Government clarifies its position on competition policy for jobs and industrial development

On 19 May 2021, the Minister of Trade, Industry and Competition, Ebrahim Patel, released a policy statement on “Competition Policy for Jobs and Industrial Development”. The policy document aims to provide clarity to the market in terms of how government sees competition policy aiding its objectives in achieving public interest goals, in particular in respect of merger regulation, market inquiries and investigations into potential anti-competitive conduct. Although no significant policy changes are proposed, the document perhaps hints at a greater involvement by the DTIC in merger transactions going forward.

This is intended to be a working document that is subject to continuous review in order to ensure that the framework of South Africa’s competition policy remains abreast of the latest trends and international developments taking place in the competition law landscape.

The document is also informed by South Africa’s overarching industrial policy, which includes various tools and measures aimed at regulating the competitive landscape, while simultaneously focusing on equal opportunity and access to and participation in the economy by all South Africans. The Competition Act, 1998 (as amended) is unique in focus, as compared to international competition legislation, in that it strives to achieve developmental outcomes (ie, inclusion, expansion and transformation), as well as establish an efficient functioning economy, to address the inequities that still remain from apartheid South Africa.

Below, we look at how government considers its policies in respect of merger regulation, market inquiries and investigations can aid its public interest objectives:

Merger regulation

The Competition Act requires that the authorities consider not only competition, but also various public interest factors. One of the areas where this requirement is most prominent and most frequently encountered is in merger transactions.

Section 12A(3) of the Competition Act identifies a number of key considerations that the authorities are required to assess in all notifiable mergers, in determining whether a merger, anti-competitive or otherwise, can or cannot be justified on public interest grounds.

The policy document highlights how, over the years, various agreements have been reached between merging parties and the competition authorities to address a wide range of potential public interest concerns, producing significant positive developmental outcomes. The policy document seeks to use the learnings from these previous transactions to provide insight into the aims and/or most important concerns that policy makers intend to explore with merging parties in future transactions.

The policy document also notes that in the DTIC’s view, advancing public interest concerns is a sure way to expedite the transaction approval process.

These focus areas and the policy makers objectives are summarised below:

Employment – Policy makers will seek to avoid retrenchments that are merger-specific and, where feasible, require merging firms to commit to maintain aggregate employment levels for a defined period (three to five years). Notably, the policy document seems to accept that some flexibility to “effect changes to the shape of employment in a merged firm (for example addressing duplication in key functions)” is required.

Broad-based ownership – Policy makers will seek to have a greater number of black South Africans drawn into ownership of firms. Following the amendment of the Competition Act in 2018, a greater focus is now placed on promotion of employee/worker ownership arrangements in merged firms, accompanied by board representation for persons nominated by the workers concerned. Interestingly, the 2018 amendments to the Competition Act do not mention employee/worker board representation, so it will be interesting to see how this plays out in future transactions.

Supplier-development and localisation measures – Government is targeting increased industrialisation through a range of measures, including the promotion of greater localisation and active support for and development of small and medium businesses. To this end, policy makers will seek to require merging parties to make commitments in relation to supplier development (eg, supplier funding arrangements), or commitments to localise the supply chain (eg the use of local agricultural inputs for food companies or local consumer products by retailers).

Investment – Policy makers will seek to promote deeper and higher levels of investment in order to enhance the ability of local industries to compete in international markets and to create local jobs, for example, by requiring merging parties to commit to or target a particular level of additional investment, with the effect of boosting overall growth, competitiveness and jobs.

Downstream beneficiation – Policy makers will focus on the impact of mergers on downstream sectors, particularly in mining mergers, which impact upon, inter alia, employment. Policy makers will explore commitments by merging parties to invest in downstream production in South Africa, and/or ensure that local downstream players have preferential access to minerals mined in South Africa.

Market inquiries

The policy document notes that there is growing concern regarding high levels of concentration in the South African economy, presumably despite the efforts of the competition authorities over the last 20 years to address concerns around concentration.

The policy document therefore highlights the need to take advantage of the competition authorities’ enhanced market inquiry powers, to address the harmful effects of economic concentration. The document suggests that government sees market inquiries as a means to develop more dynamic firms, enhance competition, industrialisation and transformation.

The policy document touches on two recent examples where competition authorities have invoked these powers with successful outcomes.

First, the Data Market Inquiry, which led to a reduction in mobile data costs and zero-rated access to educational and governmental services.
Second, the Grocery Market Inquiry, which sought to preclude the future conclusion of exclusive lease agreements and thereby afford smaller retailers the opportunity to enter the retail space in shopping malls.

Going forward, we therefore expect the Competition Commission to be pressured by government to conduct market inquiries with greater frequency and to use the new powers granted to it to maximum effect.

Investigations into abuse of dominance and cartel behaviour

The consequences arising from anti-competitive behaviour, whether due to participation in a cartel or the unilateral conduct by a dominant firm, are detrimental to a number of the founding objectives of the Competition Act and policy. Conduct or behaviour of this nature impacts upon both consumers (financially) and competitors or potential competitors in the broader supply chain (in their ability to enter and/or survive). The competition authorities are particularly concerned where this impact is felt by small and medium sized businesses and businesses owned by black South Africans.

The policy document refers to examples of anti-competitive behaviour, including: excessive pricing, refusal to supply goods or services to a customer or competitor, and refusal to provide a competitor with access to an essential facility.

Noting the recent amendments to the Competition Act, coupled with the introduction of various new regulations (such as the buyer power regulations), the policy document asserts that there is now a clear focus on ensuring that the activities of dominant firms do not stifle the growth of small and medium enterprises and firms owned and controlled by black South Africans. The policy document suggests that there is likely to be increased enforcement in these areas going forward.

New areas: digital markets, cross-border coordination and national security considerations

The policy document highlights some of the global trends in relation to increased enforcement and regulation in relation to “digital markets”. Policy makers have therefore prioritised digital markets as part of its post-COVID-19 recovery plan, with the aim of understanding the impact these have on SMMEs.

The policy document also highlights the need for increased cooperation with the competition authorities of other jurisdictions.

Finally, the policy document reiterates the increasing importance of national security as a consideration in merger evaluation. The document notes that policy makers are considering the introduction of regulations to give effect to the national security obligations introduced in the 2018 amendment to the Competition Act, but are not yet in effect.

It’s important to remember that the document only set outs the DTIC’s policy approach, and does not amend or in any way override any of the provisions of the Competition Act. The Competition Commission and Competition Tribunal must therefore continue to impartially and independently perform their functions in accordance with the provisions of the Competition Act. Where government seeks to participate in a merger, its views (which have been neatly set out in its policy document) must be weighed and considered equally with those of any interested party, including the merging parties.

Aidan Scallan

Competition | Executive

ascallan@ENSafrica.com

+27 82 787 9538

Jessica de Kock

Competition | Candidate Legal Practitioner

jdekock@ENSafrica.com

+27 76 526 8433