Competition law is set to become an increasingly important consideration in relation to deal activity and commercial conduct in Uganda, particularly given the impending promulgation of a Competition Bill, which is currently undergoing review and scrutiny at the Ministry of Justice and Constitutional Affairs in the country.
Uganda is also a member state of the Common Market for Eastern and Southern Africa (COMESA) and therefore subject to the COMESA competition law regime. The purpose of COMESA is more regional in focus, seeking to promote trade and investment in the Common Market rather than seeking to ensure domestic compliance with its regulations. Uganda is also a member of the East African Community and is therefore also subject to the East African Community Competition Act, 2006.
Beyond these regional competition instruments to which Uganda is bound, there is currently no applicable legislative regime in force that is designed to exclusively govern domestic conduct from an antitrust perspective and the Uganda Competition Bill will be the first piece of legislation to exclusively do so. Having said that, sector-specific laws (which are enforced by distinct regulators) contain provisions that are competition-focused. These sectors include banking, energy, pharmaceuticals and insurance.
Ugandan businesses are also becoming increasingly mindful of competition requirements and domestic antitrust laws when engaging in commercial transactions in other African jurisdictions. With the pending promulgation of the Competition Bill in Uganda, the South African antitrust regime, which has been in place for some two decades, provides a convenient canvas from which to draw learnings for application in Uganda.
In South Africa, the regime is split between merger control regulation and regulation of certain behavioural conduct.
Comparison of South African and pending Ugandan Competition law
In South Africa, transactions involving an acquisition of control of a business (or part of a business) that meet certain monetary thresholds need to be compulsorily notified to the competition authority.
At a minimum, if the combined annual turnover or gross assets of both the acquiring group and the target entity amounts to ZAR 600 million (USD 41,5 million) and the target entity alone has gross assets or turnover that meet or exceed ZAR 100 million (USD 7 million), the transaction would be compulsorily notifiable to the South African authority. Whether the transaction would be classified as an intermediate or large merger (both which are mandatorily notifiable) would depend on the asset and turnover values of the merging entities.
The Ugandan Competition Bill 2004 also imposes a mandatory notification requirement to the Competition Commission. This is applicable for transactions where the parties jointly have assets exceeding five hundred currency points or a turnover worldwide in excess of one thousand five hundred currency points. Under the Constitution of Uganda, 1995 as amended, a currency point is the equivalent of Uganda Shillings Twenty Thousand (UGX 20,000).
From the perspective of group transactions, the proposed Ugandan competition legislation imposes a mandatory notification requirement in instances where the Group belonging to the entity in which shares, assets or voting rights may be have been acquired has assets in Uganda in excess of two thousand (2000) currency points; or a turnover exceeding six thousand (6000) currency points or worldwide assets in excess of one billion United States dollars; or a turnover in excess of half a billion United States dollars.
Apart from the monetary thresholds envisaged above, the resultant market share to be held by the undertaking upon completion of a proposed transaction may also trigger compulsory notification. This requirement applies in the context of mergers and acquisitions, leading to a combined market share of 35% in any relevant market held by the resultant undertaking.
Under the South African merger control regime, certain minority acquisitions may necessitate compulsory notification. This would occur where the acquisition enables the acquiring firm to direct the strategy or materially influence the business of the firm being acquired.
The Ugandan Competition Bill, however, does not expressly prescribe for compulsory notification of minority interests, but such acquisitions, are notifiable in situations where the company subject to the acquisition has assets in excess of the monetary thresholds stipulated by the Ugandan Competition Bill.
In South Africa, there are relatively set time periods that apply to merger filings, depending on the categorisation of the transaction (as intermediate or large) and filing fees are prescribed as well. In Uganda, the proposed legislation does not prescribe filling fees. However, the Competition Commission retains the power to make regulations, specifically on the form and manner in which notice may be given or how applications may be made to the Commission and the fees payable. Similarly, the time periods applicable to merger filings has not been prescribed.
South African antitrust law sanctions firms that fail to notify transactions and/or implement transactions before approval is obtained. A firm can face up to 10% of its annual turnover in the preceding financial year for failing to notify and/or "jumping the gun". There has been an increase in the imposition and value of "prior implementation" administrative penalties over the years.
Under the Ugandan proposed competition legislation, gun jumping, whether procedural or substantive in nature, attracts sanctions. By way of illustration, in instances where no notification is undertaken in a merger or acquisition leading to a combined market share of 35%, the Commission has discretion to nullify the transaction. In imposing sanctions, the Competition Commission may also move on its own initiative or upon request by any competitor or consumer. In addition to the above, the Commission may impose fines and administrative penalties against a firm which fails to notify and/or implement transactions before approval is obtained.
Compared with other antitrust jurisdictions around the world, South African competition law uniquely considers the public interest in its analysis and is empowered to prohibit an otherwise pro-competitive transaction on public interest grounds. These grounds include employment and the promotion of local industry, small business as well as businesses owned by previously disadvantaged persons. Public interest factors have become a hotly contested issue in South African antitrust jurisprudence.
The Ugandan Competition Bill does not take public interest factors into account. However, there is a wider general discussion on local content which has culminated in a Private Members Bill titled “The Local Content Bill, 2017”, which parliament has committed to fast tracking. It is anticipated that such discussions will have a bearing on competition legislation in the future.
Certain prohibited practices
Under South African competition law, price-fixing, market division and collusive tendering is automatically prohibited between competitors and does not allow the raising of efficiency and procompetitive arguments in defence.
