In contrast to Canada, South Africa's competition law has both competition and public interest objectives. A major focus of the legislation from a public interest perspective is the promotion of historically disadvantaged persons and small business. This is understandable, given the fact that when the legislation was first enacted in 1998, South Africa was emerging from an apartheid era of concentrated large enterprises and the exclusion of many, particularly historically disadvantaged persons, from the economy.
This focus is apparent in the legislation, with the preamble to the Competition Act (the "Act") noting that "the economy must be open to greater ownership by a greater number of South Africans". The purpose of the Act is also clear, being to "promote and maintain competition" in South Africa in order to achieve several objectives, including "to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; and "to promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons" ("HDIs").
These objectives were enhanced through amendments to the Act that were passed into law in 2019. The Department of Trade, Industry and Competition (the "DTIC"), under Minister Patel, has a particular focus on this topic, having recently published a which emphasises the public interest objectives of the Act.
This renewed focus has very recently come to the fore in relation to merger control. In terms of the Act, mergers (a generic term covering M&A activity) must be notified to the competition authorities if they meet certain thresholds, and those transactions may not be implemented before approval has been obtained. In assessing whether a transaction should be approved, the competition authorities must consider not only the traditional competition question of whether the transaction is "likely to substantially prevent or lessen competition" by assessing factors such as market concentration and barriers to entry, but also whether there are public interest concerns arising from the transaction. The competition and public interest assessments are equally important, and it is possible that an otherwise anti-competitive merger could be approved because it is overwhelmingly in the public interest. Similarly, an unproblematic merger from a competition perspective could be prohibited on public interest grounds.
Until now, no merger has been prohibited solely on public interest grounds. Instead, conditions have been imposed to ameliorate the negative public interest effects of the merger. However, following the recent emphasis on public interest, and in particular Black Economic Empowerment ("BEE") and worker participation, the Competition Commission (the "Commission") prohibited a merger solely on public interest grounds for the first time on 1 June 2021.
The transaction in question involved the proposed acquisition of Burger King (South Africa) and Grand Foods Meat Plant (the "Target Firms") by ECP Africa, part of Emerging Capital Partners, a private equity firm founded in the USA with investments across Africa. The seller was Grand Parade Investments, a company controlled by HDIs, whereas ECP Africa had no such shareholding. Although the parties to the merger evidently offered commitments that had public interest benefits, such as increased employment for HDIs, increased employee benefits and investment in capital expenditure, it appears that these commitments were not sufficient to persuade the Commission to approve the merger. The Commission found that the proposed transaction raised no competition concerns, but that it raised very significant public interest concerns in that it would result in a significant reduction in BEE ownership in the Target Firms - from more than 68% to 0% - and on this basis prohibited the merger.
Predictably, the Commission's decision has drawn strong criticism. The transaction would bring much-needed foreign investment into South Africa, and there is a concern that this decision will deter future potential investors. Some argue that this prohibition hinders rather than assists BEE, as it prevents BEE shareholders from realising their investment and thus freeing capital to HDIs to further invest in the South African economy. Ironically, this is an observation made by the Competition Tribunal ("Tribunal") in its so-called Shell/Tepco decision some years ago, when the Commission sought to impose conditions to ensure that BEE was not hindered. The Tribunal cautioned the Commission against supporting HDIs by interfering in the commercial decisions made by such investors, indicating that it may put such investors at an unintended disadvantage.
Even before this decision was issued, there was understandably some scepticism that the competition authorities' increased focused on public interest objectives might not achieve the desired outcome. It could legitimately be argued that the more interventionist approach to tip the scales unduly in favour of the government's developmental objectives would blunt the ability of free markets to kickstart economic growth. This risks a movement towards single-minded interventionism, at the expense of investment, market-dynamism and international competitiveness. This decision simply serves to justify the critics' scepticism.
It is critical that authorities do more than simply pay lip service to the benefits of investment. Advancement of small firms and transformation should, quite rightly, be prioritised, but with a balanced and holistic appreciation for trade-offs that may result, and with sufficient care to preserve and promote competitiveness. This sentiment is adequately expressed by the Tribunal in the Shell/Tepco merger, where then Chairperson, David Lewis warned that "the competition authorities, however well intentioned, are well advised not to pursue their public interest mandate in an overzealous manner lest they damage precisely those interests that they ostensibly seek to protect".
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