Major changes proposed to the Competition Act in South Africa

The Minister of Economic Development published the long-awaited Competition Amendment Bill (the Draft Bill), 2017 for public comment on 1 December 2017. The Minister and the Competition Commission (Commission)have expressed concerns that the current provisions of the Competition Act do not adequately allow the Competition Authorities to address issues created by the large number of highly concentrated markets in South Africa.

The Draft Bill provides for, among others, scrutiny of market concentration and the racially-skewed spread of ownership of the South African economy and the proposed amendments seek to empower the Competition Authorities to create more opportunities to advance transformation of ownership of the economy.

The most significant changes are aimed at addressing concerns that concentrated markets inhibit new entrants and exclude large numbers of black South Africans from the opportunity to run successful enterprises.

The changes proposed will have a substantial impact on all businesses operating in South Africa and will increase the complexity associated with complying with the Competition Act. The proposed amendments will, if implemented, radically change the way that prohibited practices and mergers are investigated and prosecuted by the Competition Authorities.

Collusion

The Draft Bill expands the meaning of a market allocation agreement or understanding to include an agreement or understanding among competitors to allocate market shares. The rationale for the amendment is to enhance the prohibition of cartel activity in concentrated markets, which in turn, creates opportunities for entry into and expansion in these markets. This is intended to benefit small and historically disadvantaged controlled firms by presenting them with opportunities for entry into the market, with a deconcentrating effect.

Abuse of Dominance

The Draft Bill makes significant amendments to the abuse of dominance provisions in the Competition Act primarily aimed at correcting the difficulties that the Competition Authorities have experienced in enforcing abuse of dominance complaints. In particular, it is no longer necessary for an excessive price to be shown to be to the “detriment of consumers” because excessive pricing may also affect businesses that buy inputs from dominant firms. The Commission will also be required to publish guidelines on excessive pricing. In addition, the burden will now be placed on the dominant firm to show that the price it charges is reasonable after a prima facie case against it has been established by the Commission.

The proposed amendments also expand the meaning of exclusionary conduct to prevent conduct aimed at excluding a firm from participating in a market (as opposed to only entering or expanding in a market). New exclusionary conduct will also now be prohibited including engaging in a margin squeeze, unreasonable conditions unrelated to the object of a contract being placed on the seller of goods or services and preventing suppliers to dominant firms from being required, through the abuse of dominance, to sell their goods or services at excessively low prices.

Price discrimination

The Draft Bill proposes that the restrictions on dominant firms not to engage in anticompetitive price discrimination in relation to its customers be expanded to apply to suppliers of dominant firms too. In addition, the dominant firm will now bear the burden of demonstrating that the price discrimination is not likely to have an effect of preventing or lessening competition. Furthermore the amended section requires that special attention be given to the effect of anti-competitive price discrimination on small businesses and firms owned or controlled by historically disadvantaged persons.

Administrative penalties

Certain contraventions of the Competition Act do not carry a penalty for a first time contravention. The Draft Bill abolishes the ‘yellow card’ system on the basis that it is no longer appropriate given the greater awareness of the Competition Act and its prohibitions.  All contraventions of the Competition Act will now carry a penalty for a first time contravention.

In addition, the amendments provide that an administrative penalty imposed on a firm may be extended to other firms which form a single economic entity with the contravening firm. This is designed to prevent the manipulation of corporate structures to avoid administrative penalties being realised.

Merger control

The Draft Bill confirms the now settled position that the competition and public interest tests for the approval of a merger are equal in status. It also seeks to explicitly create public interest grounds in merger control that address ownership, control and the support of small businesses and firms owned or controlled by historically disadvantaged persons.

The proposed amendments also seek to prevent creeping concentration and strategic barriers to entry created by mergers and cross-shareholdings. These changes are intended to address situations where each merger on its own is not problematic but when considered holistically, may have an anticompetitive effect.  These amendments propose that cross-shareholdings and cross-directorships be explicitly considered in all mergers and, in particular, to require disclosure of merger activity engaged in by the merging parties in the preceding three years to identify markets in which, and firms by which, creeping concentrations are being pursued.

A new section is introduced which permits the Commission to scrutinise transactions occurring within a three-year period that result in a change of control, or which are steps towards a change of control, as if they occurred simultaneously. This is aimed at ensuring that the creeping acquisition of control is subject to the appropriate scrutiny and analysis by the Competition Authorities.

Market inquiries

The Draft Bill introduces a package of amendments to the market inquiry provisions which envisage that market inquiries will become the chief mechanism for analysing and tackling the structural problems in a market. The proposed amendments are intended to ensure that the outcomes of market inquiries include measures to address concentration and the transformation of ownership.

Under the current market inquiry provisions, the Commission is empowered only to make recommendations to address the identified concerns or to refer complaints to the Competition Tribunal. The proposed amendments allow the Tribunal to use any of the other remedies currently permitted under the Act to address the findings of the Commission following a market inquiry, including using any of the remedies that target prohibited practices or abuses of dominance, and potentially voiding anticompetitive agreements. This also now includes the conclusion of consent orders.

Significantly, the Draft Bill proposes that forced divestiture be used as remedy following a market inquiry, and on terms that have regard to the purposes of the Act, with the safeguard that a divestiture remedy can only be imposed by the Tribunal, following a recommendation from the Commission. In addition, there is the right of appeal to the Competition Appeal Court.

Next steps

Comments are due on the Draft Bill by 29 January 2018. Given the significant impact that these changes will have on business in South Africa, it is important to have your say.  Please contact any member of the competition team to understand how the proposed amendments will impact on you.