Getting competition right key to business in Africa
Since the advent of the Sherman Act of 1890 in the United States of America, competition and ant-trust regulation has been gaining Global prominence. Competition and anti-trust laws are essential for regulating competition in order to facilitate ethical economic growth and consumer protection. Anti-competitive behaviour which includes restrictive trade practices such as cartels, collusions, price fixing, abuse of dominance and predatory pricing is largely frowned upon and regulated in several jurisdictions. With growing and expanding business models, spurred by globalisation and technological advancements, the character and nature of what constitutes anti-competitive behaviour has evolved since 1890, and competition laws and regulations have equally evolved.
Similarly, the nature of business engagements between countries has been under constant revision, with states developing cross-cutting regulations to govern cross-border trade. The World Trade Organisation (WTO) has been at the forefront in promoting international trade and business, by specifically prohibiting the use by nations of non-tariff barriers to trade.
The establishment of regional trade and economic blocs, has also played an important role in promoting cross-border trade and commerce, by opening up markets for competition between goods from different nations, and hence driving innovation and quality of products, which ultimately benefits the consumers.
With these developments, it is essential to ensure that anti-competitive behaviour is properly regulated, and opening up borders does not result in stifling of local businesses to create bigger markets for behemoths, but instead contributes to the growth of businesses and promotes healthy competition. Similarly, regulation must be fair, credible and predictable, to avoid the risk of otherwise stifling growth and innovation. The European Union can be lauded as having done reasonably well on this front, through the European Union Competition Commission, which has decided some important cross-border cases that have influenced Global trade, such as the Google case of 2019 in which Google was fined 1.49 billion Euros for abusive practices in online advertising.
Africa has also established several regional trade and economic blocs, among them, the Common Market for Eastern and Southern Africa (COMESA), the Southern Africa Development Community (SADC), the Southern African Customs Union (SACU), the East African Community (EAC), the Central African Economic and Monetary Community (CEMAC), Economic Community of West African States (ECOWAS) and Western African Economic and Monetary Union (WAEMU).
A curious factor with Africa's regional economic blocs is that several countries are members to more than one regional bloc, which contributes to significant confusion in terms of pursuing policy and goals of the respective economic blocs. For example, Kenya is a member of the EAC and the COMESA, while Tanzania is a member of both EAC and SADC. It is expected that there shall be occasional conflicts regarding which interests to pursue when states belong to different regional blocs. This is especially true for competition regulation.
African countries have hardly been able to speak with a common voice regarding competition regulation, which is not surprising, since to date, some Africa countries do not have competition or ant-trust laws of any form. Others have competition laws, but do not have an established independent competition authority responsible for implementing such laws. Also, few African countries have competition laws which they have applied for at least a decade. The matter is complicated further by multiple regional trade and economic blocs, which purport to have a form of competition regulation, despite some being relatively dormant.
The relative uncertainty is confusing for businesses, and parties to transactions, such as mergers and acquisitions. In fact, the confusion was at play in Kenya until recently, when the Competition Authority of Kenya ("CAK") introduced the Competition (General) Rules of 2019. Previously, COMESA regional transactions with a Kenyan nexus ended up being notified to the CAK and the COMESA Competition Commission. Worse still, if such a transaction involved a Tanzanian entity, the parties would have to do separate notification to the Fair Competition Commission of Tanzania. Thanks to the rules, the double notification of transactions to the CAK and COMESA has been eliminated. COMESA has therefore become a one stop shop for Kenyan transactions with a regional dimension covering the COMESA region. The confusion however still persists with regard to the EAC Competition Authority ("EACA"). Although the EACA has not been reviewing or approving transactions since its inception, its establishing Act requires that its decisions shall be binding on member states. Once the EACA is operational, we run the risk of having multiple notifications for transactions with a nexus between Kenya and other EAC member states unless a harmonisation framework is developed.
Such multiple notifications always run the risk of absurdity, in case any competition authority comes to a different conclusion to either approve or disapprove a transaction or approves the transaction with different conditions. It only adds to the agony of the parties to the transaction, and creates an uncertain environment in the region, which is not good for economic growth.
Fast forward, on 21 March 2018, 54 member states of the African Union (AU) appended their signatures to the treaty for the establishment of Africa Continental Free Trade Area (AfCFTA) in Kigali Rwanda. On 30 May 2019, the treaty came into force, having been ratified by 27 states. The AU reports that as of 5 February 2021, 36 member states had ratified the treaty, demonstrating the growing political will (at least in theory) to implement the treaty. Key among the goals of the treaty is to promote intracontinental trade. At the moment, the UNCTAD reports that intracontinental trade stands at 16%, which is low compared to other continents, such as Asia where the intracontinental trade is at 54%.
The treaty has seven protocols, among them, the protocol on competition policy, which is still under negotiation. There is a proposal to have a regional competition authority to cover the entire African continent under the protocol. Given the challenges that cross-border competition regulation in Africa has experienced in the past, one can only hope that this time we shall get it right, and businesses and transactions shall have a more predictable operating environment. It will be curious to see how the competition authority is designed, especially noting the different roles played by national and regional competition authorities, with each at a different level of growth and sophistication, and some applying different models. It is however imperative that we get this right, since a robust competition and anti-trust regulation mechanism which is both credible and predictable shall be essential to achieving the economic and trade goals of the AfCFTA especially in promoting intracontinental trade.
The article was featured in the Business Daily on 27 July 2021.