Shingie Chisoro and Namhla Landani
In the past year, various countries in SADC have considered amendments to their competition laws. Botswana, South Africa, Tanzania and Zimbabwe have amended or are proposing amendments to their competition laws in order to make the legislations more applicable to their economic and social contexts. These developments are consistent with a shift in developing countries from transplanting aspects of their competition laws from international frameworks, to a focus on using competition policy as a tool for addressing particular challenges within their local economies. This evolution is in line with the literature regarding the need for appropriate competition law frameworks for developing countries to address high levels of concentration, low levels of economic growth and limited competitive dynamism. The developments in the region over the past year provide important lessons for new authorities such as in Angola, which approved a new competition act in April 2018, and for existing authorities grappling with the challenges of developing laws which are fit-for-purpose and applicable to the overall socio-economic contexts in which they operate. This article reflects on the competition amendments being passed in Botswana, South Africa, Tanzania and Zimbabwe and the implications for successful competition law enforcement.
Amendments to competition laws
In 2018, the parliament of Botswana approved the new Competition Act, which is set to replace the Competition Act of 2009. The new act seeks to enhance the current competition legislation particularly in terms of the sanctions for different contraventions. Similarly, South Africa’s Competition Amendment Bill was approved by the National Council of Provinces on 4 December 2018 and was signed into law by the President in February 2019. These amendments are in recognition of the core challenges of high levels of unemployment, concentration and limited participation and ownership of previously disadvantaged groups. Zimbabwe is also in the process of reviewing its legislation. In 2017, the cabinet approved the National Competition Policy and it awaits enactment by the President. The new competition policy aims to encourage investment through timely and effective handling of cases to further the goals of industrial and trade policies. Tanzania’s authority called for a review of its competition act in August 2018. One of the major proposed changes is to extend the powers of the authority to hear and determine consumer complaints, which are currently subjected to judicial proceedings in courts.
The amendments to competition laws in the region reflect a process in several developing countries of deciding on the rules and standards appropriate to their economies and stage of development. Countries need competition laws that are fit-for-purpose and aligned with societal if they are to deliver on the objective of creating fair and competitive markets as is the mandate of many authorities in the region. The considerable divergence between countries requires that developing countries develop their own competition law and resist pressures to copy international standards without regard to fit. Competition policies in developing countries should promote development although the optimal policy will differ between countries depending on the stage of development. For example, South Africa among other Southern African countries, has a history of systemic exclusion of the majority of the population from full and meaningful economic participation. Hence, the new amendments aim to address the extreme concentration of ownership and control within the economy through opening up the markets and reducing barriers to entry for smaller and new businesses.
The amendments to competition laws are also important given that the design and framing of legislation can affect the number and type of cases that are taken on by authorities. As such, the specific wording and structure of the legislation can constrain the ability of competition authorities to take on and successfully prosecute cases. For example, although South Africa has a relatively large number of abuse of dominance cases, the authority has historically not been successful in prosecuting firms in the majority of these cases due to the way in which the relevant clauses in the Act were framed prior to the amendments, and the requirement to show substantial effects of conduct.
Multiple versus single mandates
One of the key amendments to Botswana’s competition law includes widening the mandate of the competition authority to enforce the Consumer Protection Act. Similar to authorities in Eswatini, Malawi, Tanzania, Zambia and Zimbabwe; Botswana will now execute multiple objectives by integrating the competition and consumer protection mandates. While competition policy aims to protect and extend the range of choices for consumers, consumer policy seeks to enhance the quality of that choice through the fairness and integrity of market processes.
The key benefits of integrating competition and consumer protection authorities include developing and sharing expertise across these two areas and realising the gains from viewing competition and consumer policy instruments as part of a common portfolio of welfare-enhancing instruments. However, consumer policy may not be given sufficient priority when it is integrated into an institution that is responsible for competition policy. Furthermore, the pursuit of multiple mandates places an onerous burden on competition authorities operating in an environment with limited resources.
In this context, the Swaziland Competition Commission took about five years to operationalise its consumer protection mandate and appointed new staff to carry out this mandate in 2017. Similarly, the Zimbabwe Competition and Tariff Commission dealt with only ten consumer protection cases in the first decade of its existence. As such, Zimbabwe is in the process of establishing a separate Consumer Protection Commission in terms of the draft Consumer Protection Bill published in 2014. The experiences of Swaziland and Zimbabwe raise important concerns regarding Botswana’s decision to adopt multiple mandates taking into account that it is a fairly young authority with less than a decade in existence. Successful execution of multiple mandates will depend on the relevant skills and availability of resources, and an important process of building capabilities in this new area of enforcement in order to increase impact and efficacy over time as it has done with its competition law framework.
Tanzania is calling for a review of the current Competition Act (2003) to give it powers to handle consumer protection cases to their final determination. Currently, the courts conduct adjudications of consumer-related cases and the authority also faces challenges in implementing the competition and consumer protection laws, which are currently integrated into one law, the Fair Competition Act (2003). This is contrary to regulatory provisions in other countries where the two laws are set out in different legislative instruments.
Enforcement models: Integrated agency vs Bifurcated agency
In addition to multiple mandates, Botswana’s amendments include establishing a new tribunal - the Competition and Consumer Tribunal, which will perform an adjudicative role. There are two main enforcement models that underpin the design of competition policy implementation in the region. Botswana’s establishment of a new competition tribunal, which will perform an adjudicative role will see Botswana shift from an integrated agency to a bifurcated agency enforcement model, following the models of South Africa, Zambia and Zimbabwe. In the Integrated Agency Model the competition authority investigates and adjudicates the cases, whereas in the Bifurcated Agency Model, the competition authority conducts the investigation and brings it before a specialised competition adjudication institution for adjudication.
