Category: politics

Antitrust in the Digital Economy: Fighting Inequality?

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AAT the big picture

HOW CAN COMPETITION LAW ENFORCEMENT IN THE DIGITAL ECONOMY HELP IN THE FIGHT AGAINST POVERTY?

By DWA co-founder and visiting AAT author, Amine Mansour* (re-published courtesy of Developing World Antitrust’s editors)

When talking about competition law and poverty alleviation, we may intuitively think about markets involving essential needs. The rise of new sectors may however prompt competition authorities to turn their attention away from these markets. One of those emerging sectors is the digital economy sector. This triggers the question of whether the latter should be a top priority in competition authorities’ agenda. The answer remains unclear and depends mainly on the potential value added to consumers in general and the poor in particular[1].

Should competition authorities in developing countries focus on digital markets?

Obviously, access to computer and technology is not a source of poverty stricto sensu. In the absence of basic needs, strategies focusing on digital sectors may prove meaningless. In practice, the last thing people living in extreme poverty will think about is gaining digital skills. Their immediate needs are embodied in markets offering goods and services which are basic necessities. The approach put forward by several Competition authorities in developing countries corroborates this view. For instance, in South Africa, digital markets are not seen as a top priority. Instead, the South African competition authority focuses on food and agro-processing, infrastructure and construction, banking and intermediate industrial products.

There are however compelling arguments to be made against such position. Most importantly, although access to technology and computers is not a source of poverty, such an access can be a solution to the poverty problem. In fact, closing the digital gap by providing digital skills and making access to technology and Internet easier can help the low income population when acting either as entrepreneurs or consumers. In both cases competition law can play a decisive role.

The low income population acting as consumers

First, when acting as consumers, people with low income can enjoy the benefits of new technology-based entrant. Thanks to lower costs of operation, lower barriers to entry and (almost) infinite buyers, these new operators have changed the competitive landscape by aggressively competing against traditional companies. These features have helped them not only extending existing products and services to low-income consumers but also making new ones available for them. Better yet, in some cases increased competition coming from technology-based companies motivates traditional business forms to adapt their offer to low-income consumers so as to face this new competition and remedy shrinking revenues. Perhaps, the most noteworthy aspect of all these evolutions, is that these new entrants have, in some instances, been able to challenge incumbents’ position by driving prices downward to levels unattainable by traditional companies without scarifying their profitability.

A shining example of all this dynamic is the possibility for low-income consumers to engage, thanks to some mobile companies, in financial transaction without the need to pass through the traditional stationary banking infrastructure. For instance, in Kenya, M-PESA a mobile money transfer service that has over 22 million subscribers[2] and around 40,000 agents (around 2600 Commercial bank branches)[3] changed the life of million of citizens. The service enables clients to deposit cash into their M-PESA accounts, send or transfer money to any other mobile phone user, withdraw cash and complete other financial transactions. A farmer in a remote area in Kenya can send or receive money by simply using his mobile phone. In this way, M-PESA can act as a substitute to personal bank accounts. This experience shows how the digital economy helps overcoming the prohibitive costs of reaching low-income customers and thus raising living standards.

On that basis, we can easily imagine the counter-argument incumbent companies might put forward. In this regard, unfair competition and the need for regulation to preserve policy objectives are often in the forefront. However, there is a great risk that these arguments are simply used to restrict market entry and impede competition from those new players.

In fact, this kind of arguments do not always reflect market reality. For example, in some remote geographic areas, traditional companies and the new ones based on the digital/internet space do not even compete directly against each other. Accordingly, regulation intended to protect policy goals has no role to play given that the affected consumers are out of the reach of the traditional business. In the M-PESA example, it may be possible to argue that any operator engaging in financial transactions should observe the regulatory restrictions that apply to the banking sector in order to ensure that policy objectives such as the stability of the banking system or the protection of consumer savings are preserved. However, applying such a reasoning will leave a large part of consumers with no alternative given the absence of a banking infrastructure in remote areas. The unfair competition and regulation arguments may only hold in cases where consumers are offered alternatives capable of providing an equivalent service.

