AAT, buyer power, East Africa, Kenya, Uncategorized

KENYA: COMPETITION AMENDMENT BILL INTRODUCES ONEROUS BUYER POWER PROVISIONS

* By Ruth Mosoti

In July 2019, the Competition Amendment Bill was gazetted and looks on course to be adopted by Parliament.

There are several proposed amendments to the current Competition Act although the focus of the Amendments, most notably, relates to the introduction of buyer power provisions which is a self -standing prohibition and does not require a complainant to first establish a dominance on the part of the buyer.

In regard to buyer power, the majority of the substantive provisions in the current  “Buyer Power Guidelines” previously published by the Competition Authority of Kenya (CAK) have been mirrored in the Act. We summarize below some of the features that the Bill seeks to introduce to the Act in regard to buyer power include:

  1. Introduction of a ‘buyer power code of practice’, developed by the CAK in consultation with stakeholders, relevant government agencies and the Attorney General;
  2. The CAK will have power to impose reporting measures on sectors that experience or are likely to experience abuse of buyer power reporting and prudential requirements, in addition to this, these sectors may be required to develop their own binding code of practice;
  3. The Bill proposes minimum requirements for an agreement between a buyer undertaking and a supplier undertaking. The amendment also provides that this agreement does not have to be in writing;
  4. A new section 29A (which is controversial as it appears to be aimed at the advocates remuneration order) is introduced that targets Professional Associations whose rules offend the provisions of the Competition Act and provides for the persons who will be held responsible for any guidelines that are issued by the association.
  5. It is notable that there are no monetary administrative sanctions introduced by these provisions rather non-compliance attracts criminal sanctions.

The Bill, if passed into law, will positively impact the enforcement of buyer power provisions as the  gap on the substantive provisions on the enforcement of buyer power provisions will be filled.

Michael-James Currie, a pan-Africa competition law practitioner notes that that the Buyer Power principles are similar to those typically found in consumer protection legislation and there are no clear benchmarks (such as a substantial lessening of competition) against which to measure or assess the alleged buyer power. The criteria for determining whether buyer power amounts to an contravention is guided by principles of fairness and reasonableness rather than any economic benchmark. This makes compliance as well as objective decision making all the more difficult. John Oxenham, director at Primerio echoes these sentiments and states that from a traditional competition law perspective, buyer power generally only raises concerns in the event that the buyer concerned is able to exercise a substantial degree of market power.

Currie suggests that absent a clear threshold as to what would trigger an offence in terms of the new buyer power provisions, coupled with the criminal liability (which includes a maximum prison sentence of five years), is particularly onerous on firms seeking to comply with the competition legislation. Currie suggests that it would be preferable to change the liability to an administrative penalty as opposed to a criminal offence so as not to hamper or overly prejudice firms operating in the market.

 

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AAT, East Africa, fines, Kenya, mergers, Uncategorized

Enforcement Update: Kenya Competition Authority imposes administrative penalty for gun-jumping (prior implementation of a merger)

  • update by Michael-James Currie

In September 2019, the Competition Authority of Kenya (CAK) formally penalised two merging parties for having implemented a transaction without having obtaining the requisite prior regulatory approval.

The trigger for mandatory notification in this case was a change from joint control to sole control when Patricia Cheng acquired an additional 50% of the shareholding in Moringa School.

The maximum penalty which may be imposed for prior implementation is 10% of the parties’ combined turnover in Kenya. In this case, the CAK imposed a nominal penalty (approximately USD 5000) in light of the parties having voluntarily notified the CAK of their failure to obtain prior approval, having co-operated with the CAK’s investigatory agency and after having subsequently assessed the transaction, the CAK concluded that the merger was unlikely to have any adverse effects on competition and would have positive public interest benefits.

The public interest benefits included the fact that the school would offer coding technology to over 1000 students and employees over 100 staff members.

In light of the mitigating factors, the CAK found that the penalty was balanced taking into account principles of deterrence and proportionality of the infringement.

