On Sunday, 30 June 2024, President of South Africa, Cyril Ramaphosa announced South Africa’s new cabinet under the newly-formed Government of National Unity (‘GNU’). The Government of National Unity is “a government that brings together a number of rival leaders and political parties in order to promote national unity and political stability” (Cheeseman, N., Bertrand, E., and Husaini, S. (2019). A Dictionary of African Politics, Oxford University Press). The Democratic Alliance, South Africa’s main opposition party, is generally considered to be more business friendly than other, rival parties.
From the new cabinet announcement, it has been revealed that Parks Tau is the new Minister of the Department of Trade, Industry, and Competition (‘DTIC’), with Zuko Godlimpi and Andrew Whitfield serving as Deputy Ministers. Mr. Tau, the former Mayor of Johannesburg, is seen as a more business-friendly appointment than his predecessor, Ebrahim Patel.
We anticipate that the aggressive approach taken by the South African Competition Commission in driving an industrial policy agenda will be moderated in favour of a more business-friendly approach. A more balanced implementation of public interest objectives is expected, aiming to stimulate economic growth, business development, job creation, and more.
Any potential changes to the structure and mandate of the Commission remain to be seen.
Lessons drawn from the Constitutional Court in the Coca-Cola Appeal
By Brandon Cole
In a pivotal decision issued on April 17, 2024 by the Constitutional Court of South Africa, the case of Coca-Cola Beverages Africa (Pty) Ltd against the Competition Commission has reshaped our understanding and enforcement of post-merger conditions in business transactions. Stemming from a 2016 merger that led to the creation of “Coca-Cola Beverages South Africa” (out of four separate entities), the case underlines the complexity of adhering to merger conditions imposed to safeguard fair competition and operational continuity.
The merger was initially green-lit with certain conditions focused on preventing job losses (“retrenchments”) and on harmonizing employment terms across the new entity. Despite these protective measures, certain challenging economic conditions, including a sugar tax and rising input costs, compelled Coca-Cola to undertake some retrenchments. This action sparked a legal challenge from the Food and Allied Workers Union (FAWU), asserting a breach of the stipulated merger conditions that underlay the transaction’s approval by the antitrust authorities.
Central to the dispute was the interpretation of how merger conditions are enforced and reviewed under the South African Competition Act. The crux was whether Coca-Cola’s retrenchments violated the merger-specific conditions or were justified by external economic pressures. The Competition Tribunal, tasked with adjudicating the challenge, initially ruled in favour of Coca-Cola, recognizing the broader economic factors at play. However, this decision was overturned by the Competition Appeal Court, which led to Coca-Cola’s subsequent appeal to the Republic’s Constitutional Court.
The Constitutional Court’s decision clarified several crucial aspects regarding the enforcement of merger conditions:
Nature of review: The Court differentiated this review from ordinary administrative actions, focusing on whether Coca-Cola substantially complied with the merger conditions rather than strictly adhering to them without regard for external circumstances.
Causal connection: The Court criticized the narrow focus of the Appeal Court on the direct causality between the merger and retrenchments. Instead, it supported a more holistic approach that must consider all relevant factors impacting business decisions post-merger.
Implications for business strategy: The judgment emphasized the importance for businesses to thoroughly plan and document their strategies when complying with merger conditions. This is essential to demonstrate substantial compliance, especially when external economic factors might compel deviations from the expected course.
This landmark judgment highlights the dynamic nature of post-merger conditions and their enforcement, illustrating that adherence to these conditions must consider both the intended protective measures and the practical realities faced by businesses. For companies undergoing mergers, this case serves as a critical reminder of the need to balance merger obligations with agile business responses to external challenges.
The insights derived from the Coca-Cola Beverages Africa case provide valuable lessons for businesses and legal practitioners involved in mergers and acquisitions, especially in terms of planning, executing, and justifying actions taken in relation to merger conditions.
Eight years after the South African Competition Commission (“Commission”) commenced its investigation into various national and foreign banks (“the Respondents”) in the Rand rigging case commonly referred to as the “Forex case”, the competition authorities continue to grapple with this complex case. While the Commission has continued to encourage the respondent banks to enter into settlement agreements with it, and several banks have done so, the case continues in respect of several Respondents.
Briefly, the Forex case pertains to an allegation of collusion between South African and foreign banks which would have led to the manipulation of the Rand-Dollar exchange rate amongst said banks. The complained of conduct is alleged to have occurred between 2007 – 2013 (at least) amongst 28 banks in Europe, South Africa, Australia, and the United States of America. The banks allegedly conspired to manipulate the South African Rand by, inter alia, electronically sharing information on USD/ZAR currency pair trades. The harm alleged to the Commission extended to the Rand exchange rate, which had spillover effects on South African trade, foreign direct investment, corporate balance sheets, public and private debt, financial assets, and concomitant prices of goods and services. Accordingly, the Commission’s case is premised on section 4(1)(b)(i) and (ii) of the Competition Act 89 of 1998 (“Act”) – being market allocation and price fixing.
Earlier this month, the Competition Appeal Court (“CAC”) again heard the Forex case, as new arguments have come to the fore. This time, the remaining Respondents have alleged that the Commission bears the onus to prove that all the Respondents partook in a single overarching conspiracy to manipulate the Rand. In this regard, despite the Tribunal having noted that the Commission’s referral “contains adequate details that have enabled us to conclude that the Referral, as a whole, prima facie, shows that there was a [single overall conspiracy] between the foreign and local banks to manipulate trading in the USD/ZAR currency pair”, the Respondents maintain that the case cannot proceed until this onus has been fully discharged.
Despite various developments over the past years, including a number of unsuccessful exception, objection, dismissal and strike out applications brought by the Respondents relating to jurisdiction, prescription and lack of particularity as well as successful joinder applications (in respect of the primary case) by the Commission, the case has not substantively progressed, and it currently stands to become one of the longest running matters before the competition authorities.
One of the Respondent’s Standard Chartered Bank (“SCB”), a multinational British Bank, has also recently entered into a settlement agreement with the Commission, in terms of which it admitted liability to the manipulation of the USD/ZAR currency pair and agreed to pay an administrative penalty of c.ZAR 42 million. SCB’s settlement follows a similar settlement between the Commission and Citibank in 2017. The Commission did not seek penalties against ABSA Bank, Barclays Capital and Barclays Bank as these Respondents had applied and were granted leniency in terms of the Commission’ Corporate Leniency Policy.
The Tribunal and CAC did, however, in March this year, require that the Commission file a new referral affidavit in order to substantiate the case that it had previously pleaded insufficiently. As to the Respondent’s argument that the Commission could not initiate complaint referrals absent the initiation of an investigation, the Tribunal noted that while the Commission needs to commence an investigation against a Respondent specifically to be able to initiate a complain referral against them, it clarified that whether such initiation is express or tacit, is immaterial. The Tribunal further noted that to oblige the Commission to specifically mention each respondent in its complaint to the Tribunal would lead to an absurd outcome, namely that the Commission would be precluded from joining potential or even self-confessed member(s) of a cartel subsequent to its complaint referral.
As it stands, the CAC continues to hear arguments on behalf of 13 banks, predominantly regarding evidence as to their involvement in the alleged “single overarching conspiracy”, and while the Respondents have spared no expense in defending their case, the competition authorities have in no way backed down.
This is an important case, but has also served as an important precedent setting case in relation to whether the Tribunal has jurisdiction to adjudicate a matter involving foreign entities (i.e., whether the Commission has jurisdiction to hear a complaint where firms are neither domiciled nor carry business in the Republic of South Africa). In this regard, the CAC held that the Competition Tribunal could enjoy personal and subject matter jurisdiction over pure peregrini, provided that there were adequate connecting factors between the foreign firms’ conduct and the complaint from the Commission and upheld that Tribunal’s decision in relation to local peregrini that the Tribunal had jurisdiction where the qualified effects test was met and that a penalty sought should be confined to turnover within and exports from South Africa.
Primerio Director, Michael-James Currie provides the following insights: “the Forex case has, throughout the several bouts before the adjudicative bodies, confirmed that the thresholds for establishing jurisdiction over foreign entities and foreign conduct have been lowered. The Commission does however still have the onus on demonstrating that the conduct had a “substantial, direct and reasonably foreseeable effect in South Africa”. This will likely remain a contentious issue at trial as even South Africa’s National Treasury has confirmed that the conduct unlikely had any impact on the ZAR exchange rate. To the extent that individuals were prejudiced by the alleged conduct, it would be particularly interesting to see whether such victims would consider civil follow-on damages actions.”
[Gina Lodolo and Nicola Taljaard are lawyers in the competition law department at Primerio. The views expressed in this article are their own and not attributable to Primerio]
A perspective from private practice — the real cost of doing business in South Africa: Merger Control Disincentivizing Investment into the South African Economy
By Gina Lodolo, Joshua Eveleigh, and Nicola Taljaard
A Look Back:
South Africa has been trying to find the delicate balance between the promotion of public interest initiatives, attracting foreign investment and promoting the competitiveness of South Africa’s markets. In recent years, however, the South African Competition Commission (“Commission”) appears to have taken a more rigid approach towards requiring the promotion of public interest initiatives as an outcome of merger control investigations.
At the outset, it is important to note that the Competition Act 89 of 1998 (“Act”) allows the Commission to impose conditions on mergers and acquisitions that are deemed to result in a substantial lessening of competition or detrimental to the public interest.
In 2019, the Act also underwent a significant amendment regarding the public interest provisions. In accordance with the transformative values under the Act’s preamble, the amendment aimed to ensure that competition authorities have regard to public interest factors when assessing mergers and acquisitions and, in particular, section 12A(3)(e) makes provision for the promotion of a greater spread of ownership with a view to increasing the levels of ownership by historically disadvantaged persons and employees.
While the Commission was not so emphatic on the promotion of HDP and/or employee ownership immediately after the 2019 amendments, the Commission has been taking an increasingly robust approach to the imposition of these public interest criteria. Most notably, this can be seen from the widely publicised Burger King decision where a merger that raised no competition concerns was prohibited for the first time, based solely on public interest concerns (namely a decreased HDP shareholding from 68% to 0%). While the decision was ultimately settled before being heard on request for consideration before the Tribunal, it certainly indicated the trajectory of the Commission’s approach. Since the Burger King decision, the Commission has increasingly taken a hard-line regarding transactions that are benign both from a competition and public interest perspective.
While the amendments to the Act symbolize a benevolent effort toward the transformative objectives that the competition authorities are mandated to develop, a great deal of uncertainty stemmed as a result. In practice, the Commission’s interpretation of section 12A(3)(e) of the amended Act has been to place a positive obligation on the merging parties, post transaction, to increase the merging parties’ HDP and/or employee shareholding, often times utilising a benchmark of 5%. This is irrespective of whether a transaction is benign from both a competition and public interest perspective.
Merging parties, legal representatives and regulatory authorities have also substantially debated the interpretation and effect of the amended public interest provisions. The primary argument that contrasts the Commission’s interpretation of the amended public interest provisions, however, provides that section 12A(3)(e) is only one factor for consideration in determining whether a transaction that would otherwise have an adverse effect on competition or other public interest grounds, should be allowed. Premised on this interpretation, the Commission would not be authorised to refuse a transaction if it cannot show an adverse effect on competition based on a holistic assessment of the public interest grounds delineated in section 12A(3).
The Commission’s application of the public interest provision has increasingly lacked clarity and predictability, thereby creating uncertainty in the merger review process, and making it challenging for businesses to plan and execute transactions with confidence. This is particularly so when transactions are subject to long-stop dates where protracted engagements and negotiations with the Commission risk the termination of the entire agreement. To circumvent the incurrence of frictional costs and risks of breaching any long-stop dates, private practitioners are experiencing an increased amount of global mergers carving-out (or at least considering to) the South African legs of those transactions.
Firms are often concerned about the potential dilution of existing shareholders’ equity, regardless of the size of the firm. Foreign investors may be concerned about the impact of the allocation of new shares to employees on their current ownership stakes, potentially reducing their control and influence over the merged entity.
Further uncertainty surrounded how the application of what appears to be a 5% public interest divestiture approach will apply in all circumstances. For example, it is unclear whether this would apply to all merging parties even if the two merging entities are wholly owned BBBEE entities. Furthermore, how should firms divest a 5% stake in the merged entity where the underlying transaction involves land and no employees? These are some examples of the difficult questions the Commission has yet to consider if it is to continue with the outright application of its interpretation of the Act.
