Category: Big Picture

Short-term sights in favour of long-term gains: Patel’s industrial policies risk effective competition in South Africa

Posted on by andreasstargard

AAT the big picture

By Michael Currie

Discarding any objectivity and international best practice, the Minister of Economic Development, Mr. Ebrahim Patel, has once again expressed his desire to use the South African Competition Commission (“SACC”) as an agency to actively promote the government’s industrial policies.

Speaking at a media briefing, Patel told journalists that the focus of the Economic Development Department would be to grow “black ownership of new industry in South Africa and using state funding to grow the work of black entrepreneurs”.[1]

Minister Patel

Patel said the intention of using the SACC to launch a market inquiry into the retail sector was to “ensure that we’ve got a competitive sector, but also an inclusive sector”. This statement and the decision to institute a market inquiry into the retail sector is, at least at this stage, problematic for two reasons. Firstly, the retail sector is arguably one of the most competitive sectors in South Africa, and any barrier to entry into the sector is a natural consequence of a highly competitive market. Furthermore, Patel identified exclusivity clauses (which are popular provisions inserted into lease contracts between mall anchor tenants and the developers) will be one of the issues that the inquiry will look into. Patel, unfortunately, overlooked the fact that there has already been an investigation relating to these clauses. At the conclusion of the investigation, the SACC found that there is not sufficient evidence of anti-competitive impact, resulting from these clauses, and thus the SACC refrained from referring the matter to the South African Competition Tribunal (“SACT”).[2] This thus begs the question, whether it is necessary to institute a market inquiry with regard to the issue of exclusivity clauses and expose the industry to intensive and unnecessary costs?

In an article written by Mfundo Ngobese in the official newsletter of the SACC, Ngobese responds to an article written by John Oxenham and Patrick Smith, presented at the Eighth Annual Conference on Competition Law, Economics and Policy titled “What is Competition Really Good For?”. The main focus of Ngobese’s article is evaluating the merits of an argument put forward by Oxenham and Smith: that the Competition Authorities should engage in a balancing exercise between the short term impact on public interest issues (such as employment) versus the long term benefits that are associated with effective competition (such as increased economic growth which leads to more jobs created).

Public Interest Test

This brings us back to Patel’s decision to use public interest as the main ground on which a market inquiry into the retail sector should be instituted. The decision to launch a market inquiry based on the anti-competitiveness of exclusivity clauses is simply untenable in light of the SACC’s findings in respect of a previous investigation into the issue, as well as the fact that the retail industry is highly competitive.[4] Using any ‘anti-competitive’ argument as justification for launching this particular market inquiry, would amount to nothing more than a ‘fishing expedition’ by Patel and the Authorities.

The broad public interest grounds which are increasingly becoming prevalent as Patel transcends into the competition arena, coupled with the ill-defined rationale, guidelines and justifications behind the use of public interest grounds in competition review, is contributing significantly to uncertainty in the South African economy.

This ‘uncertainty’, that surrounds doing business in South Africa was recognised by African National Congress (ANC) stalwart Mathews Phosa.  The former ANC Treasurer and Mpumalanga premier identified corruption, inconsistent government policies, and other factors as root causes of investors’ growing reluctance to invest in South Africa:

Policy stability leads to political, social and economic uncertainty. Policy stability in contrast created an “investment friendly culture where every investor feels protected and free to do business”.

While businesses in the retail industry (and indeed businesses across the board) in South Africa, are desperately seeking certainty, Patel is seeking a ‘second bite of the cherry’.

The second issue with Patel’s reason for instituting the market inquiry relates to him wanting to achieve an “inclusive retail sector” and how to bring more “black South Africans into the sector”. While transformation in the economy is certainly an important issue that needs to be addressed in South Africa, it is the manner and form in which such transformation takes place, which is concerning. In this regard, the SACC is patently not the appropriate institution to ensure that there are sufficient black-owned businesses in the retail sector.

