2019 AFRICAN COMPETITION LAW YEAR IN REVIEW

Authors: Jean Meijer, Nick Altini, Leana Engelbrecht, Sandhya Foster, Lesetja Morapi and Stewart Payne

This bulletin highlights key developments in competition law in South Africa and other African jurisdictions in 2019.

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1. South African Competition Law Developments
2. Competition Law Developments in Other African Jurisdictions

SOUTH AFRICAN COMPETITION LAW DEVELOPMENTS

Commencement of the Competition Amendment Act, 2018

The Competition Amendment Act, No. 18 of 2018 (Amendment Act), which contains a number of significant revisions and additions to South Africa's competition law regime, was passed into law on 14 February 2019.

A number of the provisions of the Amendment Act came into force on 12 July 2019 and others on 13 February 2020 (with the remaining provisions still to come into effect on a future date). The provisions which came into effect relate to, among other things: the test for excessive pricing; abuse of buyer power; price discrimination; category exemptions for prohibited practices; additional considerations for the competition authorities in merger decisions; Ministerial intervention in merger proceedings; additional market inquiry powers for the Competition Commission; revised penalty provisions; and advisory opinions by the Commission. These are each considered briefly here.

Price Discrimination and Buyer Power Regulations and Draft Guidelines

In October 2019, the Minister of Trade and Industry and the Commission published draft regulations and guidelines, respectively, which give further detail as to the content of the regulations and enforcement approach of the Commission to the new price discrimination and buyer power provisions contained in the Amendment Act. Final versions of the regulations were issued when these provisions came into effect on 13 February 2020. For further information refer to the discussion here.

Although the guidelines are still in draft form and subject to public comment, the intention is for these to be finalised imminently and we expect that the guidelines will not change materially. The regulations give additional content to the tests and standards set out in the relevant provisions in the Competition Act, for example by listing factors to be taken into account in making an assessment, and are binding on the Competition Tribunal and courts. The guidelines are not binding but set out the Commission's intended enforcement approach in relation to the new provisions of the Competition Act, in order to create greater legal certainty and better facilitate compliance. We highlight some noteworthy implications of these read together here.

Guidelines for the Determination of Administrative Penalties for Failure to Notify Mergers and Implementation of Mergers Contrary to the Competition Act

Under the Competition Act, implementation of a merger without approval in South Africa may attract an administrative penalty of up to 10% of the firm’s annual turnover in, and its exports from, South Africa during the firm’s preceding financial year where this is a first time offence. The penalty may now increase to up to 25% where there is a repeat offence.

The Commission issued Guidelines for the Determination of Administrative Penalties for Failure to Notify Mergers and Implementation of Mergers Contrary to the Competition Act which became effective on 1 April 2019. A summary of the guidelines is set out here.

Market Inquiries

Data Services Market Inquiry 

The Commission published its final report on the Data Services Market Inquiry on 2 December 2019. Following the initiation of the Inquiry in August 2017, the Commission began its investigation in order “to understand what factors or features of the market(s) and value chain may cause or lead to high prices for data services, and to make recommendations that would result in lower prices for data services.”

The Inquiry found, in summary, that data prices in South Africa are high by comparison to international standards according to studies conducted by the International Telecommunication Union, Tarifica, the Independent Communications Authority of South Africa (ICASA) and Research ICT Africa. Despite arguments by Vodacom and MTN that the comparisons are misleading owing to differences in the cost and quality of services across countries, the Commission did not find that such factors conclusively justified the differential pricing and instead contended that higher mark-ups and profit margins are indicative of market power and a lack of effective competition to constrain prices.

In addition, the Commission found that the provision of data services in South Africa is plagued by issues such as anti-poor retail price structures which lack transparency and exhibit price discrimination, inadequate price-based competition, insufficient spectrum and a lack of access to low-frequency bands and supply gaps in fixed line data services. The Commission has tendered recommendations aimed at resolving these issues in the short and medium term.

A more detailed summary of the Commission’s report is set out here.

Grocery Retail Market Inquiry

The Commission initiated a market inquiry into the grocery retail market on 30 October 2015. More than four years later, on 25 November 2019, the Commission’s final report was published.

A brief summary of the key recommendations made by the Commission, specifically relating to long-term exclusive lease agreements and buyer power, is set out here.

In relation to exclusive leases, the Commission recommends inter alia that no new leases or extensions of leases by grocery retailers may incorporate exclusive leases.

In relation to buyer power, the Commission is exploring the idea of creating a code of conduct for suppliers. It has also recommended the establishment of binding targets for the development of small and historically disadvantaged suppliers by national supermarket chains.

The Commission’s recommendations are non-binding and compliance is voluntary.

