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Executives urge ‘sleeping giants’ to quickly enact competition law for job creation
Kampala, Uganda | JULIUS BUSINGE | There are mega opportunities that mergers and acquisitions are creating within the Common Market for Eastern and Southern Africa (COMESA).
Statistics from the Zambian-based COMESA Competition Commission (CCC) that oversees transactions in 21 African member states shows that more than 220 transactions have been notified to the commission between 2013 and July 2019.
Out of this total, conditions have been attached to, 17 transactions to avert anti-competitive behavior and safeguard interest of the public during the post-merger period.
Willard Mwemba, the officer in charge of mergers and acquisitions at CCC told The Independent at a recent workshop in Nairobi, Kenya that the new developments signals increasing attractiveness of the region as an investment destination, both within and outside COMESA.
He said the total turnover in the bloc’s transactions involving mergers and acquisitions from inception amounts to more than $110bn.
Most transactions reviewed by the commission involved parties with operations in Kenya, Zambia, Mauritius, Zimbabwe and Uganda, in various sectors – construction, energy, banking and financial services and ICT.
He said the commission hopes to register more mergers and acquisition in the near future.
Boosting foreign direct investment
George K. Lipimile, the director and chief executive officer for CCC said the new development comes at the time the world is increasingly recording fewer new investments (greenfield investments) because investors now find it easy to acquire or merge with an existing entity.
He, however, said that there is empirical evidence that transnational corporations are more likely to invest in a country where there is a robust competition law and policy.
He said this legal framework ensures a high level playing field and certainty for business growth.
“A good and robust competition law and its constituent merger control regime is instrumental to attracting FDI,” he said.
Four countries out of the 21 member states in COMESA have been labeled ‘sleeping giants’ for being slow on enacting competition laws.
These are; Uganda (which is in advanced stages), Somalia, Eritrea and Libya.
The CCC executives said these countries are missing out on economic opportunities brought about by mergers but are continuing to engage them to speed up the process.
However, experts say competition regimes should be designed and implemented in such a way that does not discourage mergers and acquisitions because of the fees/costs that come with these transactions.
Mwemba said that COMESA regional merger control regime provides an important tool for easing costs of compliance and promoting confidence for investors in the region which is partly why the number of mergers and acquisitions has increased over the years in the bloc.
He, however, said the varying instruments of FDI may have different implications for the competition landscape which requires the competition authorities and the media to remain vigilant
Patrick Okilangole, the chairperson of the Board of Commissioners of the COMESA Competition Commission also supplemented on the views of Mwemba and Lipimile saying competition legal regimes stir country competitiveness in terms of business in trading blocs.
“A recurrent empirical result found in several of our member states suggest that firms facing more competitive pressure are more likely to have introduced new products and upgraded existing product lines,” he said.
He added that firms usually acquire many of their inputs, for example, transportation, energy, construction, and financial and professional services in local markets when competition laws and policies are at play.
He explained that once upstream markets lack competition, goods and services necessary for production cannot be provided at competitive prices and, as a result, firms may be less competitive than their foreign rivals and less likely to compete globally.
He also added that competition has positive effects on innovation, productivity, foreign direct investment and economic growth.
He also said that competition laws lead to competitive domestic markets which are necessary to realize the benefits of trade.
Indeed, in 2014, in Zambia, the entry of Dangote Cement in 2015 led to an immediate decline in average retail cement prices from $12.19 in 2014 to $6.96 in the second half of 2015. Dangote has further plans to takeover cement manufacturing giant PPC which has operations in South Africa, Zimbabwe, Rwanda, Burundi, and DRC. This is expected to lead to further reduction of cement prices in the region.
Implementation challenges
Lipimile said that implementation of competition laws and policies face many challenges including protectionism which has continued to be a biggest dagger to many economies.
As such, economies continue to face bad market practices including firm collusion, market foreclosure, and discrimination against new entrants—practices which also limit firms’ competitiveness and affordability of key consumer goods.
“Competition laws are (therefore) here to promote and protect the process of competition,” Okilangole said.
He added that competition rules are not meant to punish large companies on account of their size or commercial success but are there to create a level playing field for all business players in the market.
Going forward, Lipimile and Okilangole said the countries must strengthen competition laws and policies to be able to address challenges of high unemployment and poverty levels.
Key facts and figures
- According to CCC data, a review of cartels and collusion cases in developing countries show a staggering effect of anticompetitive practices on both producers and consumers, with prices being inflated up to 25-30%.
- CCC has over the years assessed approx.220 merger transactions
- Over $30 million has been received in notification fees by CCC
- CCC has used this income to partly offer technical assistance and capacity building to member states
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