Confused Motives

Patel seems to have, unfortunately, conflated the objectives and role of his own department, with the objectives and purpose of the SACC. This comes at a time when other political meddling has led to the resignation of the National Director of Public Prosecutions, Mxolisi Nxasana, who quit his post on Sunday, after almost a year of politically-motivated wrangling and formal investigations being initiated and ultimately dropped by President Jacob Zuma.

Former NPA head Mxolisi Nxasana, forced to resign due to political pressure.

The influence that Minister Patel has had on the SACC’s policy is undoubtedly evident when one evaluates the increased reliance of the South African Competition Authorities to impose stringent conditions in approving mergers.[5]

In justifying the use of public interest grounds in competition law, the Competition Authorities may point out that South Africa’s Competition Act, 89 of 1998 (the “Act”) permits and requires public considerations to be taken into account. However, the use of public interest grounds should not, as seems to be the case, be seen as independent issues unrelated to competition which is to be considered in isolation of the purpose of the Act.[6] The Competition Authorities’ purpose, as set out in Section 2 of the Act is to “promote and maintain competition in the Republic…”. It is likely that Patel views the following two subsections which state that competition must be maintained or promoted to:

“promote employment and advance the social and economic welfare of South Africans” (Section 2(c)); and

“promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons” (Section 2(f))[7]

as the basis for his increased reliance on pushing his Department’s policy objectives through the channels of the SACC. However, placing an overly zealous reliance on these two subsections, fundamentally misconstrues the purpose and function of competition law.

Subsections (c) and (f) quoted above are not self-standing provisions; they are qualified by the general purpose of the Act. Furthermore, by viewing or placing greater reliance on these provisions as self-standing provisions, one would run into an inconceivable difficulty when considering section 2(a), which states as a further objective of the Act (and the purpose of the promoting competition) is to promote the “efficiency, adaptability and development of the economy”. At least from a Section 2 perspective, public interest considerations, at best, have to be reconciled with competition issues.

Market inquiries have often been used very successfully as an investigative tool by a number of competition agencies, especially in Europe. However, a market inquiry requires significant resource expenditure by both the SACC and the market participants and often casts a bad shadow over the relevant industry to the detriment of companies who have not engaged in any anti-competitive conduct. Market inquiries should thus be used sparingly and only when there is significant concern that a particular market is not functioning in a competitive manner. A market inquiry should certainly not be used as a means to affect change in the industry in order simply to suit the objectives of the Government.

There is a further institutional concern which must be noted, and that is that the SACC has, like all institutions, limited resources. In order to function as an efficient and formidable competition law agency, the SACC should ensure that what limited resources are available, is best utilised to achieve a competitive market environment in South Africa.

Before even engaging in policy discussions, as those that Patel is pushing for, it would firstly be necessary to ensure that the SACC has the requisite expertise to deal with policy agenda’s which are far broader than pure competition law. There are already institutions, as Patel has recognised, whose responsibility it is to promote economic growth and to address transformation within the economy.[8] It is not the responsibility of the Competition Authorities to address these issues as directly as has been the case in recent years.[9]

The need for transformation and the promotion of black industrialists is an issue to be addressed by the Government, however, it seems that there is a general lack of regard to competition concerns when Government departments form their policies. A good illustration of this is the significant criticism levelled at the new agreement struck between South African Airways (“SAA”) and the Department of Trade and Industry (“DTI”), which will see SAA redirect R10 billion rand of procurement spending to “black industrialists” (“SAA Agreement”).[10]

While this may appear to be a noble policy, the question remains whether new “black industrialists” are coming into existence, or whether existing “black industrialists” are simply going to make substantial profits at the expense of true development.

The SAA Agreement, which requires, without anything more, that a certain amount of supplies (fuel) be purchased from specific suppliers (‘black suppliers’) strikes at the heart of competition. Effectively certain existing competitors are being excluded in order to favour other competitors. In no way does this promote ‘transformation’ within the industry as the existing barriers to entry remain.

