Category: East Africa

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.

Kenyan cabbies complain: The Uber competition saga reaches East Africa

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Uber Africa: Increased competitiveness not a boon for entrenched monopolies

new multi-part seriesContinuing our AAT multi-part series on innovation & antitrust we turn once again to the ubiquitous “Sharing Economy” we are witnessing not only in the United States and Europe but also on the African continent…

“The taxi industry is in the midst of a crisis. Once protected by a regulated monopoly of the commercial passenger motor vehicle transportation market, the industry now faces increasing competition from a new type of transportation service—ride-sharing. The emergence of companies like Uber, the most successful ride-sharing company, threatens to eliminate the taxi industry’s stronghold on the ground transportation market and possibly the industry itself.” (Erica Taschler, Institute for Consumer Antitrust Studies, in “A Crumbling Monopoly: The Rise of Uber and the Taxi Industry’s Struggle to Survive“)

April 14, 2015 Associated Press file photo, Nairobi, Kenya

Today, the Taxi Cab Association of Kenya announced protests against the “unfair competition” its members face from ride-sharing giant Uber, according to the organisation’s chairman, Josphat Olila.  This is no news for folks in London, Brussels, Hamburg, or Washington — places where the taxi-medallion-capped brethren of Nairobi’s cabbies have all long ago gone through the protest phase against the rising tide of the “new economy’s” novel way of hailing cars.  Examples abound, and all involve more or less refined antitrust arguments.

Andreas Stargard, an attorney with Africa competition advisors Primerio, sums it up as follows: “The pro-competitive notion of innovation-plus-price competition is perhaps best understood by looking at the views of two leading antitrust agencies, the FTC and the European Commission.   Both have articulated simple and sound arguments for striking the right balance between regulatory limits for the protection of passengers, as well as allowing innovative technologies to enhance the competitive landscape and thereby increasing transportation options for riders.  In antitrust law, more options usually equal better outcomes.”

U.S.

Here is what the U.S. Federal Trade Commission had to say in 2013 about the D.C. taxi commission’s ‘unfair competition’ argument against ride-sharing services:

“The staff comments recommend that DCTC avoid unwarranted regulatory restrictions on competition, and that any regulations should be no broader than necessary to address legitimate public safety and consumer protection concerns.  … [T]he comments recommend that DCTC allow for flexibility and experimentation and avoid unnecessarily limiting how consumers can obtain taxis.”

Crucially, the Kenyan cabbies’ argument that Uber should be banned is based on price competition from Uber’s lower fares.  One of the main tenets of competition law is: lower prices are good for consumers (in general), as long as service quality remains the same.  With Uber in the mix, quality arguably increases beyond the sad status quo of smelly and difficult-to-hail cabs: for one, users now are able to know when and where their car arrives, quality control via Uber’s policies and check-ups is available, convenient electronic billing & dispute resolution exists, etc.

Let’s go back to the FTC’s public comments and see their take:

“Competition and consumer protection naturally complement and mutually reinforce each other, to the benefit of consumers. Consumers benefit from market competition, which creates incentives for producers to be innovative and responsive to consumer preferences with respect to price, quality, and other product and service characteristics. As the U.S. Supreme Court has recognized, the benefits of competition go beyond lower prices: ‘The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers’.”

EU DG COMP

Former Competition Commissioner Neelie Kroes would agree wholeheartedly with the above, and indeed said in 2014 that she was “outraged at the decision by a Brussels court to ban Uber.”  In her personal op-ed piece, published on the EU Commission’s web site under the catchy title “Crazy court decision to ban Uber in Brussels“, she poignantly had this to tell the Belgian Mobility Minister who signed off on the Uber ban:

“This decision is not about protecting or helping passengers – it’s about protecting a taxi cartel.  The relevant Brussels Regional Minister is Brigitte Grouwels. Her title is “Mobility Minister”.  Maybe it should be “anti-Mobility Minister”. She is even proud of the fact that she is stopping this innovation. It isn’t protecting jobs Madame, it is just annoying people!”

We wonder what would happen if Neelie Kroes were Kenyan government minister…

Kenya: Keep prices high and ‘foreign’ competition out?

