Media PAIA request reveals evidence underlying South African Competition Commission dawn raid

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By Tyla-Lee Coertzen

Following the South African Competition Commission’s (“SACC”) dawn raids conducted on eight major South African insurance firms in August of 2022, a popular South African news resource, News24, was successful in a Promotion of Access to Information (“PAIA”) request to gain access to the court documents which granted the SACC permission to conduct the dawn raid.

In our previous update on the matter, we recorded that the SACC conducted a dawn raid on the following insurance firms: Discovery Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MNI Limited; Old Mutual Limited; BrightRock Life Limited; FMI, a division of Bidvest Life Limited; Professional Provident Society Limited, and South African National Life Assurance Company (Pty) Ltd. The dawn raids were conducted as part of the SACC’s ongoing investigation into potential collusion between insurance firms.

Collusion is described as a per se prohibition in the South African Competition Act, 89 of 1998 (as amended) (“the Act”). This means that competitors who are found to have colluded with each other may not raise efficiency defences. Mere participation in a restrictive horizontal practice will attract administrative penalties and imprisonment.

The PAIA request provided News24 with access to certain evidence including emails circulated between insurers which the SACC believes to have taken place since 1989. According to News24, the SACC alleges that historically, the insurers formulated a ‘rate book’ in which information regarding information regarding prices of certain products were recorded. This rate book was allegedly exchanged between insurers. Thereafter, it is alleged that the insurers exchanged floppy disks with sensitive pricing information. In more recent times, it is alleged that pricing information was uploaded onto password protected online platforms, and the passwords were shared between insurers. The SACC also alleges that technical information regarding the design of products were shared, thereby allowing insurers to decrease competition amongst themselves. To see the full News24 article on the matter, click here.

Primerio director, John Oxenham, who notably acted for the leniency applicant in the infamous bread cartel says: “After a lengthy hiatus, it is apparent that the SACC is using significant investigative tools in an effort to uncover and prosecute potential cartel conduct. In the past, this mechanism of investigation, namely dawn raids, has been of significant effect in assisting the agencies to fulfil its mandate of preventing corrupt activity.”

Fellow Primerio director. Michael-James Currie said “one of the key challenges, for all parties involved, in cases where the alleged conduct was often historic, there is a lack of credible witnesses to contextualize certain evidence. It very often happens that evidence, when considered in isolation, presents a very different picture than what truly transpired”.

Do antitrust settlements require an admission of guilt? Appellate body says “no”, overrules CID

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Barring an application for review to the community’s highest court, decisions by the COMESA Competition Commission and its CID (Committee for Initial Determinations) are reviewed by the COMESA Appeals Board (“CAB”). In other words, the CAB is the crucial mid-layer of appellate review in antitrust matters across the COMESA region.

The CAB recently published its important December 2022 ruling in the CAF / Confédération Africane de Football matter. The CAF case is noteworthy in at least 3 respects, says Andreas Stargard, a competition attorney with Primerio International:

“For one, it deals with one of the CCC’s very first cases involving anti-competitive business practices; heretofore, virtually all decisions by the Commission involved pure merger matters.

Second, the CAB ruling is important in that it lays the groundwork for future settlements (or commitments) between the Commission and parties accused (but not yet found guilty) of violations of the COMESA competition regulations.

Lastly, the Appeals Board highlights the importance of issuing well-reasoned, written decisions, on which the parties (and others) can rely in the future. The CAB has made clear what we at Primerio have long advocated for: a competition enforcer must articulate clearly and state fully all of the reasons for its findings and ultimate decision(s). This is necessary in order for readers of the written opinion to evaluate the factual and legal bases for each. The CAB has now expressly held so, which is a welcome move in the right direction for COMESA litigants!”

In an ironic twist in the 5-year saga of the CAF investigation by the CCC, the Commission and the parties themselves had reached an agreed settlement, according to whose terms the parties did not admit guilt, yet agreed to (and in fact anticipatorily did) cease and desist from performing under their sports-marketing contract, which was essentially torn up by the commitment decision. Yet, to the surprise of the CCC and the private parties under investigation, in the summer of 2022 the CID refused to sign off on the settlement, due to the sole (otherwise unexplained) reason that there was a lack of an admission of guilt. The parties sought reconsideration on various grounds, which the CID again refused a second time. These rulings were then appealed — successfully — to the CAB, which quashed the CID’s unsubstantiated determinations and gave effect to the parties’ previously-reached settlement agreement with the CCC.

The full decision — which deals in detail with the CAF’s distribution agreements for the commercialization of marketing and media rights in relation to sports events — can be accessed on AAT’s site, see below.

comesa-appeals-board-decision-in-caf.pdfDownload

The Risk of Price Regulation: A Review of Recent Abuse of Dominance Cases in South Africa

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By: Michael-James Currie, Gina Lodolo and Nicola Taljaard 

As aptly put by Campton P[1] “it is probably safe to say that in the developed world, competition is now accepted as the best available mechanism for maximizing the things that one can demand from an economic system in most circumstances. Economic regulation is increasingly perceived to be at the opposite end of the spectrum – it tends to leave a larger number of people with a reduced real income and a lower standard of living.” 

Introduction 

Regulatory intervention in the competition law arena, which is aimed at ensuring markets function optimally and are competitive, is the essence of most traditional competition law regimes. There is, however, an increasing risk of over regulation and over enforcement which may undermine incentives to invest and innovate, ultimately leading to a dampening effect on pro-competitive conduct.

Competition enforcement should principally be aimed at ensuring features of the market do not distort competition on the merits. It should not be used as a tool for price regulation. In this paper, we explore some of the recent abuse of dominance cases in South Africa – most notably the “price gouging” cases – adjudicated during the height of the Covid-19 pandemic and flag several risks that may materialize if those cases are to be used as blueprints for future enforcement activity.

In this paper we explore the benchmarks set out in what was the leading jurisprudence on excessive pricing in South Africa, namely the Sasol Chemical Industries Limited v Competition Commission[2]  before the Competition Tribunal (“Tribunal”) and Competition Appeal Court  (“CAC”)[3] respectively and how the excessive price test and standards against which excessive pricing cases have recently been adjudicated, has developed – both in terms of the amendments to the legislation as well as recent cases assessed under the “price gouging” rubric. This is particularly topical as we expect to see an increase in the number of excessive pricing cases brought in South Africa.

In the CAC decision of Babelegi,[4] however, Judge Dennis Davis himself noted the challenging nature of the excessive pricing doctrine for competition authorities, as it “requires them, to a considerable extent, to act in the manner of a price regulator”.[5] He further notes in relation to these challenges, that the decision by the CAC in Babelegi was even more complicated in light of the fact that it had to be “determined through the prism of an excessive pricing provision” which was not specifically designed for the complex and novel conditions brought about by the pandemic.[6] 

Against this backdrop, we discuss the Sasol case as well as unpack the price gouging cases and highlight several concerns associated with an overly interventionist approach in prosecuting perceived excessive pricing cases.

Excessive pricing: Unpacking the Sasol Benchmark

Excessive pricing cases have been inherently difficult to sustain by the South African Competition Commission (“SACC”), especially in industries where there are low barriers to entry. This is because, in ordinary circumstances, for an incumbent firm to charge excessive prices, they need to be a quasi-monopolist, otherwise the charging of excessive prices typically encourages entry by third parties as there are pecuniary profits to be made. This new entrant would ordinarily result in the incumbent reducing prices to ultimately reach competitive levels. In simple terms, the market self regulates.

