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Malawi: A new era in competition law enforcement

9 July 2024
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Overview

  • Malawi’s Competition and Fair Trading Act 2024 came into effect on 1 July 2024.
  • The Act marks a significant shift from the previous regime by introducing a mandatory and suspensory merger notification procedure.
  • It includes measures to address the abuse of buyer power as an anti-competitive practice, and empowers the Commission to conduct market inquiries and studies.
  • The Act is expected to strengthen the mandate of the Competition and Fair Trading Commission, and better align the competition law with current market dynamics and international best practice.

Malawi’s Competition and Fair Trading Act 2024 (Act), which came into effect on 1 July 2024, repeals the Competition and Fair Trading Act 1998 (Repealed Act) in its entirety. The Act is expected to strengthen the mandate of the Competition and Fair Trading Commission (Commission), and better align the competition law with current market dynamics and international best practice.

The Act marks a significant shift from the previous regime by introducing a mandatory and suspensory merger notification procedure. The Act includes measures to address the abuse of buyer power as an anti-competitive practice, and empowers the Commission to conduct market inquiries and studies.

The Act also strengthens the Commission’s enforcement mandate. The latter is an important development, given that in July 2023, in Airtel Malawi plc vs Competition and Fair-Trading Commission (Airtel Judgement), the High Court of Malawi held that the Commission did not have the mandate to impose penal or administrative sanctions under the Repealed Act.

The Airtel Judgement was perceived to have significantly weakened the enforcement mandate of the Commission. The Act now specifically empowers the Commission to issue ‘administrative orders’, including financial penalties for competition law and consumer protection contraventions.

A brief analysis of the Act and some notable highlights are set out below.   

Mandatory and suspensory merger notification

The Act applies to ‘all economic activities within, or having an effect on, Malawi’.

In respect of mergers, the Act states that ‘a merger occurs when one or more enterprises directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking…’ and that the Commission is empowered to ‘review and control mergers having an effect in, or into, Malawi’. Transactions that fall within the definition of a ‘merger’ shall ‘not be completed in Malawi unless the Commission grants a formal approval…’.

The Act provides examples of how a ‘merger’ may be achieved, which include ‘acquiring, by any means, the controlling interest in a foreign enterprise that has a controlling interest in a subsidiary in Malawi’. As such, the notification of indirect changes of control of Malawian entities is contemplated.

However, based on the scope of application of the Act and a plain reading of its sections, it is not clear whether mergers involving a target with sales into Malawi but no local presence can be excluded from notification, or whether such transactions may be regarded as have an ‘effect’ in Malawi, sufficient to trigger notification obligations.  

Currently, there are no financial thresholds for mergers that are subject to mandatory notification. The Act contemplates that financial thresholds may be issued in future. For the time being, parties may apply to the Commission for negative clearance if there is uncertainty as to whether a transaction notifiable.

The Act provides examples of mergers that are notifiable and includes transactions that are likely to result in ‘the acquisition of at least 40% share of any market or such other amount of the market that the Commission may prescribe’. 

Most major merger control regimes provide financial thresholds for merger notification, allowing for objectively clear criteria, while market share thresholds do not offer the same certainty. The Malawian regime may benefit from an appropriate financial threshold, so that parties falling below such thresholds may readily exclude notification obligations.

Other transactions that are subject to merger notification obligations, as set out in the Act, include transactions that are likely to result in ‘the acquisition of assets related to a relevant market or to the business of the acquiring firm” and “a lasting change to the structure of, or have a substantial effect on commerce in, or a local nexus to the domestic market’. 

Substantive assessment

When assessing mergers, the Commission is required to consider the effect of a merger on competition and must also assess whether the merger can or cannot be justified on substantial public interest grounds.

Concerning the public interest, the Act provides several factors for the Commission to assess, including the extent to which the proposed merger ‘would likely affect employment in a particular industry or sector’; ‘is likely to affect the ability of small businesses, or firms controlled or owned by historically disadvantaged persons to become competitive’; ‘would likely affect the ability of small enterprises to gain access to or to be competitive in any market’; and ‘would likely result in a more rapid rate of technological advancement by enterprises in Malawi’.

Merger review period

The Act envisages a 90-day merger review period, extendable by the Commission for a further 60 days. Although it is not clear from the Act, it appears that the reference to ‘days’ in this section of the Act may be Malawian business days, and not ordinary calendar days.

Prior implementation of or failure to notify mergers

The Commission may impose an administrative order on parties for failure to notify, or for prior implementation of, a notifiable merger. The Commission may also, inter alia, apply to the Commercial Division of the High Court of Malawi for a cease and desist order or any other interim order prohibiting implementation of the merger prior to approval.

Notably, although the Act appears to contemplate the possibility of third-party damages being claimed for losses when certain provisions of the Act are contravened, including the merger control provisions, the Act does not specify financial penalties that may be imposed on parties for failure to notify or for prior implementation of a merger.

It appears from the Act that financial penalties are reserved for anti-competitive practices and unfair trading, as well as other general offences under the Act, such as knowingly furnishing false information to the Commission, or failing to attend or give evidence before the Commission ’in compliance with a summons issued under the Act.

In the Airtel Judgement, where it was held the Commission was not empowered under the Repealed Act to impose financial penalties, the High Court noted that the draft new Competition Act clearly provided for financial penalties and urged the relevant authorities to expedite implementation of the new legislation. As such, the Commission was guided to ensure that it is sufficiently empowered to impose financial penalties for the types of conduct it intends to penalise.

The fact that the Act only provides for financial penalties in relation to anti-competitive conduct and unfair trading practices may indicate that the omission of financial penalties for merger contraventions was deliberate.

Anti-competitive practices

Similar to the position under the Repealed Act, the Act prohibits certain conduct as per se unlawful.

Provision is made for the imposition of penalties of up to 10% of annual turnover in the case of enterprises and up to 5% of annual income in the case of individuals.

The Act prohibits a range of practices articulated as instances of abuse of dominance. An enterprise is deemed to be dominant if, either by itself or acting with others, inter alia, it has a market share of 40% or more, or the actual capacity to eliminate or restrain competition in the market, or the actual capacity to control prices or other commercial conditions.  

The Act introduces a prohibition against ‘an abuse of buyer power’ and defines ‘buyer power’ as ‘the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or services to (a) obtain from a supplier more favourable terms; or (b) 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’.

The buyer power provisions do not appear to be limited in their application to undertakings with a dominant position, either alone or with other undertakings and, as such, it appears that these provisions may apply to undertakings that do not command market power. The Act provides a non-exhaustive list of conduct that may constitute an abuse of buyer power, including delays in payments to suppliers without justification, demands for preferential terms unfavourable to the supplier, and refusal to receive or return goods (including digital products) without justifiable reason in breach of contractual terms.  

Market studies and inquiries

The Commission is empowered to conduct a market study or market inquiry where it has reasonable grounds to suspect that an unfair trading practice, or a prevention, restriction, or distortion of competition, is occurring within a particular sector of the economy or within a particular type of agreement occurring across various sectors.

The Commission may invite, and may require, market players to participate in the inquiry or study.

The Commission will make its findings publicly available at the end of the market inquiry or study.

The Act envisages that regulations may be issued in relation to the manner and form in which the Commission shall institute an inquiry under the Act. As such, further details regarding market inquiries may be published.

Regional and continental cooperation

Malawi is a Member State of the Common Market for Eastern and Southern Africa (COMESA) at a regional level and is a Member State of the African Continental Free Trade Area (AfCFTA) at a continental level.

In respect of the former, competition law is regulated by the COMESA Competition Commission and, in respect of the latter, it is envisaged that competition law will be regulated by the AfCFTA Competition Authority.

The Act contains specific provisions for the Commission to cooperate with fellow Member States as well as the regional and continental competition regulators in all matters of competition and consumer protection.