Merger Control in Africa: Hot Topic at the 2016 ABA Spring Meeting

Posted on April 10, 2016April 13, 2016 by Editor

Key competition-law conference features dedicated panel discussion on African antitrust developments

By Michael-James Currie

The 54^th annual American Bar Association Antitrust Spring Meeting was held in Washington, D.C., during the second week of April 2016 and the AAT editors were there to ensure that we provide our readers with an update on the latest developments in relation to African antitrust issues, discussed during a panel held last Friday.

Given that mergers hit a global all-time high last year with the total value of transactions amounting to over USD 4.6 trillion, merger control is certainly at the forefront of many antitrust practitioners. The interest in mergers and acquisitions has perhaps gained even further attention in light of the announcement this week that the USD160 billion Pfizer/Allergan global mega-deal has been officially abandoned, despite the transaction having already been filed before all the relevant competition agencies around the world. While the Pfizer/Allergan deal was called off as a result of new tax laws and therefore not as a result of antitrust issues directly, the deal did put multinational mega-deals firmly in the spotlight.

The Pfizer/Allergan deal is not the only mega-deal that faced significant government opposition. It was announced this week that Halliburton’s takeover of Baker Hughes, in a deal valued at USD 25 billion, is going to be strongly opposed by the U.S. DOJ.

It is, however, not only the U.S. Government that is having a significant impact on multinational deals, as evidenced by the Anbang Insurance and Starwood Hotels & Resorts deal, valued at USD 14 billion, which has also been abandoned after mounting pressure by the Chinese government.

From an African perspective, the South African Competition Commission just last week extended its investigation in the USD 104 billion SABMiller and Anheuser-Busch InBev merger. It is widely suspected that the request for the extension is due to intervention by the Minister of Economic Development, in relation to public interest grounds. Although there is no suggestion at this stage that Minister Patel is opposing the deal, the proposed intervention does highlight bring into sharp focus the fact that multinational mega-deals face a number of hurdles in getting the deal done.

‘Getting multinational deals through’ is a hot topic at the moment amongst antitrust practitioners and is and the ABA thought it beneficial to have a panel discussion dedicated purely to merger control issues across African jurisdictions. In particular, the panel addressed some of the key issues which merging parties need to consider, including inter alia issues relating to harmonisation across agencies, the role of public interest considerations, prior implementation and the need for upfront substantive economic assessments.

The panel consisted of a varied mix of panellists from both private practice and government, and included Pr1merio director John Oxenham (he is also a founding partner at South African based law firm Nortons Inc.), economist and former Commissioner of the COMESA Competition Commission (COMESA CC) Rajeev Hasnah (Rajeev was also a former commissioner of the Mauritius Competition Commission and is an economist for Pr1merio), manager of the South African Competition Commission office, Wendy Ndlovu, and Kenyan based external counsel Anne Kiunuhe (Anne practices at the law firm Anjarwalla & Khanna).

The panellists were tasked with addressing a variety of topics: we summarise below some of the key issues which the panellists highlighted, which merging parties, practitioners and antitrust agencies themselves (amongst whom Tembikosi Bonakele, the South African Competition Commissioner was present in the panel audience) should be cognisant of in relation to merger control in Africa.

John Oxenham

John pointed out that from a South African perspective, mergers undergo a robust evaluation by the Competition Authorities and that although the investigation of most large mergers is completed within 60-70 days, the fact that the Commission may request the Competition Tribunal for an extension of up to 15 business days at a time, may result in the investigation of certain mergers taking considerably longer. The risk of a merger being delayed is increased significantly due to the level of third party interventionism, particularly ministerial intervention on public interest grounds.

John advised that merging parties should consider the impact that a particular merger will have on the public-interest grounds upfront to avoid delays in the investigation period as a result of further requests for information from the Commission, or may even amount to an incomplete filing.

In respect of substantive economic assessments, John pointed out that a number of jurisdictions, including South Africa, Namibia, Zambia and to a lesser extent Botswana, requires a substantive upfront economic assessment. In this regard the South African Competition Commission is perhaps the most robust in its economic evaluation of a merger in light of the resources dedicated to its own in-house economic department as well as utilising external experts when necessary. John also highlighted the fact that the South African Competition Authorities rely on oral testimony and expert witnesses are often subjected to substantial and lengthy examination and cross examination before the Competition Tribunal.

On the topic of gun-jumping or prior implementation, John mentioned that the following jurisdictions are examples of countries which do not require notification prior to implementing the transaction – in other words, they are not suspensory:

Malawi
Senegal
Mauritius

Whereas the following countries do require notification prior to implementation (suspensory merger control jurisdictions):

South Africa
Swaziland
Zambia
Botswana

On harmonisation, John confirmed that in relation to public interest considerations in merger control, the South African competition authorities play a leading role on the African continent and pointed out that in addition to Kenya and Tanzania, Namibia also considers public interest considerations and that there is a substantial amount of collaboration and information sharing between the South African and Namibian competition authorities, as was the case in the Walmart/Massmart deal.

Despite the information sharing between agencies, John confirmed that there are rules in place to protect confidential and legally privileged information and that the South African competition authorities are cognisant and respectful of these provisions.

Rajeev Hasnah

Rajeev noted the significant progress which the COMESA CC has made in relation to merger control by publishing financial thresholds for mandatorily notifiable transactions and specified filing fees, as well as publishing guidelines which clarify when a merger will have a sufficient regional dimension to fall within the COMESA CC’s jurisdiction.

On the topic of harmonisation, Rajeev discussed the challenges due to a lack of harmonisation between COMESA and its member states and noted that COMESA does not have exclusive jurisdiction in the cases which do fall within its jurisdiction. Parties, therefore, may find themselves being required to file a merger both before the COMESA CC as well as before the respective national authorities. A further challenge facing the COMESA CC is that there are 19 member states and consequently, the relevant geographic market is significant. Accordingly, often the national authorities are best placed to evaluate a merger and will therefore defer the evaluation of the merger to the relevant national authority.

On the role of economic assessments, Rajeev stated that an economic assessment underlies any merger evaluation and that both the Mauritius Competition Commission and the COMESA Competition Commission conducts a comprehensive economic assessment of a merger.

Wendy Ndlovu

When asked on what role public interest considerations play in merger control in terms of the South African competition regime, Wendy indicated that the framework of the Competition Act specifically requires the competition authorities to consider the impact that a merger may have on the four specified public interest provisions contained in the Act. Wendy confirmed that an evaluation of public interest considerations may both justify a merger despite the merger likely being likely to cause a substantial lessening or prevention of competition in the market, alternatively, public interest considerations may lead to a prohibition or the imposition of conditions on a merger which raises no competition law concerns and may in fact be pro-competitive.

Wendy recognised that there is a need, however, for greater certainty in respect to the manner in which the South African authorities evaluate public interest considerations and pointed out that the Competition Commission is likely to finalise and publish its guidelines on the public interest assessment in an effort to promote greater certainty.

On prior the issue of prior implementation, Wendy pointed out that merging parties need to be mindful of the consequences of gun-jumping and noted that the South African Competition Tribunal has imposed administrative penalties, as in the Netcare case, on parties for failing to notify a mandatorily notifiable transaction.

Anne Kiunuhe

Anne discussed the Competition Authority of Kenya’s (CAK) willingness to focus not only on merger control but has also identified the CAK’s increasing tendency to investigate and prosecute firms engaged in restrictive practices (as demonstrated by the recent dawn raids conducted by the CAK in the fertiliser industry). Despite the CAK’s growing confidence, Anne pointed out that in respect of merger control, the CAK is open to and in fact often relies on precedent from foreign jurisdictions when evaluating a merger. In particular, Anne noted that public interest grounds are specifically considered during the merger review procedure and that in this respect, the CAK largely takes the lead from the South African competition authorities.

From a practical perspective, Anne mentioned that the CAK usually requests a meeting with the merging parties soon after a transaction has been notified, and that usually representatives from the merging parties, along with local external legal counsel, should be present. The CAK prefers that the representatives present should be the best placed to answer or address the CAK’s queries. This often necessitates representatives from the parent company being present as opposed to representatives from the subsidiary entities only.

