There are increasing efforts and continued negotiations to create free trade zones and to cement the establishment of true "common market regions" in Africa to facilitate increased pan-African trade and Africa's participation in the global economy.
To facilitate trade within Africa, the Common Market for Eastern and Southern Africa ("COMESA"), the Southern African Development Community ("SADC") (of which South Africa is a member) and the East African Community have started negotiations towards a tripartite free trade area ("FTA"). negotiations have however been slow and are already a year behind schedule. Once negotiators manage to agree on the terms of such an FTA, it will include 26 countries, have a population of 600 million people and the combined value of the output of goods and services produced in such a region is estimated to be more than US$1 trillion.1
As borders within these African trade regions start opening up, governments and regional bodies are increasingly aware of the importance of regulating markets to ensure that the increased competition in their markets is free and fair. With the rise of Africa as a frontier for growth and development and an important investment destination, businesses looking to invest in especially the Eastern and Southern Africa region should take note that there is a new regulator in charge of competition issues.
On 14 January 2013, the Competition Commission for COMESA ("the CCC"), announced that its doors are open and that it is ready to commence its enforcement role in the COMESA region. This new competition watchdog is tasked with ensuring that the increased competition by fi rms entering and operating in the COMESA region is free and fair. With the establishment of the CCC, the competition law rules and principles which apply in South Africa and in most of the developed world, will from this year onwards, be enforced in the COMESA region. The establishment of the supra-national CCC could be seen as a sign of things to come with regard to regulation of free trade zones in Africa.
The CCC has been tasked with enforcing the COMESA Competition Regulations (published in 2004) and rules (published in 2012) (together the "Regulations"). As such their role will be to monitor, investigate and enforce the Regulations pertaining to anti-competitive conduct (in respect of both cartel conduct and abuse of dominance) and implement a new merger regime across all the COMESA member countries.
Obviously, this development has important implications for all companies that do business in COMESA member countries, especially because the penalties for not complying with the Regulations are significant. Companies in contravention of the Regulations will face penalties of up to 10% of their turnover, generated across all the COMESA countries they operate in, in the preceding business year.
Which countries form part of COMESA
The following 19 states are all members of COMESA: Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe ("COMESA member states" that together form the "Common Market"). South Africa is not currently a member of COMESA.
Institutions, the CCC's role and jurisdiction
The Regulations establish two competition bodies: the CCC and the Board of Commissioners, which bodies derive their powers from the treaty establishing COMESA and the Regulations.
The CCC is responsible for promoting competition within the Common Market, specifically monitoring and investigating anticompetitive practices of undertakings within the Common Market and reviewing merger control filings.
The Board of Commissioners has been created as the adjudicative body responsible, inter alia, for reviewing and hearing appeals of decisions of the CCC.
The Regulations apply to all economic activities, whether conducted by private or public persons within, or having an effect within, the Common Market, except for specific exemptions and exclusions allowed in terms of the Regulations. In addition, the Regulations apply to conduct which has an appreciable effect on trade between COMESA member states and which restricts competition in the Common Market (although there is no clarity as yet on what is meant by "appreciable effect" on trade between member states, it is presumed that this phrase will be interpreted widely).
In a nutshell, the Regulations prohibit anti-competitive practices and establish a merger control regime, which applies to all agreements which affects trade between two or more COMESA member states.
Merger control2
The Regulations establish a supra-national merger control regime for all transactions with a regional COMESA dimension. In terms of the Regulations, transactions which amount to the direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of a business, provided at least one of the parties (e.g. either the acquirer or the target, or both) operates in two or more COMESA member states, must be notified to the CCC, in writing and in the prescribed form.
Unlike in South Africa, there are no minimum value requirements or thresholds and the notification obligation applies to all mergers and acquisitions which have an effect on trade between COMESA member states, irrespective of the size of the parties or of the transaction.
Notification Costs, Procedure and Time Table3
The Regulations appear to provide for a "onestop" regional merger regime if transactions have a regional dimension. For example, where one of the parties operates in two or more COMESA member states, the merging parties will not be required to notify the competition authorities operational in the specifically affected COMESA member states as well. Mergers which affect trade between COMESA member states will therefore in future be notified exclusively to the CCC.
However, once the merger is notified, the COMESA member state affected by the proposed merger, may request that the CCC refer back part of, or the entire, transaction to their local competition authorities. Such a decision to refer is taken by the CCC, but is subject to appeal to the Board of Commissioners. Transactions affecting firms which operate in two or more COMESA member states, could be significantly delayed and complicated as a result of the potential for multiple reviews by different national competition authorities and the CCC.4
Parties to a proposed merger must notify the CCC in writing and in the prescribed form, within 30 days of the party's decision to merge. The filing fee is significant and is set at whichever is higher: (i) COM$500 000 (the COM$ or COMESA dollar is based on the US Dollar) or (ii) the lower of 0.5 per cent of the parties' combined turnover or combined assets in the COMESA region.
The CCC has 120 working days to review merger notifications. However, this period may be extended by the Board of Commissioners. The implementations of all proposed mergers are suspended until the CCC has approved the transaction.5 Werksmans therefore caution that non-notification, or implementation prior to approval of a merger can have serious consequences for firms operating in the COMESA region.
The substantive test that applies for the approval of a notified transaction is 'whether or not the merger is likely to substantially prevent or lessen competition'. If it is found that the merger may prevent or lessen competition, the merger can be approved if it is likely to result in pro-competitive efficiency benefits which outweigh the anti-competitive effect, or if the merger can be justified on public interest grounds. Unlike in South Africa, it appears that a merger cannot be rejected on public interest grounds. The CCC can either, approve, prohibit or approve a merger with conditions. Any interested party may appeal to the Board of Commissioners if they are not satisfied with the CCC's decision.
Penalty for non-notification of a merger6
The regulations provided for a penalty of 10% of either or both the merging parties' annual turnover in the COMESA common market if the parties fail to give notice of the merger to the CCC.
Prohibited anti-competitive practices7
COMESA's general competition law provisions prohibit anti-competitive arrangements and abuse of a dominant position. These provisions are similar to the provisions contained in the South African Competition Act and the European Union competition legislation. A contravention of these provisions can result in a penalty of up to 10% of a firm's annual turnover in the Common Market, in the preceding business year.
The regulations provide that the CCC has jurisdiction to investigate all so-called restrictive business practices, prohibited practices or abuses of a dominant position which affect trade between member states, and have as their object or effect the restriction of competition in the Common Market. Essentially what this means is that the CCC has the power to investigate any anti-competitive behaviour where the firms involved operate in more than one COMESA member state.
A dominant position is defined in the Regulations as the ability to influence unilaterally price or output in the Common Market. A dominant undertaking, on the other hand, is defined as one, which occupies a position of economic strength as will enable it to operate in the market without effective constraints from competitors or potential competitors. Dominant firms are essentially prohibited from conducting themselves in a way which restricts or prevents competition or eliminates competitors in the Common Market.
Individual exemptions can be granted by the CCC, upon request, if public benefits outweigh the anti-competitive effects of a business arrangement.
Particularly worth noting is that the following formal, informal written and unwritten agreements, arrangements and understandings between competing firms are absolutely prohibited by the Regulations: agreements fixing prices; collusive tendering and bid-rigging; market or customer allocation agreements; allocation by quota as to sales and production; collective action to enforce arrangements; concerted refusals to supply goods or services to a potential purchaser, or to purchase goods or services from a potential supplier; and collective denials of access to an arrangement or association which is crucial to competition.
Conclusion
Firms operating in the COMESA region should bear cognisance of the fact that as the CCC is now operational and that the Competition Regulations are now fully in force.
The CCC's jurisdiction, being in respect of mergers, restrictive practices, prohibited practices and abuse of dominance which had an effect in the Common Market, is not entirely clear. Firms operating in the region are warned that the CCC is likely to have jurisdiction as soon as there is a crossborder element to their operation within the COMESA region.
Werksmans therefore recommend that companies who operate businesses in the Common Market review their current business practices to ensure conformity and compliance with these new rules.
Companies planning on expanding in the COMESA region should take note of the potentially onerous and time consuming merger notification requirements and build the costs and administrative requirements which flow from these into their expansion plan time frames and cost estimates.
Footnotes
1. David Muwanga East, Africa: SADC, EAC Talks Overdue, East Africa Business Week (Kampala), 18 February 2013.
2. Section 23 of the Competition Regulations.
3. Section 24, 25 of the Competition Regulations.
4. Currently, out of the 19 COMESA member states, 8 states have operational competition authorities, with merger control regimes in place - these are Burundi, Egypt, Kenya, Malawi, Mauritius, Swaziland, Zambia and Zimbabwe.
5. See Section 24: "Any notifiable merger carried out in contravention of Part IV the Regulations shall have no legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger shall be legally enforceable in the Common Market."
6. Section 24 (4) of the Competition Regulations.
7. Sections 16 – 19 of the Competition Regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