This shows the need to proceed cautiously by favoring an evidence-based approach to the ex-post use of the regulation argument by incumbent operators. This is however only one of different facets of the interaction between the competitive impact of companies based on the internet-space, the regulatory framework and the repercussions for people with low income[4].

The low income population acting as entrepreneurs

Second, the focus on digital markets as way to alleviate poverty is further justified when low-income people act as entrepreneurs. In fact, digital markets are distinguished from basic good markets in that they may act as an empowering instrument that encourages entrepreneurship.

More precisely, the digitalization of the economy results in an improved access to market information which in turn may benefit entrepreneurs especially the poor whether they intervene in the same market or in a different one. Practice is replete with cases where, for instance, a downstream firm heavily relies for its production/operation on services or products offered by an upstream company operating in a digital market. Similarly, in a traditional and somewhat caricatural way, a small-scale farmer may use VOIP calls to obtain market information or directly contact buyers suppressing the need for a middleman.

However, we can well imagine the disastrous consequences for these small-scale farmers or the downstream firm if mobile operators decide to block access to internet telephony services such as Skype or WhatsApp based on cheap phone calls using VOIP (this is what actually happened in Morocco). In such a case, the digitalization of the economy has clearly contributed to greatly lowering the costs of communication and distribution. However, low income entrepreneurs are prevented from benefiting of these low costs, which are a key input to be able to compete in the market.

The major difficulty here lies in the fact that, when low income people act as entrepreneurs, it is likely that they organize their activities in small structures. This result in relationships and structures favorable to the emergence of exploitative abuses. Keeping digital markets clear from obstructing anticompetitive practices is thus indispensable to ensure that small existing or potential competitors are not prevented from competing. This might not be easily achieved given that competition authorities’ focus is sometimes more on high profile cases.

*Co-editor, Developing World Antitrust

[1] Intervention may also be justified by the institutional significance argument. This significance lies in the fact that those markets are growing ones and challenging the common ways of both doing business and applying competition rules which in turn make it crucial for authorities to intervene by drawing the lines that ensure the right conditions for those market to grow and develop.

[2] http://www.safaricom.co.ke/about-us/about-safaricom

[3] http://www.safaricom.co.ke/personal/m-pesa/get-started-with-m-pesa/m-pesa-agents

[4] For instance, it possible to think of the same problem from an ex-ante point of view highlighting incumbent firms’ efforts to block any re-examination of the regulatory standards that apply to the concerned sector (no relaxation of the quantitative and qualitative restrictions). This aspect has more to do with the advocacy function of competition authorities.

Ministerial meddling in mergers

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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.”

Kenyan cabbies complain: The Uber competition saga reaches East Africa

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Uber Africa: Increased competitiveness not a boon for entrenched monopolies

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

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

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

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

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

U.S.

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

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

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

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

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

EU DG COMP

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

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

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

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

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

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

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

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

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

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

 

Silencing a Public Protector

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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).

Trade & Competition in Africa: Opportunity Beckons

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Trade & Competition in Africa: Opportunity Beckons

By Peter O’Brien

Continuing the original AAT series, ECONAfrica, Peter O’Brien addresses the WTO’s upcoming MC10 conference.

From 15-18 December Nairobi will host the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO). This will be a meeting of many firsts. Till now, no sub-Saharan African country had hosted a Ministerial Conference organised by the WTO. Nairobi will bring into force the Trade Facilitation Agreement (TFA), the first occasion in the now 21 year history of WTO that a new agreement has been signed (all others were established at the inception of WTO). This is the first MC to take place against the backdrop of an agreement in Africa, concluded this year, to work for a continent wide area of free trade. Today more than one quarter (43 countries in total) of all WTO Members (more than 160) are African. Moreover, the  Accession Package for Liberia was agreed in Geneva on 6 October, and it can be expected that it too will join in the course of 2016.

Apart from celebrating the firsts, are there any reasons for business in Africa to pay attention to events in Nairobi? The answer is an emphatic yes:

  • The TFA is the one WTO agreement that promises real advantages on the logistics of trade. Detailed studies have shown that, on average, the sheer movement of goods within Africa accounts for roughly one fifth of all costs. Serious steps to cut those costs, which is what TFA is about, represent a win/win for producers, traders, consumers and indeed the public authorities. Since Africa is the region of the world where intra-trade (transactions among African countries themselves) is by far the lowest, and where most national markets are small, the gains from logistics savings are potentially huge.
  • The TFA will commit WTO Members to help the least developed countries, a group of over 30 States of whom the majority are African. For the first time, there are straight advantages to be obtained without a condition of reciprocity. Funding, technical assistance, streamlining of trade administration, are just some of the things that can be expected. The TFA allows governments and business together to formulate their requests, so this is the chance to utilize an organized offer of support.
  • MC10 will seek to reinforce the whole network of disciplines concerned with non-discrimination and competition that constitute the core of WTO agreements. That progress is very positive for the growth of competitive markets on the continent.
  • The meeting will be attended by numerous international and regional observer organizations from the private sector, as well as by non-governmental organizations (NGOs) whose normal activities are overwhelmingly directed towards improving trade and welfare in African countries. Their presence serves to strengthen the lobby for growth and welfare improvement.

In the world of yesterday, tariffs and quantitative limitations dominated trade negotiations. In tomorrow’s world, the critical subjects are technical barriers to trade (meaning formal legal resolutions that control trade for purposes of national security, public health and so on), voluntary norms and standards (which in practice frequently acquire a market force equivalent to a legal provision), and a host of other regulatory issues that determine who will be best placed in the market.

More or less all African countries, with the partial exception of South Africa, have always been on the receiving end of these instruments. Africa has thus far played a very minor role in shaping “the rules of the international competitive game.” But with the continent now the fastest-growing region in the world economy, with the race for its natural resources continuing (despite the current lows in resource prices), with the ongoing investments (from within the continent and without), and the steady improvements in governance observable in the majority of countries, Africa is well placed to make its voice heard.

Nairobi and the MC10 offer the ideal stage on which the continent can begin its future path as one of the designers of competitive change.

Landmark bilateral competition agreement takes effect

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namibiasouth_africa

South Africa and Namibia sign landmark memorandum of understanding

On 11 November 2015, the Competition Commission of South Africa and theNamibian Competition Commission signed an historic memorandum of understanding (MoU) on cooperation on competition matters both in terms of policy and enforcement.

Andreas Stargard, a director with African competition-law and anti-corruption advisors Pr1merio, points out, that collaboration of the two relatively mature agencies is not new per se:

Having cooperated in prior years on multiple merger investigations (see, e.g., the Wal*Mart / Massmart transaction), the time had come for a formalised agreement in principle between these two key southern-African jurisdictions.  Antitrust practitioners in the region should anticipate a hopefully streamlined process across national borders, especially in terms of merger reviews & clearance, as well as quite likely conduct investigations in the cartel or dominance areas.

Says the SACC’s press release:

“We thank the Namibian Competition Commission for their cooperation. I’m grateful we’re able to formalise our relations. Our laws tend to be similar which makes cooperation easier,” said South African Competition Commissioner Tembinkosi Bonakele.

Namibian Competition Commission Chief Executive Officer, Mr Mihe Gaomab said that the signing of the MoU is a historic moment for them, and that this will improve cooperation between the authorities, especially on multi-jurisdiction projects, such as mergers.

The Big Picture: Public-Interest Factors in Antitrust

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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

AfricanAntitrust remembers Nelson Mandela

Posted on by andreasstargard

nelson-mandela-day

Without fanfare, the editors at AAT wish to remind our readers of the legacy of Nelson Mandela on the occasion of what would have been his birthday, a day which has become a day of service in the Republic of South Africa (see and on Twitter).

Without the graciousness and leadership of Mr. Mandela, the rule of law governing the country and the open discussions engendered on AAT & AAF would not be possible today.

As one journalist observed in 2013 upon the former President’s and civil-rights icon’s death:

Few world leaders can claim among their devotees a cast as diverse as the English monarch, the president of the Palestinian Authority, and Chinese human rights activists. In Beijing and Tel Aviv, Lagos and Havana, London and Washington, DC, many around the world awoke Friday morning with their leaders momentarily united by the loss of one of the 20th century’s most revered statesmen.

