Introduction
The Treaty Establishing the East African Community of 1999 (the Treaty) sets out the objectives and principles for regional integration amongst the East African Community (EAC) member states aimed at deepening economic, social and political co-operation amongst its members, by focusing on four solid pillars which are: establishing a customs union; a common market; a monetary union; and ultimately forming a political federation. In order to achieve these milestones, the EAC has undertaken specific initiatives across the region aimed at attaining the desired political federation. Amongst the initiatives set out for the period from 2022 to 2026, the EAC member states seek to fully implement a single customs territory (SCT), enhance domestication and implementation of regional commitments in line with the EAC Common Market Protocol (the Common Market Protocol), and undertake institutional transformation of all the EAC organs and institutions, amongst other initiatives. These initiatives have resulted in the creation of the EAC Competition Authority (EACCA).
The Common Market Protocol that was adopted in 2010 provides for the free movement of goods, services, capital and labour within the EAC region, and also extends beyond trade to facilitate deeper economic integration through mobility within the region and encompasses a broad range of economic activities. The vision of the EAC is to achieve a prosperous, competitive, secure, stable and politically united East Africa. As part of achieving this vision, the EAC has put in place the EAC Customs Union Protocol 2005, which, amongst other things, sets out the fundamental principles of competition policy and law. The prioritisation of institutional transformation of the EAC's organs and institutions, amongst other initiatives, comes at an ideal time given globalisation trends and the expansion and growth of firms within the region, which requires the EAC to ensure that the benefits from the EAC common market are not frustrated by anti-competitive business practices and address market failures.
The establishment of the EACCA emanates from the East African Competition Policy, which was adopted on 13 January 2004, laying the foundation for the enactment of the EAC Competition Act (EAC Competition Act) in 2006 in line with article 9(2) of the Treaty for the Establishment of the EAC followed by the promulgation of the EAC Competition Regulations, 2010 (EAC Competition Regulations). Despite these developments, the EAC Competition Act only came into force in December 2014, and was subsequently amended by the EAC Competition (Amendment) Bill, 2022 which was assented to by the heads of state of the EAC member states in November 2023.
Jurisdiction of the EACCA
The EACCA is vested with the authority to promote and protect fair competition and provide for consumer welfare within the EAC. The main functions of the EACCA, as stipulated under section 4(1) of the EAC Competition Act, include inter alia regulating market structure and conduct as well as protecting consumer welfare and advocacy and capacity building.
The EAC Competition Act vests upon the EACCA the power to investigate and address anti-competitive behaviour in the region, oversee and approve mergers and acquisitions, safeguard consumers' interests, coordinate with national competition authorities for harmonisation of policies as well as exercise a general advisory role to competition policy and enforcement in the public and private sectors. Notably, in performing these functions, the EACCA acts an independent organ of the EAC and therefore is subject to judicial review by the East Africa Community Judiciary.
In the context of mergers and acquisitions, a merger that has a cross-border effect within the EAC is notifiable to the EACCA if it involves s an acquisition of shares, business or other assets resulting in a change of control of a business, part of a business or an asset of a business in the EAC in any manner. and the combined assets or turnover of the merging undertakings is equal to or exceeds USD 35 million; and at least two undertakings to the transaction have a combined turnover or assets value of USD 20 million in the EAC. A transaction is not notifiable to the EACCA if each of the parties to the merger achieves at least two-thirds of its aggregate turnover or assets in the EAC within one EAC member state.
Where the foregoing conditions together with the relevant thresholds are met by a merger or acquisition and the parties involved operate within two or more different member states of the EAC, the EACCA must be notified.
The process
Where the notification threshold mentioned above is met, a notification of the merger or acquisition ought to be made to the EACCA. To the extent possible, parties are encouraged to engage the EACCA in preliminary discussions to confirm whether the transaction meets the threshold and qualifies as a notifiable merger prior to paying the statutory non-refundable fees.
