Tag: SACC

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

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By Tyla-Lee Coertzen

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

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

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

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

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

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

Concentration and Participation in the South African Economy: Levels and Trends – SACC Publishes Report

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By Michael-James Currie & Gina Lodolo

On 7 December 2021, the Minister of Trade, Industry and Competition, Ebrahim Patel released a report titled “Measuring concentration and participation in the South African Economy: Levels and Trends”, accessible here (“Concentration Report”). This Concentration Report is the first of many as the Minster undertook to update the report bi-annually from hereon out.

The theme of the Concentration Report is centered on identifying and remedying:

  • Economic levels and trends that are skewed and don’t reflect South Africa’s population demographic; and
  • Entrenched leaders in certain sectors, which creates “inefficient concentration” by setting high barriers to entry thereby reducing competition, which, according to the Concentration Report, can lead to higher prices and lower investment in South Africa.

The Concentration Report highlights that concentrated markets are of a rising concern internationally, however, specifically in the South African context, the apartheid era created dominant firms that persist and prevent historically excluded persons from participating and gaining market share.

The Competition Commission (“SACC”) does however note that concentration does not automatically mean there is a lack of competition and there may be many instances where concentration will be for the benefit of the consumer and pro-competitive. In this regard pro-competitive concentration can be seen when innovation creates increased market size and economies of scale reduce prices for consumers. Further, the SACC notes that there are still gaps in the data, which will be addressed in the subsequent reports.

The Concentration Report highlights that the SACC will hereinafter be concentrating its efforts on markets that have been identified to contain a role player that is presumed dominant. In this regard, the sectors that have been identified as requiring increased scrutiny are:

  • Farming inputs;
  • Agro-processing;
  • Sin (alcohol and tobacco) industries;
  • Healthcare;
  • Communications;
  • Upstream steel value; and
  • Financial services

This increased scrutiny will be seen particularly in industries that require licenses to operate. This is of concern to the SACC because licensing can be used as a mechanism to spread out ownership, which may be curtailed by a merger, and the SACC has seen increased merger activity particularly in industries characterized by licensing requirements.

To conclude, it is vital to take cognizance of this Concentration Report because the SACC has highlighted that it will form the basis of strategic enforcement of the Competition Act 18 of 2018 (“Act”) and will lay the path for policy centered on a concentrated economy.  In this regard, we foresee closer scrutiny of role players with large market shares in the years to come, especially those players that are presumed to be dominant or expressly mentioned in the Concentration Report.

A further challenge that the Commission faces in tackling perceived high-levels of concentration, is balancing the clear socio-economic objectives with competition law goals and consumer welfare enhancing conduct. Although the Report acknowledges that high concentration does not mean the market is anti-competitive, the general policy of the Report is clearly aimed as protecting or promoting a designated group of competitors as opposed to the competitive process itself. This creates an inherent policy tension and requires very clear, transparent and quantifiable trade-offs.

As the Constitutional Court recently affirmed in the Mediclinic case, higher prices to consumers is not in the public interest. The converse is of course also true. Intervention in markets which may lead to adverse effects on consumer welfare would need to be weighed against the objective of “opening up” the market. Where healthy and efficient entry is permissible, that may well be consumer welfare enhancing but if remedial actions are deigned to simply protect inefficient market participants then interventionist measures are likely to amount to nothing more than a tax on large players which either ultimately gets passed on to consumers or discourages investment. It is absolutely critical to South Africa’s economy and to the integrity of the competition law regime that the latter consequences do not materialize.

You can access the summary report here: https://www.compcom.co.za/wp-content/uploads/2021/12/Concentration-Tracker-Summary-Report.pdf

Healthy foods & price-gouging during Pandemic?

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High ginger, garlic and lemon prices have left a sour taste in mouths of South Africans

By Gina Lodolo and Jemma Muller

The exorbitant and rapid increase in prices of ginger, garlic and lemon, that which spans up to 300%, has been the source of much public outcry and regulatory concern over the past few months. The question remains whether the price increases by massive retailers can be justified or whether they should be considered as excessive?

