Category Archives: Africa

Antitrust, Cheaper Beer, and the First Global Brewery (the South African Chapter)

By Francisco Beneke*

The price of beer is currently one of the hottest antitrust topics at the global stage. The largest merger the beer market has ever seen has been met with various attitudes from competition authorities around the world depending on, partly, the relative positions of the firms in each national or regional market. Today I focus on South Africa’s recent developments.

The Global Context

The USD$107 billion purchase of SABMiller by AB InBev is the third largest transaction in history. It will create what the media has dubbed the first truly global brewery and will account for half of the industry’s profits around the world. It already received antitrust clearance subject to (very tough) conditions in the EU, and it is still under review in other big markets such as the US and China. In the former, the Justice Department is believed to be close to a decision that involves SABMiller’s divestiture of its joint venture with Molson Coors. An almost identical divestiture has also taken place in China ahead of the MOFCOM’s decision in order to set the ground for the approval.

According to the media, the merger’s main focus is not the largest markets where the two brewers have substantial overlaps but the smaller Latin American, Asian, and African countries where either of the companies enjoy close-to-monopoly positions. This view is consistent with the approach of the merging parties of quickly proposing important asset divestitures in the US and China.

The merger has different implications in every market in which it is or has been subject to antitrust review. However, there are some particularities in the South African chapter, home country of one of the merging parties, that we are not going to see in many places around the world.

A Quick Dive into South African Merger Law

The Competition Commission of South Africa issued last Tuesday a press release in which it gives a detail of the several conditions under which it has recommended to the Competition Tribunal the approval of the merger. Before we get into the details, a quick primer on South Africa merger law is in order.

South Africa has an institutional design in which the prosecuting and adjudicative entities are separated. The prosecuting entity is the Competition Commission, who in the case of large mergers only has the power to recommend to the Competition Tribunal whether to approve or block a transaction. The merger can be enjoined if it will substantially lessen competition or if it cannot be justified on public interest concerns (article 12a, (2) and (3) of the Competition Act). In the case of the second category of considerations, the Minister of Economic Development can intervene in the proceedings before the Tribunal (article 18 of the Competition Act). In the present case, the Commission recommended that the merger go forward but, as mentioned above, under certain conditions.

Public Interest Considerations in the South African Beer Market

What makes the analysis of the deal so particular in the case of South Africa is the role public interest considerations play. People that are not familiar with South African merger law could have a hard time getting their heads around a condition that obliges the merged entity to present plans for the advancement of black people within the company or the establishment of a USD$63.6 million fund to promote local agriculture of hops, barley, and corn. One of the most striking conditions is that the merged entity has committed itself in perpetuity not to lay off any employee as a result of the merger.

The conditions regarding the agricultural promotion fund and not laying off employees in duplicate positions were the result of a previous agreement with the Minister of Economic Development. Some critics of the South African merger regime argue that the involvement of this government official brings uncertainty to potential merging parties. In the case in point, even if one disagrees with the uncertainty argument, it is undeniable that the Minister’s intervention was substantial.

One of the most important issues regarding the justifiability of the public interest clause is whether the remedies imposed are effective. In the present case, the no lay-offs condition lies on weak grounds and the fund is at least debatable.

Market regulation always has a way around. In this case, the resulting entity’s drive to lower costs can lead it to get creative in ways to lay off workers without it looking as if it was with the mere purpose of cutting costs. The supervision of this condition will inevitably turn the South African competition authorities in labor law judges because they will have to rule whether there were grounds to fire an employee. That is, the Competition Tribunal will have to determine whether the grounds of the lay-off are valid or if they are only an excuse. This is just one way to get around the condition and it reveals how costly it can be for the Commission to monitor its compliance.

The compliance with the fund may not be an issue because at a first glance it looks pretty straightforward. The effectiveness can still be compromised if the money is not spent well. The debate around development aid is applicable here. Many critics, such as William Easterly of NYU, have charged against aid programs that pour money into a problem with no tangible benefits.[1] Others, such as Jeffrey Sachs of Columbia University, are strong advocates of aid as a tool to avoid a poverty trap.[2]

There is not enough information so far on the specificities of the agricultural fund to make a prediction on how effective it will be for the development of local farmers. One component it should have is the gathering of information and the design of a study to measure its impact, independently from who bears the cost of such an assessment. This will be key in ensuring that the condition will not only impose the burden to burn money on a program with no real benefits to the South African society.

