your laws, and there isn’t a thing you can do about it.”
It relates to Africa, because this is the story of how a BRICS country state-owned enterprise (or at least de facto SOE) is fully capable of defeating the “rule of law” that European proponents of the superiority of Western legal systems often tout. Is EU law hard and fast? Unbreakable? Strictly enforced? Without exceptions, for special friends (or powerful foes)? All the common criticisms that are levied by eurocrats against developing African judicial systems are brought to the fore by this abject failure of the EU to uphold its own laws vis-a-vis a stronger opponent.
Banana Republic Brussels
The answer to the rhetorical questions posed above is – quite clearly as of today at least – a resounding “no“:
The EU has caved. EU laws can be broken. Without any consequences.
Until recently, the GAZPROM contracts with EU member states for its (63 billion cubic metres of gas per year) “South Stream” Project violated EU law, according to prior statements of the relevant EU Commissioners and their spokespeople. The main concerns (here from the energy perspective, not the competition issues) were:
ownership unbundling rules violated by Gazprom being both a producer and a supplier of gas that owns simultaneously production capacity and its own transmission network
3d-party non-discriminatory access endangered by Gazprom being exclusive shipper
South Stream’s pricing structure violates EU energy tariff rules
Yet, after some diplomatic prodding and economic threats, the Commission now has changed its tune and is literally giving GAZPROM a “get-out-of-jail-free card.”
“Gunther Oettinger, the European Commissioner for Energy, told Vedomosti newspaper that Moscow and Brussels will find a solution to honor previous intergovernmental agreements Gazprom has made with European transit countries.” (Source: Vedomosti newspaper, as quoted by rt.com)
Contrast this with what Mr. Oettinger said back in 2011 (note that he also (1) called South Stream a “phantom project” and essentially didn’t believe the Russians would go ahead with its construction in 2012, and (2) was quite clear in his understanding of how market participants operate: “money talks,” baby!):
I understand that certain EU Member States entered into bilateral agreements with the Russian Federation which may partially contradict these principles. If this is true, these Member States will nevertheless have to apply the internal market rules and they are under an obligation to bring their IGAs in line with the EU legislation. (Source: His own speech)
“The Commission has looked into these intergovernmental agreements and came to the conclusion that none of the agreements is in compliance with EU law,” Borchardt said.
“That is the reason why we have told these states that they are under the obligation, either coming from the EU treaties, or from the Energy Community treaty, that they have to ask for re-negotiation with Russia, to bring the intergovernmental agreements in line with EU law,” he added. (Source: EurActiv)
Lesson (not) learned
How to wrap up a piece that essentially sounds the death knell of the rule of law in the EU, especially in Brussels? Well, since this is an AfricanAntitrust.com post (this could arguably be published anywhere), the focus should be on EU lessons learned on the African continent. The key take-away here may be this:
Very simply put: any African (or other BRICS or BRICS-like country) negotiator dealing with an official EU delegate as his or her counterparty should keep the “GAZPROM incident” in mind when faced with a lecture on the superiority and objectivity of EU law over whichever domestic judicial system may be at issue.
Arguably, most if not all of today’s antitrust enforcers would agree that the world’s competition regimes (African or Asian, American or European, established or recently budding) are fundamentally designed to achieve very few, but important, goals. Among these goals are the following: (1) economically, to enhance the market’s allocative efficiency & stimulate growth of production and (2) individually, consistent with Bob Bork‘s key insight, to increase consumer welfare (even if the latter may not be a formally stated aim of some regimes).
Is the world today better for the [working] consumer than it was 123 years ago, when Senator Sherman and the majority of the U.S. legislature decried the unjust and ill-gotten riches of that era’s robber barons and enacted the Sherman Act?
Robber Baron, circa 1890
The paper is interesting but too short to be of real academic or legal value in and of itself, in our view. The infamous photo of the super-yacht on the authors’ blog represents the easy part of what they set out to accomplish – politicizing the issue and driving popular opinion (much akin to the period newspaper cartoon above).
Robber Baron, circa 2014
That said, authors Ricardo Fuentes and Nick Galasso go somewhat beyond the, by now, usual egalitarian quotes (Brandeis’s Depression-era statement: “We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both“) and the well-known head-turner statistics of inequality (e.g., “almost half [of the world’s wealth is] going to the richest one percent; the other half to the remaining 99 percent“), many of which are also found on their blog.