The Consumer and Customer Protection and the National Disaster Regulations and Directions (the “Regulations”), which came into effect in March 2020, were put in place to consider inter alia when a price is excessive.  They empower the South African Competition Commission (“SACC”) and National Consumer Commission (“NCC”) to investigate and prosecute cases of price-gouging.  Contraventions may result in penalties of up to ZAR 1 million or 10% of annual turnover. According to the NCC, price gouging is defined as “an unfair or unreasonable price increase that does not correspond to or is not equivalent to the increase in the cost of providing that good or service.”

The NCC has launched an investigation under the Consumer Protection Act into potential contraventions of the COVID-19 Regulations against major retailers such as Woolworths, Pick ‘n Pay, Shoprite, Spar, Food Lovers market, Cambridge Foods and Boxers Superstores. According to the Regulations, and in terms of section 120(1)(d) of the Consumer Protection Act, a price increase of a goods, including inter alia “basic food and consumer items”, which does not correspond to the increase in cost of supplying such goods, or increases in the net margin or mark-up on the good(s) which exceeds the average margin or mark-up on the said good in the three month period before 1 March 2020 is “unconscionable, unfair, unreasonable and unjust and a supplier is prohibited from effecting such a price increase”.

The preferred tools of the COVID-19 Regulations relating to excessive pricing seem to be predominantly similar to competition policy and its associated institutions. Upon assessing an increase in pricing to determine whether the increase is excessive, the test would be whether the prices were increased due to cost-based increases (such as reduced supply due to an increase in import costs as the domestic currency get weaker) as opposed to price increases only due to a demand increase (such as more consumers buying ginger as an immune booster during the COVID-19 pandemic). When assessing exploitative conduct, it is more likely to establish that there has been an abuse of dominance when a firm is dominant or enjoys great market power.

It has appeared that the trend in the increase of ginger and garlic retail prices is that the allegedly exploitative conduct no longer originates from only one dominant player as such (eg. only Spar) but rather affects shops in the whole of South Africa. The price increases have sparked outrage with consumers who are driving shop-to-shop in an attempt to purchase ginger or garlic at a lower, or somewhat ‘standard’ pre-COVID-19, price.

As stated above, increasing prices will be seen as excessive when the increase is due only to an increase in demand. Retailers have claimed that the increase is not only because of rising demand but also due to an actual decrease in the product supply.  It is therefore pertinent to determine the extent to which the supply has been reduced in relation to the increased demand. This would require a proportionality balance, as shops would have to prove to the competition authorities that the increase of pricing is only due to the decrease in supply. Extortionary pricing above and beyond that would demonstrate an increase of pricing due to the increase of demand, and as such would fall foul of the  Competition Act and the Regulations cited above.

The rising prices in garlic and ginger have been on the SACC’s radar since July 2020, when it concluded a consent agreement with Food Lovers Holdings whereby the retailer agreed to immediately halt excessively pricing its ginger products at one of its stores. Notwithstanding this fact, the subsequent regulation and enforcement of ginger and garlic prices by the SACC under Regulations has become somewhat tricky due to the fact that the products are not considered to be essential products under the COVID-19 Regulations.

The SACC previously found that the increases in prices were largely attributed to the rise in costs experienced by retailers and they found no evidence of price gouging targeted at taking advantage of the constrained mobility of consumers or shortages during the pandemic. What the SACC found to be concerning, however, were the high pre-disaster margins on products such as ginger and garlic, which have largely been maintained throughout the pandemic by retailers raising their prices for the goods as the costs were increasing. Accordingly, as mentioned above, although the SACC did not find evidence of price gouging, it did find possible contraventions of the Consumer Protection Act and as such, referred the potential contraventions to the NCC to investigate further.

A spokesperson for the SACC, Siyabulela Makunga has stated the following:

“We also appreciate the changes in demand for garlic and ginger, but it is our view the price of ginger and garlic have [sic] increased astronomically at retailers. We don’t think that the increased demand in ginger justified the price of up to R400 a kilogram…”

John Oxenham, an R.S.A. competition lawyer with Primerio Ltd., notes that “the prosecution of the matter demonstrates the respective authorities’ commitment to priority sectors and an unbridled effort to root out any form of price-gouging.”

To conclude, market power of the implicated retailors has likely been increased due to the reduced availability of substitutes for customers as a majority of retailers have introduced a dramatic price increase. The investigation launched by the NCC is, however, a step in the right direction to protect consumers who have been left with very limited choices in the widespread steep increase in price of ginger and garlic.

“Emerging Antitrust”: One size doesn’t fit all?

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Pro rem publicam

At the Concurrences “Antitrust & Developing and Emerging Economies” conference held at NYU Law last Friday — and aptly sub-titled “Coping with nationalism, building inclusive growth” — the audience was treated to a (rather iconoclastic, yet fascinating) keynote speech by Nobel laureate economics professor Joe Stiglitz, which highlighted what would become a theme woven throughout the four panels of the day: One size does not fit all when it comes to competition-law regimes, according to a majority of the speakers; imposing a pure U.S. or EU-derived methodology without regard to local economic and/or political differences is doomed to fail.  However, as we outline further below, there were also countervailing voices…

Nobel Laureate Joseph Stiglitz: “Revisit all of antitrust!”

In the words of Professor Stiglitz, his advice to developing nations was (perhaps to the chagrin of U.S. government representatives, such as the FTC’s international director, Randy Tritell): “don’t copy the US antitrust laws and presumptions!”  Smaller markets in developing countries are even more susceptible to market power by few large firms.  Competition law can be used in developing countries to advance the public interest, as there are fewer “tools in the toolkit” in those nations, and in his view, all available tools should thus be used.  He referred to the WalMart/Massmart transaction in South Africa in this regard, noting the public-interest conditions imposed there.

On the day’s Mega Mergers panel, SACC Commissioner Tembinkosi Bonakele noted how the outcomes of truly global “mega mergers” all having been positive, “there has been no outright prohibition, there really is no problem that’s too big which could not be remedied by the authorities and the parties.”

Andreas Stargard and Commissioner Tembinkosi Bonakele (South Africa)

Observes Andreas Stargard: “Commissioner Bonakele also pointed to the importance of international merger enforcers cooperating on remedies, in order to allow these positive outcomes to be maintained.  Taking up Professor Harry First’s hypothetical of a joint or ‘merged’ antitrust enforcement agency, Mr. Bonakele considered a combined merger authority for the African continent a possibility, especially in light of the many small jurisdictions which individually lack resources to police cross-border M&A activity.”  Mr. Bonakele expressed the concern that “the smaller, national enforcers certainly feel as if they cannot block a mega deal on their own, so they largely defer” to the established agencies, such as the EC and DOJ / FTC.

In response to Frederic Jenny’s critical introduction of the South African Competition Amendment Act, Commissioner Bonakele commented that the current legal regime lacked the ability to tackle concentration as a market feature in itself, whilst the SACC had a comparatively positive track record on unilateral enforcement issues.  Overall, he disagreed with the moderator that most of the Bill’s changes were drastic, stating simply that it would in fact bring South Africa more in line with other international regimes.

As to the ministerial intervention powers, he identified two concerns, namely the use of the agency’s resources as well as the possible risk of abuse by a minister who could employ the new law to pursue ulterior motives against a firm or a sector.

Counterpoint: public interest or politicization?

Prof. Ioannis Lianos characterized the “slightly fuzzy public interest test” as largely a scheme to enhance the bargaining power of the competition agencies that do apply such a test.

Canadian attorney and former enforcer Lawson Hunter pointed out that the trend of growing political interference in the merger approval process has spread globally, not only in developing nations but also in well-established regimes — often under the guise of national security reviews, which are “obscure, opaque in process, fundamentally political, and without any ‘there there’.”  Merger review has “simply become very broad and less doctrinal.”  “I found it interesting that Mr. Hunter recommended that other antitrust agencies should give more frank input into their sister agencies, if and when those stray from the right path,” said Stargard, who focuses his practice on competition matters across the continent.  “Hunter also pointed to the tendency in emerging antitrust jurisdictions to abuse the remedy process in merger control to address economic issues that lie well outside the actual competition concerns that may have been found — an issue we have also come across, sadly.”

Commissioner Bonakele closed the final panel of the day by addressing the recently ratified South African Competition Amendment Bill: he admitted that there were some “radical” provisions in the law, such as the power to break up companies, as well as the existence of a risk of government using the law’s new national security provision in a protectionist manner. He concluded by stating his personal worry that the law had possibly too much ambition, which could be difficult to implement in reality by the SACC.

