Today, the East African reported on a stunning admission by the Chief Executive Officer of Kenyan mobile telco heavyweight Safaricom (itself no stranger to AAT telco competition reporting and proprietor of the massive M-Pesa mobile money network across East Africa). In the article, fittingly entitled “Safaricom rules out price war in Ethiopian market“, the business report quotes Mr. Peter Ndegwa as saying:
“From a pricing perspective, our pricing strategy is generally to be either in line or just slightly at a premium, but not to go for any price competition. The intention is actually generally to be closer to what the main operator is offering, especially on voice.”
Safaricom’s senior exec made his curious confession on a recent investor call. Says Andreas Stargard, a competition attorney with Primerio: “On these investor conference calls, there are usually several analysts and reporters on the line, listening in, and they commonly are also recorded. This would mean there exist clear prima facie evidence and several witnesses to these statements, as reported by the East African source.” He adds: “It remains to be seen whether any of the several competent authorities will investigate Safaricom’s express statement of a de facto ‘non-compete’ between the Ethiopian incumbent and the Kenyan upstart,” with the former (Ethiotel) boasting 54m subscribers, as opposed to the latter’s mere 1m users in-country.
POSSIBLE INVESTIGATIONS
When asked which government authorities would be authorized to investigate Safaricom’s “no price war” policy expressed by Mr. Ndegwa, according to the newspaper, Mr. Stargard noted that, beyond the domestic Ethiopian telecoms regulator, there existed at least two (2) competent antitrust bodies with jurisdictional authority: “For any potentially anti-competitive conduct occurring in Ethiopia that may have a cross-border effect (as mobile telephony usually does — especially with a foreign, here Kenyan, operator involved as well), I could see either the Ethiopian Trade Competition and Consumer Protection Authority (“TCCPA”) or the supra-national COMESA Competition Commission (“CCC“) under Dr. Mwemba’s reinvigorated leadership stepping in.”
As the latter has made clear in several public pronouncements recently, the CCC is poised to continue its non-merger enforcement streak, that is: investigating and prosecuting restrictive business practices, such as cartels and cartel-like behaviour. “We call it, CCC 2.0,” Stargard adds half-jokingly. He notes that both the TCCPA and CCC have all the necessary legislative instruments in hand to proceed with a preliminary investigation on the basis of the above quotes published by the East African:
In Ethiopia, the TCCPA could argue that “expressly avoiding a price war” is possibly in violation of Article 7(1) of the Ethiopian Trade Competition and Consumer Protection Proclamation (“Article 7(1)”), which provides that “(1) An agreement between or concerted practice by, business persons or a decision by association of business persons in a horizontal relationship shall be prohibited if:…(b) it involves, directly or indirectly, fixing a purchase or selling price or any other trading condition, collusive tendering or dividing markets by allocating customers, suppliers territories or specific types of goods or services”.
For COMESA, the CCC has conceivably two legislative tools at its disposal: First, Art. 16 of the Regulations (“Restrictive Business Practices”) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which (i) may affect trade between member states, and (ii) have as their object or effect the prevention, restriction or distortion of competition. Provision is then made (in Art. 19(4)) for the Article to be “declared inapplicable” if the agreement, decision or concerted practice gives rise to efficiencies and the like. Importantly, even though Art. 16 also applies to by-object practices, provision is made for an efficiency defence. Second, the CCC could resort to Art. 19 (“Prohibited Practices”), which focusses on “hard-core” cartel-like practices. Art. 19(2) provides that Art. 19 applies to agreements, arrangements and understandings, while sub-sections (1) and (3) provide that it is an offence for (actual or potential competitors) to fix prices, to big-rig or tender collusively, to allocate markets or customers, and the like.
DEFENCES
Safaricom and its domestic competitor (the government-owned, former absolute monopolist, Ethiotel) may of course offer — preemptively or otherwise — a pro-competitive explanation for their alleged “non-compete” agreement. However, in attorney Stargard’s view, such defences must be well-founded, non-pretextual, and they would be well-advised to have contemporaneous business records supporting any such defences at the ready, should an antitrust investigation indeed ensue.
