Category: East Africa

The African WRAP – JUNE 2017 edition

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The first half of 2017 has been an exciting one from a competition law perspective for a number of African countries. As certain agencies have taken a more robust approach to enforcement while others have been actively pursuing or developing their own domestic competition law legislation. Further, there is an increasingly prevalent interplay between domestic laws with regional competition law and policy in an effort to harmonise and promote regional integration.

In this addition of the WRAP, we highlight some of the key antitrust developments taking place across the continent. The editors at AAT have featured a number of articles which provide further insight and commentary on various topics and our readers are encouraged to visit the AAT Blog for further materials and useful updates.

AAT is indebted to the continuous support and assistance of Primerio and its directors in sharing their insights and expertise on various African antitrust related matters. To contact a Primerio representative, please see the Primerio brochure for contact details. Alternatively, please visit Primerio’s website

 

Kenya

Grocery Market Inquiry

On 27 January 2017, the Competition Authority of Kenya (CAK) exercised its powers in terms of section 18 (1) (a) of the Competition Act, 2010, to conduct a market inquiry into the branded retail sector.

The key issues which the CAK’s will focus on during the inquiry include:

  1. the allocation of shelf space and the relative bargaining power between retailers and their suppliers;
  2. the nature of and the extent of exclusive agreements at one stop shop destinations and their effects on competition;
  3. the pricing strategies retailers employ especially in regards to responding to new entrants;
  4. whether there are any strategic barriers to entry created by incumbent firms to limit entry in the market; and
  5. the effect of the supermarkets branded products on competition

Legislative amendments

The Kenya Competition Act (Act) has undergone a number of amendments in the past year.

Most notably, however, section 24 of the Act, which deals with abuse of dominance generally, has been amended to also cater for an abuse of “buyer power”.

Without being exhaustive, a number of practices which would typically constitute an abuse of dominance include:

  1. imposing unfair purchasing or selling prices;
  2. limiting or restricting output, market access or technological advancements;
  3. tying and/or bundling as part of contractual terms; or
  4. abusing intellectual property rights.

In terms of the definition of “dominance” in the Act, a firm will be considered dominant if that firm has greater than a 50% market share.

The amendment, as drafted, raises a number of concerns as previously noted on AAT.

Botswana

Merger control – Prior Implementation

On 17 February 2017, the Competition Authority of Botswana (CA) prohibited a merger between Universal House (Pty) Ltd and Mmegi Investment Holdings (Pty) Ltd.

The CA prohibited the merger on the grounds that the transaction was likely to lead to a substantial prevention or lessening of competition in the market. In particular, the CA held that the “market structure in the provision of commercial radio broadcasting services will be altered, and as such raises competition and public interest concerns”.

At the stage of ordering the divestiture, a suitable third party had not yet been identified and the merging parties were obliged to sell the 28.73 shares to a third party “with no business interests affiliated in any way with the acquiring entity”. The divestiture was also to take place within three months of the CA’s decisions and, should the thresholds be met for a mandatorily notifiable merger, the CA would require that the proposed divestiture also be notified.

South Africa

Follow-on Civil Liability

A second civil damages award was imposed in 2017 on South Africa’s national airline carrier, SAA, following the Competition Tribunal’s finding that SAA had engaged in abuse of dominance practices, in favour of Comair. This award comes after the first ever successful follow-on civil damages claim in South Africa (as a result of competition law violation) which related to Nationwide’s civil claim against SAA.  In the Nationwide matter, the High Court awarded, (in August 2016) damages to Nationwide in the amount of R325 million.   Comair claim for damages was based on the same cause of action as Nationwide’s claim. The High Court, however, awarded damages in favour of Comair of R554 million plus interest bring the total award to over a R1 billion (or about US$ 80 million).

Please see AAT’s featured article here for further insights into this case.

Market Inquiries

The SACC published a notice in the Government Gazette on 10 May 2017, indicating that it will conduct a market inquiry into the Public Passenger Transport sector (PPT Inquiry) which is scheduled to commence in June 2017.

The PPT inquiry, is expected to span two years and will involve public hearings, surveys and meetings with stakeholders which will cover all forms of (land-based) public passenger transport. The SACC indicated in its report that “…it has reason to believe that there are features or a combination of features in the industry that may prevent, distort or restrict competition, and / or to achieve the purpose of the Competition Act”.

Legislative amendments

The South African Competition Commission (SACC) recently published draft guidelines for determining the administrative penalty applicable for prior implementing a merger in contravention of the South African Competition Acts’ merger control provisions (the Draft Guidelines).

In terms of the penalty calculations, the Draft Guidelines prescribe a minimum administrative penalty of R5 million (USD 384 615) for the prior implementation of an intermediate merger and a R20 million (USD 1.5 million) penalty for implementing a large merger prior to being granted approval. The Draft Guidelines cater further for a number of aggravating or mitigating factors which may influence the quantum of the penalty ultimately imposed.

Egypt

Investigations

The Egyptian Competition Authority (ECA), has also referred the heads of the Confederation of African Football (CAF) to the Egyptian Economic Court for competition-law violations relating to certain exclusive marketing & broadcasting rights. This follows the COMESA Competition Commission also electing to investigate this conduct.