From a competition point of view, the benefit of having healthy competition in the commercial aviation market seems to have been overlooked by the DTI. Apart from the direct benefit that flows from actual cheaper air tickets, the knock-on benefits of stimulating the leisure tourism seems to have been overlooked.

While acknowledging that the SAA decision taken by the DTI is not directly linked to competition law, the disregard that the DTI appears to have to competition in the aviation industry is in stark contracts to the to the Competition Authorities in Botswana who have launched a market inquiry into the aviation sector (although notably with the focus being on unscheduled flights), due to having recognised the importance that the price of flight tickets may have on the tourism industry and the benefits that would flow from boosting the tourism industry.

Considering that SAA is battling financially, and is highly dependent on State bailouts, it is baffling that the State’s primary objective is not to ensure that SAA operates viably and competitively, before risking such competitiveness in favour of a policy which is quite frankly, difficult to justify as there is no evidence that such policies actually achieve genuine transformation or promote economic growth.[11]

One can’t help but notice the irony when it comes to the Government’s social and transformation policies. The Government, and Patel in particular, consistently ignore well established economic principles and the benefits that flow from healthy competition in the economy, in favour of promoting short-sighted top-down “transformative industrial policies”, rather than spending the scarce resources on promoting and developing South Africa from a bottom-up approach.

For instance, poor service delivery in South Africa has a significant detrimental economic and social impact on South Africa. Why improving service delivery does not appear to be high on the radar of the Department of Economic Development or the DTI, is surprising if the objectives of these departments are to promote ‘black businesses’, as the areas which are most severely affected by poor service delivery are generally areas where there is a high percentage of black persons living, who form part of the lower income brackets. In other words, areas where the promotion of small businesses and healthy competition would be most valuable to any social development objectives.

Unfortunately, however, a recent report issued by the Institute of Race Relations stated that the highest incidence of recent public protests in relation to poor service delivery, took place in areas were the most “fruitless and wasteful government expenditure” took place.[12]

Recent statistics show that South Africa’s unemployment rate is increasing, bringing into question whether the policy intervention that Patel has been championing over the past 6 years, is indeed yielding the positive results envisioned by the Government. While the purpose of this article is not to evaluate and criticise all policy interventions, the point to be made is that the effectiveness of policy intervention to advance socio-economic interests in the South Africa is in no way proving effective. While there may be a number of reasons for failing policies, it appears worrying that politicians such as Patel are prepared to risk the independence, efficient functioning and objectives of the Competition Authorities, which are ultimately to promote competition in the market, in order to promote industrial policies when there is so much uncertainty whether such policies will truly ensure long term benefits for the Country as a whole.

Two recently issued reports, namely, the Boston Consulting Group (BCG) Report and the IMD World Development Report, succinctly confirm the concerns and issues which are addressed in this article.

The BCG Report evaluates the reasons for South Africa’s stagnant economic growth. The report acknowledges that it is a necessity to improve education and healthcare and reduce unemployment to advance growth; however, the report importantly states that:

“There is no hiding from the fact that short-term self-interested behaviour has been prevalent; that the emphasis in South Africa has been on cutting the pie rather than growing it.”[13]

This statement could not be truer if one considers Patel’s disregard of well established benefits that flow from a competitive environment, in favour of promoting industrial policies. The following statement by Adam Ikdal on the poor leadership in South Africa, corroborates this papers view:

“a concerted program of execution is essential. In many instances this may mean putting the greater good ahead of the individual or institutional interests.”[14]

The IMD World Competitiveness Report (IMD Report) not only complements the BCG Report, but essentially confirms the views of this paper, with empirical evidence. The IMD Report indicates that South Africa has dropped from a ranking of 37 in 2012 to 53 in 2015 on a list of the world’s most competitive countries. The IMD Report not surprisingly, identified South Africa’s infrastructure shortfall, poor service delivery and lack of education and skills as some of the major contributors to South Africa’s slip down the rankings.