Before discussing the price gouging cases, it is useful to briefly sketch an overview of excessive pricing cases in South Africa and the clear benchmarks set in Sasol. In this regard, the CAC in Sasol noted the complexity associated with excessive pricing cases in that: “[p]ricing power derives from market power. However, the mere possession of market power is not contrary to competition law. Indeed, some important source of market power is innovation and other, pro-competitive conduct. The rents derived from the possession of market power will, in most circumstances, sooner or later attract new entrants, the more so if the dominant incumbent takes ‘excessive’ advantage of its privileged position. And so, the effort to acquire market share and, therefore, pricing power and the attention it attracts from rivals are an important driver of the competitive process.”[7]

Notwithstanding the likelihood that the market will find a way to self-regulate through the threat of new entrants, when considering an excessive pricing case, there are further factors that need to be taken into consideration to determine whether the price is indeed excessive. For example, the Tribunal in Sasol considered the risk versus reward dynamic and the reasons why a dominant firm “is able to charge a price above the economic value of the good or service”.[8] An oft used example is prevalent in the context of patents. A patent holder is conferred a statutory monopoly position and is entitled to charge prices which are substantially above the cost of producing the patented product. This is because, simply put, a manufacturer must be entitled to benefit from the risks of developing a patented product (which has no guarantee of success) as well as the costs associated with failed attempts. If a firm is deprived of the ability to potentially earn substantial profits if they are successful in developing a patented product, why take the risk in trying to develop such a product in the first place. This would clearly deprive consumers of innovation.

The Tribunal’s major gist in the Sasol case was that Sasol, as a previously State-Owned Enterprise (“SOE”) achieved its dominance by virtue of State support as opposed to risk and innovation.[9] Accordingly, the Tribunal found that Sasol had engaged in excessive pricing. Sasol, however, successfully had the Tribunal’s finding overturned on appeal.

In short, the CAC applied a revised costing calculation mechanism which led to the conclusion that Sasol had implemented substantially lower mark-ups in comparison to those calculated by the Tribunal, and in relation to this determination, established that returns that are above economic value are not unreasonable per se.[10] Further, the CAC in Sasol noted that pricing is not excessive merely because it is above economic value, rather, such pricing should be substantially higher than the economic value: “some measure of latitude has to be given to firms with regard to pricing. If not, a court will become a price regulator”.[11]

While the CAC deviated slightly from the Tribunal in imputing significant importance to the question of how Sasol obtained its market position, the CAC and Tribunal still aligned to the extent that innovation and risk-taking “may have a bearing on economic value of its product and the reasonableness of the price” – it is, however, not a “license for patent holders to engage in excessive pricing”.[12]   

Subsequent to Sasol, the Competition Act, 18 of 2018 (“Amendment Act”) came into force to provide that when determining whether a price is “excessive”, the SACC must inter alia, take into account  “the structural characteristics of the relevant market, including the extent of the respondent’s market share, the degree of contestability of the market, barriers to entry and past or current advantage that is not due to the respondent’s own commercial efficiency or investment, such as direct or indirect state support for a firm or firms in the market”.8 (own emphasis) 

Further, the Amendment Act changed the test for excessive pricing from “a price for a good or service which bears no reasonable relation to the economic value of that good or service; and is higher than [a certain value]” to now provide that a price can be excessive where the price is “higher than a competitive price and whether such difference is unreasonable.”  This Amendment makes the position even more opaque. 

While cases such as Sasol remained the guiding precedent, the quantitative benchmarks were relatively clear. However, the outcome of the excessive pricing decisions in Dischem[13] and Babelegi, leaves much to be said about the certainty of excessive pricing cases to follow. In this regard, we argue below that the latter judgments create uncertainty considering their application outside of the ambit of the anti-price gouging regulations (“Regulations”)[14] and their deviation from the notion that excessive pricing may incentivize entry into the market and that the market self-regulates.

A Discussion of the Subsequent Price Gouging Cases

Price gouging occurs when sellers of goods and/or services increase their prices for these economic commodities to levels considered unreasonable or unfair, usually during periods of extreme supply or demand changes in the market.[15]

As a result of a short-term change in market conditions, price gouging is a form of excessive pricing which is usually subject to a different standard from the usual excessive pricing tests contemplated by competition laws.  

In order to address price gouging concerns in South Africa during the Covid-19 pandemic, the South African Government declared a State of National Disaster in March 2020, and published the emergency Regulations. These Regulations applied to both the supply and the pricing of certain ‘essential’ goods.[16]

In short, the Regulations prohibited firms from increasing prices unless it was directly proportional to a cost increase. Policy issues aside, the Regulations could not be faulted in so far as they were clear and ensured that all players in the market knew what the rules were – i.e., a key tenet of the principle of legality.

Notably, however, the two precedent-setting price gouging cases adjudicated before the South African Competition Authorities, were based on conduct which preceded the promulgation of the anti-price gouging Regulations. The Regulations were therefore not applicable, and the cases were adjudicated under the excessive pricing prohibition in the Amendment Act. Moreover, it was also the first excessive pricing cases to be adjudicated under the new amended excessive pricing test following the amendments to Competition Act 89 of 1998 (“Act”). As some final contextual background, these cases were brought on an urgent basis and parties only had a matter of a few weeks to prepare economic evidence in these cases.

The Dischem and Babelegi decisions, which both concerned instances where the respondents had increased the prices they charged for face masks during the initial stages of the Covid-19 pandemic, were decided within a month of one another.

Both parties disputed their dominance in the market. In Babelegi, it was not disputed that Babelegi only had less than 5% market share, yet it was held to be “dominant” based on short term market power. In Dischem, the Tribunal found it unnecessary to conduct a market share analysis as Dis-Chem’s market power was directly inferred from its conduct. The Tribunal held that Dis-Chem’s ability to significantly increase the prices of face masks all the while increasing sales volumes was direct evidence of Dis-Chem having market power. 

In Babelegi, the Tribunal held that a firm’s ability to increase prices within a short period of time is indicative of dominance and that market power or dominance must be determined with reference to context. In this regard, the Tribunal states that even small firms may have market power. In emphasis of the point that even small firms may be considered dominant,we note again that Babelegi had less than a 5% market share and was still deemed to have had market power as it had the ability to profitably increase its prices without providing any cost justifications.

Similarly, in Dischem, the Tribunal found that the SACC had established a prima faciecase of excessive pricing based on Dis-Chem’s ability to substantially increase its profit margins and pricing above what is reasonable, which, in relation to essential goods was held to be any increase whatsoever.

Although the CAC upheld the Tribunal’s decision in Babelegi, Judge Dennis Davis made the following noteworthy statement:

“These observations do not detract from the complexity of the task confronting this court, particularly in the present case where at the relevant time, government had not introduced bespoke price gouging regulations. As a result, the present case has to be determined through the prism of an excessive pricing provision [which] was not intended for use in the specific and unique conditions of a Covid 19 pandemic. The present case is mercifully somewhat more confined than might otherwise confront a competition authority in dealing with an excessive pricing case.”[17]

The CAC therefore acknowledged that the “price gouging” case was really a product of extreme market circumstances and an unfortunate lacuna in the regulatory environment. It should therefore not be used as a benchmark against which all future excessive pricing cases are adjudicated. Failure to consider the unique circumstances which both the Tribunal and CAC sought to emphasize throughout their respective decisions, will significantly water down the excessive pricing standards and most notably, create uncertainty for businesses in the pursuit of profit maximizing conduct fearing the risk of being sanctioned for taking advantage of short-term market fluctuations.

