Minister Ebrahim Patel will no longer be a Member of Parliament: What does this mean for Competition Policy in South Africa?

According to recent reports, Minister of the Department of Economic Development, Ebrahim Patel, will not be sworn in as a member of Parliament despite initially being listed on the African National Congress’ (ANC) Members of Parliament list.

[see https://www.businesslive.co.za/bd/politics/2019-05-15-ebrahim-patel-and-senzeni-zokwana-fail-to-make-it-back-to-parliament/%5D

Since Cyril Ramaphosa was voted as the ANC’s President, and hence South Africa’s President, there had been increasing speculation regarding where Minister Patel would complement Ramaphosa’s economic policies. With many political commentators initially expected Ramaphosa to relieve Patel of his position as the Minister of Economic Development soon after taking over the presidency reins, it appeared that Patel had convinced Ramaphosa that he was an integral part of the team. Patel even accompanied Ramaphosa as part of the “special economic envoy” on a series of international road shows promoting and encouraging foreign investment in South Africa.

At this stage it is not clear what the reasons are for Patel not forming part of the ANC’s list of Members of Parliament (a per-requisite to serving as a Cabinet Minister). Following the national elections on 8 May 2019, however, Ramaphosa has indicated that he is intent on reducing the size of the Cabinet which would necessarily require various government departments and portfolios to be consolidated. It may be that the Department of Economic Development (EDD) is consolidated with the Department of Trade and Industry (DTI). If this were the case, the South African competition authorities would then also fall under the auspices of the DTI and no longer under the EDD. Many of our readers may recall that the competition authorities previously fell under the policy stewardship of the DTI.

While it may be too early to speculate what the ramifications of Patel’s departure could mean for competition policy and enforcement in South Africa, John Oxenham, director at Primerio, says that “Minister Patel was one of the key proponents behind elevating the role of public interest considerations in merger control. The minister’s intervention in numerous transactions, particularly international deals has resulted in public interest conditions, the scope and nature of which, pushed the outer most limits of what is appropriate in competition policy when assessed against international standards”.

Minister Patel’s reputation for engaging in robust opposition to mergers prompted Ab-Inbev directors to engage directly with Patel rather than the Competition Commission in order to secure public interest related conditions which would placate the Minister – all in the hope of ensuring that the transaction sales through the merger control process unchallenged. Which it largely did.

Fellow competition lawyer, Michael-James Currie, says that another key element of Patel’s departure relates to the Competition Amendment Act which was signed into law by President Ramaphosa in February 2019. Currie says that “although the Act has been signed into law, the enforcement of a number of the provisions of the Amendment Act remains unclear. For example, there are draft guidelines published in relation to the “price discrimination” and “buyer power” provisions of the Amendment Act which completely do away with any standard of “adverse effect on competition” and even the “consumer welfare” standard is of no relevance when small, medium or historically disadvantaged persons may be affected. Currie says Patel’s departure may spark a fresh round of debate and submissions in relation to the draft regulations. Submissions which previously appeared to largely be ignored by Patel.”

Oxenham echoes Currie’s sentiments and is of the view that the Amendment Act, which was largely driven by Patel, may ultimately be interpreted and enforced by the competition agencies in a manner which is more consistent with international best practice. Of course, this would depend on who replaces Patel and whether there is a different policy view as to the role of competition law in South Africa by Patel’s successor.

A key concern raised by numerous commentators is that the subjectivity of public interest assessments together with the increasing intervention by the executive to extract non-merger specific public interest related conditions, particularly in foreign transactions, does little to boost South Africa’s image as being open to foreign investment.

While the on-going debate of the role of public interest considerations in merger control will continue well beyond Patel’s tenure as Minister of the EDD, the entire South African competition community will be watching closely Ramaphosa’s final Cabinet announcement as this would likely be the clearest indication of whether we could expect a material policy direction change fin South Africa insofar as competition law enforcement is concerned.

 

 

 

 

 

 

 

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The Coca Cola bottlers merger & the costs of placating third parties in merger control

Tax Man Patel Strikes Again: Merger Conditions Going Beyond Antitrust

By Michael-James Currie

On 4 May 2016, it was announced that the merging parties to the SABMiller/Coca-Cola merger have agreed to establish a R850 million development fund in order to address public interest concerns raised by the Minister of Economic Development, Minister Patel.

south_africaThe latest deal struck with Patel follows the R1 billion commitment from the merging parties in the SABMiller/AB-Inbev merger less than a month ago.

Collectively, these two commitments, which equate to R1.85 billion (or approximately U.S. $132 million), exceed the total administrative penalties which were paid by over 13 firms in the “construction cartel” (in 2013, the total penalties amounted to approximately R1.4 billion) which is regarded as the most significant and highly publicised cartel to be investigated and prosecuted by the Competition Commission to date.