“Indeed, it may appear to the authorities that Mr. Ndegwa’s quoted concession of ‘We won’t compete on price’ may be a sign of capitulation or at least a ‘truce’ between Safaricom and Ethiotel,” he surmises, “because as recently as mid-December [2022], the incumbent monopolist [Ethiotel] had threatened legal action against the Kenyan newcomer, claiming that Safaricom had ‘harrassed’ the incumbent’s customers and caused loss of service due to its actions.” An incoming competitor’s attempt at avoiding a civil lawsuit between it and would-be competitors would, of course, not constitute a legal defence to forming a (formal or informal) non-compete agreement on pricing, he adds.
“We have extensive experience counseling clients on how to successfully — and aggressively — defend against accusations of price-fixing, whether the allegations involve tacit collusion or express price or market-allocation cartel behaviour. While the parties here would likely not have a formalistic statute-of-limitations argument at their disposal, given the recent nature of the conduct at issue, I could imagine there being eminently reasonable ways of showing the harmless nature of the conduct underlying the, perhaps misleading, investor-call statements made by the executive,” he concludes.
COMESA’s second restrictive trade practices investigation ends inconclusively
Having now concluded two non-merger cases (the first was an exclusivity issue in football broadcasting and sponsorship agreements, seehere), the COMESA Competition Commission’s (“CCC”) second investigation into restrictive vertical distribution practices engaged in by Coca-Cola and its distributors has culminated in somewhat of an indeterminate ending.
No fines were imposed, and the Coca-Cola parties agreed to eliminate the price-maintenance clause from their distribution contracts, as well as committing to implementing a generic compliance programme.
Says Andreas Stargard, a competition practitioner with Primerio Ltd., in an in-depth analysis of the short Decision (dated 6th December 2018, but only released recently):
I am very disappointed in this missed opportunity. The Decision lacks intellectual rigour and avoids critical detail, to assist practitioners or business going forward in any meaningful way.
This investigation began in earnest well over a year ago, when the CCC opened formal Article 22 proceedings against the parties in January 2018. In its disappointingly short 9-paragraph decision, lacking any degree of detailed reasoning, factual or legal analysis underlying its conclusions, the Commission has now determined the following:
The relevant product market is the sale of non-alcoholic carbonated beverages. I note that the wording of this definition would presumably include sparkling mineral water, which appears to be an outlier from the ‘soft drinks’ category that is actually at issue here (“Coke,” Fanta,” “Sprite,” etc.).
A relevant geographic market was notably not defined at all (!). The absence of this key dimension is unfortunate — it is not in accordance with established competition-law principles, as market power can only be measured in well-defined product and geographic markets. While the decision mentions the countries in which the parties are active, it fails to identify whether each country was viewed as a relevant sub-market, or whether Coca-Cola’s market power (or dominance) was assessed across the entire COMESA region. This appears to be a glaring oversight.
The CCC found relatively low entry barriers, as well as apparently actual “new product” entry (NB: does “new product” imply products by a new or different competitor?).
Yet, despite ‘non-prohibitive’ entry barriers, the Commission somehow views the mere fact that the respondent’s brands “continued to command a majority share of the relevant markets” (NB: where is the plural (‘markets’) coming from here? I thought there was only a single market for ‘non-alcoholic carbonated beverages’?) as leading to a finding of dominance.
Crucially, the actual conduct complained-of (the vertical restraints, the alleged RPM, etc.) is barely identified and lacks any significant detail. Paragraph 7 merely provides that there are “clauses which stipulate the profit margins to be enjoyed by the distributors, as well as the commission at different levels of the market. … [and] vertical restraints which constrain the distributors’ conduct in the relevant markets” (note the plural again). This absence of key information — ‘what were these so-called vertical restraints’? how were distributors constrained in their conduct? — in an official ‘Decision’ by the enforcement agency wholly fails to assist businesses seeking antitrust guidance for operating within the legal boundaries in the COMESA region.
Finally, the CCC’s overall conclusion is rather weak: the Decision states that the Commission merely “registered its concern that the stipulation of prices [I thought it was profit margins?] mayhave anti-competitive effects in the market [back to a single market?].” To address these ‘potential’ ‘concerns’, Coca-Cola appears to have voluntarily committed to removing the offending contract language and instituting a (wholly undefined) “compliance program” that exclusively concerns Part III of COMESA’s regulations.
In sum, Coca-Cola seems to have got away easy here: no fine was imposed at all (which could have been as much as 10% of the parties’ COMESA revenues), a limited, voluntary training exercise was agreed, as was the removal of the RPM provision.
