Saturday, July 2, 2022

No competition exemptions granted yet

Since coming into being, the Competition Authority has not granted any business or individuals exemption to engage in anti-competitive practices that are allowed under the Competition Act.

Built into this law is a mechanism for exempting a business from standard competition rules. The golden rule of exemption, which is observed by competition regimes the world over, is that the net positive public benefits must outweigh harm from the loss of competition. Before the Authority can grant the exemption, applicants (in the form of businesses and individuals) have to prove that the conduct they wish to engage in is anti-competitive. The types of anti-competitive conduct are generally recognised to be price fixing, bid-rigging, market allocation, sales and production quotas, joint boycotts, unfair or discriminatory standards and abuse of a dominant market position.

Speaking at the Second National Stakeholders Conference on Competition that was held at the Gaborone International Convention Centre last Thursday, the Authority’s Director of Mergers and Monopolies, Magdalene Gabaraane, revealed in response to a question from the floor, that so far no exemptions have been granted. The primary mandate of the Authority is to discourage anti-competitive behaviour in the economy.

The quite elaborate process of exemption involves an investigation by the Authority itself to determine that the conduct that the business or individual wishes to engage in is anti-competitive. There are two types of exemption: “individual”, which one granted to certain businesses or individuals and “block, which is granted to specific categories of conduct or sector. Section 32 of the Act sets out the following as reasons that would be sufficient for the granting of an exemption: maintenance of lower prices, higher quality or greater choice for consumers; promotion or maintenance of the efficient production, distribution or provision of goods and services; promotion of technical or economic progress in the production, distribution or provision of goods and services; maintenance or promotion of exports from Botswana or employment in Botswana; strategic or national interest of Botswana in relation to a particular economic activity being advanced; provision of social benefits which outweigh the effects on competition; the agreement occurring within the context of a citizen empowerment initiative of government; or the agreement in any other way enhancing of the government’s programmes for the development of the economy of Botswana, including programmes of industrial development and privatisation.

With the Authority not having dealt with an application for exemption, there are no local cases to cite but elsewhere other competition commissions have handled such cases. Two years ago, New Zealand’s Commerce Commission considered an application by Southern Cross Palmerston North and Aorangi Hospital to merge the latter’s Palmerston North private hospital businesses in a joint venture structure. Its conclusion was that “that the benefits of the merger (particularly greater investment and cost savings) are likely to outweigh any detriments due to lessened competition.”

Generally, the process entails actual mathematical quantification of benefits against detriments to enable an authority to apply its judgment. In another case, the Commission considered an application by Qantas Airways for authorisation of the subscription of up to 22.5 percent of the voting equity in Air New Zealand pursuant to a share purchase agreement between the two parties. The Commission ruled that “the detriments from the proposed Alliance would heavily outweigh the benefits and as a result that there would be a net loss to the public of New Zealand if the proposed Alliance were to proceed.”

The cost element of applying for exemption would, for some businesses and individuals, come as a great disincentive. While regulating competition is essentially a good thing, there is a view by some that it increases the cost of doing business and (ironically) affects competitiveness itself and in that way reduces the overall economic efficiency that accrues to society.

Botswana’s Competition Act says that applicants should pay a fee of 0.01 percent of their latest turnover upon application and if they succeed, pay the same amount of their latest turnover for the duration of the exemption. It is unlikely that would put a dent on the budget; what would though (at least judging by the cited New Zealand cases) is the preparation of the application. Southern Cross and Aorangi had to engage economic and legal experts whose services, naturally, don’t come cheap.

The experts undertook extensive research that entailed studying past cases, rendering legal interpretation of the rulings and doing quantitative economic modelling to present a strong case for the exemption.

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