“Partisanship can degrade the brand of the antitrust agencies, reduce their influence aboard, and discourage longer term investments that strengthen agency performance. Though difficult to quantify, these constitute a potentially serious, unnecessary drag on agency effectiveness”
(William Kovacic, “Policies and Partisanship in U.S. Federal Antitrust Enforcement” (2014) Antitrust Law Journal, Vol. 79 at 704).
In their article entitled “Developments in South African Merger Control – Ministerial Interventionism and the Impact on Timing & Certainty,” John Oxenham, Andreas Stargard, and Michael Currie argue that, while the existence of ‘public-interest’ provisions in merger control is an express feature in certain jurisdictions’ antitrust regimes, the manner and regularity with which they are applied remains a significant challenge both for antitrust practitioners and for their clients gauging certainty of their foreign investments.
A consideration of the developments in the South African context indicates the substantial risks associated with the manner in which antitrust agencies and governmental departments approach public interest considerations in merger proceedings.
Merging firms, particularly multinationals, need to be acutely aware of the challenges and risks associated with the use of public-interest considerations throughout merger-control proceedings in South Africa. Recent interventionist strategies have had a significant impact on two key features: the timing and cost of concluding mergers in the region.
The paper was presented at this year’s ABA Antitrust Spring Meeting, the largest competition-law focussed conference in the world, taking place annually in Washington, D.C. AAT’s readers have exclusive free access to the PDF here.
Key competition-law conference features dedicated panel discussion on African antitrust developments
By Michael-James Currie
The 54th annual American Bar Association Antitrust Spring Meeting was held in Washington, D.C., during the second week of April 2016 and the AAT editors were there to ensure that we provide our readers with an update on the latest developments in relation to African antitrust issues, discussed during a panel held last Friday.
ABA Africa Panelists
Given that mergers hit a global all-time high last year with the total value of transactions amounting to over USD 4.6 trillion, merger control is certainly at the forefront of many antitrust practitioners. The interest in mergers and acquisitions has perhaps gained even further attention in light of the announcement this week that the USD160 billion Pfizer/Allergan global mega-deal has been officially abandoned, despite the transaction having already been filed before all the relevant competition agencies around the world. While the Pfizer/Allergan deal was called off as a result of new tax laws and therefore not as a result of antitrust issues directly, the deal did put multinational mega-deals firmly in the spotlight.
The Pfizer/Allergan deal is not the only mega-deal that faced significant government opposition. It was announced this week that Halliburton’s takeover of Baker Hughes, in a deal valued at USD 25 billion, is going to be strongly opposed by the U.S. DOJ.
It is, however, not only the U.S. Government that is having a significant impact on multinational deals, as evidenced by the Anbang Insurance and Starwood Hotels & Resorts deal, valued at USD 14 billion, which has also been abandoned after mounting pressure by the Chinese government.
From an African perspective, the South African Competition Commission just last week extended its investigation in the USD 104 billion SABMiller and Anheuser-Busch InBev merger. It is widely suspected that the request for the extension is due to intervention by the Minister of Economic Development, in relation to public interest grounds. Although there is no suggestion at this stage that Minister Patel is opposing the deal, the proposed intervention does highlight bring into sharp focus the fact that multinational mega-deals face a number of hurdles in getting the deal done.
‘Getting multinational deals through’ is a hot topic at the moment amongst antitrust practitioners and is and the ABA thought it beneficial to have a panel discussion dedicated purely to merger control issues across African jurisdictions. In particular, the panel addressed some of the key issues which merging parties need to consider, including inter alia issues relating to harmonisation across agencies, the role of public interest considerations, prior implementation and the need for upfront substantive economic assessments.
The panel consisted of a varied mix of panellists from both private practice and government, and included Pr1merio director John Oxenham (he is also a founding partner at South African based law firm Nortons Inc.), economist and former Commissioner of the COMESA Competition Commission (COMESA CC) Rajeev Hasnah (Rajeev was also a former commissioner of the Mauritius Competition Commission and is an economist for Pr1merio), manager of the South African Competition Commission office, Wendy Ndlovu, and Kenyan based external counsel Anne Kiunuhe (Anne practices at the law firm Anjarwalla & Khanna).
The panellists were tasked with addressing a variety of topics: we summarise below some of the key issues which the panellists highlighted, which merging parties, practitioners and antitrust agencies themselves (amongst whom Tembikosi Bonakele, the South African Competition Commissioner was present in the panel audience) should be cognisant of in relation to merger control in Africa.
John Oxenham and Wendy Ndlovu at ABA Spring Meeting 2016 in Washington, D.C.
John Oxenham
John pointed out that from a South African perspective, mergers undergo a robust evaluation by the Competition Authorities and that although the investigation of most large mergers is completed within 60-70 days, the fact that the Commission may request the Competition Tribunal for an extension of up to 15 business days at a time, may result in the investigation of certain mergers taking considerably longer. The risk of a merger being delayed is increased significantly due to the level of third party interventionism, particularly ministerial intervention on public interest grounds.
John advised that merging parties should consider the impact that a particular merger will have on the public-interest grounds upfront to avoid delays in the investigation period as a result of further requests for information from the Commission, or may even amount to an incomplete filing.