The case is noteworthy not only because it signals a clear message from the CAK that the prior implementation of mergers will attract penalties (which are likely to increase substantially as firms ought to have greater awareness of the merger control regime in Kenya) but also confirms that a move from sole to joint control of an entity or, as in this case, a move from joint to sole control, requires mandatory notification to the CAK.

The CAK has one of the most effective merger control regimes in Africa and is increasingly becoming a more robust competition agency from an enforcement perspective.

[Michael-James Currie is a competition lawyer practising across the majority of sub-Saharan African jurisdictions]

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AAT, AAT exclusive, Access to Information, COMESA, commissioners, dominance, EAC, East Africa, exemptions, Kenya, market study

COMESA Competition Commission: 2019 Regional Sensitization Workshop

On 9-10 September 2019, the Comesa Competition Commission (CCC) hosted its 6th  “Regional Sensitization Workshop for Business Reporters on Competition Law and Trade Developments within the Common Market” workshop in Nairobi, Kenya as part of its advocacy initiative to promote competition law and enforcement activities across the COMESA region.

AfricanAntitrust, having attended last year’s event, was again invited to attend the event and senior contributor and competition lawyer, Michael-James Currie, attended the event on behalf of AAT and participated in a serious of panel discussions and informal interactive sessions with members of the CCC and Competition Authority of Kenya.

Attendees

The workshop was well attended with a year on year increase in attendees reflecting the importance and popularity of this initiative. The CCC should be congratulated on a well organized and structured workshop.

Patrick Okilangole, Board Chairperson of the CCC, opened the event by highlighting the importance of competitive domestic markets to  “realize the benefits of trade; multilateral and bilateral trade agreements recognize the need to guarantee that restrictive business practices do not hinder the positive effects of free trade”.

Protectionist policies was identified by Okilangole as one of the key impediments to effective regional growth and trade. More specifically, Okilangole highlighted the following consequences of protectionist policies:

“(i)     Ineffective competition policy frameworks. Over the past few years, competition law has been enacted in several Member States of the Common Market. However, in some countries, competition frameworks have included:

(ii)      unjustified and discretionary exemptions, for example, utilities managed by the state in key economic sectors,

(iii)     lack of sufficient investigative powers and tools in the current national and regional legislation to deter anticompetitive behaviour,

(iv)    lack of independency in decision making since competition agencies report to and their decisions may be vetoed by a ministry, and

(v)     significant government intervention in markets such as price controls in potentially competitive markets, controlling essential products, margins, and geographic areas.”

Okilangole reaffirmed the true hallmark of an effective competition law regime, namely that competition law should be focused on protecting the competitive process and not a particular competitor. “The rules are not meant to punish large companies on account of their size or commercial success. The key feature of the competition rules is to create a level playing field for all business players in the market.”

Okilangole’s remarks were echoed by the Chief Executive Officer of the CCC, George Lipimile who emphasised the need to move away from protectionist policies in order to realise the benefits that flow from increased regional trade.

Restrictive business practices, particularly abuse of dominance practices and collusion were identified by Lipimile as being particularly prevalent within COMESA and that increased enforcement activities are required, both by the CCC and regional agencies, to detect and prosecute anti-competitive behaviour.

The workshop was also used as an opportunity to present and engage on the CCC’s Guidelines on Restrictive Business Practices (which were approved in April 2019). The objective of the Guidelines is to provide greater clarity, predictability and transparency in relation to the analytical framework which will be used to evaluate alleged anti-competitive conduct. The Guidelines also provide greater guidance on the process and circumstances in which the CCC may grant exemptions.

The CCC was well represented (so to was the CAK) and senior investigators, analysts and members from the executive team provided useful insights into the enforcement activities of the CCC as well as what lay ahead in the pipeline. Attendees were invited to engage, debate and where appropriate raise concerns regarding the efficacy of competition law enforcement in COMESA. It is this willingness to be open and engage proactively with constructive criticism which is perhaps the hallmark of this CCC initiative and certainly welcomed by the attendees.

As to enforcement updates, the CCC put together comprehensive presentations both in relation to merger control and restrictive business practices more generally. We highlight some of the more noteworthy developments below.