Crucially the director of the IMD World Competitiveness Centre, Arturo Bris, identified what sets the top performing countries apart from the others. This is what Bris had to say, which is essentially, the basis upon which the criticism identified in this paper is levelled at Patel’s policy objectives:

“Productivity and efficiency are in the driver’s seat of a competitiveness wagon. Simply put, business efficiency requires greater productivity and the competitiveness of countries is greatly linked to the ability of enterprises to remain profitable over time”.[15]

In conclusion, we note that both transformation and fostering economic growth is an objective of the South African Government. This is, however, no justification for abandoning the tried and tested benefits that flow from a competitive market, in favour of promoting short-term industrial policies such as Patel is doing. Should the SACC adopt Patel’s industrial policies as part of their policy objectives, the SACC ultimately risks its independence and may effectively become an ‘umbrella institution’ under which any industrial policy agendas are driven. This would be an undesirable and intolerable outcome, and one which the South African Competition Authorities need to carefully guard against.

[1] http://www.fin24.com/Economy/Patels-focus-is-on-black-industrial-growth-20150512

[2] Competition Commission News Letter, Edition 51, January 2015.

[3] Competition Commission News Letter, Edition 51, January 2015.

[4] See footnote1.

[5] We have dealt with this aspect of merger control in more depth in previous articles, please see the following link.

[6] To illustrate the extent that public interest considerations are used by the Competition Authorities, the last intermediate merger that was approved unconditionally was in 2008. Since then, there have been 14 mergers that have been approved subject to conditions. As to large mergers, approximately 10 of the most recent 40 mergers that have come before the Competition Tribunal, 5 have been approved subject to conditions. It should be noted that it is the SACC that reviews intermediate mergers, while large mergers are reviewed bu the Competition Tribunal.

[7] Sections 2(c) and (f) of the Competition Act, 89 of 1998.

[8] For example the Industrial Development Corporation.

[9] See the AfriGroup Holdings (Pty) Ltd and Afgri Ltd merger where the South African Competition Tribunal (“SACT”) Acknowledged that the merger poses no horizontal or vertical competition law concerns. Despite reaching such a conclusion, the SACT, approved the merger on condition that an agreement reached by the parties in terms of which Afgri would contribute R90 million over four years, to a development fund for small farmers via the provision of loans, training and grain storage discounts. Similar burdensome conditions are becoming all the more prevalent in merger control, and are often self-imposed by the SACT and are not agreed upon by the parties as was the case in Afgri.

[10] The Business Day, 26 May 2015, page 14.

[11] The Business Day, 26 May 2015, page 14.

[12] http://www.polity.org.za/article/protests-linked-to-fruitless-wasteful-government-expenditure-irr-2015-05-26

[13] Financial Mail, May 21- May 27, 2015 pg 27.

[14] Financial Mail, May 21- May 27, 2015 pg 27.

[15] http://www.engineeringnews.co.za/article/power-problem-features-in-south-africas-fall-in-2015-competitiveness-ranking-2015-05-27/rep_id:3182 (accessed 28 May 2015).

Which economy is growing 2-3% above global average…?

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… Africa’s

AAT the big picture

According to a recent article in Polity, “Africa’s economy is projected to continue growing at between 2% and 3% above the global average over the next five years, helping it retain its position as one of the key emerging markets for 2015.”

It quotes a GIBS (Gordon Institute of Business Science) study showing that sub-Saharan Africa’s growth “outstripped global growth for the past 15 years,” which has “slowed down somewhat, owing to a number of challenges, including the drop in commodity prices.”  The GIBS study is the result of an assessment of countries’ institutional evolution, measuring how countries were performing in terms of developing competitive business and living environments across political, social and economic spheres.

Kenya was highlighted, with the authors noting that “Kenya, in terms of perceptions, is a very important country on the continent; it has, since 2007, put in place a number of reforms to build competitiveness. However, it doesn’t come out very well when you look at the data behind industry and comes out poorly in [the DMI], but what you find on the ground is that there is [an entirely] different sentiment.”