In respect of substantive economic assessments, John pointed out that a number of jurisdictions, including South Africa, Namibia, Zambia and to a lesser extent Botswana, requires a substantive upfront economic assessment. In this regard the South African Competition Commission is perhaps the most robust in its economic evaluation of a merger in light of the resources dedicated to its own in-house economic department as well as utilising external experts when necessary. John also highlighted the fact that the South African Competition Authorities rely on oral testimony and expert witnesses are often subjected to substantial and lengthy examination and cross examination before the Competition Tribunal.
On the topic of gun-jumping or prior implementation, John mentioned that the following jurisdictions are examples of countries which do not require notification prior to implementing the transaction – in other words, they are not suspensory:
Malawi
Senegal
Mauritius
Whereas the following countries do require notification prior to implementation (suspensory merger control jurisdictions):
South Africa
Swaziland
Zambia
Botswana
On harmonisation, John confirmed that in relation to public interest considerations in merger control, the South African competition authorities play a leading role on the African continent and pointed out that in addition to Kenya and Tanzania, Namibia also considers public interest considerations and that there is a substantial amount of collaboration and information sharing between the South African and Namibian competition authorities, as was the case in the Walmart/Massmart deal.
Despite the information sharing between agencies, John confirmed that there are rules in place to protect confidential and legally privileged information and that the South African competition authorities are cognisant and respectful of these provisions.
Rajeev Hasnah
Rajeev Hasnah, Pr1merio economist and former COMESA Competition Commissioner, and Anne Kiunuhe from Kenya
Rajeev noted the significant progress which the COMESA CC has made in relation to merger control by publishing financial thresholds for mandatorily notifiable transactions and specified filing fees, as well as publishing guidelines which clarify when a merger will have a sufficient regional dimension to fall within the COMESA CC’s jurisdiction.
On the topic of harmonisation, Rajeev discussed the challenges due to a lack of harmonisation between COMESA and its member states and noted that COMESA does not have exclusive jurisdiction in the cases which do fall within its jurisdiction. Parties, therefore, may find themselves being required to file a merger both before the COMESA CC as well as before the respective national authorities. A further challenge facing the COMESA CC is that there are 19 member states and consequently, the relevant geographic market is significant. Accordingly, often the national authorities are best placed to evaluate a merger and will therefore defer the evaluation of the merger to the relevant national authority.
On the role of economic assessments, Rajeev stated that an economic assessment underlies any merger evaluation and that both the Mauritius Competition Commission and the COMESA Competition Commission conducts a comprehensive economic assessment of a merger.
Wendy Ndlovu
When asked on what role public interest considerations play in merger control in terms of the South African competition regime, Wendy indicated that the framework of the Competition Act specifically requires the competition authorities to consider the impact that a merger may have on the four specified public interest provisions contained in the Act. Wendy confirmed that an evaluation of public interest considerations may both justify a merger despite the merger likely being likely to cause a substantial lessening or prevention of competition in the market, alternatively, public interest considerations may lead to a prohibition or the imposition of conditions on a merger which raises no competition law concerns and may in fact be pro-competitive.
Wendy recognised that there is a need, however, for greater certainty in respect to the manner in which the South African authorities evaluate public interest considerations and pointed out that the Competition Commission is likely to finalise and publish its guidelines on the public interest assessment in an effort to promote greater certainty.
On prior the issue of prior implementation, Wendy pointed out that merging parties need to be mindful of the consequences of gun-jumping and noted that the South African Competition Tribunal has imposed administrative penalties, as in the Netcare case, on parties for failing to notify a mandatorily notifiable transaction.
Anne Kiunuhe
Anne discussed the Competition Authority of Kenya’s (CAK) willingness to focus not only on merger control but has also identified the CAK’s increasing tendency to investigate and prosecute firms engaged in restrictive practices (as demonstrated by the recent dawn raids conducted by the CAK in the fertiliser industry). Despite the CAK’s growing confidence, Anne pointed out that in respect of merger control, the CAK is open to and in fact often relies on precedent from foreign jurisdictions when evaluating a merger. In particular, Anne noted that public interest grounds are specifically considered during the merger review procedure and that in this respect, the CAK largely takes the lead from the South African competition authorities.
From a practical perspective, Anne mentioned that the CAK usually requests a meeting with the merging parties soon after a transaction has been notified, and that usually representatives from the merging parties, along with local external legal counsel, should be present. The CAK prefers that the representatives present should be the best placed to answer or address the CAK’s queries. This often necessitates representatives from the parent company being present as opposed to representatives from the subsidiary entities only.
The direct contact between the CAK and the merging parties is quite different from the manner in which the COMESA CC evaluates mergers where the consideration of a merger is done solely on the papers and any communication between the COMESA CC and the merging parties is done through the merging parties’ local external counsel.
As to legislative developments, Anne pointed out that the merger regulations in Kenya now provide that for purposes of establishing a “change of control”, it is sufficient if the acquiring firm is able to materially influence the commercial decisions of the target firm. Accordingly, the acquisition of a minority shareholding for instance may constitute a change of control if the holders of such shares may for instance exercise veto rights.
On COMESA, Anne mentioned that the COMESA CC permits merging parties to seek a comfort letter when unsure as to whether a merger requires filing and that the use of comfort letters has been rather prevalent.
Conclusion
The role of public interest considerations in merger control was a dominant focus point throughout the panel discussion due to this unique aspect in a growing number of African jurisdictions merger control provisions.
Please click on the following link to access a an article on the role of public interest considerations in merger control in South Africa, which addresses in particular, the impact of ministerial intervention in merger proceedings and the concomitant impact which such intervention has on the costs, timing and certainty of merger proceedings.
March 2016 has been a busy month for the competition agencies of South Africa and Kenya respectively. Both agencies carried out search and seizure operations as a result of alleged collusion within various sectors of the economy. While the March dawn raids are not connected, the South African Competition Authority, as part of its advocacy outreach, provided training to the Competition Authority of Kenya relating to inter alia, search and seizure operations.
South Africa
On 23 March 2016, the South African Competition Commission carried out search and seizure operations in the automotive glass fitment industry, as part of its continued investigation into alleged collusion within this sector.
Accordingy to the SACC, the raid was carried out “at the Gauteng premises of PG Glass, Glasfit, Shatterprufe and Digicall as part of its investigation of alleged collusion. PG Glass and Glasfit are automotive glass fitment and repair service providers; Shatterprufe supplies PG Glass and Glasfit with automotive glass while Digicall processes and administers automotive glass related insurance claims on behalf of PG Glass and Glasfit.”
John Oxenham, founding director of Pr1merio, notes that “[t]his most recent dawn raid follows on from those carried out towards the latter part of 2014 and 2015 and confirms that the SACC has adopted a more robust approach to investigating alleged anti-competitive practices.” In this regard, Commissioner, Tembinkosi Bonakele, confirmed at the 9th Annual Competition, Law, Economics and Policy Conference in November last year that the Competition Commission has in the past two years, “conducted more dawn raids than those conducted in preceding years since the Competition Commission came into existence” (nearly 16 years ago).
For an overview of dawn raids and cartel investigations in South Africa, please see the following GCR Article.
Kenya
This month the Competition Authority of Kenya (“CAK”) conducted its first dawn raid. The search and seizure operations were carried out in respect of two fertiliser firms, Mea Limited and the Yara East Africa, based on the CAK’s suspicion of price fixing occurring between these two firms, who together control approximately 60% of the fertiliser market. The CAK conducted the raid in accordance with Section 32 of the Competition Act, 2011 which provides for the Authority to enter any premises in which persons are believed to be in possession of relevant information and documents and inspect the premises and any goods, documents and records situated thereon. This follows an inquiry which was launched last year by Kenyan competition authorities into what the CAK termed “powerful trade associations exhibiting cartel-like behaviour specifically targeting banks, microfinance institutions, forex bureaus, capital markets as well as the agricultural and insurance lobbies”. The fact that the CAK has carried out its first dawn raid demonstrates its growing stature.
The fertiliser industry appears to be a priority sector for a number of African jurisdictions as the CAK’s investigation into this sector follows the South African Competition Commission’s investigation into the fertiliser industry (which resulted in a referral before to the South African Competition Tribunal for adjudication some years back). In this regard,the South African Competition Commission’s spokesperson stated that the “fertiliser sector is viewed as a priority sector, due to the its importance as an input in the agricultural sector” (as reported here on African antitrust)
Zambia
Interestingly, the Zambian Competition and Consumer Protection Commission (“CCPC”) had, in 2012, conducted dawn raids at the premises of two fertiliser companies, as a result of alleged collusion within the industry.
On a Path to Harmonisation?
While there are a number of practical and legislative hurdles to effectively carrying out cross border search and seizure operations, it appears that cross border investigations may not be too far off. This is particularly so as the various agencies within the Southern African Region have identified similar priority sectors (as evidenced by both the investigations into the fertiliser sectors as well as the various market inquiries into the grocery retail sector).
Uber Africa: Increased competitiveness not a boon for entrenched monopolies
Continuing our AAT multi-part series on innovation & antitrust we turn once again to the ubiquitous “Sharing Economy” we are witnessing not only in the United States and Europe but also on the African continent…
“The taxi industry is in the midst of a crisis. Once protected by a regulated monopoly of the commercial passenger motor vehicle transportation market, the industry now faces increasing competition from a new type of transportation service—ride-sharing. The emergence of companies like Uber, the most successful ride-sharing company, threatens to eliminate the taxi industry’s stronghold on the ground transportation market and possibly the industry itself.” (Erica Taschler, Institute for Consumer Antitrust Studies, in “A Crumbling Monopoly: The Rise of Uber and the Taxi Industry’s Struggle to Survive“)
Today, the Taxi Cab Association of Kenya announced protests against the “unfair competition” its members face from ride-sharing giant Uber, according to the organisation’s chairman, Josphat Olila. This is no news for folks in London, Brussels, Hamburg, or Washington — places where the taxi-medallion-capped brethren of Nairobi’s cabbies have all long ago gone through the protest phase against the rising tide of the “new economy’s” novel way of hailing cars. Examples abound, and all involve more or less refined antitrust arguments.
Andreas Stargard, an attorney with Africa competition advisors Primerio, sums it up as follows: “The pro-competitive notion of innovation-plus-price competition is perhaps best understood by looking at the views of two leading antitrust agencies, the FTC and the European Commission. Both have articulated simple and sound arguments for striking the right balance between regulatory limits for the protection of passengers, as well as allowing innovative technologies to enhance the competitive landscape and thereby increasing transportation options for riders. In antitrust law, more options usually equal better outcomes.”
U.S.