Short-term sights in favour of long-term gains: Patel’s industrial policies risk effective competition in South Africa

Posted on by andreasstargard

AAT the big picture

By Michael Currie

Discarding any objectivity and international best practice, the Minister of Economic Development, Mr. Ebrahim Patel, has once again expressed his desire to use the South African Competition Commission (“SACC”) as an agency to actively promote the government’s industrial policies.

Speaking at a media briefing, Patel told journalists that the focus of the Economic Development Department would be to grow “black ownership of new industry in South Africa and using state funding to grow the work of black entrepreneurs”.[1]

Minister Patel

Patel said the intention of using the SACC to launch a market inquiry into the retail sector was to “ensure that we’ve got a competitive sector, but also an inclusive sector”. This statement and the decision to institute a market inquiry into the retail sector is, at least at this stage, problematic for two reasons. Firstly, the retail sector is arguably one of the most competitive sectors in South Africa, and any barrier to entry into the sector is a natural consequence of a highly competitive market. Furthermore, Patel identified exclusivity clauses (which are popular provisions inserted into lease contracts between mall anchor tenants and the developers) will be one of the issues that the inquiry will look into. Patel, unfortunately, overlooked the fact that there has already been an investigation relating to these clauses. At the conclusion of the investigation, the SACC found that there is not sufficient evidence of anti-competitive impact, resulting from these clauses, and thus the SACC refrained from referring the matter to the South African Competition Tribunal (“SACT”).[2] This thus begs the question, whether it is necessary to institute a market inquiry with regard to the issue of exclusivity clauses and expose the industry to intensive and unnecessary costs?

In an article written by Mfundo Ngobese in the official newsletter of the SACC, Ngobese responds to an article written by John Oxenham and Patrick Smith, presented at the Eighth Annual Conference on Competition Law, Economics and Policy titled “What is Competition Really Good For?”. The main focus of Ngobese’s article is evaluating the merits of an argument put forward by Oxenham and Smith: that the Competition Authorities should engage in a balancing exercise between the short term impact on public interest issues (such as employment) versus the long term benefits that are associated with effective competition (such as increased economic growth which leads to more jobs created).

Public Interest Test

This brings us back to Patel’s decision to use public interest as the main ground on which a market inquiry into the retail sector should be instituted. The decision to launch a market inquiry based on the anti-competitiveness of exclusivity clauses is simply untenable in light of the SACC’s findings in respect of a previous investigation into the issue, as well as the fact that the retail industry is highly competitive.[4] Using any ‘anti-competitive’ argument as justification for launching this particular market inquiry, would amount to nothing more than a ‘fishing expedition’ by Patel and the Authorities.

The broad public interest grounds which are increasingly becoming prevalent as Patel transcends into the competition arena, coupled with the ill-defined rationale, guidelines and justifications behind the use of public interest grounds in competition review, is contributing significantly to uncertainty in the South African economy.

This ‘uncertainty’, that surrounds doing business in South Africa was recognised by African National Congress (ANC) stalwart Mathews Phosa.  The former ANC Treasurer and Mpumalanga premier identified corruption, inconsistent government policies, and other factors as root causes of investors’ growing reluctance to invest in South Africa:

Policy stability leads to political, social and economic uncertainty. Policy stability in contrast created an “investment friendly culture where every investor feels protected and free to do business”.

While businesses in the retail industry (and indeed businesses across the board) in South Africa, are desperately seeking certainty, Patel is seeking a ‘second bite of the cherry’.

The second issue with Patel’s reason for instituting the market inquiry relates to him wanting to achieve an “inclusive retail sector” and how to bring more “black South Africans into the sector”. While transformation in the economy is certainly an important issue that needs to be addressed in South Africa, it is the manner and form in which such transformation takes place, which is concerning. In this regard, the SACC is patently not the appropriate institution to ensure that there are sufficient black-owned businesses in the retail sector.

