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South Africa to cooperate on competition law with Russia and Kenya

Earlier this month, South Africa reached agreements with Russia and Kenya to cooperate on enforcing competition law. At the Annual Competition Law, Economics and Policy Conference in Cape Town, South Africa’s Competition Commission signed Memoranda of Understanding (MOUs) with its Kenyan and Russian equivalents, the Competition Authority of Kenya (CAK) and the Federal Antimonopoly Service of the Russian Federation (FAS). The non-binding MOUs are designed to exchange technical assistance and promote cooperation on a range of competition policy issues, including enforcement and merger review.

These MOUs are part of a trend towards increased cooperation in competition law enforcement in Africa. The number of countries or regional blocs on the continent with competition laws jumped to 32 in 2015, from just 13 in 2000. In the past few years, African countries have entered more frequently into agreements with one another, usually aimed at cross-border enforcement, information sharing and mitigating regulatory conflict across jurisdictions. South Africa has been a particularly active collaborator: Since 2015, its Competition Commission has signed agreements with Brazil, India, China, and the European Commission’s Director-General Competition—and now, Russia and Kenya.

These collaborative agreements are an important step towards ensuring that African countries can more efficiently combat anti-competitive practices. Ultimately, better enforcement is crucial for achieving a range of social policy and development goals in Africa. A 2015 study has shown that anti-competitive behavior increases prices by an average of 31-49% globally. Decreasing prices for consumers can have significant effects on welfare, especially in developing countries. For instance, as estimated recently by the World Bank, a 10% reduction in the price of food staples would lift approximately 500,000 people out of poverty in Kenya, South Africa and Zambia alone. Especially as South Africa has in the past seen high food prices as a result of the so-called “bread, flour and maize meal cartels,” such numbers suggests that more muscular competition law enforcement has the potential to improve the quality of life of Africans.

South Africa-Kenya MOU

South Africa’s MOU with Kenya provides for collaboration in two main areas: (1) information sharing and technical assistance and (2) enforcement.

The information-sharing provisions of the MOU include a pledge to exchange “market research conducted in identified sectors,” as well as a promise to assist one another in developing enhanced competition policies and regulations. The MOU also provides for the two countries to exchange experts as necessary and to establish skills development programs.

On enforcement, the parties pledged to increase coordination. Specifically, the agreement provided that Kenya and South Africa will cooperate to review cross-border mergers. With respect to investigations, the two countries agreed to coordinate where possible when investigating or prosecuting the same cartelistic behavior.

Though South Africa and Kenya do not share a border, they are significant trade partners, and a number of large South African firms operate in Kenya. Accordingly, each is well positioned to gain from cooperating with the other. Moreover, the two countries already have a history of collaborating on legal matters, notably on criminal investigations: Investigators from South Africa, among other countries, are assisting Kenya in its efforts to combat money-laundering cartels.

South Africa-Russia Agreement

Much like the MOU with Kenya, South Africa’s MOU with Russia focuses primarily on encouraging information sharing and collaboration around enforcement and investigations. However, the South Africa-Russia MOU includes a few unique provisions. Rather than simply say there will be exchanges of market research, the MOU states that “the Parties will jointly identify socially sensitive markets of common interest as priorities for their cooperation.” Though the MOU itself does not specify which sectors are priorities, the FAS’s deputy chief indicated that there will be a particular focus on the pharmaceutical and automotive industries.

Challenges remain

The increase in collaborative agreements—such as South Africa’s MOUs with Kenya and Russia—are a key step towards more competitive regional and international markets. Certain challenges remain, however. Neither MOU addresses some of the structural impediments to coordinated competition policy. Two challenges are worth paying particular attention to: (1) conflicting standards for merger review and (2) the problems created by multiple agencies having concurrent jurisdiction.

First, jurisdictions have different standards for when mergers should be reviewed by competition authorities. In South Africa, the Competition Commission must be notified of mergers where the value of the proposed deal is above R560 million (approximately $40 million), and where the target firm has at least R80 million (approximately $5.7 million) in asset value. Russia has an even higher threshold: the FAS must consent to any merger where the value of the proposed merger exceeds 7 billion RUB (approximately $112 million).  In Kenya, by contrast, all mergers must be noticed to the CAK. This may create friction in implementing the MOUs between South Africa, Kenya, and Russia.

Second, the MOUs may be undermined by the fact that the competition authorities in each of the three countries do not exercise exclusive jurisdiction over competition policy and enforcement. Many sectors have their own regulators that have enforcement capacity. At their best, the competition authorities can complement these efforts by providing advice and assistance where necessary. In order to ensure the kind of international coordination that these MOUs propose, governments should focus on enhancing coordination between their sector regulators and competition authorities so as to avoid promoting forum shopping and jurisdictional conflict.

This post was written with contributiosn from Abdi Aidid.

© 2019 Covington & Burling LLP

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