Healthcare Market Inquiry

The Commission initiated a market inquiry into the state of competition in the private healthcare sector on 29 November 2013. The publication of the final report was delayed due to a number of legal and technical challenges from stakeholders as well as budget constraints which caused the Commission to suspend its work for a period of time. The final report, which was eventually published on 30 September 2019, recommended a package of interrelated interventions designed to promote systemic change. A brief summary of the key recommendations made by the Commission is set out here.

In summary, the Commission found that the South African private healthcare market is characterised by high and rising costs of healthcare and medical scheme cover, highly concentrated funder and facilities markets, disempowered and uninformed consumers, a general absence of value-based purchasing, practitioners who are subject to little regulation and failures of accountability at many levels. The Commission recommends the establishment of a dedicated healthcare regulatory authority to oversee a number of the issues identified by the Commission.

Notable cases

Competition Commission of South Africa v Hosken Consolidated Investments Limited & Another 2019 (4) BCLR 470 (CC)

During February 2019, the Constitutional Court issued its decision in HCI which is anticipated to have a significant effect on the South African merger control regime. The Constitutional Court held that the acquisition of more than one half of the issued shares in another firm is not a notifiable merger (assuming thresholds are met) in circumstances where the acquisition of de facto control was previously notified to and approved by the competition authorities. A more detailed summary of the decision is set out here.

The Competition Commission and Pickfords Removals SA (Pty) Ltd (167/CAC/Jul18)

This appeal to the Competition Appeal Court (CAC) brought by the Commission primarily concerned the correct interpretation of section 67(1) of the Competition Act which states that a complaint in respect of a prohibited practice may not be initiated by the Commission more than three years after the practice has ceased i.e. the complaint is time-barred.

The CAC held, on the facts of the case, that: (i) a second initiation statement was an amendment of the first initiation statement; (ii) Pickfords only became a named party when the second initiation occurred; before that, the alleged prohibited practice did not involve it (as its involvement appeared not to have been contemplated by the Commission); and (iii) on the basis that the second initiation referred to discrete bilateral agreements, as opposed to a practice, it was open to Pickfords to argue that some of the unlawful agreements on which the Commission’s complaint referral was based were time-barred. A summary of the decision of the CAC is set out here.

A’ Africa Pest Prevention CC & Another v Competition Commission of South Africa (168/CAC/Oct18)

On 2 July 2019, the CAC upheld an appeal by A’Africa Pest Prevention CC against a decision of the Tribunal, which found that A’Africa and another firm had engaged in price fixing and collusive tendering in contravention of the Competition Act.

The CAC ultimately reversed the Tribunal’s decision and provided insight into the CAC’s interpretation of the “single economic entity” doctrine which may be used in defence of cartel allegations. In particular, the CAC provided clarity on circumstances under which parties that are not in a parent and wholly owned subsidiary relationship could successfully rely on the “single economic entity” doctrine to defend allegations of collusion. A more detailed summary of the decision is set out here.

The Competition Commission v Primedia (Pty) Ltd t/a Ster-Kinekor Theatres and Avusa Limited t/a Nu Metro Cinemas (161/CAC/Feb18)

The Tribunal’s decision in this matter was taken on appeal by the Commission to the CAC. The CAC held that an act of implementation is not required in order to establish the existence of an unlawful agreement as defined in the Competition Act. However, where the agreement was concluded before the Competition Act came into force, and the case advanced by the Commission is that the conduct continued at the time of the referral, it is necessary to show an act of implementation which continued when the Competition Act was in force. A summary of the CAC’s decision is set out here.

Competition Commission of South Africa v Media 24 (Pty) Ltd 2019 (5) SA 598 CC 

The Tribunal found that Media24 engaged in predatory pricing in contravention of section 8(c) of the Competition Act by, amongst other factors, pricing below its average total cost. The Tribunal’s decision was taken on appeal to the CAC.

The CAC found that: (i) subjective intention is irrelevant to a determination under section 8(c) and average total cost is an inappropriate measure of costs to assess predatory pricing. It held that average avoidable cost is the only appropriate measure of costs that was pleaded by the Commission. Given than Media24 priced above average avoidable cost, the CAC upheld Media24’s appeal and found that it did not engage in prohibited predatory pricing. The Commission appealed the CAC’s finding to the Constitutional Court where the central issues for determination were the relevant cost benchmark to prove a case for predatory pricing under section 8(c) of the Competition Act, and whether evidence of predatory intent was relevant to proving that case.

On 3 July 2019 four judgments were issued by the Court. Six members of the Court did not uphold the appeal meaning that the CAC’s decision stands.

The Court’s decision brought to an end the first predatory pricing case to be prosecuted in South Africa. Further details are set out here.