The Kenyan Taxi Association does not see it that way, just like its D.C. counterpart did not some 3 years ago.  However, D.C.’s streets are still full of old-fashioned cabs, and Uber — while popular — is still far from blowing out the light shone by the once-prized cabbie medallions…

Still, the Kenyan association claims that between 4,000 and up to 15,000 taxi drivers face job extinction due to lower prices charged by Uber, which has been active in Nairobi since the beginning of 2015.  Again, the “lower price” argument is a red herring under even the most basic application of competition economics, which shows that innovation-based price competition is ultimately pro-competitive and good not only for the end consumer but also the industry’s development as a whole.

Sadly, antitrust law — even in a fairly developed competition-law jurisdiction like Kenya — does not always prevail (again, see the occidental examples of Brussels, Hamburg, London, or even Baltimore, where the cabbies ironically sued Uber in an antitrust lawsuit, alleging that the so-called ‘Surge Pricing’ mechanism amounts to per se illegal price-fixing…).

The Kenyan taxi-cab organisation not only claims that the livelihoods of its members are at stake, but also “questioned the protocols followed by the foreign investors behind Uber, saying they were not consulted before the service provider entered the market,” according to an article in the Kenyan Daily Nation.  The association’s spokesman is quoted as saying: “We have loans to service, families to feed, children to educate and other responsibilities to cater for and we are not ready to leave the transport industry to a foreigner and render [ourselves] jobless while we are in a democratic republic.”

So in the end, the ‘unfair taxi competition’ argument devolves into xenophobia and mistrust.  Sadder yet, Kenya’s Uber fight has now taken a violent turn: Yesterday, an Interior Ministry spokesman said that there had been reports of attacks on Uber drivers, which are being investigated.

AAT of course deplores the resort to violence and trusts that neither it nor the upcoming protests will impede the progress of competitiveness in Kenya, a country that otherwise prides itself on encouraging competition (see CNBC Africa video on “East African competitiveness”).  The sole glimmer of hope we see consists of the closing line of the Daily Nation piece, which notes that “[t]he drivers have also promised to come up with their own version of Uber to connect taxi drivers in the country.”  That is what innovation is all about: Uber innovates, others copy (be it Lyft or the Kenyan cabbies), and everyone is better off in the final analysis.

 

Regs & Exemptions: more on the EAC

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The Exemption Regime under the East African Community’s competition regulations

Continuing in our series about the burgeoning East African Community and its nascent antitrust regime, AAT contributing author Elizabeth Sisenda is highlighting the exemption regime of the populous (146 million inhabitants) and increasingly wealthy ($150 billion GDP) region.  (For more background on the EAC regime, start here.)

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

Emerging markets or developing economies only recently adopted competition law and policy as an exclusive legal and economic tool for regulating markets. In previous years, restrictive trade practices were mostly handled under government price control departments or monopolies commissions. Most of the competition legislation and regulations in developing economies were promulgated within the last decade.

EAC: regulations & market conditions

The EAC, in particular, enacted its competition legislation in 2006 and 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. Consequently, several key sectors of these economies are still under quasi-governmental regulation by independent agencies established by the legislature, or explicitly protected by executive policy or subsidiary legislation.

As a result of the progressive liberalization of EAC economies, private entities have been building capacity to supply sectors of the economy where the government once had a monopolistic stake. These private firms, both local and multinational, have faced several challenges in meeting market requirements in terms of capacity. Consequently, the governments of these economies have sometimes adopted a protectionist approach for key sectors of their economies in the public interest. As much as this has often contributed to the substantial lessening of competition in the affected sectors to the detriment of consumers, these regulatory measures have been upheld by the respective governments on the grounds of national interest. The EAC, however, has been very cautious in its provisions for exemptions within the common market that could contribute to the substantial lessening of competition.

The EAC exemptions

Section 6 (3) of the EAC Competition Act provides that the Competition Authority may exempt a category of concerted practices by firms or parties, provided the concerted practice is limited to objectives which lead to an improvement of production or distribution, and whose beneficial effects, in the opinion of the Authority, outweigh its negative effects on competition. However, any exemptions granted by the Authority under this sub-section shall be applicable only if the combined market share of the parties involved in the concerted practice does not exceed 20% of the relevant market, and the agreement relating to the concerted practice does not contain any restrictive trade practice expressly prohibited under the Act. Thus, it may be contended that this exemption does not contribute to the substantial lessening of competition because it only applies to small or medium firms without any hint of market power, having a maximum market share of 10% each. Furthermore, the net effect of the concerted practice is beneficial to consumer welfare by improving access to goods or services. It also gives leeway for small producers to produce more efficiently, thus improving market conditions.