Confused Motives

Patel seems to have, unfortunately, conflated the objectives and role of his own department, with the objectives and purpose of the SACC. This comes at a time when other political meddling has led to the resignation of the National Director of Public Prosecutions, Mxolisi Nxasana, who quit his post on Sunday, after almost a year of politically-motivated wrangling and formal investigations being initiated and ultimately dropped by President Jacob Zuma.

Former NPA head Mxolisi Nxasana, forced to resign due to political pressure.

The influence that Minister Patel has had on the SACC’s policy is undoubtedly evident when one evaluates the increased reliance of the South African Competition Authorities to impose stringent conditions in approving mergers.[5]

In justifying the use of public interest grounds in competition law, the Competition Authorities may point out that South Africa’s Competition Act, 89 of 1998 (the “Act”) permits and requires public considerations to be taken into account. However, the use of public interest grounds should not, as seems to be the case, be seen as independent issues unrelated to competition which is to be considered in isolation of the purpose of the Act.[6] The Competition Authorities’ purpose, as set out in Section 2 of the Act is to “promote and maintain competition in the Republic…”. It is likely that Patel views the following two subsections which state that competition must be maintained or promoted to:

“promote employment and advance the social and economic welfare of South Africans” (Section 2(c)); and

“promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons” (Section 2(f))[7]

as the basis for his increased reliance on pushing his Department’s policy objectives through the channels of the SACC. However, placing an overly zealous reliance on these two subsections, fundamentally misconstrues the purpose and function of competition law.

Subsections (c) and (f) quoted above are not self-standing provisions; they are qualified by the general purpose of the Act. Furthermore, by viewing or placing greater reliance on these provisions as self-standing provisions, one would run into an inconceivable difficulty when considering section 2(a), which states as a further objective of the Act (and the purpose of the promoting competition) is to promote the “efficiency, adaptability and development of the economy”. At least from a Section 2 perspective, public interest considerations, at best, have to be reconciled with competition issues.

Market inquiries have often been used very successfully as an investigative tool by a number of competition agencies, especially in Europe. However, a market inquiry requires significant resource expenditure by both the SACC and the market participants and often casts a bad shadow over the relevant industry to the detriment of companies who have not engaged in any anti-competitive conduct. Market inquiries should thus be used sparingly and only when there is significant concern that a particular market is not functioning in a competitive manner. A market inquiry should certainly not be used as a means to affect change in the industry in order simply to suit the objectives of the Government.

There is a further institutional concern which must be noted, and that is that the SACC has, like all institutions, limited resources. In order to function as an efficient and formidable competition law agency, the SACC should ensure that what limited resources are available, is best utilised to achieve a competitive market environment in South Africa.

Before even engaging in policy discussions, as those that Patel is pushing for, it would firstly be necessary to ensure that the SACC has the requisite expertise to deal with policy agenda’s which are far broader than pure competition law. There are already institutions, as Patel has recognised, whose responsibility it is to promote economic growth and to address transformation within the economy.[8] It is not the responsibility of the Competition Authorities to address these issues as directly as has been the case in recent years.[9]

The need for transformation and the promotion of black industrialists is an issue to be addressed by the Government, however, it seems that there is a general lack of regard to competition concerns when Government departments form their policies. A good illustration of this is the significant criticism levelled at the new agreement struck between South African Airways (“SAA”) and the Department of Trade and Industry (“DTI”), which will see SAA redirect R10 billion rand of procurement spending to “black industrialists” (“SAA Agreement”).[10]

While this may appear to be a noble policy, the question remains whether new “black industrialists” are coming into existence, or whether existing “black industrialists” are simply going to make substantial profits at the expense of true development.

The SAA Agreement, which requires, without anything more, that a certain amount of supplies (fuel) be purchased from specific suppliers (‘black suppliers’) strikes at the heart of competition. Effectively certain existing competitors are being excluded in order to favour other competitors. In no way does this promote ‘transformation’ within the industry as the existing barriers to entry remain.

From a competition point of view, the benefit of having healthy competition in the commercial aviation market seems to have been overlooked by the DTI. Apart from the direct benefit that flows from actual cheaper air tickets, the knock-on benefits of stimulating the leisure tourism seems to have been overlooked.