The direct contact between the CAK and the merging parties is quite different from the manner in which the COMESA CC evaluates mergers where the consideration of a merger is done solely on the papers and any communication between the COMESA CC and the merging parties is done through the merging parties’ local external counsel.

As to legislative developments, Anne pointed out that the merger regulations in Kenya now provide that for purposes of establishing a “change of control”, it is sufficient if the acquiring firm is able to materially influence the commercial decisions of the target firm. Accordingly, the acquisition of a minority shareholding for instance may constitute a change of control if the holders of such shares may for instance exercise veto rights.

On COMESA, Anne mentioned that the COMESA CC permits merging parties to seek a comfort letter when unsure as to whether a merger requires filing and that the use of comfort letters has been rather prevalent.

Conclusion

The role of public interest considerations in merger control was a dominant focus point throughout the panel discussion due to this unique aspect in a growing number of African jurisdictions merger control provisions.

Please click on the following link to access a an article on the role of public interest considerations in merger control in South Africa, which addresses in particular, the impact of ministerial intervention in merger proceedings and the concomitant impact which such intervention has on the costs, timing and certainty of merger proceedings.

Dawn raids on the increase across Africa

Posted on March 23, 2016March 24, 2016 by Editor

By Michael-James Currie and Jenna Foley

March 2016 has been a busy month for the competition agencies of South Africa and Kenya respectively. Both agencies carried out search and seizure operations as a result of alleged collusion within various sectors of the economy. While the March dawn raids are not connected, the South African Competition Authority, as part of its advocacy outreach, provided training to the Competition Authority of Kenya relating to inter alia, search and seizure operations.

South Africa

On 23 March 2016, the South African Competition Commission carried out search and seizure operations in the automotive glass fitment industry, as part of its continued investigation into alleged collusion within this sector.

Accordingy to the SACC, the raid was carried out “at the Gauteng premises of PG Glass, Glasfit, Shatterprufe and Digicall as part of its investigation of alleged collusion. PG Glass and Glasfit are automotive glass fitment and repair service providers; Shatterprufe supplies PG Glass and Glasfit with automotive glass while Digicall processes and administers automotive glass related insurance claims on behalf of PG Glass and Glasfit.”

John Oxenham, founding director of Pr1merio, notes that “[t]his most recent dawn raid follows on from those carried out towards the latter part of 2014 and 2015 and confirms that the SACC has adopted a more robust approach to investigating alleged anti-competitive practices.” In this regard, Commissioner, Tembinkosi Bonakele, confirmed at the 9^th Annual Competition, Law, Economics and Policy Conference in November last year that the Competition Commission has in the past two years, “conducted more dawn raids than those conducted in preceding years since the Competition Commission came into existence” (nearly 16 years ago).

For an overview of dawn raids and cartel investigations in South Africa, please see the following GCR Article.

Kenya

This month the Competition Authority of Kenya (“CAK”) conducted its first dawn raid. The search and seizure operations were carried out in respect of two fertiliser firms, Mea Limited and the Yara East Africa, based on the CAK’s suspicion of price fixing occurring between these two firms, who together control approximately 60% of the fertiliser market. The CAK conducted the raid in accordance with Section 32 of the Competition Act, 2011 which provides for the Authority to enter any premises in which persons are believed to be in possession of relevant information and documents and inspect the premises and any goods, documents and records situated thereon. This follows an inquiry which was launched last year by Kenyan competition authorities into what the CAK termed “powerful trade associations exhibiting cartel-like behaviour specifically targeting banks, microfinance institutions, forex bureaus, capital markets as well as the agricultural and insurance lobbies”. The fact that the CAK has carried out its first dawn raid demonstrates its growing stature.

The fertiliser industry appears to be a priority sector for a number of African jurisdictions as the CAK’s investigation into this sector follows the South African Competition Commission’s investigation into the fertiliser industry (which resulted in a referral before to the South African Competition Tribunal for adjudication some years back). In this regard, the South African Competition Commission’s spokesperson stated that the “fertiliser sector is viewed as a priority sector, due to the its importance as an input in the agricultural sector” (as reported here on African antitrust)

Zambia

Interestingly, the Zambian Competition and Consumer Protection Commission (“CCPC”) had, in 2012, conducted dawn raids at the premises of two fertiliser companies, as a result of alleged collusion within the industry.

On a Path to Harmonisation?

While there are a number of practical and legislative hurdles to effectively carrying out cross border search and seizure operations, it appears that cross border investigations may not be too far off. This is particularly so as the various agencies within the Southern African Region have identified similar priority sectors (as evidenced by both the investigations into the fertiliser sectors as well as the various market inquiries into the grocery retail sector).

COMOROS GETS COMPETITION LAW

Posted on March 17, 2016 by Editor

COMESA member state, the Comoros, recently adopted its own competition, (Loi No.13 -014 /AU – Relative à la concurrence en Union des Comoros (the Competition Act)) which will apply to all entities (public and private) who conduct business which has an “effect” in the Comoros.

The Act prohibits restrictive practices and abuse of dominance practices, although caters for a rule of reason defence. Parties may also apply for exemptions from either the Government or the Commission Nationale de la Concurrence (“CNC”). The CNC is responsible for enforcing the provisions of the Act, but has not yet been established.

Firms that are currently active in Comoros should take particular note of this legislative development due to the substantial administrative penalties which may be imposed for contravening the Competition Act.

Potential penalties for engaging in restrictive practices in contravention of the Competition Act can result in firms being fined a maximum of 5% of global turnover and 20% local turnover. These potential maximum penalties are significantly higher than the commonly prescribed maximum administrative penalty of 10% of domestic turnover only.

Interestingly, the Competition Act does not provide for merger notification. There is, however, a provision which provides for the imposition of an administrative penalty if incorrect information is provided to the CNC in relation to a merger. Primerio Founder, John Oxenham, mentions “This discrepancy needs to be clarified and it is likely that this provision applies in circumstances where the CNC calls upon merging parties to provide it with information in relation to a specific transaction”.

Primerio Director, Andreas Stargard, confirmed that the Competition Act will be subject to COMESA and is in line with COMESA’s framework which Stargard mentions “envisages that each member state must have its own domestic competition regime”.

EAC expands to accept 6th member in accession of S. Sudan

Posted on March 4, 2016 by Editor

Landlocked and Oil-Rich South Sudan Joins Free-Trade Zone

As South Sudan was officially admitted to the East African Community (EAC) as its sixth member in Arusha (Tanzania), on Wednesday, March 2, the beleaguered nation joined a free-trade zone that will allow it to benefit from more open labour movement, less restrictions on capital flows and other increased economic integration. The other member states are Tanzania, Kenya, Uganda, Burundi, and Rwanda. After integration with S. Sudan — the youngest nation on Earth — the region will have a population of an estimated 163 million.

John Oxenham, of Pr1merio Africa advisors, says: “South Sudan’s former institutional weaknesses were (apparently, despite the ongoing civil strife in the country) sufficiently remedied that the EAC governing body saw fit to grant the application for admission that had been pending since 2011. Basic governance principles must be met for EAC membership, and we are not even talking competition-law here…”

As the EAC charter provides, all members must demonstrate and strive to achieve “good governance including adherence to the principles of democracy, the rule of law, accountability, transparency, social justice, equal opportunities, gender equality, as well as the recognition, promotion and protection of human and peoples’ rights in accordance with the provisions of the African Charter on Human and Peoples’ Rights.” (EAC Treaty, Chapter 2 Article 6 (d)).

Setting aside civil-rights concerns or worries about political instability, the integration of an oil-rich nation may ultimately benefit its neighbouring fellow EAC members, such as Kenya and Uganda. It remains to be seen whether integrating a less-than-stable country into the EAC zone will harm the competition legislation the region enacted in 2006. As AAT author Elizabeth Sisenda pointed out recently, the organisation “has been setting up the mechanisms for its enforcement to-date through capacity building and mobilizing resources. In 2010, the EAC subsequently enacted competition regulations to assist in implementing the Act. One of the main challenges that has been encountered in the EAC with regards to the implementation of competition law and policy has been the unique economic and market structure of the member states. The majority of the EAC member states are economies that are transitioning from state-regulation to liberalization.”