Following the Dischem and Babelegi decisions, in Tsutsumani,[18]the Tribunal decided the first case under the Regulations, read with section 8(1)(a) of the Amendment Act, wherein which it also confirmed that the Regulations were not in force during the complaint period of Babelegi.[19]  Tsutsumani emphasised the importance of “context” (as also emphasised in the Babelegi CAC decision) – being the unprecedented Covid-19 pandemic.[20] In this regard, to determine whether the price was “excessive”, the Tribunal in Tsutsumani applied the various benchmarks set out in section 8(1)(a) and 8(3)(a)-(f)[21] of the Amendment Act. In this regard, to determine whether a price that is higher than a competitive price is unreasonable, the Amendment Act, in section 8(3)(b)(f), provides for consideration of “any regulations made by the Minister, in terms of section 78 regarding the calculation and determination of an excessive price.”  It was within this framework that the Tribunal applied the Regulations to ultimately make an adverse finding against Tsutsumani.

To establish dominance, the SACC, however, relied on Dischem to find that, even though Tsutsumani only entered the market during the pandemic, its market power could be inferred by its pricing.[22]  Even though Tsutsumaniargued thatthere were 18 other alterative suppliers who responded to the Request for Quote from the South African Police Service, the SACC went further to place reliance on Babelegi wherein it was found by the CAC that “a store, by merely having PPE products in the context of such excess demand could enjoy market power. Multiple firms – even stores located in the same shopping mall – could conceivably exercise market power in the supply of PPE vis-a-vis their customer”.[23] The Tribunal again, however, in making a finding that Tsutsumani was dominant, emphasized that Tsutsumani was a “lucky monopolist” that capitalized on a crisis and further that even though there were alternative suppliers, “the lucky monopolist might not be a single firm in the relevant market. Given the exogenous factors, multiple firms can be found to be dominant during the crisis”[24] – thereby confining its decision to this crisis context only.[25]  

Interestingly, in Tsutsumani, the Tribunal suggests that the National Disaster Regulations prescribe a 10% benchmark.[26] This appears to be an error as the National Disaster Regulations suggest that “any markup” may be scrutinized. The error arises likely by a reading of the Dischem[27] and Babelegi[28]   decisions where the SACC considered the United States wherein a 10% markup during price gouging situations is usually the benchmark. Accordingly, in conjunction with the uncertainty created regarding the conferring of short-term market power as a benchmark for dominance, there is further uncertainty as to what profit margin may prima facie be viewed as excessive. This results in a lack of clarity in how businesses can ensure that price increases are proportionate to cost increases in circumstances where the increase is usually benign. This places a significant administrative burden on firms and an unjustified increased cost of compliance.  It would be preferable if there was a clear materiality threshold so that competitively benign or cost justified price increases do not get caught in the snare of an overly conservative approach to excessive pricing.

Accordingly, the context in which these cases were decided is instructive. The risk, however, of the price gouging decisions finding application in other markets or other market circumstances is not immaterial. The incoming Commissioner of the SACC has expressly stated that the price gouging cases provide a basis for the SACC to implement the amendments to the Act – these include not only excessive pricing but also amendments to the price discrimination (and several other abuse of dominance) prohibitions. In this regard, newly appointed Commissioner, Ms Doris Tshepe, whose role is inter alia to fulfil the mandate embodied in the amendments to the Act, stated that “[w]hat the Commission did, together with the Competition Tribunal and the CAC [Competition Appeal Court], during the COVID crisis, was to show that there is capacity to find and deal with matters as efficiently as possible. We could learn and use those lessons to try and implement the amendments [to the Competition Act].”[29] The Commissioner added further that “[w]e don’t have 10 years to set precedents on the new amendments. There is an urgency, we are in a crisis, our economy is in crisis, and in order to achieve desirable outcomes we are going to have to work a bit faster”.[30] 

Accordingly, while much of this paper has been dedicated to the price gouging cases, the principles underpinning these cases may well be used in pursuing other sectors or instances of market shocks which are unrelated to the Covid pandemic. We suggest that this would pose a significant risk of regulatory intervention and amount to quasi-price regulation.

Market Inquiry Powers: A Power Tool to Price Regulate  

In addition to the lower standards and approaches to market power and excessive pricing, we note that the amendments to market inquiry provisions in the Act provide expansive and far-reaching powers to the SACC to pursue behavioral and structural remedies.

Previously, the SACC’s powers, following the conclusion of the market inquiry, were limited to making recommendations to the Legislature to address any perceived features in the market which hinder effective competition. The SACC now has powers to directly impose any remedy (except penalties), including behavioral and structural remedies (the latter to be confirmed by the Tribunal) directly following the conclusion of a market inquiry. Unlike the sanctions for abuse of dominance findings, which are typically the imposition of an administrative penalty by the Tribunal, the SACC could notionally impose more direct pricing related remedies following a market inquiry.

The test against which the SACC will assess whether any features distort competition is also lower than the “substantial lessening of competition”. While market inquiries typically do have lower standards, the power to make behavioral or structural remedies based on a standard that does not require a showing of substantial lessening of competition poses a significant risk to firms.

To date there have not been any market inquiries which have been concluded (although there are several which have, or will soon, commence) and hence it is too early to make any pronouncements on the manner in which market inquiries are used as an investigative tool to price regulate markets. Suffice to note in this paper that the SACC has an important responsibility not to overstep and utilize its broad powers in pursuing perceived distortions by price regulating markets.

Conclusion 

The price gouging cases in South Africa are somewhat unfortunate. While they protected the public from significant price hikes for critical products during the pandemic, the urgent manner in which they were brought and the fact that they were the first cases assessed under the amended excessive pricing prohibitions, has resulted in an application of the excessive pricing test which may not be fit for purpose. Notwithstanding the CAC’s cautionary remarks that context matters in excessive pricing cases and that Covid-19 posed unique challenges, the principles set out in those cases are likely to be utilized in pursuing cases unrelated to the Covid-19 pandemic. Excessive pricing cases, which are pursued too liberally based on short term market power and without clear benchmarks as to what constitutes “excessive”, amounts to price regulation (or at least an attempt to price regulate). This risk should be guarded against by the competition adjudicative bodies.  Having clear anti-pricing gouging regulations in instances of national disasters published (as they were in South Africa albeit after the conduct in respect of the precedent setting price gouging cases took place) would be preferable to using traditional excessive pricing tests and frameworks to penalize firms who only temporarily possess market power due to a demand or supply shock.

The SACC has, however, indicated in several instances, either directly or indirectly, that the principles set out in the price gouging cases will be utilized going forward. Combined with the SACC’s expanded market inquiry powers, there is a material risk of over regulation in pursuit of price regulation which is not what competition law was designed for.

[1]            Crampton P “Striking the right balance between competition and regulation: The key is learning from our mistakes.” OECD 16-17 October 2002.

