The Common Market for Eastern and Southern Africa’s (COMESA) Competition Commission (CCC) has now been reviewing mergers and acquisitions for almost nineteen months, having commenced operations on 14 January 2013. The CCC is the supranational competition authority of the COMESA free-trade bloc of 19 member states. Growing pains are inevitable, and the newest competition authority of Africa is about to undergo a first round of reform. DLA Piper’s Michael Marelus sat down with Mr Willard Mwemba,1 head of mergers and acquisitions at the CCC, to talk about the CCC and its latest developments.

Michael Marelus: Let us start with the genesis: the Competition Regulations were published in 2004, and it took nine years for the CCC to enter into operation. What took so long?

Willard Mwemba: Once the Competition Regulations were adopted in 2004, the institution to administer them needed to be set up. Setting up the CCC required overcoming political and financial hurdles. There were long political discussions between the member states concerning which member state will host the CCC. The second issue was financial: the CCC needs financial support by the member states. This all proved tricky, but ultimately, was successful. The CCC is established in Malawi, and we have been operational for approximately eighteen months. Work is busy, and over the past few months there has been an exponential boom in the number of notifications we are receiving. Between January and December last year we received twelve notifications; between January 2014 and today, we received over eighteen notifications, making it a total of more than thirty notifications submitted to the CCC.

MM: I understand the CCC is reviewing its current rules and guidelines. You are seeking to improve its merger control regime. You have also recently engaged external advisors to assist you with this. Please tell us more about this review and what to expect.

WM: We have engaged external advisors to review the current rules and guidelines, and to propose improvements to our merger control regime. We want to bring the CCC merger control regime in line with international best practice. The external advisors’ recommendations have now been completed, and we expect to introduce several changes to the Guidelines this summer. The revised Guidelines will remain within the scope of the current Regulations and Rules. The changes to the Regulations and Rules are still being worked on and will enter into force at a later date. The new Rules and Regulations will require amendments, and these can only be approved by the COMESA Council of Ministers.

MM: The notification thresholds are currently set to zero. Any merger or acquisition where at least one party operates in two or more COMESA member states must be notified to the CCC. This threshold has a very wide reach and catches transactions between parties with minimal activities in the COMESA region.

WM: The current thresholds for notification are indeed set at zero. We are well aware that this is not ideal, and we intend to amend the Rules on the Determination of Merger Notification Threshold. This is included in our current review, and we intend to propose more suitable thresholds. However, the thresholds are set out in the Rules. As explained, the Rules can be amended only by the COMESA Council of Ministers. The Council of Ministers generally meets once a year, and opposition to a proposal by one member state is generally sufficient to postpone a decision on the matter. We will shortly propose to the Council of Ministers an amendment to the Rules, and I very much hope the Council of Ministers will approve it by consensus at one of their next meetings. I can however not put any timing on the adoption of new notification thresholds as it is beyond the mandate of the CCC.

MM: Until the Rules on the Determination of Merger Notification Threshold are amended by the Council of Ministers, I understand the CCC has found a way to limit the number of transactions falling within the scope of the notification requirement by implementing an “appreciable effects” test and by offering so-called “comfort letters”.

WM: Indeed. Article 3.2 of the Competition Regulations states that the merger control regime applies to transactions having an appreciable effect on trade between COMESA member states and which restrict competition in the COMESA Common Market. We have recently issued comfort letters to notifying parties, confirming that their transaction, while satisfying the current notification thresholds, do not have an appreciable effect on trade.

In determining what amounts to having an appreciable effect, the upcoming revised Guidelines will include a turnover test. Where the turnover test is not met, it is presumed that the transaction will not have an appreciable effect on trade. The CCC is competent to issue Guidelines, and these will come into force with immediate effect this summer.

Similarly, we are reducing the number of notifiable transactions by including guidance on what qualifies as “operating” in two or more COMESA member states. As you pointed out, mergers and acquisitions are currently notifiable where at least one of the parties operates in two or more COMESA member states. We will include in the revised Guidelines a turnover test to determine whether a company is considered as having operations in a member state. This will exclude transactions between parties with limited activities in the COMESA region from needing to be notified. We hope these measures will limit the scope of transactions needing to be notified, at least until the new Rules on the Determination of Merger Notification Threshold are adopted by the Council of Ministers.

MM: Some have also criticised the high notification fee of up to USD 500.000. What is your view on this?

WM: Many believe that for each and every notified transaction the filing fee is USD 500.000. That is not the case: the filing fee is a 0,5 percentage of the combined parties’ assets or turnover in the COMESA region, capped at USD 500.000. For some transactions, the filing fee will thus be well below USD 500.000. However, when companies and their lawyers complain that the fees are high, we should not be defensive simply because we are a regulator. I think it is important to get feedback from the market, and if the market says the fees are high, we should be looking into it. We are looking into it, and the current fee will most likely be reduced in the near future. I believe we need to come up with a mechanism whereby the filing fee is proportionate to the amount of work the CCC must undertake in reviewing the transaction.

MM: A lot of transactions that fall within the scope of the Competition Regulations are not notified, particularly with the low thresholds currently in force. What are your enforcement priorities?

