Category: South Africa

The creeping public-interest factor in antitrust: Still creeping or racing yet?

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south_africa

Race to bottom: dilution of competition-law factors in South Africa?

As we have reported numerous times, both on the global policy front as well as in individual case reports, the South African competition regulators and their superiors in the economic development ministry have had their sights on placing a stronger emphasis on the “public interest” element inherent in the SA competition legislation — thereby diluting pure competition-law/antitrust analysis, as some might argue.

Recently, Minister Patel commended his “independent” team at the Competition Commission for not only doing a good job overall, but also in particular on the public-interest front, encouraging the systematic consideration of public interest by the Commission and the Tribunal.

His prepared remarks from the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg are now uploaded here.  In them, he emphasizes that competition policy is “rightly”…:

“… a subset of broader competitive policies, which in turn are part of our industrial policy framework. … Our law provides an opportunity, and indeed an obligation, to align corporate strategy (by which I refer to mergers or takeovers) with public interest considerations. … The increasing use of the public-interest requirements in evaluating mergers has been critical in ensuring that competition policy has a growing developmental impact, saving thousands of jobs and providing millions of rands to support small and emerging enterprises.”

On the independence of the enforcers, Mr. Patel had this to say:

This kind of alignment must in future, as in the past, respect the independence of the regulator. But all our agencies, however independent, work within the framework of national policies.

These remarks are fairly strong, indeed!  We leave it to our AAT readership to infer the consequences of these observations on future merger enforcement and on the true degree of independence of the Commission — you can read between the lines.

In a companion paper, entitled “What is competition good for – weighing the wider benefits of competition and the costs of pursuing non-competition objectives”, AAT’s own John Oxenham (Nortons) and Patrick Smith (RBB Economics) argue as follows:

Over the past five years, the South African competition authorities have increasingly struggled to balance a competition test with defined public interest criteria (Metropolitan, Kansai, Walmart). Other agencies (ICASA, NERSA), and government ministries more generally, have also wrestled with how competition policy might fit into wider government policies and even broader concepts of the “public interest”, including notions of equality, fairness and access. In this paper we discuss some of key events in this ongoing debate, and we anticipate some of the battles that are likely to come. Furthermore, we set out a rigorous framework and provide a review of the available research and literature to discuss the effects of competition (both positive and negative) in multiple dimensions, in order to assess how far a “pure competition” test might go in achieving a broad range of efficiency, growth, and employment objectives. Such a comprehensive and evidence based approach is essential in understanding the costs and benefits of the existing pursuit of multiple (and often apparently conflicting) objectives, and will allow decision makers to more logically assess the trade-offs that they will continue to be confronted with.

Patel commends his competition team

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Minister finds praise for competition agencies, having increased fines “1000%”

The official South African news agency reports that Economic Development Minister Ebrahim Patel has lauded the country’s competition authorities as “remarkably effective over the past 15 years.”

“The competition authorities have done solid investigations as they have stepped up actions against cartels and promoted public interest consideration when conducting investigations,” he is quoted as saying at the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg. “The remedies and fines imposed by the competition authorities climbed ten fold compared to the previous five years, call it 1000 percent, reaching over R6 billion.”

Minister Patel said the competition authority had come into their own with solid pipelines of anti-cartel investigation, the systematic consideration of public interest and issues in merger acquisition.

Setting aside the unorthodox phraseology (“merger acquisition”) in the quoted paragraph, the Minister’s remarks indeed echo what we at AAT have observed for well over a year now, namely the renewed and increased focus of the competition agencies on so-called “public-interest” factors, in lieu of (or in addition to) traditional, classic antitrust considerations, such as market power, concentration/HHIs, and prediction of unilateral/coordinated effects of proposed mergers.

Bonakele advocates regulation in lieu of antitrust enforcement

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South African Competition Commissioner quoted as preferring legislative action rather than Commission action

In a BD Live article from today (“Competition policy ‘not best way to plug industrial loopholes’”), Linda Ensor reports on a presentation Tembinkosi Bonakele made to Parliament’s trade and industry portfolio committee.  In it, the head of the Competition Commission (“Commission”) remarked, according to the article, that “the application of competition law by the competition authorities was a slow process that should not be used to address loopholes in the implementation of industrial policy.”  Mr. Bonakele is quoted as noting that the “litigious nature of using competition policy as a mechanism to reduce prices was a ‘delayed remedy to the market’.”

The Acting Commissioner

At issue, in part, are the price levels of South Africa’s natural-resource sector, including a reference by Mr. Bonakele to “a loophole” in industrial policy and regulation, i.e., the Commission’s long-running investigation of alleged excessive pricing by Sasol Chemical Industries, which lasted about seven years prior to a ruling by the Competition Tribunal, in which Sasol was found guilty of excessive pricing of propylene and polypropylene products, fining it R534m.

Mr. Bonakele’s key suggestion was that there are alternative means for the government to intervene, e.g., through regulation.