[2]            Sasol Chemical Industries Limited v Competition Commission 48/CR/Aug10 (“Sasol Tribunal”).

[3]            Sasol Chemical Industries Limited v Competition Commission 2015 (5) SA 471 (“Sasol CAC”).

[4]            Babelegi Workwear and Industrial Supplies CC v The Competition Commission of South Africa 186 CAC (“Babelegi”).

[5]            Babelegi Para 41.

[6]            Babelegi Para 43.

[7]            Sasol CAC Para 2.

[8]            See Sasol Tribunal Para 101 and Para 94 read with footnote 44 wherein it was stated that “the real distinction to be drawn lays in those advantages which are the product of the dominant firm’s own innovation, risk taking and investment, for example stemming from the patent or an innovation. For example, if a firm invests particular software or innovates and then patents, it will enjoy certain advantages as a result this would be a return for its own efforts and risk taking and innovation and should be rewarded”.

[9]            See Para 76 of Sasol Tribunal where it was stated that “the principal issue thus was whether or not one should take SCI’s feedback cost advantage into account in favour of SCI, given the peculiar circumstances as alleged by the Commission, namely that this advantage is not as a result of SCI’s own risk taking and innovation, but the result of its history of state support”.  

[10]          Sasol Tribunal Para 174.

[11]          Sasol CAC Para 184.

[12]          Sasol CAC Para 173.

[13]          Competition Commission of South Africa v Dis-Chem Pharmacies Limited CR008Apr20 (“Dischem”).

[14]          The Consumer and Customer Protection and National Disaster Management Regulations and Directions GN R350 GG 43116, 19 March 2020.

[15]          W Boshoff “South African Competition Policy on Excessive Pricing and its Relation to Price Gouging during the Covid-19 Disaster Period”(2020) 0 SAJE 1.

[16]          J Oxenham & MJ Currie “Covid-19 Price Gouging Cases in South Africa: Short-term Market Dynamics with Long-term Implications for Excessive Pricing Cases”(2020) 11 JECLAP.

[17]          Babelegi Workwear and Industrial Supplies CC v Competition Commission of South Africa CR003Apr20 para 41.

[18]          The Competition Commission v Tsutsumani Business Enterprises CC COVCR113Sep20 (“Tsutsumani”).

[19]          Tsutumani Para 3.

[20]          Para 13.

[21]          Section 8(1)(a) of the Amendment Act provides that “it is prohibited for a dominant firm to— (a) charge an excessive price to the detriment of consumers or customers”. Further section 8(3)(a)-(f) of the Amendment Act provides that “any person determining whether a price is an excessive price must determine if that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account all relevant factors, which may include— (a) the respondent’s price-cost margin, internal rate of return, return on capital invested or profit history; (b) the respondent’s prices for the goods or services— (i) in markets in which there are competing products; (ii) to customers in other geographic markets; (iii) for similar products in other markets; and (iv) historically; (c) relevant comparator firm’s prices and level of profits for the goods or services in a competitive market for those goods or services; (d) the length of time the prices have been charged at that level; (e) the structural characteristics of the relevant market, including the extent of the respondent’s market share, the degree of contestability of the market, barriers to entry and past or current advantage that is not due to the respondent’s own commercial efficiency or investment, such as direct or indirect state support for a firm or firms in the market; and (f) any regulations made by the Minister, in terms of section 78 regarding the calculation and determination of an excessive price.”

[22]          Tsutsumani Para 61.

[23]          Para 62.

[24]          Para 71.

[25]          Para 70. In this regard even though there were alternative suppliers, the South African Police Service lacked sufficient information on the status and available volumes from other suppliers and feared that they would be able to obtain the stock required.

[26]          Tsutsumani Para 90.

[27]          Dischem Tribunal Footnote 66.

[28]          Babelegi Tribunal Para 98-103.

[29]          Media Statement: New Competition Commissioner Doris Tshepe says she is Ready to Push Boundaries and be Innovative (2022) (Available at https://www.compcom.co.za/wp-content/uploads/2022/09/Media-Statement-on-the-final-day-of-the-competition-conference-1-September-2022_.pdf) 1.

[30]          Media Statement: New Competition Commissioner Doris Tshepe says she is Ready to Push Boundaries and be Innovative (2022)(Available at https://www.compcom.co.za/wp-content/uploads/2022/09/Media-Statement-on-the-final-day-of-the-competition-conference-1-September-2022_.pdf) 1.

“We won’t compete on price!” — Telco CEO makes blatant antitrust admission

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Today, the East African reported on a stunning admission by the Chief Executive Officer of Kenyan mobile telco heavyweight Safaricom (itself no stranger to AAT telco competition reporting and proprietor of the massive M-Pesa mobile money network across East Africa). In the article, fittingly entitled “Safaricom rules out price war in Ethiopian market“, the business report quotes Mr. Peter Ndegwa as saying:

“From a pricing perspective, our pricing strategy is generally to be either in line or just slightly at a premium, but not to go for any price competition. The intention is actually generally to be closer to what the main operator is offering, especially on voice.”

Safaricom’s senior exec made his curious confession on a recent investor call. Says Andreas Stargard, a competition attorney with Primerio: “On these investor conference calls, there are usually several analysts and reporters on the line, listening in, and they commonly are also recorded. This would mean there exist clear prima facie evidence and several witnesses to these statements, as reported by the East African source.” He adds: “It remains to be seen whether any of the several competent authorities will investigate Safaricom’s express statement of a de facto ‘non-compete’ between the Ethiopian incumbent and the Kenyan upstart,” with the former (Ethiotel) boasting 54m subscribers, as opposed to the latter’s mere 1m users in-country.

POSSIBLE INVESTIGATIONS

When asked which government authorities would be authorized to investigate Safaricom’s “no price war” policy expressed by Mr. Ndegwa, according to the newspaper, Mr. Stargard noted that, beyond the domestic Ethiopian telecoms regulator, there existed at least two (2) competent antitrust bodies with jurisdictional authority: “For any potentially anti-competitive conduct occurring in Ethiopia that may have a cross-border effect (as mobile telephony usually does — especially with a foreign, here Kenyan, operator involved as well), I could see either the Ethiopian Trade Competition and Consumer Protection Authority (“TCCPA”) or the supra-national COMESA Competition Commission (“CCC“) under Dr. Mwemba’s reinvigorated leadership stepping in.”

As the latter has made clear in several public pronouncements recently, the CCC is poised to continue its non-merger enforcement streak, that is: investigating and prosecuting restrictive business practices, such as cartels and cartel-like behaviour. “We call it, CCC 2.0,” Stargard adds half-jokingly. He notes that both the TCCPA and CCC have all the necessary legislative instruments in hand to proceed with a preliminary investigation on the basis of the above quotes published by the East African:

In Ethiopia, the TCCPA could argue that “expressly avoiding a price war” is possibly in violation of Article 7(1) of the Ethiopian Trade Competition and Consumer Protection Proclamation (“Article 7(1)”), which provides that “(1) An agreement between or concerted practice by, business persons or a decision by association of business persons in a horizontal relationship shall be prohibited if:…(b) it involves, directly or indirectly, fixing a purchase or selling price or any other trading condition, collusive tendering or dividing markets by allocating customers, suppliers territories or specific types of goods or services”.