Merger Control

Willard Mwemba, manager of mergers and acquisitions at the CCC, confirmed that over 230 transactions have been notified to the CCC between 2013 and July 2019. Of these, 17 were approved subject to conditions.

From a merger trend perspective, the CCC witnessed an increased shift in merger notifications in traditional sectors, such as agriculture and construction, to emerging sectors such as energy, banking and financial services with the most active member states including Kenya, Zambia, Mauritius, Zimbabwe and Uganda.

As to merger activity in COMESA, Mwemba confirmed that there has been a decrease in merger activity in the first half of 2019, largely as a result of a decrease in global activity and that the value of transactions that occurred within the first half of 2019 dropped from USD 527 billion to USD 319 billion for the same period in 2018. This is also consistent with the 19% decrease in the number of notifiable transactions globally.

The combined total turnover value of all mergers assessed by the CCC to date amounts to over USD 110 billion. Although 2019 figures were not presented, the CCC highlighted that total Foreign Direct Investment in COMESA grew in 2016 from USD 18.6 billion to USD 19.3 billion in 2017 representing nearly half of Africa’s total FDI inflows. Again, highlighting the significance of the COMESA market in the global space.

Enforcement Activities

Although the CCC has had an active merger control regime in place for many years, a number of commentators have raised the lack of robustly investigated and prosecuted abuse of dominance or cartel cases as a key hindrance to effective competition law enforcement in COMESA. While the CCC acknowledges that more should be done in this regard, below is a list of non-merger matters which the CCC has concluded in past three years:

Exemptions

Matter Sector Affected Member States
Assessment of the supply agreement between Eveready East Africa Limited and Supreme Imports Limited Lighting bulbs Burundi, DRC, Ethiopia, Kenya, Malawi, Rwanda, Sudan, Uganda, Zambia
Assessment of the supply agreement between Eveready East Africa Limited and Sayyed Engineers Limited Writing implements East Africa
Assessment of the supply agreement between Eveready East Africa Limited and Chloride Egypt SAE Automotive Batteries Burundi, DRC, Ethiopia, Kenya, Rwanda, Uganda
Assessment of the Distribution Agreement between John Deere (Proprietary) Limited and AFGRI Zimbabwe Private Limited Agriculture Equipment Zimbabwe
Assessment of the Distribution Agreement between the Wirtgen Group and the Motor Engineering Company of Ethiopia Agriculture and Construction Equipment Ethiopia
Assessment of the Distribution Agreement between the Wirtgen Group and UMCL Limited Agriculture and Construction Equipment Comoros, Mauritius, Seychelles
Assessment of the Distribution Agreement between the Wirtgen Group and Sodirex SA, Madagascar Road Construction Machinery Madagascar
Application for the Joint Venture Agreement between Kenya Airways PLC, Koninklijke Luchvaart Maatscahppij NV (KLM) and Societe Air France SA Aviation Kenya
Assessment of the distribution agreements between Unilever Market Development (Pty) Limited and Distributors in the Common Market  FMCGs DRC, Madagascar, Mauritius,

Determination of Anti-Competitive Conduct: Procedure of Commission on its own volition

Matter Sector Affected Member States
Investigation into the Distribution Agreements entered into between Eveready East Africa Limited and Clorox Sub Saharan Africa Bleaching agents East Africa
Investigation into the Distribution Agreements entered into between Parmalat SA (Pty) Limited and its Distributors Milk and dairy products Eswatini, Malawi, Zambia and Zimbabwe
Investigation into the Distribution Agreements between Coca-Cola Beverages Africa and Distributors in the Common Market Non-alcoholic beverages Comoros, Ethiopia, Uganda

False or Misleading Representation 

Matter Sector Affected Member States
Misleading Advertising by Fastjet Airlines Limited Aviation Kenya, Uganda, Zambia, Zimbabwe

The CCC also confirmed that they are currently conducting a number of market screening initiatives across priority sectors. Following the conclusion of these screening exercises, the CCC will decide whether to prosecute any firms engaged in restrictive business practices.

