New regulatory regimes in Africa

Comesa has begun to develop a considerable profile within the regulatory landscape.
Chris Charter

For some time, African nations have been moving towards various forms of economic unity to redress the divisions imposed by colonialism and to more effectively harness the continent’s potential in the face of globalisation. This has seen public sector trade barriers lowered through the formation of customs unions, free trade areas, economic communities and similar mechanisms and, importantly for businesses considering mergers and acquisitions in Africa, the establishment of a number of new regulatory regimes.

These new regulatory regimes have been established both at a national and regional level where the Common Market for Eastern and South Africa (COMESA) Competition Commission has been in operation for more than two years and has begun to develop a considerable profile within the regulatory landscape.

Regionalisation has increased the geographic reach of business transactions and along with it, the likelihood that conduct by a firm in one country can (negatively or positively) affect business in other countries. At the same time, globalisation has required firms to become competitive on a global scale, with expansion beyond national boundaries an imperative.

As such, COMESA’s ambition has been to introduce a federal competition law regime similar to that operating in the EU. It has primary jurisdiction over all matters with a community dimension (ie, where both or either parties operate in two or more COMESA States). The Member States of COMESA are Burundi, Comoros, Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.

The COMESA Treaty makes the regulations binding on all Member States and encourages co-operation between COMESA and Member States in respect of competition enforcement. Within COMESA, the Competition Commission (CCC) investigates breaches (anti-competitive conduct and consumer protection) and mergers and acquisitions. As part of its advocacy and policy review function, the Commission also mediates disputes on policy between Member States. The Board of Commissioners makes rulings, imposes remedies and hears appeals from the Commission. The COMESA Court is a final court of appeal on matters related to the COMESA Constitution (for instance, if the Board or Commission misapplies regulations or exceeds powers under the Treaty).

A major stumbling block to COMESA’s perceived legitimacy as a regulator was a failure to set any financial thresholds for notification (so that even transactions with a de minimis effect in COMESA were in principle caught in the net) as well as a filing fee many viewed as disproportionate. In this regard, COMESA was out of alignment with international best practice. However, in March 2015, the CCC announced that the COMESA Council of Ministers had approved the introduction of monetary filing thresholds and a reduction of merger filing fees.

With regard to mergers and acquisitions, the “zero” thresholds rule has been repealed and replaced with a three-prong test. According to the new Rules, a merger is now notifiable to COMESA if the combined annual turnover or assets in COMESA, whichever is higher, of all parties to the merger equals or exceeds $50m; and the annual turnover or assets in COMESA, whichever is higher, of each of at least two of the parties to the merger equals or exceeds $10m; and provided each of the parties to the merger do not achieve two-thirds of its COMESA turnover or assets in COMESA within one and the same member state.

The applicable merger filing fees were also reduced. The filing fee is now calculated at 0.1% instead of 0.5% of the combined annual turnover or combined asset value (whichever is higher) of the merging parties in the COMESA region, capped at a maximum of $200,000 (previously $500,000).

That is still a high filing fee by international standards, but possibly not so high as to discourage filings. The idea remains to apply some of that fee to compensate national regulators for the loss of revenue while requiring them to assist with the investigation.

Some complications remain, such as Kenya’s continued refusal to defer to COMESA’s jurisdiction, thus requiring a dual filing undermining the “one stop shop” value proposition for the regional regulator. This will be exacerbated when the East African Community launches its own regional regulator in due course. With Kenya, Uganda, Burundi and Rwanda double-dating as members of both COMESA and the EAC, it remains to be seen whether this tension will result in multiple filing requirements.

Teething problems aside, the establishment of an active COMESA competition law regime is a manifestation of the trend throughout emerging markets to prioritise competition law and enforcement. Deals involving parties with a pan-African footprint can trigger several merger notification, with diverse policies and procedures adding to the complexity. Emboldened by assistance from developed regimes (including South Africa) new regulators are keen to assert themselves and it can be perilous to ignore them, with some trawling through the financial press and interacting with neighbouring regulators to catch and prosecute possible missed filings. The added expense and time of dealing with multiple filings will need to be anticipated and priced-in to transactions and it has become clear that conducting mergers and acquisitions in Africa now requires an increased cognisance of not only local, but also regional, competition law.

Chris Charter is director, Competition with Cliffe Dekker Hofmeyr 

(This article first appeared in the DealMakers quarterly magazine)

COMMENTS   0

You must be signed in to comment.

SIGN IN SUBSCRIBE

or create a free account.

Free users can leave 4 comments per month.
Subscribers can leave unlimited comments via our website and app.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Subscribe to our mailing list

* indicates required
Moneyweb newsletters
INSIDER SUBSCRIPTION APP NEWSLETTERS PODCASTS RADIO / LISTEN LIVE VIDEOS WEBINARS TRENDING

Follow us: