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Africa: Highlights from Bowmans’ 12th Annual Africa Competition Law Conference 2024 (3 of 3)

22 April 2024
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Overview

  • Bowmans hosted its 12th Annual Competition Law Conference in Nairobi, Kenya, in February this year. The conference theme ‘Towards Convergence’ was contextualised within the development of a competition protocol under the African Continental Free Trade Area (AfCFTA) agreement. The topic invited discussion from delegates on the interactions among various African competition regulators and the anticipated evolution of competition laws towards harmonisation among differing competition regimes.
  • This article, the third in a series of three, addresses the conceptual framework for public interest and other protectionist considerations as well as the potential challenges. 

This is the last in a three-part series of articles summarising the key points of discussion during Bowmans’ 12th Annual Africa Competition Law Conference, held in Nairobi in February 2024. 

The final panel discussion centred on the place for protectionist mechanisms and the public interest assessment in competition law. The panellists, representing perspectives from Kenya, Nigeria, and South Africa discussed the conceptual framework for public interest and other protectionist considerations as well as the potential challenges. 

The panel members included:

  • Amanda Mfuphi, moderator, partner, Bowmans South Africa
  • Babatunde Irukera, former executive vice chairman at the Nigerian Federal Competition & Consumer Protection Commission
  • Judge Dennis Davis, former Judge President of South Africa’s Competition Appeal Court
  • Wangombe Kariuki, senior consultant, Bowmans Kenya

Many African competition regimes have adopted and/ or applied an approach that balances ‘traditional’ competition law considerations with public interest considerations (typically under merger control).  Public interest issues such as:

  • access for small and medium enterprises (SMEs) and indigenous persons to competitive markets;
  • the preservation of local suppliers and supply chains;
  • the greater spread of ownership by historically disadvantaged persons or workers; and
  • job protection and/ or creation,

have all been dealt with under a competition law framework.

In the previous panel discussion at the conference, it was signalled that firms would prefer competition assessments to be free from what may be perceived as nebulous public interest criteria.

In the final panel, however, it was discussed that a ‘traditional’ consumer welfare-maximising objective is likely insufficient in economies where large portions of the population are unable to participate and that public interest therefore has a role to play as part of the competition law framework.

A balance is to be maintained between achieving the objectives that public interest provisions seek to promote and ensuring that investment is not discouraged because of opaque public interest criteria and evaluations.

Interestingly, the introduction of policy objectives under the rubric of competition law is not unique to Africa, it being noted that European lawmakers have also utilised competition laws for policy objectives such as fostering market integration, supporting environmental policy, and addressing aggressive tax planning measures. While not referred to under the heading of public interest, the general conceptual framework is the same: using competition laws to support or bolster other public policy objectives. 

Ultimately, it is clear that public interest and similar protectionist measures will remain a feature of competition law in Africa and that such measures can be justified within a competition framework, particularly because unlocking market access is a key factor for economic prosperity and consumer welfare in Africa.

Intervention by any means

It was observed that competition law is one of many tools that a government may have at its disposal to address the various issues it faces. The primary objective for a government is to address its most pressing issues with expediency and efficiency, and as a result, a government may be relatively agnostic as to the means employed to achieve these ends. Competition law can be used alone or in conjunction with other interventions to achieve particular objectives. 

Practically, competition (and other) regulators may need to demonstrate that they are capable of addressing key policy issues to justify and be granted operational budget, and in this context, public interest interventions can play an important role for competition regulators. 

While ‘traditional’ competition regulation can be perceived as taking too long to achieve the ‘optimal objectives’, public interest interventions (e.g. to salvage jobs or protect small and/ or local suppliers or introduce ownership by indigenous or historically disadvantaged persons) can be seen as achieving direct, immediate, and tangible outcomes.

Such dynamics do, however, signal challenges that can arise, particularly where a competition authority lacks sufficient independence and/ or assertiveness to pursue competition issues free from political interference and influence. 

It is also problematic where political appointees are placed within decision-making bodies within a regulator and take decisions without a full appreciation of the competition law framework and competitive dynamics.

In these circumstances, there is the danger that decisions will be taken to push for the agenda of the political appointee. Given these potential scenarios, there is considerable weight placed on regulators to guard against the degradation of their institutional capacity and demonstrate assertiveness as to their jurisdiction.     

What is the point of competition law in the African context?

Considering the levels of conglomeration globally and the size of international players, the pertinent question when interrogating the place for public interest was identified as: ‘what is the point of competition law for developing economies?’.

In this context, the panel considered whether competition law has a role to play in reducing levels of inequality.  Under a ‘traditional’ conceptual framework competition law exists to promote consumer welfare stricto sensu, and/ or to promote and protect the competitive process.