In addition, by insisting on ownership-related commitments from merging parties, the Commission’s policy undermines the efficacy of the BEE framework, as parties are likely to take the view that any efforts to improve their BEE profiles outside of the ambit of the transaction may, on the Commission’s approach and assessment, carry very little weight. Accordingly, firms may start to favour an approach of decreasing their BEE efforts prior to transactions in preparation of having conditions imposed on them. Firms may also start to undervalue the target to account for additional public interest spend or carve out the South African part of the transaction to circumvent this cumbersome condition.
Over an extended period, the outcome becomes evident for South Africa – increased uncertainty and an impractical application of the Act will result in decreased in investment; potential prohibition of competitively benign mergers and increased transaction costs.
While the Commission’s approach is prima facie laudable, the unintended consequences may result in a counterintuitive outcome and cause greater long-term prejudice to the public interest and growth of the South African economy. This is particularly true in light of the much-needed foreign direct investment South Africa requires following the effects of Covid-19, greylisting and economic instability.
Introduction of Public Interest Guidelines
On 28 September 2023, the Commission released their ‘Draft Amended Public Interest Guidelines relating to Merger Control’ for public comment accessible here (“Public Interest Guidelines”).
On the same day, at the Commission’s 17th Annual Conference, the Minister of Trade, Industry and Competition (“DTIC”), Minister Ebrahim Patel, lauded the amendments to the Act and stated that the increasing imposition of public interest conditions on mergers has resulted:
in a contribution of R67 billion towards the local economy;
the saving of at least 236 000 jobs over a period of five years;
the creation of at least 22 000 jobs;
and 143 000 workers now being shareholders in companies.
While there have certainly been commendable strides towards the achievement of promoting the transformation of the local economy, the above statistics do not paint a full picture. While many firms will continue to consent to the public interest commitments suggested by the Commission, for fear of an outright merger prohibition, a number of firms would rather carve-out the South African leg of multi-jurisdictional deals. This, in itself, would stifle economic growth and adversely effect the public interest in the long-term (as consumers do not stand to enjoy the benefits of pro-competitive mergers).
The Public Interest Guidelines are intended to formalise the Commission’s policy approach discussed above when evaluating public interest factors.
We outline the pertinent aspects of the Public Interest Guidelines below:
Commission’s approach to public interest factors in merger control
Section 12A of the Competition Act provides that both the competition and public interest assessments carry equal weight in merger considerations.
Regardless of whether a merger is found to result in a substantial prevention or lessening of competition (“SPLC”), the Public Interest Guidelines provide that the Commission must still determine whether the merger is “justifiable on Public Interest grounds”. In this regard, the Commission will determine the effect of the merger on each of the public interest elements arising from the merger to determine the net effect of the merger on the public interest.
General approach to assessing public interest provisions
The Commission considers that a merger assessment requires a quantitative and qualitative determination into the merger’s likely effect on:
a particular industrial sector or region;
employment;
the ability of small and medium businesses, or firms controlled or owned by historically disadvantaged persons, to effectively enter into, participate in or expand within the market;
the ability of national industries to compete in international markets; and
the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market.
Where the Commission concludes that the merger will have a positive effect on one of the above factors, there will be no further assessment into that factor. Where, however, the Commission finds that one of the above factors is substantially negatively impacted by the merger, the Commission will consider remedies to address these adverse impacts.
Importantly, the Public Interest Guidelines provide that where a negative impact on a public interest factor cannot be remedied, the Commission may consider “equally weighty countervailing Public Interest factors that outweigh the negative impact identified” on a case-by-case basis.
Where a merger is found to positively impact a majority of the above public interest factors, these may be outweighed countervailed by a substantial negative effects from a single public interest factor.
Approach to induvial public interest factors
The Public Interest Guidelines provide guidance on how the Commission will assess each of the public interest factors. For purposes of this summary, we focus primarily on “the promotion of a greater spread of ownership…by [HDPs] and workers…” factor which has caused the greatest degree of uncertainty, transaction costs and protracted negotiations with the Commission. This factor stands out from the rest of the public interest factors as the Public Interest Guidelines make it clear that the Commission considers section 12A(3)(e) of the Competition Act to confer a “positive obligation on merging parties to promote or increase a greater spread of ownership, in particular by HDPs and/or Workers in the economy.” In this regard, the Commission regards every merger having an effect in South Africa as having to promote HDP and/or worker ownership and therefore assumes no neutral effect.
In light of the above, where a merger does not promote HDP and/or worker ownership, it will be regarded as having an adverse impact on that particular public interest factor and, if considered substantial enough, may render the merger unjustifiable on public interest grounds.
The Public Interest Guidelines go further so as to state that where a merger promotes HDP ownership, this would not preclude the Commission’s obligation to consider an increase of ownership by workers.
Where the Commission considers there to be a substantial negative effect on the promotion of HDP and/or workers, the following remedies may be imposed:
concluding alternative ownership agreements with HDPs/Workers in either the acquiring, target or merged firm; and
divestitures to HDP shareholders which would create a greater spread of ownership in another part of the business. Importantly, the Commission will generally require that these HDPs and/or workers are actively involved in the operations (ideally control should be conferred) of the divested business and are not merely passive or financial investors.
Where the Commission proposes that an ESOP be implemented, the following guidance is provided:
where a merger results in a dilution of HDP and/or workers, the ESOP should remedy the full extent of the dilution;
where the merger does not result in a dilution, the ESOP should “hold no less than 5% of the value/shares of the merged entity but may be required to hold a higher shareholding based on the facts of the case”.
Where the Commission proposed that an HDP transaction be concluded, it provided the following guidance of the principles that ought to apply:
the HDP transaction should be no less than 25% +1 share and “should ideally confer control on the HDPs”;
the merging parties will have discretion to choose the HDPs; and
the merging parties must inform the SACC of the proposed HDP transaction prior to its implementation to assess compliance with imposed conditions.
Importantly, while the Public Interest Guidelines are not binding on the Commission, the Competition Tribunal or the Competition Appeal Court, they provide clarity on how the Commission intends on assessing mergers notified to it.
Despite an increase in certainty, the Public Interest Guidelines remain a cause for concern amongst the local and international private sectors as they have merely confirmed the policy approach that the Commission has increasingly been adopting in practice. In this regard, even where a foreign-to-foreign merger is notified to the Commission, it ought to consider how it can actively promote HDP and/or worker ownership and may become susceptible to ESOPs and/or HDP transactions in achievement of the Competition Act’s transformational objectives.
