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Review of COMESA merger and enforcement activity

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Maria Nkhonjera and Tatenda Zengeni 

Since opening its doors in January 2013 the COMESA Competition Commission (CCC) has seen growth in the number of its merger cases. This growth followed a number of challenges initially faced with the interpretation of certain provisions of the Act, jurisdiction and high filing fees.1 To date a number of changes have been made to the law which include a publication of merger assessment guidelines in October 20142, and a review of the merger notification thresholds and filing fees in April 2015.3 The Commission handled 13 transactions in 2013, which increased significantly to 44 in 2014.4 In 2015, a total of 18 mergers where notified at the Commission based on the information available on its website. The CCC is yet to investigate an enforcement case as we discuss below.

In this context, the article reviews the developments in terms of reported COMESA merger cases (on its website) and assesses the key trends in merger activity and major transactions which have taken place in the region. We also comment on the future of enforcement activity by the authority.

Drivers of merger activity in Africa

M&A activity in Africa is being driven by global businesses looking at high growth African economies to expand their operations. For example, between 2014 and 2015 the value of M&A transactions in Sub-Saharan Africa increased by 12% year-on-year for transactions involving firms in this region.5 Most mergers have taken place in South Africa, Mauritius and Nigeria, with the largest proportion of acquirers coming from Europe.6 In addition, East Africa has shown growth as a destination for inbound M&A and regional expansion of multinational firms.7 Cross-border acquisitions by African firms make up a large share of M&A deal volumes and are expected to rise as African companies expand regionally. Notably, South Africa firms have led in terms of acquisitions and expansion.8

A growing middle class in Africa as an important source of demand has contributed to the growth in opportunities for expansion by firms, particularly in financial and consumption industries such as retail.9 This creates the opportunity for both foreign and domestic companies to benefit from rising demand for goods and from regional expansion.10

CCC merger activity highlights

It is expected that merger activity in COMESA mirrors the broad trends in the continent discussed above. We have reviewed the merger case information available on the COMESA website for 55 transactions from the inception of the authority to March 2016. Below we outline the key facts and trends emerging from the assessment:

  • Since 2013, 12 merger notifications have been in the financial services sector which is the most in any sector. These transactions have been in the provision of insurance products, primarily, and the banking and investment banking subsectors. Interestingly, 75% of these transactions have involved acquiring firms from South Africa and Kenya including a number of acquisitions by the Old Mutual group.

  • 8 mergers have taken place in the construction sector including the global acquisition of Lafarge by Holcim which was approved considered in relation to 12 COMESA member states. This particular merger created the largest player globally and in Africa in cement production. New entry and large investments in the sector led by Dangote Cement presents the most significant competitive threat to the merged entity in Africa.11 In 2013, PPC, a major cement producer in South Africa, also acquired CIMERWA which transaction had potential effects in DRC, Rwanda, Uganda, Zambia and Zimbabwe.

  • The acquisition of Greenbelt Fertilizers by Yara International, a global leader in fertilizer production and trading, signifies the removal of a potentially significant competitor in the regional market for fertilizers. Greenbelt has grown in recent years in Zambia, and made investments in fertilizer blending capacity across the region including at the Beira port in Mozambique. The transaction, which was approved in 2016, contributes to high levels of concentration in the regional market which may raise competition concerns in future given a history of coordinated conduct by the major suppliers of fertilizer in the region.12 In 2014, Yara acquired OFD Holdings in a global transaction which also affected 12 COMESA member states.

  • Mergers in the ICT/telecommunications, petroleum, and agriculture (including fertilizer) were the most common in the period considered after mergers in financial services and construction.

  • The acquisition of Coca-Cola Sabco by Coca-Cola Beverages Africa was approved by the CCC in 2015. The merger is likely to have significant implications for the ability of entrant beverages firms to access bottling and distribution capacity, and thus their ability to compete in the market against the largest soft-drink beverage operation in Africa.13 In this regard, the South African competition authorities granted conditional approval in 2016 subject to conditions relating to employment, access to retailer cooling space for smaller competitors, localisation of production and inputs, economic empowerment (R800 million investments), and location of the headquarters and tax residency in South Africa.14 The merger was unconditionally approved by CCC and in Namibia, and conditional approvals were granted in Kenya and Tanzania as well.