In addition, it has been reported that the ECA has initiated prosecution of seven companies engaged in alleged government-contract bid rigging in the medical supply field, relating to hospital supplies.

Mauritius

Minimum resale price maintenance

In a landmark judgment, the Competition Commission of Mauritius (CCM) recently concluded its first successful prosecution in relation to Resale Price Maintenance (RPM), which is precluded in terms of Section 43 of the Mauritius Competition Act 25 of 2007 (Competition Act).

The CCM held that Panagora Marketing Company Ltd (Panagora) engaged in prohibited vertical practices by imposing a minimum resale price on its downstream dealers and consequently fined Panagora Rs 29 932 132.00 (US$ 849,138.51) on a ‘per contravention’ basis. In this regard, the CMM held that Panagora had engaged in three separate instances of RPM and accordingly the total penalty paid by Pangora was Rs 3 656 473.00, Rs 22 198 549.00 and Rs4 007 110.00 respectively for each contravention.

Please see AAT’s featured article here for further information.

Leniency Policy

The global trend in competition law towards granting immunity to cartel whistleblowers has now been embraced by the Competition Commission of Mauritius (CCM). The CCM will also grant temporary immunity (during the half-year period from March 1 until the end of August 2017) not only to repentant participants but also to lead initiators of cartels, under the country’s Leniency Programme.

COMESA

The COMESA Competition Commission (CCC) announced early 2017 that it will be investigating allegations of exclusionary conduct in relation to the Confederate of African Football’s (CAF) decision to extend an exclusive marketing of broadcasting rights and sponsorship agreement with Lagardère Sports in relation CAF tournaments.

Please see AAT’s featured article here for more information.

What to look out for?

Zambia

Guidelines

The Competition and Consumer Protection Commission (CCPC) published series of guidelines and policies during 2016. These included adopting a formal Leniency Policy as well as guidelines for calculating administrative penalties.

In addition, the CCPC also published draft “Settlement Guidelines” which provides a formal framework for parties seeking to engage the CCPV for purposes of reaching a settlement. The Settlement Guidelines present a number of practical challenges as currently drafted. One example is that the guidelines don’t cater or seem to recognise “without prejudice” settlement negotiations.

It is anticipated that the draft Settlement Guidelines will be formally adopted this year.

Please click here to read the feature article on AAT.

Namibia

In April 2017, the CEO of the Namibian Competition Commission (NCC), Mr. Mihe Gaomab II, announced that the NCC has made submissions to the Minister of Trade and Industry in relation to proposed legislation which will regulate franchise models in Namibia.

While recognising the benefits of franchise models, the NCC is, however, concerned that there are a number of franchises in Namibia which may be anti-competitive in that the franchisor-franchisee relationship creates certain barriers to entry.

The NCC has specifically identified the practice, by way of an example, whereby certain franchisors deliberately ensure that there is a lack of competition between franchisees in the downstream market. The rationale behind this commercial strategy is allegedly so that the franchisor may extract greater royalties or franchise fees from the respective franchisees, as the franchisee is assured of a lack of competition.

The NCC views this practice as well as a various similar practices as potentially anti-competitive as the structure of certain franchise models may result in collusion between franchisees.

For further commentary on this development, please see AAT’s featured article.

Nigeria

Nigeria remains, for now, one of the few powerhouse African economies without any antitrust legislation. The Federal Competition and Consumer Protection Bill of 2016, however, recently made it past the initial hurdle of receiving sufficient votes in the lower House of Representatives.  The Bill is, therefore, expected to be brought into effect during the latter part of 2017 or early 2018.

South Africa

Market inquiries

The Minister of the Department of Economic Development, who has fulfills the oversight function of the South African Competition Authorities, has announced that a market inquiry will be conducted in relation to the “high costs of Data” in South Africa.

This would be the fifth formal market inquiry since the Competition Act was amended to afford the Competition Commission with formal powers to conduct market inquiries.

Complex monopoly provisions

Both Minister Patel and the President have announced that the Competition Act will undergo further legislative amendments in order to address perceived high levels of concentration in certain industries.

In this regard, it is likely that the competition amendment act’s provisions relating to abuse of dominance and complex monopolies, which was drafted in 2009, will be brought into effect.

In terms of the provisions, as currently drafted, where five or less firms have 75% market share in the same market, a firm could be found to have engaged in prohibited conduct if any two or more of those firms collectively act in a parallel manner which has the effect of lessening competition in the market (i.e. by creating barriers to entry, charging excessive prices or exclusive dealing and “other market characteristics which indicate coordinated behavior”).

Please see AAT’s feature article here for further commentary.

Pan-African Antitrust Round-Up: Mauritius to Egypt & Tunisia (in)to COMESA

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A spring smorgasbord of African competition-law developments

As AAT reported in late February, it is not only the COMESA Competition Commission (CCC), but also the the Egyptian antitrust authorities, which now have referred the heads of the Confederation of African Football (CAF) to the Egyptian Economic Court for competition-law violations relating to certain exclusive marketing & broadcasting rights.  In addition, it has been reported that the Egyptian Competition Authority (ECA) has also initiated prosecution of seven companies engaged in alleged government-contract bid rigging in the medical supply field, relating to hospital supplies.

Nigeria remains, for now, one of the few powerhouse African economies without any antitrust legislation (as AAT has reported on here, here, here and here).

But, notes Andreas Stargard, an antitrust attorney with Primerio Ltd., “this status quo is possibly about to change: still waiting for the country’s Senate approval and presidential sign-off, the so-called Federal Competition and Consumer Protection Bill of 2016 recently made it past the initial hurdle of receiving sufficient votes in the lower House of Representatives.  Especially in light of the Nigerian economy’s importance to trade in the West African sphere, swift enactment of the bill would be a welcome step in the right direction.”

The global trend in competition law towards granting immunity to cartel whistleblowers has now been embraced by the Competition Commission of Mauritius (CCM), but with a twist: in a departure from U.S. and EU models, which usually do not afford amnesty to the lead perpetrators of hard-core antitrust violations, the CCM will also grant temporary immunity (during the half-year period from March 1 until the end of August 2017) not only to repentant participants but also to lead initiators of cartels, under the country’s Leniency Programme.

The Executive Director of the CCM, Deshmuk Kowlessur, is quoted in the official agency statement as follows:

‘The policy worldwide including Mauritius, regarding leniency for cartel is that the initiators of cartel cannot benefit from leniency programmes and get immunity from or reduction in fines. The amnesty for cartel initiatorsis a one-off opportunity for cartel initiators to benefit from immunity or up to 100% reduction in fines as provided for under the CCM’s leniency programme. The amnesty is a real incentive for any enterprise to end its participation in a cartel. In many cases it is not clear for the cartel participant itself as to which participant is the initiator. The participants being unsure whether they are an initiator finds it too risky to disclose the cartel and apply for leniency. The amnesty provides this unique window of 6 months where such a cartel participant can apply and benefit from leniency without the risk of seeing its application rejected on ground of it being an initiator.’

 

COMESA Competition Commission logoFinally, COMESA will grow from 19 to 20 member states, welcoming Tunisia at the upcoming October 2017 summit: the official statement notes that “Tunisia first applied for observer status in COMESA in 2005 but the matter was not concluded. In February, 2016 the country formally wrote to the Secretary General making inquiries on joining COMESA. This set in motion the current process towards its admission. once successfully concluded, Tunisia will become the 20[th] member of COMESA.”

This means that within 6 months of accession to the Common Market, Tunisia’s business community will be bound by the competition regulations (including merger control) enforced by the CCC.  Speaking of the CCC, the agency also recently entered into a Memorandum of Understanding with the Mauritian CCM on March 24, facilitating inter-agency coordination.  In addition, the Zimbabwean Competition and Tariff Commission (CTC) will host a national sensitisation workshop on COMESA competition policy on May 16, 2017 in Harare, purportedly as a result of “over 50 transactions involving cross-border mergers notified” to the CCC involving the Zimbabwean market.  “The main objective of the national workshop is to raise awareness among the key stakeholders and business community in Zimbabwe with regards to the provisions and implementation of COMEA competition law,” the CTC noted in a statement.

 

Kenya: CAK Formally Initiates a Market Inquiry into the Retail Sector

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On 27 January 2017, the Competition Authority of Kenya (CAK) exercised its powers in terms of section 18 (1) (a) of the Competition Act, 2010, to conduct a market inquiry into the branded retail sector.

The notice, as published in the Government Gazette and signed by CAK Director General Wang’ombe Kariuki stated that “the main objective of the study is to assess the state of competition in the market for branded retail by examining the multilayered structure of the market and the conduct of market players. The market inquiry will explore the dimensions and the intensity of competition between branded retailers and how these impact on price, quality and range of offerings to the Kenyan consumer.”

The CAK is the third African competition agency to conduct a market inquiry into the retail sector following inquiries in Botswana and South Africa.  The COMESA Competition Commission has also announced that it intends to conduct a market inquiry into the retail food sector, although to date the CCC has not formally initiated such an inquiry.

Unsurprisingly, the focus of the CAK’s inquiry is strikingly similar to the grocery retail market inquiry currently under way in South Africa, with both authorities focusing their attention on large retailers who allegedly engage in practices which distorts competition in the market.  In particular, the CAK will focus on the following issues:

  • the allocation of shelf space and the relative bargaining power between retailers and their suppliers;
  • the nature of and the extent of exclusive agreements at one stop shop destinations and their effects on competition;
  • the pricing strategies retailers employ especially in regards to responding to new entrants;
  • whether there are any strategic barriers to entry created by incumbent firms to limit entry in the market; and
  • the effect of the supermarkets branded products on competition.

The issues listed above are largely common focus areas in market inquiries conducted not only in Africa but also in a number of European countries including France, Germany, Italy, Turkey and the United Kingdom,

Interestingly, the CAK’s market inquiry goes broader than purely competition issues but also has an element of “consumer protection”. For instance, one of the practices which allegedly is a common feature in the industry is what is termed “dual pricing” – where Retailers display lower product prices on the shelf but which are higher at the till.

