Resale Price Maintenance in COMESA?

Second Non-Merger Investigation Opened by COMESA Enforcer

Coca-Cola’s Africa operations — recently sold in a majority shareholder exit in late 2016 by Anheuser-Busch InBev (which owned 54.5%) — were due for a major overhaul of the company’s long-term strategic plan to grow its market presence across Africa.  Yet, it is now under investigation for restrictive trade practices by the COMESA Competition Commission (“CCC”).

This is a first, of sorts: After the CCC’s original non-merger investigation into exclusive marketing practices of broadcasting rights and sponsorship agreements in relation to football tournaments (AAT reported here) ended — or hasn’t ended — with something of a thud (nothing having been reported by way of conclusion thereof), we and the world’s largest soft drink manufacturer are bracing ourselves for the outcome, if any, of the latest COMESA salvo delivered by the CCC to prove its worth to its Board.  (We surmise so as this latest, second-ever, non-merger investigation may have been prompted at least in part by the fact that the CCC’s budget was recently slashed by the regional body, and that the Commission wishes to reestablish itself in the eyes of the COMESA directorate as a worthwhile agency to fund and to bolster).

The COMESA “restrictive practices” investigation into Coca-Cola’s distribution agreements may come on the heels of its (announced, yet likely neither begun nor concluded) market enquiry into the grocery retail sector, similar to comparable market-wide investigations undertaken in Kenya and South Africa; moreover, the South African Competition Commission has likewise undertaken past investigations into restrictive vertical distribution practices engaged in by Coca-Cola in South Africa.

Actual or would-be soft drink competitors may have also brought claims of foreclosure to the CCC’s attention — likely alleging resale price maintenance, as well as possibly lack of access to key distributors due to Coca-Cola’s exclusive or quasi-exclusive contracts and the like.  According to the official COMESA Notice, the agency is investigating allegations against The Coca-Cola Company’s African subsidiary (Coca-Cola Africa (Proprietary) Limited) in relation to its distribution agreements with downstream entities in Ethiopia and Comoros, both of which are COMESA member states, albeit historically rather inactive when it comes to competition-law enforcement.

According to the antitrust-specialist publication Global Competition Review, the CCC has stated that Coca-Cola’s alleged restrictive conduct worked as planned only rarely in practice.  Yet, the agency’s spokesperson noted that the risk of anti-competitive effects remained real: “Coca-Cola is dominant in these countries, it is important that they do not abuse that dominance through distribution agreements which frustrate competition in the relevant markets”, the spokesperson said, according to GCR‘s reporting.  The magazine also quoted Pr1merio antitrust lawyer Andreas Stargard as saying that the CCC can issue injunctions and impose fines of up to 10% of Coca-Cola’s turnover in the common market for the year prior to the conduct.

Andreas Stargard

Andreas Stargard

Stargard tells AAT further that “[a]ny agreement contravening Article 16 of the COMESA Regulations is automatically void.  In addition, while the CCC is breaking new ground here (as it has not yet successfully brought any non-merger investigation to conclusion to date), the applicable Regulations foresee not only injunctive relief (cease-and-desist orders and conduct-based injunctions forcing the party to ‘take whatever action the Commission deems necessary to remove and/or diminish the effect of the illegal conduct’) but also fines, as cited above.  However, no such fine has yet been imposed in any anti-competitive conduct investigation by the CCC.”

He continues: “Under the COMESA Competition Regulations, the agency normally has an initial ‘consultative’ time period of 30-45 days to evaluate whether or not to launch a full-fledged investigation.  This period may include meetings with the concerned party or parties, any complainant, or other stakeholders.  Thereafter, if the Commission votes to open an investigation, the latter must be concluded within 180 days from the date of receipt of the request for the investigation, if it was brought by a complainant.  Here, the official Notice provides that an investigation was in fact opened, meaning the clock has begun ticking.”

Interested stakeholders have until February 28, 2018 to issue comments.

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South African Market Inquiries: What Lies Ahead and is it Justified?

By Michael-James Currie

The South African Competition Commission (SACC) recently announced that it will be conducting market inquiries into both the Public Passenger Transport sector (Transport Inquiry) as well as investigate the high costs of Data (Data Inquiry).

These inquiries are in addition to the SACC’s market inquiries into the private healthcare sector and grocery retail sector (which are still on-going) and the recently concluded LPG market inquiry.

There are mixed feelings about the benefits of market inquiries in South Africa. Market inquiries are extremely resource intensive (both from the SACC’s perspective as well as for the key participants in the inquiry) and the outcomes of the inquiries which have been concluded (including the informal inquiry in the banking sector) are lukewarm at best. There is little evidence available which suggests that the resources incurred in conducting market inquiries in South Africa are proportional to the perceived or intended pro-competitive outcomes.

