Does South Africa need to adopt more Covid-19 block exemptions?

Posted in Competition Southern Africa Blog post

After the quick-fire adoption of the price regulations and four block exemptions in March 2020, the Competition Commission has been pre-occupied with the prosecution of allegations of price gouging of essential products. However, with predictions that the South African economy could contract as much as 16.7% in 2020 and with non-essential sectors only allowed to operate from 1 June 2020, it must be questioned whether further relaxations of competition legislation are needed to support businesses during the Covid-19 pandemic. The raft of measures adopted by international competition authorities provide some guidance for other sectors where coordination between competitors should be permitted.

Shortly after the national state of disaster was declared in March 2020, together with price regulations for essential products, block exemptions were adopted under the Competition Act in the banking, healthcare, hotel and retail property sectors. The block exemptions set out a conditional suspension of antitrust requirements during the national state of disaster in order to facilitate a coordinated response to the pandemic.

Since the adoption of these measures, the Competition Commission has robustly enforced the price regulations against allegations of price gouging of essential products. As at 19 May 2020, in addition to referring two matters to the Competition Tribunal, the Competition Commission had reached settlements amounting to approx. R13m (approx. USD 750,000) with businesses accused of price gouging.

Other than the slight amendment to the banking block exemption to include certain activities in the insurance sector, no further block exemptions have been adopted. However, the fact that South Africa has seen one of the world’s strictest lockdowns with many areas of the economy unable to operate and with predictions that the South African economy could contract as much as 16.7% in 2020 begs the question whether further relaxations of the Competition Act are needed to support businesses during the Covid-19 pandemic.

The raft of measures adopted by international competition authorities provide some guidance for other sectors where coordination has been permitted in ways similar to block exemptions (such as comfort letters or individual exemptions). As shaded black in the following table, cooperation between competitors has been permitted by competition authorities in a range of sectors:

It is recognised that there are certain challenges in comparing the regulatory responses across jurisdictions as international competition authorities tend to take a more pragmatic view to horizontal collaboration than the Competition Commission, which may avoid the need for block exemptions in the first place. In addition, some responses were specific to socio-economic circumstances in those countries as, for example, South Africa did not witness empty shelves in supermarkets as reported in other jurisdictions.

Despite these challenges, the list of additional sectors covered by international competition authorities is useful to consider from a South African perspective especially in relation to sectors of strategic importance (e.g. agriculture, aviation, mining and tourism). For example, authorities in Australia, Norway and UK have permitted coordination in the aviation sector on routes and scheduling to maintain minimum transport services. This approach may have relevance to South Africa as domestic air travel will only be permitted for business purposes from 1 June 2020. Given that two airlines in South Africa are already in business rescue, there are questions whether such limited domestic operations under the lockdown relaxations are sustainable even in the short term.

The economic challenges arising from the Covid-19 pandemic call for a balanced application of the Competition Act. Regardless of the merits of the Competition Commission’s relentless prosecution of alleged price gouging, further thought must be given to other sectors that require support during this time beyond those covered by the initial four block exemptions. As the economic impact of the Covid-19 pandemic in South Africa may be long-lasting, it is useful to consider the additional sectors that have been covered by international competition authorities as possible areas for further relaxations of the Competition Act.

The author would like to thank Michael Balie, Candidate Attorney, for his assistance with this blog.

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