Competition Concerns

There is not much information on the significance of AB InBev’s position in the South African market, only that it does have a presence through a contract with a local distributor. Some of the conditions recommended by the Commission do involve horizontal and vertical conduct remedies. I will not go into detail in the analysis because Amine will fill you in the details next week with a post that complements what we have talked about here and with more information on the Minister of Economic Development’s intervention in the proceedings.

The Road Ahead

The proceedings before the Competition Tribunal have started and we will have to wait on the final word on the matter. Some argue that the Tribunal usually takes the Commission’s recommendations on merger control, but, as our colleagues from African Antitrust point out, there are some proposed remedies to which AB InBev and SABMiller have not agreed, and we could therefore see some litigation instead.

*Co-editor, Developing World Antitrust

@Paco_Beneke

[1] William Easterly, Why Aid Doesn’t Work. http://www.cato-unbound.org/2006/04/02/william-easterly/why-doesnt-aid-work

[2] Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time. Penguin Books; Reprint edition (February 28, 2006).

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Antitrust News from the Philippines, South Africa and Morocco: A New Comer, a Non-Conventional Merger Decision and Germany Offers Guidance

By Amine Mansour*

During last days, Francisco and I were very busy due to a huge workload. However, many important developments in the DW antitrust arena occurred.

1/– Philippines nears introduction of its first comprehensive competition Law.  Recently, the Senate President indicated that the Congress will pass the Act (will be known as Fair Competition Act of 2014) before yearend. This is close to became true as the text was approved on Second reading by the senators. Philippines is the last country from the ASEAN six majors to adopt a competition law (Indonesia and Thailand in 1999, Singapore in 2004, Vietnam in 2005 and Malaysia 2010). Introducing a Competition bill has become a pressing issue in Philippines giving its regional commitments. In 2015, ASEAN countries will implement the ASEAN Economic Community (regional economic integration) which calls in its Master Plan (ASEAN Economic Community Blueprint) for countries to undertake several actions in the field of competition and in particular “Endeavour to introduce competition policy in all ASEAN Member Countries by 2015“.

In substance however, the text comprises not only prohibitions on anti-competitive agreements and abuse of dominant position but introduces also a merger control regime. The wording of some provisions suggests that the drafters were inspired by the EU competition law model. In support of this position, we can, for instance, note the existence of the object/effect alternative in the article laying down the prohibition of anti-competitive agreements. Also, the exemption mechanism is somehow similar to article 101 (3) TFEU even if it does not include all the four conditions. Similarly to article 101 TFEU, the assessment of anti-competitive agreements under the Fair Competition Act of 2014 will thus consist of two different parts. Other developments confirm the preference given to the European model, but without going into too much detail (we will soon come up with a very detailed article on the Act) a quick overview of the text clearly points toward another victory for the European model of competition.

2/ In south Africa, The Competition Commission (CompetC) has identified in the merger Shoprite/Ellerines a public interest concerns relating to the situation of the 308 post-merger workers of the target company (Ellerines). Following this, it has recommended to the Tribunal making the approval of the merger conditional upon the retention of the remaining employees.  Naturally, the Tribunal agreed, yesterday, with this proposal and approved the merger on the condition that all post-merger workers will be employed by the acquiring firm Shoprite. Such decision does not come as a surprise. Article 12A (3) of the Competition Act clearly stipulates that: ” When determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on (…) (b) employment (…)“. But probably the most striking fact is that, the CompetC and Tribunal both have to assess a merger on the ground of public interest even if it appears that the notified operation does not give rise to any competition concerns. So this is probably why employment and other public interest issues are so often raised in merger cases in South Africa (for some very recent cases see here and here and also this one). Taking into account those precisions, what we have been highlighting as a very special case is not that special given the very nature  of article 12A of the Competition Act and somehow the Act itself which, inter alia, calls in section 2 relating to the purpose of the Act for the promotion and maintenance of competition in the Republic” in order (…) to promote employment and advance the social and economic welfare of South Africans (…)“.

3/ In Morocco, the Decree n° 2.14.652 which is an implementing regulation of the new law n° 104-12 on Freedom of Prices and Competition was adopted on the first of December (Her for Arabic readers). In this context, the Moroccan Competition Council (MCC) and German Federal Enterprise for International Cooperation (GIZ) launched a support program aiming at assisting the Moroccan institution in its effort to implement the newly adopted text. It is the second such project, after a twinning project , funded by the EU and implemented in 2009 between the MCC and the Bundeskartellamt for the purpose of strengthening the capacity of the Moroccan regulator.