A South African competition practitioner with knowledge of the recent cases observed that “[c]onsidering that there have been, in our view, no substantial arguments raised that either of the two mergers pose any substantial anti-competitive concerns, it appears absurd that to date, not a single administrative penalty imposed on a firm for hardcore cartel conduct matches the quantum which the respective merging parties have agreed to pay to get their deals done.” It further appears evident that the conditions imposed, although broadly described by the Minister as being necessary to address public interest concerns, are in fact at all merger specific.

In a clear move to placate Minister Patel and preclude further intervention by the Minister which may have the effect of delaying the merger, the merging parties in both mergers respectively, have agreed to these conditions. The timing of the two commitments are, however, illuminating.

Patel talks.jpgThe commitment made by the merging parties to the SAB/Coca-Cola merger, which was filed at the Competition Commission in March 2015, comes after the Competition Commission itself recommended that the merger be approved subject to an agreed R150 million development fund to help train and support historically disadvantaged farmers and suppliers. Despite the agreement reached with the Competition Commission and a confirmed hearing in May 2016 (effectively 14 months after the proposed transaction was filed) the merging parties have recognised the risk of further delays should Minster Patel intervene during the hearing proceedings.

In contrast, the in the SAB/AB In-Bev deal, the top executives met with Minster Patel soon after the deal was notified (albeit behind closed door discussions outside of the SACC’s merger-control process) in an attempt to pre-empt Minster Patel’s intervention. It is expected that the Competition Commission would, today, conclude its investigation and make its recommendations to the Competition Tribunal some four months after the this deal was filed at the competition authorities.

Patel signature on 73AMinister Patel has expressed his satisfaction with the two ‘agreements’ as  it is in line with his express commitment to target multinational deals, in particular, in order to promote government’s industrial policies and socio-economic objectives.

In the world of commercial negotiations and deal-making, the parties are, however, hardly in an equally bargaining position when before the competition authorities – a bargaining chip in Minister Patel’s favour which is no doubt aware of.

Whether the strategies adopted by the merging parties in respect of both the SABMiller/Ab-Inbev or the SAB/Coca-Cola merger will pave the way for the expeditious conclusion of the review process remains to be seen (although we would tend to think it certainly will in Patel’s absence from the hearings). The agreements will, however, certainly influence the Landscape of merger control in South Africa.

The precedent set by these two proposed mergers will no doubt result in greater uncertainty in South Africa’s merger control process as the message seems clear. If merging parties want to get a multinational deal concluded in South Africa and you are in Minister Patel’s sights, pay-up – irrespective of the merger specific effects of the deal.

As Andreas Stargard, a U.S.-based Pr1merio antitrust practitioner with a focus on Africa notes: “It will be interesting to see whether the Competition Tribunal, which is tasked with ultimately approving or prohibiting a large merger, will consider whether the interventionist conditions imposed by the current ministry and agreed to by the merging parties are in fact merger-specific.”  Although the Tribunal is often reluctant to get involved in conditions which have been agreed to by the respective parties, the Tribunal should be cognisant of the fact that orders of the Tribunal are precedent setting and that imposing conditions to a merger which go beyond what is necessary in terms of the Competition Act as far as merger specificity is concerned, may be undesirable.

Both parties to both recent mergers have agreed to further public interest-related conditions pertaining to employment. In the SAB/Coca-Cola deal, the parties have further agreed to “maintaining employment at current levels for three years and not reduce jobs by natural attrition”, however, may retrench up to 250 “non-unionised” head office employees. Despite the intervention by Minister Patel (who formerly headed the Southern African Clothing and Textile Workers Union) and the Food and Allied Workers Union, it would appear completely outside the realm of competition policy if the Competition Tribunal imposes this condition, as effectively the competition authorities would be providing greater protection to trade union members as opposed to non-trade union members. A clearer indication of a complete lack of merger specificity may be hard to come by.

 

Developments in South African Merger Control: Ministerial Interventionism and the Impact on Timing & Certainty

Partisanship can degrade the brand of the antitrust agencies, reduce their influence aboard, and discourage longer term investments that strengthen agency performance. Though difficult to quantify, these constitute a potentially serious, unnecessary drag on agency effectiveness”

(William Kovacic, “Policies and Partisanship in U.S. Federal Antitrust Enforcement” (2014) Antitrust Law Journal, Vol. 79 at 704).

In their article entitled “Developments in South African Merger Control – Ministerial Interventionism and the Impact on Timing & Certainty,” John Oxenham, Andreas Stargard, and Michael Currie argue that, while the existence of ‘public-interest’ provisions in merger control is an express feature in certain jurisdictions’ antitrust regimes, the manner and regularity with which they are applied remains a significant challenge both for antitrust practitioners and for their clients gauging certainty of their foreign investments.

A consideration of the developments in the South African context indicates the substantial risks associated with the manner in which antitrust agencies and governmental departments approach public interest considerations in merger proceedings.

Merging firms, particularly multinationals, need to be acutely aware of the challenges and risks associated with the use of public-interest considerations throughout merger-control proceedings in South Africa. Recent interventionist strategies have had a significant impact on two key features: the timing and cost of concluding mergers in the region.

The paper was presented at this year’s ABA Antitrust Spring Meeting, the largest competition-law focussed conference in the world, taking place annually in Washington, D.C.  AAT’s readers have exclusive free access to the PDF here.

John Oxenham and Wendy

John Oxenham

Ministerial meddling in mergers

Intervention by economic ministry outside proper competition channels yields R1 billion employment fund

As reported yesterday, AB InBev has agreed to a R1bn ($69m) fund to buoy the South African beer industry and to “protect” domestic jobs.  It is widely seen as a direct payment in exchange for the blessing of the U.S. $105 billion takeover of SABMiller by InBev — notably occurring outside the usual channels of the Competition Authorities, instead taking place as behind-closed-door meetings held between the parties and the Minister for Economic Development, Ibrahim Patel, and his staff.

Patel talks.jpgAs we reported earlier this week, the previously granted extension of the competition authorities’ review was “widely suspected that the request for the extension is due to intervention by the Minister of Economic Development, in relation to public interest grounds. Although there is no suggestion at this stage that Minister Patel is opposing the deal, the proposed intervention does highlight bring into sharp focus the fact that multinational mega-deals face a number of hurdles in getting the deal done.”
AAT has reported previously on “extra-judicial factors,” as well as the interventionism by the current ministry.  This latest deal struck by Mr. Patel and the parent of famed Budweiser beer includes a promise by the parties to preserve full-time employment levels in the country for five years after closing, according to AB InBev.  Moreover, the companies pledged to provide financial help for new farms to increase raw materials production of beer inputs like hops and barley.
The minister is quoted as saying: “This transaction is by far the largest yet to be considered by the competition authorities and it’s important that South Africans know that the takeover of a local iconic company will bring tangible benefits.  Jobs and inclusive growth are the central concerns in our economy.”
ABInbev

The holy trinity of InBev’s beers

Our editors and contributing authors have reported (and warned) on multiple occasions that the extra-procedural behaviour of the economic minister effectively side-lines the competition agencies, thereby eroding the perceived or real authority of the Competition Commission and the Tribunal.  Says Andreas Stargard, a competition law practitioner with a focus on Africa:
“This ‘unscripted’ process risks future merger parties not taking the Authorities seriously and side-stepping them ex ante by a short visit to the Minister instead, cutting a deal that may be in the interest of South Africans according to his ministry’s current political view, but certainly not according to well-founded and legislatively prescribed antitrust principles.  The Commission and the Tribunal take the latter into account, whereas the Minister is not bound by them, by principled legal analysis, nor by competition economics.”
This is especially true as the current deal involves the takeover of SABMiller, an entity that controls 90% of South Africa’s beer market.  From a pure antitrust perspective, this transaction would certainly raise an agency’s interest in an in-depth investigation on the competition merits — not merely on the basis of job maintenance and other protectionist goals that may serve a political purpose but do not protect or assure future competition in an otherwise concentrated market.
Says one African antitrust attorney familiar with the matter, “What may be a short-term populist achievement, racking up political points for Mr. Patel and the ANC, may well turn out to be a less-than-optimal antitrust outcome in the long run.”

Competition & the Public Interest

The public-interest saga continues: South African antitrust & inclusiveness

More on the revised Guidelines for the public-interest assessment in southern African’s largest economy… By AAT guest author Anne Brigot-Laperrousaz.

In December 2015, the South African Competition Commission (the “Commission”) issued revised guidelines for the assessment of public interest provisions in mergers (the “Guidelines”). This document is a further step in a long process aiming at ensuring better efficiency in the Commission’s evaluation of mergers. One of the main rationale is that informed parties will be able to anticipate the documentation and data to be transmitted to the Commission in view of obtaining its approval. Transparency, predictability and clarity, all of them fundamental aspects of legal certainty, shall result in reduction of delays and enhancement of legitimacy of the Commission’s decisions.

In January 2015, the Commission issued a first draft of those Guidelines, open to comment by stakeholders. Several bodies answered positively to this initiative, including law firms (Bowman Gilfilan, Baker & McKenzie, …), companies (Vodacom, Tabacks), international associations (International Bar Association) and policy research centers (UK Center for Competition Policy). The December 2015 Guidelines are the result of this broad enquiry, and the final version open to comments until the 29th January 2016.

Public-interest considerations abroad

Firstly, the international perspective on public interest considerations in the assessment of mergers might offer an interesting insight to the question.

In Europe, at Community level, the EU Merger Regulation (the “EUMR”) prevents the European Commission to assess non-competition considerations in its analysis of the proposed transaction. Indeed, Article 2 EUMR sets out a test based exclusively on the potential “significant impediment to effective competition”, and the available remedies when the merger might result in such an impediment.