While acknowledging that the SAA decision taken by the DTI is not directly linked to competition law, the disregard that the DTI appears to have to competition in the aviation industry is in stark contracts to the to the Competition Authorities in Botswana who have launched a market inquiry into the aviation sector (although notably with the focus being on unscheduled flights), due to having recognised the importance that the price of flight tickets may have on the tourism industry and the benefits that would flow from boosting the tourism industry.

Considering that SAA is battling financially, and is highly dependent on State bailouts, it is baffling that the State’s primary objective is not to ensure that SAA operates viably and competitively, before risking such competitiveness in favour of a policy which is quite frankly, difficult to justify as there is no evidence that such policies actually achieve genuine transformation or promote economic growth.[11]

One can’t help but notice the irony when it comes to the Government’s social and transformation policies. The Government, and Patel in particular, consistently ignore well established economic principles and the benefits that flow from healthy competition in the economy, in favour of promoting short-sighted top-down “transformative industrial policies”, rather than spending the scarce resources on promoting and developing South Africa from a bottom-up approach.

For instance, poor service delivery in South Africa has a significant detrimental economic and social impact on South Africa. Why improving service delivery does not appear to be high on the radar of the Department of Economic Development or the DTI, is surprising if the objectives of these departments are to promote ‘black businesses’, as the areas which are most severely affected by poor service delivery are generally areas where there is a high percentage of black persons living, who form part of the lower income brackets. In other words, areas where the promotion of small businesses and healthy competition would be most valuable to any social development objectives.

Unfortunately, however, a recent report issued by the Institute of Race Relations stated that the highest incidence of recent public protests in relation to poor service delivery, took place in areas were the most “fruitless and wasteful government expenditure” took place.[12]

Recent statistics show that South Africa’s unemployment rate is increasing, bringing into question whether the policy intervention that Patel has been championing over the past 6 years, is indeed yielding the positive results envisioned by the Government. While the purpose of this article is not to evaluate and criticise all policy interventions, the point to be made is that the effectiveness of policy intervention to advance socio-economic interests in the South Africa is in no way proving effective. While there may be a number of reasons for failing policies, it appears worrying that politicians such as Patel are prepared to risk the independence, efficient functioning and objectives of the Competition Authorities, which are ultimately to promote competition in the market, in order to promote industrial policies when there is so much uncertainty whether such policies will truly ensure long term benefits for the Country as a whole.

Two recently issued reports, namely, the Boston Consulting Group (BCG) Report and the IMD World Development Report, succinctly confirm the concerns and issues which are addressed in this article.

The BCG Report evaluates the reasons for South Africa’s stagnant economic growth. The report acknowledges that it is a necessity to improve education and healthcare and reduce unemployment to advance growth; however, the report importantly states that:

“There is no hiding from the fact that short-term self-interested behaviour has been prevalent; that the emphasis in South Africa has been on cutting the pie rather than growing it.”[13]

This statement could not be truer if one considers Patel’s disregard of well established benefits that flow from a competitive environment, in favour of promoting industrial policies. The following statement by Adam Ikdal on the poor leadership in South Africa, corroborates this papers view:

“a concerted program of execution is essential. In many instances this may mean putting the greater good ahead of the individual or institutional interests.”[14]

The IMD World Competitiveness Report (IMD Report) not only complements the BCG Report, but essentially confirms the views of this paper, with empirical evidence. The IMD Report indicates that South Africa has dropped from a ranking of 37 in 2012 to 53 in 2015 on a list of the world’s most competitive countries. The IMD Report not surprisingly, identified South Africa’s infrastructure shortfall, poor service delivery and lack of education and skills as some of the major contributors to South Africa’s slip down the rankings.

