Close-knit trade group and dominant cement manufacturer prove to be (price-)explosive combination
Our friends at Songhai Advisory, a business intelligence firm covering key parts of Africa, have released a brief market-intel note addressing the 44% price hike of cement in Nigeria, led by the country’s (and indeed soon also the continent’s) dominant manufacturer, the Dangote group.
Any discussion of Nigeria — still Africa’s largest economy measured by GDP — in the competition-law context must begin with the surprising fact that the country’s political leadership still has failed to institute any antitrust regime. Says Andreas Stargard, an attorney with Africa-focused Pr1merio law group:
“As the continent’s economic leader, Nigeria is a lone beacon of failure to police anti-competitive practices, whereas a multitude of significantly smaller African jurisdictions have had competition laws for years or even decades. The recent price developments of Nigerian concrete are merely one example of the negative impact on consumers where there are no antitrust rules in effect. Notably, an industry trade association also appears to be involved here, so from the competition point of view, we are dealing not only with one dominant entity (Dangote) but also an efficient and time-tested mechanism of information-sharing among direct competitors (trade groups).
The price increase covered the entire Nigerian cement market, according to Songhai and other media reports: cement prices of the members of the Cement Manufacturers Association of Nigeria (CMAN) rose over the course of a month by 44% from US$5 to $7 per 50kg. Adds Stargard, “any competent antitrust enforcer would look into such a price hike. Given the absence of competition law enforcement in Nigeria, it is likely that no investigation will take place, and civil suits are highly unlikely, in light of the lack of antitrust laws and the political connections at play here.” In the words of Songhai’s reporting: “When Dangote decides to push its price up or down, others tend to follow.” Yet, the researchers also quote a source at Sokoto Cement, one of Dangote’s main rivals, as describing power generation costs and foreign-exchange fluctuations as the actual drivers behind the drastic recent cement price increases.
East Africa back on antitrust enforcer’s mat in hybrid unilateral / collusion case
The Competition Authority of Kenya (“CAK”) has alleged that Lafarge has engaged in price-fixing due to the company’s cross-shareholding in cement producer Eastern African Portland Company and Bamburi Cement. (Interestingly, http://www.lafarge.co.ke links to Bamburi Cement’s site).
The CAK is investigating whether Lafarge is responsible for an unwarranted concentration of economic power, given that Lafarge has a 41.7% interest in Eastern African Portland Company and a 58.9% interest in Bamburi Cement. A ruling as to whether Lafarge has “unwarranted concentration of economic power” is expected in June 2014. In the event that Lafarge is found guilty of the charge against it, the Kenyan Competition Authority could direct the Lafarge to sell assets in one of the two businesses. Furthermore, the directors could also be forced to pay up to USD115,000 in penalties or serve five years in prison if found guilty of price-fixing.
The CAK report comes four months after the Kenyan government, which together with the Kenyan National Social Security Fund, has a controlling stake of 52.3% in Eastern African Portland Company alleged that Lafarge tried to destabilise Eastern African Portland Company to protect Lafarge’s interests in Bamburi, the report noted. The CAK indicated that “cross-directorship could lead to price-fixing since this creates a position where a competitor is privy to the strategic decisions of another competitor. However, it is not conclusive that there is price-fixing going on.” Lafarge has stated its minority interest in Eastern African Portland Company is insufficient to enable Lafarge to exert control over it.
This allegation comes at an interesting time given the spotlight on Lafarge due to its proposed merger with cement producer Holcim, which has already triggered insider-trading investigations elsewhere. The proposed transaction will likely require notification in the European Union, United States, Russia, China, India, Morocco, South Africa and multi-national enforcer COMESA (which includes Kenya and would presumptively take priority over the CAK’s domestic review authority, although a jurisdictional fight between the two agencies would not be unheard of).
What do soccer stadiums, LCD panels, and lysine** have in common? Price-fixing might be one answer. Record antitrust fines might be another, closely related, response.
The South African Competition Commission (“Commission”) has obtained settlements of 1.5 billion rand or about €113 million with up to 15 construction companies. This constitutes, by our reckoning, a new record for the Commission.
The fast-track settlement procedure used by the agency (in all but 3 cases, in which the accused firms chose not to pursue fast-tracking) shortened the time necessary to reach finality on the deals. It also allows the Commission to free up its manpower resources to work on other matters, since maintaining full-fledged investigations in all of the now-settled cases would have been a long and arduous process for all parties involved — as we reported previously on AfricanAntitrust.com here and here, the scope of the ZA construction-sector bid-rigging investigation has ballooned beyond even the wildest dreams of enforcers.
The Commission’s press release sheds further light on the breakdown of the fines per party, covering conduct since September 2006 in over 300 instances of bid-rigging:
Post-scriptum: The fines, although record-setting, are lower than expected by investors. Consequently, shares in the affected undertakings have soared 1-3%, as reported by BusinessReport here.
** Sorry – I strayed a bit from the original alliterative title here. (Otherwise, I could not have made the “record fines” point…)