The booming voice of eminent antitrust scholar and GW Law professor Bill Kovacic easily surmounted the small technical microphone glitches at COMESA’s celebration of its Competition Commission’s first 10 years in Malawi (#CCCat10years), giving the keynote address.
His accessible speech, given in front of a diverse audience comprised of senior ministers and policy makers, lawyers, enforcers, and media representatives, focused on practical examples covering three key topics of public expenditures, subsidies, and the removal of entry barriers.
On state spending, he noted the attendant “global epidemic of collusion and corruption”, in areas as simple, but important to development, as transportation infrastructure. “We don’t always need to debate ‘digital markets’ or ‘big tech’, we can also highlight the importance of basic road-building on increasing trade and measurably growing economies” across Africa. But these areas of public expenditures are invariably hampered by corrupt or collusive tendering and similar cartel conduct — important focus areas for the COMESA CCC to enforce.
In the area of public subsidies, Kovacic proposed a future collaborative working relationship between antitrust enforcers, legislators, and those ministries that allocate state subsidies, ideally to non-incumbents (giving the NASA vs. Space-X example to make his point) so as to enhance market entry.
The CCC should enhance market access by making barriers to entry “more porous” for newer small competitors, with Kovacic using the famous 1982 Bell Telephone/AT&T U.S. antitrust precedent to highlight the practical value of competition law to society and innovation of new, better, and cheaper products and services.
At today’s CCC Business Reporter Workshop, Senior M&A Analyst Sandya Booluck presented major plans to amend the regional trading bloc’s merger-control regime.
The most notable part of this “complete overhaul” of the CCC regime will be the likely change from the current non-suspensory to a suspensory merger notification scheme.
Says Primerio Ltd. antitrust counsel Andreas Stargard: “This change is, of course, still subject to approval by the CCC Board and the COMESA Secretariat Council of Ministers, but it is likely to pass in my personal opinion. This is especially true since, as former CCC Head Lipimile pointed out at today’s session, this change was in fact demanded by several of the NCAs of the COMESA member states, also in view of the Art. 24(8) referral procedure. It thus presumably enjoys broad support from the bloc’s leadership and will obtain a passing vote before the end of 2023!”
A brief note from the “front lines” of the COMESA Competition Commission’s 10-year anniversary event: Isaac Tausha, chief economist for research policy and advocacy, provides the following statistics — notably for the entire duration of the CCC’s life decade so far.
In short: Gone are the meager days of fledgling notifications to the CCC.
Statistics Since Inception
369 mergers and acquisitions assessed. (Total COMESA revenues of merging parties: US$210bn)
Over 40 Restrictive Business Practices assessed
Over 44 Consumer Protection cases handled
More than 12 market screenings and studies undertaken
3 businesses fined for non-compliance with the Regulations
Doing a “back of the envelope” estimate, we at AAT are calculating the total merger filing fees resulting from those 367 notified deals to be possibly north of $75 million$65 million, so on average $6.5m “income” for the CCC per year (half of which goes to the 21 member states, of course, under the Regulations). This is notably without taking into account fines, e.g., a recent $102,000+ fine for failure to notify (as in our reporting on the Helios Towers / Malawi case).
Anniversary of CCC’s 2013 Creation to be Celebrated, Developments Discussed
Next week, African heads of state, ministers of trade and commerce, the secretary general of the 21-member state COMESA organization, Commissioners, and several heads of various competition agencies across the region, from Egypt to Eswatini & from Mauritius to Malawi, will join antitrust practitioners, legal experts, business people, and journalists in celebrating the occasion of the 10-year anniversary of the COMESA Competition Commission in Lilongwe, where the agency is headquartered.
Of course, AAT will be there to cover it.
As leaders of this august publication will know by now, our authors have followed the development of the CCC since its very beginning: from the nascent stages of having only a rudimentary staff and foundational rule documents, lacking sufficient guidance for practitioners and businesses alike, to the significant developmental stage under its first chief executive officer, Dr. Lipimile, who built out his enforcement team to coincide with the stellar growth of the CCC’s “one-stop-shop” merger notification statistics and attendant agency reviews (hiring economists and lawyers alike from across COMESA member nations) — and culminating, so far at least, in what we have come to call “CCC 2.0”: the latest iteration of the vastly successful multi-jurisdictional antitrust body, now led by its long-term member Dr. Willard Mwemba.
