Implications of the new policy objectives of the Competition Act

A number of fundamental changes to the Competition Act demonstrate government's strengthened policy commitment to drive radical economic transformation in South Africa, and are likely to be more regularly used in the midst of Covid-19.

The Competition Amendment Act 2018 introduced significant provisions, aimed at supporting small and medium sized enterprises (SMEs) and firms owned by historically disadvantaged people (HDP). There is likely to be greater reliance on these provisions, which demonstrate a definitive shift in government policy, in the wake of the Covid-19 pandemic. For businesses, both large and small, it is important to recognise that this shift in policy, and the resultant amendments to the Act, may lead to traditional competition issues being placed on the back burner, with an increased focus on socio-economic and public interest considerations.
The exemption provisions in the Competition Act were amended to advance transformation and participation of SMEs and HDP firms. The Competition Commission will now be required to take those objectives into consideration when evaluating exemption applications. Nevertheless, the Commission was already scrutinising transformation within industries when assessing exemption applications, prior to the commencement of the Amendment Act. For instance, in April 2018, the long-standing exemption granted to the Western Cape Citrus Producers Forum (known as Summer Citrus) was refused after the Commission raised concerns regarding transformation within Summer Citrus' membership.

In terms of the abuse of dominance provisions, the Amendment Act has introduced the concept of "buyer power" to prevent a dominant firm in a designated sector from imposing unfair prices or trading conditions on a SME or HDP supplier. The Competition Act now also prohibits dominant firms from engaging in price discrimination practices that are likely to have the effect of impeding the ability of SMEs or HDP firms from participating effectively. Although we have not yet seen these new provisions being enforced, the Competition Commissioner recently indicated that the Commission intends to urgently apply the buyer power provisions in parts of the food value chain and online service industry.

Amendments to the market inquiry provisions now require the Commission to determine whether any feature of a market, including the structure and levels of concentration, impedes, restricts or distorts competition within that market. The Commission must also consider the impact of such features on SMEs and HDP firms. Evidence of this move towards promoting SMEs in the context of market inquiries can be seen from the Commission's recommended remedial action in the grocery retail market inquiry, namely that national supermarket chains must cease enforcing exclusivity provisions against SMEs.

Turning to merger control, the Amendment Act has introduced additional considerations which the Commission is required to take into account. On the public interest side, the Commission is now required to consider the ability of SMEs and HDP firms to participate in a market as well as the promotion of a greater spread of ownership, with a view to increasing the ownership by HDPs and workers in the market. The recent acquisition by PepsiCo of Pioneer Foods was one of the first cases in which the competition authorities imposed conditions in order to address the new public interest objective of a greater spread of ownership.

One of the most controversial amendments concerns the acquisition by foreign entities of South Africa firms. In terms of the Amendment Act, the President must constitute a committee consisting of Cabinet Members and other public officials to consider whether the acquisition by a foreign firm may have an adverse effect on South African's national security interests (which are extremely broadly defined). Although these provisions are yet to come into effect, they illustrate a worldwide shift in government policy towards protectionist measures, especially in light of the current global economic crisis.

The Commission has stated that it expects a deluge of mergers as a result of the Covid-19 pandemic. In this regard, the financial crisis caused by Covid-19 is expected to enable large companies to buy out their smaller competitors. The new provisions relating to the promotion of the public interest are likely to be at the forefront of the authorities' minds when investigating these mergers.

Clearly, the competition authorities' focus has moved away from traditional competition objectives to a more interventionist approach, supporting the government's industrialisation and economic growth policies. The shift in focus to socio-economic objectives, coupled with the wide scope of the powers and discretion afforded to the competition authorities (and indeed the Minister) could have negative consequences for businesses. Some business activity may be restricted, or even prohibited, on the basis of public interest effects, even if there is no evidence of anti-competitive conduct. The outcome will be a significant level of business uncertainty and a negative impact on investment.

A recent example of the competition authorities' elevation of industrial and economic policy was the internal restructuring of the Mondi group. The Tribunal imposed far-reaching conditions, including a condition requiring the Mondi group to invest R8 billion in its South African operations over the next five years. This was on top of conditions requiring additional investment towards community programs and small business development.

Another inherent risk in the policy shift, particularly insofar as mergers are concerned, is the significant threat of interventionism by third parties. This may include competitors, trade unions, government departments and other sector regulators. Those interventions would undoubtedly cause delays, increased costs and further uncertainty.

Despite the potential for negative, unintended consequences, the amendments may also unlock opportunities for generating business, garnering government support and lessening competition law risk. For example, if businesses develop relationships with SME and HDP firms at both a supplier and customer level, it may reduce the risk of complaints, while demonstrating a commitment to transformation of the economy. Competition law could also be used to open up markets where large dominant firms constrain the supply chain or inhibit growth. The new amendments could also be used by SME and HDP firms to facilitate constructive engagements with large buyers or suppliers, or to raise complaints with the authorities against unfair treatment. Market inquiries are likely to be less prevalent as markets begin to function more equitably, and investment opportunities may be more readily available as merger parties begin to prioritise public interest outcomes. Commitment to the key developmental objectives contained in the Competition Act is more likely to result in win-win outcomes for all stakeholders.