The Public Interest Guidelines are open for public comment until 28 October 2023 and are likely to be subject to extensive submissions.
On 31 July 2023, the South African Competition Commission (“SACC”) released its Final Report and Decision on the Online Intermediation Platforms Market Inquiry (“OIPMI”). The OIPMI was initially launched on 19 May 2021 and after a number of requests for information, public hearings, expert reports as well as comments and engagements with stakeholders, the SACC’s findings and recommendations have finally been concluded.
The SACC is empowered to conduct market inquiries according to section 43B(1)(a) of the Competition Act 89 of 1998 (as amended) where it has reason to believe that there are market features that may impede, distort or restrict competition in a particular market; or to achieve the objects and purposes of the Act (including participation of small and medium enterprises (“SMEs”) and historically disadvantaged persons (“HDPs”).
The Inquiry: A Timeline of Discovery and Discernment
May 2021: The kick-off. Release of the Statement of Issues (SOI), first round of Requests for Information (RFIs), and business user survey.
August 2021: Heating up with the release of the Further Statement of Issues (FSOI), second round of RFIs, and a refined business user survey.
November 2021: The public had their say with hearings and follow-up RFIs.
February 2022: Expert reports and in-camera hearings added a new dimension.
July 2022: Provisional Inquiry Report was published, provisional findings, and recommendations were made public.
August to December 2022: A flurry of submissions, stakeholder engagements, and follow-up RFIs.
January to July 2023: Engaging stakeholders on final findings and remedial actions, sealing the deal.
What Does It All Mean?
These findings focus on the various platform categories, including the mammoth influence of Google Search. The full extent of these actions requires deep exploration, but one thing is clear: the landscape of online intermediation platforms is about to shift.
During the launch of the OIPMI, the Minister Patel of the Department of Trade, Industry and Competition (“DTIC”) commended the SACC for its great effort and the high-quality product produced in the form of the OIPMI. He further noted that the government should consider taking an inclusive response to the findings and recommendations in the OIPMI.
The findings concluded, inter alia, that Google Search is vital as a means for consumers to access all platforms, and that its paid search alongside free results business model is disproportionately advantageous to larger and more established platforms. It also found that Booking.com’s practice of restricting hotel prices on certain online networks results in a restriction of competition and allows it to make more commission by making users reliant on it. eCommerce giant, Takealot, was found to have a conflict of interest due to its retail department competing with its marketplace sellers and causing detriment to the latter. Google Play and the Apple App stores were found to charge exorbitant fees to developers and on a global level, the platforms hampered the visibility of SA-paid apps. Food delivery platforms Uber Eats and Mr D Food were found to cause difficulty to their competitors because of the lack of openness regarding the surcharges charged on menus across their platforms, as well as the limitations put on national chain franchisees. Property advertisement platforms Property 24 and Private Property were further found to have hindered their competitors by providing low interoperability to competitors in respect of listings. Property 24, together with AutoTrader and Cars.co.za were also found to have hampered small estate agents and car dealers due to the discriminatory pricing implemented by these platforms.
To combat the effects of the findings, the SACC recommended the imposition of a number of remedial actions including consumer-aiding search filters, marketing incentives to purchase local goods, the removal of restrictive pricing clauses, the segregation of internal (competing) divisions, the removal of automatically directing mechanisms to larger players, disclosure clauses to consumers and other benefits to SMEs, HDPs and consumers.
All platforms will be provided a period within which to affect the remedial actions.
A New Chapter: Where Do We Go From Here?
This OIPMI hasn’t just been about pointing fingers and exposing flaws. It’s about shaping the future of a wide range of the economy. The implications are broad, affecting everyone from big tech to the small business owner striving to make a mark in a competitive world.
Michael-James Currie, Partner at Primerio, noted “The recommendations of the OIPMI are far reaching for online platforms. Regulators need to ensure that we do not undermine those who are growing and providing significant investment the digital market in a highly competitive market where firms are competing not only with established traditional retailers but also large international players. Likewise, South Africa cannot afford to signal to international players that their business models will be substantively undermined once they establish themselves in South Africa. This is particularly so if the Commission’s remedies are not informed by objective competition concerns.”
A true challenge to the impartiality of the South African Competition Authority: Eskom and its Criminal Supplier Cartels — Let’s wait and see what SACC does now
By Joshua Eveleigh
Will South Africa’s antitrust watchdog, under the aegies of its relatively new head Doris Tshepe, investigate and prosecute flagrant cartel conduct, when it is practically presented on a sliver platter by one of the CEOs of the (willing?) victims of said illegality…? Andre De Ruyter, former CEO of South Africa’s recently-infamous Eskom, is no stranger to the limelight – this is particularly true, following his scandalous (but not so surprising) bombshell allegations of deep-rooted and systemic corruption within the State-Owned Enterprise, together with ‘senior politicians’.
Even more recently, De Ruyter tested the antitrust waters and emphasised the existence of at least four cartels amongst coal mines in Mpumalanga (the Presidential Cartel, the Mesh-Kings Cartel, the Legendaries Cartel, and the Chief Cartel, respectively) intent on defrauding Eskom by, amongst a myriad other means, engaging in collusive tendering, so as to ensure that one of the cartel’s participants would ultimately be appointed as a lucrative vendor.
While there may not be any definitive or public available evidence, as of yet, the mere allegations of such cartels by the SOEs former CEO should at least raise enough red flags for South Africa’s Competition Commission. In this respect, section 4(1)(b)(iii) of the Competition Act expressly prohibits collusive tendering, forming part of the ‘cartel conduct’ category, the most egregious form of competition law contraventions due to their unnecessary raising of prices – of which may be passed down to end-consumers. Mr. De Ruyter noted that the mere reality that cartel chiefs had ceased posting personal jet set lifestyle photos on social media was evidence of their having been alerted to the risks attendant to flagrant antitrust violations.