Video: Oxenham on government interventionism in African antitrust

Posted on by Editor

AAT the big picture

AAT’s own editor John Oxenham has been featured in a video discussion of government interventionism in African competition law.  See the talk on Competition Law Observatory (subscription required)

The topic at issue is successfully negotiating the ever-increasing rise of government interventionism in South African and regional merger control.  Not only does interventionism have the potential to undermine the independence of the agencies, but given the increasing trend of government intervention over the past decade, there are concomitant negative effects on merger control in terms of timing and costs.

John Oxenham, editor
John Oxenham, editor

The number of countries in Sub-Saharan Africa, and indeed Africa as a whole, which require mandatory merger notification, has increased dramatically in recent times. South Africa, which has the largest economy in Africa and has had a merger control regime in place for some time now, has made significant contributions to merger jurisprudence in Sub-Saharan Africa already. Accordingly, as many regional countries adopt competition law legislation or specific merger control regimes, they will look increasingly towards South Africa’s Competition Authorities to assist in interpreting and enforcing competition law policies.

In addition with this growth in regimes there are significant challenges for companies (and advisors on their behalf) engaging in multi-jurisdictional mergers principally due to the lack of uniformity across the respective jurisdictions. In particular, when one considers the unique merger review considerations that the South African authorities take into account, it becomes clear that navigating through the field of merger control in South Africa and indeed many African countries requires great skill and care.

Government-mandated sharing of trade secrets: anticompetitive interference

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south_africa

Ms. Zulu proposes foreign competitors share trade secrets with SA counterparts

Perhaps it is time for increased advocacy initiatives within the South African government, or at a minimum a basic educational program in competition law for all its sitting ministers.
In what can only be described as startling (and likely positively anticompetitive), Lindiwe Zulu, the S.A. Minister of Small Business, has demanded foreign business owners to reveal their trade secrets to their smaller rivals.
The South African Competition Commission, and perhaps one of the Minister’s own fellow Cabinet members, minister Ebrahim Patel, who is de facto in charge of the competition authorities, can see fit to remind Ms. Zulu that fundamental antitrust law principles (and in particular section 4 of the South African Competition Act), preclude firms in a horizontal relationship from sharing trade secrets that are competitively sensitive – i.e., precisely those types of information Ms. Zulu now proposes to be shared mandatorily amongst competitors.
While SACC has utilized this provision with much success against big business in South Africa, it would be remiss not enforce the provisions of the Act without fear or favor should the traders act out on the instruction of the Minister.  It is also time that the Cabinet seeks to enforce business practices which comply with South African legislation.
BDLive‘s Khulekani Magubane reports in today’s edition (“Reveal trade secrets, minister tells foreigners“) that “foreign business owners in SA’s townships cannot expect to co-exist peacefully with local business owners unless they share their trade secrets, says Small Business Development Minister Lindiwe Zulu.”

Lindiwe Zulu. Picture: PUXLEY MAKGATHO

Lindiwe Zulu. Picture: PUXLEY MAKGATHO

“In an interview on Monday she said foreign business owners had an advantage over South African business owners in townships. This was because local business owners had been marginalised and been offered poor education and a lack of opportunities under apartheid.

“Foreigners need to understand that they are here as a courtesy and our priority is to the people of this country first and foremost. A platform is needed for business owners to communicate and share ideas. They cannot barricade themselves in and not share their practices with local business owners,” Ms Zulu said.”

Research fellow at the SA Institute for International Affairs Peter Draper said Ms Zulu’s remarks, underscored government’s mistrust of foreign investors which was also reflected in business regulations. “If you connect this to the broader picture, essentially this is part of a thrust to single out foreign business, which is contrary to the political message President Jacob Zuma went to portray in Davos. We are at a tipping point and we are going beyond it. You can only push foreign business so far before they disengage,” he said.Mr Draper agreed with Ms Zulu’s remarks on the effect of apartheid on local business owners in townships but said foreign business owners had to confront their own challenges with little state support.

