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Commissioner: Tembinkosi Bonakele

A comprehensive review of addressing anticompetitive conduct in various markets, mergers, cartels, successes, and enforcement highlights over 15 years.

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Commissioner: Tembinkosi Bonakele

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  1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON ECONOMIC DEVELOPMENT ON 15 YEARS OF COMPETITION ENFORCEMENT Commissioner: Tembinkosi Bonakele 10 March 2015

  2. Table of contents • Addressing anticompetitive conduct in the last 15 years • Key highlights • Mergers • Cartels • Abuse of dominance • Case studies • Walmart/Massmart merger • Nestlé/Pfizer merger • Bread cartel • Pioneer Foods settlement • Construction cartel • Cement cartel

  3. Addressing Anti-Competitive Conduct in the last 15 Years • Successes in identifying and taking actions to address anticompetitive mergers and prohibited business practices in different markets including: • Basic food products affecting the poor (such as bread, maize meal, baking flour, milk, eggs) • Industrial inputs products important for industrialisation, infrastructure and employment (such as steel, concrete pipes, polymers, diesel , glass) • Sectors critical for growth and development (such as HIV/Aids drugs, banking and telecommunications)Essential inputs into Manufacturing – Basic Chemicals and Polymers. • Imposing conditions on mergers with an adverse impact on public interest considerations. • The Commission has also enhanced its public profile • SA ranked amongst the best in the developing world • SA ranked 8th by the World Economic Forum for effectiveness of anti-monopoly laws • Commission is well respected among peers and is an active member of the SADC competition committee, the African Competition Forum and the BRICS competition forum • Commission appointed Chair of the African Competition Forum

  4. Enforcement Highlights Cumulative administrative fines levied (2004-2013) • Increase in the size of administrative penalties imposed by the Tribunal • Between 2004 – 2008, about R579 million compared to R4.3 billion between 2009 – 2013. • Examples include: • 2009 – Sasol (R250million) • 2010 – Pioneer Foods (R500million) • 2010 – Sasol (R111.7million) • 2011– Aveng Limited (R128.9million) • 2011– AfriSam (124.9million) • 2011 – Lafarge Industries (R148.7million) • 2012 – Telkom SA (R449million) • 2013 – Several construction firms (R1.46 billion) • 2013 – Telkom (R200million).

  5. Merger Regulation Highlights Merger Trends (2004-2013) • Between 2004 – 2008, increase in the number of merger notifications. • Merger thresholds increased in 2009. • Financial crisis • Careful balancing of competition issues with public interest considerations in mergers assessments: • Employment • Sector or region • SMEs and HDI-owned businesses • Ability of industry to compete internationally • Increase in innovative remedies in merger cases • Massmart/Wal- mart merger • Preventing anticompetitive concentration in consumer markets • Pick’ n Pay/Fruit & Veg

  6. Abuse of Dominance Highlights • The Tribunal has only decided on about 11 abuse of dominance cases over the past 15 years, finding that abuse occurred in 8. • However, only two cases have been subject to a penalty imposed by the Tribunal. • Even the recent penalty against Sasol is subject to an appeal. • The Commission has over the decade been involved in investigations and prosecutions against Sasol and Mittal • Whilst there have been some positive decisions in favour of the Commission on some of these matters, the fundamental issues relating to excessive pricing remain unresolved • This continues to have a detrimental effect in downstream industries, given the importance of the intermediate inputs in industrial development

  7. The Wal-mart/Massmart Merger • In May 2011, the merger was approved with conditions: • No retrenchments from the merged entity’s operations in South Africa for a period of two years. • The parties must reinstate the 503 employees that were retrenched during 2009 and June 2010 (no time period specified for this condition). • The merged entity must honour the existing labour agreements with SACCAWU for at least 3 years. • Massmart must establish a Supplier Development Fund (SDF) by February 2013. • R242 million was set aside as SDF which was envisaged to operate for 5 years. • The purpose of the fund is to assist eligible South African Small and Medium Enterprises, particularly black-owned, black-empowered or local manufacturers. • Enabling Massmart to increase and diversify its local procurement capacity.