Crucially the director of the IMD World Competitiveness Centre, Arturo Bris, identified what sets the top performing countries apart from the others. This is what Bris had to say, which is essentially, the basis upon which the criticism identified in this paper is levelled at Patel’s policy objectives:

“Productivity and efficiency are in the driver’s seat of a competitiveness wagon. Simply put, business efficiency requires greater productivity and the competitiveness of countries is greatly linked to the ability of enterprises to remain profitable over time”.[15]

In conclusion, we note that both transformation and fostering economic growth is an objective of the South African Government. This is, however, no justification for abandoning the tried and tested benefits that flow from a competitive market, in favour of promoting short-term industrial policies such as Patel is doing. Should the SACC adopt Patel’s industrial policies as part of their policy objectives, the SACC ultimately risks its independence and may effectively become an ‘umbrella institution’ under which any industrial policy agendas are driven. This would be an undesirable and intolerable outcome, and one which the South African Competition Authorities need to carefully guard against.

[1] http://www.fin24.com/Economy/Patels-focus-is-on-black-industrial-growth-20150512

[2] Competition Commission News Letter, Edition 51, January 2015.

[3] Competition Commission News Letter, Edition 51, January 2015.

[4] See footnote1.

[5] We have dealt with this aspect of merger control in more depth in previous articles, please see the following link.

[6] To illustrate the extent that public interest considerations are used by the Competition Authorities, the last intermediate merger that was approved unconditionally was in 2008. Since then, there have been 14 mergers that have been approved subject to conditions. As to large mergers, approximately 10 of the most recent 40 mergers that have come before the Competition Tribunal, 5 have been approved subject to conditions. It should be noted that it is the SACC that reviews intermediate mergers, while large mergers are reviewed bu the Competition Tribunal.

[7] Sections 2(c) and (f) of the Competition Act, 89 of 1998.

[8] For example the Industrial Development Corporation.

[9] See the AfriGroup Holdings (Pty) Ltd and Afgri Ltd merger where the South African Competition Tribunal (“SACT”) Acknowledged that the merger poses no horizontal or vertical competition law concerns. Despite reaching such a conclusion, the SACT, approved the merger on condition that an agreement reached by the parties in terms of which Afgri would contribute R90 million over four years, to a development fund for small farmers via the provision of loans, training and grain storage discounts. Similar burdensome conditions are becoming all the more prevalent in merger control, and are often self-imposed by the SACT and are not agreed upon by the parties as was the case in Afgri.

[10] The Business Day, 26 May 2015, page 14.

[11] The Business Day, 26 May 2015, page 14.

[12] http://www.polity.org.za/article/protests-linked-to-fruitless-wasteful-government-expenditure-irr-2015-05-26

[13] Financial Mail, May 21- May 27, 2015 pg 27.

[14] Financial Mail, May 21- May 27, 2015 pg 27.

[15] http://www.engineeringnews.co.za/article/power-problem-features-in-south-africas-fall-in-2015-competitiveness-ranking-2015-05-27/rep_id:3182 (accessed 28 May 2015).

Video: Oxenham on government interventionism in African antitrust

Posted on by Editor

AAT the big picture

AAT’s own editor John Oxenham has been featured in a video discussion of government interventionism in African competition law.  See the talk on Competition Law Observatory (subscription required)

The topic at issue is successfully negotiating the ever-increasing rise of government interventionism in South African and regional merger control.  Not only does interventionism have the potential to undermine the independence of the agencies, but given the increasing trend of government intervention over the past decade, there are concomitant negative effects on merger control in terms of timing and costs.

John Oxenham, editor
John Oxenham, editor

The number of countries in Sub-Saharan Africa, and indeed Africa as a whole, which require mandatory merger notification, has increased dramatically in recent times. South Africa, which has the largest economy in Africa and has had a merger control regime in place for some time now, has made significant contributions to merger jurisprudence in Sub-Saharan Africa already. Accordingly, as many regional countries adopt competition law legislation or specific merger control regimes, they will look increasingly towards South Africa’s Competition Authorities to assist in interpreting and enforcing competition law policies.

In addition with this growth in regimes there are significant challenges for companies (and advisors on their behalf) engaging in multi-jurisdictional mergers principally due to the lack of uniformity across the respective jurisdictions. In particular, when one considers the unique merger review considerations that the South African authorities take into account, it becomes clear that navigating through the field of merger control in South Africa and indeed many African countries requires great skill and care.