Low shares = more permissible conduct

The Authority under section 6 (1) further allows competitors whose combined market share does not exceed 10% of the relevant market to apply quantitative restraints on investment or input, output or sales, and engage in concerted practices that restrict the movement of goods within the common market. However, such conduct is expressly forbidden by the Act in the case of firms with larger market share. It may be contended that this particular provision is aimed at enabling small and medium enterprises to have a strategic opportunity to operate in an otherwise large and well-exploited market. It also does not limit competition because the firms in question have very little market share. Instead this exemption aims at protecting the competitiveness of the market by ensuring that smaller firms are not driven out of the market by larger, more efficient firms.

R&D and so on

Under section 6 (2) of the Act, the Authority also exempts 3 categories of conduct, namely: joint research and development, specialization of production or distribution and standardization of products or services, by firms whose combined market share does not exceed 20% of the relevant market. This exemption requires that the agreement relating to these categories of concerted practices should not contain any of the expressly prohibited anti-competitive practices under the Act. The Authority may contend that this exemption promotes consumer welfare by enabling smaller firms to collaborate in improving the quality of products or services in the relevant market through standardization and specialization efforts. It also enables smaller firms to participate in innovation through a collaborative effort. Most firms with this extent of combined market share would lack the resources or capacity on their own to engage in these activities that promote consumer welfare and efficiency in the relevant market.

Get permission first!

According to section 7 of the Act, any firm or person must first apply to the Authority, in accordance with the Regulations, for clearance to engage in any concerted practice. The Authority shall thereafter communicate its decision to the applicant within 45 days of receipt of the application. However, if the Authority does not communicate its decision in the specified duration, then the permission for the concerted practice shall be deemed to have been granted. Under the same section, it is an offence, punishable by a fine of not more than $10 000, to omit to seek the permission of the Authority to engage in a concerted practice. The Regulations under section 16 further provide that the undertaking seeking an exemption must pay the prescribed fees, and provide a detailed statement setting out the reasons why the concerted practice should be permitted for consideration to the Authority.

Conclusion

The EAC exemptions are therefore permitted in the common market to exercise a form of economic regulation for the purpose of ensuring that small and medium enterprises can effectively compete in a liberalized market without being driven out by firms with larger market share. In this way, the public interest is promoted to ensure that national or regional interests such as employment, allocative efficiency, specialization agreements and international competitiveness of domestic firms are taken into account. Applying exemptions does not necessarily imply the weakening of competition law enforcement. National economic policy considerations such as the maintenance and promotion of exports, changing productive capacity to stop decline in a particular industry, or maintaining stability in a particular industry are some of the policy considerations that motivate the application of exemptions. However, exemptions must be applied with caution because their application in one sector can perpetuate or induce distortions that can affect economic efficiency.

 

The Big Picture (AAT): East Africa & Antitrust Enforcement

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AAT the big picture

East-Africa & Antitrust: Enforcement of EAC Competition Act

By AAT guest author, Anne Brigot-Laperrousaz.

Introduction: Back in 2006…

The East African Community (the “EAC”) Competition Act of 2006 (the “Act”) was published in the EAC Gazette in September 2007. The Act was taken as a regulatory response to the intensification of competition resulting from the Customs Union entered into in 2005. This was the first of the four-step approach towards strengthening relations between member States, as stated in Article 5(1) of the Treaty Establishing the EAC.

Challenges facing the EAC

As John Oxenham, an Africa practitioner with advisory firm Pr1merio, notes, “10 years have passed since the adoption of the EAC Act, yet it remains unclear when (and if) the EAC will develop a fully functional competition law regime.”

The EAC Competition Authority (the “Authority”) was intended to be set up by July 2015, after confirmation of the member States’ nominees for the posts of commissioners. Unfortunately Rwanda, Uganda and Burundi failed to submit names of nominees for the positions available, and the process has become somewhat idle, leaving questions open as to future developments.