As part of the CCC’s efforts in detecting and investigating anti-competitive behavior, the CCC has increased its collaborative efforts with domestic member agencies and has established the “Restrictive Business Practices Network” to increase the efficacy of cross-border cases.

Currie Panel Discussion

[Michael-James Currie speaking on a panel discussion on “How to improve the quality of reporting on regional integration and competition law related matters” facilitated by Mr Mwangi Gakunga from the Competition Authority of Kenya]

Conclusion

In light of the tripartite negotiations between SADC-EAC-COMESA as well as the negotiation of competition policy in terms of the African Continental Free Trade Agreement, it is imperative that the CCC develops an effective competition enforcement regime which assists and incentivizes free trade across the relevant markets. To do so, the CCC must be equipped with the necessary resources to ensure that it has the capacity to effectively execute its policies.

Despite the significant challenges faced by the CCC, it is encouraging to note that the CCC is taking a more robust approach to detecting and prosecuting anti-competitive practices in the COMESA market and are endeavoring to do so in accordance with international best practices.

If the CCC is able to deliver on the objectives and action items which were discussed in detail at the workshop, then there is every reasons to look forward to a more active CCC in the months to come with interesting cases likely to be brought to the fore.

 

 

 

 

 

 

 

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AAT, AAT exclusive, East Africa, fraud/corruption, jurisdiction, Kenya, mergers, mobile, public-interest, Telecoms, Uncategorized

Kenyan Competition Watchdog suspends Telkom Kenya / Airtel deal

Multiple regulatory agencies, competitor complaints and public interest concerns has posed a significant impediment to the proposed merger between Telkom Kenya and Airtel.

The Competition Authority of Kenya (CAK) recently announced that the Kenyan Ethics and Anti-Corruption Commission (EACC) is investigating Telkom Kenya amidst allegations of corruption in relation to historic transactions which gave rise to the current shareholding in Telkom Kenya.

The CAK’s decision to suspend the assessment of the merger was announced approximately a week after the Communications Authority of Kenya also suspended its assessment of the transaction pending the outcome of the EACC’s investigation.

The Communications Authority’s investigation will likely include an assessment of a complaint filed with the agency by Safaricom, a competitor to the merging parties.

Furthermore, the deal was also opposed by certain Telkom employees, ostensibly on the basis that their jobs were at risk should the deal go ahead.

Accordingly, the parties appear to have a long road ahead of them before clearance to implement the deal is granted.

The proposed transaction has no doubt attracted an additional degree of scrutiny as the telecom sector in Kenya is a significant market and there have been a number of disputes regarding the CAK’s jurisdiction to assess anti-competitive conduct, particularly abuse of dominance conduct, in this sector. A study into the telecom sector prepared by the Communications Authority was presented to Parliament in 2018. The CAK objected to the findings and remedial actions contained in the report which the CAK argued would amount to “price regulating” by the Communications Authority. Instead, the CAK urged the Communications Authority to focus rather on features of the market which raise barriers to entry or preclude effective competition between competitors.

While Parliament has, as far back as 2015, urged the Communications Authority to consult the CAK before making any determination regarding a telecom service providers’ “dominance”, subsequent litigation led to a High Court ruling in 2017 which confirmed that the Communications Authority’s powers vis-à-vis competition related matters remain vested exclusively with the Communications Authority.

The concurrent jurisdiction between the CAK and the Communication’s Authority has created somewhat of an enforcement discord – at least in so far as assessing abuse of dominance cases are concerned.

The fact that both the CAK and the Communications Authority have decided to suspend their assessments of the proposed merger following the outcome of the EACC’s investigation suggests that the outcome of the EACC’s investigation is relevant to both the CAK and Communication Authority analysis of the proposed transaction. This in turn, seemingly appears that there is at least an overlap in relation to the key issues under assessment by the respective agencies. Assuming there is indeed an overlap between the CAK and the Communication Authority’s assessment of the proposed transaction that naturally raises the risk of having two agencies come to different conclusions based on the same facts.

Telkom Kenya, however, remain confident that the merger will ultimately be cleared by all regulators.