“Apartheid did disadvantage black people and over generations it inhibited social capital. Many foreigners have trading entrenched in their blood. Wherever they go they bring social capital, networks and extended family. Is that unfair? I don’t think so. That’s life,” he said.

Ms Zulu’s comments show the about-turn in the African National Congress’ (ANC’s) ideology of Pan Africanism and in line with remarks by party leaders.

After a week of looting in Soweto last week, ANC secretary-general Gwede Mantashe told residents in Doornkop that immigration laws needed to be strengthened to protect the country from terror.

ACF in the spotlight: African Competition Forum promotes policy enhancements

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Putting African antitrust enforcement in the spotlight: the work of the African Competition Forum

AAT is often right and sometimes wrong — and we acknowledge the latter whenever that happens.  Today is one such occasion, as we have been entirely remiss in our coverage of the African Competition Forum (“ACF”).

The ACF (FAQ here) is a 3+ year-old organisation comprising several anglophone and francophone countries with and without competition enforcement agencies across the African continent (with apparently ongoing efforts to recruit Portuguese-language entities as well, e.g., Mozambique, Angola).  It undertakes various research, capacity-building, and advocacy/integration projects, all related to competition policy and enforcement.

The ACF notably spans across the entire continent, having a self-reported 41 countries as members, and its membership scope is larger than that of regional bodies, such as COMESA or SADC.

We look forward to providing more in-depth coverage of the ACF in the future, including interviews with the group’s senior leaders.  For the time being, in the organisation’s own words, its history and mission are as follows:

The African Competition Forum (ACF) was formally launched in March 2011 as a network of competition authorities in African countries. The network is comprised of 41 out of 54 African countries. It was tasked with enhancing the adoption of competition laws, building the capacity of new authorities and assisting in advocating for the implementation of competition reforms that benefit African economies. In countries where there is no authority, the network would assist in paving the way for the development of a competition law. An Interim Steering Group (ISG) was initially tasked with overseeing the setting up of the ACF.

A major task the ISG and then SC had to perform, foremost, was the development of a needs assessment which would be used to develop the ACF’s plan of action and would also help prioritise the key issues for which countries who are members of the network would require assistance. In coming up with the needs assessment a broad questionnaire was administered and sent to the four regional competition authorities of Southern African Development Community (SADC), West African Economic Monetary Union (WAEMU), Common Market for East and Southern Africa (COMESA) and Economic Community of West African States (ECOWAS) and to forty-one countries, twenty-seven of which responded.

Overall, the key elements that were identified as priorities for African authorities within the questionnaire fell into three main categories:

1. Capacity building on strategic planning and management, practical aspects of competition law enforcement such as investigative and litigation skills and techniques; and foundational training on the basics of competition law and economics;
2. Technical assistance in drafting and revising competition policy, laws and regulations and in designing agency procedures, guidelines, and operational manuals; and,
3. Support with advocacy and engaging other relevant stakeholders.

The questionnaire incorporated the above elements in five sections, namely:

1. The status of competition policy and law in the responding country
2. The responsible agency’s powers, jurisdiction and functions (if one exists)
3. The resources and workload of the competition agency
4. The capacity building and technical support required by the responding country
5. The nature of relationships with regional and multinational and other competition bodies.

Respondents’ contact details were drawn from the International Development Research Centre (IDRC) databases on competition authorities worldwide; information supplied by Department for International Development (DFID); SADC; United Nations Conference on Trade and Development (UNCTAD); personal contact between the ACF Co-ordinating Team; and, regional and national authorities. A meeting about the needs assessment questionnaire with African countries attending an UNCTAD conference in Geneva in November 2010 also served to provide contacts details of key competition personnel.

The ACF was recently spotlighted in an article in the Tanzanian Daily News, which reported on the ACF’s workshop entitled “Agency Effectiveness.”  The article is worth a read, we believe, as it explains the history of the ACF’s founding as well as some background to African economies’ slower and later adoption of competition regulation, due to previously centrally-planned economics and broadly government-sanctioned monopolies operating lawfully:

Dr Kigoda noted that African economies have co-existed with a number of well-known cartels and anti-competitive conducts such as price fixing, bid-ridding, restrictions of output, allocation of markets and other unwarranted agreements.