We note that S. Sudan’s northern neighbour, the Republic of [the] Sudan, is currently a COMESA member state and thereby subject to the COMESA competition-law regulations and related merger-notification regime. South Sudan has, since at least the 2012 talks in Uganda, likewise been in negotiations with the COMESA governing bodies to discuss accession to that free-trade zone.

Namibian Competition Act to be Amended

Posted on March 2, 2016March 2, 2016 by Editor

By Michael-James Currie

The Namibian Competition Commission (“NaCC”) has recently confirmed that the NaCC has submitted proposals to the Ministry of Industrialisation, Trade and SME Development (“Ministry”) relating to possible amendments to the Namibian Competition Act.

namibia AAT does not yet know exactly what the nature and scope of the proposed amendments are, although the NaCC has indicated that the current Act, which was promulgated in 2003, is out of date and does not sufficiently cater for Namibia’s context (relating both to Namibia’s economic and socio-economic environment).

Furthermore, the NaCC has indicated that the amendments are aimed at increasing the NaCC’s enforcement capabilities and address ‘loopholes’ in the current Act.

In this regard, Minister Calle Schlettwein under whose portfolio the NaCC falls, stated that: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy. To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.”

As Andreas Stargard notes, ‘[i]t would not be surprising if the proposed amendments related to “complex monopolies” and the introduction of criminal sanctions for cartel conduct,’ as this would be in line with the amendments made to the South African Competition Act (although not yet in force). “Moreover, the Namibian commission will also likely cater for so-called ‘public interest’ elements in its enforcement strategy, as we have seen in several African jurisdictions.” Stargard’s law partner at Pr1merio, John Oxenham, likewise emphasises “the strong ties between the two respective competition authorities” in southern Africa:

“The NaCC has often taken the lead from the South African competition authorities in respect of the interpretation and enforcement of competition law matters. The Namibian Competition Act is also largely moulded around the South African Competition Act.”

The strong links between the two respective authorities culminated in the signing of a Memorandum of Understanding under the heading, “In the field of competition law, enforcement and policy”MOU-COMPETITION-COMMISSION-SOUTH-AFRICA-and-NAMIBIAN-COMPETITION-COMMISSION

The spokesperson for the NaCC has said that “the aim of the review is to strengthen the enforcement capabilities and machinery of the commission and to close loopholes that exist within the current law. Our Competition Act is similar, in many ways, to that of South Africa and the amendment thereof will only raise our standards to international best practices but within the context of Namibia.”

Schlettwein is on record as saying: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.

“To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.”

In sum, given that the proposed introduction of a “complex monopolies” offence and criminal sanctions in South Africa has led a number of practioners in that country questioning the constitutionality or the practicality of the these amendments, it will be interesting to see whether the NaCC takes these concerns into consideration assuming we at AAT are indeed correct that these are the amendments which the NaCC is also proposing to introduce.

Namibian Competition Commission (“NaCC”) asked to Prohibit N$250 million (Approx. US$ 15 500 000) Deal on Public Interest Grounds

Posted on February 29, 2016 by Editor

By Michael-James Currie

On 18 February 2016, an objection was filed at the NaCC in relation to the Lewis Stores and Bears Stores merger, two furniture retailers who are set to merge in Namibia.

Lewis Stores operates mostly out of South Africa and has recently appeared in the financial press in South Africa as a result of various adverse allegations in relation to its micro-lending policy. The allegations against Lewis Stores include claims that Lewis targets individuals whom they are ‘aware’ of will not be able to afford the credit instalments and then subject those individuals to high interest rate penalties – An allegation which Lewis denies.

Irrespective of the merits of the allegations against Lewis, it is a very interesting complaint which has been brought before the NaCC. In essence, the complainant’s objection is based on the argument that the businesses practices of Lewis will “be detrimental to the public” as the Namibia Financial Institutions Supervisory Authority (“NAMFISA”), the regulator of micro lenders (including in-store credit providers), has not proven its effectiveness in adequately protecting consumers from the type of harm envisaged by the complainant in respect of Lewis’ business practices.

The complaint immediately raises a number of interesting considerations.