The CAK will also investigate the rate of recurrence of the sale of defective stock by retailers to consumers and how subsequent complaints by consumers are dealt with by retailers. The CAK intends to establish the proportion of retailers that have fully operational retail return policies and to what extent they are adhered to in an attempt to evaluate whether consumers are adequately protected.

Unlike the South African Competition Act, the Kenya Competition Act also contains specific consumer protection provisions which caters for unfair trade practices and transactions that affect consumer rights such as under-cutting and over-pricing of goods and services as well as the use of misleading information to sell goods and services. This is in addition to Kenya’s self-standing Consumer Protection Act which is governed by the Kenya Consumers Protection Advisory Committee (CPAC).

The CPAC is tasked with, inter alia, facilitating the “co-ordination and networking of consumer activities and the development of linkages with consumer organizations and the competent authorities and agencies locally and outside Kenya for the protection of consumer interests”. The CPAC is, therefore, responsible for monitoring and reviewing the trading and business practices relating to the supply of goods and services to consumers, and to activities related or ancillary thereto.

It remains to be seen to what extent the CPAC is actively involved in the CAK’s market inquiry, particularly in relation to the consumer protection provisions

Focusing our attention back to the competition law implications of the market inquiry, industry players across the retails chain should be particularly cognisant of the recent amendments to the Kenya Competition Act which introduced the concept of “abuse of buyer power”. Africanantitrust previously published an article by Michael-James Currie and Ruth Mosoti who noted that “it is not technically a requirement that a firm be ‘dominant’ in order to be considered to have “buying power”.

Furthermore, the introduction of the “abuse of buyer power” provisions was largely as a result of complaints received by the CAK in the retail sector, particularly by suppliers. In addition, the CAK may well have learnt from market inquiries conducted in other jurisdictions that absent any ‘dominance’ by retailers, there is a limited prospect of successfully prosecuting firms for engaging in practices which ay distort competition in the market. In this regard, Currie and Mosoti stated further that:

“the Kenyan Competition Authority may have thought to pre-empt this challenge and, therefore, included the “abuse of dominance” provisions without requiring a firm to actually be dominant for the provision to be triggered. Furthermore, the definition of “buying power” and the absence of any requirement that the conduct must in fact be anti-competitive may have been an attempt by the legislator to lower the threshold in an effort to assist a complainant in cases where a purchaser, such as a large retailer, exerts “buyer power”, but is not “dominant” in the market.”

Accordingly, in light of the broad scope of the CAK’s market inquiry coupled with the introduction of the ‘abuse of buyer power’ provisions, it is advisable for all players in the Kenyan retail sector to actively consider their business operations, not only from a competition perspective but also from a consumer protection perspective.

Kenya: Competition Amendment Bill to bring about Radical changes to the Act

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kenyaThe Competition Authority of Kenya (CAK) has recently announced that a number of proposed amendments to the Competition Act are currently pending before the National Assembly for consideration and approval.

The proposed amendments are generally aimed at increasing sanctions and CAK’s authority to detect and prosecute anti-competitive behaviour as well as to ensure that parties provide the CAK with adequate and correct information to properly assess merger notifications.

  • Anti-competitive conduct

Importantly, the amendments seek to introduce a financial threshold for respondents who are found to have engaged in abuse of dominance practices. Currently, there is no administrative penalty for a abuse of dominance.

The amendments further include an administrative cap of 10% for engaging in cartel conduct.

Interestingly, the amendments also seek to introduce measures to protect suppliers from buying groups. Unlike the South African Competition Act which specifically precludes competitors from entering into an agreement or concerted practice which amounts to the fixing of a purchase price or trading condition, Kenya’s Competition Act does not have a similar express prohibition.

It is also not clear, at this stage, what the anti competitive effect of buying groups is having in Kenya. The CAK has, however, indicated that suppliers are often left short-changed as a result of buying groups not paying the suppliers. Whether this has or may have a foreclosure effect on suppliers is noy yet apparent.

In any event, the proposed solution is likely to be resolved through the development of guidelines rather than an amendment to the Act.

  • Mergers

A clear indication that the CAK is increasing its efforts to ensure that they are not merely a regulatory body which rubber stamps merger approvals is the proposed introduction of penalties for merging parties who submit incorrect information to the CAK during a merger filing.

In addition, in terms of Section 47 of the Competition Act, the CAK may revoke their decision to approve or conditionally approve a merger if the merger approval was granted based on materially incorrect or false information provided during the notification and/or the merger is implemented in contravention of any merger approval related conditions.  In terms of the amendments, the CAK is proposing the introduction of criminal liability for merging parties who implement a merger despite the CAK having revoked the merger.

Merging parties will, therefore, need to ensure that they adequately prepare and submit comprehensive merger filings.

As to the definition of what constitutes a “merger” for purposes of the Competition Act, the proposed amendments seek to clarify that a change of control can take place by the acquisition of assets.

  • Market inquiries

Section 18 of the Act is also to be amended to place an obligation on parties to provide the CAK with information during market inquiries.

We have not yet seen the CAK conduct a full blown market inquiry as has been the case in South Africa. In light, however, of the CAK and the South African Competition Commission’s (SACC) advocacy initiatives (readers wlll recall that the CAK and the SACC recently concluded a Memorandum of Understanding), the CAK may soon launch a market inquiry into priority sectors such as grocery retail and agro-processing.