 

Competition Commission appoints new Spokesperson and Cartels Executive

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Personnel changes at SACC

The Competition Commission (“the Commission”) has announced that it has appointed Mr Mava Scott (“Mr Scott”) as Spokesperson of the Commission from 1 August 2014 and Mr Makgale Mohlala (“Mr Mohala”) as Divisional Manager of the Cartels division, with effect from 18 August 2014

Mr Scott has more than 12 years’ experience in communications and media relations, and was formerly employed, since 2008, at the Department of Water Affairs as the Chief Director of Communication Services. Mr Scott holds a Baccaleureus Procurationis (BProc) degree from the University of the Western Cape, and is currently studying towards a Master of Laws (LLM) degree in Constitutional and Administrative Law at the University of Pretoria.

Mr Mohlala has been with the Commission for over 14 years, having joined as part of the Graduate Trainee programme in 2000 as part of Mergers and Acquisitions. More recently, Mr Mohala was the Principal Investigator of the Cartels division. In this position, Mr Mohlala led investigations into the cement cartel and the collusion in the construction industry, which included some of the 2010 FIFA World Cup Stadia. Mr Mohlala holds a BProc degree from Vista University, an LLM in Corporate Law from the University of Pretoria and is currently enrolled for a Master of Business Leadership (MBL) with the University of South Africa.

Massmart reinstate retrenched employees

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Employee action taken after competition ruling

Following the March 2012 merger between Wal-Mart and Massmart, the Competition Appeal Court (“CAC”) ordered, as one of the merger conditions, that Massmart re-employ 503 former staff members who were retrenched in 2009 and 2010 as a result of the then proposed merger.

However, it would now appear as though Massmart has failed to comply with the condition. Reportedly, former employees of Massmart have lodged a complaint with Competition Commission (“the Commission”) relating to concerns over Massmart’s non-compliance of this condition.

Following the complaint, the Commission conducted a series of meetings with the South African Commercial Catering and Allied Workers Union (“SACCAWU”) and Massmart. The Commission concluded that Massmart had not complied with the condition imposed by the CAC and found that approximately 217 of the former employees had not been reinstated.

Following negotiations between the Commission, SACCAWU and Massmart, it was found that although Massmart had allegedly sent initial reinstatement offer letters out to former employees, many former employees, allegedly, did not receive the letter.

It was agreed that Massmart would re-employ 61 former employees, who had not received the letter, with 6 months back pay. In addition, Massmart would also re-employ at least 94 former employees, who had received the letter and had not responded to the letter, with 3 months back pay, if such employees accepted the offer by 30 September 2014.

Massmart is required to provide feedback relating to the progress of the implementation of the plan to the Commission over the coming months.

Tribunal overrides Commission’s lean toward merger veto

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Tribunal decides against Commission’s recommendation of prohibition of resin merger

The Competition Commission (“Commission”) recommended to the Competition Tribunal (“Tribunal”) to prohibit the proposed acquisition of resin manufacturer Arkema Resins SA (Pty) Ltd (“Arkema”) by specialised coatings company Ferro Industrial Products (Pty) Ltd (“Ferro”).

The acquiring firm, Ferro, operates in the industrial chemicals sector and its activities comprise powder coatings, plastics, enamels and ceramics, glass colours, spectrum ceramics and resin.

Arkema, the target firm, is a wholly-owned subsidiary of Arkema Afrique SAS, which in turn is wholly-owned by Paris-listed company Arkema. Arkema is also involved in the manufacture of unsaturated polyester resin which is used in the manufacture of swimming pools, truck bodies, baths, etc.

The merging parties argued that the Commission’s recommendation to the Tribunal was fundamentally flawed as it failed to take into account certain key considerations, such as the constraint of imports on domestic suppliers, the fact that post-transaction, there were two alternative domestic suppliers to the merging parties and that the merging parties argued that Arkema was not in fact a competitive constraint to Ferro in certain key market segments.

Following a two-week long hearing, the Tribunal approved the merger subject to conditions which involve a pricing formula to customers in the mining segment, a toll-manufacturing agreement and a two-year moratorium on retrenchments.

Nortons Inc. acted for Ferro in this matter.

Competition Tribunal members re-appointed by President

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President Zuma re-appoints three Tribunal members

The President of the Republic of South Africa has made his decision to re-appoint Competition Tribunal Chairperson Norman Manoim for a second term now that his term has come to an end. Along with Mr Manoim, the President has also re-appointed full-time panel members Yasmin Carrim and Andreas Wessels for a further five years at the Tribunal.

For the past decade, the Tribunal has comprised three full-time panel members and up to eight part-time panel members can be appointed. For the first time, a fourth full-time panel member has been appointed, namely Ms Mondo Mazwai.

Two panel members who were not re-appointed are part-time panel members Professor Merle Holden and Dr Takalani Madima. The President has not announced whether two additional part-time panel members will be appointed to the Tribunal panel.

 

Minister’s grip over antitrust authorities further strengthened

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South Africa takes on more price regulation in planned amendment to Competition Act

BDLive’s Carol Paton reports that Economic Development Minister Ebrahim Patel – with whose involvement in competition policy AAT readers are well aware from reading our site – has further strengthened his grip on the country’s competition authorities.  He is said to be drafting amendments to the Competition Act in relation to dominant firms’ “excessive pricing” practices.  The amendments are to be introduced to Parliament in 2015.
The article quotes Mr. Patel’s Sunday interview, in which he said:

“The past five years indicated that we are serious about dealing with cartels. But the challenge that we have had is that the economy still has many formal monopolies or upstream producers who are able to impose high prices on downstream manufacturers. We have got to move with greater urgency to tackle the structural challenges.  Giving a dominant player the right to set its own price results is an unfairness. In the Sasol example, part of the remedy is for the firm to work with the competition authorities to develop a soft version of price regulation.”

Price regulation is an absolute taboo in U.S. antitrust law, and even under more interventionist and public-policy influenced EU standards, explicit price regulation is not practiced in the bloc’s 28 member states.
Sasol, the giant South African oil company, is said to be aware of the government’s plans, saying: “setting prices, in particular of traded goods, invariably leads to unsatisfactory outcomes.  South Africa’s joining the World Trade Organisation in 1995 took us forward to opening the economy to compete internationally, with prices being brought in line with international prices. Regulating prices to below gate price, is unlikely to lead to building long-term competitive industries.”

Patel not mincing words, diluting competition-law factors in mergers

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Economic Development Minister of South Africa, Ebrahim Patel, recently stated that the Competition Commission (“Commission”), South Africa’s key competition authority, will be asked to focus on jobs, industrialisation and small business development in lieu of ‘pure’ antitrust-law issues.

Patel stated that government would require the Industrial Development Corporation to focus on supporting black industrialists, and on the competition authorities to promote economic transformation “not as a by-product of but an explicit objective of competition policy.” According to Patel, competition bodies are in a position to contribute directly to the state’s objective of creating a more equal economy, where workers shared in the benefits of growth. His department is allegedly already in talks with the construction industry on a restitution package to redress collusion and price fixing. The end result, he stated, would be that larger companies will provide funds to support small producers and local suppliers.

Patel’s controversial views have already influenced Commission merger decisions and can clearly be seen in the recent Afgri/AgriGoupe case, where the authority entered into an agreement with the foreign buyer of the local grain and poultry company Afgri, requiring the new owners to contribute R90 million ($9m) to a fund to support small-hold farmers with training and loans.

Based on Mr. Patel’s latest pronouncements, South Africa is on a path to politicizing antitrust law and making pure competition considerations a secondary objective to public-interest considerations.

Dawn raids, early in the morning

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south_africa

Auto-body repair centres raided by SACC

Earlier this morning, the South African Competition Commission (“Commission”) has conducted dawn raids at the offices of Precision and Sons (“Precision”), Eldan Auto Body (“Eldan”) in Pretoria West, as well as the Vehicle Accident Assessment Centre (“VAAC”) in Centurion.

Precision and Eldan’s business activities include panel beating, spray painting and towing of vehicles. Precision is an approved auto body repairer to Original Equipment Manufacturers (“OEMs”) such as Cadillac, Dodge, Chrysler, Fiat, Kia, Chevrolet, Toyota and Honda, while Eldan is an approved auto body repairer to OEMs such as Jeep, Fiat, Mitsubishi, Toyota, Honda and Nissan.

The VAAC is an assessment centre which renders vehicle assessment services to customers of both Precision and Eldan.

The Commission has indicated that the dawn raid operation forms part of its ongoing investigation into collusive conduct in the market for auto body repairs. The Commission has also indicated that it has reasonable grounds to believe that information relevant to this investigation is located on the premises of the two companies.

Sections 46 to 49A of the South African Competition Act of 1998 (“Competition Act”) empowers the Commission to conduct surprise search and seizure visits and to carry out so-called “dawn raids” to a firm’s business premises in order to inspect documents and interview staff where an infringement of competition law is suspected.

The Commission is empowered to enter any such premises when a judge or a magistrate has issued a warrant. Although a warrant is usually an essential requirement to ensure that a dawn raid is conducted in accordance with the law, the Competition Commission does have the power to enter and search a premises without a warrant, in exceptional circumstances. The Commission has confirmed that it has duly obtained the warrants which authorise it to search the offices of Precision, Eldan and VAAC from the North Gauteng High Court.

If the Commission has reason to believe that a firm is in contravention of provisions of the Competition Act, or is in possession of information relating to a matter that is under investigation, the Commission’s investigators have the authority to enter into the firm’s premises in order to inspect and request copies of documents, ask for information in relation to any documents, take notes and interrogate employees, search and examine computer data and remove evidence from the premises. In particular, officials may examine files, reports and emails. The Competition Commission is entitled to confiscate computer hard drives. They may also take copies of documents.

Following a four-year dawn raid “drought”, the immediately-previous dawn raid initiated by the Commission had been conducted in April 2014 at the offices of Unilever South Africa (Pty Ltd) and Sime Darby’s respective South African offices, in relation to the Commission’s investigation into alleged collusive conduct in the product markets for the manufacture and supply of edible oils and baking fats to both wholesale and retail customers.