SA Competition Act officially amended – serious consequences for businesses

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South Africa has amended its antitrust laws, first introduced to the country in 1998 via its Competition Act.  Parliament ratified the amendments (which still have to be rubber-stamped by the National Council of Provinces, a mere formality) yesterday over the serious objections of the opposition parties.  The new law will give significant interventionist powers to the Minister for Economic Development, Ebrahim Patel, as well as introduce lower (or even reversed) burdens of proof for the Competition Commission (SACC) to make its case, after a long-running string of court losses and appellate defeats has seen the SACC’s track record weakened, observers say.

As reported on AAT Monday, a panel of Africa-focussed competition specialists had just recently convened in Johannesburg, warning the South African business community about the high probability of the Bill’s passage, as well as addressing the adverse effects the Bill will have on doing business in South Africa as a medium to large size market player (measured in market share, not merely revenue) or simply as a foreign-owned corporate.

Minister Patel speaks
Minister Patel

Interviewed yesterday in Cape Town, where the Amendment Act was ratified by South Africa’s Parliament, Primerio competition practitioner Andreas Stargard commented: “As we foreshadowed at our conference less than a week ago, the likelihood of the Bill passing was high.  Political, populist pressure was simply too strong for this amendment — which had been introduced as a so-called ‘prioritised bill’ that could be fast-tracked — not to pass.  We view the likely effects of it as a serious departure from commonly accepted best practices in the international world of antitrust law, as we outlined to our clients at the Johannesburg conference.  I will be curious to hear what Commissioner Bonakele’s comments on these critiques will be at Friday’s conference at New York University“, referring to an event sponsored by NYU and Concurrences, at which the SACC Commissioner is expected to deliver a panel speech later this week.

Commenting on the purported social transformational goals, South African competition partner John Oxenham adds: “There is a relentless push from government (not only Mr. Patel) to use the Competition Act as a tool to speed up its broader social and transformation goals.  The underlying reasons for this Amendment are rather straightforwardly conceded by the current, and arguably presently fluctuating, administration: the Bill was ostensibly designed not to enhance competitiveness in the traditional antitrust sense, but rather to address so-called market concentration and perceived unequal ownership patterns in the SA economy.”

Competition Appeal Court’s Ruling in Standard Bank Case: A Changing of the Tides?

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Threat of Referral no Longer an Arrow in the Commission’s Quiver?

By AAT Senior Contributor Michael-James Currie

In the first week of June 2018, the South African Competition Appeal Court (CAC) upheld Standard Bank’s appeal and ordered that the Competition Commission (Commission) make available its investigation record to Standard Bank. Standard Bank is a respondent in the Commission’s ForEx investigation.

Standard Bank had requested that the Commission make available its record in terms of Rule 15 of the Competition Commission Rules. Rule 15 permits any member of the public to request access to the Commission’s non-confidential record. Standard Bank therefore brought its application in terms of Rule 15 not on the basis of it being a respondent to the Commission’s investigation but as an ordinary member of the public.

Although the CAC had in an earlier case, Group 5, set out the correct interpretation and application of Rule 15 and stated that:

  1. the Commission is obliged in terms of Rule 15 to make available its record of investigation;
  2. that the Commission must do so within a “reasonable time”; and
  3. that the Commission must disregard the applicants status as a litigant when determining what a reasonable time is.

The Tribunal in the Standard Bank case, however, deviated from the CAC’s binding decision in Group 5 and held that the Commission would only need to make its record available to Standard Bank at the time of discovery.

Accordingly, the CAC in the Standard Bank case found that the Tribunal took Standard Bank’s status as a litigant into account when assessing what a reasonable time would be by which the Commission was obliged to make available its record to Standard Bank. The CAC in Standard Bank confirmed that although the Tribunal is not bound by the stare decisis principle in relation to its own decisions, the Tribunal is bound by the CAC’s decisions. The Tribunal’s decision in Standard Bank was inconsistent with the CAC’s earlier decision in the Group 5 case – where the CAC expressly stated that there is no rational basis for linking the production of the Commission’s record with discovery proceedings. The Tribunal’s departure from the CAC’s earlier precedent was noted with concern by the CAC in Standard Bank.