Leaving aside this debate for now, the SACC’s most recent market inquiries are particularly interesting for a variety of additional reasons.

Firstly, in relation to the Transport Inquiry, the Terms of Reference (ToR) set out the objectives and the key focus areas of the inquiry. In this regard, the ToR indicate that pricing regulation is one of the key factors which allegedly creates an uneven playing field between metered taxis for example and app-based taxi services such as Uber.

It should be noted that the metered taxi association of South Africa had previously and unsuccessfully submitted a complaint to the SACC against Uber for alleged abuse of dominance. The success of Uber in South Africa has widely been regarded as pro-competitive.

Both prior and subsequent to the complaint against Uber, however, an overwhelming number of metered taxi drivers (both legal and illegal) have resorted to deliberate violent tactics in order to preclude Uber drivers from operating in key areas (i.e. at train stations). In fear of having themselves, their passengers and their vehicles harmed, many Uber drivers oblige. It would be most interesting to see how the SACC tackles this most egregious forms of cartel conduct, namely market allocation (albeit entered into under duress).

Over and above the ‘metered taxi v Uber’ debate, there are additional issues which the Transport Inquiry will focus on – including alleged excessive pricing on certain bus routes, regulated route allocation and ethnic transformation within the industry.

What will likely become a topic (directly or indirectly) during the Transport Inquiry are the allegations, as African Antitrust (AAT) had previously reported, that ‘the “taxi and bus” industry is riddled with collusive behaviour. In light of the fact that most of South Africa’s indigent are fully dependent on taxis for transportation in South Africa and spend a significant portion of their disposal income on taxi fees, this is an issue which needs to be addressed urgently by the competition agencies by acting “without fear, favour or prejudice”’.

In this regard, the ToR indicates that “between 70% and 80% of the South African population is dependent on public passenger transport for its mobility”. The majority of these individuals would make use of ‘minibus taxis’.

The Transport Inquiry ToR do not mention this seemingly most blatant violation of competition law principles and it remains to be seen to what extent the SACC’s is prepared to investigate and assess hardcore collusion in the industry.

In relation to the second market inquiry, the SACC will also conduct an inquiry in relation to the high data costs in South Africa.

The High costs of data in South Africa seems to be key issue from the government’s perspective and the Minister of Economic Development, Mr Ebrahim Patel called for the SACC to conduct an inquiry into this sector. Further, the high costs of data in South Africa seems so important to economic growth and development that the Minister of Finance, Mr Malusi Gigaba, not only echoed Minister Patel’s calls for a market inquiry into high data costs, but identified such a market inquiry as part of his ‘14 point action plan’ to revive the South African economy.

Given that the three formal market inquiries which the SACC has commenced with to date have, only one (the LPG inquiry) has been finalized. Even the LPG inquiry took nearly three years to conclude. The private healthcare inquiry and the grocery retail inquiry which commenced in 2014 and 2015 respectively, still seem someway off from reaching any finality.

The length of time taken to conclude a market inquiry is, however, not the end of the matter from a timeline perspective. Following a market inquiry, recommendations must be made to Parliament. These recommendations may include legislative reforms or other remedies to address identified concerns with the structure of the market. Parliament may or may not adopt these recommended proposal.

Accordingly, it seems unlikely that from the date a market inquiry commences, that there will be any pro-competitive gains to the market within 5-7 years. That is assuming that the market presents anti-competitive features which can be remedies through legislative reform

While there appears to be consensus among most that data costs in South Africa are disproportionately high when compared to a number of other developing economies, the positive results envisaged to flow from a market inquiry is not only difficult to quantify, but will only be felt, if at all, a number of years down the line. Hardly a first step to revive the economy on a medium term outlook (let alone the short term).

Furthermore, and entwined with the SACC’s market inquiry into Data Costs, is that the Independent Communications Authority of South Africa (“ICASA”) decided to also conduct a market inquiry into the telecommunications sector, which includes focusing on the high costs of data.  ICASA has indicated that it will liaise with other regulatory bodies including the SACC.

It is not clear what level of collaboration will exist between the SACC and ICASA although one would hope that due to the resource intensive nature of market inquiries, there is minimal duplication between the two agencies – particularly as their objectives would appear identical.

As a concluding remark, absent evidence which convincingly supports the beneficial outcomes of market inquiries in South Africa, perhaps a key priority for the authorities is to conclude the current inquiries as expeditiously as possible and conduct an assessment of the benefits of market inquiries (particularly in the manner in which they are presently being conducted), before initiating a number of additional market inquiries.

South Africa: Dawn Raids on fresh produce markets

By AAT Senior Contributor, Michael-James Currie

The South African Competition Commission (SACC) conducted yet another set of dawn raids, this time on the premises of nine of South Africa’s largest fresh produce market agents.