  8. The Wal-mart/Massmart Merger A summary of the investment forecast of resources to beneficiaries over the funds 5 year duration Source: Massmart Supplier Development Fund Annual Report 2013, page 10.

  9. The Nestlé/Pfizer Merger • On 08 June 2012, Nestlé South Africa notified the Commission of its intention to acquire the local Infant Nutrition Business of Pfizer Inc. • On 14 December 2012, the Commission recommended the approval of the Nestlé/Pfizer merger, conditional on what was called a transitional re-branding remedy • The transitional re-branding remedy imposed by the Tribunal envisaged Nestlé divesting the Pfizer brands to an independent third party through a transitional re-branding arrangement. • The remedy is based on a 10 year transitional re-branding period whereby the successful purchaser of the divested Pfizer brands would rebrand the products, • followed by a 10 year black-out period where neither the licensee nor Nestlé can introduce the original Pfizer brands into the South African market. • After the blackout period, Nestlé will then be allowed to re-introduce the divested brands into the South African market, should it wish to do so

  10. The Bread Cartel • Cartel members included Premier Foods, Tiger Brands, Pioneer Food and Foodcorp) • Premier Foods granted leniency for disclosing its role in the bread cartel, flour cartel and maize meal cartel. • Tiger Brands granted leniency for proving further evidence on the flour cartel and maize meal cartel. • For the bread cartel: • 2007 – Premier Foods (R0 million) received immunity. • 2007 – Tiger Brands (R98 million). • 2009 – Foodcorp (R45 million). • 2010 – Pioneer Foods (R196 million) after a contested hearing.

  11. Pioneer Foods Settlement • Pioneer Foods undertook in terms of the proposed settlement agreement to: • Pay a fine of R500 million to the National Revenue Fund. • Further, an Agro-processing Competitiveness Fund of R250 million drawn from the penalty was conceptualized. Geographical spread of APCF A summary of Agro-processing competitiveness fund

  12. Pioneer Foods Settlement…. • Pioneer Foods undertook in terms of the proposed settlement agreement to: • Reduce the prices of certain of its products for an agreed period of time up to the total value of R160 million. • Increase its capital expenditure budget by R150 million. Average wholesale and retail prices for Pioneer Foods’ standard white bread, 06/2010 -06/2011

  13. Construction Cartel • First investigation initiated into the construction sector on 1 February 2009 regarding tenders for the construction of 2010 FIFA World Cup stadia. • The second investigation was initiated on 1 September 2009 and covered all big and small tenders for construction projects. • Received approximately 150 marker applications (intention to apply for leniency) and 65 CLP applications which implicated the majority of medium and large firms. • developed and launched a fast track settlement programme on 1 February 2011 to incentivise firms to enter into settlement arrangements.

  14. Construction Cartel • Phase 1 of the fast track settlement programme led to 15 firms reaching settlements with the Commission and paying about R1.46 billion in fines. • Phase 2 is concerned with the construction cases/projects that were not settled under phase 1. • 24 firms were implicated in construction cases/projects but did not participate in phase 1. • The commission has since referred all remaining cases and aims to close the chapter on construction by March 2015.

  15. Cement Cartel • On 02 June 2008, the Commission initiated an investigation against the cement producers alleging that PPC, Lafarge, Afrisam and NPC-Cimpor had entered into restrictive horizontal agreements • The Commission raided the premises of the four cement producers on 24 June 2009 • Subsequently, PPC applied for leniency and confirmed the existence of a cartel among the four cement producers. • On 01 November 2011, Afrisam agreed to pay a penalty of R124 878 870 • representing 3% of its 2010 cement annual turnover in the Southern African Customs Union • On 28 March 2012, Lafarge agreed to pay a penalty of R148 724 400 • representing 6% of its 2010 annual turnover in the Southern African Customs Union region. • The Commission study of the impact of uncovering the cartel • Consumer savings as a result of the cartel being uncovered range approximately between R 4.5 billion to R 5.8 billion for the period 2010 to 2013 • In addition, there has been noticeable change and dynamism in the market, with firms entering territories they previously did not trade in.

  16. THANK YOU

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