 

 

CCC Begins Conduct Enforcement & Activates Its Exemption Regime for Potentially Anti-Competitive Agreements

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Parties Start Discussing Business Practices with COMESA’s CCC

As AAT reported recently — see “Growing Pains: From One-Trick Pony to Full-Fledged Enforcer?” — the COMESA Competition Commission (CCC) has begun to move from being a pure merger-control administrator to becoming a full-fledged antitrust enforcer.  The CCC issued a Notice calling on firms to notify the CCC of any agreements (both historic and forward-looking) that may be anti-competitive, for the purpose of having such agreements ‘authorised’ or ‘exempted’ under Article 20 of the COMESA Competition Regulations.  (More details on that regime are in our June article, referenced above.)

Eveready products (sample)
Eveready products (sample)

AAT has now learned that several companies have taken the agency up on its Exemption proposal: Andreas Stargard, a competition practitioner with Primerio Ltd. observes that the CCC’s announced “leniency ‘window’ to incentivise firms to come forward and obtain an exemption” has closed at this point in time, although he expressed doubt that the relatively short one-month period was sufficient and will likely be extended.  Says Stargard: “We are seeing several parties, both global & local companies, who are beginning to take the CCC’s non-merger enforcement seriously.  These undertakings are considering to obtain advance clearance of their business practices under the Commission’s Notice procedure.”  One such example, he adds, is Kenya’s financially embattled Eveready East Africa: it has reportedly sought CCC approval of its agreements with international manufacturers for the importation and distribution within the COMESA common market of their diverse products, ranging from batteries to fountain pens to CloroCOMESA old flag colorx-brand chemicals.  The Commission has invited “general public and stakeholders” for comments according to its formal statement.

In light of these developments, Stargard advises that:
“multi-national firms operating within COMESA or jointly with a COMESA-based importer or other domestic business partner should consider engaging counsel to evaluate their practices, and if they may fall within Article 16 of the Regulations, consider approaching the CCC for an authorisation letter.”

 

Billing the Billboard Bosses: Advertising trade association fixes prices, members pay fines

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Billing the Billboard Bosses

The Kenyan antitrust authority, CAK, recently closed its investigation into a classic price-fixing cartel involving the Outdoor Advertisers Association, resulting in a fine of Sh11.64 million (approx. $120,000) imposed on domestic advertising firms for fixing minimum prices of billboard space, reports the Kenya Gazette.  The affected companies include Magnate Ventures Limited (Sh5 million), A1 Outdoor Limited (Sh114,000), Live Ad Limited (Sh2.5 million) and Adsite Limited (Sh2.39 million), while four others had already settled with CAK previously (Consumer Link (Sh1.2 million), Look Media (Sh136,000), Firm Bridge Limited (Sh246,400) and Spellman Walkers Limited (Sh45,180)).  The remaining four trade association members will be fined forthwith.

kenyaNotes Andreas Stargard, a competition practitioner with Primerio Ltd., “[i]n this case — which really represents a classic minimum-price fixing arrangement among trade association members — the billboard owners agreed during a period of less than one year to set a minimum monthly price of Sh160,000 in large Kenyan markets, such as Nairobi.  Interestingly, they price-discriminated geographically within their cartel arrangement and fixed the corresponding fees in smaller markets at a slightly lower amount.”

The head of the CAK, Director-GeneralWang’ombe Kariuki, lamented that a trade group was being used to manipulate an otherwise competitive process of market forces yielding market prices, which he believed are approximately 20 to 25% lower than the fixed rates, based on post-investigation pricing.  Says Stargard:
“It is interesting to see that the CAK has  already followed up on this matter and has noticed an arguably direct empirical result, yielding a beneficial effect of a not insignificant price reduction in advertising costs in Nairobi.”

New Penalty Guidelines Provide Incentive to Apply for Leniency

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Zambia: New Penalty Guidelines may Incentivise Firms to Apply for Leniency

By AAT Senior Contributor, Michael-James Currie.

At the recent International Competition Network conference held in Singapore, the International Competition Network (ICN), in conjunction with the World Bank, named the Zambian Competition and Consumer Protection Commission (CCPC) as one of the best Competition Authorities in advocating competition in key domestic markets.

The CCPC, as a competition agency, is making significant strides to ensure that the Zambian market is competitive to ensure greater consumer benefit.

In particular, the CCPC has, in recent years, strengthened its efforts to detect cartel conduct. This includes carrying out search and seizure operations, initiating investigations and introducing a corporate leniency policy (Zambian CLP) for whistle-blowers.

The Zambian CLP affords a firm who has engaged in cartel conduct, who is ‘first through the door’ in disclosing the cartel and who provides the CCPC with sufficient evidence to prosecute the cartel total immunity from an administrative penalty.

Unlike its South African counter-part, the Zambian CLP also caters for a ‘leniency plus’ whereby the ‘second through the door’ may qualify for up to a 50% reduction in respect of a potential administrative penalty.

