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Africa: National security, public interest and the trend towards protectionism and preserving local interests

31 March 2023
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This article is the second in a series of three highlighting the discussions that took place at our Africa Competition Law Conference held in February 2023. It covers the main points made by panellists on the topic of protectionism.

The panellists in this session were:

  • Mr Xolani Nyali, partner, Bowmans (moderator)
  • Dr Adano Roba, acting director-general, Competition Authority of Kenya
  • Mr Azwimpheleli Langalanga, former visiting fellow at the South African Institute of International Affairs and current non-resident fellow at the Mandela Institute for International Economic Law, at the University of the Witwatersrand Law School
  • Mr Juan Rodriguez, co-head European Competition Group and Antitrust Group, Sullivan & Cromwell
  • Ms Heather Irvine, partner, Bowmans
  • Mr Joshua Mwamulima, senior associate, Bowmans

The panel discussed the adoption of protectionist measures and the elevation of public interest considerations in merger control. The introduction of national security (also called foreign direct investment (FDI)) laws is also on the rise and is impacting merger control.  The speakers noted that while public interest and national security are notionally distinct concepts, there is potential for the distinction to become blurred. This can be problematic if there are inadequate guidelines and a lack of transparency around the decisions taken.

Public interest

Several African jurisdictions have adopted public interest assessments as part of their merger review processes.  Public interest issues largely concern the impacts of the transaction on factors strictly outside the realm of competition and economics, such as the effect of the transaction on employment, small businesses and the international competitiveness of a particular industrial sector (amongst other things). 

In South Africa, an additional public interest factor that was introduced pursuant to the Competition Amendment Act, 18 of 2018 (Amendment Act) requires an assessment of the effect of a merger on the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers.

National security

The Amendment Act also introduced separate and additional national security provisions, which are not yet in effect.  While these provisions are not yet directly provided for in other African jurisdictions, such laws are by no means new across Europe and North America. Essentially, laws of this nature provide a mechanism by which a government may assess the impact of a transaction on matters of national security. 

The panel discussed that national security provisions function as an additional layer to the public interest provisions. Most national security laws make provision for a government to identify strategic, essential sectors, that are key to the functioning of the economy and that should not be controlled by foreign entities. 

Conflation of national security and public interest can be problematic

National security considerations are notionally separate from public interest ones, but, as discussed by the panel, there is scope for a blurring of the distinction between these provisions.

This can happen where public interest and industrial policy begin to be ‘camouflaged’ as national security which concerns more sensitive issues and is inherently more secretive. If dealt with under the umbrella of national security, there may be less transparency, which is open to abuse. 

National security issues can also be broadly construed, as happened during the Covid-19 pandemic when the supply of healthcare equipment became a national security issue.

The broad scope of national security/FDI provisions has been encountered in the European Union (EU), where pharmaceuticals and even sand and gravel (in a Hungarian case) have been regarded as ‘crucial’ services. This can be frustrating for business, particularly if regulators are not required to publish reasons for their decisions. In the EU, parties receive a one-page decision and often do not know the identity of the case handler.

It was noted that the South African Government would do well to better communicate that national security protections are an international trend and to provide greater transparency so as to not discourage investment.

As for business, companies may need to work with political scientists if they operate in sectors that could fall within the terrain of national security.

Clear and predictable parameters needed for public interest

As with national security provisions, some speakers warned of scope creep in the application of public interest considerations and interventions. These need to be appropriate and not applied in a blanket fashion to all mergers. 

This is not only a South African challenge, but also one that regulators in Kenya and Zambia have encountered.

The Competition Authority of Kenya (CAK) is most concerned with the impact of transactions on four public interest considerations: employment; small and medium enterprises; research and development; and best practices outside Kenya. The CAK often requires merging parties to maintain employment at 80% to 90% of the pre-merger levels but has indicated that such a threshold can be arbitrary, which is a challenge.  Clear and predictable parameters are needed for public interest conditions.

In Zambia, because the public interest considerations are broad, the Zambian Competition & Consumer Protection Commission (ZCCPC) may have a degree of discretion. However, the ZCCPC is unlikely to prohibit a transaction based on public interest outcomes. It will rather issue conditions, typically aimed at maintaining employment and local contracts. 

It is clear that protectionist measures are here to stay, and need to be applied in a way that communicates countries are open for investment.