The main challenges facing the EAC identified by the EAC’s Secretariat is firstly, the implementation of national competition regulatory frameworks in all member States; and secondly, the enhancement of public awareness and political will[1].

The first undertaking was the adoption of competition laws and the establishment of competition institutions at a national level, by all member states, on which the sound functioning of the EAC competition structure largely relies.

Apart from Uganda, all EAC member States have enacted a competition act, although with important discrepancies as to their level of implementation at a national level.

The second aspect of the EAC competition project is the setting up of the regional Competition Authority, which was to be ensured and funded by all members of the EAC, under the supervision of the EAC Secretariat. Although an interim structure has been approved by member States, the final measures appear to be at a deadlock.

As mentioned, the nomination of the commissioners and finalisation of the setting up of the EAC Competition Authority came to a dead-end in July 2015, despite the $701,530 was set aside in the financial budget to ensure the viability of the institution[2]. It is widely considered, however, that this amount is still insufficient to ensure the functionality of the Competition Authority.  Andreas Stargard, also with Pr1merio, points out that “[t]he EAC has been said to be drafting amendments to its thus-far essentially dormant Competition Act to address antitrust concerns in the region.  However, this has not come to fruition and work on developing the EAC’s competition authority into a stable body has been surpassed by its de facto competitor, the COMESA Competition Commission.”

Furthermore, inconsistencies among national competition regimes within the EAC are an important impediment to the installation of a harmonised regional enforcement. Finally, international reviews as well as national doctrine and practice commentaries have highlighted the lack public sensitization and political will to conduct this project.

A further consideration, as pointed out by Wang’ombe Kariuki, Director-General of the Competition Authority of Kenya, is the challenge posed by the existence of the Common Market for Eastern and Southern Africa (“COMESA”).

Conclusion

The implementation of the EAC has not seen much progress since its enactment, despite its important potential and necessity[3]. It therefore remains to be seen how the EAC deals with the various challenges and whether it will ever become a fully functional competition agency.

A quick summation of the status of the national laws of the various EAC members can be seen below. For further and more comprehensive assessments of the various member states competition law regimes please see African Antitrust for more articles dealing with the latest developments.

EAC Member States Status

Tanzania

The Tanzanian Fair Competition Act (the “FCA”) was enacted in 2003, along with the institution of a Commission and Tribunal responsible for its enforcement. The FCA became operational in 2005. Tanzania’s competition regime was analysed within the ambit of an UNCTAD voluntary peer review in 2012[4]. The UNCTAD concluded that Tanzania had overall “put in place a sound legal and institutional framework”, containing “some of the international best practices and standards”.

This report, however, triggered discussions on major potential changes to the FCA, which would impact, in particular, institutional weaknesses and agency effectiveness[5]. One of the most radical changes announced consisted in the introduction of criminal sanctions against shareholders, directors and officers of a firm engaged in cartel conduct[6], although there is no sign that this reform will be adopted.

Kenya

Kenya, following a 2002 OECD report[7] and the European Union competition regulation model, replaced its former legislation with the 2010 Competition Act, which came into force in 2011, and established a Competition Authority and Tribunal. Under the UNCTAD framework, the 2015 assessment of the implementation of the recommendations made during a voluntary peer review conveyed in 2005[8] was generally positive. It was noted, however, that there was an important lack of co-operation between the Competition Authority and sectoral regulators, and that there was a need for clear merger control thresholds[9].

Burundi

Burundi adopted a Competition Act in 2010, which established the Competition Commission as the independent competition regulator. To date, the Act has not yet been implemented, and accordingly no competition agency is in operation[10].

A 2014 study led by the Burundian Consumers Association (Association Burundaise des Consommateurs, “Abuco”) (which was confirmed by the Ministry of Trade representative) pointed to the lack of an operating budget as one of the main obstacles to the pursuit of the project[11].

Rwanda and Uganda

Rwanda enacted its Competition and Consumer Protection Law in 2012, and established the Competition and Consumer Protection Regulatory Body.