In spite of leniency policies being regarded as arguably the most effective tool by which competition agencies detect and prosecute cartel conduct, we are not aware of the CCPC having yet received an application in terms of its CLP (as at March the CPCC had confirmed that it had not yet received such an application).

The reluctance by firms to come forward and expose cartel conduct in Zambia may be due to the fact that the Zambian CLP only extends immunity in respect of administrative liability and does not protect a whistle-blower from potential criminal or civil liability.

Despite the lack of success which the Zambian CLP has achieved thus far, the policy has only been in effect for just over a year. Furthermore, the CCPC has strengthened its efforts in initiating and concluding investigations in various sectors (which includes the stockbroker, frozen fish and milling industries, the latter of which is still on-going).

Accordingly, and in light of the recently published Draft Guidelines for the Issuance of Fines (Guidelines) (now for public comment), there may well be more activity in so far as the CLP is concerned.

zambiaThe Guidelines are clear in that administrative penalties should be punitive and should have a sufficient deterrent effect. The CCPC has expressly stated that it does not want administrative penalties to merely be considered as a ‘cost of doing business’ in Zambia.

Unsurprisingly, the Guidelines confirm that in respect of cartel conduct, “the fines to be imposed will be the highest due to the seriousness of the conduct”. Furthermore, the Guidelines state that “preceding such fines may be conviction for criminal culpability by a Court of Competent jurisdiction”.

In terms of the Competition and Consumer Protection Act (the “Act”), a firm’s potential liability is capped at 10% of its turnover derived within or from Zambia (similar to the EU’s 10% turnover cap), although the implementation of this cap is uncertain as we indicate below.

The Guidelines state that the 10% cap should be based on the latest audited financial years. While the CCPC will accept management accounts in certain circumstances, it should be noted that the CCPC will add 5% to the total as reflected in the management accounts.

Importantly, while the Guidelines recognise that an administrative penalty may be adjusted depending on aggravating or mitigating circumstances, the Guidelines provide, as a starting point, a ‘base fine’ which will be calculated in accordance with the nature of the contravention. We set these out below.

Base (%)

Conduct
7 Cartels
4 Resale Price Maintenance
4 Abuse of Dominance
3 Mergers
5 Restrictive Business Practices

 

John Oxenham, an African competition law practitioner, notes that the ‘base fine’ is “calculated utilising a firm’s aggregated turnover generated in or from Zambia, irrespective of the relevant market. In other words, the CCPC considers a firm’s total turnover in Zambia as the affected turnover, which can cause fines to mushroom in the case of diversified conglomerates with large revenues even where the affected, cartelised product market is de minimis.”

Importantly, in relation to prohibited horizontal or vertical conduct, the CCPC will impose a fine based on each year in which the parties contravened the Act, up to a maximum of five years. While the Guidelines as noted above, expressly state that the total penalty will be capped at the statutory cap of 10%. In light of the fact that the base fines start at 4% (which would in any evet exceed the statutory cap after only 2.5 years) it seems that the CCPC is of the view that each year in which a firm engaged in cartel conduct should be viewed as a separate contravention (i.e. that the statutory cap only applies per contravention). This will need to be clarified as a firm who is found to have engaged in anti-competitive conduct (including vertical restrictive practices) may be subjected to an exorbitant administrative fine.

It remains to be seen whether the significant administrative liabilities which is contemplated in terms of the Guidelines is indeed permissible and in accordance with the Act, and secondly, whether it will incentivise firms to take advantage of the CLP.

Growing Pains: From One-Trick Pony to Full-Fledged Enforcer?

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COMESA Competition Commission Expands Enforcement Ambit from Merger Control to Conduct —

CCC Seeks Information on “Potentially” Anti-Competitive Agreements

By AAT Senior Contributor, Michael-James Currie.

Breaking News: The COMESA Competition Commission (CCC) has issued a notice (the “Notice”) calling on firms to notify the CCC of any agreements (both historic and forward looking) that may be anti-competitive, for the purpose of having such agreements ‘authorised’ or ‘exempted’ in terms of Article 20 of the COMESA Competition Regulations (the “Regulations”).

In terms of Article 20 of the Regulations, agreements which are anticompetitive may be exempted by the CCC if such an ‘anticompetitive agreement’ contributes positively to the ‘public interest’ to the extent that the public interest benefit outweighs the anti-competitive effect.

In terms of the CCC’s notice 1/2013, the following agreements may well be considered to be in the public interest when evaluating whether an anti-competitive agreement or concerted practice should be exempted:

  • Joint research and development ventures;
  • Specialisation agreements; and
  • Franchising agreements

As to the agreements or concerted practices which may be anti-competitive, the Notice refers specifically to the restrictive business practices listed in Article 16 of the Regulations which states that:

“The following shall be prohibited as incompatible with the Common Market:

all agreements between undertakings, decisions by associations of undertakings and concerted practices which:

(a) may affect trade between Member States; and

(b) have as their object or effect the prevention, restriction or distortion of competition within the Common Market.”