WM: Our focus has so far been on two more important aspects. First of all, we want to make sure we clear notified transactions within the shortest period of time possible. We want to assist the notifying companies as much as possible, and we want to provide clearance – where possible – as swiftly as possible. Secondly, we want to make sure we identify the lacunae in the current legislation and that we develop into a first-class merger control regime. These are our two priorities at the moment.

As you know, I worked for the Zambian competition authority for quite some time. It took the Zambian competition authority a long time before it started using its enforcement powers to fine companies. This was, in fact, also the practice of the other competition authorities in Africa. The Zambian competition authority commenced its operations in 1997, and the first time it imposed a fine was in 2010. At the start of its operations, it was focused on ensuring the law was robust, its decisions were proper, and that it did not frustrate businesses by unnecessarily delaying transactions.

Having said that, should we become aware of someone blatantly disregarding the Competition Regulations, we will act accordingly. We will not hesitate to use our enforcement powers. Fining one erring firm may be needed to ensure the Competition Regulations are respected.

MM: The notification form currently seems to require much information, including on markets on which the parties have no overlap. This might place a significant burden on notifying parties, yet be of limited help to the CCC.

WM: I agree, and we will look at this issue. Once the current review is over, we will most likely look at reforming the notification forms. We want to make the procedure as easy and efficient for companies as possible.

MM: The substantive test of the review is whether the concentration would substantially prevent or lessen competition, in particular through the creation or strengthening of a dominant position. The current Guidelines state that there is a rebuttable presumption that concentrations are anti-competitive. What is the purpose of including this presumption, and is it at all correct?

WM: That reference in the Guidelines will be removed. As a matter of fact, the contrary is true: most mergers and acquisitions are not anti-competitive. This presumption will thus be removed from the Guidelines as part of the upcoming changes this summer.

MM: As part of the CCC’s substantive review of a notified concentration, the CCC may take into account public interest factors. These public interest factors are currently listed in a Draft Public Interest Guideline. The list contains only market interests, and thus not interests such as employment issues, nationalist motivations and the like. Could you confirm this?

WM: Definitely. The CCC has no intention to take into account any non-market public interest factors. An interpretation of the rules to imply that the CCC has the right to take into account non-market public interest factors, I think, may be ultra vires of the current rules. The substantive test the CCC conducts is whether the proposed concentration substantially prevents or lessens competition, in particular through the creation or strengthening of a dominant position. This by definition already itself includes taking into account the public interest factors listed in the Draft Guideline. Nothing more.

MM: I understand that, in the past, a member state has required concentrations notified to the CCC to be notified also to its national competition authority. Is the CCC a one-stop-shop?

WM: Some issues have arisen in the past, but we are in the process of smoothing the procedural rules between review by the CCC and review by the national competition authorities of COMESA member states.

I am glad to state that currently we are working smoothly with almost all COMESA member states. The Competition Regulations make clear that the review of mergers and acquisitions by the CCC is a one-stop- shop, and this has been confirmed by the COMESA Court of Justice. What is important at this stage is that the CCC enjoys the support and the confidence of all COMESA member states.

MM: Mr Mwemba, I thank you for having taken the time to sit with us and talk to us about the recent experiences of the CCC and the upcoming developments in its merger control regime.

WM: It has been my pleasure. We have some issues that need ironing out, such as the notification thresholds, and the like. However, we are in a pretty good place at the moment. We have the luxury of having existing merger control regimes to learn from, and we are developing quickly. I see the recent surge in the number of notifications since January as a sign that people are accepting and recognising the CCC’s jurisdiction, and that the CCC is gaining wide acceptance by the corporate world, the legal fraternity and consumers.

COMESA MERGER CONTROL IN A NUTSHELL

COMESA member states: Burundi, Comoros, Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.

Concentrations: The direct or indirect acquisition or establishing of a controlled interest. Includes full function joint ventures.

Notification thresholds: One or more of the parties have operations in two or more COMESA member states. Revisions to the Guidelines are expected this summer, and include a turnover test for determining whether a party has “operations” in a member state. The size of the parties currently does not matter as the turnover thresholds are set at zero, although a proposal to change these will be submitted to the COMESA Council of Ministers shortly.

Local nexus: Currently not required, as long as the notification thresholds are met. The revised Guidelines expected this summer will set out a turnover test for determining whether a concentration has an appreciable effect on trade in the COMESA region. Obtaining comfort letters from the CC is in the meantime possible.

Notification fee: 0.5% of the merging parties’ combined annual turnover or assets in the COMESA region (whichever is higher) and is capped at US$500,000.

Notification period: No later than 30 days from the parties’ decision to merge. The revised Guidelines may clarify that these are calendar days.

Review period: Phase I is 60 days, Phase II extends the review to 120 days. The revised Guidelines may clarify that these are calendar days.

Substantive test: The merger would substantially prevent or lessen competition, in particular through the creation or strengthening of a dominant position.

Failure to notify: Transaction is unenforceable in the COMESA region, and fines may be imposed of up to 10% of parties’ combined turnover in the COMESA region.

One-stop shop: Notification to the CCC is a one-stop- shop and in theory requires no further notification to the competition authorities of individual member states. However, notably Kenya, seems to currently insist on the transaction being notified also to its national competition authority.