Yet, while they do go a bit deeper than merely scratching the surface with populist platitudes and photos of jetsetter playtoys, they fail to do so on the specific issue of how antitrust fits into the question of global economic inequality. One need not attempt to un-seat Bork from the academic and judicial pedestals he has reigned over for 4 decades, but one could try a bit harder here… The OXFAM study simply does not provide any new insights. To its credit, it does identify the issue – but it does not develop the overall impact of competition law any further than highlighting the one (very particularized) example of the allegedly monopolistic Mexican telecoms sector:
Anti-competition and regulatory failure: the richest man in the world
Weak regulatory environments are ideal settings for anti-competitive business practices. Without competition, firms are free to charge exorbitant prices, which cause consumers to lose out and ultimately increase economic inequality. When elites exploit weak or incompetent anti-trust authorities, price gauging follows as a form of government to big business. By not acting when dominant firms crowd out competition, government tacitly permits big business to capture unearned profits, thereby transferring income from the less well-off sections of society to the rich. Consumer goods become more expensive, and if incomes do not rise, inequality worsens.
Mexico’s privatization of its telecommunications sector 20 years ago provides a clear example of the nexus between monopolistic behavior, weak and insufficient regulatory and legal institutions, and resulting economic inequality.
Mexico’s Carlos Slim moves in and out of the world’s richest person spot, possessing a net worth estimated at $73bn. The enormity of his wealth derives from establishing an almost complete monopoly over fixed line, mobile, and broadband communications services in Mexico. Slim is the CEO and Chairman of América Móvil, which controls nearly 80 percent of fixed line services and 70 percent of mobile services in the country. A recent OECD review on telecommunications policy and regulation in Mexico concluded that the monopoly over the sector has had a significant negative effect on the economy, and a sustained welfare cost to citizens who have had to pay inflated prices for telecommunications.
As the OECD report argues, América Móvil’s ‘incessant’ monopolistic behavior is facilitated by a ‘dysfunctional legal system’, which has replaced the elected government’s right and responsibility to develop economic policy and execute regulation of markets. This system has stunted the emergence of a dynamic and competitive telecommunications market. In fact, many of the regulatory instruments present in most OECD countries are absent in Mexico.
The costs of government failure to curb such monopolistic behavior are large. Mexico has a high level of inequality and has the lowest GDP of all OECD countries. As other OECD countries demonstrate, a more efficient telecommunications (especially broadband) sector can play an important role in driving economic growth and reducing poverty, especially among a large rural population, as in Mexico’s case. The OECD calculates that the market dysfunctions stemming from the telecommunications sector have generated a welfare loss of $129.2bn between 2005 and 2009, or 1.8 percent of GDP per year.
In the end, no matter how deeply or superficially the paper treats its subject, it will likely be of great interest to several of the African competition enforcers that preside over antitrust regimes in which the “public interest” criterion is present (e.g., COMESA, South Africa, and several others). This means in practice: We at AfricanAntitrust.com expect the paper to be cited in the near future by a competition authority near you. So get acquainted with it before it’s too late.
High-level appointments made by acting Competition Commissioner
According to statements made by the interim South African Competition Commissioner, Tembinkosi Bonakele, and based on several news reports (here and here, for instance), the SACC has filled several of its recently (or not-so-recently) emptied ranks:
Chief Economist and Manager of the Policy and Research division: Liberty Mncube
Divisional Manager of Enforcement and Exemptions: Junior Khumalo
Chief Financial Officer: Thomas Kgokolo
The appointments were made effective as of the first of the year. The SACC had been criticised for lack of stability in its leadership and overall staff, given a fairly high turnover rate among its employees and officers. Perhaps to counter this impression, Mr. Bonakele said in the official SACC statement that the “new appointees will provide the necessary leadership to their very important divisions. It is important that we have a very strong and stable senior management team and I have full confidence that this team will take the Commission to higher levels. We are privileged as an institution that we are able to find most candidates internally and thereby ensure continuity.” (Emphasis added).
Focusing on the first new appointment to the Chief Economist role – a position that has sat empty for over a year, according to our recollection – it not only provides for a catchy title but is indeed a noteworthy fact that Mr. Mncube is a graduate student at the moment. We do not know of any other competition enforcement agency that has filled the job of chief economist with someone who is currently pursuing a degree in economics. This comment is not to diminish Mr. Mncube’s accomplishments, nor to take away from his potential to fill the role adequately. It simply states a fact. His past professional biography includes the following, according to a 2011 ICN The Hague conference web site:
[Note: information as of 2011] “Liberty Mncube is a Senior Analyst in the Policy and Research Division of the Competition Commission of South Africa. At the Commission, his responsibilities include managing and coordinating research and policy development; managing and coordinating case analysis; contributing in building capacity for research and knowledge of competition policy; and undertaking analysis related to competition matters with regard to policy and regulation. Prior to joining the Commission, he was a Researcher at the Development Policy Research Unit at the University of Cape Town. Liberty holds an MSc in Economics from the University of York.”
Mr. Mncube’s own LinkedIn profile is updated to reflect his current position:
I am the Chief Economist at the Competition Commission South Africa. I hold a MSc in Economics from the University of York and am currently completing a PhD in Economics at the University of KwaZulu-Natal. I have been a visiting PhD graduate student at the Barcelona Graduate School of Economics.
to our valued [francophone] readers here
African Antitrust & Competition Law 