It should be noted that Article 16 is deliberately drafted broadly so as to prohibit conduct which has as its “object” the prevention, restriction or distortion of competition. Certain conduct, such as price fixing, fixing of trading terms or conditions, allocating suppliers or markets or collusive tendering may be considered as having as its ‘object’ the distortion or restriction of competition in the market. Accordingly, firms who have engaged in this type of conduct may be held liable in the absence of any evidence of an anti-competitive effect (whether actual or potential).

Says Andreas Stargard, a competition practitioner with Primerio Ltd., “[t]he CCC’s notice is a clear sign that the agency is gathering momentum in its efforts to detect and prosecute anticompetitive practices within the member states — and is going beyond its ‘one-trick pony’ status as a pure merger-control gatekeeper.  We anticipate a more active role by the CCC in conduct investigations and presumptively also enforcement actions, as opposed to its previous rubber-stamping activity of approving transactions with a COMESA community dimension (and concomitant collection of vast filing fees).”

The CCC has recently signed a number of Memoranda of Understanding and Cooperation Agreements with various member states as well as a tripartite agreement with other broader regional forums such as the Southern African Development Community and the East African Community.

COMESA old flag colorThe web of MoU’s recently concluded, which have as their primary objectives the facilitation of information exchanges and cooperation between competition agencies, is certainly a significant stride made to assist the authorities, including the CCC, in detecting and prosecuting anticompetitive practices which may be taking place across the African continent.

A further indication of the CCC’s growing appetite and confidence to identify anticompetitive practices is that the CCC has announced that it is conducting a market enquiry into the grocery retail sector.  This is the first market inquiry to be conducted by the CCC.

In terms of the CCC’s Notice, firms who have not yet notified the CCC of agreements which may be anticompetitive, have approximately one month to do so. In other words, the CC has offered a leniency ‘window’ to incentivise firms to come forward and obtain an exemption in respect of agreements already implemented which may be in contravention of Article 16 of the Regulations.

 

Antitrust exemption regime: Value-add or underutilized?

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Professional Associations in Kenya not Making Use of Exemption Provisions a Major Concern for Competition Authority

Continuing in our series about the burgeoning East African Community and its nascent antitrust regime, AAT contributing author and Pr1merio attorney, Elizabeth Sisenda, writes a second installment covering the exemption regime of the region and its (surprising) underutilized status to date.

Elizabeth Sisenda, LL.M (London) LL.B (CUEA) PGD Law (KSL)

Price-fixing in Kenya is prohibited under the Competition Act No. 12 of 2010 under Section 21 (3) (a) which provides that any agreements, decisions or concerted practices which directly or indirectly fix purchase or selling prices or any other trading condition is prohibited under the Act, unless they are exempt in accordance with the provisions of Section D of Part III.

Part III B further prohibits price-fixing by trade associations under Section 22 (b) (i) which provides that the making, indirectly or directly, of a recommendation by a trade association to its members or to any class of its members which relates to the prices charged, or to be charged by such members, or to any class of members, or to the margins included in the prices, or to the pricing formula used in the calculation of those prices, constitutes a restrictive trade practice under the Act.

Section 29 (1) of the Act further outlines the rules for exemptions in respect of professional associations. It provides that a professional association whose rules contain a restriction that has the effect of preventing, distorting or lessening competition in a market must apply in writing or in the prescribed manner to the Competition Authority for an exemption. Sub-section (2) goes on to explain what factors the Authority considers in order to grant an exemption for a specified period. These include:

  • Maintenance of professional standards
  • Maintenance of the ordinary functioning of the profession
  • Internationally applied norms

Section 29 (5) further gives discretion to the Authority to revoke an exemption in respect of such rules or the relevant part of the rules, at any time, if the Authority considers that any rules, either wholly or in part, should no longer be exempt under this section. For instance, if they no longer promote consumer welfare or do not enhance standards in the profession.

Price setting concerns by Law Society of Kenya, LSK

kenyaProfessional fees for advocates in Kenya are set by the Chief Justice under the Advocates Act Chapter 16 of the Laws of Kenya. Part IX Section 44 provides that the Chief Justice may by order prescribe and regulate in such manner as he/she thinks fit the remuneration of advocates in respect of all professional business, whether contentious or non-contentious. Sub-section (2) also provides that the Chief Justice may prescribe a scale of rates of commission or percentage in respect of non-contentious business.

However, Section 45 provides that agreements in respect of remuneration may be made between the advocate and the client subject to permissible professional rules under section 46 of the Act. Therefore, as much as the Chief Justice may set professional fees under the Act, there is an opportunity for the advocate and the client to agree on professional fees subject to the Act. Moreover, a client has redress to apply to the courts under Section 45 (2) to set aside or vary such an agreement on grounds that it is harsh, unconscionable, exorbitant or unreasonable according to professional practice. The decision of the court on this matter is final.

The Chief Justice periodically revises the Advocates Remuneration Order which sets out the scale of professional legal fees. In doing so the Chief Justice considers factors such as inflation and the costs of providing legal fees. The Kenyan Advocates Remuneration Order was last revised upwards in 2014, increasing professional fees by 50%. The Order was last revised in 1997. Advocates had petitioned the Chief Justice to do so in order to enable them cope with tough economic conditions. Recently there was a public discourse on whether advocates should have set fees. Stakeholders argue that the Chief Justice’s decision to adjust fees may not be entirely objective because since he or she has qualifications in law, and could revert to the profession upon retirement from office.