Yet Article 21(4) EUMR allows interventions of Member States to protect three determined types of public interests, namely, public security, plurality of the media and prudential rules. Exceptionally, the European Commission may allow a national measure aimed at protecting a different legitimate interest, although this procedure is rarely used. In any case, the measures taken shall be compatible with the general principles and provisions of European Union law.

A major difference between EU and US competition laws is that the former was meant to serve as a tool to achieve a State union, whereas the latter intervened in an already federated region. This feature arguably plays a significant role in the importance attached to further political aims in the elaboration of the competition framework, although this feature did appear at the first stages of the US.

Two US institutions are today in charge of reviewing the competitive effects of mergers: the Antitrust Division of the US Department of Justice, and the Federal Trade Commission. Those two institutions act as competition regulators, focusing exclusively on the competition aspects of targeted operations. Other public policy interests, related to specific sectors, might be analysed and taken into account under the responsibility of other US agencies, such as the Federal Communication Commission or the Federal Reserve and the Federal Deposit Insurance Corporation. Such agencies therefore act as sector or industry regulators.

To the extent that the South African Competition Act (1998) (the “Act”) gives a particularly important role to public interest criteria in merger controls, the need for transparency and clarity in the Commission’s assessment mergers is all the more crucial.

south_africaZA: The integration of stakeholders’ comments by the Competition Commission

As for the general observations on the January 2015 guidelines, some constants remain in most of the stakeholders’ commentaries.

This is so in particular as regards evidential requirements, that is, the type and nature of information that would generally be required from the merging parties. Although the Guidelines do provide a relatively detailed and insightful perspective on the Commission’s methodology in assessing mergers, it does not appear that they answer this recurrent request, even in the form of non-exhaustive references to specific documents.

Tembinkosi Bonakele, the South African Competition Commissioner, had the following to say on the topic, when interviewed for AAT’s Meet the Enforcers:

It is important that BRICS countries weigh-in on this important debate. There is a divergence of views amongst many antitrust practitioners on the compatibility of antitrust issues with public interest issues, but everyone accepts that there are public interest issues. The conference will deepen and broaden perspectives on the matter. …

 

Tembinkosi-Bonakele-Profile-PicThe South African competition authorities were established as a package of reforms to transform the unequal South African economy to make it economy inclusive and ensuring that those who participate in it are competitive.

Through engagements such as the BRICS conference we’re able to discuss with our BRICS counterparts how to make our economies, which are similar, more efficient, competitive and inclusive.

A second concern regards the issue of “balancing” competition and other public policy interests. The different nature of those matters, implying various qualitative and quantitative methods of assessment, arguably makes this task “inherently arbitrary”. This is even more so in presence of the broad and general principles addressed by the Act, and that the Guidelines arguably ought to determine and circumscribe. In their revised version, although some further precisions on the process and the determining factors of the Commission’s assessment have been added, some grey areas remain. For instance, some commentators have highlighted the fact that as regards the effect of the merger on a particular industrial sector or region, the Commission “may consider any public interest argument in justification of the substantial negative effect arising as a result of the merger on an industrial sector or region” (Guidelines, §7.2.4.2). It is our view that this wording is all too broad and undetermined to provide useful guidance to practitioners, and ensure a transparent and consistent analysis by the Commission. Not to mention that, as noted by the International Bar Association, the Act limits the Commission’s jurisdiction in evaluating public interest matters in merger reviews. This reference to “any public interest” arguably overlooks the Commission’s limited jurisdiction. Unfortunately, this comment does not seem to have been taken into account in the drafting of the revised version.

The same analysis can be made of the use of such concepts as causality, for example, which is not clearly defined. Furthermore, the Guidelines often provide for the possibility to prove that the effect “results or arises from” the merger, together with the requirement of a causal link, undermining the precise and strict legal requirements that are entailed by the notion of causality (see §7.2.2.1). In other instances, the Commission will merely “consider whether the employment effects are in any way linked to the intentions […] of the acquiring group”, which broadens unreasonably the scope of analysis.

Overall, when considering the clarifications that were called for in various submissions from stakeholders, it appears that in most cases, where the comments have been echoed in the revised Guidelines, the drafting committee has hidden the difficulties rather than going further in its analysis.

For instance, several commentators have expressed their surprise at the principle stated in the January 2015 version of the Guidelines, in the section dedicated to the general approach to assessing public interest provisions, that when the Commission found that the public interest effects were neutral, it would balance the negative and positive effects (§6.6). Indeed, the concept lacked clarity, and does not appear in the revised Guidelines.

Yet, some more substantial comments, in that they pointed to more potentially noxious loopholes, have apparently been disregarded. This is the case of the consequences of the finding of negative competition and public policy effects, a situation where the Commission does not seem to consider the possibility to justify and find remedies. It appears that the result would be a forthright prohibition of the transaction, even if other ways could have existed.

More generally, the perspective on the matters at stake seems to be rather hostile. For instance, in cases where negative public interest effects have been identified, the Commission “may consider imposing remedies or prohibiting the merger depending on the substantiality of the public interest effects”. It may be considered that a more relevant criterion might have been the existence and efficiency of potential remedies, rather than the substantiality of the negative effects at stake. Indeed, although the substantial character of the adverse effects might be a suitable criterion to set the standard of analysis, it does not easily justify to disregard possible remedies, which seems to be the result of the present wording.

Similarly, the Guidelines seem to set the existence of a positive competition finding as a threshold to its analysis. It has been advocated that a more suitable logic would be that the starting point is the absence of any prevention or lessening of competition, which would be more in line with both the Act and the role it affords to public policy concerns, and international best practice.

Conclusion

As noted by the International Competition Network, “the legal framework for competition law merger review should focus exclusively on identifying and preventing or remedying anticompetitive mergers. A merger review law should not be used to pursue other goals”.

Since the introduction of public policy issues in merger control is broadly considered to require cautiousness and measure, it is questionable if the revised Guidelines abide by this general principle of predictability and transparency as regards those matters. Although clear efforts have been made, the public policies at stake do not appear to have been sufficiently identified and articulated with what should remain the fundamental purpose of merger control, that is, the competitive effects of the transaction at stake.

That is particularly so in view of the nature of the Commission, which has no particular expertise in the public policy matters that it his charged to assess. As it is the case in other jurisdictions, such as the UK, it may be useful to create the possibility for the Commission to obtain input from other specialised government agencies or department, although through a transparent and public process which would prevent any diversion of the Act and the Commission’s purposes.

Silencing a Public Protector

The Fascinating Story of Thula Madonsela and Being Undermined

By Rui Lopes

The Public Protector, in theory, was designed and created to strengthen the constitutional democracy within South Africa along with the other Constitutional Institutions established under Chapter 9 of the Constitution of the Republic of South Africa.[1] In order to strengthen this constitutional democracy, it is imperative that the Public Protector be independent from any governmental branch or agency, as making it accountable to the exact organs it seeks to protect society from renders it ineffective and voiceless. What follows is an elaboration on the role of the Public Protector within a constitutionally democratic South Africa and whether its purpose and effectiveness has in essence fallen into redundancy by making it accountable to Parliament.

Thula Madonsela

Thula Madonsela

Establishing a constitutionally democratic Public Protector

The unfailing oppressiveness and secretiveness of the Apartheid government lead to a distrust of such a government and one which was consequently not open and accountable.[2] State organs could and often did act ultra vires, doing whatever they wished regardless of whether such powers were given to them, and would not need to be accountable for any such actions.[3]

However with the dawning of a constitutional democracy in 1994, the need to divide the once monopolised parliamentary power among all branches of government and the implementation of checks and balances ensuring that all branches of government became accountable towards one another became imperative in securing the ideal of a democratic nation once founded upon racial oppression and impunity.[4] With the implementation of the 1993 Interim Constitution, in terms of principle 29,  the office of the Public Protector was first established and by including it the Constitutional Principles, secured its existence within the final Constitution.[5]

The Public Protector was designed to assist in the transformation of an oppressive society into an open and democratic society, creating an accountable and credible government through the re-establishment and respect of the rule of law. No longer was government above the law nor could they do a they wished, rather the government was in theory, accountable to the people of the nation, echoing the entire theory of the social contract.[6] Consequently the office of the Public Protector was ideally to act as a check between the Executive and Legislative branches of government and to provide a link between the citizens and such branches.[7] 

The powers, functions and duties of the office of the Public Protector

The Public Protector is an institution established to investigate purported or supposed indecorous behavior of state affairs, whereby upon the decision to investigate such, which is at the discretion of the Public Protector, the Public Protector must report on such conduct and if applicable the taking of appropriate remedial action must occur.[8]

The Public Protector may not investigate judicial decisions, as this is the function of the Judicial Services Commission as well as owing to the fact that the Public Protector acts as a check between the Executive and Legislature.[9] The Public Protector may also not investigate human rights issues as such issues fall within the jurisdiction of the South African Human Rights Commission.[10] Once the Public Protector has an affirmative finding of misconduct, such a finding is then referred to the Director of Public Prosecutions.[11]

What follows is a determination of the ability of the Public Protector to accurately fulfill the role of its office. Such capability is determined by means of the independence which is afforded to it.

How independent is the Public Protector?

In order to hold the Executive and Legislative branches of government accountable, the Public Protector requires a “sufficient” amount of independence. This leads to predominant issues of what constitutes sufficient independence and the issue of over independence of such institutions which would then lead to an abuse of such independence.

Independence is a characteristic, which is established objectively in terms of whether a reasonable person would perceive such an institution as being independent.[12] Thus the impact that the Public Protectors perceived independence upon the reasonable person would in hindsight affect the Public Protector to fulfill the role of its office.

In order to accurately understand the independence which the Public Protector is afforded, its independence needs to be divided amongst five aspects namely a prima facie contradiction that exists between sections 181(2) and 181(5) of the Constitution, financial independence, administrative independence and finally, the independence of appointments and dismissals of the Public Protector.

Amid section 181(2) and 181(5) of the Constitution, there exists a prima facie conflict of these two provisions in the sense that section 181(2) holds Chapter 9 institutions to be independent and only subject to the Constitution whereas 181(5) holds such institutions accountable to the National Assembly.[13] This inconsistency was settled in Independent Electoral Commission v Langeberg Municipality [14] whereby the court held in accordance with section 239 such institutions are not governmental departments which the Cabinet may have stimulus over, rather they are independent from government.[15] Thus by holding such, the court made it clear that although the Public Protector is accountable to the National Assembly, it is not accountable to government nor is it afforded the same independence as the judiciary.[16] 

Two reasons exist at the outset for such accountability.[17] Firstly the Public Protector is said to be accountable to the National Assembly, as through representative democracy, the National Assembly represents the population of South Africa, their opinions and ideologies, and thus by making the Public Protector accountable to the National Assembly, it is in essence making the Public Protector accountable to the public.[18] 

Financial independence of the Public Protector was too dealt with in Independent Electoral Commission v Langeberg Municipality whereby the Constitutional Court affirmed such Chapter 9 institutions need a degree of financial independence but it is not to say that such institutions may set their own budget.[19] Rather Parliament as opposed to the Executive has the obligation to provide sufficiently reasonable funding in order for the Public Protector to fulfill its functions.

Appointments of the Public Protector are made by the President through a shortlisting of candidates, by the National Assembly, whom the Public nominated.[20] Therefore there exists a grave deficit in terms of public participation, as the public does not participate beyond the nominations stage.

It is too the National Assembly who may dismiss the Public Protector with a two-thirds majority vote. Such a majority is to ensure a simple majority does not unjustly dismiss the Public Protector.[21]

In theory, affording the Public Protector this amount of Constitutional independence at first glance, seems to allow it the ability to perform its functions. However, over the past couple of years, grave injustices have been committed towards this Chapter 9 institution that raises doubts as to whether the Public Protector can effectively fulfil its office, and whether the continued lack of the required independence renders the office of the Public Protector redundant.

The Constitution can be said to afford the Public Protector “sufficient” independence. However I posit that sufficient independence does not mean effective independence, and it is evident that the Public Protector as a chapter 9 institution is fundamental in the supporting of a democratic South Africa, representing a mechanism of holding the Executive and Legislature accountable, but such an office is not effective for as long as those whom the Public Protector seeks to hold accountable are the exact persons who have the power and ability to dismiss the Public Protector and furthermore have the ability to dictate the funding it therefore receives. With the recent cries for funding by the Public Protector, and the closing of its Mpumalanga office with others following suit, the question arises of whether the Public Protector has been reduced to a mere symbol of a ideology of democracy, unable to protect the public. Furthermore the manner in which the Nkandla Report was received in Parliament shows its inability to effectively exercise its powers and functions. Not being able to protect the public renders the Public Protector a useless feat.

I therefore posit that the theoretical independence afforded to the Public Protector is not enough to allow it to effectively fulfil its powers and duties.  Therefore all efforts must be made to afford the Public Protector such effective independence in order to fulfil its role and allow it to effectively protect the public.

………………………………………………………………………………………..

Footnotes

………………………………………………………………………………………..

[1] Constitution of the Republic of South Africa, 1996 section 181(1)(a).

[2] Pierre de Vos ‘Balancing Independence and Accountability: The Role of the Chapter 9 Institutions in South Africa’s Constitutional Democracy’ in M Danwood, M. Chirwa and Lia Nijzink ‘Accountable Government in Africa Chapter 10’ (2012) 160 at 160.

[3] Ibid; Iain Currie and Johan de Waal The New Constitutional & Administrative Law vol 1 (2013) 46 to 50.

[4] Public Protector v Mail and Guardian Ltd and Others 2011 (4) SA 422 (SCA) paras 5 & 6; C. Thornhill ‘Role of the Public Protector’ (2011) 2 Case Studies of Public Authority at 87.

[5] C, Murray ‘The Human Rights Commission et al: What is the Role of South Africa’s Chapter 9 Institutions?’ (2006) 2 PELJ 122 at 123 & 124; Ex Parte Chairperson of the Constitutional Assembly In Re: Certification of the Constitution of the Republic of South Africa, 1996 1996 (4) SA 744 (CC) certification case 1996 (4) SA 744 para 161.

[6] Op cit note 2.

[7] Op cit note 2; supra note 4 para 19.

[8] Supra note 4 para 20; Newspaper clip; Public Protector Act 23 of 1994 section 6(4).

[9] Supra note 1 section 182(3).

[10] C, Murray ‘The Human Rights Commission et al: What is the Role of South Africa’s Chapter 9 Institutions?’ (2006) 2 PELJ 122 at 130.

[11] Thus demonstrating such institutional relationships of the Public Protector with such constitutional institutions.

[12] Van Rooyen and Others v S & Others 2002 (8) BCLR 810 (CC) paras 16 to 18.

[13] Supra note 1.

[14] 2001 (9) BCLR 883 (CC) paras 28 to 29.

[15] Ibid.

[16] Op cit note 2.

[17] It is important to note these to be my own deductions.

[18] Public Protector Act 23 of 1994 section 8(2)(a) and (b).

[19] Supra note 14 para 29; Op cit note 2

[20] Supra note 14; op cit note 2 168 to 170.

[21] Supra note 1 section 193(1) to (6) and 194(1) to (3).

The Big Picture: Public-Interest Factors in Antitrust

AAT the big picture

Public-Interest Considerations in Competition Policy Take Center Stage… Once Again

By Michael Currie

An increasing trend in South Africa’s competition regulatory environment is the emphasis that the competition authorities and policy makers are placing on what is known as public-interest provisions. While we have authored a number of articles that have been published on African Antitrust highlighting our concern and disapproval of an overly-zealous reliance on public interest provisions, especially in the framework of merger control, the Competition Authorities have become increasingly bold in shaping there policies around public interest and industrial policy agendas.

In this article, we discuss the Vodacom/Neotel merger as well as COSATU’s response to the announcement that market inquiry will be conducted in the grocery retail sector, as these two developments personify the influence that Minister Patel has over the SACC’s policy and the very clear industrial policy agenda’s that Patel is using the SACC to promote.

In the past number of years in South Africa, public interest considerations have been no more prevalent than in merger control. While, to date, there has not been a merger prohibited based purely on public interest grounds, there have been a number of mergers which, despite no finding having been made that such a merger will lessen competition, have been approved subject to significantly onerous conditions, based on public-interest grounds.

south_africaThe Law

The South African Competition Act, 89 of 1998 (“Competition Act”) requires that the competition authorities consider the impact of a merger on certain public interest grounds, which are expressly listed in Section 12A of the Competition Act.

We have, on African Antitrust,[1] consistently stressed the inappropriateness of imposing burdensome conditions on mergers relating to public interest considerations, and raised the legitimate concerns that the South African Competition Authorities are increasingly being utilised as a mechanism by which to promote the government’s industrial policies.

Furthermore, conditions have been imposed on mergers without any substantial assessment done on balancing potential short term losses with long term gains.

Be that as it may, the conditions that have most commonly been imposed on mergers, based on public interest grounds, relates to employment. The impact of a merger on employment is one of the express public interest considerations that is contained in Section 12A.

What is deeply concerning, however, that as we will discuss below, the SACC has recently broadened the scope of public interest considerations to extend well past those grounds listed in Section 12A, effectively ensuring that when it comes to evaluating a merger on public interest grounds, the SACC is effectively, unrestricted.

Vodacom

Vodacom is South Africa’s largest mobile service provider and merging with Neotel would allow Vodacom to fast-track its rollout of a fixed line network.  The merger still needs to be approved by the South African Competition Tribunal (“SACT”).

On 30 June 2015, the SACC made recommendations to the SACT to approve the merger between Vodacom and Neotel, subject to stringent conditions.

The conditions recommended to be imposed on this merger will certainly ring alarm bells for all entities (especially large businesses which have a BEE shareholding) who are considering undertaking a merger in South Africa.

The SACC, who is of the view that the merger will substantially lessen competition in the market, has recommended that the following conditions to be imposed on the merger:

  • There be no retrenchments of Neotel employees;
  • That Vodacom invest R10 billion (approximately $1 billion) into data, connectivity and fixed line infrastructure; and
  • That Vodacom’s Black Economic Empowerment (“BEE”) shareholding is increased by R1.9 billion (the value of Neotel) multiplied by 19%.

The SACC’s recommendation that Vodacom’s BEE shareholding has to increase to a certain value is considerably worrisome, as it is very difficult, in our view, to justify the imposition of such a condition, in terms of the law or in terms of any social policy objective.

As noted above, the competition authorities are obliged, in terms of the Competition Act, to consider the impact that a merger may have on a number of public interest grounds. In terms of the Competition Act, the SACC and SACT, when evaluating a merger, must consider the impact that the merger will have on:

  • “A particular industry sector or region;
  • Employment;
  • The ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
  • The ability of national industries to compete in international markets.”[2]

Simply put, there is in our view, no justifiable legal basis, upon which to impose a condition relating to the BEE shareholding as proposed by the SACC in this merger.

A Disconcerting Trend Away from Law & Economics

Regardless of whether the merging parties accept the SACC’s recommended conditions, the competition authorities are increasingly using conditions imposed in previous mergers, as precedent to justify and become increasingly ambitious when considering conditions to be imposed on any prospective transaction. Thus, even if the conditions imposed in this particular merger are not overly-burdensome on the parties themselves, it is most likely that the conditions, should they be approved by the SACT, will set new precedent for any future transactions.

The competition authorities are inadvertently creating a ‘threshold’ of conditions. This is evident by the way in which the Commission seems to default to a recommendation of a two-to-three year moratorium on retrenchments, whenever there is a concern arising or pressure placed on the SACC relating to retrenchments.

It is well noted that timing is of critical importance when it comes to the success of a implementing a merger. The fact that the SACC has quite brazenly taken upon itself, the duty to foster and advance the government’s socio-economic and industrial policies no doubt leads to greater uncertainty as to the nature of the conditions that may be imposed on a proposed merger.

In this regard it is worth noting that the SACC has published draft guidelines (currently for public comment) on the Assessment of Public Interest Provisions on Mergers (the “Guidelines”). While the Guidelines are still in draft form, like most of the SACC’s guidelines published to date, it allow for a significant degree of discretion on the part of the SACC.

The Guidelines were an attempt to provide greater clarity and certainty when it comes to assessing the impact that a merger may have on the public interest grounds listed in Section 12A of the Competition Act, however, the Guidelines do not provide guidance with respect to assessing the impact that a merger may have on grounds not listed in Section 12A.

Hence, despite the Guidelines seeking to add clarity and certainty to the issue, the SACC’s expansion of public-interest grounds has for all practical purposes brought us back to square one.

Another Market Inquiry: Grocery/Retail

As mentioned above, public-interest considerations have now been used as the catalyst to drive other competition objectives; most notably, the recently announced market inquiry into the grocery retail sector.

It has been our suspicion from the outset that the market inquiry into the retail sector is driven by an underlying desire to promote Patel’s industrial policies, rather than address any or understand the structure of the market to ensure more competitive market is advanced.

The response by one of South Africa’s largest trade unions, COSATU, has publicly proclaimed its support for the market inquiry, and the reasons advanced in support of the inquiry, very much confirms our suspicions.

In an article published on their website, COSATU has expressed a number of reasons why they support the inquiry. Unsurprisingly, few of the reasons put forward relate to a desire to better understand the functioning of the market from a competition perspective. Much like Mr Patel, the Minister of Economic Development, COSATU has viewed the market inquiry from a socio-economic paradigm as opposed to a competition one.

While the grocery retail market share is largely attributed to the four biggest retailers in the South Africa, the broad ambit of the inquiry coupled with Patel’s comments made in Parliament in which he stated that the retail sector was a great entry point for black South Africans should leave little doubt in any objective observer’s mind that the market inquiry into the grocery sector is steeped in promoting governments industrial policies through the channels of competition regulation.

It should also come as no surprise that Patel was previously a labour activist and previously headed the Southern African Clothing and Textile Workers Union (SACTWU).

COSATU has expressed its support for the market inquiry, largely because COSATU is of the view that the market inquiry will address a number of socio-economic concerns. The following statement made by COSATU clearly illustrates as much:

“It should also be noted that the grocery retail sector is characterized by precarious and atypical employment. Most workers in the sector do not enjoy their basic labour-related socio-economic rights. Negative practices such as labour broking, outsourcing, casualisation and low-pay are prevalent in the sector. COSATU strongly believes that this inquiry is essential for addressing the above-mentioned socio-economic trends.”[3]

The preamble to the Competition Act recognises that Apartheid created a certain concentration of market shares and that South Africa needs a greater spread of ownership. In no way, however, can competition law be used as policy to address, replace and undermine legislation and institutions designed specifically to address identified concerns. In other words, the claim made by COSATU that the market inquiry will address negative labour practices, shows a fundamental flaw in understanding the purpose and nature of competition law and policy.

South Africa has extensive labour legislation and a number of institutions that have been established to deal with negative labour practices.

Placing the responsibility of protecting our labour workforce beyond the scope of the Competition Act, would undermine the efforts of the legislature as well as the institutions entrusted in promoting and enforcing fair labour practices.

Furthermore, even if the market inquiry does in one way or another lead to a greater number of smaller independent retailers, it is difficult to foresee how this will benefit labour conditions. Large retailers’ employees generally belong to trade unions who can act as a voice on their behalf. Employees of small retailers have far less bargaining power.

While it may be that COSATU, as a trade union, need not be too concerned with competition issues as such, trade unions in general have played have had an increasingly significant influence on competition law policy.

It is imperative that an institution such as the SACC remain independent and impartial, yet the SACC’s willingness to align itself with the policies Patel is championing for undoubtedly risks the independence, proper functioning and impartiality of the SACC — a risk the SACC must ensure it protects itself against.


[1] See here, here, and here.

[2] Section 12A(3) of the Competition Act, 89 of 1998.

[3] http://www.cosatu.org.za/show.php?ID=10618#sthash.XLWeNExH.dpuf