For COMESA, the CCC has conceivably two legislative tools at its disposal: First, Art. 16 of the Regulations (“Restrictive Business Practices”) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which (i) may affect trade between member states, and (ii) have as their object or effect the prevention, restriction or distortion of competition. Provision is then made (in Art. 19(4)) for the Article to be “declared inapplicable” if the agreement, decision or concerted practice gives rise to efficiencies and the like. Importantly, even though Art. 16 also applies to by-object practices, provision is made for an efficiency defence. Second, the CCC could resort to Art. 19 (“Prohibited Practices”), which focusses on “hard-core” cartel-like practices. Art. 19(2) provides that Art. 19 applies to agreements, arrangements and understandings, while sub-sections (1) and (3) provide that it is an offence for (actual or potential competitors) to fix prices, to big-rig or tender collusively, to allocate markets or customers, and the like. 

DEFENCES

Safaricom and its domestic competitor (the government-owned, former absolute monopolist, Ethiotel) may of course offer — preemptively or otherwise — a pro-competitive explanation for their alleged “non-compete” agreement. However, in attorney Stargard’s view, such defences must be well-founded, non-pretextual, and they would be well-advised to have contemporaneous business records supporting any such defences at the ready, should an antitrust investigation indeed ensue.

“Indeed, it may appear to the authorities that Mr. Ndegwa’s quoted concession of ‘We won’t compete on price’ may be a sign of capitulation or at least a ‘truce’ between Safaricom and Ethiotel,” he surmises, “because as recently as mid-December [2022], the incumbent monopolist [Ethiotel] had threatened legal action against the Kenyan newcomer, claiming that Safaricom had ‘harrassed’ the incumbent’s customers and caused loss of service due to its actions.” An incoming competitor’s attempt at avoiding a civil lawsuit between it and would-be competitors would, of course, not constitute a legal defence to forming a (formal or informal) non-compete agreement on pricing, he adds.

“We have extensive experience counseling clients on how to successfully — and aggressively — defend against accusations of price-fixing, whether the allegations involve tacit collusion or express price or market-allocation cartel behaviour. While the parties here would likely not have a formalistic statute-of-limitations argument at their disposal, given the recent nature of the conduct at issue, I could imagine there being eminently reasonable ways of showing the harmless nature of the conduct underlying the, perhaps misleading, investor-call statements made by the executive,” he concludes.

Egyptian merger control undergoes major revamping after 17 years

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By Rostom Omar, Esq. (Primerio Ltd.)

Egypt finally adopts a new merger-control regime that would transform the system from a post-notification to a pre-approval system.

After nearly twenty years of applying Competition Law in Egypt and After several attempts from the Egyptian Competition Authority (ECA) to introduce a pre-merger notifications regime and several discussions with government, the parliament and sectorial regulators; on Dec 4th, 2022 the Egyptian parliament has finally approved the proposal to amend the Law on Protection of Competition and Prohibition of Monopolistic Practices No. 3 of 2005 (ECL). 

It is worth mentioning in this regard that Egypt was the only country in the region and one of the few countries in the world whose law was not adopting merger Pre- approval system; at a time when M&As increased significantly in the region during the last few years and in which Egypt occupies an advanced position.

According to article 19 of the ECL (Post notification) the acquisition of shares or assets, or joint venture that results in a change of control of an entity or material influence over such entity should be notified after 30 days of concluding the transaction if the combined turnover of the parties exceeds 100 M EGP. It is not yet clear if the non-controlling minority acquisitions would be included in the new filing requirement.

The statement by the ECA indicates that the new filing requirements would apply to merger and acquisition transaction when the annual turnover of the parties exceeds 900 million EGP (around U.S. $30m).

Under the new regime, the ECA will get to assess each reportable transaction prior to closing to decide whether to clear it or not, or impose conditions on approval. The ECA will have the authority to block a transaction that may result in “limiting, restricting, or harming competition”. According to ECA most transactions should be cleared as far as they don’t harm the market structure. The ECA will have the authority to block or to issue a conditional approval for the merger.

Two types of assessments will be included, as is the case with other legislations such as the Moroccan law, one of which is a preliminary examination of the transaction in question and the other is an in-depth examination as needed to speed up the adjudication of notifications.

The details and scope of the amendments will become clearer in the law and via ancillary regulations, and we expect there to be guidelines published in the near future as well.  We will continue to monitor the progress of the entry into force and all relevant details for companies doing business in Egypt and the region more broadly speaking.

We expect more activity from ECA in the next stage for promoting and explaining the new amendments, and we expect more transparency and clarity when dealing with the concerned persons regarding M&As files, especially in the context of the short period of time required by this type of files and their impact on the market and on investments promotion in Egypt.

Currently, parties considering future transactions that may involve businesses with revenues in Egypt should ensure compliance with the latest Egyptian merger control amendments.

SACC’s take on its #DigitalMarkets oversight & regulation

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The South African Competition Commission recently contributed the following summary of its activities regarding the ‘hot topic’ of so-called Digital Markets and antitrust law to the “Compendium” (not AAT’s, the actual government enforcers’ compendium document resulting from the multilateral G7 meeting organized by the Bundeskartellamt in Germany).


Whether and how you have sought to use enforcement or non-enforcement tools, law
enforcement or regulatory action to address such issues. You may wish to highlight any
particularly relevant cases.

Recent cases
The Competition Commission of South Africa (CCSA) uses various competition enforcement tools to resolve concerns in digital markets, including unilateral conduct enforcement, merger regulation, market inquiries and advocacy. In November 2021, the CCSA referred an abuse of dominance case against Facebook Inc. (now Meta Platforms Inc) to the Competition Tribunal (Tribunal), for adjudication. The CCSA’s investigation found that Facebook enforced unduly restrictive access terms and conditions to its WhatsApp platform, against GovChat. This was to remove GovChat’s threat to Facebook’s own social networking position and WhatsApp’s monetisation strategies.


GovChat is a start-up online platform through which the South Africa government communicates with its citizens through mass push notifications on the WhatsApp platform. The GovChat platform also allows citizens to access information or services pertaining to various government services or programmes such as social grants, COVID19 services or to respond to surveys / polls to rate government services / performance. Thus, GovChat plays a very important role in the lives of South African citizens and is an important interface between the government and citizens. The CCSA found that Facebook’s conducts likely contravenes the following abuse of dominance provisions contained in section 8(1) of the Competition Act No. 89 of 1998 (as amended) –


a. refusal to give a competitor access to an essential facility when economically feasible to do so (section 8(1)(b)).
b. engaging in exclusionary conduct whose anticompetitive effect is not outweighed by any efficiencies or technological gains (section 8(c)).
c. refusal to supply scarce goods or services to a competitor or customer when economically feasible to do so (section 8(1)(d)(ii)).
At the time of writing, the Tribunal had not yet allocated a hearing date for this matter.

Market inquiries
In May 2021, the CCSA launched its online intermediation platforms market inquiry (the “Inquiry”). The Inquiry is focused on digital platforms in the areas of e-Commerce marketplaces, online classifieds, software application stores, travel and accommodation aggregators, and food delivery services platforms. The inquiry has focused on three areas of competition and public interest, namely (a) market features that may hinder competition amongst the platforms themselves; (b) market features that may give rise to discriminatory or exploitative treatment of business users; and (c) market features that may negatively impact the ability of SMEs and/or historically disadvantaged firms to participate in the economy.


