Sat, Jun 22, 2024

The official Financial Regulation Journal of SAIFM

The increasing focus on public interest concerns in competition policy

By Lerisha Naidu, Partner, Head of the Practice, Angelo Tzarevski, Director Designate and Sphesihle Nxumalo, Senior Associate, Competition & Antitrust Practice, Baker McKenzie Johannesburg

There has been a general upward trend in competition policy enforcement across the continent over the past few years. African jurisdictions have strengthened their competition and antitrust regimes by way of amendments to existing legislation, the introduction of new laws and regulations, and renewed fervour and political will to enforce existing laws. Most notably, there has been a growing convergence of competition law and social policy on the continent.

The central tenet of competition policy is that inclusive economies yield better outcomes for both producers and consumers. Recent trends indicate that governments in various parts of the world, particularly Africa, are moving away from the purely economic origins of competition regulation and are instead adopting a model that recognizes and, to some extent, caters to the broader needs of modern society and socioeconomic transformative narratives. In this context, the South African Competition Act was amended in 2019 to ensure economic transformation (among other things) by providing mechanisms to address high levels of concentration, enhance small business development, combat the “racially-skewed” spread of ownership through merger control, and by vesting the authority with increased powers to launch market inquiries into highly concentrated industries and impose structural remedies to facilitate the effective and sustainable participation of small and medium enterprises (SMEs) and historically disadvantaged persons (HDPs) in the economy.

As another illustration, competition authorities in Africa have increasingly acknowledged their role as protectors of fair practice and consumer protection, and have stated their intention to enforce these principles in the future. Across the continent, the price volatility of essential food items is a growing concern. In addition, businesses in the consumer goods and retail sector are facing significant supply chain disruptions due to geopolitical, environmental, and infrastructure challenges.

The issue of price volatility in relation to essential food items was addressed in the South African competition authority’s Essential Food Pricing Monitoring report, which included a list of fruits, meats and cooking oils that have recently experienced price volatility. It was noted that poorer communities were most negatively affected by such price increases. Having said that, it bears noting that not all increases in the cost of essential foods were caused by the pandemic. Changing weather conditions (from drought to heavy rain), oil price fluctuations, severe supply chain blockages and massive geopolitical challenges have all contributed to a decrease in supply and subsequent price increase. The authority stated that it would continue to keep a close eye on the price of essential and imported food items, to ensure that anti-competitive behaviour does not occur and that the increase in prices of essential food items can be justified. After noting “unjustified price increases” in recent years, the authority announced in early 2023 that it would investigate the prices of a variety of essential food products, including bread, cooking oils, cornmeal, rice, flour and margarine. It noted that food was a priority sector due to the fact that poor consumers spend a significant portion of their income on essential foodstuffs.

Public interest considerations are especially taken into account in the case of merger control, but they can also be factored in investigations into alleged abuses of dominance and other prohibited practices. Notably, merger regulation in South Africa, and in many other African countries, is heavily influenced by the government policy agenda. Many African merger control regimes have developed a competition policy approach that balances traditional competition law considerations with public interest concerns, especially in terms of market concentration, access to competitive markets for SMEs, greater spread of ownership by firms owned by HDPs, and employment considerations. For example:

  • Botswana’s competition legislation mandates “certain aspects of general public interest”. The use of the specified public interest considerations is especially notable in the context of mergers. In previous years, the authority imposed conditions on merger clearances aimed at promoting the sustainability and growth of a sector by ensuring that the merged entity sources its input requirements from local suppliers; maintaining and creating employment; promoting citizen economic empowerment by ensuring that Botswanan citizens hold shares in the merged entity; ensuring the professional development or employability of local citizens by ordering their appointment to certain positions in the merged entity; and promoting citizen economic empowerment by ensuring that Botswanan citizens hold shares in the merged entity.
  • In Ethiopia, the authority considers the contribution that a merger will make to accelerating economic development, promoting technical knowledge transfer, improving the production and distribution of goods and services, and enabling SMEs to be capable and competitive.
  • Namibia and Nigeria, like South Africa, consider the likely impact of a merger on a specific industrial sector or region; employment (whether the merger will result in redundancies); SMEs’ and HDPs’ ability to effectively access or compete in the market; and national industries’ ability to compete in international markets. The Namibian authority frequently considers the employment implications of a transaction. For example, during the 2017-2018 fiscal year, the authority imposed employment conditions on the majority of the mergers evaluated, resulting in approximately 860 jobs being secured.
  • In Kenya, the Competition Act includes a public interest test in merger control that assesses a merger’s impact on a particular sector or region, the creation and retention of employment and the competitive access that SMEs have to the market. The Act also provides for the granting of exemptions to certain indispensable restrictive practices aimed at increasing exports, enhancing efficiency in production and maintaining the quality of services, only under exceptional and compelling reasons of public policy.
  • In Tanzania, the public interest factor is especially important when a merger is likely to create or strengthen market dominance. In such cases, the authority may consider whether the merger is likely to benefit the public by increasing efficiency in production or distribution, promoting technological or economic progress, increasing efficiency in resource allocation, or protecting the environment.

Although legislatively mandated public interest factors frequently carry equal weight, the employment effects and promotion of ownership by local citizens (particularly in Botswana) and HDPs (particularly in South Africa) are scrutinized by the authorities in every transaction. Conditions are almost always imposed when job losses are intended or anticipated, even when the numbers are negligible. Even if job losses are not anticipated, conditions may nevertheless be imposed to safeguard against potential merger-specific job losses in cases of uncertainty. The promotion of greater ownership diversity, particularly among HDPs, is also gaining importance, especially as transactions that reduce ownership by historically disadvantaged individuals are scrutinized more closely by authorities. In the last 24 months, the South African competition authority has been particularly active, imposing public interest conditions on more than 74 mergers relating to employment, and with heavy focus on greater spread of ownership by HDPs, as well as local production and procurement, amongst others.

As social imperatives play an ever-increasing role in the development of competition policy, the trend of placing emphasis on the empowerment of SMEs as a means of fostering a healthy economic ecosystem, as well as the need to provide adequate opportunities to HDPs will continue into the future. Furthermore, with digital innovation allowing many previously excluded individuals and businesses to participate in the African economy, it is likely that public interest imperatives will play a critical role in the development and implementation of competition law in the digital space across the continent.

The African Continental Free Trade Area (AfCFTA) is providing impetus for the continent to move toward the adoption of a pan-African competition policy, which could be geared toward socioeconomic transformative goals (such as maintaining acceptable consumer prices) and a consistent approach to public interest. In February 2023, the African Union Assembly of Heads of State and Government adopted the protocol on competition policy.

Doing business in Africa will necessitate awareness of the public interest mandates of competition authorities and how practices promote or impact public interest outcomes, as enforcement trends on the continent indicate that public interest considerations will significantly influence broader enforcement activity, especially through prioritisation policies.

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