Here is what the U.S. Federal Trade Commission had to say in 2013 about the D.C. taxi commission’s ‘unfair competition’ argument against ride-sharing services:
“The staff comments recommend that DCTC avoid unwarranted regulatory restrictions on competition, and that any regulations should be no broader than necessary to address legitimate public safety and consumer protection concerns. … [T]he comments recommend that DCTC allow for flexibility and experimentation and avoid unnecessarily limiting how consumers can obtain taxis.”
Crucially, the Kenyan cabbies’ argument that Uber should be banned is based on price competition from Uber’s lower fares. One of the main tenets of competition law is: lower prices are good for consumers (in general), as long as service quality remains the same. With Uber in the mix, quality arguably increases beyond the sad status quo of smelly and difficult-to-hail cabs: for one, users now are able to know when and where their car arrives, quality control via Uber’s policies and check-ups is available, convenient electronic billing & dispute resolution exists, etc.
Let’s go back to the FTC’s public comments and see their take:
“Competition and consumer protection naturally complement and mutually reinforce each other, to the benefit of consumers. Consumers benefit from market competition, which creates incentives for producers to be innovative and responsive to consumer preferences with respect to price, quality, and other product and service characteristics. As the U.S. Supreme Court has recognized, the benefits of competition go beyond lower prices: ‘The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers’.”
EU DG COMP
Former Competition Commissioner Neelie Kroes would agree wholeheartedly with the above, and indeed said in 2014 that she was “outraged at the decision by a Brussels court to ban Uber.” In her personal op-ed piece, published on the EU Commission’s web site under the catchy title “Crazy court decision to ban Uber in Brussels“, she poignantly had this to tell the Belgian Mobility Minister who signed off on the Uber ban:
“This decision is not about protecting or helping passengers – it’s about protecting a taxi cartel. The relevant Brussels Regional Minister is Brigitte Grouwels. Her title is “Mobility Minister”. Maybe it should be “anti-Mobility Minister”. She is even proud of the fact that she is stopping this innovation. It isn’t protecting jobs Madame, it is just annoying people!”
We wonder what would happen if Neelie Kroes were Kenyan government minister…
Kenya: Keep prices high and ‘foreign’ competition out?
The Kenyan Taxi Association does not see it that way, just like its D.C. counterpart did not some 3 years ago. However, D.C.’s streets are still full of old-fashioned cabs, and Uber — while popular — is still far from blowing out the light shone by the once-prized cabbie medallions…
Still, the Kenyan association claims that between 4,000 and up to 15,000 taxi drivers face job extinction due to lower prices charged by Uber, which has been active in Nairobi since the beginning of 2015. Again, the “lower price” argument is a red herring under even the most basic application of competition economics, which shows that innovation-based price competition is ultimately pro-competitive and good not only for the end consumer but also the industry’s development as a whole.
The Kenyan taxi-cab organisation not only claims that the livelihoods of its members are at stake, but also “questioned the protocols followed by the foreign investors behind Uber, saying they were not consulted before the service provider entered the market,” according to an article in the Kenyan Daily Nation. The association’s spokesman is quoted as saying: “We have loans to service, families to feed, children to educate and other responsibilities to cater for and we are not ready to leave the transport industry to a foreigner and render [ourselves] jobless while we are in a democratic republic.”
So in the end, the ‘unfair taxi competition’ argument devolves into xenophobia and mistrust. Sadder yet, Kenya’s Uber fight has now taken a violent turn: Yesterday, an Interior Ministry spokesman said that there had been reports of attacks on Uber drivers, which are being investigated.
AAT of course deplores the resort to violence and trusts that neither it nor the upcoming protests will impede the progress of competitiveness in Kenya, a country that otherwise prides itself on encouraging competition (see CNBC Africa video on “East African competitiveness”). The sole glimmer of hope we see consists of the closing line of the Daily Nation piece, which notes that “[t]he drivers have also promised to come up with their own version of Uber to connect taxi drivers in the country.” That is what innovation is all about: Uber innovates, others copy (be it Lyft or the Kenyan cabbies), and everyone is better off in the final analysis.
East-Africa & Antitrust: Enforcement of EAC Competition Act
By AAT guest author, Anne Brigot-Laperrousaz.
Introduction: Back in 2006…
The East African Community (the “EAC”) Competition Act of 2006 (the “Act”) was published in the EAC Gazette in September 2007. The Act was taken as a regulatory response to the intensification of competition resulting from the Customs Union entered into in 2005. This was the first of the four-step approach towards strengthening relations between member States, as stated in Article 5(1) of the Treaty Establishing the EAC.
Challenges facing the EAC
As John Oxenham, an Africa practitioner with advisory firm Pr1merio, notes, “10 years have passed since the adoption of the EAC Act, yet it remains unclear when (and if) the EAC will develop a fully functional competition law regime.”
The EAC Competition Authority (the “Authority”) was intended to be set up by July 2015, after confirmation of the member States’ nominees for the posts of commissioners. Unfortunately Rwanda, Uganda and Burundi failed to submit names of nominees for the positions available, and the process has become somewhat idle, leaving questions open as to future developments.
The main challenges facing the EAC identified by the EAC’s Secretariat is firstly, the implementation of national competition regulatory frameworks in all member States; and secondly, the enhancement of public awareness and political will[1].
The first undertaking was the adoption of competition laws and the establishment of competition institutions at a national level, by all member states, on which the sound functioning of the EAC competition structure largely relies.
Apart from Uganda, all EAC member States have enacted a competition act, although with important discrepancies as to their level of implementation at a national level.