The pre-notification discussions are intended to be informal and to be undertaken once the agreement is in final form in respect of the merger.
The assessment of a merger by the EACCA is two-fold, starting with an initial assessment of whether the intended transaction meets the basic requirements of the EAC Competition Act. These requirements include establishing:
- whether there is a cross-border effect and the partner states are impacted by the transaction;
- whether the threshold is met;
- the completeness of the particulars of the transacting parties; and
- if the transaction amounts to a merger, the nature of the merger or acquisition.
This is followed by a substantial assessment for the EACCA to determine whether the transaction leads to the creation or strengthening of a dominant position and thereby substantially lessening the competition in the relevant market, or whether the overriding public interest has been met.
Where the above threshold is met and on conclusion of the underlying agreement of a cross-border transaction, a notification of the merger or acquisition can be made to the EACCA. To the extent possible, parties are encouraged to engage the EACCA in preliminary discussions. These discussions assist the parties to confirm whether the transaction meets the threshold and qualifies as a notifiable merger prior to paying the statutory non-refundable fees. The pre-notification discussions are intended to be informal and should be undertaken once the agreement is in final form in respect of the merger. It is important to note that where it is ascertained that the transaction does not fall within scope of the EAC Competition Act (i.e. it does not meet the preliminary assessment requirements), the EACCA retains 30% of the filing fee paid for the preliminary assessment undertaken.
The merger notification must be filed in the prescribed form (application for merger/acquisition clearance - Form EACCA 1) and, where applicable, the parties should also include confidentiality claims. The parties are required to pay the prescribed notification fees, which are determined based on the aggregate value of the assets or turnover (whichever is higher) of the transaction. Parties must also provide the required documents to support the merger notification including the underlying agreement, constitutional documents of the parties, copies of audited annual financial statements for the last three years, strategic business plans and any other document relevant to the transaction. Upon receipt of an application, the EACCA is required to confirm receipt of the application within three business days and within five business days verify whether the notification includes all the relevant information and documentation required under law. Where there is any missing information, the EACCA will request any additional information through a prescribed form (request for additional information – Form EACCA 2). Notably, a request for additional information can be done at any stage during the assessment of the merger. In the event that the applicant does not respond to the EACCA's request for additional information, the submitted merger notification shall be considered abandoned.
The EACCA is required to issue a notice of complete filing within five days of verifying the merger application and issue a notice of the intended merger on the EAC and EACCA websites and invite all interested persons to express their views on the intended transaction.
In the course of the EACCA's analysis, the merging parties might be engaged to address any available remedies and mitigations that the EACCA proposes.
The EACCA is required to conduct its assessment and notify the relevant parties of its determination within 120 days. The decision of the EACCA is communicated to the parties and published in the EAC Gazette. Where the EACCA, does not communicate its decision within the prescribed 120 days, the parties may proceed with implementation of the intended transaction.
It is important to note that failure to notify a notifiable transaction is an offence and the EACCA could nullify the transaction or impose a fine of not less than USD 10,000 or imprisonment for a term of not more than two years or both.
Risk of overlap of competition authorities
For those member states that have their own competition authority such as Tanzania, there could be a concern over whether transactions will fall within the trap of multiple filings. The overlap of jurisdiction is even more complex where there are overlapping jurisdictions based in different regional blocs. For example, where a merger or acquisition is between an entity in a EAC member state and a COMESA member state. In an effort to bring clarity to the matter, the EACCA and the COMESA Competition Commission are currently in the process of formulating a memorandum of understanding that will define the scope of these authorities. The prospective memorandum of understanding intends to formulate what approach the EACCA and the COMESA Competition Commission will take in determining to which authority a merger or acquisition transaction must be notified.
The way forward
The regional merger control landscape has truly developed with the function of the EACCA. While these developments pose challenges for market players looking to expand regionally, they also bring forth an opportunity for national competition authorities to consider a qualitative assessment that takes into account factors such as public interest and pro-competitive effects.
Originally published 30 September 2024
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.