Telkom Kenya have indicated that the merger will have significant pro-competitive and pro-public interest benefits which will have a positive impact on employees (and the market more generally). Whether the CAK conducts a comprehensive assessment between the short term negative impact on employment versus long term positive impact remains to be seen.

Assuming the proposed deal does not raise any traditional competition issues, it cannot therefore be ruled out that the transaction will be approved subject to public interest related conditions regarding retrenchments and/or re-employment obligations.

Whatever decision is ultimately reached, one hopes that the authorities will publish detailed reasons based on a robust assessment of the evidence in order to provide greater objectivity and transparency as to the analysis which is undertaken by the CAK when analyzing a merger – both from a competition and public interest perspective.

The CAK has in the past number of years have made significant positive strides forward in this regard and is deserved of the recognition it receives as one of the most active and robust competition authorities in Africa.

[Michael-James Currie is senior contributor to AAT and a practicing competition lawyer who has assisted clients with competition law related matters in multiple jurisdictions across Africa]

 

 

 

 

 

 

 

 

 

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East Africa, ECONAfrica, ECOWAS, Egypt, Extra-judicial Factors, jurisdiction, Kenya, legislation, Meet the Enforcers, mergers, new regime, Nigeria, no antitrust regime, Patel, predatory pricing, Price fixing, Protectionism, public-interest, South Africa, Tanzania, Uncategorized, Unfair Competition

Beyond Pure Competition Law – Is Africa Leading the Way Forward in Antitrust Enforcement?

To all our Africanantitrust followers, please take note of the upcoming American Bar Association webinar on 2 July 2019 (11amET/4pmUK/5pm CET) titled:

“Beyond Pure Competition Law – Is Africa Leading the Way Forward in Antitrust Enforcement?”

In what promises to be a highly topical (telecon) panel discussion, Eleanor Fox, Andreas Stargard, John Oxenham, Amira Abdel Ghaffar and Anthony Idigbe will:

  • provide critical commentary of the most recent developments in antitrust policy across the African continent;
  • highlight the most significant legislative amendments and enforcement activities in Africa; and
  • analyze some of the key enforcement decisions.

South Africa, Nigeria, Egypt, COMESA and Kenya are among the key jurisdictions under the microscope.

Practitioners, agency representatives, academics and anyone who is an antitrust enthusiast will find this webinar to be of great interest. Not to mention companies actually active or looking to enter the African market place.

For details on how to participate, please follow this Link

 

 

 

 

 

 

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AAT exclusive, agriculture, COMESA, event, Kenya, mergers, South Africa, Tanzania

GCR Matter of the Year 2019 awarded to AG deal with significant African dimension

Primerio’s Merger Team First to Obtain Clearances on Bayer’s $66 Billion Monsanto Acquisition

The Global Competition Review 2019 GCR Awards honoured the companies and their in-house and outside counsel responsible for shepherding the massive agriculture transaction through the multi-jurisdictional merger-control processes around the globe.  The Bayer/Monsanto (with divestitures to BASF) merger garnered overall “Matter of the Year” as well as “Merger Control Matter of the Year” in Europe.  The ceremony took place in Washington, D.C., during the annual ABA Spring Meeting antitrust conference.

The legal team advising St. Louis-based Monsanto on all African competition approvals was led by John Oxenham and Andreas Stargard, ably assisted by attorneys in 4 African jurisdictions — South Africa, COMESA, Tanzania, and Kenya.  The Primerio lawyers had the unique distinction of obtaining the first out of dozens of required clearances.

Monsanto Africa counsel, Stargard and Oxenham

Monsanto Africa counsel, Stargard and Oxenham, of Primerio

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AAT exclusive, distribution, dominance, East Africa, Kenya, Uncategorized

KENYA: ENFORCEMENT ALERT

Restrictive Practices

The Competition Authority of Kenya (CAK) recently announced that it had entered into a settlement agreement with local beer producer Kenya Breweries Limited (KBL), a subsidiary of UK Diageo’s East African Breweries Ltd (EABL).