As for Uganda, to date no specific legal regime has been put in place in Uganda as regards competition matters, although projects have been submitted to Uganda’s cabinet and Parliament, in particular a Competition Bill issued by the Uganda Law Reform Commission, so far unsuccessfully.

 

Footnotes:

[1] A Mutabingwa “Should EAC regulate competition?” (2010), East African Community Secretariat

[2] C Ligami, “EAC to set up authority to push for free, fair trade” (2015), The EastAfrican

[3] O Kiishweko, “Tanzania : Dar Praised for Fair Business Environment” (2015), Tanzania Daily News

[4] UNCTAD “ Voluntary Peer Review on competition policy: United Republic of Tanzania” (2012), UNCTAD/DITC/CLP/2012/1

[5] S Ndikimi, “The future of fair competition in Tanzania” (2013), East African Law Chambers

[6] O Kiishweko, “Tanzania: Fair Competition Act for Review’ (2012), Tanzania Daily News.

[7] OECD Global Forum on Competition, Contribution from Kenya, “ Kenya’s experience of and needs for capacity building/technical assistance in competition law an policy “ (2002), Paper n°CCNM/GF/COMP/WD(2002)7

[8] UNCTAD, “ Voluntary Peer Review on competition policy: Kenya” (2005), UNCTAD/DITC/CLP/2005/6

[9] MM de Fays, “ UNCTAD peer review mechanism for competition law : 10 years of existence – A comparative analysis of the implementation of the Peer Review’s recommendations across several assessed countries” (2015)

[10] Burundi Investment Promotion Authority “Burundi at a Glance – Legal and political structure”, http://www.investburundi.com/en/legal-structure

[11] Africa Time, “Loi sur la concurrence : 4 ans après, elle n’est pas encore appliquée” (Competition Law : 4 years after, it is still not implemented) (2014), http://fr.africatime.com/burundi/articles/loi-sur-la-concurrence-4-ans-apres-elle-nest-pas-encore-appliquee

Can antitrust law ensure a competitive Kenyan marketplace?

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Competition law as a tool for promoting consumer welfare & maintaining a competitive market in Kenya 

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

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

The core aim of enforcing competition law revolves around balancing between beneficial market power and market power that is detrimental to consumer welfare. Market power can be defined as the ability of a firm to raise and maintain price above the level that would prevail under competitive market conditions, without being destabilised by consumers switching to other products/services or new competitors entering the same market. Often the actual price is above cost leading to high profits for the firm with market power. In practice, the pursuit of market dominance can be a great incentive for investment, cost efficiency and innovation. Therefore, the acquisition of a dominant position through superior product or customer services, better pricing, innovation, efficiency and investment is not illegal. Only the abuse of dominance is prohibited. Where a firm exercises market power, competition law functions to protect the openness of the market by ensuring that the dominant firm does not impose unfair trading conditions for actual or potential competitors, or abuse its intellectual property rights. It also intervenes to prevent direct harm to consumer welfare through conduct or transactions that limit output or production artificially in order to price-fix.

Merger control is another important function of competition law and policy, that is designed to prevent positions of market power from being established through acquisition, unless there is a strong economic efficiency rationale that will mitigate for the loss of competition between the merging firms. A company should therefore earn market power and not simply buy out competitors.

Thus, an important ideal of competition policy is to promote a contestable market for as long as it promotes consumer welfare, and a feasible market structure for a particular sector of the economy. In a contestable market, the sunken costs required to join the sector are negligible and other entry barriers are so low that the threat of new entrants is sufficient to check the conduct of the incumbent firm with market power. The costs of exiting the market are also negligible.

In relation to competitors, competition law cannot intervene on behalf of a particular firm in the market, without taking into account the broader effects of the conduct in question on competition in the relevant market. A firm would have to show, on the face of it, that its competitors in that market are engaged in concerted or collusive practices. For instance, competitors can tacitly seek to exercise market power through anti-competitive agreements that enable them to concentrate the market. This often results in one or more firms becoming large enough to be in a position to affect the market’s outcomes in a manner that causes consumer welfare or public interest to be compromised.