Under Mwemba’s aegis, the Commission has advanced well beyond a mere ‘rubber-stamping’ merger review body, as some had perceived the fledgling agency in its very early years (approx. 2013-15). The triple-C has since then begun to launch serious investigations into price-fixing, monopolization, attempted monopolization, gun-jumping, as well as market allocation schemes and secretly implemented transactions that parties had failed to notify.
While ‘antitrust is on our minds’, we note here for the record that, beyond its “competition” ambit that mostly remains in our focus at AAT, the CCC’s enforcement mission also includes a fairly large “consumer protection” brief, and the agency’s dedicated unit has investigated areas of consumer concern as broad as airline practices, imported faulty American baby powder, online ‘dark’ practices, pay-TV, and agricultural product quality disputes (milk and sugar come to mind) between Uganda and Kenya, to name only a few…
Our publication, together with several of the business journals and newspapers across the southeastern region of Africa, will report in great detail on the events, and possible news, to take place next week. Says Andreas Stargard, a competition practitioner with Primerio International:
“I look forward to hearing from these leaders themselves what they have accomplished in 10 years, and more importantly what they wish to accomplish in the near to mid-term future. In addition, I have a feeling that we may be treated to some truly newsworthy developments: I could imagine there being either confirmation or denials of the circulating rumour that the COMESA merger regime will soon become not only mandatory, but also suspensory. As most attorneys practicing in this arena know by now, the current Competition Regulations are not suspensory, which may be deemed too restrictive by the group’s Secretariat and its agency leadership in terms of its enforcement powers. After all, it is much more difficult to unscramble the egg than to never let it drop in the pan from the get-go!
Also, the CCC may reveal its plans in relation to a leniency programme for cartel conduct, which is plainly in order!”
Beyond that, Stargard surmises, participants at the almost week-long event may be treated to news about the CCC’s thoughts on digital markets, sectoral investigations, and the Commission’s upcoming “beyond-mere-merger” enforcement activities.
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.”
Today, the East African reported on a stunning admission by the Chief Executive Officer of Kenyan mobile telco heavyweight Safaricom (itself no stranger to AAT telco competition reporting and proprietor of the massive M-Pesa mobile money network across East Africa). In the article, fittingly entitled “Safaricom rules out price war in Ethiopian market“, the business report quotes Mr. Peter Ndegwa as saying:
“From a pricing perspective, our pricing strategy is generally to be either in line or just slightly at a premium, but not to go for any price competition. The intention is actually generally to be closer to what the main operator is offering, especially on voice.”
Safaricom’s senior exec made his curious confession on a recent investor call. Says Andreas Stargard, a competition attorney with Primerio: “On these investor conference calls, there are usually several analysts and reporters on the line, listening in, and they commonly are also recorded. This would mean there exist clear prima facie evidence and several witnesses to these statements, as reported by the East African source.” He adds: “It remains to be seen whether any of the several competent authorities will investigate Safaricom’s express statement of a de facto ‘non-compete’ between the Ethiopian incumbent and the Kenyan upstart,” with the former (Ethiotel) boasting 54m subscribers, as opposed to the latter’s mere 1m users in-country.
When asked which government authorities would be authorized to investigate Safaricom’s “no price war” policy expressed by Mr. Ndegwa, according to the newspaper, Mr. Stargard noted that, beyond the domestic Ethiopian telecoms regulator, there existed at least two (2) competent antitrust bodies with jurisdictional authority: “For any potentially anti-competitive conduct occurring in Ethiopia that may have a cross-border effect (as mobile telephony usually does — especially with a foreign, here Kenyan, operator involved as well), I could see either the Ethiopian Trade Competition and Consumer Protection Authority (“TCCPA”) or the supra-national COMESA Competition Commission (“CCC“) under Dr. Mwemba’s reinvigorated leadership stepping in.”