Due to that African competition agencies must be vigilant to investigate and prosecute all these in order to ease the burden on their taxpayers.

…

Deputy Chairman of Fair Competition Commission (FCC) Col. (Rtd) Abihudi Nalingigwa said competition authorities seek to ensure that there are no anti-competitive agreements, abuse of market power and unjustified monopolistic market concentrations are put on check.

“We thought it would be worthwhile this time around concentrating on ‘Agency Effectiveness” because we believed the topic falls directly within the expectations of our stakeholders including the consumer, business community and the government who should see value for financing agency operations.

This can best be realized through translation into more effective competition and regulatory authorities which are capable of quick dispensation of justice that provide relief to their lives. On other hand, investor-confidence through better market regulation will increase investment inflow as investors will be assured that no anti-competitive will go unchecked or unaddressed.

Many African countries introduced their competition law in the mid 1990s prompted by a process of privatization and liberalization of their respective economies that started in late 1980s….

 

The creeping public-interest factor in antitrust: Still creeping or racing yet?

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south_africa

Race to bottom: dilution of competition-law factors in South Africa?

As we have reported numerous times, both on the global policy front as well as in individual case reports, the South African competition regulators and their superiors in the economic development ministry have had their sights on placing a stronger emphasis on the “public interest” element inherent in the SA competition legislation — thereby diluting pure competition-law/antitrust analysis, as some might argue.

Recently, Minister Patel commended his “independent” team at the Competition Commission for not only doing a good job overall, but also in particular on the public-interest front, encouraging the systematic consideration of public interest by the Commission and the Tribunal.

His prepared remarks from the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg are now uploaded here.  In them, he emphasizes that competition policy is “rightly”…:

“… a subset of broader competitive policies, which in turn are part of our industrial policy framework. … Our law provides an opportunity, and indeed an obligation, to align corporate strategy (by which I refer to mergers or takeovers) with public interest considerations. … The increasing use of the public-interest requirements in evaluating mergers has been critical in ensuring that competition policy has a growing developmental impact, saving thousands of jobs and providing millions of rands to support small and emerging enterprises.”

On the independence of the enforcers, Mr. Patel had this to say:

This kind of alignment must in future, as in the past, respect the independence of the regulator. But all our agencies, however independent, work within the framework of national policies.

These remarks are fairly strong, indeed!  We leave it to our AAT readership to infer the consequences of these observations on future merger enforcement and on the true degree of independence of the Commission — you can read between the lines.

In a companion paper, entitled “What is competition good for – weighing the wider benefits of competition and the costs of pursuing non-competition objectives”, AAT’s own John Oxenham (Nortons) and Patrick Smith (RBB Economics) argue as follows:

Over the past five years, the South African competition authorities have increasingly struggled to balance a competition test with defined public interest criteria (Metropolitan, Kansai, Walmart). Other agencies (ICASA, NERSA), and government ministries more generally, have also wrestled with how competition policy might fit into wider government policies and even broader concepts of the “public interest”, including notions of equality, fairness and access. In this paper we discuss some of key events in this ongoing debate, and we anticipate some of the battles that are likely to come. Furthermore, we set out a rigorous framework and provide a review of the available research and literature to discuss the effects of competition (both positive and negative) in multiple dimensions, in order to assess how far a “pure competition” test might go in achieving a broad range of efficiency, growth, and employment objectives. Such a comprehensive and evidence based approach is essential in understanding the costs and benefits of the existing pursuit of multiple (and often apparently conflicting) objectives, and will allow decision makers to more logically assess the trade-offs that they will continue to be confronted with.

Patel not mincing words, diluting competition-law factors in mergers

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south_africa

Economic Development Minister of South Africa, Ebrahim Patel, recently stated that the Competition Commission (“Commission”), South Africa’s key competition authority, will be asked to focus on jobs, industrialisation and small business development in lieu of ‘pure’ antitrust-law issues.