Computicket (Pty) Ltd v The Competition Commission of South Africa (170/CAC/FEB19)

On 23 October 2019, the CAC dismissed Computicket’s appeal against a decision of the Tribunal which found Computicket to have engaged in an abuse of dominance in contravention of section 8(d)(i) of the Competition Act (excluding rivals through exclusive arrangements with customers or suppliers).

In dismissing Computicket’s appeal, the CAC clarified and reaffirmed that in order to establish anti-competitive effects for purposes of section 8 of the Competition Act, a complaint must establish that: (a) the exclusionary conduct resulted in actual harm to consumer welfare; or (b) the exclusionary conduct is substantial or significant in terms of its effects in foreclosing the market to competitors. In addition, the CAC emphasised that foreclosure of competitors need not be actual foreclosure; potential foreclosure would suffice. A more detailed summary of the decision is set out here.

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COMPETITION LAW DEVELOPMENTS IN OTHER AFRICAN JURISDICTIONS

Commencement of Angolan Competition Law Regime

The Angolan competition law regime became active in early 2019 with the appointment of the board of the Competition Regulatory Authority (CRA). Angola had, during the course of 2018, passed the Angolan Competition Act, Regulations and a Decree establishing the CRA and its By-laws, which together establish a comprehensive competition law regime, including prohibitions on horizontal and vertical agreements that substantially restrict competition in the Angolan market (including price fixing, market allocation, price discrimination, and resale price maintenance) and a merger control regime.

The CRA has not yet made any decisions relating to prohibited conduct or imposed any fines, but it started accepting merger notifications shortly after its establishment. We were involved in the third filing made to the CRA. As would be expected, the CRA is still in the very early stages of its operations and much remains to be settled regarding its processes and approaches to certain aspects of the merger control regime. Some insights that we have gained through our recent experience in this jurisdiction are set out here.

Amendments to Botswana’s Competition Law Regime

Following the Ministry of Investment, Trade and Industry’s review of Botswana’s competition law framework in 2018, a new Competition Act was published in 2018, which became operational on 2 December 2019. Revised Competition Regulations were also published on 2 December 2019. The previous Competition Act, 2009 has been repealed.

The Competition Act introduces some key changes to the competition law regime, including criminal liability for cartel conduct, the enumeration of specific examples of abuses of dominance, financial penalties for failure to notify a merger and the grant of powers to the Minister of Investment, Trade and Industry to comment on mergers that “raise paramount issues of public interest”.

A summary of the key changes effected by the Competition Act can be accessed here.

Amendments to Kenyan Competition Law Regime

On 13 December 2019, President Uhuru Kenyatta signed the Competition (Amendment) Bill, 2019 into law which includes some notable amendments to the existing Competition Act, 2010. The primary purpose for enacting the amendments is “to facilitate investigations with a view of mitigating abuse of bargaining power which adversely affects the economy, and empowers the Competition Authority to investigate and take action against such conduct.” Many of the new provisions mirror the 2017 Buyer Power Guidelines published by the Competition Authority of Kenya (CAK).

The Amendment Act enhances the prohibition against abuse of buyer power in a standalone section. This departs from the previous legislative position which dealt with abuse of buyer power as a sub-species of abuse of a dominance.

The Competition (General) Rules, 2019 dated 25 November 2019 were published in the Kenyan Gazette on 6 December 2019. The rules set out revised merger notification thresholds, filing fees as well as revised exclusions. Key developments are that: (i) certain mergers no longer require any notification; and (ii) if a merger is notified to the COMESA Competition Commission, a national filing need not be made to the CAK, although the Kenyan authority must be informed. We understand that the CAK is applying the new rules.

A more detailed summary of the key amendments is set out here.

New Nigerian Competition Law Regime

The Federal Competition and Consumer Protection Act, 2018 was signed into law by the President of Nigeria in January 2019.

The Act, which regulates mergers, restrictive practices and abuse of dominance, amongst other things, introduces a standalone competition regime with a dedicated regulator, the Federal Competition and Consumer Protection Commission.

Prior to the Act coming into effect, mergers were notified to the Securities and Exchange Commission (SEC) under the Investment Securities Act, 2007 in terms of the SEC regulations, guidelines and fees. During the transition period, which commenced in May 2019, all notifications are reviewed by the SEC and Commission jointly under the existing SEC regulations, guidelines and fees.

Proposed merger notification thresholds were published for comment in July 2019, however, no official gazette has been published advising that the proposed thresholds have become final and/or come into effect. The status of the thresholds is therefore unclear.

A brief overview of the developments in the Nigerian merger control regime is set out here.

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For more information, please contact Jean Meijer, Nick Altini, Leana Engelbrecht, Sandhya Foster, Lesetja Morapi and Stewart Payne or your usual Herbert Smith Freehills contact: