On 9th June 2022, the Minister of Trade, Industry and Competition, Mr Ebrahim Patel, announced his decision to appoint Ms. Doris Tshepe as the new Commissioner of the South African Competition Commission (“SACC”). Ms Tshepe will succeed outgoing Commissioner Tembinkosi Bonakele.
Minister Patel’s announcement comes as somewhat of a surprise to observers, given Commissioner Bonakele’s nine-year tenure and instrumentality in increasing merger and cartel enforcement within South Africa, whilst also advocating and advancing the role of the ‘public interest’ in both of these aspects. Under the leadership of Commissioner Bonakele, the SACC has been considered widely as an agency of international importance.
Andreas Stargard and Outgoing Commissioner Tembinkosi Bonakele (South Africa)
Commissioner Bonakele’s successor, Ms Doris Tshepe, is a well-regarded attorney with extensive experience. Her legal practice spans over 20 years, during which she specialised in constitutional and administrative law, legislative drafting, media and communication law, commercial law, competition law and employment law. Additionally, Ms Tshepe has significant investigatory experience, having been involved in the SACC’s previous market inquiries into the Liquid Petroleum Gas and Grocery Retail sectors as well as being a panel member for the recent Online Markets Inquiry. In addition to her investigative experience, Ms Tshepe also has legislative chops, having sat on a 2019 panel considering the recent amendments to the South African Competition Act. Says John Oxenham, a South African antitrust attorney: “Future Commissioner Tshepe’s long history of working with the SACC and others to shape the current enforcement approach of the agency (as well as its trajectory for the future) indicates that the Commission’s focus will remain steady and sharp. I do not foresee any wavering in the course of the SACC’s currently robust operations, due to the transition in its leadership.”
Bearing Ms Tshepe’s investigative history in mind, we can generally expect her to continue Commissioner Bonakele’s strong enforcement initiatives. Having been appointed to the panel on the amendment of the Competition Act, there is also a reasonable likelihood that we will see the SACC continue implementing, if not increasing, its long-standing public-interest agenda – particularly given the transformative socio-economic objects of South African legislation, say the competition practitioners at Primerio Ltd.
Lastly, we note that not all is over at the SACC for “Tembi” — Minister Patel has stated that there are discussions with outgoing Commissioner Bonakele regarding the delegation of an appropriate set of responsibilities that would allow him to utilize his skills and experience in competition and public policy after his departure. Again, although the details of these responsibilities are unknown, Minister Patel’s statement emphasizes the increased shift towards a public-policy centric competition regime.
Ms Tshepe is expected to assume her position as Commissioner of the Competition Commission during the course of September 2022.
South Africa: Driving Force behind Enforcement of Criminal Sanctions for Cartelists?
By AAT Senior Contributor, Michael-James Currie
In May 2016, precisely a year ago, criminal liability for directors or persons with management authority who cause a firm to engage in cartel conduct was introduced in South Africa by way of amendments to the Competition Act.
The introduction of criminal liability caught most of the South African competition law community off-guard, including the competition authorities, despite the relevant legislative provisions having been drafted and presented to Parliament for approval in 2009.
A major reason why there was such a delay in the enactment of the relevant legislation were concerns raised about the practicality and legality in enforcing the criminal liability provisions, at least in the manner currently drafted. These concerns, however, were never addressed and the Minister of Economic Development, Minister Patel, proceeded to bring into effect the criminalising provisions. The Minister has openly taken a view that current administrative penalties, which to date have been the most prominent form of sanctions imposed on firms for engaging in cartel conduct, do not provide a sufficient deterrent.
Criminal sanctions are, however, by nature a rather retributive liability, and there have been limited instances in which firms that have previously found to have contravened the Competition Act are repeat offenders. Administrative penalties coupled with reputational damage would appear to be a substantial deterrent.
Regardless, the sentiments of Minister Patel were recently echoed by the head of the National Prosecuting Authority, Shaun Abrahams, who recently indicated that anti-corruption task team (ACTT) has been briefed to treat ‘collusion’ in the same vein as corruption. The ACTT was formulated in 2010 to target high profile cases of corruption.
While it is understood that the Competition Commission (SACC) and the National Prosecuting Authority (NPA) having been working on a memorandum of understanding between the two enforcement agencies for over a year, it appears that such a MoU is still some way off from being finalised.
It is not yet clear whether the NPA envisages a more active role in cartel investigations with a view to institute criminal proceedings in terms of the Competition Act, or whether Mr Abrahams envisages holding those accountable by other pieces of anti-corruption legislation such as the Prevention and Combatting of Corrupt Activities Act (PACCA).
Mr Abrahams has indicated that he has been trying to set up a meeting with the Commissioner of the South Africa Competition Commission, Tembinkosi Bonakele, in order to discuss recent investigations by the SACC, most notably in the banking sector.
Of particular interest is that the Black Empowerment Forum (BEF) had laid criminal charges at the South African Police against Citibank following Citibank’s R69 million settlement agreement with the SACC. The BEF had indicated that they would write to the President and the NPA in an effort to elevate and expedite this case.
The recent banking referrals have been politically charged with many of the view that there has been political interference in the manner in which the banking investigation has been handled. A number of reports have linked the BEF which was allegedly only established in April 2017, to the President’s son, Edward Zuma.
This does raise queries as to the motivation behind the BEF’s criminal complaint and also whether it was the BEF’s criminal complaint that has sparked Mr Abrahams’ recent comments.
The timing of the BEF criminal complaint and Mr Abrahams’ expressed interest in pursuing cartelists for criminal liability, the allegations of political interference in the banking referrals and the lack of any formal arrangement between the SACC and the NPA regarding the enforcement of the criminal sanctions (as far as we are aware) may all be unrelated issues. This, however, seems doubtful.
Intervention by economic ministry outside proper competition channels yields R1 billion employment fund
As reported yesterday, AB InBev has agreed to a R1bn ($69m) fund to buoy the South African beer industry and to “protect” domestic jobs. It is widely seen as a direct payment in exchange for the blessing of the U.S. $105 billion takeover of SABMiller by InBev — notably occurring outside the usual channels of the Competition Authorities, instead taking place as behind-closed-door meetings held between the parties and the Minister for Economic Development, Ibrahim Patel, and his staff.
As we reported earlier this week, the previously granted extension of the competition authorities’ review was “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.”
AAT has reported previously on “extra-judicial factors,” as well as the interventionism by the current ministry. This latest deal struck by Mr. Patel and the parent of famed Budweiser beer includes a promise by the parties to preserve full-time employment levels in the country for five years after closing, according to AB InBev. Moreover, the companies pledged to provide financial help for new farms to increase raw materials production of beer inputs like hops and barley.
The minister is quoted as saying: “This transaction is by far the largest yet to be considered by the competition authorities and it’s important that South Africans know that the takeover of a local iconic company will bring tangible benefits. Jobs and inclusive growth are the central concerns in our economy.”
The holy trinity of InBev’s beers
Our editors and contributing authors have reported (and warned) on multiple occasions that the extra-procedural behaviour of the economic minister effectively side-lines the competition agencies, thereby eroding the perceived or real authority of the Competition Commission and the Tribunal. Says Andreas Stargard, a competition law practitioner with a focus on Africa:
“This ‘unscripted’ process risks future merger parties not taking the Authorities seriously and side-stepping them ex ante by a short visit to the Minister instead, cutting a deal that may be in the interest of South Africans according to his ministry’s current political view, but certainly not according to well-founded and legislatively prescribed antitrust principles. The Commission and the Tribunal take the latter into account, whereas the Minister is not bound by them, by principled legal analysis, nor by competition economics.”
This is especially true as the current deal involves the takeover of SABMiller, an entity that controls 90% of South Africa’s beer market. From a pure antitrust perspective, this transaction would certainly raise an agency’s interest in an in-depth investigation on the competition merits — not merely on the basis of job maintenance and other protectionist goals that may serve a political purpose but do not protect or assure future competition in an otherwise concentrated market.