Patel stated that government would require the Industrial Development Corporation to focus on supporting black industrialists, and on the competition authorities to promote economic transformation “not as a by-product of but an explicit objective of competition policy.” According to Patel, competition bodies are in a position to contribute directly to the state’s objective of creating a more equal economy, where workers shared in the benefits of growth. His department is allegedly already in talks with the construction industry on a restitution package to redress collusion and price fixing. The end result, he stated, would be that larger companies will provide funds to support small producers and local suppliers.

Patel’s controversial views have already influenced Commission merger decisions and can clearly be seen in the recent Afgri/AgriGoupe case, where the authority entered into an agreement with the foreign buyer of the local grain and poultry company Afgri, requiring the new owners to contribute R90 million ($9m) to a fund to support small-hold farmers with training and loans.

Based on Mr. Patel’s latest pronouncements, South Africa is on a path to politicizing antitrust law and making pure competition considerations a secondary objective to public-interest considerations.

The Big Picture: AAT History – Maturing competition-law regimes in Africa

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AAT the big picture

Below, AfricanAntitrust.com provides a brief overview of maturing antitrust jurisdictions in Africa

In the past two decades, 26 African countries implemented domestic competition law regimes, and that number continues to grow.

Many competition authorities who were previously deemed as being rather ineffective in their teething stages, have now begun to actively enforce their respective competition law provisions by launching market inquiries, prohibiting anti-competitive mergers, conducting dawn raids and becoming tough on cartel activity.

Below, we provide a short summary of some of the maturing jurisdictions on the continent (notably excluding matured ones (South Africa) as well as young regimes, including supra-national ones such as COMESA, as they arguably fall outside this definition.)

Botswana

The Competition Authority in Botswana was launched in 2011, and with 33 staff members, of which nearly half comprises economists, and the authority has already conducted more than 20 dawn raids and launched market inquiries launched into various “priority sectors” such as retail, poultry and cement. The competition authority has blocked mergers which impede the empowerment of Botswana’s citizens on the basis of public interest concerns in maintaining sufficient local shareholding in certain key markets such as health care.

Kenya

In 2011, Kenya implemented its Competition Act and now, given the new, and higher, merger filing fees, the budgetary constraints within the Competition Authority of Kenya (“CAK”) will be addressed and alleviated. The Competition Authority of Kenya announced its intention to launch investigations into claims of powerful cartels in the lucrative coffee industry in Kenya. The Competition Authority of Kenya plans to probe abuse of dominance by coffee firms, particularly in relation to marketing. In addition, the Competition Authority of Kenya has initiated an investigation into allegations of abuse of dominance by Lafarge in Kenya, which may result in Lafarge being forced to sell its stake in the East African Portland Cement Company.

Following the dawn raid conducted by the South African Competition Commission on Unilever and Sime Darby in April 2014 in relation to the edible oils industry, the CAK has launched an investigation into the edible oils market, in which local prices have been unresponsive to reductions in the cost of imported feedstock.

Namibia, Zambia & Mauritius

Both the Namibian and Mauritian competition authorities have announced their respective plans to introduce a formal corporate leniency policy to improve their cartel enforcement. In addition, the Mauritian Competition Commission will investigate whether Stage Beverages, of the Castle Group, and Phoenix Beverages Ltd have agreed to divide markets in Mauritius and Madagascar, given that the Mauritian Competition Commission has reason to believe that Stage Beverages and Phoenix Beverages have agreed that Stage Beverages will cease the manufacture and supply of beer in Mauritius, while Phoenix Beverages will do the same in Madagascar.

The Zambian competition authority has recently imposed significant penalties for price-fixing in the vehicle-repair industry. Furthermore, it has conducted dawn raids on two fertiliser companies.

AAT will continue its summaries (which we hope you find helpful in navigating the competition-law map of Africa) in its “Big Picture” series.