Under these circumstances, competition law intervenes and investigates to ensure that there is no unwarranted concentration of economic power in a particular market through collusive agreements between competitors. Unwarranted concentrations of economic power exist where there is cross-directorship or sharing of a senior employee or executive between two distinct firms providing substantially similar goods or services, and whose combined market share is more than 40%. Competition legislation regulates this conduct because it often results in board decisions being made that could lead to collusion among the firms involved, such as price fixing and dividing markets, thereby lessening competition.

kenya

For instance, in Kenya, the cement sector has been under investigation for unwarranted concentrations of economic power. Although there are a number of cement-producing companies in the market, the dominant multinational firm – Lafarge Limited, has a 58.6% stake in the leading producer, Bamburi Cement Limited and a 42% shareholding in another leading company, East African Portland Cement Limited. Market concentration concerns have arisen because Bamburi Cement Limited, which has a market share of 39%, has had cross-directorship with the 3rd largest producer in the market – East African Portland Cement Limited to an extent that may dampen competition. Kenya’s cement prices have been the second highest out of six eastern and southern African countries including South Africa, Zambia and Tanzania between 2000-2014 according to a sector report. In 2014, the Kenyan government recommended that Lafarge dilute its shareholding in East African Portland Cement Limited. However, it was not conclusive whether price fixing was going on.

On the other hand, Kenya’s cement sector may experience increased competition from imports as a result of the East African Community (EAC) reducing the common external tariff (CET) on cement from 35% to 25% through an EAC gazette notice of February 2015. Cement has also been removed from the list of sensitive products that require protection until domestic industries can compete according to the same gazette notice. Although local cement producers are protesting the move, consumers stand to gain, as the liberalized market will lead to lower prices of the commodity, and possibly have a positive impact on the construction industry.

First set of Merger Assessment Guidelines made available by CFTC

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Malawi Releases 2015 ‘Merger Assessment Guidelines’

By Michael J. Currie

A number of African jurisdictions have recently published guidelines relating to merger control (which we have reported here on Africanantitrust). During 2015, Malawi’s Competition and Fair Trading Commission (“CFTC”, whose web site appears to be down at the time of publication (http://www.cftc.mw), followed suit and published Merger Assessment Guidelines in 2015 (“Guidelines”) in order to provide some guidance as to how the CFTC will evaluate mergers in terms of the Competition and Fair Trading Act (“Act”).

malawi

Most significantly, the Guidelines have not catered for mandatorily notifiable merger thresholds which is unfortunate as most competition agencies as well as advocacy groups have recognised that financial thresholds is an important requirement to ensure that merger control regimes are not overly burdensome on merging parties.

Furthermore, the COMESA Competition Commission, to which Malawi is a member, published merger notification thresholds in 2015 in line with international best practice. It would be encouraged that the CFTC considers likewise publishing thresholds.

Other than the absence of any thresholds, the Guidelines contain substantively similar content to most merger control guidelines insofar as they set out the broad and general approach that the CFTC will take when evaluating a merger. We have, however, identified the following interesting aspects which emerge from the Guidelines which our readers may want to take note of:

  • The CFTC is entitled to issue a “letter of comfort” to merging parties. A letter of comfort is not formal approval, but allows the merging parties to engage conduct their activities as if approval has been obtained. Therefore, once a letter of comfort has been obtained, the parties may implement the merger. In terms of the Guidelines, a letter of comfort will only be issued once the CTFC is satisfied that any should their investigation reveal any potential competition law concerns, that those concerns will be able to be sufficiently addressed by merger related conditions. It is not clear whether a letter of comfort will be issued before the merger has been made public and therefore it is also unclear what the role of an intervening third party will be once a letter of comfort has been issued.
  • The merger filing fee is 0.05% of the combined turnover or assets of the enterprises’ turnover. The Guidelines do not specify that the turnover must be derived from, in, or into Malawi, although it is likely that this is indeed what was intended.
  • The Act and Guidelines make provision for what is becoming a common feature of developing countries competition laws, namely the introduction of so-called “public interest” provisions in merger control. The Guidelines, however, indicate that the CFTC does not consider these public interest provisions in quite as robust manner as the authorities do other countries including, inter alia, South Africa, Namibia, Zambia and Swaziland. In terms of the Guidelines, any public interest advantages or disadvantages is just one of the factors that the CFTC will consider, together with the traditional merger control factors. It is thus unlikely that a pro-competitive merger would be blocked purely on public interest grounds although this is notionally possible.
  • The Guidelines set out the following factors, combined with figures that are likely to be utilised when evaluating market concentration, which if exceeded, may increase the likelihood of the merger leading to a substantial lessening of competition:
  1. Market Shares: 40% for horizontal mergers and 30% for non-horizontal mergers;
  2. Number of firms in the market;
  3. Concentration Ratios: CR3- 65%; or
  4. The Herfindahl-Hirschman Index (“HHI”): HHI between 1000-2000 with delta 259; or HHI above 200 with delta 150. For non-horizontal mergers a merger is unlikely to raise competition concerns if the HHI is below 2000 post-merger.

Protecting competition vs. competitors: Calls for an EAC competition regime

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Protecting competition vs. competitors: Calls for an EAC competition regime

In an opinion piece by Elizabeth Sisenda, a competition lawyer at the Centre for International Trade, Economics and Environment, the author calls for region-wide adoption, implementation, and enforcement of competition law, for the greater good of local business in the East African Community.  While generally in favour of increased competition-law recognition in Africa, we at AAT believe that there may be a protectionist undertone in the editorial, however:

Ms. Sisenda notably writes, “The EU has been negotiating a bilateral agreement with the EAC … Local firms stand to lose to foreign firms with greater capacity under the agreement in agriculture, retail, horticulture, fisheries, textile and clothing, dairy, and meat — if adequate safeguards are not established under the agreement.  This brings to light the need to enhance a competitive regional economy within the EAC through the implementation of a regional competition law regime to protect consumers and small enterprises from unfair business practices.

As antitrust attorneys will be quick to point out, pure competition law does not invariably act to protect small companies against so-called “unfair” competition by larger (or foreign) entities.  Granted, certain abuses of dominance or — of course — cartelist conduct is prohibited by proper antitrust legislation.  However, the mere arrival of a more powerful competitor in a local economy does not amount to “unfair competition” per se.  If a larger company can source its products and inputs at a lower cost than a local, established entity (say, Wal Mart compared to a ‘mom-and-pop’ corner store), this may hurt the incumbent but is not necessarily unlawful.

Calls for “African” competition enforcement must be careful not to commingle the notions of protectionism of domestic incumbents with actual competition-law enforcement.

UPDATE: Ms. Sisenda, the author of the original article, wishes to clarify that by “adequate safeguard” her intention was not protectionism but ensuring that dominant firms do not undertake anti-competitive practices such as price-fixing, raising barriers to entry or other illicit conduct.  She is clear in disavowing any notion of protectionism that AAT might have perceived, noting that “By using the term ‘unfair business practices,’ I did not impute any regulatory measures to prop local entities and lock out foreign firms. I simply meant abuse of dominance by more capable foreign firms such as predatory pricing.”

Andreas Stargard, a partner at Africa advisory practice Pr1merio, agrees with Miss Sisenda on two key points, however.  Says Stargard:

The author correctly notes that “there is still a quest for protectionism by the governments of some of the EAC member states.”  Truly anti-competitive practices must be curbed, whereas the inefficient protection of smaller incumbent domestic companies versus more efficient new entrants must not be encouraged.  In the words of one influential court, over 53 years ago, good antitrust laws are designed to protect “competition, not competitors”…

Moreover, Ms. Sisenda rightly points to the great need within the EAC (and elsewhere in Africa) for “capacity-building at the national and regional level in support of the … competition regime, which might involve training personnel on competition law and policy and its enforcement.”  Workshops and publications such as AfricanAntitrust.com aid greatly in these efforts, including raising awareness of the need for proper competition-law enforcement, what it can do and also what it cannot accomplish on its own.

The EAC Competition Authority has an interim organisational structure & budget and is expected to start being operational next year.

PS: we note that Ms. Sisenda also raised, in our follow-up conversation with her, some notable questions that we invite our readers or future contributing authors (maybe Ms. Sisenda herself?) to address:

  • In your view, are there any parameters to antitrust such as exemptions granted under legislation for the purpose of promoting economic efficiency (be it allocative or productive) that are justified?
  • Is there a place for economic regulation in antitrust?

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