Given the current state of load-shedding, Eskom’s R423 billion indebtedness (as of March 2023) and the prejudicial impact that these factors are having on both business and personal livelihoods, the South African Competition Commission – theoretically in charge of cartels in the country — must surely regard the energy sector as a priority. In this regard, one would expect a similar sense of urgency and emphasis that the Competition Commission has recently placed on the retail and grocery sectors, for the focus to be on South Africa’s energy sector. After all, says Primerio partner John Oxenham, “this sector impacts every facet of commerce and consumer welfare. If this was the case, the South African public could expect to see the prosecution and sanctioning of numerous cartels, each allowing for a maximum administrative penalty of 10% of the cartelist’s locally derived turnover as well as the potential for subsequent civil follow-on damages claims as well as criminal prosecutions.”
Oxenham’s competition-law colleague, Michael Currie, opines that, “[i]n the event that the Competition Commission does not investigate and prosecute against the coal mine cartels, such a position would largely reinforce the notion that some of the most unscrupulous of cartels are immune from prosecution, further entrenching the existence of cartels in South Africa’s most sensitive sectors.”
The South African Competition Commission (“SACC”) has not spared any time in demonstrating its bench strength by publishing three draft Terms of Reference for as many separate market inquiries within the first four months of 2023.
This article provides a brief overview in respect of the: Fresh Produce market inquiry (“FPMI”); Media and Digital Platforms market inquiry (“MDPMI”); and South African Steel Industry market inquiry (“SASMI”) and what this all means for firms across these varying sectors.
What is a Market Inquiry and what is its Purpose?
In brief, a market inquiry is an investigative tool used by the SACC to identify whether there are any aspects of a particular market that impedes, distorts or restricts competition by asking industry stakeholders for information regarding their business, its operations within a specific market as well as the market in general.
On 14 February 2023, the SACC published the final Terms of Reference for the FPMI which seeks to identify and understand the state of competition within the industry, market features affecting pricing outcomes and the challenges faced by, in particular, small and emerging farmers.
The FPMI will focus on the following themes:
Efficiency of the value chain, with an emphasis on the dynamics around fresh produce market facilities;
Market dynamics of key inputs and its impact on producers; and
Barriers to entry, expansion and participation.
The Terms of Reference also provide that the FPMI will focus on, in particular: apples, bananas, oranges / citrus, stone fruit, pears, avocados, grapes and nuts, potatoes, onions, tomatoes, sweetcorn, carrots and cabbage and will also extend to processed fruit and vegetables.
Most notably, the FPMI concerns the entire value chain, including inputs (such as fertiliser, agrochemicals and farming equipment), production, wholesalers, intermediaries, national fresh produce markets, distribution, marketing and retailers.
Given that the SACC views the fresh produce sector as a priority sector, it is foreseeable that the SACC will place increased scrutiny in its investigations across the value chain. This is particularly in light of recent and controversial Essential Food Price Monitoring Report which concluded that there were reasons to suspect that firms across the value chain may have engaged in opportunistic price increases
All Things Digital: MDPMI
On 17 March 2023, the SACC announced and published the draft Terms of Reference for the MDPMI.
The MDPMI appears to largely come off the back of several inquiries and investigations led by competition authorities globally, on the impact of digital platforms on news media publishers that use these platforms to distribute content online as well as the SACC’s recent Online Intermediation Platforms Market Inquiry (“OIPMI”) where the Publishers Support Services made submissions that the widespread shift towards digital news consumption has resulted in a substantial decline in advertising revenue.
The MDPMI will focus on whether there are any market features in digital platforms that distribute news media content which impede, distort or restrict competition, or undermine the purposes of the Competition Act, 89 of 1998 (“Competition Act”), and which have material implications for the news media sector of South Africa, which includes news publishers and broadcasters. The scope of the market inquiry will extend to the following digital platforms:
Search engines (e.g. Google Search and Microsoft Bing);
Social media sites (e.g. Meta);
News aggregator sites and/or apps (e.g. Google News and Apple News);
Video sharing platforms (e.g. YouTube and Tiktok);
Generative AI services whether integrated into the above platforms or not (e.g. ChatGPT alone or integrated with Bing); and
Other platforms identified in the course of the inquiry.
Evidently, the MDPMI will be far reaching and will also extend to emerging technologies, such as open AI search engines.
The draft Terms of Reference can be accessed here.
South African Steel Industry market inquiry (“Steel Industry Inquiry”)
On 07 April 2023, the SACC published the draft Terms of Reference for the Steel Industry Inquiry, and will focus particularly on inputs and raw materials (such as iron ore and coking oil) and the upstream primary steel production. The SACC notes specifically that:
Iron ore
Based on 2018 estimates, the three largest market participants in the mining of iron ore account for more than 95% of total ore mined in the country with the largest participant having a market share in excess of 55% while the third-largest iron ore miner held a market share of approximately 15% which, alongside large levels of production, may result in a large degree of market power. The SACC also states that there is a need to assess the pricing mechanisms adopted by iron ore producers in South Africa to ensure the competitiveness of steel producers.
It has received information that there were previously contractual arrangements in respect to allocations of capacity on the Sishen-Saldanha railway line which may result in competitive concerns. The SACC has also received complaints of differential pricing whereby larger rail customers are provided favourable rates in comparison to emerging miners.
Coking oil
The SACC highlights that South African steel manufacturers rely heavily on imported coking oil which could negatively impact the sustainability of the local steel manufacturing market due to import taxes and which may allow local producers to set their prices at import parity levels.
The SACC considers it important to determine whether, inter alia, there are any policy interventions to encourage the local production of coking oil and the entering of new market participants.
Upstream Primary Steel Production
In its Terms of Reference, the SACC notes that there is a considerable degree of market concentration with there only being three blast furnace plants in South Africa (of which are all owned by one company). Additionally, there are six electric arc furnaces which are owned by six different companies.
The SACC also notes that he pricing behaviour of upstream suppliers, in relation to the supply of long and flat steel, may have a direct impact on the ability of downstream metal fabricators to be competitive in their respective markets. Additionally, the SACC also identified that there may be high barriers to entry in the upstream level of steel production which has the ability to increase the capital requirements for entry and sustainability in various markets in the upstream level.
The Terms of Reference are open for public comment until 05 May 2023 and can be accessed here.
What do market inquiries mean for industry stakeholders?
As is evident from the scopes of the above market inquiries, market inquiries provide the SACC with broad and seemingly unfettered powers to investigate competitive dynamics within a particular sector.
More importantly, the Competition Act affords the SACC with the powers to publish binding recommendations to specifically redress any anticompetitive effects that it identifies within a market during the course of a market inquiry. In this respect, companies which may be approached by the SACC during the course of its investigations are encouraged to seek specialised competition law advice to ensure that the proper information and legal safeguards are provided to mitigate against the imposition of onerous industry recommendations.
South African Competition Commission’s Fresh Produce Market Inquiry & its Final Terms of Reference
By Gina Lodolo
Pursuant to the South African Competition Commission’s (“Commission”), draft terms of reference into an inquiry into the Fresh Produce Market, on 14 February 2023, the final terms of reference into the Fresh Produce Market Inquiry (“FPMI”) were published in the Government Gazette, marking 20 business days before the start of the FPMI.
Market Inquiries are instituted by Section 43B(1)(a) of the Competition Act 89 of 1998, as amended (“the Act”), which provides that “the Competition Commission […] may conduct a market inquiry at any time […] if it has reason to believe that any feature or combination of features of a market for any goods or services impedes, distorts or restricts competition within that market; or (ii) to achieve the purposes of this Act”.
The terms of reference to the FPMI indicate a focus on the entire fresh produce value chain (fruits and vegetables). In particular, the main fruits on the Commissions radar are apples, bananas, oranges / citrus, stone fruit, pears, avocados, grapes and nuts, while the main vegetables are potatoes, onions, tomatoes, sweetcorn, carrots and cabbage (fresh and processed).
Of importance is that the terms of reference do not only find application to the fresh produce itself, rather the scope of the inquiry relates to the entire value chain, including considerable inputs, such as fertiliser, equipment, water and agrochemicals. The terms of reference show that every stage of the value chain will be assessed and broken down as follows: inputs, production, wholesalers and intermediaries (agents), national fresh produce markets (where wholesale of fresh produce between producers and buyers occur), distribution, marketing and retailers.
Particular focus will be placed on value chain efficiency, the market dynamic surrounding significant inputs and any barriers to entry, expansion and participation.
Market Inquiries initiated by the Commission are significant because the Competition Amendment Act introduced broader remedial powers to the Commission who, after the conclusion of a market inquiry, can remedy structural features identified as having an adverse effect on competition in a market by utilising, inter alia, a recommendation of a divestiture order to the Competition Tribunal under section 60(2)(c) of the Act.
Broadly, the terms of reference highlights that the Commission, not only views the food and agro-processing sector as a priority sector but will be utilizing this sector “as a driver of inclusive growth in the South African economy”. This is of importance as the Commission is increasingly imposing public interest conditions – and in particular the promotion of Historically Disadvantaged Persons ownership – in competitively benign mergers that are also neutral into terms of public interest concerns. As fresh produce has been earmarked as a priority sector by the Commission, it will not come as a surprise if this market inquiry further emboldens the Commissions current trajectory to increasingly impose public interest conditions on merging parties.
Unless an extension is granted by the Minister of Trade, Industry and Competition, the Commission is statutorily obligated to conclude the market inquiry within 18 months.
Primerio Ltd Partner, John Oxenham commented that “the final terms of reference confirm the Commission’s intent on utilising the robust market inquiry mechanism to further not only pure competition initiatives, but more importantly, socio-economic redress mechanisms. The FPMI will result in likely structural changes to the fresh produce market and all entities involved should seek robust counsel prior to commencement of the inquiry.”
The South African Competition Commission recently contributed the following summary of its activities regarding the ‘hot topic’ of so-called Digital Markets and antitrust law to the “Compendium” (not AAT’s, the actual government enforcers’ compendium document resulting from the multilateral G7 meeting organized by the Bundeskartellamt in Germany).
Whether and how you have sought to use enforcement or non-enforcement tools, law enforcement or regulatory action to address such issues. You may wish to highlight any particularly relevant cases.
Recent cases The Competition Commission of South Africa (CCSA) uses various competition enforcement tools to resolve concerns in digital markets, including unilateral conduct enforcement, merger regulation, market inquiries and advocacy. In November 2021, the CCSA referred an abuse of dominance case against Facebook Inc. (now Meta Platforms Inc) to the Competition Tribunal (Tribunal), for adjudication. The CCSA’s investigation found that Facebook enforced unduly restrictive access terms and conditions to its WhatsApp platform, against GovChat. This was to remove GovChat’s threat to Facebook’s own social networking position and WhatsApp’s monetisation strategies.
GovChat is a start-up online platform through which the South Africa government communicates with its citizens through mass push notifications on the WhatsApp platform. The GovChat platform also allows citizens to access information or services pertaining to various government services or programmes such as social grants, COVID19 services or to respond to surveys / polls to rate government services / performance. Thus, GovChat plays a very important role in the lives of South African citizens and is an important interface between the government and citizens. The CCSA found that Facebook’s conducts likely contravenes the following abuse of dominance provisions contained in section 8(1) of the Competition Act No. 89 of 1998 (as amended) –
a. refusal to give a competitor access to an essential facility when economically feasible to do so (section 8(1)(b)). b. engaging in exclusionary conduct whose anticompetitive effect is not outweighed by any efficiencies or technological gains (section 8(c)). c. refusal to supply scarce goods or services to a competitor or customer when economically feasible to do so (section 8(1)(d)(ii)). At the time of writing, the Tribunal had not yet allocated a hearing date for this matter. Market inquiries In May 2021, the CCSA launched its online intermediation platforms market inquiry (the “Inquiry”). The Inquiry is focused on digital platforms in the areas of e-Commerce marketplaces, online classifieds, software application stores, travel and accommodation aggregators, and food delivery services platforms. The inquiry has focused on three areas of competition and public interest, namely (a) market features that may hinder competition amongst the platforms themselves; (b) market features that may give rise to discriminatory or exploitative treatment of business users; and (c) market features that may negatively impact the ability of SMEs and/or historically disadvantaged firms to participate in the economy.