Under the Ugandan Competition Bill, price fixing, cartel conduct, predatory pricing, price squeezing, tying arrangements and cross-subsidisation are automatically prohibited. The Bill also prohibits anti-competitive agreements involving any decisions or concerted action in respect of production, supply, distribution, acquisition or control of goods, which is likely to result in an appreciable adverse effect on competition. Unlike in South Africa, the intended competition legislation in Uganda does not provide for the regulation of collusive tendering.
In South Africa, it is prohibited for a manufacturer of goods to prescribe the minimum price at which a reseller of those goods on-sells to the market. This is referred to as minimum resale price maintenance. There are proposals to regulate resale price maintenance in the Ugandan Competition Bill as well.
South African competition law does not proscribe dominance. However, once a firm is determined to be of a certain size, the behaviour of that "dominant firm" must conform to certain behavioural parameters. A firm is likely to be regarded as dominant if it has a market share of 35% or more or has the ability to control prices, exclude competition or act independently of its competitors, customers or suppliers.
The Ugandan Competition Bill also contains dominance provisions. From the perspective of the Bill, a firm is likely to be regarded dominant if it has a market share of over 33%, has commercial and technical advantage over competitors and/or has monopoly status acquired by virtue of an undertaking of the Government, Government Company or public sector undertaking.
Penalties for non-compliance
In South Africa, the consequences for non-compliance with the provisions of the Competition Act, could include an administrative penalty, potential civil damages exposure, reputational harm, invalidation of a commercial arrangement / revocation of a transaction and possible criminal prosecution.
Similar to South Africa, the consequences of non-compliance with the provisions of the proposed Ugandan competition legislation include administrative penalties, reputational harm, revocation of the transaction, fines against officers of the defaulting firm, potential civil damages, and possible criminal prosecution.
By Lerisha Naidu, Partner, Angelo Tzarevski, Senior Associate, Competition and Antitrust Practice, Baker McKenzie Johannesburg
Arnold Lule Sekiwano, Partner, and Sarah Zawedde, Associate, Engoru, Mutebi Advocates, Kampala Uganda
Sluggish expansion in Nigeria, Angola and South Africa – Africa’s three largest economies – is expected to dampen the growth prospects for Sub-Saharan Africa to 2.7 percent in 2018, according to the World Bank which has also warned of increasing public debt in the region.
The World Bank says it now expects Sub-Saharan Africa economies to grow by 2.7 percent in 2018, lower than the 3.1 percent it had projected for the subregion earlier in April.
The World Bank notes that Sub-Saharan African economies are still recovering from the s2015-2916 slowdown, but growth is still slower than expected.
“The slower pace of the recovery in Sub-Saharan Africa (0.4 percentage points lower than the April forecast) is explained by the sluggish expansion in the region’s three largest economies, Nigeria, Angola, and South Africa,” the World Bank said in the Africa Pulse published on Wednesday ahead of the Annual meetings of the International Monetary Fund (IMF) and World Bank scheduled to begin in Bali, Indonesia on Monday, October 8.
The estimated 2.7 percent average growth rate in the region is however, a slight increase from 2.3 percent recorded in 2017.
“The region’s economic recovery is in progress but at a slower pace than expected,” said Albert Zeufack, World Bank Chief Economist for Africa.
“To accelerate and sustain an inclusive growth momentum, policy makers must continue to focus on investments that foster human capital, reduce resource misallocation and boost productivity. Policymakers in the region must equip themselves to manage new risks arising from changes in the composition of capital flows and debt.”
According to the World Bank, Slow growth is partially a reflection of a less favorable external environment for the region.
Global trade and industrial activity lost momentum, as metals and agricultural prices fell due to concerns about trade tariffs and weakening demand prospects. While oil prices are likely to be on an upward trend into 2019, metals prices may remain subdued amid muted demand, particularly in China.
Also, Financial market pressures have intensified in some emerging markets and concern about their dollar-denominated debt has risen amid a stronger US dollar.
Besides, Lower oil production in Angola and Nigeria offset higher oil prices, and in South Africa, weak household consumption growth was compounded by a contraction in agriculture. Growth in the region – excluding Angola, Nigeria and South Africa – was steady.
The Bank further notes that Several oil exporters in Central Africa were helped by higher oil prices and an increase in oil production.
Economic activity remained solid in the fast-growing non-resource-rich countries, such as Côte d’Ivoire, Kenya, and Rwanda, supported by agricultural production and services on the production side, and household consumption and public investment on the demand side.
“Public debt remained high and continues to rise in some countries,” the World Bank further notes – amid heightened concerns that about 40 percent of low income countries in Sub-Saharan Africa region are already in debt distress or in high risk of debt crisis.
The IMF for instance worried that for low income countries, including Nigeria, governments have embarked on excessive borrowing to fund development, especially as incomes dwindled for commodity prices- and is now strongly advising on an aggressive tax mobilisation.
“Vulnerability to weaker currencies and rising interest rates associated with the changing composition of debt may put the region’s public debt sustainability further at risk,” the World Bank says in the latest report.
Other domestic risks include fiscal slippage, conflicts, and weather shocks. Consequently, policies and reforms are needed that can strengthen resilience to risks and raise medium-term potential growth.
This issue of Africa’s Pulse highlights sub-Saharan Africa’s lower labor productivity and potentials for improvement
“Reforms should include policies which encourage investments in non-resource sectors, generate jobs and improve the efficiency of firms and workers,” said Cesar Calderon, Lead Economist and Lead author of the report.