Firstly, from a policy perspective, it would appear highly unusual for a regulator such as the NaCC to so assume the duties of another regulator, NAMFISA. The complainant in this matter argues that the NaCC should take NAMFISA’s inadequacy into account when considering the impact of the merger on public interest grounds. Whether the NaCC is prepared to entertain such a complaint remains to be seen, however, it would seem unlikely given that in terms of the Namibian Competition Act, there are specified public interest grounds which the NaCC may consider when evaluating the impact of the proposed merger on public interest grounds. It should be noted, however, that the list of grounds, although identical to the public interest grounds contained in the South African Competition Act, is not exhaustive and the NaCC is entitled to consider broader public interest grounds.

Secondly, and somewhat bizarrely, the Namibian Competition Act states that “a merger must either be approved or rejected” (without express wording that it can be approved subject to conditions). Despite this, the MassMart/Wal-Mart merger was, however, approved subject to conditions which were largely a replication of the public interest conditions imposed by the South African Competition Authorities in respect of the same merger.

The existence of public interest provisions in a number of African jurisdictions’ competition law legislation has been subject to extensive debate, largely due to the uncertainty with which competition authorities approach the evaluation of such public interest considerations when compared to the more traditional competition law objectives.

Accordingly, the NaCC should guard against entertaining a complaint which will jeopardise ‘merger control certainty’ which is pivotal to all good merger control regimes.

The Big Picture: Market-Sector Inquiries in Africa

Posted on February 16, 2016February 17, 2016 by Editor

Market Inquiries in Africa – An Overview

By AAT guest author, Michael-James Currie.

Most African jurisdictions with competition laws have included provisions in their respective legislations that allow the competition authorities to conduct market inquiries.

Market inquiries have proved to be useful tools for competition agencies in numerous jurisdictions, particularly in Europe, and is becoming a common and increasingly popular tool amongst an number of African agencies as well.

Despite the benefits that may flow from a market inquiry, it is important that competition agencies appreciate and have due regard to the costs associated with such inquiries. Market inquiries are very time consuming and onerous for market participants and should be used sparingly. Having said that, the focus of market inquiries in most African jurisdictions tend to be on markets which the relevant authorities have identified as having a large impact on consumers.

In other words, socio-economic considerations appear to be a significant factor during the screening process used in deciding whether to institute a market inquiry. Sectors such as food, healthcare and banking (at an individual consumer level) are some of the common industries which have been ‘prioritised’ or identified as important sectors.

While the number of market inquiries which have been concluded on the African continent is limited, as competition agencies gain more expertise and confidence in their mandates, there is likely to be a significant increase in the number of market inquiries instituted and firms conducting business in Africa, particularly within ‘priority’ sectors, should be cognisant of this.

We set out below a brief overview of the market inquiries which are currently being conducted in the various African jurisdictions.

South Africa

There are currently three market inquiries which are underway, one into the private healthcare sector and the other into the grocery retail market. The third market inquiry is in the liquefied petroleum gas sector.

The private healthcare inquiry was launched on the basis that cost of private health care in South Africa is a concern to the competition authorities. A revised statement of Issues for public comment was announced on 11 February 2016 and comments are to be submitted by 11 March 2016.

The grocery retail inquiry is focussed largely on the stricture of the market and the ability of smaller or informal retailers to compete, but will also address issues such as “long term lease” clauses (which has already been adjudicated upon by the Competition Tribunal).

The third market inquiry is into the LPG which was launched in August 2014 is expected to conclude in March 2016.

The only previous market inquiry concluded in South Africa was into the banking sector. This inquiry was conducted on an informal basis as there were no formal legislative powers bestowed on the competition authorities to conduct market inquiries.

Swaziland

The Swaziland Competition Commission (SCC) announced in January 2016 that a market inquiry has been launched into the retail banking sector. The SCC stated that retail banking service offered to consumers, micro and medium enterprises remained the most important sub-sector of banking. It is, however, the ‘current account’ which is the central product to be used as the starting point for the inquiry.

Zambia

On 1 February 2016, the Zambian Competition Authority (CCPC) announced that it will be conducting a market inquiry into the vehicle towing industry. While the CCPC indicated that it wishes to understand the “conditions of competition in the market”, although the inquiry came about as the CCPC had received numerous complaints from consumers that emergency towing operators were charging high prices. It remains to be seen whether this inquiry is focused predominantly on competition-law issues, or rather consumer-protection laws.