Says one African antitrust attorney familiar with the matter, “What may be a short-term populist achievement, racking up political points for Mr. Patel and the ANC, may well turn out to be a less-than-optimal antitrust outcome in the long run.”
Discarding any objectivity and international best practice, the Minister of Economic Development, Mr. Ebrahim Patel, has once again expressed his desire to use the South African Competition Commission (“SACC”) as an agency to actively promote the government’s industrial policies.
Speaking at a media briefing, Patel told journalists that the focus of the Economic Development Department would be to grow “black ownership of new industry in South Africa and using state funding to grow the work of black entrepreneurs”.[1]
Minister Patel
Patel said the intention of using the SACC to launch a market inquiry into the retail sector was to “ensure that we’ve got a competitive sector, but also an inclusive sector”. This statement and the decision to institute a market inquiry into the retail sector is, at least at this stage, problematic for two reasons. Firstly, the retail sector is arguably one of the most competitive sectors in South Africa, and any barrier to entry into the sector is a natural consequence of a highly competitive market. Furthermore, Patel identified exclusivity clauses (which are popular provisions inserted into lease contracts between mall anchor tenants and the developers) will be one of the issues that the inquiry will look into. Patel, unfortunately, overlooked the fact that there has already been an investigation relating to these clauses. At the conclusion of the investigation, the SACC found that there is not sufficient evidence of anti-competitive impact, resulting from these clauses, and thus the SACC refrained from referring the matter to the South African Competition Tribunal (“SACT”).[2] This thus begs the question, whether it is necessary to institute a market inquiry with regard to the issue of exclusivity clauses and expose the industry to intensive and unnecessary costs?
In an article written by Mfundo Ngobese in the official newsletter of the SACC, Ngobese responds to an article written by John Oxenham and Patrick Smith, presented at the Eighth Annual Conference on Competition Law, Economics and Policy titled “What is Competition Really Good For?”. The main focus of Ngobese’s article is evaluating the merits of an argument put forward by Oxenham and Smith: that the Competition Authorities should engage in a balancing exercise between the short term impact on public interest issues (such as employment) versus the long term benefits that are associated with effective competition (such as increased economic growth which leads to more jobs created).
Public Interest Test
This brings us back to Patel’s decision to use public interest as the main ground on which a market inquiry into the retail sector should be instituted. The decision to launch a market inquiry based on the anti-competitiveness of exclusivity clauses is simply untenable in light of the SACC’s findings in respect of a previous investigation into the issue, as well as the fact that the retail industry is highly competitive.[4] Using any ‘anti-competitive’ argument as justification for launching this particular market inquiry, would amount to nothing more than a ‘fishing expedition’ by Patel and the Authorities.
The broad public interest grounds which are increasingly becoming prevalent as Patel transcends into the competition arena, coupled with the ill-defined rationale, guidelines and justifications behind the use of public interest grounds in competition review, is contributing significantly to uncertainty in the South African economy.
This ‘uncertainty’, that surrounds doing business in South Africa was recognised by African National Congress (ANC) stalwart Mathews Phosa. The former ANC Treasurer and Mpumalanga premier identified corruption, inconsistent government policies, and other factors as root causes of investors’ growing reluctance to invest in South Africa:
Policy stability leads to political, social and economic uncertainty. Policy stability in contrast created an “investment friendly culture where every investor feels protected and free to do business”.
While businesses in the retail industry (and indeed businesses across the board) in South Africa, are desperately seeking certainty, Patel is seeking a ‘second bite of the cherry’.
The second issue with Patel’s reason for instituting the market inquiry relates to him wanting to achieve an “inclusive retail sector” and how to bring more “black South Africans into the sector”. While transformation in the economy is certainly an important issue that needs to be addressed in South Africa, it is the manner and form in which such transformation takes place, which is concerning. In this regard, the SACC is patently not the appropriate institution to ensure that there are sufficient black-owned businesses in the retail sector.
Confused Motives
Patel seems to have, unfortunately, conflated the objectives and role of his own department, with the objectives and purpose of the SACC. This comes at a time when other political meddling has led to the resignation of the National Director of Public Prosecutions, Mxolisi Nxasana, who quit his post on Sunday, after almost a year of politically-motivated wrangling and formal investigations being initiated and ultimately dropped by President Jacob Zuma.
Former NPA head Mxolisi Nxasana, forced to resign due to political pressure.
The influence that Minister Patel has had on the SACC’s policy is undoubtedly evident when one evaluates the increased reliance of the South African Competition Authorities to impose stringent conditions in approving mergers.[5]
In justifying the use of public interest grounds in competition law, the Competition Authorities may point out that South Africa’s Competition Act, 89 of 1998 (the “Act”) permits and requires public considerations to be taken into account. However, the use of public interest grounds should not, as seems to be the case, be seen as independent issues unrelated to competition which is to be considered in isolation of the purpose of the Act.[6] The Competition Authorities’ purpose, as set out in Section 2 of the Act is to “promote and maintain competition in the Republic…”. It is likely that Patel views the following two subsections which state that competition must be maintained or promoted to:
“promote employment and advance the social and economic welfare of South Africans” (Section 2(c)); and
“promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons” (Section 2(f))[7]
as the basis for his increased reliance on pushing his Department’s policy objectives through the channels of the SACC. However, placing an overly zealous reliance on these two subsections, fundamentally misconstrues the purpose and function of competition law.
Subsections (c) and (f) quoted above are not self-standing provisions; they are qualified by the general purpose of the Act. Furthermore, by viewing or placing greater reliance on these provisions as self-standing provisions, one would run into an inconceivable difficulty when considering section 2(a), which states as a further objective of the Act (and the purpose of the promoting competition) is to promote the “efficiency, adaptability and development of the economy”. At least from a Section 2 perspective, public interest considerations, at best, have to be reconciled with competition issues.
Market inquiries have often been used very successfully as an investigative tool by a number of competition agencies, especially in Europe. However, a market inquiry requires significant resource expenditure by both the SACC and the market participants and often casts a bad shadow over the relevant industry to the detriment of companies who have not engaged in any anti-competitive conduct. Market inquiries should thus be used sparingly and only when there is significant concern that a particular market is not functioning in a competitive manner. A market inquiry should certainly not be used as a means to affect change in the industry in order simply to suit the objectives of the Government.
There is a further institutional concern which must be noted, and that is that the SACC has, like all institutions, limited resources. In order to function as an efficient and formidable competition law agency, the SACC should ensure that what limited resources are available, is best utilised to achieve a competitive market environment in South Africa.
Before even engaging in policy discussions, as those that Patel is pushing for, it would firstly be necessary to ensure that the SACC has the requisite expertise to deal with policy agenda’s which are far broader than pure competition law. There are already institutions, as Patel has recognised, whose responsibility it is to promote economic growth and to address transformation within the economy.[8] It is not the responsibility of the Competition Authorities to address these issues as directly as has been the case in recent years.[9]
The need for transformation and the promotion of black industrialists is an issue to be addressed by the Government, however, it seems that there is a general lack of regard to competition concerns when Government departments form their policies. A good illustration of this is the significant criticism levelled at the new agreement struck between South African Airways (“SAA”) and the Department of Trade and Industry (“DTI”), which will see SAA redirect R10 billion rand of procurement spending to “black industrialists” (“SAA Agreement”).[10]
While this may appear to be a noble policy, the question remains whether new “black industrialists” are coming into existence, or whether existing “black industrialists” are simply going to make substantial profits at the expense of true development.
The SAA Agreement, which requires, without anything more, that a certain amount of supplies (fuel) be purchased from specific suppliers (‘black suppliers’) strikes at the heart of competition. Effectively certain existing competitors are being excluded in order to favour other competitors. In no way does this promote ‘transformation’ within the industry as the existing barriers to entry remain.
From a competition point of view, the benefit of having healthy competition in the commercial aviation market seems to have been overlooked by the DTI. Apart from the direct benefit that flows from actual cheaper air tickets, the knock-on benefits of stimulating the leisure tourism seems to have been overlooked.
While acknowledging that the SAA decision taken by the DTI is not directly linked to competition law, the disregard that the DTI appears to have to competition in the aviation industry is in stark contracts to the to the Competition Authorities in Botswana who have launched a market inquiry into the aviation sector (although notably with the focus being on unscheduled flights), due to having recognised the importance that the price of flight tickets may have on the tourism industry and the benefits that would flow from boosting the tourism industry.
Considering that SAA is battling financially, and is highly dependent on State bailouts, it is baffling that the State’s primary objective is not to ensure that SAA operates viably and competitively, before risking such competitiveness in favour of a policy which is quite frankly, difficult to justify as there is no evidence that such policies actually achieve genuine transformation or promote economic growth.[11]
One can’t help but notice the irony when it comes to the Government’s social and transformation policies. The Government, and Patel in particular, consistently ignore well established economic principles and the benefits that flow from healthy competition in the economy, in favour of promoting short-sighted top-down “transformative industrial policies”, rather than spending the scarce resources on promoting and developing South Africa from a bottom-up approach.
For instance, poor service delivery in South Africa has a significant detrimental economic and social impact on South Africa. Why improving service delivery does not appear to be high on the radar of the Department of Economic Development or the DTI, is surprising if the objectives of these departments are to promote ‘black businesses’, as the areas which are most severely affected by poor service delivery are generally areas where there is a high percentage of black persons living, who form part of the lower income brackets. In other words, areas where the promotion of small businesses and healthy competition would be most valuable to any social development objectives.
Unfortunately, however, a recent report issued by the Institute of Race Relations stated that the highest incidence of recent public protests in relation to poor service delivery, took place in areas were the most “fruitless and wasteful government expenditure” took place.[12]
Recent statistics show that South Africa’s unemployment rate is increasing, bringing into question whether the policy intervention that Patel has been championing over the past 6 years, is indeed yielding the positive results envisioned by the Government. While the purpose of this article is not to evaluate and criticise all policy interventions, the point to be made is that the effectiveness of policy intervention to advance socio-economic interests in the South Africa is in no way proving effective. While there may be a number of reasons for failing policies, it appears worrying that politicians such as Patel are prepared to risk the independence, efficient functioning and objectives of the Competition Authorities, which are ultimately to promote competition in the market, in order to promote industrial policies when there is so much uncertainty whether such policies will truly ensure long term benefits for the Country as a whole.
Two recently issued reports, namely, the Boston Consulting Group (BCG) Report and the IMD World Development Report, succinctly confirm the concerns and issues which are addressed in this article.
The BCG Report evaluates the reasons for South Africa’s stagnant economic growth. The report acknowledges that it is a necessity to improve education and healthcare and reduce unemployment to advance growth; however, the report importantly states that:
“There is no hiding from the fact that short-term self-interested behaviour has been prevalent; that the emphasis in South Africa has been on cutting the pie rather than growing it.”[13]
This statement could not be truer if one considers Patel’s disregard of well established benefits that flow from a competitive environment, in favour of promoting industrial policies. The following statement by Adam Ikdal on the poor leadership in South Africa, corroborates this papers view:
“a concerted program of execution is essential. In many instances this may mean putting the greater good ahead of the individual or institutional interests.”[14]
The IMD World Competitiveness Report (IMD Report) not only complements the BCG Report, but essentially confirms the views of this paper, with empirical evidence. The IMD Report indicates that South Africa has dropped from a ranking of 37 in 2012 to 53 in 2015 on a list of the world’s most competitive countries. The IMD Report not surprisingly, identified South Africa’s infrastructure shortfall, poor service delivery and lack of education and skills as some of the major contributors to South Africa’s slip down the rankings.
Crucially the director of the IMD World Competitiveness Centre, Arturo Bris, identified what sets the top performing countries apart from the others. This is what Bris had to say, which is essentially, the basis upon which the criticism identified in this paper is levelled at Patel’s policy objectives:
“Productivity and efficiency are in the driver’s seat of a competitiveness wagon. Simply put, business efficiency requires greater productivity and the competitiveness of countries is greatly linked to the ability of enterprises to remain profitable over time”.[15]
In conclusion, we note that both transformation and fostering economic growth is an objective of the South African Government. This is, however, no justification for abandoning the tried and tested benefits that flow from a competitive market, in favour of promoting short-term industrial policies such as Patel is doing. Should the SACC adopt Patel’s industrial policies as part of their policy objectives, the SACC ultimately risks its independence and may effectively become an ‘umbrella institution’ under which any industrial policy agendas are driven. This would be an undesirable and intolerable outcome, and one which the South African Competition Authorities need to carefully guard against.
[5] We have dealt with this aspect of merger control in more depth in previous articles, please see the following link.
[6] To illustrate the extent that public interest considerations are used by the Competition Authorities, the last intermediate merger that was approved unconditionally was in 2008. Since then, there have been 14 mergers that have been approved subject to conditions. As to large mergers, approximately 10 of the most recent 40 mergers that have come before the Competition Tribunal, 5 have been approved subject to conditions. It should be noted that it is the SACC that reviews intermediate mergers, while large mergers are reviewed bu the Competition Tribunal.
[7] Sections 2(c) and (f) of the Competition Act, 89 of 1998.
[8] For example the Industrial Development Corporation.
[9] See the AfriGroup Holdings (Pty) Ltd and Afgri Ltd merger where the South African Competition Tribunal (“SACT”) Acknowledged that the merger poses no horizontal or vertical competition law concerns. Despite reaching such a conclusion, the SACT, approved the merger on condition that an agreement reached by the parties in terms of which Afgri would contribute R90 million over four years, to a development fund for small farmers via the provision of loans, training and grain storage discounts. Similar burdensome conditions are becoming all the more prevalent in merger control, and are often self-imposed by the SACT and are not agreed upon by the parties as was the case in Afgri.
Race to bottom: dilution of competition-law factors in South Africa?
As we have reported numerous times, both on the global policy front as well as in individual case reports, the South African competition regulators and their superiors in the economic development ministry have had their sights on placing a stronger emphasis on the “public interest” element inherent in the SA competition legislation — thereby diluting pure competition-law/antitrust analysis, as some might argue.
Recently, Minister Patel commended his “independent” team at the Competition Commission for not only doing a good job overall, but also in particular on the public-interest front, encouraging the systematic consideration of public interest by the Commission and the Tribunal.
His prepared remarks from the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg are now uploaded here. In them, he emphasizes that competition policy is “rightly”…:
“… a subset of broader competitive policies, which in turn are part of our industrial policy framework. … Our law provides an opportunity, and indeed an obligation, to align corporate strategy (by which I refer to mergers or takeovers) with public interest considerations. … The increasing use of the public-interest requirements in evaluating mergers has been critical in ensuring that competition policy has a growing developmental impact, saving thousands of jobs and providing millions of rands to support small and emerging enterprises.”
On the independence of the enforcers, Mr. Patel had this to say:
This kind of alignment must in future, as in the past, respect the independence of the regulator. But all our agencies, however independent, work within the framework of national policies.
These remarks are fairly strong, indeed! We leave it to our AAT readership to infer the consequences of these observations on future merger enforcement and on the true degree of independence of the Commission — you can read between the lines.
Over the past five years, the South African competition authorities have increasingly struggled to balance a competition test with defined public interest criteria (Metropolitan, Kansai, Walmart). Other agencies (ICASA, NERSA), and government ministries more generally, have also wrestled with how competition policy might fit into wider government policies and even broader concepts of the “public interest”, including notions of equality, fairness and access. In this paper we discuss some of key events in this ongoing debate, and we anticipate some of the battles that are likely to come. Furthermore, we set out a rigorous framework and provide a review of the available research and literature to discuss the effects of competition (both positive and negative) in multiple dimensions, in order to assess how far a “pure competition” test might go in achieving a broad range of efficiency, growth, and employment objectives. Such a comprehensive and evidence based approach is essential in understanding the costs and benefits of the existing pursuit of multiple (and often apparently conflicting) objectives, and will allow decision makers to more logically assess the trade-offs that they will continue to be confronted with.
Minister finds praise for competition agencies, having increased fines “1000%”
The official South African news agency reports that Economic Development Minister Ebrahim Patel has lauded the country’s competition authorities as “remarkably effective over the past 15 years.”
“The competition authorities have done solid investigations as they have stepped up actions against cartels and promoted public interest consideration when conducting investigations,” he is quoted as saying at the 8th Annual Competition, Law, Economics and Policy Conference in Johannesburg. “The remedies and fines imposed by the competition authorities climbed ten fold compared to the previous five years, call it 1000 percent, reaching over R6 billion.”
Minister Patel said the competition authority had come into their own with solid pipelines of anti-cartel investigation, the systematic consideration of public interest and issues in merger acquisition.
Setting aside the unorthodox phraseology (“merger acquisition”) in the quoted paragraph, the Minister’s remarks indeed echo what we at AAT have observed for well over a year now, namely the renewed and increased focus of the competition agencies on so-called “public-interest” factors, in lieu of (or in addition to) traditional, classic antitrust considerations, such as market power, concentration/HHIs, and prediction of unilateral/coordinated effects of proposed mergers.
South Africa takes on more price regulation in planned amendment to Competition Act
BDLive’s Carol Patonreports that Economic Development Minister Ebrahim Patel – with whose involvement in competition policy AAT readers are well aware from reading our site – has further strengthened his grip on the country’s competition authorities. He is said to be drafting amendments to the Competition Act in relation to dominant firms’ “excessive pricing” practices. The amendments are to be introduced to Parliament in 2015.
The article quotes Mr. Patel’s Sunday interview, in which he said:
“The past five years indicated that we are serious about dealing with cartels. But the challenge that we have had is that the economy still has many formal monopolies or upstream producers who are able to impose high prices on downstream manufacturers. We have got to move with greater urgency to tackle the structural challenges. Giving a dominant player the right to set its own price results is an unfairness. In the Sasol example, part of the remedy is for the firm to work with the competition authorities to develop a soft version of price regulation.”
Price regulation is an absolute taboo in U.S. antitrust law, and even under more interventionist and public-policy influenced EU standards, explicit price regulation is not practiced in the bloc’s 28 member states. Sasol, the giant South African oil company, is said to be aware of the government’s plans, saying: “setting prices, in particular of traded goods, invariably leads to unsatisfactory outcomes. South Africa’s joining the World Trade Organisation in 1995 took us forward to opening the economy to compete internationally, with prices being brought in line with international prices. Regulating prices to below gate price, is unlikely to lead to building long-term competitive industries.”
This morning, economic-development minister Ebrahim Patel announced the retention of the 38 year-old Mr. Bonakele as the top antitrust enforcer in the South African republic, making permanent for a five-year term the interim appointment of the man who said the following in an interview regarding the independence of the competition authorities in South Africa:
“While competition authorities should not be beholden to the government neither can they be loose cannons who claim independence without accountability.”
In prolonging Mr. Bonakele’s interim appointment for another five years, Minister Patel thus assured that the important position of Competition Commissioner did not go to a “loose cannon”…
Legislative basis
The appointment is made pursuant to Part A, Art. 22 of the South African Competition Act of 1999, as amended, which also provides (in sub section 4) for the flexible salary and benefits determination to be made by the minister himself: “The Minister must, in consultation with the Minister of Finance, determine the Commissioner’s remuneration, allowances, benefits, and other terms and conditions of employment”
Minister Patel
Commissioner Bonakele
Public announcement and emphasis on enforcement
In the duo’s official tweets announcing the decision (see graphic extract below), Patel congratulated Mr. Bonakele, reaffirming his and the SA cabinet’s support of the “eminently suitable” candidate, and emphasizing the importance of (1) the Competition Commission‘s ongoing and hotly debated private health-care inquiry as well as (2) the “social-justice” elements of merger conditions imposed by the SACC on mergers in the past 5 years, purportedly “protecting” 4,900 jobs.
