African countries show progress in drafting competition laws

Natalie von Ey, director in the competition practice at Cliffe Dekker Hofmeyr business law firm says: "The consequence of this trend is the implication on transaction costs and timing. There is also much uncertainty how these new regulators will deal with the powers they have been given. "A case in point is the well-publicised merger between the US giant retailer, Walmart and South Africa's Massmart. The proposed transaction affected 14 different countries and resulted in compulsory merger notifications being triggered in six African jurisdictions, namely South Africa, Tanzania, Namibia, Malawi, Swaziland and Zambia.

"Walmart did not operate in Namibia, nor did it sell any merchandise to or from Namibia. The target firm, Massmart, controlled three active companies and conducted business operations in Namibia. That there would be no competitive effects resulting from the merger, was not disputed," she explains.

Notification of merger is compulsory

"Despite this, the Namibian Competition Commission approved the merger subject to the conditions that local participation be mandated in an effort to spread ownership and increase ownership stakes of historically disadvantaged persons, the implementation of the transaction could not lead to job losses, the parties needed to ensure that there was no risk of the market becoming foreclosed to competitors, especially SMEs, and that the Minister of Trade and Industry sanction the transaction in terms of the Foreign Investment Act."

Von Ey notes that the merging parties appealed the Namibian Court's decision. The Namibian Appeal Court ultimately contended that the conditions imposed were unauthorised by law and were, as a result, invalid. In a number of jurisdictions, such as Namibia and Zambia, the regulators have not yet published the minimum thresholds that need to be met by parties to the transaction. The result is that all transactions where there is a change in control over a firm, that is when a merger occurs, require a compulsory merger notification to be lodged with the relevant competition authorities.

"While merger regulation is an important tool in limiting excessive concentrations of ownership, the various African economies should take care to ensure that the cost of the regulation does not dampen economic activity and so, effectively discourage investment," she adds.