As the latter has made clear in several public pronouncements recently, the CCC is poised to continue its non-merger enforcement streak, that is: investigating and prosecuting restrictive business practices, such as cartels and cartel-like behaviour. “We call it, CCC 2.0,” Stargard adds half-jokingly. He notes that both the TCCPA and CCC have all the necessary legislative instruments in hand to proceed with a preliminary investigation on the basis of the above quotes published by the East African:
In Ethiopia, the TCCPA could argue that “expressly avoiding a price war” is possibly in violation of Article 7(1) of the Ethiopian Trade Competition and Consumer Protection Proclamation (“Article 7(1)”), which provides that “(1) An agreement between or concerted practice by, business persons or a decision by association of business persons in a horizontal relationship shall be prohibited if:…(b) it involves, directly or indirectly, fixing a purchase or selling price or any other trading condition, collusive tendering or dividing markets by allocating customers, suppliers territories or specific types of goods or services”.
For COMESA, the CCC has conceivably two legislative tools at its disposal: First, Art. 16 of the Regulations (“Restrictive Business Practices”) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which (i) may affect trade between member states, and (ii) have as their object or effect the prevention, restriction or distortion of competition. Provision is then made (in Art. 19(4)) for the Article to be “declared inapplicable” if the agreement, decision or concerted practice gives rise to efficiencies and the like. Importantly, even though Art. 16 also applies to by-object practices, provision is made for an efficiency defence. Second, the CCC could resort to Art. 19 (“Prohibited Practices”), which focusses on “hard-core” cartel-like practices. Art. 19(2) provides that Art. 19 applies to agreements, arrangements and understandings, while sub-sections (1) and (3) provide that it is an offence for (actual or potential competitors) to fix prices, to big-rig or tender collusively, to allocate markets or customers, and the like.
Safaricom and its domestic competitor (the government-owned, former absolute monopolist, Ethiotel) may of course offer — preemptively or otherwise — a pro-competitive explanation for their alleged “non-compete” agreement. However, in attorney Stargard’s view, such defences must be well-founded, non-pretextual, and they would be well-advised to have contemporaneous business records supporting any such defences at the ready, should an antitrust investigation indeed ensue.
“Indeed, it may appear to the authorities that Mr. Ndegwa’s quoted concession of ‘We won’t compete on price’ may be a sign of capitulation or at least a ‘truce’ between Safaricom and Ethiotel,” he surmises, “because as recently as mid-December , the incumbent monopolist [Ethiotel] had threatened legal action against the Kenyan newcomer, claiming that Safaricom had ‘harrassed’ the incumbent’s customers and caused loss of service due to its actions.” An incoming competitor’s attempt at avoiding a civil lawsuit between it and would-be competitors would, of course, not constitute a legal defence to forming a (formal or informal) non-compete agreement on pricing, he adds.
“We have extensive experience counseling clients on how to successfully — and aggressively — defend against accusations of price-fixing, whether the allegations involve tacit collusion or express price or market-allocation cartel behaviour. While the parties here would likely not have a formalistic statute-of-limitations argument at their disposal, given the recent nature of the conduct at issue, I could imagine there being eminently reasonable ways of showing the harmless nature of the conduct underlying the, perhaps misleading, investor-call statements made by the executive,” he concludes.
PRICE-FIXING ALLEGATIONS LEAD TO THURSDAY’S DAWN RAIDS AT MAJOR SOUTH AFRICAN INSURANCE COMPANIES
By Michael-James Currie and Joshua Eveleigh
On 25 August 2022, the South African Competition Commission (“SACC”) announced that it was conducting so-called ‘dawn raids’ as part of an ongoing investigation into the industry, initiated in 2021. The raid took place simultaneously at 8 of South Africa’s major insurance firms: Discovery Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MNI Limited; Old Mutual Limited; BrightRock Life Limited; FMI, a division of Bidvest Life Limited; Professional Provident Society Limited, and South African National Life Assurance Company (Pty) Ltd (together, the “Insurance Firms”).
Notably, all of the Insurance Firms operate within the long-term insurance market.