The Inquiry released its provisional report in July 2022 and aims to conclude its work by the end of 2022. Amongst others, the Inquiry has provisionally found that Google Search plays an important role in directing consumers to the different platforms, and in this way shapes platform competition. The prevalence of paid search at the top of the search results page without adequate identifiers as advertising raises platform customer acquisition costs and favours large, often global, platforms. Preferential placement of their own specialist search units also distorts competition in Google’s favour. The Inquiry provisionally recommends that paid results are prominently labelled as advertising with borders and shading to be clearer to consumers and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments. The Inquiry further provisionally recommends that Google allows competitors to compete for prominence in a search by having their own specialist units and with no guaranteed positions for Google specialist units. The Inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa. In terms of competition amongst platforms, the Inquiry makes the following provisional findings and recommendations, amongst others:
a. In software application stores, there is no effective competition for the fees charged to app developers with in-app payments, resulting in high fees and app prices. The Inquiry’s provisional recommendation is that apps should be able to steer consumers to external web-based payment options, or alternatively a maximum cap is placed on application store commission fees. b. Price parity clauses, evident in travel & accommodation, e-commerce and food delivery, hinder competition and create dependency, and the Inquiry therefore recommends their removal. Wide price parity clauses prevent businesses offering lower prices on other platforms and narrow parity prevents businesses from offering lower prices on their own direct online channel. c. In property classifieds and food delivery, new entrants and local delivery platforms face challenges signing up large national businesses, undermining their ability to compete. The Inquiry provisionally finds in property classifieds this is a result of the investment and support of large estate agencies in Private Property and recommends the divesture of their stake. Facilitating the interoperability of listings on the leading platforms is a further recommendation to support entrants. In food delivery, national restaurant chains often prevent franchisees listing on local delivery platforms and the Inquiry recommends this practice ceases along with any incentives provided by national delivery platforms to steer volumes their way. d. In food delivery, the Inquiry also finds that the business model of substantial eater promotions alongside high restaurant commission fees can result in large surcharges on menu items which is not transparent to consumers and distorts competition with local delivery options. The Inquiry provisionally recommends greater transparency on either the menu surcharge or the share taken by the delivery platforms. In terms of competition amongst businesses on the platforms and consumer choice, the Inquiry makes the following provisional findings and recommendations, amongst others:
a. Across all platforms there is a tendency to sell top ranking search positions to businesses which are not the most relevant to the consumer and constitute a form of advertising that is not transparent. This impacts on consumer choice and competition, especially for SMEs that cannot spend as much as large businesses. The Inquiry recommends that advertising is clearly displayed as such and that the top results are reserved for organic (or natural) search results. b. The Inquiry provisionally finds that the extreme levels of fee discrimination against SMEs in online classifieds, food delivery and to a lesser extent travel & accommodation, hinders their participation and has no coherent justification. The Inquiry provisionally recommends that a maximum cap is placed on the fee differentials between large and small businesses, potentially at 10-15%. In food delivery it is recommended that more equitable treatment also occurs in terms of marketing commitments made in exchange for lower commission fees. c. In e-commerce, the Inquiry provisionally finds that conflicts of interest arise in operating a marketplace for third party sellers and selling one’s own retail products. This may result in self-preferencing conduct such as product gating, retail buyers given access to seller data to target successful products, preferential display ads and promotions. The lack of a speedy resolution process also adds to the costs borne by sellers. The Inquiry provisionally recommends an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes. d. In software application stores, the Inquiry provisionally finds that South African applications (“Apps”) face challenges to their larger global App development companies. The Inquiry provisionally recommends that App stores provide country-specific curation of App recommendations and provide free promotional credits to South African App developers to enhance their visibility.
Regarding the participation by historically disadvantaged persons (HDPs), the Inquiry has provisionally found that the digital economy is far less inclusive to HDPs than many traditional industries. In addition, there are considerably more challenges faced by HDPs, especially as regards funding and support. These are as follows: a. For HDP digital entrepreneurs, general wealth inequality presents a hurdle to seed funding from close associates, and the venture capital industry offers little at this stage. Beyond seed funding, venture capital funds only seek out HDP entrepreneurs where those funds have an express mandate to that effect. Such mandates are rare beyond the SA SME Fund (a joint government and CEO initiative). The Inquiry provisionally recommends specific commitments on HDP mandates from private investors and for government to channel funds for HDP digital entrepreneurs through mandates to the venture capital sector along with requirements for transformation of the sector. b. A lack of assets and funding hinder HDP business’ ability to onboard and exploit the opportunities provided by digital platforms. recommendation is that all leading platforms provide HDP businesses with personalised onboarding, a waiver on onboarding costs and fees, free promotional credits, fees that are no higher than the best placed, and the opportunity for consumers to discover HDP businesses on the platform.
Advocacy interventions
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The CCSA has continued its work with the Intergovernmental Fintech Working Group (“IFWG”), which includes financial services regulators as well as the information regulator. The IFWG has produced several position papers. These include Regulating Open Finance Consultation and Research Paper, FinTech platform activity in South Africa and its regulatory implications; and the position paper on crypto assets. These papers seek to understand the growing role of FinTech’s and innovation in the South African financial sector and explore how regulators can more proactively assess emerging risks and opportunities in the market. The next steps for the IFWG include dealing with customer data ownership and data standards and engaging with the information regulator, exposition of potential competition aspects related to open finance and how to mitigate anti competition behaviours. This showcases that the regulation of digital markets requires a multidisciplinary approach.
Any steps your agency has taken to strengthen its institutional capabilities to better equip it to deal with digital competition issues (for example, by forming a special unit, recruiting more data specialists, building new investigative tools, or gathering new/different evidence).
The CCSA has prioritised strengthening its institutional capacity in digital markets by targeting the training of investigators and economists in international courses and conferences to upgrade skills. However, the CCSA has used an active enforcement approach as the prime vehicle for deepening its understanding of these markets and to upgrade toolkits at the same time. The CCSA had initiated a project to use digital tools in the detection and investigation of collusion and assist generally on digital market cases. The CCSA has partnered with academic institutions to bring in their artificial intelligence expertise rather than seeking to hire and build internal capacity.
