COMESA Competition Commission
The COMESA Competition Commission (Commission) is a regional competition authority equipped to enforce cross-border mergers between 21 African Member States and promote competition through investigating anti-competitive practices that have an appreciable effect on trade between Member States and restricts competition in the common market.
Change of Guard at the Commission
The tenure of office of the Director and Chief Executive Officer of the Commission, Dr George Lipimile came to an end on 31 January 2021. Dr Lipimile was appointed in February 2011 and served in this capacity for ten years, during which he played an important role in establishing and shaping the Commission as the first regional competition authority in Africa. Dr Willard Mwemba has been appointed as the Acting Director and Chief Executive Officer of the Commission since 1 February 2021. Dr. Mwemba will be featured on our very own Njeri Wagacha’s podcast @Njeritalks next month.
Rules trumps Guidelines and clears up meaning of “operate”
A transaction is notifiable to the Commission if it falls within the meaning of a merger and if it meets both the regional dimension threshold and the notification threshold. The Commission has published three source documents to assist merging parties to determine whether a transaction is notifiable. These include the (i) Competition Regulations (Regulations); (ii) Merger Assessment Guidelines (Guidelines) and (iii) the Rules on the Determination of Merger Notification Thresholds (Rules).
In December 2004, Article 23(3) of the Regulations set out the regional dimension threshold and the notification threshold. The Commission will have jurisdiction where “(a) both the acquiring firm and target firm or either the acquiring firm or target firm operate in two or more Member States and (b) the threshold of combined annual turnover or assets is exceeded”. Under the first threshold, the merger inquiry turns on the term “operate” and no guidance was offered as to what this term meant.
In October 2014, paragraph 3.9 of the Guidelines states that an undertaking is considered to “operate” in a Member State if its operations are substantial enough that a merger can contribute to an appreciable effect on trade between Member States. Furthermore, the Guidelines introduced a quantitative yardstick to the term “operate” in that “an undertaking operates in a Member State if its annual turnover or value of assets in that Member State exceeds US$5 million.”
In March 2015, rule 4 of the Rules provides that –
“any merger where both the acquiring firm and target firm, or either the acquiring or the target firm, operate in two or more Member States, shall be notifiable if: the combined annual turnover or combined value of assets, whichever is higher in the Common Market of all parties to a merger equals to or exceeds US$50 million; and the annual turnover or value of assets, whichever is higher, in the Common Market of each of at least two of the parties to a merger equals or exceeds US$10 million, unless each of the parties to a merger achieves at least two-thirds of its aggregate turnover or assets in the Common Market within one and the same Member State.”
The Guidelines and the Rules caused much confusion to merging parties and their advisors as the term “operate” in a Member State were contradictory in both documents. The Commission received requests from stakeholders for clarity on the correct interpretation. In February 2021, the Commission issued a welcomed practice note which clearly states that the definition of “operate” under the Guidelines in no longer applicable and the Rules take precedence over the Guidelines. As economies and markets across the globe rebuild following the wake of the COVID-19 pandemic, it is envisaged that M&A activity will also be on the rise. The Commission’s practice note is a welcome improvement and will provide much needed clarity to the merger notification regime across the Common Market.
A word of caution on restrictive business practices
Since 2013, the Commission has been inviting firms operating in the Common Market to seek authorisation for any existing or proposed agreements between firms, decisions by associations of firms and concerted practices which may adversely affect trade between Member States or have the objective of preventing, restricting or distorting competition in the Common Market.
The Commission is concerned that some firms operating in the Common Market, have been engaging in, and continue to engage in agreements that include territorial restrictions or contain clauses that may divide markets by allocating customers, suppliers, territories or specific types of goods and services. In particular, the Commission has indicated that it has in its possession anecdotal evidence of certain sectors with participants who have continued to engage in these restrictive business practices.
To date, the Commission has engaged in rather soft enforcement action with a request for firms to seek authorisation. However, in February 2021, the Commission has issued a cautionary warning to firms operating in the Common Market and to the general public, that it shall take a harder stance on enforcement through screening, detection, investigation and punishment of offenders. In terms of rule 45 of the Rules] if firms are found in contravention of the Regulations, the Commission has the power to impose a penalty of up to 10% of annual turnover units of account in the Common Market.