One year on: COMESA merger control

Africa

The President of Uganda, Yoweri Museveni, handed COMESA’s chairmanship to Joseph Kabila Kabange, the President of the Democratic Republic of Congo, at the 17th COMESA summit of heads of State and Government of COMESA in Kinshasa on 26 February 2014.

A year plus has passed since the Common Market for Eastern and Southern Africa (COMESA) merger control regime came into force under the COMESA Competition Rules and COMESA Competition Regulations 2004 (the Regulations) (click here to see previous Law-Now). On 14 January 2013, the COMESA Competition Commission (CCC) became fully operational, but there was significant uncertainty about how the new supra-national competition regime would work. The CCC has sought to clarify issues of interpretation with the publication of a set of draft guidelines (the Draft Guidelines). To date 14 notifications have been made to the CCC, testing the waters of the nascent regime. Whilst a number of issues remain unresolved, the CCC is listening to the concerns of businesses, and amendments to the rules are likely in the near future.

Is the CCC a one-stop shop?

In our previous Law-Now we discussed the uncertainty as to whether, if applicable, a company would need to notify its relevant national authorities (under national laws) in addition to the CCC (under the Regulations). The position has not become any clearer.  

Whilst a year ago eight member states had competition authorities, Nigeria has since published a Competition (Anti-Trust) Bill, and other member states are in the process of bringing in similar legislation. The CCC has declared that it has exclusive jurisdiction if the thresholds are met, but this is not accepted by all member states. Most notably, the Kenyan Competition Authority has stated that its domestic merger control rules apply concurrently with any filing that must be made to the CCC.

Until this issue is clarified, affected companies may choose to comply with both the CCC and the rules of any relevant member states.

Low thresholds

Any merger or acquisition where at least one of the parties operates in two or more COMESA member states must be notified to the CCC. Our previous Law-Now discussed the ambiguity of the term “operates” but the Draft Guidelines have since provided clarification, stating that the term will be “construed widely to include not only the physical presence of merging parties but also their turnover derived from the Common Market”. This broad interpretation means that a merger or acquisition will be caught if one of the parties derives turnover from activities conducted in two or more member states.

A further threshold for notification to the CCC is that the transaction must have “an appreciable effect on trade between Member States and which restricts competition in the Common Market”. It was hoped that the Draft Guidelines would confirm when this threshold is met but the point was not addressed. The uncertainty means a party should think carefully before taking a decision not to notify based on this threshold.

Unusually for merger control regimes, no market share or turnover thresholds exist for triggering a notification. The Draft Guidelines explained that this position was chosen due to the varying levels of economic development amongst COMESA member states, and that a realistic threshold will be set once the rules have been tested.

Testing the waters

If the requirement to notify to the CCC is triggered, a notification must be made within 30 days of the “decision to merge”, which the Draft Guidelines explained means “a concurrence of wills between the merging parties in pursuit of a merger objective”. Under the Regulations, the CCC then has 120 days to reach its decision, but the CCC has the option to request unlimited extensions from the CCC Board of Commissioners. As a result, there were concerns a year ago that parties would be left in the dark as to how long the CCC may take to reach a decision.

Twelve months on, thanks to the Draft Guidelines and the publication of a number of approvals, parties and their advisors can now realistically estimate how long the CCC will take to reach a decision. On average, it has taken just over 3 months for an approval to be announced, but it is important to note that the approved mergers varied greatly in their complexity and market sector. One approval was announced only 34 calendar days after notification, whereas another took nearly 5 months.

The Draft Guidelines have clarified that the 120 day period for the CCC to reach its decision should be interpreted as “working” days. Whilst this significantly lengthens the possible review period, the Draft Guidelines provide that the CCC will need to decide and inform the parties within 30 calendar days if the transaction falls within the scope of the Regulations. Once the CCC has decided to investigate a merger, the preliminary investigation must be completed within 60 working days and at that stage the CCC may report that it has no objection to the merger as there is little or no possibility that it is likely to generate anti-competitive effects in the COMESA region.

Looking forward

The CCC clearly recognises that the Regulations need further review to address the identified shortcomings and areas of uncertainty. In August 2013 the CCC announced that it was to instruct a team of experts to review the Regulations and to specifically look at (i) the jurisdictional tensions with national competition laws, (ii) the absence of a markets share or turnover threshold for triggering a notification and (iii) the period of time the CCC has to reach a decision. The review is expected to conclude by 30 April 2014.

Parties to M&A transactions in the region should keep a close eye on any changes that may be announced following the conclusion of the review. It appears likely that a realistic market share or turnover threshold will be announced in the near future which would be welcomed by parties to smaller transactions that are currently notifiable due to the zero threshold. Whilst there is no indication that the high filing costs will be changed, greater certainty and predictability would be a significant step forward as the regime enters its second year.

Co authors:
Katherine Ramo (katherine.ramo@cms-cmck.com)
Alex Kerr (alex.kerr@cms-cmck.com)