LSK on the other had contends that the minimum fees help protect consumers from poor services, and it reduces the price wars that would occur without the scale of fees. Under the Advocates Act, charging below the set scale of fees amounts to undercutting. This is a professional offense that could result in the concerned advocate being suspended or struck off the roll. Moreover, any agreements or instruments prepared by the concerned advocate are liable to be invalidated by the courts.

The question arose among legal stakeholders as to whether the Authority could intervene in relation to the scale of professional fees under the provisions on price-fixing. The LSK chairperson recently commented that it is beyond the jurisdiction of the Authority, as the Remuneration Order seeks to set minimum fees and not a fixed rate. However, it is clear from the provisions of Section 29 that any professional body whose rules, having regard to internationally applied standards, contain any restrictions which have the effect of preventing or substantially lessening competition in a market, must apply to the Competition Authority for an exemption of the said rules.

Price Setting Concerns by Association of Kenya Reinsurers, AKR

The Association of Kenya Reinsurers is regulated by the Kenya Reinsurance Corporation Limited Act, Cap 487A of the Laws of Kenya. The Association consists of the following companies: Kenya Reinsurance Corporation Limited, Africa Reinsurance Corporation Limited, East Africa Reinsurance Company, Zep – Re and Continental Reinsurance Limited. The Authority recently investigated this association for price fixing following a complaint lodged from the National Intelligence Service (NIS). The association, through a circular dated 2, October 2013, had advised its members on the minimum applicable premiums upon renewal of NIS Group Life Scheme for 2013/2014. Insurance companies are required by their regulator Insurance Regulatory Authority (IRA) to use an independent actuary to come up with their own individual premium rates, which they file with the IRA for approval.

The association is required under the Competition Act Section 29 (1) to apply in the prescribed manner to the Authority for an exemption in relation to any anti-competitive rules. Section 22 (2) (b) also prohibits the making, directly or indirectly, of a recommendation by a trade association to its members, or to any class of its members which relates to the prices charged, or to be charged by such members, or any such class of members, or to the margins included in the prices, or to the prices, or to the pricing formula used in the calculation of those prices. Therefore, the Association is legally bound to seek the approval of the Authority in order to set a minimum fee for any particular group of consumers. Moreover, the association may be in violation of Section 21 (f) of the Competition Act which prohibits any decisions by associations of undertakings which applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, unless they are exempt in accordance with the provisions of Section D of Part III.

Conclusion

In conclusion, professional associations in Kenya should take advantage of the provisions of Section 29 of the Competition Act which allow professional associations to apply rules whose effect is the lessening of competition in the market, provided they are applied to enhance professional standards, the ordinary functioning of the profession or internationally applied norms for the benefit of consumers.

 

 

EAC expands to accept 6th member in accession of S. Sudan

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Landlocked and Oil-Rich South Sudan Joins Free-Trade Zone

As South Sudan was officially admitted to the East African Community (EAC) as its sixth member in Arusha (Tanzania), on Wednesday, March 2, the beleaguered nation joined a free-trade zone that will allow it to benefit from more open labour movement, less restrictions on capital flows and other increased economic integration.  The other member states are Tanzania, Kenya, Uganda, Burundi, and Rwanda.  After integration with S. Sudan — the youngest nation on Earth — the region will have a population of an estimated 163 million.

John Oxenham, of Pr1merio Africa advisors, says: “South Sudan’s former institutional weaknesses were (apparently, despite the ongoing civil strife in the country) sufficiently remedied that the EAC governing body saw fit to grant the application for admission that had been pending since 2011.  Basic governance principles must be met for EAC membership, and we are not even talking competition-law here…”

As the EAC charter provides, all members must demonstrate and strive to achieve “good governance including adherence to the principles of democracy, the rule of law, accountability, transparency, social justice, equal opportunities, gender equality, as well as the recognition, promotion and protection of human and peoples’ rights in accordance with the provisions of the African Charter on Human and Peoples’ Rights.”  (EAC Treaty, Chapter 2 Article 6 (d)).

 

Setting aside civil-rights concerns or worries about political instability, the integration of an oil-rich nation may ultimately benefit its neighbouring fellow EAC members, such as Kenya and Uganda.  It remains to be seen whether integrating a less-than-stable country into the EAC zone will harm the competition legislation the region enacted in 2006.  As AAT author Elizabeth Sisenda pointed out recently, the organisation “has been setting up the mechanisms for its enforcement to-date through capacity building and mobilizing resources. In 2010, the EAC subsequently enacted competition regulations to assist in implementing the Act. One of the main challenges that has been encountered in the EAC with regards to the implementation of competition law and policy has been the unique economic and market structure of the member states.  The majority of the EAC member states are economies that are transitioning from state-regulation to liberalization.”

We note that S. Sudan’s northern neighbour, the Republic of [the] Sudan, is currently a COMESA member state and thereby subject to the COMESA competition-law regulations and related merger-notification regime.  South Sudan has, since at least the 2012 talks in Uganda, likewise been in negotiations with the COMESA governing bodies to discuss accession to that free-trade zone.