The settlement follows from an investigation by the CAK in terms of section 21 of the Competition Act (12 of 2010) wherein the CAK had found that KBL’s distribution agreements with its downstream distributors – which provides for inter alia, territorial exclusivity  – is anti-competitive and may lead to the lessening of intra-brand competition.

The settlement was reached in terms of section 38 of the Competition Act and requires that KBL establish an internal compliance policy and review and amend the problematic and restrictive clauses in its agreements with distributors.

Michael-James Currie, an African focused competition lawyer, says that the decision is particularly important for companies which use third parties to execute their distribution strategies as the majority of distribution agreements contain restrictions of some kind (often transported from international distribution agreements) which will need to be assessed against the standards of the Competition Act in Kenya as the CAK is actively focusing on these types of restrictive verticals arrangements.

Abuse of Dominance

Styles Industries (Darling Kenya)

Braids supplier, Styles Industries Ltd (Styles) has been found guilty by the CAK for abuse of dominance in contravention of Section 24 of the Competition Act.

The CAK launched an investigation into Styles on the basis of a complaint received by a competitor in the market, Solpia Kenya, claiming that Styles had abused its dominance by imposing unfair selling prices and conditions on suppliers who sell its products.

The CAK’s investigation found that Styles had abused its dominance by imposing unfair trading conditions on its downstream suppliers which it sought to enforce through threatening its downstream suppliers with account closure, removal of discounts and refusal to supply products.

The CAK is currently in negotiations with the parties and have indicated that its finding could result in Styles paying the complainant an amount in damages and/or a fine Sh10 million. In terms of Section 54(3) of the Competition Act, the relevant individuals within Styles could further face imprisonment for a period of up to 5 years.

Kaluworks

The CAK dismissed an abuse of dominance case against cookware manufacturer, Kaluworks Limited (Kaluworks).

The case emanated from a complaint by rival company, Sufuria World (Sufuria) in which it was alleged that Kaluworks had refused to sell to them certain aluminum circles which it required for purposes of manufacturing its aluminum cooking ports. This, Sufuria claimed, amounted to an abuse of dominance in terms of section 23 and 24 of the Competition Act.

The CAK, however, found that the conduct did not amount to abuse of dominance under the Competition Act as Sufuria had other options available to it in that it had the ability to replicate the technologies used by Kaluworks to produce the aluminum circles (as other manufacturers have done) or it could increase its order volumes in order to make it economically feasible for Kaluworks to supply it with the aluminum circles.

This finding was based on the representations made by Kaluworks that:

  • it primarily produces aluminum circles for in-house production for a variety of its own cookware products intended for local and export markets; and
  • it could only manufacture the aluminum circles to third parties where such third parties placed an order which met certain minimum quantities that would guarantee optimal scale of production

In supporting its findings, the CAK stated that in assessing the conduct of a dominant firm and whether it amounts to a ‘refusal to deal’, “is necessary to prove indispensability of the facility to the operation of the complainant or other third parties as arbitrary intervention may hurt innovation.

Market Inquiries

Transport Inquiry

The CAK has recently announced that it has initiated a ‘regional study’ in the Shipping, Trucking and Haulage industry in Kenya, Uganda, Rwanda and Burundi.

According to the announcement, the objective of the inquiry is to identify and remedy features of the market and trade practices which are anti-competitive and which impedes the national and intra-regional trade which in terms slows the potential growth of the manufacturing sector in Kenya.

Leasing Sector

The CAK has further announced a market study into the leasing sector which it will be conducting in conjunction with the Financial Sector Deepening (FSD) Kenya.

The objective of the market study is to assess the level of competition in the sector and to identify areas of concern in order to enhance competition in the market by facilitating SME entrants into the market.

John Oxenham, director at African antitrust advisory firm Primerio, says that market inquiries can be used very effectively, however, they are resource intensive and in order to achieve there objectives must be concluded expeditiously. The CAK should be cognizant of the challenges and experiences of the South African Competition Commission (SACC) where the market inquiries are not being concluded timeously.

[The editor wishes to thank Charl van der Merwe for his contribution to this update]

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