KENYA: COMPETITION AUTHORITY OF KENYA SETTLES WITH UNILEVER OVER ABUSE OF BUYER POWER ALLEGATIONS

By Mutugi Mutegi,Joyce Karanja Tuesday, January 24, 2023
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The Competition Authority of Kenya (CAK) recently concluded a settlement agreement with Unilever Kenya Limited (Unilever) for alleged abuse of buyer power. 

It was alleged that Unilever unilaterally revised its payment terms with its suppliers, many of whom are understood to be small and medium-sized enterprises (SMEs). These suppliers were given one week to accept the revised terms or be removed from Unilever’s approved list of suppliers.  It is alleged that Unilever exempted 23 of its large and foreign suppliers from the delayed payment provisions.

In terms of the Competition Act No. 12 of 2020, (Competition Act) buyer power is defined as “the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to (i) obtain from a supplier more favourable terms; or (ii) impose a long term opportunity cost including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings”.  Conduct that amounts to abuse of buyer power in a market in Kenya (or a substantial part of Kenya) is prohibited under the Competition Act and if convicted, attracts a penalty of up to 10% of an undertaking’s gross turnover in the preceding year.  Additionally, any person found to have abused their buyer power could be liable to imprisonment for up to 5 years, or a fine of up to KES 10 million (~ZAR 1.3 million/USD 83,333/EUR 73,890), or both. 

In full and final settlement for the alleged contravention, Unilever agreed to:

  1. Reduce its payment terms for:
    a) all existing SMEs from 90 days to 60 days effective 1 January 2023 and further to 45 days from 1 January 2025; and
    b) all new SME suppliers onboarded after 1 January 2023 to 30 days;
  2. Increase its procurement from SMEs by:
    a) gradually increasing its localisation of procurement spend by KES 400 million (~ZAR 55 million/ USD 3 million/EUR 2.9 million) between 1 January 2023 and 31 December 2025; and 
    b) inviting at least 2 local SME suppliers to all future tenders and procurement processes;
  3. Dedicate an annual budget of KES 75 million (~ZAR 10.3 million/USD 625,000/EUR 555,000) over three (3) years to undertake supplier development training for SME suppliers; 
  4. Implement a competition compliance programme over a period of three (3) years; and
  5. Ensure its compliance with the Competition Act.

According to its most recently available annual report, the CAK in the 2020/2021 financial year investigated 50 cases of alleged abuse of buyer power, of which 26 cases were finalised. In 2022, the CAK sought to prosecute 18 insurance companies for unjustifiably delaying payments, demanding unfavourable terms and transferring commercial risk to motor vehicle repairers and motor vehicle assessors. Several of these insurance companies reached settlement agreements with the CAK, which reported that its intervention resulted in the release of KES 38 million to these service providers.

These actions signify how over recent years, there has been an upsurge in complaints to and enforcement actions by the CAK in respect of abuse of buyer power. The settlement with Unilever is a further reminder that businesses should be vigilant over their terms of trade and communications of the same with their suppliers (especially SMEs, who remain a key priority of the CAK), to ensure that such terms are seen to be equitable to all parties while putting relevant commercial considerations in mind.