*Co-editor, Developing World Antitrust

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Competition Advocacy: Developments from Botswana

By Amine Mansour*

It’s widely accepted that competition authorities’ (CAs) mission extends beyond enforcement of competition rules to focus also on advocacy.

Several young and well-established CAs have engaged in numerous public awareness programs. It is critical for CAs in developing countries to engage in such activities as the real problem in those countries lies in the low-level of competition culture. People who are educated in how competitive markets work are less prone to believe arguments such as «it is good to protect national industries against foreign competition because they create jobs» or others of the sort. In this respect, I would like to highlight in this post a particular aspect of the activites that contribute to establish a real competition culture. Specifically, the main idea relates to the community or the audience that these programs should target when implemented in a developing country.

Several authors and papers call for a selective approach that directly targets the business sphere and decision makers. However, one key aspect that is often neglected in these works are young audiences. The recent activity of the Competition Authority of Botswana (CAB) is a great example of how a real competition culture could be disseminated within young people. First on the 7th of November, the CAB briefed students from the University of Botswana on how competition benefits consumers. Shortly after this initiative, students from Limkokwing University benefited from a lecture on competition law delivered by CAB’s staff. Efforts from this very young agency (set up on 2011) that, by the way, has won “the Most Media Visible Parastatal Award at the annual Ministry of Trade and Industry Awards”, led it to host Junior Achievement Botswana Students.

These initiatives show that the package competition/advocacy imposes a mandate on CAs to undertake a multifaceted effort. This drives us to consider whether young audiences, in particular students, should come as a priority in every effort. In addition to the argument based on alerting future generations to the benefit of competition policy, two additional reasons support this claim.

On the one hand, the common ground of the activities highlighted above is their educational dimension (briefing on market dynamics and the CA’s role in this respect). These efforts are more than welcome in the context of a developing country in which the public has a limited knowledge of the benefits of competitive markets. In this respect, students are a key element. By alerting them to the benefit a competition policy, they will be the relay for the dissemination of a competition culture to the general public.

On the other hand, pro-competition discourse when addressed to young audiences, in particular students, may face less opposition than would be the case with trade unions, local governments or entrepreneurial associations. In this perspective, it would be wise to secure this fraction’s support before addressing groups that may heavily oppose competition. Raising awareness of the benefits of competition is important to a large number of antitrust authorities in developing countries as it helps them to get the support of strategic sectors of the population.

Young audiences should be a central element of any awarness compaign. Their contribution to building a competition culture is not to be underestimated either when playing a seeding role or when being a target of those compaigns.

*Co-editor, Developing World Antitrust

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Holcim/Lafarge Merger in Morocco: The Limits of a Control Conducted by the Executive

By Amine Mansour*

Under the Law n° 06-99 relating to Freedom of Prices and Competition, merger control is characterized by a concentration of power in the hands of the executive while the Competition Council (CompetC) has a consultative role.

Translated in practice, this means that once the Prime Minister (PM) has received a complete file in connection with a notified merger, he can, inter alia, seek the assessment of the CompetC in case the operation entails a risk of distorting competition. Some would say nothing is abnormal in such a procedure. At the end, the prime minister is sovereign in his appreciation and can choose to request or not the CompetC’s expertise depending on his perception of the competitive harm. This is exactly what happened in the case of Holcim and Lafarge (H/L) merger. The Moroccan government recently approved, after a quick look, the merger between H/L in what appears to be a normal procedure. However, when highlighting additional facts relating to that case and more broadly the cement sector in Morocco, the risks of a politicized merger control stand out. Let us consider the issue.

On one side, we have the spirit and the letter of article 10 of the law n° 06-99, which obliges the executive to submit the merger to the opinion of the CompetC when the parties’ market shares are above 40% even if the operation does not lead to the creation or strengthening of a dominant position. In this sense, a study initiated by the CompetC gave a broad picture of the state of competition in the Moroccan cement sector. The study found that H/L’s combined market share in the year 2009 was of about 66, 5% (Lafarge 40, 9% and Holcim 25, 6%). Since then, the market has evolved. Two new operators entered the Moroccan cement market leading to a certain erosion of the H/L’s market share to stand, according to independent sources, at 55%. But most importantly, besides raising several alarming questions, the study stated that we are at least facing « a reasoned management of the market » by the historical producers. The report goes on to say that these producers appear to be satisfied with the statuts quo trying to preserve it as long as possible.

On the other side however, we have the executive that moves in a direction that conflicts or might appear to conflict with such findings. In this regard, the Minster of Economic Affairs (The PM has delegated its powers with respect to competition matters to the Minister of EA) gave an interview (in French) to a Moroccan newspaper (unfortunately, the decision clearing the merger was not published) in which he provides informative details about the assessment of the compatibility of the said merger. First, the minister of economy stated that the companies combined market share is at the highest 40%. Such a figure clearly contradicts with the finding of the CompetC’s study and the updated figures from independent sources. Second, he states that the only condition that the government requested in order to clear the merger was “To protect the interests of employees while safeguarding their jobs”.

Such a conduct by the Minister of Economic Affairs should be regarded as manifestly and seriously exceeding the limits of its discretion to assess the compatibility of a concentration. Several reasons confirm this situation and calls for the following observations.

First, the executive decision not to refer to the CompetC’s analysis is a clear violation of article 10 of the law n°06-99. For instance, in the CMA/CGM case the prime minister asked for the CompetC’s opinion even though the parties’ market shares do not exceed the threshold for individual notification in several relevant markets. The only relevant market where the parties hold more than 40% market share was characterized by the absence of any addition of market share. And yet, the executive requested the CompetC’s opinion.
In the present case, however, the parties would have a combined market share of between (55 and 60%). The executive chose instead to minimize the merged entity’s future market position in order to have a final say on the operation. Even if the CompetC’s opinion in the field of mergers is not binding on the prime minister, he decided not to refer to it because of the risk of taking a decision that may clearly conflict with the CompetC’s opinion.

But beyond having a transparent assessment procedure, the CompetC’s intervention would have been very helpful in shedding light on some of the issues raised in the said study.

Second, the quick clearance of the H/L merger raises a huge uncertainty as to the standards according to which a merger is assessed. The Moroccan Competition Act recognizes the hybrid test (SIEC) as the only mechanism for the assessment of the change of competition. On this point there are no signs on whether the executive has assessed or not the anticompetitive effect of the merger.

The Minister of EA asserts that no competition concerns were identified while at the same time he has requested commitments in terms of the maintenance of employment. Such a situation is very peculiar in that it contradicts with the articulation of competition and non-competition issues as organized by the Moroccan Competition Act (Article 42 law 06-99).

The Act requires the approval of any merger where no competitive adverse effect has been identified. The assessment of non-competition public interests issues becomes of potential interest to merger control only when a unilateral or co-ordinate effect has been identified. Moreover, the confrontation of these two dimensions vests in the CompetC. It is therefore an approach that focuses first on the analysis of competition issues while non-competition ones are taken into account only when the merger generates an anticompetitive effect.

The executive adopts a different approach. Its analysis makes non-competition issues prevails over the competition issues regardless of the competition outcome obviously without involving the CompetC.

It is clear that non-competition objectives are given weight in the merger analysis. I have never been opposed to the integration of such objectives in the merger appraisal especially in the context of developing countries. The only source of concern relates to the establishment of a coherent and predictable analytical framework so that enforcement actions do not deviates from principle in texts. This presupposes not only conciliating the assessment of those objectives with competition issues but also a clear indication of the non-competition considerations to be integrated or not in the assessment process.

Connecting those developments to the present case, it appears that limiting the assessment of the merger to the preservation of employee’s right means setting aside a wide range of non-competitive objectives that would have been very helpful in the context of a developing country like Morocco. It’s not insignificant that the executive focused on the maintenance of employment to the exclusion of all other dimension. Its position is best served, from a political and electoral point of view, focusing on such an objective.

Third, the present case has implications for the new Moroccan Competition Act (Law n°104-12). The approach that prevailed in the present case allows some uncertainty as to the intended use of a highly controversial provision in the new Act. This new Act, still waiting for the implementation decrees, transfers the control of mergers to an independent institution “the New Competition Council” and gives to the executive a veto right in case general public interest is at stake. The H/L’s case shows that the executive’s analysis is highly permeable to political considerations. In this context, it is obvious that the minister new powers to override CompetC’s decisions should be greatly restricted since it may render the merger control more politicized than before.

*Co-editor, Developing World Antitrust

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