Understanding regulatory risk is imperative when doing business in Africa
In the current times of widespread economic uncertainty, managing regulatory risk is no easy feat. The multi-faceted aspects of competition law add to the challenge and pose unique complexities when doing business in Africa, particularly from a mergers and acquisitions perspective. Competition law across Africa is evolving at a rapid pace and being cognisant of potential competition law regulatory hurdles will enable businesses to exercise vigilance and adopt proactive strategies to manage legal risk.
In instances where parties wish to acquire businesses or expand operations in Africa, certain transactions may not be implemented until they have been reviewed and approved by the relevant competition regulator in the country involved. The primary purpose of the assessment is to ascertain the effect of the merger on competition in a country or within a region. Such regulatory requirements may impact a number of aspects of any proposed transaction including the suspensive conditions, the proposed closing date and the conduct of the merger parties until such time as the transaction has been approved by the relevant competition regulator.
Understanding the competition law climate
In our experience, a fundamental first step is to understand the competition law climate in the relevant African jurisdictions. In comparison to other areas of law, competition law in most African countries is still at its early stages of development, although steady strides are being made. A recent World Bank Group Report states that the number of jurisdictions with competition law in Africa has tripled in 15 years. Countries such as Algeria, Botswana, Cameroon, Egypt, Ethiopia, Kenya, Malawi, Mauritius, Namibia, Swaziland, Tanzania, Tunisia, Zambia and Zimbabwe all have merger control regimes.
Countries such as Ghana, Mozambique and Rwanda are on the brink of establishing competition regulators and many countries that do not have an active merger control regime, have some form of draft legislation waiting in the wings. Although much of Western Africa is yet to implement competition law legislation, there is no doubt that the drive for competition law and active merger control regimes will accelerate in the years to come.
To add to the complexity, merger filings may also need to be submitted to regional bodies such as the Common Market for Eastern and Southern Africa (COMESA) Competition Commission, in circumstances where the proposed transaction meets certain prescribed regional dimension and financial threshold tests.
Understanding the consequences of non-compliance
Ignorance of merger control requirements in a particular country is no excuse and, in some instances, the consequences of failing to notify a merger or implementing a merger before approval are potentially severe. Parties may be liable for fines of up to 10% of their turnover or in some instances, criminal sanctions. Furthermore, transactions that span across a number of jurisdictions usually receive media attention and it is not uncommon for merger parties to be called upon to notify (or face sanctions) in certain jurisdictions.
Understanding the practical considerations
Timing is imperative to planning effectively and managing stakeholder expectations in relation to a proposed transaction. In our experience, competition regulators in countries such as Botswana have approved mergers in a matter of weeks, while in other jurisdictions such as COMESA, the maximum review periods are often utilised. That being said, in some jurisdictions such as Zimbabwe and Ethiopia there are no prescribed statutory review periods. Accordingly, timing and processes are not always clear, and non-competition law related issues can derail or delay the process. In some instances such hurdles can be attributed to a lack of capacity or inexperience on the part of domestic regulators. We would caution that it is critical to ensure that the agreements which give effect to the proposed merger include appropriate suspensive conditions providing for approval by the appropriate competition authority and that any proposed closing date makes provision for the applicable review period.
Given the gravity of the consequences discussed above, parties are also cautioned to become increasingly vigilant in ensuring that there is no risk of prior implementation of a transaction. Generally, "implementation" may be said to occur where: the acquiring firm is able to determine or influence key matters (typically strategy, budgets and management) related to the business of the target firm; and/ or the business activities of the merger parties are co-ordinated in some way, usually through the exchange of what is commonly referred to as "competitively sensitive information". Competitively sensitive information generally relates to a party's current/ recent pricing, customers or suppliers, business and marketing or sales strategies, detailed costs or profits, output and distribution channels.
Understanding complexities and preparing for all eventualities
The economic and political climate within a jurisdiction may also have an effect on the manner in which the merger is assessed and the type of conditions imposed. In countries such as South Africa, we have seen far-reaching, expansive conditions being imposed such as the establishment of development funds, and commitments to B-BBEE ownership and local procurement. In other jurisdictions, conditions primarily relate to employment and commitments to local supply. The Botswana Competition Authority recently issued a notice requesting additional information from merger parties in respect of employment creation opportunities, citizen empowerment initiatives, SMME advancement, skills transfer and consumer benefits. In Kenya, the Competition Authority of Kenya recently approved the transaction between Giro Commercial Bank by I&M Holdings Ltd - subject to retention of the 108 Giro Commercial Bank employees. We anticipate that public interest related conditions will begin to feature more prominently in mergers across African jurisdictions in 2017.
Preparation is key and compliance is unavoidable
Over the past year, competition authorities across Africa have entered into a number of cooperation agreements to ensure collaboration and strengthen the effective enforcement of competition law. As a result, the net is growing wider and high profile multi-jurisdictional transactions may not escape scrutiny. There can be no doubt that advanced preparation is the only effective way to navigate the murky waters of merger control across Africa.
Written by: Mmadika Moloi (Partner, Webber Wentzel) and Elisha Bhugwandeen (Professional Support Lawyer, Webber Wentzel)