South Africa: Competition Commission’s focus on market inquiries paying dividends

Posted in Competition Southern Africa Blog post

Since the inaugural market inquiry in 2006, the Competition Commission (the Commission), the South African competition authority, has completed a further four market inquires with another one currently ongoing. While previous market inquiries (e.g. health market inquiry) have seemingly not yielded tangible results despite considerable time and expense, the Commission’s persistence with market inquiries has paid off in recent months with a number of stakeholders agreeing to implement the recommendations arising from the market inquiries in the data services and grocery retail sectors. The Commission’s success with these most recent market inquiries is likely to further encourage the use of this enforcement tool going forward. This comes at a time when, as a result of legislative amendments, the Commission is receiving further powers in relation to market inquiries.

Market inquiries are a general investigation into the state and nature of competition in a market as opposed to investigating specific conduct by any particular firm. The first market inquiry was completed in the retail banking sector in 2009, some four years before market inquiries were formally recognised under the South African competition regime. With the exception of where the Commission has unearthed evidence of prohibited practices during a market inquiry, the Commission was, until 2019, limited to issuing recommendations to regulatory authorities or market participants. Following the banking market inquiry, the Commission has completed market inquiries in four sectors (health, LPG, data services and grocery retail) with another market inquiry currently ongoing in a further sector (public transport).

Despite the earlier market inquiries taking considerable time and expense, they have not seemed to have provided tangible results. In particular, the health market inquiry was conducted over six years at a cost in excess of R196m (approx. USD 11.5m) in order to formulate far-reaching recommendations such as the establishment of a dedicated regulator for the supply-side of the healthcare market.

In the aftermath of the health market inquiry, there has been no indication that the recommendations are being implemented, creating the sense that market inquiries were a damp squib as an enforcement tool. However, in light of the two most recent market inquiries (data and retail), the Commission’s persistence with market inquiries is paying dividends.

Following the report arising from the data services market inquiry in December 2019, four telecommunication companies have agreed to implement the Commission’s recommendations including the reduction of average rates to all subscribers and the zero-rating of content from public benefit organisations and educational institutions. In particular, two mobile network operators (MTN and Vodacom) have agreed binding consent orders that have been ratified by the Competition Tribunal (the Tribunal) in March and June 2020.

Similarly, in light of the Commission’s recommendations in the grocery retail market inquiry in December 2019, Shoprite Checkers, a leading retail chain, has agreed to cease enforcing the exclusivity clauses contained in various lease agreements against small and medium sized enterprises and specialist line stores with immediate effect. In this regard, the Commission referred a consent order with Shoprite Checkers for ratification by the Tribunal in May 2020. The Commission would have been particularly encouraged by this outcome given that it had previously struggled to tackle exclusivity in shopping malls under more traditional enforcement tools (such as the prosecution of vertical agreements).

The Commission’s recent success coincides with the implementation of legislative amendments last year providing for a wider role of market inquiries under the Competition Act. The scope of market inquiries has been extended to consider the impact of the adverse effect on competition on small and medium businesses, or firms controlled or owned by historically disadvantaged persons. In addition, the Commission may take actions to remedy, mitigate or prevent the adverse effect on competition and, in particular, recommend to the Tribunal that a firm be required to divest part of its business.

After the perceived anti-climax of previous market inquiries, the Commission’s success with the most recent market inquiries is likely to further encourage the use of this enforcement tool going forward. Already at the time of the implementation of the legislative reforms last year, Minister Patel, the Minister of Trade, Industry and Competition, stated that the Commission intends to initiate one new market inquiry per year. Buoyed with the recent success coupled with the increased scope and powers, it is expected that market inquiries will assume an even greater role under South African policy going forward.

The author would like to thank Michael Balie for his contribution to this blog.

About

Africa is as dynamic a market as it is diverse. We understand that changes impacting your business can arise rapidly and vary significantly across the continent.

Our understanding of Africa’s markets stems from extensive experience on the ground. Through our Inside Africa blog, we aim to apply this insight to provide you with timely commentary on the latest developments across Africa, as well as insight into the many nations that make up this vast continent.

Read more
Blog Network

Topics

Archives