The second aspect of the EAC competition project is the setting up of the regional Competition Authority, which was to be ensured and funded by all members of the EAC, under the supervision of the EAC Secretariat. Although an interim structure has been approved by member States, the final measures appear to be at a deadlock.
As mentioned, the nomination of the commissioners and finalisation of the setting up of the EAC Competition Authority came to a dead-end in July 2015, despite the $701,530 was set aside in the financial budget to ensure the viability of the institution[2]. It is widely considered, however, that this amount is still insufficient to ensure the functionality of the Competition Authority. Andreas Stargard, also with Pr1merio, points out that “[t]he EAC has been said to be drafting amendments to its thus-far essentially dormant Competition Act to address antitrust concerns in the region. However, this has not come to fruition and work on developing the EAC’s competition authority into a stable body has been surpassed by its de facto competitor, the COMESA Competition Commission.”
Furthermore, inconsistencies among national competition regimes within the EAC are an important impediment to the installation of a harmonised regional enforcement. Finally, international reviews as well as national doctrine and practice commentaries have highlighted the lack public sensitization and political will to conduct this project.
A further consideration, as pointed out by Wang’ombe Kariuki, Director-General of the Competition Authority of Kenya, is the challenge posed by the existence of the Common Market for Eastern and Southern Africa (“COMESA”).
Conclusion
The implementation of the EAC has not seen much progress since its enactment, despite its important potential and necessity[3]. It therefore remains to be seen how the EAC deals with the various challenges and whether it will ever become a fully functional competition agency.
A quick summation of the status of the national laws of the various EAC members can be seen below. For further and more comprehensive assessments of the various member states competition law regimes please see African Antitrust for more articles dealing with the latest developments.
The Tanzanian Fair Competition Act (the “FCA”) was enacted in 2003, along with the institution of a Commission and Tribunal responsible for its enforcement. The FCA became operational in 2005. Tanzania’s competition regime was analysed within the ambit of an UNCTAD voluntary peer review in 2012[4]. The UNCTAD concluded that Tanzania had overall “put in place a sound legal and institutional framework”, containing “some of the international best practices and standards”.
This report, however, triggered discussions on major potential changes to the FCA, which would impact, in particular, institutional weaknesses and agency effectiveness[5]. One of the most radical changes announced consisted in the introduction of criminal sanctions against shareholders, directors and officers of a firm engaged in cartel conduct[6], although there is no sign that this reform will be adopted.
Kenya, following a 2002 OECD report[7] and the European Union competition regulation model, replaced its former legislation with the 2010 Competition Act, which came into force in 2011, and established a Competition Authority and Tribunal. Under the UNCTAD framework, the 2015 assessment of the implementation of the recommendations made during a voluntary peer review conveyed in 2005[8] was generally positive. It was noted, however, that there was an important lack of co-operation between the Competition Authority and sectoral regulators, and that there was a need for clear merger control thresholds[9].
Burundi adopted a Competition Act in 2010, which established the Competition Commission as the independent competition regulator. To date, the Act has not yet been implemented, and accordingly no competition agency is in operation[10].
A 2014 study led by the Burundian Consumers Association (Association Burundaise des Consommateurs, “Abuco”) (which was confirmed by the Ministry of Trade representative) pointed to the lack of an operating budget as one of the main obstacles to the pursuit of the project[11].
Rwanda enacted its Competition and Consumer Protection Law in 2012, and established the Competition and Consumer Protection Regulatory Body.
As for Uganda, to date no specific legal regime has been put in place in Uganda as regards competition matters, although projects have been submitted to Uganda’s cabinet and Parliament, in particular a Competition Bill issued by the Uganda Law Reform Commission, so far unsuccessfully.
Footnotes:
[1] A Mutabingwa “Should EAC regulate competition?” (2010), East African Community Secretariat
[2] C Ligami, “EAC to set up authority to push for free, fair trade” (2015), The EastAfrican
[3] O Kiishweko, “Tanzania : Dar Praised for Fair Business Environment” (2015), Tanzania Daily News
[4] UNCTAD “ Voluntary Peer Review on competition policy: United Republic of Tanzania” (2012), UNCTAD/DITC/CLP/2012/1
[5] S Ndikimi, “The future of fair competition in Tanzania” (2013), East African Law Chambers
[6] O Kiishweko, “Tanzania: Fair Competition Act for Review’ (2012), Tanzania Daily News.
[7] OECD Global Forum on Competition, Contribution from Kenya, “ Kenya’s experience of and needs for capacity building/technical assistance in competition law an policy “ (2002), Paper n°CCNM/GF/COMP/WD(2002)7
[9] MM de Fays, “ UNCTAD peer review mechanism for competition law : 10 years of existence – A comparative analysis of the implementation of the Peer Review’s recommendations across several assessed countries” (2015)
We have previously, on African Antitrust, reported on South Africa’s first predatory pricing case in the Media 24 matter. In light, however, of the recent cases on exclusionary conduct — particularly predatory pricing, which has received significant attention from competition law agencies across a number of jurisdictions of late (see, for instance, the Paris Court of Appeals’ dismissal of the predatory pricing and exclusionary conduct allegations made against Google by an online maps rival. The Indian Competition Commission has also launched an investigation into alleged predatory pricing in the taxi industry, and the European Commission has launched investigations into predatory pricing in the potato-chips / crisps industry) — a more substantive evaluation of predatory pricing in South Africa is called for. The following article on predatory pricing, in light of the Media 24 case, neatly sets out and evaluates the landscape of predatory pricing in South Africa.
Predatory Pricing & the South African Competition Act: a False-Positive?
By Michael J. Currie
Intro & Summary
“From an antitrust perspective, predatory pricing is a particularly difficult problem with which to deal. If we are to prevent anticompetitive monopolization, it is a strategy that must not be permitted. The paradox, however, is that such a pricing strategy is virtually indistinguishable from the very sort of aggressive competitive pricing we wish to encourage.”
D L Kaserman and J W Mayo, ‘Government and Business: The Economics of Antitrust and Regulation’ (1995) Fort Worth, TX: Dryden Press at 128
In September 2015, the Competition Tribunal (“Tribunal”), for the first time in South Africa’s sixteen-year history of competition-law enforcement found, in the Media 24 case that the respondent had engaged in predatory pricing in contravention of the South African Competition Act, 89 of 1998 (“Act”).
The Media 24 case, despite being dragged out for nearly six years, was set to be the leading jurisprudence on the laws pertain to predatory pricing, and in particular, how Section 8(d)(iv) of the Act would be interpreted and applied by the Tribunal. The finding by the Tribunal was, however, based on Section 8(c) of the Act, which is a broader ‘catch-all’ provision, and left some important questions as to the interpretation of Section 8(d)(iv) unanswered. Most notably, whether or not Section 8(d)(iv) permits complainants to utilise cost measurement standards other than Average Variable Costs (“AVC”) or Marginal Costs (“MC”) to prove that a dominant firm has engaged in predatory pricing in contravention of the provision.
Having said that, however, the Media 24 case provides some insight as to the precise relationship between Sections 8(d)(iv) and 8(c) of the Act as they relate to predatory pricing, and may have offered, by way of certain obiter remarks, an indication as to how the Tribunal may interpret and apply Section 8(d)(iv) of the Act in the future.
Continue reading the full article, an AAT exclusive, in PDF format:
Continuing the original AAT series, ECONAfrica, Peter O’Brien addresses the WTO’s upcoming MC10 conference.
From 15-18 December Nairobi will host the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO). This will be a meeting of many firsts. Till now, no sub-Saharan African country had hosted a Ministerial Conference organised by the WTO. Nairobi will bring into force the Trade Facilitation Agreement (TFA), the first occasion in the now 21 year history of WTO that a new agreement has been signed (all others were established at the inception of WTO). This is the first MC to take place against the backdrop of an agreement in Africa, concluded this year, to work for a continent wide area of free trade. Today more than one quarter (43 countries in total) of all WTO Members (more than 160) are African. Moreover, the Accession Package for Liberia was agreed in Geneva on 6 October, and it can be expected that it too will join in the course of 2016.
Apart from celebrating the firsts, are there any reasons for business in Africa to pay attention to events in Nairobi? The answer is an emphatic yes:
The TFA is the one WTO agreement that promises real advantages on the logistics of trade. Detailed studies have shown that, on average, the sheer movement of goods within Africa accounts for roughly one fifth of all costs. Serious steps to cut those costs, which is what TFA is about, represent a win/win for producers, traders, consumers and indeed the public authorities. Since Africa is the region of the world where intra-trade (transactions among African countries themselves) is by far the lowest, and where most national markets are small, the gains from logistics savings are potentially huge.
The TFA will commit WTO Members to help the least developed countries, a group of over 30 States of whom the majority are African. For the first time, there are straight advantages to be obtained without a condition of reciprocity. Funding, technical assistance, streamlining of trade administration, are just some of the things that can be expected. The TFA allows governments and business together to formulate their requests, so this is the chance to utilize an organized offer of support.
MC10 will seek to reinforce the whole network of disciplines concerned with non-discrimination and competition that constitute the core of WTO agreements. That progress is very positive for the growth of competitive markets on the continent.
The meeting will be attended by numerous international and regional observer organizations from the private sector, as well as by non-governmental organizations (NGOs) whose normal activities are overwhelmingly directed towards improving trade and welfare in African countries. Their presence serves to strengthen the lobby for growth and welfare improvement.
In the world of yesterday, tariffs and quantitative limitations dominated trade negotiations. In tomorrow’s world, the critical subjects are technical barriers to trade (meaning formal legal resolutions that control trade for purposes of national security, public health and so on), voluntary norms and standards (which in practice frequently acquire a market force equivalent to a legal provision), and a host of other regulatory issues that determine who will be best placed in the market.
More or less all African countries, with the partial exception of South Africa, have always been on the receiving end of these instruments. Africa has thus far played a very minor role in shaping “the rules of the international competitive game.”But with the continent now the fastest-growing region in the world economy, with the race for its natural resources continuing (despite the current lows in resource prices), with the ongoing investments (from within the continent and without), and the steady improvements in governance observable in the majority of countries, Africa is well placed to make its voice heard.
Nairobi and the MC10 offer the ideal stage on which the continent can begin its future path as one of the designers of competitive change.
In our new AAT series, ECONAfrica, Pr1merio economist Peter O’Brien discusses corporate debt issues on the continent.
Debt debates on Africa nearly always talk about sovereign debt. But in economies which are growing, even if with plenty of ups and downs, firms need to finance expansion. Banks can help, yet this is often not so easy to organize. Another option is to issue corporate bonds (‘CB’). Since rating agencies generally assess clients on a three letter basis (sometimes with a + or – at the end), we will make our 3R assessment of African CB. What’s the reality, what’s the regulatory situation, and what are the risks and rewards?
Overview
First, a thumbnail sketch (admittedly based on limited evidence) of the stylized facts:
So far, all African countries (including the Middle East) account for less than 5% of the value of all CB issued by Emerging Market Economies (EME).
Within that, South Africa, Mauritius and Egypt add up to around two thirds, with South Africa alone as one third.
Most CB in Africa have maturities no more than 10 years
Over half of the bonds are fixed interest
Roughly 30% of the CB are considered high yield (another way of saying that investors reckon the risks are substantial)
It seems as if there is more or less an even split between CB issued in local currency (hence with local currency coupon rates) and those in foreign currency (nearly all $ or euro)
The investors are in the main a group of 50-60 funds
In South Africa, as of October 2015, foreign holdings of local CB were 35% of the total
In a number of African countries, the leading corporate borrowers are parastatal firms
Corporate debt, measured as a percentage of GDP, is far lower in African countries than in most others. While many other places, especially some of the big EME, are vulnerable to macroeconomic damage stemming from corporate debt, Africa (including South Africa, where this percentage has remained remarkably stable) should be fairly safe
Corporate debt in South Africa has remained the same as percentage of GDP (Source: The Economist)
Lessons Learned?
What does this picture tell us? Its principal message is surely that this is an area certain to experience major changes, and quite possibly major expansion (not only in volume but also in the players involved).
Now to regulation, both internal and external. The country that seems to have explicitly made provision for corporate debt, and its restructuring, is South Africa. In Companies Act 71 of 2008, enacted in 2011, there are clauses that set out possibilities for Corporate Debt restructuring. Since enactment, over 400 companies have applied for these methods of handling the problems, and there are upwards of 80 entities offering specialized advice in the field. This prudent approach no doubt stems in part from the size and significance of corporate borrowing in that country. Elsewhere, legal and regulatory issues seem, on balance, to hold back greater reliance on CB. In part there are accounting and corporate governance standards which local companies may not yet meet. In part, it appears that the disclosure requirements that must be met before recourse to CB can be made may constrain the actions of companies (bank borrowing generally requires less disclosure). On the external side, the Basel 111 stipulations matter, in particular because they limit the possibilities for underpricing of CB (a practice that has been fairly frequent till now).
What is missing in the regulatory environment, however, is any overall examination of what might be done to stimulate the prudent use of CB. If this were to be done, such regulation would need to assess financial, economic and anti-trust issues.
The risks and rewards of the CB approach to corporate funding, and indeed the opportunities to use it, are very different across Africa. From economies such as Kenya and Botswana, where the phenomenon is on the rise, to those of the Maghreb, where political uncertainties in very recent years seem to have stunted what was a promising growth, to many parts of West Africa, where to date there is seemingly little activity in this area, each country has its own environment. However, the ever greater integration in the various regions means that there may well be prospects for making better use of private regional funds and of sovereign funds. Either way, African companies should look forward with optimism to utilizing more local capital. It is the job of regulators to ensure this is done in a sound way financially, and that these markets operate competitively.
In our latest instalment of our Meet the Enforcers series, we speak with South African Competition Commissioner Tembinkosi Bonakele on the topic of hosting a series of academic & practitioner platforms to discuss cases and developments in competition-law enforcement.
This week, the South African Competition Commission and the Competition Tribunal successfully organised the 9th Annual Conference on Competition Law, Economics & Policy (as part of the 4th BRICS International Competition Conference), taking place in Durban, South Africa.
Commissioner Bonakele, the head of the SACC, discussed hosting the conference with AAT’s contributing author, Njeri Mugure, Esq. According to his biography, Mr. Bonakele has been with the Commission for the past ten years. He briefly left the Commission in March 2013 and came back in October 2013 as Acting Commissioner. He has been in this position until his appointment as the Commissioner. Bonakele has occupied various positions in the Commission’s core divisions. He was appointed Deputy Commissioner in 2008, and prior to that worked as head of mergers, head of compliance and senior legal counsel respectively.
The AAT-exclusive interview follows:
AfricanAntitrust.com: South Africa has been participating in the BRICS International Competition Conference (“BRICS ICC”) since 2011, a year after she officially became a member of BRICS. This November the country will host the 4th of this biennial meeting in Durban. What are your goals for this year’s conference?
Tembinkosi Bonakele:
The theme for the BRICS International Competition Conference 2015 is “Competition and Inclusive”. This theme will enable the conference to explore the relationship between competition and growth, competition and employment, competition and inequality and competition and poverty. As with the previous conferences, the aim of the conference is to strengthen cooperation amongst BRICS countries in the area of competition regulation by creating a platform for sharing experiences. We also aim to use the conference to discuss a proposed Memorandum of Understanding between BRICS competition agencies. Finally, the conference is also a platform for both developed and developing countries to discuss competition policy and enforcement issues.
AfricanAntitrust.com: Speaking of Durban, some might have expected for the 9th Annual Competition Law, Economics and Policy Conference (“Annual Competition Conference”) and/or the BRICS ICC to be held in Pretoria, the capital city of South Africa. Could you tell us why you chose to hold the two conferences in Durban?
Tembinkosi Bonakele:
We wanted a venue that would provide world class facilities for the conference as well as enjoyment for the delegates, and Durban ticks both boxes. The Kwazulu-Natal province, where Durban is situated, is home to rich natural resources, including Africa’s Big Five game and beautiful mountainous landscapes.