Botswana

The Competition Authority in Botswana (CA) is currently underway with a market inquiry into the grocery retail sector, focusing on shopping malls and in particular, the impact of long term exclusivity leases on competition in the market.

COMESA

Consistent with the competition authorities of South Africa and Botswana, the COMESA Competition Commission (“CCC”) has also launched an investigation into the impact that shopping malls have on competition. The CCC announced that it will carry out their inquiry by taking samples from the member states.

We have previously published articles on the announcement of this market inquiry on AAT which can be accessed by clicking on the following link: https://africanantitrust.com/category/market-study/

Kenyan cabbies complain: The Uber competition saga reaches East Africa

Posted on February 3, 2016December 13, 2017 by Editor

Uber Africa: Increased competitiveness not a boon for entrenched monopolies

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

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

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

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

U.S.

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

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

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

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

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

EU DG COMP

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

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

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

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

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

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

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

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

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

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

Coca-Cola/SAB Miller merger prompts onerous conditions

Posted on January 27, 2016January 27, 2016 by Editor

Coca-Cola/SAB Miller merger prompts onerous conditions

Written by Jenna Foley, AAT contributor

The agreement between The Coca-Cola Company, SABMiller and Gutsche Family Investments to combine their soft-drink bottling operations in Southern and East Africa has been met with the proposal of onerous merger conditions. The new bottling company, Coca-Cola Beverages Africa, will bottle 40% of Africa’s Coca-Cola beverages with operations in 12 countries. Minister of Economic Development, Ebrahim Patel has, after considering the public interest issues in mergers, expressed concern on the effect of the merger on small businesses, supplier industries, employment and investment.

Section 12A(3) of the Competition Act (89 of 1998) prescribes that, “when determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on –

a particular industrial sector or region;
employment;
the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
the ability of national industries to compete in international markets.”

The Competition Commission (the “Commission”), on the advice of Minister Ebrahim Patel, has recommended that the merger only be approved subject to a list of onerous conditions. One of these conditions stipulate that the merging parties invest R650m to support the development of black-owned retailers, small suppliers and developing farmers. Taking into account the above-mentioned section of the Competition Act it is yet to be determined how the R650m investment was calculated or the specific justification of such an onerous condition. In addition, other recommended conditions include requirements on employment and black economic empowerment (BEE) as well as allowing retailers who are given Coca-Cola branded fridges free of charge to stock the fridges with products made by rival companies.

The Commission’s concerns have arisen despite the merging parties’ consideration for public interest issues. The proposed merger, according to the Commission, is said to have a negative impact on employment and BEE. This has been expressed even though the merging parties have undertaken not to retrench employees as a result of the merger, except for 250 identified employees. In addition the parties have made a commitment to increasing their BEE shareholding. The Commission has further expressed concern about the negative effect the merger will have on suppliers, namely the weakening of their negotiating position, despite the merging parties’ undertaking to buy certain products (tin cans, glass and plastic bottles, packaging crates and sugar) from local suppliers.

In light of the above, the Commission’s recommended conditions to the Competition Tribunal, on the advice of Patel, seem far-reaching, leaving the merging parties with a heavy burden of complying with such onerous conditions. The recommendation to apply these burdensome conditions has caused delays and the proposed merger has not yet been finalised.

Raising merger notification thresholds

Posted on January 26, 2016 by Editor

Namibia fine-tunes its M&A review

By AAT guest author Anne Brigot-Laperrousaz

Under the Namibian Competition Act (the “Act”), which came into law in April 2003, the term “merger” covers all three common types of M&A activity, as well as joint ventures; above certain thresholds, a merger becomes compulsorily notifiable. On December 21, 2015, the Namibian Ministry of Industrialisation, Trade and SME Development, in accordance with the powers conferred upon it under s43(1) and (2) of the Act, published a notice containing remarkable changes to the thresholds triggering the application of the merger regulations under the Act and thereby a compulsory notification.