The key issue for developing countries is how small, indigenous and nascent businesses are integrated into the competitive process. The introduction and reliance on public interest and similar protectionist provisions thus introduce a further role: the democratisation of an economy. 

In countries such as Kenya, Nigeria and South Africa a real problem is the inability of vast sections of the population to participate effectively in the economy. It was pointed out that in Nigeria, for example, the informal sector is larger than the formal sector – employing more people and contributing more to the fiscus. There are similar economic dynamics in other African and developing countries. In these circumstances, public interest considerations may well militate against the restrictive nature of purely welfare-maximising competition policy and promote wider and more equal participation within the economy.

In Nigeria, the Constitution requires that all organs of government exercise their powers to ensure that the means of production and wealth are not concentrated in the hands of a few. These Constitutional provisions support the idea that there should be mechanisms by which to democratise access to the economy. 

Further, it was highlighted that a key ancillary to the objective of consumer welfare is the process of unlocking markets as this benefits both consumers and businesses. For a country with a large informal sector, a history of concentrated markets, and that wishes to foster inclusivity, competition regulators have to appropriately select tools to address challenges faced by local market participants, and particularly SMEs.

In such scenarios, there may well be the perception that a government’s industrial policy involves elements of protectionism, however, such protections are important to ensure that local resources and assets are explored, but not exploited.

Balancing objectives

Despite the valid goal of ‘unlocking’ all facets of an economy for greater participation, there is a danger that when the scope of assessment is broadened beyond ‘traditional’ competition considerations, significant problems may arise. 

Firstly, the adjudication of public interest or protectionist issues is far more complicated because there may be unquantifiable and polycentric consequences. Secondly, where industrial policy is introduced into competition law, there may be a conflation of imperatives. Finally, public interest provisions may promote forms of rent-seeking within the competition process. In this regard, it was pointed out that in the South African context, merging parties have had to commit money or shares to secure merger approval, which would in these cases, be subversive of the fundamental objective of democratisation of the economy. 

As regards adjudication, there is a need to balance the evaluation between competitive outcomes and public interest impacts. The seminal case in South Africa was the Massmart / Walmart transaction.  In this case, there were no anticipated negative competitive outcomes, in fact, it was generally accepted that the merger would likely drive down prices for consumers.

However, the case raised concerns related to employment and local procurement. As regards procurement, the concern was that Walmart’s global supply chain could precipitate local competitors to the merged entity opting to jettison local suppliers in favour of cheaper foreign goods.

This scenario elicited a further interrogation as to whether the price benefits could be evaluated against impacts flowing from the elimination of local suppliers. If the price benefits would not exceed the detrimental effects from the loss of local suppliers, the merger would have to be prohibited. While there was insufficient economic basis to prohibit the merger in that case (and indeed economists have expressed that such an evaluation is not achievable), there remained the question of the public interest, and how to appropriately remedy the negative effects. While the Competition Appeal Court considered the question of appropriate remedies in some depth, and with the assistance of leading economic experts, the full impacts of such remedies remain unknown. 

The central learning from the Walmart case is the need to demarcate between generally cognisable competition concerns and the public interest assessment, and for public interest issues to have their own set of remedies that effectively address market democratisation.  

The practice since Walmart, has, however, diverged somewhat from the intended approach, in which merging parties and competition authorities ‘bargain’ over and agree upon forms and levels of commitments to have the deal approved.

Engagements in this regard have been criticised as essentially a form of rent-seeking. Furthermore, some of these negotiated concessions, if evaluated strictly against the aims of the public interest provisions, may well fall short of the fundamental objective of integrating marginalised people into the competitive process, and allowing them to participate in and benefit from this process. 

While there is no objection in principle to a process whereby parties and competition authorities engage constructively to achieve an appropriate set of remedies, what is essential is that this process involves a level of precision as to the specific and fundamental outcomes to be achieved by the agreed remedies.

Public interest and protectionism at a continental level

Finally, on the subject of convergence, the panel considered whether public interest and protectionist principles, applied at a national level, may be at odds with the objective of free trade and integration sought to be achieved under the African Continental Free Trade Area (AfCFTA) agreement.

In this regard, it was noted that the ability of people to access and participate in the economy is a pertinent question regardless of whether one takes a national, regional or continental perspective. 

The imperative of ensuring that all people can effectively participate is a necessary goal in achieving economic prosperity across the continent. The debate on convergence initiated around the AfCFTA competition protocol provides an incredible opportunity to consider and find broad levels of harmonisation concerning public interest.

As highlighted in previous panel discussions, it was underscored that a lack of convergence among African regulators on such issues may pose a significant impediment to regional and continental integration.