The CCC, on the other hand, missed a truly golden opportunity to draft a more well-reasoned decision. Its 9-paragraph reasoning (which notably concludes with a finding of actual dominance nonetheless!) can literally fit on a single page… Remember: resale price maintenance is considered in many jurisdictions to be a “hard-core” offence, and is often deemed per se illegal. In this regard, the Decision likewise fails to make any mention of the relevant legal standard under the COMESA Regulations for evaluating the RPM (and the other unidentified, vertical) conduct.
Andreas Stargard
The flaws outlined above — from the lack of geographic market definition, missing market share data and other highly relevant details, zero explanation of why low entry barriers somehow did not preclude a finding of dominance, use of tautological and circuitous verbiage (“restraints which constrain“?) — preclude this “conduct” case, notably already a rarity in the CCC’s portfolio, to be a lightning rod for the assent of the COMESA Competition Commission to become a respected competition enforcer. This was a chance for the agency to be placed on the radar screen of international businesses, agencies and practitioners, to be seen together on the map with its respected peer antitrust enforcers such as the South African Competition Commission — yet, it was a chance unfortunately missed…
In a milestone enlargement of the (now formerly) 19-member COMESA region, Tunisia and Somalia have acceded to the trade bloc at the 20th COMESA Summit on 19th July 2018, creating #COMESA21 – Africa’s largest free trade region.
Their application to join had been pending since 2016. Under the Treaty, the new members will be bound by the provisions of the Treaty and must deposit their formal instrument of acceptance of the terms of admission with the Secretary General, together with an instrument of accession pursuant to Articles 194 and 195 of the Treaty with regard to a State admitted to full membership. Says Primerio’s Andreas Stargard, “with the privilege of membership comes the obligation of agreeing to abide by the antitrust rules promulgated under the COMESA Treaty. This includes the Competition Commission’s procedural and substantive rules and notably its merger regulations. It remains to be seen how the still weakened bureaucratic structure of the Somali Republic will be able to implement the strictures of a working competition-law regime…”
Indeed, the CCC’s recent Notice No. 2/2018 provides that “the provisions of the COMESA Competition Regulations of 2004, and its accompanying rules, shall be enforceable in the territories of the Republic of Tunisia and the Federal Republic of Somalia with immediate effect.”
Personnel News 2018
In addition to gaining two new member states, COMESA also underwent personnel changes, adding an experienced antitrust practitioner, Zimbabwean Competition and Tariff Commission director, Ellen Ruparanganda, as one of the nine CCC commissioners, for a term of three years. Besides Ms. Ruparanganda, Francis Lebon (Seychelles), Ali Hamadou Ali Kako (Djibouti), Thembelihle Dube (Eswatini, formerly Swaziland), Danson Buya Mungatana (Kenya), Michael Teklu Beyene (Ethiopia), Charlotte Wezi Malonda (Malawi), Islam Tagelsir Ahmed Alhasan (Sudan), and Brian Muletambo Lingela (Zambia) were also sworn in.
On 28 January 2018 the Ethiopian Trade Competition and Consumer Protection Authority (“TCCPA”) filed charges against fourteen Ethiopian rebar, corrugated sheet, steel tube and pipe producers and seven rebar importers respectively for allegedly fixing prices in contravention of Article 7(1) of the Ethiopian Trade Competition and Consumer Protection Proclamation (“Article 7(1)”), which provides that “(1) An agreement between or concerted practice by, business persons or a decision by association of business persons in a horizontal relationship shall be prohibited if:…(b) it involves, directly or indirectly, fixing a purchase or selling price or any other trading condition, collusive tendering or dividing markets by allocating customers, suppliers territories or specific types of goods or services”.
It is worth mentioning that in most jurisdictions, which have an active competition law enforcement regime in place, ‘cartel conduct’ (i.e. price fixing, market allocation and/or collusion) is a per se prohibition in that the conduct is prohibited outright, without an examination of the actual effects on competition and without permitting a showing of net efficiency or other pro-competitive defensive arguments.
Where cartel conduct is prohibited per se, the relevant competition authorities require no further proof other than the existence of the agreement or concerted practice which underpins the conduct. The conduct is simply presumed to have negative effects on the relevant market.
Article 7(1) of the TCCPA, however, is not a per se prohibition and is based on the ‘rule-of-reason’ standard – effectively permitting respondents to lead evidence demonstrating that the alleged conduct can be justified by pro-competitive, technology or efficiency gain justifications which outweigh any anti-competitive effect.