The Inquiry released its provisional report in July 2022 and aims to conclude its work by the end of 2022. Amongst others, the Inquiry has provisionally found that Google Search plays an important role in directing consumers to the different platforms, and in this way shapes platform competition. The prevalence of paid search at the top of the search results page without adequate identifiers as advertising raises platform customer acquisition costs and favours large, often global, platforms. Preferential placement of their own specialist search units also distorts competition in Google’s favour. The Inquiry provisionally recommends that paid results are prominently labelled as advertising with borders and shading to be clearer to consumers and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments. The Inquiry further provisionally recommends that Google allows competitors to compete for prominence in a search by having their own specialist units and with no guaranteed positions for Google specialist units. The Inquiry is also exploring whether the default position of Google Search on mobile devices should end in South Africa. In terms of competition amongst platforms, the Inquiry makes the following provisional findings and recommendations, amongst others:


a. In software application stores, there is no effective competition for the fees charged to app developers with in-app payments, resulting in high fees and app prices. The Inquiry’s provisional recommendation is that apps should be able to steer consumers to external web-based payment options, or alternatively a maximum cap is placed on application store commission fees.
b. Price parity clauses, evident in travel & accommodation, e-commerce and food delivery, hinder competition and create dependency, and the Inquiry therefore recommends their removal. Wide price parity clauses prevent businesses offering
lower prices on other platforms and narrow parity prevents businesses from offering lower prices on their own direct online channel.
c. In property classifieds and food delivery, new entrants and local delivery platforms face challenges signing up large national businesses, undermining their ability to compete. The Inquiry provisionally finds in property classifieds this is a result of the investment and support of large estate agencies in Private Property and recommends the divesture of their stake. Facilitating the interoperability of listings on the leading platforms is a further recommendation to support entrants. In food delivery, national restaurant chains often prevent franchisees listing on local delivery platforms and the Inquiry recommends this practice ceases along with any incentives provided by national delivery platforms to steer volumes their way.
d. In food delivery, the Inquiry also finds that the business model of substantial eater promotions alongside high restaurant commission fees can result in large surcharges on menu items which is not transparent to consumers and distorts competition with local delivery options. The Inquiry provisionally recommends greater transparency on either the menu surcharge or the share taken by the delivery platforms.
In terms of competition amongst businesses on the platforms and consumer choice, the Inquiry makes the following provisional findings and recommendations, amongst others:

a. Across all platforms there is a tendency to sell top ranking search positions to businesses which are not the most relevant to the consumer and constitute a form of advertising that is not transparent. This impacts on consumer choice and competition, especially for SMEs that cannot spend as much as large businesses. The Inquiry recommends that advertising is clearly displayed as such and that the top results are reserved for organic (or natural) search results.
b. The Inquiry provisionally finds that the extreme levels of fee discrimination against SMEs in online classifieds, food delivery and to a lesser extent travel & accommodation, hinders their participation and has no coherent justification. The Inquiry provisionally recommends that a maximum cap is placed on the fee differentials between large and small businesses, potentially at 10-15%. In food delivery it is recommended that more equitable treatment also occurs in terms of marketing commitments made in exchange for lower commission fees.
c. In e-commerce, the Inquiry provisionally finds that conflicts of interest arise in operating a marketplace for third party sellers and selling one’s own retail products. This may result in self-preferencing conduct such as product gating, retail buyers given access to seller data to target successful products, preferential display ads and promotions. The lack of a speedy resolution process also adds to the costs borne by sellers. The Inquiry provisionally recommends an internal structural separation of retail from the marketplace to implement equitable and competitively neutral processes.
d. In software application stores, the Inquiry provisionally finds that South African applications (“Apps”) face challenges to their
larger global App development companies. The Inquiry provisionally recommends that App stores provide country-specific curation of App recommendations and provide free promotional credits to South African App developers to enhance
their visibility.

Regarding the participation by historically disadvantaged persons (HDPs), the Inquiry has provisionally found that the digital economy is far less inclusive to HDPs than many traditional industries. In addition, there are considerably more challenges faced by HDPs, especially as regards funding and support. These are as follows:
a. For HDP digital entrepreneurs, general wealth inequality presents a hurdle to seed funding from close associates, and the venture capital industry offers little at this stage. Beyond seed funding, venture capital funds only seek out HDP entrepreneurs where those funds have an express mandate to that effect. Such mandates are rare beyond the SA SME Fund (a joint government and CEO initiative). The Inquiry provisionally recommends specific commitments on HDP mandates from private investors and for government to channel funds for HDP digital entrepreneurs through mandates to the venture capital sector along with requirements for transformation of the sector.
b. A lack of assets and funding hinder HDP business’ ability to onboard and exploit the opportunities provided by digital platforms.
recommendation is that all leading platforms provide HDP businesses with personalised onboarding, a waiver on onboarding costs and fees, free promotional credits, fees that are no higher than the best placed, and the opportunity for consumers to discover HDP businesses on the platform.

Advocacy interventions

xx

The CCSA has continued its work with the Intergovernmental Fintech Working Group (“IFWG”), which includes financial services regulators as well as the information regulator. The IFWG has produced several position papers. These include Regulating Open Finance Consultation and Research Paper, FinTech platform activity in South Africa and its regulatory implications; and the position paper on crypto assets. These papers seek to understand the growing role of FinTech’s and innovation in the South African financial sector and explore how regulators can more proactively assess emerging risks and opportunities in the market. The next steps for the IFWG include dealing with customer data ownership and data standards and engaging with the information regulator, exposition of potential competition aspects related to open finance and how to mitigate anti competition behaviours. This showcases that the regulation of digital markets requires a multidisciplinary approach.


Any steps your agency has taken to strengthen its institutional capabilities to better equip it to deal with digital competition issues (for example, by forming a special unit, recruiting more data specialists, building new investigative tools, or gathering new/different evidence).

The CCSA has prioritised strengthening its institutional capacity in digital markets by targeting the training of investigators and economists in international courses and conferences to upgrade skills. However, the CCSA has used an active enforcement approach as the prime vehicle for deepening its understanding of these markets and to upgrade toolkits at the same time. The CCSA had initiated a project to use digital tools in the detection and investigation of collusion and assist generally on digital market cases. The CCSA has partnered with academic institutions to bring in their artificial intelligence expertise rather than seeking to hire and build internal capacity.