The two models present key strengths and weaknesses. Although the Integrated Agency Model is associated with administrative efficiencies and higher levels of competition expertise in decision making, the lack of separation between investigation and adjudication raises concerns about due process. The separation of the prosecutorial and adjudicative functions in Bifurcated Agency Model is associated with the perception that impartiality in proceedings should be protected. It also avoids the common pitfalls regarding the confirmation bias whereby a competition authority acting as an investigator and adjudicator may be tempted to confirm and justify as an adjudicator, its decisions to prosecute.
Drawing from the South African experience, the bifurcated enforcement model has been found to has brought benefits in terms of due process including rigour and independence in decision-making. However, the Competition Commission of South Africa has raised challenges in terms of the extended periods of time taken to complete, hear and decide on cases.
Botswana’s Current Act does not provide for criminal sanctions while the New Act includes a new provision which introduces criminal sanctions for officers or directors of enterprises found to have engaged in cartel conduct and practices such as price-fixing, market division and bid-rigging. This follows the examples of South Africa, Malawi, Swaziland and Zimbabwe, although in practice criminal sanctions have not occurred. Cartels are considered the most egregious violations of competition law and effective sanctions including imprisonment should be used to deter them. Botswana’s proposed sanctions state that any officer or director is liable to pay a fine not exceeding BWP100 000 (approximately $US9 500) or imprisonment term not exceeding five years, or both.
The amendment to introduce criminal sanctions for officers and directors of firms is intended to enhance deterrence. Managers and directors are directly involved in the day-to-day activities of the company and in many instances they have been found to be responsible for facilitating and entering into anti-competitive agreements with competitors.
Although criminalisation may increase incentives for individuals to cooperate with investigations, and increase incentives for leniency applications, it also introduces new challenges in enforcement. The higher penalties and personal liability in criminalisation entails higher burdens of proof and protection of the rights of defence. It is also critical that governments clearly define the conduct subject to criminal sanctions in order to provide guidance to the business community and to distinguish hard core cartels from less harmful and more competitively ambiguous conduct.
With regard to financial penalties for anti-competitive conduct, South Africa’s new bill incorporates an increased maximum administrative penalty from 10% to 25% of a firm’s total annual turnover, if a firm's conduct is substantially a repeat of the same conduct. South Africa will have one of the highest penalties in the region given that most jurisdictions in the region (Botswana, Mauritius, Namibia, Tanzania and Zambia) apply a cap on penalties of up to 10% of the turnover of the enterprise regardless of whether it is a repeated offense or not. The decision to increase penalties is in line with the international average cartel overcharges observed in past cases, and the studies of recidivist behaviour by cartelists. Average mark-ups across studies of international cartels are in the range of 15% - 25% against an estimate of a counterfactual scenario of what prices would have been paid in the absence of the cartel infringement.
Similar to Botswana and South Africa, Tanzania is also proposing introducing stringent legal action against company officials found to have engaged in cartel behaviour.
Although high penalties are necessary to deter firms from engaging in anti-competitive conduct, often they are not sufficient. Deterrence is to a large extent based on the threat of costs of engaging in cartels vis-á-vis the expected benefits of the conduct. For the threat of the cost of engaging in the cartel to be credible, it requires that there is a high probability of detection and that the sanctions outweigh the benefits. This therefore requires that a competition authority builds up its experience and becomes increasingly effective at detecting cartels overtime. If firms perceive that the competition authority is weak and that the chances of detection are minimal, they will continue to engage in anti-competitive practices. The ability of a competition authority to detect cartels is influenced by the existence and design of the leniency policy, the type of legal system and the broad design of institutions responsible for investigating and adjudicating competition enforcement.
Abuse of dominance
In addition to the institutional and penalty-related amendments, Botswana is proposing adopting strong interventionist policies to effectively prosecute cases of abuse of dominance. Similar to South Africa, Botswana is trying to address challenges of high levels of concentration and barriers to entry in its local economy. Botswana’s Competition Act of 2009 includes a blanket condition to identify abuse of dominance conduct. The act states that upon investigation, any conduct found to amount to abuse of dominance will be prohibited by the authority without specifying the conduct that comprises abuse of dominance. The new Clause 31 of the amended 2018 Act specifies the type of conduct that constitutes abuse of dominance to include predatory conduct, tying and bundling, loyalty rebates, margin squeeze, refusal to supply or deal with other enterprises, inducement, discriminating in price or other trading conditions and exclusive dealing.
While these developments clarify the conduct that amounts to abuse of dominance for the benefit of firms, this also has the effect of ‘pigeonholing’ the conduct into the demarcated categories. The ‘catchall’ framing in the previous competition act was stringent for offenders making it easier for the authority to prosecute and enforce any conduct amounting to abuse of dominance. The proposed amendments, on the other hand, imply that in order to prosecute an abuse of dominance case, the authority should prove that the conduct is identified in one of the categories specified in the act. Considering the complexity of markets in developing economies and abuse of dominance cases, the pigeonholes may not be completely exhaustive of all potential abuse of dominance conduct, and may create problems of characterisation of conduct. This will lead to under-enforcement and undermine the objective of uncovering and addressing various abuses of market power.
The amendment of existing competition laws is symbolic of the progress and implementation of competition policy to address particular challenges facing local economies. This process hinges on experience that comes with dealing with cases and the effectiveness of the law as it is applied in different cases. An important aspect of the current amendments is a push towards more stringent penalties for firms found to have engaged in anti-competitive conduct. Although this is a necessary step towards deterring anticompetitive practices, the success of these measures requires greater level of capabilities to detect and prosecute such conduct as well.