From a policy perspective, Africa competition lawyer Michael-James Currie notes that the permissibility of the ‘rule of reason defence’ is largely due to the fact that a respondent who is found to have contravened Article 7(1) of the TCCPA is liable to a penalty calculated at fifteen percent of the respondent’s annual turnover. This is a prescribed penalty. For non-cartel conduct, the penalty ranges between 5-10%.
Of the aforementioned fourteen Ethiopian steel producers; three manufacture reinforcement bars, namely East Steel PLC, Habesha Steel Mills PLC and Saint Nail PLC. Six are involved in manufacturing corrugated sheets namely; Ethiopian Steel Profile, Ethiopian Steel PLC, Kombolcha Steel Products Industry PLC (KOSPI), a subsidiary of MIDROC Technology Group and Bazeto PLC and amongst the five manufacturers of steel tubes and pipes are Walia Steel Industry PLC and Mame Steel PLC.
The seven rebar importers accused of price fixing include Dag Trading PLC, Aberus PLC, Berhe Hagos PLC, Marka Trading, Beranea Yeshene and Haileselassie Amabye PLC.
Andreas Stargard, competition counsel with Primerio Ltd. notes that the trigger event for engaging in the alleged price fixing was the fifteen percent devaluation of the birr by the National Bank of Ethiopia (NBE) in October 2017 which may have influenced retailers and wholesalers to look for ways of recouping losses by raising prices for their goods and services.
It is, however, in fellow Primerio Director John Oxenham’s view, unlikely for a well-executed price-fixing cartel to be created ad hoc without any pre-existing information exchange structure. Therefore, pre-existing trade association, interest groups or other vehicles are commonly used as the enabling platform for competitors to engage in collusive conduct.
The defendants are scheduled to submit their response to the Tribunal on February 20, 2018.
The metal and related products sector is a priority sector in Ethiopia and the Ethiopian government is investigating a greater number of business entities involved in the production and importation of metal and metal related products who are also suspected of allegedly fixing prices.
Second Non-Merger Investigation Opened by COMESA Enforcer
Coca-Cola’s Africa operations — recently sold in a majority shareholder exit in late 2016 by Anheuser-Busch InBev (which owned 54.5%) — were due for a major overhaul of the company’s long-term strategic plan to grow its market presence across Africa. Yet, it is now under investigation for restrictive trade practices by the COMESA Competition Commission (“CCC”).
This is a first, of sorts: After the CCC’s original non-merger investigation into exclusive marketing practices of broadcasting rights and sponsorship agreements in relation to football tournaments (AAT reported here) ended — or hasn’t ended — with something of a thud (nothing having been reported by way of conclusion thereof), we and the world’s largest soft drink manufacturer are bracing ourselves for the outcome, if any, of the latest COMESA salvo delivered by the CCC to prove its worth to its Board. (We surmise so as this latest, second-ever, non-merger investigation may have been prompted at least in part by the fact that the CCC’s budget was recently slashed by the regional body, and that the Commission wishes to reestablish itself in the eyes of the COMESA directorate as a worthwhile agency to fund and to bolster).
The COMESA “restrictive practices” investigation into Coca-Cola’s distribution agreements may come on the heels of its (announced, yet likely neither begun nor concluded) market enquiry into the grocery retail sector, similar to comparable market-wide investigations undertaken in Kenya and South Africa; moreover, the South African Competition Commission has likewise undertaken past investigations into restrictive vertical distribution practices engaged in by Coca-Cola in South Africa.
Actual or would-be soft drink competitors may have also brought claims of foreclosure to the CCC’s attention — likely alleging resale price maintenance, as well as possibly lack of access to key distributors due to Coca-Cola’s exclusive or quasi-exclusive contracts and the like. According to the official COMESA Notice, the agency is investigating allegations against The Coca-Cola Company’s African subsidiary (Coca-Cola Africa (Proprietary) Limited) in relation to its distribution agreements with downstream entities in Ethiopia and Comoros, both of which are COMESA member states, albeit historically rather inactive when it comes to competition-law enforcement.
