Cause to be Concerned: The Competition Amendment Bill
On 1 December 2017, the Minister for Economic Development slipped the Competition Amendment Bill, 2017 into the Government Gazette allowing 60 days for comment. The draft bill involves radical changes to the existing Competition Act. Amongst other things, it addresses high market concentration, racially skewed ownership and the ability of small and medium enterprises to participate in the economy through competition regulation. The draft bill also tries to realise economic transformation where other efforts have failed to do so. It proposes introducing far reaching changes to merger investigations, the provisions governing conduct of dominant firms and the competition authorities’ powers.
Make no mistake, if passed, these changes will have an enormous impact on the way firms do business in South Africa.
Merger investigations and outcomes will change considerably if the drafters of the new bill have their way. New public interest considerations relating to the spread of ownership by historically disadvantaged persons (“HDPs”) and the ability of small to medium enterprises to enter the market will be a key part of the Competition Commission’s investigations.
The introduction of an express requirement for consideration of HDP ownership in any transaction potentially introduces difficulties for businesses currently owned by HDPs who may only be able to sell to other HDPs in order for a merger not to have a negative impact on the spread of ownership and be approved on that basis. The draft bill also allows the Competition Commission to consider a current merger in light of any other mergers by the merging parties in the last 3 years regardless of the relevance of those transaction to the current transaction. The draft bill also allows the Commission to consider a series of transactions over a 3 year period retrospectively as one “creeping” merger at the date on which the latest transaction is notified, despite the fact that each transaction on its own is not a merger. The Commission and Minister are also given new powers to appeal any merger decision by the Competition Tribunal, which means that some mergers may have to wait months for hearing by the Competition Appeal Court. This potential delay could stifle investment appetites significantly.
The conduct of dominant firms comes under even more scrutiny in terms of the draft bill. The categories of conduct regulated by competition authorities as abuses of dominance has expanded and responsibility has been shifted to the dominant firms in question to prove that their conduct is not anti-competitive because it is outweighed by pro-competitive effects. In shifting the onus, the draft bill relieves the Commission of the complex economic investigations and considerations for which it is currently responsible. At a practical and financial level, the cost of obtaining expert advice necessary to address a dominance complaint now rests fairly and squarely on the firms concerned.
The draft bill also expressly introduces the concept of a dominant buyer (a “monopsony”) and obliges firms who are dominant buyers of goods or services not to buy at prices that are excessively low. This places a significant burden on firms who may have no way of evaluating their suppliers’ markets and therefore no way of know whether they are dominant buyers or whether the prices they negotiate are excessively low.
While compliance with competition law and decisions about whether or not to merge will become more complex and uncertain in light of the draft bill, the powers of the (already powerful) competition authorities are set to expand. The draft bill removes the “yellow card” provisions which gave firms a warning instead of a fine for certain first time contraventions. In short, every contravention can trigger an administrative fine for a first offence. The draft bill also allows the Commission to make “any order” related to merger conditions. The Commission is also given the power to propose and impose a wide range of remedial actions (including divestiture) arising out of market inquiries.
Comments to the draft bill were due on 31 January 2017, despite a request for an extension to this date. Businesses and interested organisations are anxiously waiting to see if, and to what extent, their comments will be taken into account.