The SACC’s decision to raid the premises of the Insurance Firms comes as the result of suspicions that the they had agreed to fix prices and/or trading terms in relation to certain investment products in contravention of section 4(1)(i) of the Competition Act, 89 of 1998 (“Competition Act”). Specifically, the SACC stated that it was in possession of information implicating the Insurance Firms in a scheme to share information regarding premium rates on risk-related products and fees for other investment products.
Says John Oxenham, a lawyer with Primerio Ltd., “[a]lthough dawn raids form part of the SACC’s ordinary evidence gathering procedure and is not indicative of the guilt of the Insurance Firms, the sharing of information would enable the coordination of increased prices.” Given that the clients of the Insurance Firms include both natural and juristic persons, the effect of the alleged conduct would have far-reaching and adverse effects on consumers, particularly where those consumers are sensitive to price increases. Continues attorney Oxenham: “In this respect, it would be unsurprising if the SACC were to continue on its path of highlighting ‘public-interest‘ objectives by pursuing the investigation against the Insurance Firms and seeking the maximum penalty in respect of a contravention of section 4(1)(b)(i) – 10% of the Firm’s annual turnover in and from South Africa, for first-time offenders.”
Mr. Oxenham’s colleague, Andreas Stargard, notes the size of the RSA insurance market, and points out that the dawn raids occurred across the entire geography of the Republic of South Africa: “South Africa alone makes up over two-thirds of all African insurance premiums continent-wide! Today, the SACC’s spokesperson Sipho Ngwema confirmed today that 5 sites were raided in Gauteng, 2 in the Western Cape, and 1 in KwaZulu-Natal. This simultaneous and unannounced action is testament to the Commission’s bench strength, no doubt assisted by local provincial law-enforcement authorities, as is usually the case across in antitrust raids across the globe, where the actual evidence-gathering procedure is not only undertaken by government competition lawyers, but rather significantly assisted by local police, sheriffs, or similar enforcement agencies”. Finally, Stargard notes, “it remains to be seen whether this raid occurred as a result purely of the agency’s prior sector investigation, or whether there was (or were) any whistleblower(s) seeking leniency for their participation in the alleged cartel conduct, thus enabling the SACC to pursue a targeted and well-founded raid.”
Interestingly, a U.S. consulting firm, McKinsey, which has been involved with several South African government agencies and quasi-governmental entities, recently published an article entitled “Africa’s insurance market is set for takeoff“, noting that the “African insurance market’s immaturity points to significant scope for growth”:
Africa’s insurance industry is valued at about $68 billion in terms of GWP and is the eighth largest in the world—although this is not equally distributed across the continent. Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries. South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums. Outside of South Africa, we see six primary insurance regions in Africa. In the Southern Africa region, 54 percent of premiums are for life insurance. Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa
It remains to be seen whether the effect of today’s raids in the RSA will hinder the predicted “takeoff” of the insurance industry, or assist in its growth within permissible, lawful boundaries.
An AAT-exclusive first report on this — somewhat stunning — development follows below. More details to be published once they become available in a new post…
On August 8th, 2022, the CCC officially announced the formal withdrawal of its Practice Note No. 1 of 2021, which had clarified what it meant for a party to “operate” in the COMESA common market. The announcement mentions that it will (soon? how soon?) be replaced with a revised Practice Note — a somewhat unusual step, in our view, as the revised document could have, or should have, been published simultaneously with the withdrawal of the old one. Otherwise, in the “interim of the void,” legal practitioners and commercial parties evaluating M&A ramifications in the COMESA region will be left with no additional guidance outside the bloc’s basic Competition Regulations and Rules.
Of note, “this clarifying policy document did not stem from the era of Dr. Mwemba’s predecessor (CCC 1.0 as we are wont to call it), but it was already released under Willard’s aegis as then-interim director of the agency,” observes Andreas Stargard, a competition lawyer at Primerio Ltd. He continues: “Therefore, we cannot ascribe this most recent abdication to a change in personnel or agency-leadership philosophy, but rather external factors, such as — perhaps — the apparently numerous inquiries the CCC still received even after implementation of the Note.”
The COMESA Competition Commission (“CCC”) issued new guidance today in relation to its application of previously ambiguous and potentially self-contradictory merger-notification rules under the supra-national COMESA regime. As Andreas Stargard, a competition practitioner with Primerio notes:
“Thisnew Practice Noteissued by Dr. Mwemba is an extremely welcome step in clarifying when to notify M&A deals to the COMESA authorities. Specifically, it clears up the confusion as to the meaning of the term ‘to operate’ within the Common Market.
Prior conflicts between the 3 operative documents (the ‘Rules’, ‘Guidelines’, and the ‘Regulations’) had become untenable for practitioners to continue without clear guidance from the CCC, which we have now received. I applaud the Commission for taking this important step in the right direction, aligning its merger procedure with the principles of established best-practice jurisdictions such as the European Union.”
No, that’s not the European Economic Community, but rather the slightly less well-known Eurasian Economic Commission (EEC), thank you for asking…
The Memorandum of Understanding, signed in late July in Geneva, is designed to allow the two agencies to “cooperate in addressing anti-competitive conduct in their respective regions, capacity building and research,” according to AAT’s old friend and CCC 2.0 executive, Dr. Willard Mwemba.
His EEC counterpart, Mr. Arman Shakkaliyev, Minister in charge of Competition & Antitrust Regulation, said that the future collaboration “opened up new opportunities” for closer interaction and the sharing of experiences and knowledge as to specific investigations, most notably, in addition to the two agencies planning more standard cooperative ventures such as joint conferences or training seminars.
Says Andreas Stargard, a competition lawyer at Primerio Ltd.:
“This latest MoU represents yet a further step in the clear and unmistakable direction of ever-closer cooperation between enforcement agencies on the African continent that we have seen for a few years now. The advice to be taken from this is fairly simple: Companies operating in more than one country in Africa should take note of this development, as their local ‘competition reputation‘ from one jurisdiction will doubtless precede them in the other, given the information-sharing between African watchdogs, which catches many corporates seemingly unawares…”
In a relatively rare northwestern excursion on the continent, we are reporting today that the Moroccan competition authority (the Competition Council, or “CC”) based in Fez, which has operated only since late 2018, issued its first-ever gun-jumping fine to Swiss construction/chemicals firm Sika Aktiengesellschaft. Sika will have to pay (unless it exercises its right to a judicial appeal of this inaugural MCC decision, which it appears the company has waived and agreed to pay the) approx. $1m in fines, per the recent Article 19 fining decision made on April 28, 2022.
The underlying conduct consisted of Sika’s May 2019 acquisition of 100% of the capital and voting rights of its French competitor, Financière Dry Mix Solutions SAS, with business activities in and economic ties to Morocco, via its “Sodap” in-country subsidiary. Sika – the largest construction chemicals firm worldwide, according to its own marketing materials – likewise conducts business in Morocco, in addition to 100 other countries globally.
According to the MCC, the parties purportedly failed to notify the transaction pursuant to the mandatory provisions in Arts. 12-14 of the Moroccan competition act (Loi no. 104-12 of 2014) and thus caused the MCC to open its first gun-jumping investigation, leading to this — not insignificant — fine that has now been issued by the Council. The original liability finding was made previously, in MCC decision n°134/D/2021 (dated 6th December 2021).
Under the domestic merger-control regime, a notifiable transactions exists when:
two or more previously independent undertakings merge;
one or more persons, already controlling at least one undertaking, acquire, directly or indirectly, whether by purchase of securities or assets, by contract or by any other means, control of the whole or parts of one or more undertakings; and
one or more undertakings acquire, directly or indirectly, whether by purchase of securities or assets, by contract or by any other means, control of the whole or parts of one or more other undertakings.
To avoid similar mishaps from happening in the future, the MCC — in collaboration with the General Confederation of Moroccan Enterprises (CGEM) — held a conference and issued a legal compliance guide for businesses active in Morocco in January 2022. The MCC’s president, Ahmed Rahhou, expressed his hope that the Guidebook would “allow companies to avoid being in breach of the law and to know their rights and duties especially in terms of competition law.”