  • The number of member states affected by a transaction is important given the fact that the CCC is in some cases required to cooperate closely with the competition authorities in different member jurisdictions in order to obtain information and consider the transaction. A greater number of affected jurisdictions implies greater likely challenges in expeditiously considering transactions. The Exor/PartnerRE transaction involved 16 member states (the most in a single transaction), while Holcim/Lafarge and Yara/OFD each potentially affected 12 states, for example.

  • Country authorities have in most approved the same transactions where transactions have implicated multiple jurisdictions. At the CCC level, almost all transactions have been approved without conditions.

It is worth noting that South African firms have led in terms of acquisitions of firms in the COMESA area. South Africa is not currently a COMESA member state although it features more than any other country in terms of transactions considered, particularly as transaction have involved acquisitions by emerging South African multinationals. South African firms, including MTN, Old Mutual, PPC, Sanlam, Telkom, SAB and Steinhoff International, have been involved in at least 16 of the 55 transactions considered. The balance of transactions has involved a large number of acquiring firms from different European countries, as well as some from Kenya which is consistent with the findings in the various M&A market reports referred to above.

CCC enforcement activity 

The authority has yet to assess an enforcement case although this is an area in which it intends to place greater emphasis going forward. At the recent Annual Competition and Economic Regulation (ACER) Week in Livingstone, Zambia, CCC representatives emphasised the importance of enhancing enforcement activity, particularly against cartels, in the region. Challenges in this regard include jurisdictional issues between domestic authorities and CCC, and cooperation in terms of sharing of information and investigations between countries. Another important issue raised relates to the adoption in different countries of the COMESA regulation, and inconsistencies between countries in terms of penalty frameworks and the adoption of corporate leniency policies (CLP). In this regard, differences between countries in penalties and CLPs distort the incentives of firms to come forward and admit to cartel conduct in all countries in which the conduct had an effect, with firms preferring to make admissions in countries where the likelihood of getting caught was higher, potential penalties if found out were higher, and where firms were guaranteed fair treatment in the CLP process. 

The pdf copy of the  CCRED Quarterly Competition Review June 2016 Issue is available here.

Notes

  1. Zengeni, T. ‘Update on the COMESA Competition Commission’ (2 June 2014). CCRED Quarterly Competition Review.
  2. COMESA Competition Commission. ‘COMESA Merger assessment guidelines’. (31 October 2014). Media Release on COMESA Competition Regulations, 2004. 
  3. COMESA Competition Commission. ‘Amendments to the COMESA competition rules on merger filing fees; determination of merger notification thresholds and method of calculation; and form 12 on notice of merger’ (26 March 2015). Media Release on COMESA Competition Regulations, 2004.
  4. COMESA. ‘COMESA Annual Report 2014’.  
  5. Mulupi, D. ‘Report highlights 2015 trends in mergers and acquisitions’ (3 January 2014). How we made it in Africa. 
  6. Fin 24. ‘Sub-Saharan African mergers, acquisitions increase 12%’ (16 July 2016). Fin24.
  7. Merger Market Group. (2014). ‘Deal Drivers in Africa 2014 edition: A comprehensive review of African M&A’. Report prepared in association with ENS Africa, Nedbank, Control Risks and Ecobank. 
  8. See note 5. 
  9. African Development Bank. (2011). The Middle of the Pyramid: Dynamics of the Middle Class in Africa.
  10. See note 9.
  11. ‘Zengeni, T. and Mondliwa, P. ‘Consolidation and entry: changing dynamics in the regional cement market’ (19 February 2015). CCRED Quarterly Competition Review.
  12. See Ncube, P., Roberts, S. and Vilakazi, T. (2015). ‘Study of Competition in the Road Freight Sector in the SADC Region: Case Study of Fertilizer Transport and Trading in Zambia, Tanzania and Malawi’. Centre for Competition, Regulation and Economic Development (CCRED), Working Paper No. 2015/3. 
  13. Zengeni, T. ‘Reflection on the Coca-Cola bottling merger’ (22 November 2015). CCRED Quarterly Competition Review. 
  14. Moneyweb. ‘SABMILLER PLC – The Coca-Cola Beverages Africa merger parties welcome Competition Tribunal approval for formation of CCBA’ (10 May 2016). Moneyweb.