Following engagements with national and provincial governments to understand the extent and format of tender information, the Commission has begun a process of designing algorithmic programmes to detect collusion. This has been greatly aided by engagements with other competition agencies globally to discuss their experience as to what has worked and what has not. Similarly, for data specialists the CCSA has not sought to hire in those skills yet but rather to put together a panel of local experts that may be drawn on in enforcement or research. This approach was adopted as the best means to establish what the use case is for such skills, what specific skills are most valuable and the frequency of data specialist requirements. It is only if there is an ongoing demand in investigation across different enforcement areas and the ability to sustainable source the right skillsets that the CCSA will invest in hiring. The panel approach is also a means to interest data scientists in competition law enforcement and potentially establish career paths in this area. The CCSA together with the competition authorities of Egypt, Kenya, Nigeria and Mauritius, launched a digital markets enforcement initiative, given the greater shared challenges that digital markets pose for African countries. The aforementioned jurisdictions recognize that these challenges necessitate closer co-operation in order to share knowledge, develop effective strategies in digital markets and provide a stronger united front in dealing with global tech companies. The initiative has agreed to enhance strategic collaboration between the authorities by: (i) Scoping the conduct in digital markets, that has been the subject of investigation in other jurisdictions, on African consumers, businesses and economies with the purpose of fair regulation and enforcement in Africa (where applicable); (b) Researching the barriers to the emergence and expansion of African digital platforms and firms that may contribute to enhanced competition and inclusion in these markets for the benefit of African consumers and economies; (c) Cooperating in the assessment of global, continental, and regional mergers and acquisitions in digital markets, including harmonizing the notification framework; without prejudice to confidentiality commitments; (d) To share information in accordance with existing laws and applicable protocols; and (e) Sharing knowledge and build capacity to deal with digital markets. As part of this initiative, a series of technical workshops are forthcoming in 2022 to commence the collaborative baseline research mapping the digital landscape in all participating countries. This research will assist in obtaining a deeper understanding of the extent of consumer adoption and emerging market structure across the main types of digital markets in a country. Country-specific factors across Africa will impact on the extent of adoption by consumers and the emergence of domestic digital firms alongside global ones.

The CCSA has continued its engagement with the European Union (EU) to provide an opportunity for mutual learning using the SA/EU Dialogue Facility to host a series of workshops in partnership with the Directorate-General of Competition in the European Commission (DG Comp). The Dialogue has been extended and will examine issues of remedial action and data protection issues in a forthcoming workshop in 2022.

Whether, in your jurisdiction, (a) there have been any national reforms or new laws or regulations to better address digital competition issues, or (b) there are any significant proposed reforms pending before national legislative or regulatory bodies to better address digital competition issues.

The Inquiry has provisionally identified the potential need for proactive regulations or guidelines in respect of a few categories of circumstances in addition to the remedial action proposed in the provisional report. First, to bring potentially new leading platforms within the ambit of the current proposed remedies that would be imposed on existing leading platforms. Second, to proactively prevent certain conduct in intermediation platforms that are still maturing and where the conduct is likely to emerge in the future, but where there is clear potential for harm. The provisional proposal for regulations or guidelines would cover the following areas: a. A process for the identification and review of leading platform status b. Prohibition of the following conduct which has an adverse effect on intermediation platform competition (1) The use of price parity clauses (wide or narrow) or achievement of the same outcome through price quality factors in the SERP ranking algorithm; (2) Restrictions or frictions on multi-homing by business users including exclusivity arrangements, interoperability limitations and multi-year contracting; (3) Loyalty schemes that leverage the leading position of the platform, including visibility on the platform, to get business users to fund the scheme in whole or part. c. Prohibition of the following conduct which distorts competition amongst business users and/or results in their exploitation (1) Self-preferencing conduct of any sort; (2) Discrimination in listing, commission or promotional fees against SMEs/HDPs beyond a maximum cap; (3) A lack of adequate transparency over promoted listings as advertising; (4) The excessive sale of visibility through demoting organic results; and (5) Permitting algorithm biases that favour one group or another.

Any law enforcement, regulatory, or policy work by your agency concerning digital competition issues that has involved interaction with non-competition agencies or other laws or policy areas—such as privacy, consumer protection, or media sustainability—and how it was or is being handled.

Work in the fintech area is being done through the IFWG as outlined above. The CCSA has also put together a workshop with the Information Regulator of South Africa to discuss the interface of the two agencies around data privacy and data access for competition.

New Guidelines on the Exchange of Competitively Sensitive Information: 5 years with little change?

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South African antitrust enforcer releases Amended Guidelines

By Joshua Eveleigh and Jemma Muller

On 12 September 2022, the Competition Commission of South Africa (“Commission”) published the Guidelines on the Exchange of Competitively Sensitive Information between Competitors under the Competition Act No. 89 of 1998 (the “Amended Guidelines”).

The original Guidelines were released for comment on 14 July 2017; they were created to provide guidance to industry stakeholders on when information exchanges between competitors should be considered harmful to competition (and thus fall foul of the Competition Act) and when they could be considered efficiency-enhancing. The creation of the Guidelines was a welcomed development, as it sought to provide industry stakeholders with insight as to how the Commission will assess whether a particular information exchange between competitors amounts to an antitrust violation, specifically a contravention of section 4 of the Competition Act.

The Amended Guidelines have now been published to address certain concerns raised by industry stakeholders in relation to their first iteration.

Notably, the originally published draft was reported to have received substantive comments from industry stakeholders relating to:

  1. what constitutes “commercially sensitive information”;
  2. the broadness of the Guidelines and lack of safe harbours within them;
  3. additional guidance as to the type of information competitors may lawfully share;
  4. industry-specific concerns; and
  5. public announcements.

Whilst acknowledging that the first iteration of the Guidelines was overly broad, the Commission states that this was an intentional decision.  Notably, the  Amended Guidelines remain just as broad, with the Commission rather opting to determine market-=specific safe harbours on a case-by-case basis.

Additionally, the Commission — now under the aegis of its new head, Doris Tshepe — has chosen to exclude from the Amended Guidelines any discussion of complex topics (such as price signalling, joint ventures, cross-directorship and shareholding, requests for quotations, market studies and benchmarking), instead deciding to rule on these issues on an ad hoc basis.

One substantive difference between the original and Amended Guidelines is the recent departure from the term “commercially sensitive information” to the newly adopted “competitively sensitive information”. In this respect, only information that is likely to have an effect on competition is prohibited in terms of the Guidelines, including: prices, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies, research and development programmes and their results.

While the narrowing of the scope of the amended Guidelines to “competitively sensitive information” and the decision to provide more focused guidance to industry associations ought to be a welcome change, it is likely that stakeholders will continue to perceive the Amended Guidelines as overly broad. In this regard, the Commission has seemingly ignored stakeholders’ previous comments to the original Guidelines, particularly in relation to a lack of safe harbours and industry-specific concerns. In this respect, the Amended Guidelines continue to have little impact on a firm’s ability to self-regulate its conduct in compliance with the Competition Act.

The Amended Guidelines are open for public comment until 04 November 2022 and can be accessed here.

FTC and USAID launch Africa-focussed digital competition initiative

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USAID AND THE FEDERAL TRADE COMMISSION LAUNCH TRUST AND COMPETITION IN DIGITAL ECONOMIES INITIATIVE TO PROMOTE CONSUMER PROTECTION AND COMPETITION IN AFRICA’S DIGITAL ECONOMY

From the USAID/FTC Press Release dated Oct. 3, 2022:

USAID announced it will partner with the Federal Trade Commission (FTC) to launch a new initiative that will help protect consumers and increase competition in countries across Africa. This initiative will strengthen legal and regulatory frameworks and the institutional capacity to ensure that the benefits of the digital economy are not undermined by anti-competitive, unfair, or deceptive practices.

Robust frameworks for competition and consumer protection are indispensable foundations for partner countries seeking to promote inclusive economic growth, sustain economic competitiveness, promote gender equality and equity, support resilient democratic institutions, and strengthen the rule of law.  

Where these foundations are weak or non-existent, a country’s digital economy can become vulnerable to a range of risks and harms, including online fraud, scams, cyber attacks, data misuse, algorithmic bias, gender-based discrimination, corruption, and abuses of market power. While each of these are damaging in their own right, they can collectively contribute to deeper economic and governance concerns if left unchecked, including economic inequality, reduced local and foreign investment, reduced competitiveness, and weakened democratic institutions.  