Following engagements with national and provincial governments to understand the extent and format of tender information, the Commission has begun a process of designing algorithmic programmes to detect collusion. This has been greatly aided by engagements with other competition agencies globally to discuss their experience as to what has worked and what has not. Similarly, for data specialists the CCSA has not sought to hire in those skills yet but rather to put together a panel of local experts that may be drawn on in enforcement or research. This approach was adopted as the best means to establish what the use case is for such skills, what specific skills are most valuable and the frequency of data specialist requirements. It is only if there is an ongoing demand in investigation across different enforcement areas and the ability to sustainable source the right skillsets that the CCSA will invest in hiring. The panel approach is also a means to interest data scientists in competition law enforcement and potentially establish career paths in this area. The CCSA together with the competition authorities of Egypt, Kenya, Nigeria and Mauritius, launched a digital markets enforcement initiative, given the greater shared challenges that digital markets pose for African countries. The aforementioned jurisdictions recognize that these challenges necessitate closer co-operation in order to share knowledge, develop effective strategies in digital markets and provide a stronger united front in dealing with global tech companies. The initiative has agreed to enhance strategic collaboration between the authorities by: (i) Scoping the conduct in digital markets, that has been the subject of investigation in other jurisdictions, on African consumers, businesses and economies with the purpose of fair regulation and enforcement in Africa (where applicable); (b) Researching the barriers to the emergence and expansion of African digital platforms and firms that may contribute to enhanced competition and inclusion in these markets for the benefit of African consumers and economies; (c) Cooperating in the assessment of global, continental, and regional mergers and acquisitions in digital markets, including harmonizing the notification framework; without prejudice to confidentiality commitments; (d) To share information in accordance with existing laws and applicable protocols; and (e) Sharing knowledge and build capacity to deal with digital markets. As part of this initiative, a series of technical workshops are forthcoming in 2022 to commence the collaborative baseline research mapping the digital landscape in all participating countries. This research will assist in obtaining a deeper understanding of the extent of consumer adoption and emerging market structure across the main types of digital markets in a country. Country-specific factors across Africa will impact on the extent of adoption by consumers and the emergence of domestic digital firms alongside global ones.
The CCSA has continued its engagement with the European Union (EU) to provide an opportunity for mutual learning using the SA/EU Dialogue Facility to host a series of workshops in partnership with the Directorate-General of Competition in the European Commission (DG Comp). The Dialogue has been extended and will examine issues of remedial action and data protection issues in a forthcoming workshop in 2022.
Whether, in your jurisdiction, (a) there have been any national reforms or new laws or regulations to better address digital competition issues, or (b) there are any significant proposed reforms pending before national legislative or regulatory bodies to better address digital competition issues.
The Inquiry has provisionally identified the potential need for proactive regulations or guidelines in respect of a few categories of circumstances in addition to the remedial action proposed in the provisional report. First, to bring potentially new leading platforms within the ambit of the current proposed remedies that would be imposed on existing leading platforms. Second, to proactively prevent certain conduct in intermediation platforms that are still maturing and where the conduct is likely to emerge in the future, but where there is clear potential for harm. The provisional proposal for regulations or guidelines would cover the following areas: a. A process for the identification and review of leading platform status b. Prohibition of the following conduct which has an adverse effect on intermediation platform competition (1) The use of price parity clauses (wide or narrow) or achievement of the same outcome through price quality factors in the SERP ranking algorithm; (2) Restrictions or frictions on multi-homing by business users including exclusivity arrangements, interoperability limitations and multi-year contracting; (3) Loyalty schemes that leverage the leading position of the platform, including visibility on the platform, to get business users to fund the scheme in whole or part. c. Prohibition of the following conduct which distorts competition amongst business users and/or results in their exploitation (1) Self-preferencing conduct of any sort; (2) Discrimination in listing, commission or promotional fees against SMEs/HDPs beyond a maximum cap; (3) A lack of adequate transparency over promoted listings as advertising; (4) The excessive sale of visibility through demoting organic results; and (5) Permitting algorithm biases that favour one group or another.
Any law enforcement, regulatory, or policy work by your agency concerning digital competition issues that has involved interaction with non-competition agencies or other laws or policy areas—such as privacy, consumer protection, or media sustainability—and how it was or is being handled.
Work in the fintech area is being done through the IFWG as outlined above. The CCSA has also put together a workshop with the Information Regulator of South Africa to discuss the interface of the two agencies around data privacy and data access for competition.
South African antitrust enforcer releases Amended Guidelines
By Joshua Eveleigh and Jemma Muller
On 12 September 2022, the Competition Commission of South Africa (“Commission”) published the Guidelines on the Exchange of Competitively Sensitive Information between Competitors under the Competition Act No. 89 of 1998 (the “Amended Guidelines”).
The original Guidelines were released for comment on 14 July 2017; they were created to provide guidance to industry stakeholders on when information exchanges between competitors should be considered harmful to competition (and thus fall foul of the Competition Act) and when they could be considered efficiency-enhancing. The creation of the Guidelines was a welcomed development, as it sought to provide industry stakeholders with insight as to how the Commission will assess whether a particular information exchange between competitors amounts to an antitrust violation, specifically a contravention of section 4 of the Competition Act.
The Amended Guidelines have now been published to address certain concerns raised by industry stakeholders in relation to their first iteration.
Notably, the originally published draft was reported to have received substantive comments from industry stakeholders relating to:
what constitutes “commercially sensitive information”;
the broadness of the Guidelines and lack of safe harbours within them;
additional guidance as to the type of information competitors may lawfully share;
industry-specific concerns; and
public announcements.
Whilst acknowledging that the first iteration of the Guidelines was overly broad, the Commission states that this was an intentional decision. Notably, the Amended Guidelines remain just as broad, with the Commission rather opting to determine market-=specific safe harbours on a case-by-case basis.
Additionally, the Commission — now under the aegis of its new head, Doris Tshepe — has chosen to exclude from the Amended Guidelines any discussion of complex topics (such as price signalling, joint ventures, cross-directorship and shareholding, requests for quotations, market studies and benchmarking), instead deciding to rule on these issues on an ad hoc basis.
One substantive difference between the original and Amended Guidelines is the recent departure from the term “commercially sensitive information” to the newly adopted “competitively sensitive information”. In this respect, only information that is likely to have an effect on competition is prohibited in terms of the Guidelines, including: prices, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies, research and development programmes and their results.
While the narrowing of the scope of the amended Guidelines to “competitively sensitive information” and the decision to provide more focused guidance to industry associations ought to be a welcome change, it is likely that stakeholders will continue to perceive the Amended Guidelines as overly broad. In this regard, the Commission has seemingly ignored stakeholders’ previous comments to the original Guidelines, particularly in relation to a lack of safe harbours and industry-specific concerns. In this respect, the Amended Guidelines continue to have little impact on a firm’s ability to self-regulate its conduct in compliance with the Competition Act.
The Amended Guidelines are open for public comment until 04 November 2022 and can be accessed here.
African Antitrust & Competition Law 