Former thresholds

The previously applicable government notice on the determination of those thresholds, dated December 24, 2012, had established the following triggering values:

The combined assets, or combined annual turnover in, into or from Namibia of the acquiring and target undertakings exceed N$20 million (US$1.578 million, based on the Bank of Namibia 2015 average exchange rate)

The annual turnover of one of the undertaking plus the assets of the other undertaking exceed N$20 million

The asset value or the annual turnover in, into or from Namibia of the target undertaking exceeds N$10 million (US$ 789,000)

Revised thresholds

John Oxenham, an Africa practitioner with advisory firm Pr1merio, notes that “[t]he December 2015 Government notice raised those thresholds by 50%, i.e. N$30 million and N$15 million respectively (US$ 2.367 and 1.1835 million). Furthermore, the revised notice sets out a two-tier calculation of the triggering thresholds, with two cumulative values to be considered,” as follows:

First, the combined assets, on the one hand, or annual turnover, on the other hand of the involved entities;
or, the cumulated value of the assets of one entity, and of the annual turnover of the other.
Yet even if one of those values exceeds N$30 million, the operation need not be notified if either the asset value of the annual turnover of the transferred undertaking is equal to or valued below N$15 million.

In other words, M&A targeting relatively small firms will not need to be notified, no matter how large the acquiring entity may be.

Yet the new notice maintains the possibility for the enforcement agency, the Namibian Competition Commission (the “Commission”), which came into operation in December 2008, to demand notification of a merger falling below those thresholds, if it considers it necessary to deal with the merger in terms of the Act.

namibia Although the rationale of this provision is relatively clear, its phrasing raises questions as to the way it should be implemented. It is reasonable to believe that this regulation simply aims at allowing the Commission to investigate in all cases it deems useful. Indeed, the purpose of the thresholds is to sort out the potentially hazardous operations, as a form of “pre-selection” so as to avoid obstructing the Commission. But those thresholds should not bear the adverse consequence of preventing the Commission to exercise its control when it has reasonable grounds to consider that a “smaller” operation may cause harm to competition.

The notice lacks explicitly stated and pre-determined factors that could lead the Commission to such a finding, a loophole that arguably leaves way for arbitrary decisions. This goes against international best practices, as reaffirmed once again in a 2005 OECD report, considering that the criteria to determine whether a merger must be notified should be clear and objective.

Furthermore, it is unclear how the Commission could determine that a “small” merger needs to be notified, prior to any investigation. If this regulation simply requires the firms to provide the Commission with the information that would be asked in case of a mandatory notification, it is regrettable to make this unnecessary detour instead of recognising the Commission’s powers to request relevant documents and information as part of its general investigatory function.

As for the modification of the thresholds themselves, recent commentaries have praised the initiative, describing it as a “positive development”.

The explanatory note accompanying the Government notice referred, in particular, to the Recommended Practices of the International Competition Network (the “ICN”), together with comparative studies and analysis of the past efficiency of the thresholds’ level, as the basis for this reform.

Indeed, one of the first recommendations of the ICN is that “merger notification thresholds should incorporate appropriate standards of materiality as to the level of ‘local nexus’ required for merger notification”. The first comment of the ICN working group on this recommendation states that “each jurisdiction should seek to screen out transactions that are unlikely to result in appreciable competitive effects within its territory”. In particular, the material sales or assets level within the territory shall be important enough to justify the additional transaction costs entailed by the obligation to notify the operation.

In the case of Namibia in particular, a UNCTAD peer review conducted in 2014, while acknowledging the “fairly good competition law as enshrined in the Competition Act”, recommended a revision of the Namibian merger control. In particular, the UNCTAD report advocated for a review upwards of merger notification thresholds. In that regards, the Commission’s initiative is much welcome. Indeed, the UNCTAD report praised the Act for taking into account special requirements of the country’s economy, characterised by small undertakings. Arguably, the revised thresholds go a step further in this positive direction.

Conclusion

The public statistics on the Commission’s achievements show that since its setting up in 2009, the Commission’s M&A division has handled over 200 mergers. In November 2015, the Commission announced that it received a total of 60 merger notifications, of which 48 were approved during the current financial year of 2015/2016. The announced total value or purchase consideration for these merger notifications was about N$23,2 billion, and N$19,2 billion for the 48 approved mergers. Yet since “about 99%” of the total purchase consideration paid during the first quarter was one transaction, the relevance of the revised thresholds appears clearly.

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