The FTC will use its technical expertise, capacity-building programs, convening power, and relationships across the region to help authorities adopt and implement policy, legal, regulatory, and enforcement frameworks. The FTC will pursue these lines of engagement in concert with other U.S. Government counterparts, regional bodies on the African continent, and country-level counterpart authorities.

This initiative advances USAID priorities outlined in the USAID Digital Strategy to strengthen inclusive, open, and secure digital ecosystems in countries where USAID works. This initiative also aligns with and advances broader U.S. Government strategies, programs, and initiatives, including the Digital Connectivity and Cybersecurity Partnership (DCCP), Declaration for the Future of the Internet, U.S. Strategy Toward Sub-Saharan Africa, and National Strategy on Gender Equity and Equality.  

The Trust and Competition in Digital Economies initiative is managed by USAID’s Innovation, Technology, and Research Hub and Center for Economics and Market Development.  

Further information on this initiative is available at this page.

Insurance companies raided by antitrust agency for alleged rate-setting collusion

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PRICE-FIXING ALLEGATIONS LEAD TO THURSDAY’S DAWN RAIDS AT MAJOR SOUTH AFRICAN INSURANCE COMPANIES

By Michael-James Currie and Joshua Eveleigh

On 25 August 2022, the South African Competition Commission (“SACC”) announced that it was conducting so-called ‘dawn raids’ as part of an ongoing investigation into the industry, initiated in 2021. The raid took place simultaneously at 8 of South Africa’s major insurance firms: Discovery Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MNI Limited; Old Mutual Limited; BrightRock Life Limited; FMI, a division of Bidvest Life Limited; Professional Provident Society Limited, and South African National Life Assurance Company (Pty) Ltd (together, the “Insurance Firms”).

Notably, all of the Insurance Firms operate within the long-term insurance market.

The SACC’s decision to raid the premises of the Insurance Firms comes as the result of suspicions that the they had agreed to fix prices and/or trading terms in relation to certain investment products in contravention of section 4(1)(i) of the Competition Act, 89 of 1998 (“Competition Act”). Specifically, the SACC stated that it was in possession of information implicating the Insurance Firms in a scheme to share information regarding premium rates on risk-related products and fees for other investment products.

Says John Oxenham, a lawyer with Primerio Ltd., “[a]lthough dawn raids form part of the SACC’s ordinary evidence gathering procedure and is not indicative of the guilt of the Insurance Firms, the sharing of information would enable the coordination of increased prices.” Given that the clients of the Insurance Firms include both natural and juristic persons, the effect of the alleged conduct would have far-reaching and adverse effects on consumers, particularly where those consumers are sensitive to price increases.  Continues attorney Oxenham: “In this respect, it would be unsurprising if the SACC were to continue on its path of highlighting ‘public-interest‘ objectives by pursuing the investigation against the Insurance Firms and seeking the maximum penalty in respect of a contravention of section 4(1)(b)(i) – 10% of the Firm’s annual turnover in and from South Africa, for first-time offenders.”

Mr. Oxenham’s colleague, Andreas Stargard, notes the size of the RSA insurance market, and points out that the dawn raids occurred across the entire geography of the Republic of South Africa: “South Africa alone makes up over two-thirds of all African insurance premiums continent-wide! Today, the SACC’s spokesperson Sipho Ngwema confirmed today that 5 sites were raided in Gauteng, 2 in the Western Cape, and 1 in KwaZulu-Natal. This simultaneous and unannounced action is testament to the Commission’s bench strength, no doubt assisted by local provincial law-enforcement authorities, as is usually the case across in antitrust raids across the globe, where the actual evidence-gathering procedure is not only undertaken by government competition lawyers, but rather significantly assisted by local police, sheriffs, or similar enforcement agencies”. Finally, Stargard notes, “it remains to be seen whether this raid occurred as a result purely of the agency’s prior sector investigation, or whether there was (or were) any whistleblower(s) seeking leniency for their participation in the alleged cartel conduct, thus enabling the SACC to pursue a targeted and well-founded raid.”

Interestingly, a U.S. consulting firm, McKinsey, which has been involved with several South African government agencies and quasi-governmental entities, recently published an article entitled “Africa’s insurance market is set for takeoff“, noting that the “African insurance market’s immaturity points to significant scope for growth”:

Africa’s insurance industry is valued at about $68 billion in terms of GWP and is the eighth largest in the world—although this is not equally distributed across the continent. Markets are inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 percent of premiums concentrated in just ten countries. South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums. Outside of South Africa, we see six primary insurance regions in Africa. In the Southern Africa region, 54 percent of premiums are for life insurance. Nonlife insurance, however, plays a larger role in anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa

It remains to be seen whether the effect of today’s raids in the RSA will hinder the predicted “takeoff” of the insurance industry, or assist in its growth within permissible, lawful boundaries.

Zimbabwean leader lauds antitrust efforts

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Zimbabwean President Emmerson Mnangagwa recently exalted the benefits of antitrust law at a joint COMESA-CTC (Competition and Tariff Commission of Zimbabwe) conference for sitting judges, held in Victoria Falls. Below is an excerpt of his oral remarks, given at the opening of the event:

“Competition and consumer protection laws, are therefore, key enablers of free, open and liberalised trade between countries and foreign regional integration. Against this backdrop, these laws must continue to enhance consumer interests and the realisation of our country’s development aspirations as set out in the National Development Strategy and Vision 2030. To this end, under the radar are the cartels, and all those who collude in promoting unjustified price increases, illicit activities and currency manipulation for the purposes of realising super profits.

Andreas Stargard, a competition partner at Primerio Ltd., notes that President Mnangagwa was once a practicing attorney himself, prior to his political ascent within the ZANU-PF party, although the precise history of the president’s legal studies and degrees remains somewhat murky. “As a former legal practitioner himself, Mnangagwa knows that an educated judge is a better judge. Thus, his admonition to the members of the judiciary present at the conference (at whom the event was aimed in the first place) to better acquaint themselves with competition law & economics was timely and meaningful,” he said. Stargard adds: “There is hardly anything more frustrating than presenting an antitrust case — which is usually difficult in its own right — to an uninformed judicial decision-maker, who shows little understanding or interest in the subject-matter, or who dismisses economics as extraneous; you cannot practice competition law without an understanding of economics.”

The president concluded: “In our case as Zimbabwe, competition law and the attendant robust policy frameworks are important towards the speedy realisation of Vision 2030, of becoming a prosperous and empowered upper middle income economy. This aspiration will be attained through an effective empowered and agile judicial system, which strives for fairness and increased efficiencies across all the productive sectors of the economy. It is, therefore, most opportune that this workshop is taking place at the stage when our economy is transitioning from stabilisation to growth. To this end judicial staff must be kept updated and knowledgeable about activities taking place in industry and commerce. Undoubtedly, judges and other related stakeholders remain key to the interpretation of competition and consumer protection laws. The intricate nexus between the interpretation and enforcement of laws across sectors of the economy cannot be overemphasised. The judiciary should also address competition issues that arise in disputes before the judicial system. This is pertinent more so that competition law intersects with many fields hence training such as this one is an essential requirement in modern day competition law.”