According to the antitrust-specialist publication Global Competition Review, the CCC has stated that Coca-Cola’s alleged restrictive conduct worked as planned only rarely in practice. Yet, the agency’s spokesperson noted that the risk of anti-competitive effects remained real: “Coca-Cola is dominant in these countries, it is important that they do not abuse that dominance through distribution agreements which frustrate competition in the relevant markets”, the spokesperson said, according to GCR‘s reporting. The magazine also quoted Pr1merio antitrust lawyer Andreas Stargard as saying that the CCC can issue injunctions and impose fines of up to 10% of Coca-Cola’s turnover in the common market for the year prior to the conduct.
Andreas Stargard
Stargard tells AAT further that “[a]ny agreement contravening Article 16 of the COMESA Regulations is automatically void. In addition, while the CCC is breaking new ground here (as it has not yet successfully brought any non-merger investigation to conclusion to date), the applicable Regulations foresee not only injunctive relief (cease-and-desist orders and conduct-based injunctions forcing the party to ‘take whatever action the Commission deems necessary to remove and/or diminish the effect of the illegal conduct’) but also fines, as cited above. However, no such fine has yet been imposed in any anti-competitive conduct investigation by the CCC.”
He continues: “Under the COMESA Competition Regulations, the agency normally has an initial ‘consultative’ time period of 30-45 days to evaluate whether or not to launch a full-fledged investigation. This period may include meetings with the concerned party or parties, any complainant, or other stakeholders. Thereafter, if the Commission votes to open an investigation, the latter must be concluded within 180 days from the date of receipt of the request for the investigation, if it was brought by a complainant. Here, the official Notice provides that an investigation was in fact opened, meaning the clock has begun ticking.”
Interested stakeholders have until February 28, 2018 to issue comments.
Four new Commissioners sworn in – while COMESA’s own site fails to make announcement
We do not commonly report on news from the Seychelles here on AAT, but today, the Office of the President of the Seychelles has in fact beat AAT (as well as the COMESA Competition Commission itself (!)) to it: as the Office reports, the 18th COMESA Summit, held on 30th March 2015 in Addis Ababa, (a city that I have fallen in love with, by the way), saw the swearing-in of four new COMESA Competition Commissioners.
The summit also saw the swearing in of Mr. George Tirant, Chief Executive Officer of the Seychelles Fair Trading Commission. Mr. Tirant was appointed as a commissioner on the COMESA Competition Commission, alongside representatives from Egypt, Uganda and Ethiopia.
We have not yet identified the other new members that were sworn in this week, but in admitting so we note in the same breath that it is surprising for the authority itself not to have this relevant item anywhere on its site, neither in the News category nor anywhere else. Indeed, the reader looks in vain for even a cursory Press Release announcing that 4 new Commissioners were seated for a new term of 3 years each. COMESA’s site still shows the outdated list of its Commissioners (copied below the photo below).
Irregular? Perhaps. But then again, we are used to outages and unfortunately much worse from the COMESA Competition Commission web site.
AAT notes that, in addition to the four new competition commissioners, the 19-country IGO also welcomed new:
Judge President and Judges of the Appellate Division of the COMESA Court of Justice
Principal Judge and Judges of the First Instance Division of the COMESA Court of Justice
the COMESA Committee of Elders
COMESA’s 18th Summit in Ethiopia
[Outdated] List of Commissioners from Comp Comm web site:
Commissioner Alexander Juvensio Kububa : Chairperson of the Board of Commissioners and former Chief Executive Officer of the Competition and Tariff Commission of Zimbabwe.
Commissioner Mathews Chikankheni: Vice Chairperson of the Board of Commissioner and President of the Malawi Confederation of Chamber of Commerce and Industry.
Commissioner Ali Mohamed Afkada: Inspector General des Services Judiciarisés’ de Djibouti.
Commissioner Daniel Phillip Gappy – Former Chief Executive Officer of Fair Trading Commission of Seychelles and Chief Executive Officer of Seychelles Licensing Authority.
Commissioner Rajeev Hasnah: former Deputy Director of Competition Commission of Mauritius.
Commissioner Francis Kariuki: Director General of Competition Authority of Kenya.Commissioner Rajeev Hasnah: Chief Economist and Deputy Executive Director of the Competition Commission of Mauritius.
Commissioner Thabisile Pearl Langa’: Chief Executive Officer of Swaziland Competition Commission.
Commissioner Rostom Omar: Former Legal Counselor of Egyptian Competition Commission.
Commissioner Chilufya Sampa: Chief Executive Officer of Competition Commission of Zambia
African Antitrust & Competition Law 