Durban itself is a diverse African city providing cultural diversity as well as a natural paradise known for its beautiful coastline beaches and subtropical climate. The City is also host to the largest and busiest harbor in Africa. The Inkosi Albert Luthuli International Convention Centre (Durban ICC), where the two conferences will be held, is the largest indoor conference facility in Africa.
The Commission has previously partnered with the KwaZulu-Natal Provincial Government, eThekwini (Durban) Municipality and the University KwaZulu-Natal on various activities.
AfricanAntitrust.com: In addition to hosting the Annual and the BRICS competition conferences, the South African Competition Commission (“the Commission”) along with Cresse and the University of Kwazulu-Natal will hold a joint workshop exploring areas such as collusions and cartels, unilateral and coordinated effects in mergers, the economics of exclusionary conducts, and use of economic evidence, among others. What do you hope this workshop will achieve?
Tembinkosi Bonakele:
The economic understanding of competition policy is constantly evolving. In the last two decades economists have developed new theories of harm and traditional views have changed significantly. The workshop will bring top quality instruction on the economics of competition to agency officials in South Africa and more broadly Africa, competition practitioners, academics and policy makers. I hope that everyone attending the workshop will walk away having learned something new about the economics of competition.
AfricanAntitrust.com: Speaking of the this year’s events, planning the joint workshop, the Annual Competition Conference and the BRICS ICC was a great undertaking, could you tell us why you decided to have the three events back to back and what audience each event is tailored to suit?
Tembinkosi Bonakele:
With the BRICS conference coming into South Africa was a great opportunity as so many people were interested to come. So many opinion makers, academics and practitioners were going to be in the country, so we organized all these events to take advantage of their presence, and the response was very positive. We also thought logistically it makes sense to have our annual conference organized back to back with BRICS, so we don’t get conference fatigued. In the end, all the events flow into each other.
The Joint Workshop is a technical training and knowledge sharing platform, looking at the latest thinking on various aspects of competition enforcement.
The conference is an annual academic platform to discuss cases and developments in competition law enforcement.
AfricanAntitrust.com: Turning to the BRICS International Competition Conference, in what way has this year’s agenda been informed by the previous three conferences? What impact do you think the previous conferences have had on antitrust discourse in BRICS and non-BRICS countries?
Tembinkosi Bonakele:
The previous conferences, hosted by the Federal Antimonopoly Services of Russia in 2009, the State Administration for Industry and Commerce of the People’s Republic of China in 2011 and Competition Commission of India in 2013, created a solid platform on which we can deepen our relations in the field of competition regulation.
South Africa has focused the conference on the relationship between growth and inclusivity. Furthermore, this year’s conference aims to institutionalize BRICS cooperation on competition matters, and move it beyond conferences. There is a proposed Memorandum and Understanding, as well as a joint research initiative.
AfricanAntitrust.com: There’s been a lot of debate surrounding public interest factors in merger review. What do you hope to achieve by including the topic to this year’s conference agenda?
Tembinkosi Bonakele:
It is important that BRICS countries weigh-in on this important debate. There is a divergence of views amongst many antitrust practitioners on the compatibility of antitrust issues with public interest issues, but everyone accept that there are public interest issues. The conference will deepen and broaden perspectives on the matter.
AfricanAntitrust.com: How do these engagements such as the BRICS conference and competition law enforcement in general benefit the ordinary South African?
Tembinkosi Bonakele:
The South African competition authorities were established as a package of reforms to transform the unequal South African economy to make it economy inclusive and ensuring that those who participate in it are competitive.
Through engagements such as the BRICS conference we’re able to discuss with our BRICS counterparts how to make our economies, which are similar, more efficient, competitive and inclusive.
The Commission has, in the past 16 years investigated and dismantled cartels from different sectors including construction, bread – a staple food for many South Africans, and cement. In the cement cartel, for instance, the Commission conducted a study post the cartel and discovered that we have saved consumers about R6 billion.
AfricanAntitrust.com: Mr. Bonakele, are there other topics you would have liked to address or comments you would like to add?
Tembinkosi Bonakele:
We see BRICS as an important and strategic platform where we advance arguments about the relationships between competition and other policy instruments that are very relevant in our developing countries.
As a collective, BRICS competition authorities are able to provide leadership in the international antitrust community on what it means to create and enforce competition law and policy in developing economies which come with their own particular challenges and opportunities. These perspectives will serve to enrich the global knowledge base in competition enforcement.
AfricanAntitrust.com: Thank you for taking the time to speak with me, Commissioner!
The interview was conducted by Ms. Mugure for AfricanAntitrust.com on 8 November 2015.
From 15-18 December Nairobi will host the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO). This will be a meeting of many firsts. Till now, no sub-Saharan African country had hosted a Ministerial Conference organised by the WTO. Nairobi will bring into force the Trade Facilitation Agreement (TFA), the first occasion in the now 21 year history of WTO that a new agreement has been signed (all others were established at the inception of WTO). This is the first MC to take place against the backdrop of an agreement in Africa, concluded this year, to work for a continent wide area of free trade. Today more than one quarter (43 countries in total) of all WTO Members (more than 160) are African. Moreover, the Accession Package for Liberia was agreed in Geneva on 6 October, and it can be expected that it too will join in the course of 2016.
African Antitrust & Competition Law 