The agency had come under considerable flak in the past year due to its high staff and executive-level turnover and a work environment that has been described as “toxic” by insiders.
The official release by the Ministry of Economic Development quotes Patel as follows:
“I am pleased to have someone of Bonakele’s calibre at the helm of the Competition Commission. He is taking leadership of the Commission at a time when the South African economy needs to become more competitive and create many more decent work opportunities by combatting market abuse such as cartels and pervasive monopolies and ensure competitive pricing of products. In particular, the key jobs drivers identified in our policy frameworks require coordinated and concerted efforts improve economic performance and development outcomes.
“The Competition Commission has been one of a number of successful economic agencies and regulators that are together beginning to transform the South African economy. Mr Bonakele possesses the skills and experience to build on the successes of the Competition Commission.”
The agency’s official “Structure” page had not yet been updated as of the day of the announcement, listing Mr. Bonakele as “Acting” head and still showing the long-departed Ms. Makhaya as a Commission official.
Official S.A. government tweets announcing SACC personnel decision of permanent Bonakele appointment
In what can only be described as a significant step backwards in ensuring that the more established of the emerging economies enforce the application of sound and established (e.g., ICN) best practices in relation to merger remedies, AAT has discovered that the much publicised acquisition of South Africa’s AFGRI by international private investment group AgriGroupe has recently been subjected to a private side deal between the South African Government and the merging parties, sidestepping the Commission’s jurisdiction and decision-making competence. According to its terms, Afgri is obligated to make available R90 million (US$9m, over four years) to certain South African farmers & enrol emerging farmers in development programmes and assist poultry farmers.
Minister’s side deal replaces Competition Act merger remedies
There is little doubt that these forced conditions constitute matters best handled by the relevant antitrust regulator as proper remedies in a merger-control proceeding. At the outer limit, relevant departments such as the Department of Water, Forestry and Fisheries might have input into them. Yet, it appears that these conditions are purely negotiated by the Minister of Economic Development – the same office that sacked the prior chairman of the Competition Commission, Shan Ramburuth, and which has been subjected to criticism of meddling in the independent authority’s affairs.
Minister Patel
Following the questionable intervention of various South African Government departments in Walmart’s acquisition of Massmart (which is, as we have previously noted, the origin of the non-competition merger remedies), it appears that the same departments have in effect sought to force the merging parties into agreeing to perform services on behalf of the Government in exchange for the departments’ non-intervention before the Competition Tribunal proceedings.
Following a pattern…
Heather Irvine, counsel for the merging parties, confirmed that the “merger was approved (with the agreement as a condition) after the Tribunal hearing yesterday.” She points out that “this agreement was voluntarily entered into by the merging parties in a spirit of goodwill and as a demonstration of Afgri’s commitment to growing the African food sector, not because of concerns about any public interest issues in terms of the Competition Act,” pointing to the transcript to be made available shortly. We appreciate counsel’s confirmation that the side agreement was reached entirely outside the confines of the SA Competition Act between the ministry and the parties.
It is apparent that since Minister Patel has assumed his role as Minister of Economic Development (an “activist, interventionist and micromanaging minister,” according to the former Competition Tribunal chairman David Lewis), the competition authorities’ independence has been undermined (see some of our prior articles here and here). In particular, the merger process is little more than a means by which the South African Government seeks to extract from merging parties a series of additional unwarranted (industrial policy) conditions. It is in our view a highly problematic development. In sum, the S.A. merger review process remains a highly contentious issue and while the parties in this case sought to placate Government, others may not be as willing.
As we reported earlier this week, the previously granted extension of the competition authorities’ review was “widely suspected that the request for the extension is due to 
African Antitrust & Competition Law 