The East African Legislative Assembly recently passed an amended EAC Competition Bill, 2021, after introducing a modification to limit circumstances under which a merger that leads to substantial lessening of competition in the market may be approved.
The draft legislation was initially a revision of the 2006 Act meant to streamline the provisions on mergers with the international practice on competition; to confer legal personality on the East African Community Competition Authority (EACCA); to empower the latter to impose and collect financial penalties; and provide for any other related matters.
With jurisdiction over EAC partner states, the EACCA’s mandate is to curb unfair trade practices in the region and protect consumers from substandard goods.
“The amendment [in the Bill] was done to provide for regulations to specify and limit the circumstances under which the Authority may approve a merger that leads to the substantial lessening of competition in the relevant market,” MP Christopher Nduwayo, Chairperson of the House’s standing committee on Communication, Trade and Investment (CTI) which introduced the changes, told Doing Business.
Shedding light on scenarios they were trying to avoid, Nduwayo pointed to the case, about 20 years ago, where the entry into the Kenyan market of South African Breweries International’s subsidiary, Castle Brewing (K) Ltd, sparked off a bitter marketing war with a local brewer.
In October 2021, Kenya communicated to the Clerk of the regional Assembly that the Bill requires subsection 12 (4) to be amended to provide for the circumstances in which the power “to approve a merger that leads to substantial lessening of competition in the relevant market” can be exercised by the Authority and also confer the power for the making of such regulations before it can be assented to.
Kenya sent the Bill back, with the request that the House makes the necessary amendment.
MP Pierre Celestin Rwigema (Rwanda), a member of CTI, on Sunday, July 10, told Doing Business that normally, any merger or acquisition of firms’ shareholdings which can distort competition is not allowed but the EAC Council of Ministers “has the power to approve such a merger or acquisition in their wisdom based on public interests.”
He added: “And the bill gives power to the Authority to approve mergers or acquisition which lessens competition under specified conditions. The intent of the amendment was to introduce in the main bill, a clause which dictates the Authority to set criteria in the regulations under which such a merger or acquisition can be approved.”
The mandate of EACCA is only limited issues of a regional nature. As such, mergers, cartels, and other such arrangements, the lawmaker noted, within countries are handled by different Authorities established in partner States. In Kigali, for example, the Rwanda Inspectorate, Competition and Consumer Protection Authority (RICA), legally established in 2017, deals with inspection of quality and standards conformity and promotes healthy competition in the economy by prohibiting unfair business practices as well ensuring consumers protection.
Promote the highest level of value addition
The legislation, among others, generally seeks to allow consumers to take class action – a legal proceeding in which one or several plaintiffs bring a lawsuit on behalf of a larger group, known as the class – against goods or service providers.
It also seeks to seal loopholes that enable trade associations and firms operating across the region to engage in exclusive agreements, or form cartels, forcing consumers to pay higher prices for goods and services.
Kenya’s Permanent Secretary EAC, Kevit Desai, who chairs the bloc’s Principal and Permanent Secretaries coordination committee, told Doing Business that the passing of the legislation “is actually a very important development” largely because it factors in towards “what we espouse as EAC” – promoting inclusive commerce.
The Bill, he said, compliments the regional economic Community’s recent gains such as an enlarged market of up to 300 million consumers – after DR Congo’s entry – and the adoption of a new EAC common external tariff rate. With the current market scenario, he said, there is need to promote more inclusive commerce. It will improve commerce through fair competition, he said.
“It’s absolutely critical, within this context, which we look at the possibility of enhancing local (regional) investment. And this only happens when the market is fair; with the creation of certainty and predictability, which is what this bill brings,” Desai said.
Desai stressed the importance of moving away from a situation where cartels or monopolies dictate terms or “influence the market from the supply side.”
The bill, he said, will immediately (once assented to by all countries) have impact: including in the process of minding consumer rights, and improving the relationship between public and private sector associations which will ably dialogue on pertinent legal and policy matters.
“We need to be, increasingly, more responsible for the quality and standards of competition; the role of the consumer is also important,” Desai said.
“Without a competition law, we cannot imagine exporting beyond the EAC. Internationally, people expect high standards and enhanced quality. That’s very critical. If I was a cartel, I wouldn’t have the incentive to enhance or improve on productivity. This is why we need to promote the highest level of value addition.”