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Recent Cartel Penalised in South Africa: Possible Impacts in the Region?

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A cartel in South Africa is a cartel in the region?

Teboho Bosiu

The South African Competition Commission has been very successful in uncovering cartels, with a large number of settlements over the past 10 years. It should be noted that settlements typically involve an admission on the part of the companies involved. Given the regional scope of many companies’ activities across southern Africa this begs the question as to whether these cartels affected neighbouring countries and should also be prosecuted in these countries.

In some cases, the companies busted for cartel conduct in fact disclosed other countries in which the cartel had impact. One example is the construction cartel where companies, as part of the full disclosure required, listed contracts in other countries which had been rigged. For instance several construction companies disclosed collusive conduct in relation to various projects in countries such as Botswana, Zimbabwe, Swaziland, Malawi and Lesotho (see Table 1 in the Appendix for examples of the disclosed conduct and countries involved).

Given the time taken to investigate and finalise cases, much of the conduct relating to other countries has occurred before these countries had passed competition legislation.1 In addition, in recent cartels companies seem not to be disclosing the extent of their conduct in other countries. This could be because companies are aware that their disclosure could trigger prosecution in other jurisdictions. Nonetheless, trends in trade and investment between South Africa and other countries in southern Africa make it highly probable that “a cartel in South Africa is most likely also taking place or has taken place in other SACU/SADC members”.2 In addition, industries such as cement are likely to have regional cartels due to their regional oligopolistic structure.3 Amunkete and co-authors explain that the cement cartel unearthed in South Africa in 2009 effectively cartelized the whole of the SACU region.

Possible impact of the recent cartels on other countries in the region

In the chemicals cartel, two companies (Investchem (Pty) Ltd) and Akulu Marchon (Pty) Ltd) involved in the manufacturing and supply of key chemical input materials used to make detergents, cosmetics and toiletries recently agreed to pay penalties. The penalties amounted to R23.4mn in the case of Investchem and R13.9mn on the part of Akulu Marchon after admitting to price fixing and dividing markets between 2003 and 2013.

Although not disclosed, it is highly likely that the conduct of these companies has impacted other African countries since their products are also exported to various countries in the continent. Investchem specifically has customers in countries such as Botswana and Zimbabwe, although it does not have branches or subsidiaries there.4 Akulu Marchon (a subsidiary of Chemical Services Ltd) also has a footprint in other African countries through exports, however these operations have apparently been taken over by Chemical Initiatives (Pty) Ltd5, another subsidiary of Chemical Services Ltd. It seems unlikely that having agreed not to compete in South Africa that these arrangements did not extent to export sales into neighbouring countries.

The fire protection industry cartel involved several companies that also conduct business in various countries in the rest of the continent. These include Fireco Gauteng (Pty) Ltd, Afrion Property Services CC, Belfa Fire (Pty) Ltd, Cross Fire Management (Pty) Ltd, Fire Protection Systems (Pty) Ltd, Fireco (Pty) Ltd and Tshwane Fire Sprinklers CC. These companies specialize in supplying, installing and maintaining fire control and protection systems in South Africa and the continent.

To date, two of the companies (Fireco Gauteng and Afrion) have admitted to fixing prices, dividing markets and tendering collusively when bidding for tenders to install fire control and protection systems in new and existing buildings. They have agreed to pay penalties and assist the Commission in the prosecution of the other companies. These two companies also have operations across other countries in southern Africa. Fireco Gauteng (which changed its name to KRS Fire) does business in various sub-Saharan African markets. For example, one of its clients is Debswana Diamond Company in Botswana. The company also has a branch in Mozambique. Afrion does business in countries including Botswana, Namibia, Zimbabwe and Swaziland. The other companies identified in this case also do business in the region, with the exception of Tshwane Fire Sprinklers which does business only in Gauteng.6 Fireco (not Fireco Gauteng) has offices in Namibia as well as a sister company in Angola. Belfa does business in the whole of the southern Africa region. Cross Fire covers the rest of the continent, and has branches in Ghana and Mozambique.

Conclusion

So what can be done? Countries that have competition laws as well as operational competition enforcement agencies can, and should, prosecute. At the very least, the admission of conduct in South Africa taken together with the regional spread of sales should provide the basis for initiating investigations. The admissions could place an onus on the firms to explicitly deny that the conduct affected the other countries in question. These are practically low-hanging fruits that competition authorities in the region should not miss.

The adoption of leniency policies and settlement procedures will make the process of resolving cases more straightforward. Most countries already have or are now putting these in place. In addition, a working committee on cartels has been established by SADC competition authorities. This means that there may be much activity in enforcement against cartels with regional effects in the near future.

  1. For instance, Botswana’s competition act was only passed in 2009, which implies that Botswana cannot pursue the Tati Activox conducts which took place in 2006 and 2007 (see table 1). On the other hand Malawi could have possibly pursued the Kayelekera Uranium Contract since its act was passed in 1998 while the conduct happened in 2007.
  2. Kaira, T. (2017). Cartel enforcement in the southern African neighbourhood. In Klaaren, J. et al. eds. Competition Law and Economic Regulation: Addressing Market Power in Southern Africa. Wits University Press. pp. 71-93.
  3. Amunkete, T. et al. (2016). Regional cartels and competition in cement industry across six countries: Botswana, Kenya, Namibia, South Africa, Tanzania and Zambia. In Roberts, S. ed. Competition in Africa: Insights from key industries. HSRC Press. pp. 8-40.
  4. Telephonicenquiry with Investchem (16 August 2017).
  5. Telephonic inquiry with Chemical Initiatives (16 August 2017) .
  6. Telephonic inquiry with Tshwane Fire Sprinklers (16 August 2017) .