The Commission argued – as justification for not producing its record – that Standard Bank was abusing its position as a litigant. In this regard, the CAC expressly rejected this argument and held that simply because a plaintiff would be better placed to plead its case after receiving the Commission’s record that, in of itself, does not amount to an abuse of process. The CAC held that it would only amount to an abuse of process if an applicant sought to rely on Rule 15 in order to avoid or delay having to plead within the prescribed time periods.

Furthermore, the CAC reaffirmed that a member of the public’s right to access the Commission’s record should not be prejudiced by the fact that such a member is also a litigant.

The Court’s Standard Bank decision is important as respondents will invariably be inclined to seek access to the Commission’s record prior to pleading their case. This may have a material impact on the Commission’s settlement strategy as respondents in settlement negotiations with the Commission are likely to request the Commission’s record in order to assess the strength of the Commission’s case against it before deciding whether to settle the case or not – thereby compelling the Commission to ensure that a robust investigation is conducted prior to entering into settlement negotiations with respondents.

Says John Oxenham, ‘the “threat of a referral” is unlikely to present the Commission with the same negotiating leverage as it may otherwise have enjoyed when respondents were kept in the dark as to the evidence which the Commission may have against them.’

Whether this all plays out in practice remains to be seen although any decision which promotes transparency and legal certainty can only be positive. It is for this reason that the CAC’s express criticism of the Tribunal’s decision to depart from established case precedent is particularly noteworthy as it is a stark reminder to all adjudicative bodies of the importance of adhering to the rule of law.

South Africa: Merger Thresholds and Filing Fees Increased

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As of 1 October 2017, the recently revised merger thresholds which were published by way of Government Gazette will become effective.

The large merger thresholds have remained unchanged, however, the thresholds for an intermediate merger (which requires mandatory merger notification if met) have been amended as follows:

The combined threshold has been increased to R600 million (approx.US$46 million) R560 million).  The combined threshold for an intermediate merger relates to either the combined turnover of the merging parties’ South African specific turnover or the merging parties combined asset value in South Africa.

The lower merger threshold (i.e. the target’s thresholds) for an intermediate merger has also been increased from R80 million to R100 million (approx. US$7.6 million) For purposes of the lower merger threshold, however, either the turnover or the asset value of the target entity is utilised.

The large merger thresholds remain unchanged with a combined threshold of R6.6 billion (approx. US$500 million) and the target’s threshold at R190 million (approx.US$14.6 million)

For purpose of both the intermediate and large merger thresholds, any combination of the South African specific turnover or asset value of the merging parties which exceed the thresholds will require a mandatory merger notification. In other words, the combined large merger threshold will be met if the acquiring firm’s asset value combined with the target firm’s turnover exceeds R6.6 billion.

In addition to the merger thresholds, the merger filing fees have also been increased and the new filing fees are:

  • Intermediate merger: R150 000
  • Large merger: R500 000

The merger thresholds were previously revised in 2009 and as John Oxenham, Director of Primerio Ltd., comments “increasing the target’s thresholds for purposes of an intermediate merger will assist in ensuring that transactions which are highly unlikely to result in any anti-competitive effects are subject to the merger control process“. Oxenham also points out that it is noteworthy that the filing fees have increased by 50% in respect of intermediate mergers and more than 40% for large mergers.

In addition to the mandatorily notifiable thresholds, Michael-James Currie notes that “the South African Competition Commission may call for the notification of any transaction which does not meet the intermediate merger thresholds (i.e. a small merger) within 6 months after the transaction has been implemented should the Commission be of the view that the small merger raises competition or public interest concerns“.

[For legal advice, please contact a Primerio representative]

 

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

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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.

Beyond the DOJ: Criminal liability for cartel conduct in Africa

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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.

SACC Investigates Port Operator for Monopolisation & Excessive Pricing

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Abuse of Dominance & Excessive Pricing in South Africa: Transnet under Unvestigation

south_africaBy AAT Senior Contributor, Michael-James Currie.

On 7 July 2016, the South African Competition Commission (SACC) announced that it has initiated an investigation against Transnet SOC Ltd (Transnet), for abusing its dominance by allegedly engaging in excessive pricing in contravention of the in section 8(a) of the Competition Act as well as for engaging in exclusionary practices in contravention of section 8(c) of the Competition Act in relation to the provision of port services.

The SACC investigation is allegedly based on information received indicating that South Africa’s port charges are excessive relative to global standards. A recent port tariff benchmarking report by the regulator determined that Transnet’s terminal handling charges for the period 2015-2016 were 56% above the global average. Transnet maintains that it is “comfortable and confident that its processes are fair, just, and in line with relevant legal requirements.”

The SACC also indicated that it had received information indicating that Transnet is allegedly giving preferential treatment to certain customers to the exclusion of others, in the form of preferential berthing windows, capped export capacity, minimum export tonnage requirements and preferential lease agreements.

Patel talksThe SACC, as well as the Minister of Economic Development, Mr Patel, as expressly stated that, as part of the SACC’s policy, it will target firms who may be abusing their dominance in the market.

While most respondents in South Africa’s abuse of dominant cases thus far, have been firms who have previously been state owned and, therefore, as far as the SACC is concerned, obtained their significant market share as a result of previously having received state support.  It is thus noteworthy that Transnet is a ‘State Owned Entity’.

Despite having brought a number of abuse of dominance cases against various respondents, however, the SACC has found prosecuting respondents for abusing their dominance challenging.

In relation to excessive pricing, the SACC has found it particularly challenging to successfully prosecute a firm for a contravening section 8(a) of the Competition Act. This is largely due to the definition of ‘excessive pricing’ which is essentially defined in the Competition Act as “a price for a good or service which bears no reasonable relation to the economic value of the good or service”.

What constitutes an ‘excessive price’ was fully dealt with in the recent Sasol Polymers case in which the South African Competition Appeal Court (CAC) overturned a R500 million rand penalty imposed on Sasol by the Competition Tribunal for excessive pricing.

Although the outcome of the Sasol case before the CAC turn largely on a lack of evidence, the case highlighted the difficulties in determining what the ‘economic value’ of a product is. In this regard, however, and as a general starting point, the CAC indicated that the economic value “is the notional price of the respective “good” or “service” under assumed conditions of long-run competitive equilibrium”.

If the price charged for a product exceeds the ‘economic value’, then the inquiry shifts to the second part of the definition – i.e. whether the price charged is reasonably related to the ‘economic value’. Although the CAC in Sasol indicated that this is a subjective inquiry, the CAC indicated that in instances where the actual price charged is not more than 20% of the economic value, it is unlikely that the price charged will be considered ‘unreasonable’.

John Oxenham and the author co-published a paper on excessive pricing, which was presented at the American Bar Association Fall Forum in 2015, providing a comprehensive evaluation of the Sasol case and the legal landscape of excessive pricing in South Africa.

After the Sasol case, Minister Patel has further expressed his intentions to broaden and strengthen the SACC’s powers to prosecute firms who abuse their dominance.

In this regard, Minister Patel had previously made similar averments in relation to combatting cartel conduct, which ultimately materialized in the Minister bring into effect criminal liability for directors or persons with management authority who have engaged in cartel conduct. The criminal liability provisions were enacted in 2009, but were not brought into effect due to numerous concerns regarding the constitutionality and jurisdictional concerns regarding the enforcement of these provisions. Despite the concerns raised, the criminal liability provisions were nevertheless brought into effect from 1 May 2016 without any amendments having been made.

The significance of the Minister Patel’s decision to implement criminal liability provisions should be particularly concerning to firms to have a substantial market share, as the Minister has also indicated that he intends bring into effect the “complex monopoly” provisions as contained din the Competition Amendment Act.

Much like the criminal-liability provisions, the complex-monopoly provisions have also been enacted since 2009, but not brought into effect yet due to various concerns raised as to the how this provision would be enforced.

In terms of the complex monopoly provisions, where five or less firms have 75% market share in the same market, a firm could be found to have engaged in prohibited conduct if any two or more of those firms collectively act in a parallel manner which has the effect of lessening competition in the market (i.e. by creating barriers to entry, charging excessive prices or exclusive dealing and “other market characteristics which indicate coordinated behavior”).

Although the introduction of complex monopoly provisions may appear far off, we would caution firms who operate in a concentrated market that Minister Patel’s efforts to combat abuse of dominance may see result in the expeditious implementation of the complex-monopoly provisions.