SAgrocery.jpgThe agents raided, which had operations at the Tshwane Market in Pretoria and the Joburg Market in Johannesburg, include the Botha Roodt Group (Botha Roodt); Subtropico (Pty) Ltd (Subtropico); RSA Group (Pty) Ltd (RSA Group); Dapper Market Agents (Pty) Ltd (Dapper); DW Fresh Produce CC (DW Fresh); Farmers Trust CC (Farmers Trust); Noordvaal Market Agents (Pty) Ltd (Noordvaal); Marco Fresh Produce Market Agency (Marco); and Wenpro Market Agents CC (Wenpro).

Although South Africa has about 30 fresh produce markets agents, the 6 largest agents allegedly account for approximately 80% of the fresh produce intermediaries. This means that the SACC included 3 agents in its raid which would not ordinarily be regarded as ‘large agents’.

The raid, according to the SACC’s media release, follows from a complaint which the SACC received from the Department of Agriculture, Forestry and Fisheries. The media release alleges that the agents engaged in prohibited cartel conduct, in contravention of Section 4(1)(b) of the South African Competition Act, in that they:

  • entered into an agreement and/or engaged in a concerted practice to fix the price and trading conditions for the supply of freshly produced fruits and vegetables in South Africa;
  • are involved in prohibited coordinated activities aimed at undercutting the prices charged by smaller intermediaries by charging way below the market price for certain agreed periods of a trading day;
  • keep their prices unsustainably low during these periods where after they (by agreement) quickly increase prices significantly as soon as the smaller agents run out of stock. Accordingly, certain volumes of fresh produce are sold during the late hours of trading with the sole aim of manipulating prices;
  • further make decisions regarding the actual timing of the price increases; and
  • reserve certain fresh produce grades for particular buyers, therefore, engaging in price discrimination based on the identity of buyers.

These agents facilitate the selling of fresh produce on behalf of farmers, for a commission (which rate they have allegedly also fixed over the years), to wholesalers, retailers and hawkers. Accordingly, the alleged conduct is considered particularly harmful as it affects the most vulnerable households. Additionally, SACC Commissioner Tembinkosi Bonakele stated that “…cartel activities in this sector serve to keep out emerging black farmers and agents out of the market. It is for these reasons that this sector ranks high in our priority list, and cartels, big or small, will be rooted out”.

Notably, the SACC in its statement indicated that the alleged conduct is believed to be ongoing. This may raise serious issues for the agents concerned as the SACC has not yet clarified how they intend on dealing with ongoing conduct for purposes of constituting an offence under section 73A of the Competition Amendment Act (In terms of the section 73A, any director or person with management authority may be held criminally liable for ‘causing’ or ‘knowingly acquiescing’ in cartel conduct). Accordingly, how this uncertainty will impact on the SACC’s corporate leniency policy remains to be seen. For more info on this, see South African Competition Commission… More Dawn Raids!

In conclusion, the timing of this dawn raid coincides with the SACC’s recent (ongoing) Market Inquiry into the Grocery Retail Market Sector. However, to what extent, if any, the Market Inquiry has had any relevance or impact on this dawn raid is unclear and remains a matter of mere speculation.

Competition Commission fails to find conclusive evidence of supermarket violations

south_africa

Competition Commission concludes exclusive-lease investigation without taking action

John Oxenham, Nortons Inc.

The South African Competition Commission (“Commission”) has recently announced that it has concluded its investigation into the major retail grocery stores, namely Shoprite Holdings Ltd, Woolworths Holdings Ltd, the Spar Group Ltd and Pick ‘n Pay Stores Ltd, as well as wholesale retailers, Massmart Holding Ltd and Metcash Trading Africa (Pty) Ltd for alleged contraventions of the Competition Act in relation to exclusive lease agreements.

By way of factual background, the Commission initiated an investigation in 2009 against Shoprite, Woolworths, Spar, Massmart, Metcash and Pick ‘n Pay in which the Commission  examined various competition concerns including buyer power, category management, information exchange and long-term exclusive lease agreements. The Commission’s initial investigation uncovered no evidence of competition contraventions, yet subsequently the Commission decided to focus its investigation on the long-term exclusive lease agreements, evaluating whether they could potentially give rise to contraventions of abuse of dominance and restrictive vertical practices.

The Commission’s investigation failed to find sufficient evidence to meet the tests set out in the Competition Act to proceed with the investigation. As a result, the Commission has decided not to refer the matter to the Competition Tribunal, concluding that “on the basis of the evidence before the commission, the anti-competitive effects of the conduct could not be demonstrated conclusively.

Image Credit: SA Sunday Times