CARTELS INVESTIGATED IN SOUTH AFRICA: POSSIBLE IMPACT IN THE REGION?

Teboho Bosiu

Most countries in Southern Africa are net importers of products from South Africa and are therefore likely to be subject to South African cartels. Imports from South Africa cut across sectors including food, capital equipment, construction materials, energy, plastics and chemical products. Moreover, regional markets are closely linked through the presence of South African companies in the rest of the region. This article expands on an earlier article in this Review on the possible impacts of some of the South African cartels on the region, as part of CCRED’s monitoring of competition case developments and the evolution of enforcement in the region.

In settling cartel cases with the Competition Commission (“Commission”), few companies disclose the list of other countries that may be affected by the conduct, probably fearing possible litigation in the affected countries. This article looks at the available information relating to recent cartels cases, with investigations initiated in the past two years, to provide regional competition authorities with early warning mechanisms and motivation for regional collaboration on investigations.

In the past two years up to September 2017, the Commission has either referred, settled or conducted raids (in which case there may be no evidence of a cartel as yet, or some firms may not be subject to subsequent referral or settlement) in relation to at least 17 cases with possible regional impact (Table 1). We note that these are cases where information is available publicly either due to settlements agreed, raids conducted (and reported in the media) or a referral by the Commission (there may be other investigations conducted that have not been made public). Some of the parties in the cartel cases have admitted to conduct in South Africa but these admissions do not cover impacts on other countries as the mandate of the Competition Commission relates to conduct with an effect in South Africa. We have examined the countries where the companies involved in the South African cartels are also operating and/or exporting to, based on a review of their websites or in other public information. Those denoted ‘Africa’ are cases where the company does not specify on its website or other documents which countries it exports to or operates in, but simply states that it has a presence in ‘Africa’.

The presence of these companies in the rest of the continent indicates the likelihood that the cartel conduct extended beyond the borders of South Africa. That is, companies involved in cartel conduct in South Africa are likely to exhibit similar practices through their subsidiaries and/or branches elsewhere in the region, especially since key business decisions such as pricing and market strategies of companies are typically taken at headquarters in South Africa. Additionally, it is likely that a company that is benefiting from cartel conduct in one jurisdiction faces powerful incentives to engage in a similar arrangement in other jurisdictions where it has physical presence and operations. This is especially so if those jurisdictions have a poor track record of successful investigation and prosecution of cartel cases, as is the case with many SADC competition authorities.

Furthermore, many of the countries listed in Table 1 import the majority of the cartelised products from South Africa. For example, Botswana, Zimbabwe, Zambia, Namibia and others are all net importers of rail maintenance equipment and related services, mainly from South Africa. The companies involved in supplying these products and services were the subject of the rail and maintenance cartel case in South Africa, which was referred to the Tribunal in 2016. The firms allegedly colluded in bidding for tenders to supply Transnet, including allocating various tenders amongst each other. Over 90% of Botswana’s imports of rail maintenance equipment and related services in 2016 were from South Africa, while the figures are just over 51%, 31% and 25% for Namibia, Zimbabwe and Zambia, respectively.

On the other hand, South Africa is also a strategic hub for the trade of goods in and out of the Southern Africa region. The cargo freight cartel which is alleged to have fixed the rates of general cargo shipment from Asia to South Africa involved companies that also have offices in South Africa. The potential impact on countries in the region is different in this instance as it may not involve collusion of firms operating in or exporting to the neighbouring countries. In this case, as prices may have been higher for cargo to South Africa, this would have also increased the costs for cargo passing through South Africa to other countries such as Botswana for instance. As such, initiating a follow on investigation or assessing effects may be more difficult in this case notwithstanding the fact that Botswana customers may have been subject to high cartel prices. Notably, Asia is an important trade partner to the southern Africa region, with over 38% of SADC’s total imports in 2016 coming from Asia.

While many of these cases have not been concluded in South Africa as yet, the investigations alone should alert regional competition authorities and thus serve as the basis for initiating investigations into the sectors and companies identified. Internationally, countries like South Korea, Mexico and Brazil have taken direct action against companies involved in export cartels that had impact in their economies. Although the regional authorities may not have jurisdiction over other companies, they may have strong cases against those companies that have operations and physical presence in their markets and where some proportion of revenues is earned domestically. Moreover, even though many regional authorities do not specifically outline procedures to deal with the impact of regional cartels on local markets, some specify that their legislation applies to “all economic activity within, or having effect within” their jurisdictions. This provides the scope for follow-on investigations.

Collaboration and coordination amongst regional competition agencies is critical for successful prosecution of regional cartels, and it is encouraging that the COMESA Competition Authority is also looking to increase its focus on cartel cases. Collaboration is necessary despite the possibility that some authorities may be reluctant to assist foreign counterparts for various reasons including political economy and legal considerations.

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Notes 1 Settlement means the parties have reached an agreement to settle with the Commission, and in most cases there is an admission of guilt. Referral means the Commission has referred the case to the Tribunal for adjudication instead of settling the matter. 2 Kaira, T. (2017). Cartel enforcement in the southern African neighbourhood. In Klaaren, J. et al. eds. Competition Law and Economic Regulation: Addressing Market Power in Southern Africa. Wits University Press. pp. 71-93. 3 Based on Trademap data. 4 Based on Trademap data. 5 See Levenstein, M., Suslow, V., and Oswald, L. (2003). Contemporary International Cartels and Developing Countries: Economic Effects and Implications For Competition Policy. International Agricultural Trade Research Consortium Working Paper. 6 See Botswana and Zambia competition acts. 7 See Sokol, D. (2008). What Do We Really Know About Export Cartels and What is the Appropriate Solution? Journal of Competition Law and Economics, 4(4), 967 - 982.        

Notes

1 Settlement means the parties have reached an agreement to settle with the Commission, and in most cases there is an admission of guilt. Referral means the Commission has referred the case to the Tribunal for adjudication instead of settling the matter.

2 Kaira, T. (2017). Cartel enforcement in the southern African neighbourhood. In Klaaren, J. et al. eds. Competition Law and Economic Regulation: Addressing Market Power in Southern Africa. Wits University Press. pp. 71-93.

3 Based on Trademap data.

4 Based on Trademap data.

5 See Levenstein, M., Suslow, V., and Oswald, L. (2003). Contemporary International Cartels and Developing Countries: Economic Effects and Implications For Competition Policy. International Agricultural Trade Research Consortium Working Paper.

6 See Botswana and Zambia competition acts.

7 See Sokol, D. (2008). What Do We Really Know About Export Cartels and What is the Appropriate Solution? Journal of Competition Law and Economics, 4(4), 967 - 982.