Kenya: Competition Authority

Kenya’s law on competition, Competition Act No. 12 of 2010 (the Act) came into force on 1 August 2011. The objective of the Act is to promote effective competition in markets, and subsequently enhance the welfare of the people of Kenya. The Competition Authority of Kenya (CAK) uses the following tools to achieve this objective: the regulation of market structure (merger regime), market conduct (enforcement and compliance), consumer protection and acting as the government’s adviser on competition matters through, inter alia, conducting market inquiries and reviewing proposed government policies, procedures and legislation to assess their effects on competition.

The CAK adopts the view that prioritisation is a crucial factor that underpins competition agency effectiveness. In this regard, with the aim of achieving the highest possible efficiency and effectiveness in its initiatives, the CAK has bolstered its competition enforcement apparatus to remedy systemic contraventions and to prioritise its enforcement activities.

The Special Compliance Process

Recently, in addition to efforts to detect and prosecute competition infringements, the CAK has launched a campaign to encourage compliance with the Act as a matter of business self-interest. This campaign is known as the Special Compliance Process (SCP). The CAK has adopted this programme as an important tool of soft enforcement for trade associations in the financial and agricultural sectors of the Kenyan economy.

The SCP is motivated by the realisation that, notwithstanding the Act coming into force, trade associations continue to have rules, practices and procedures that are likely to contravene the Act. The aim of the SCP is to:

• ensure that trade associations are in compliance with the Act and, in particular, with sections 21 and 22 of the Act;
• facilitate the identification and rectification of past conduct regarding competition in their specified markets;
• increase awareness and foster best business practices in the future; and
• address and resolve contraventions, without requiring in-depth investigations under section 31, thus reducing the costs of compliance for trade associations and their members.

The SCP takes the unique form of a market enquiry addressing arrangements between actual or potential competitors being parties in a horizontal relationship, arrangements between members of a trade association, and arrangements that relate to the rules, practices and procedures of the trade association that are likely to contravene the Act.

To comply with the process, each trade association in the targeted sector is expected to fully disclose any past conduct, rules, practices, procedures and exchange of anticompetitive information such as commercially sensitive business strategies, past, current and future prices, including any price-related information and sale volumes, among other competitively sensitive information that is in contravention of the Act.

Where the trade association provides full disclosure of the contraventions of the Act and evidence of how the contraventions have been remedied to ensure compliance in future, the CAK will not initiate investigations against the declared conduct.

This process ensures that industry associations have been exposed to the Act and its requirements before the CAK commences any hard enforcement, which includes investigations, and resulting administrative and criminal penalties. In addition, the SCP focuses resources on trade associations in the financial and agricultural sectors for a finite period of time but is expected to have a ‘domino effect’ on other sectors of the economy as the CAK capitalises on the impact of the process in these crucial sectors and the visibility that the process creates for the agency. However, the characteristic that allows the SCP to stand a cut above the majority of compliance programmes is its effectiveness at utilising limited resources to target the application of the Act.

Block exemptions

Extending the theme of enabling category-specific compliance with the Competition Act, section 30(2) of the Act enables the CAK to grant block exemptions on provisions of Part III of the Act.¹

The Act specifies that undertakings and their associations can apply for exemptions in areas relating to restrictive trade practices, intellectual property and exemptions for professional rules. Further, the public interest criteria for evaluating exemptions are provided for under section 26(3) of the Act. The specific considerations under this section are:

• maintaining or exporting exports;
• improving or preventing the decline in production or distribution of goods or the provision of services; and
• promoting technical or economic progress or stability in the industry.

With the CAK being cognisant of these considerations, its development of block exemptions is driven by the need for consistent and predictable application of effects-based competition law and policy. Specifically, the nature of contraventions outlined in part III of the Act means that agreements, such as those for franchising, will require undertakings and their associations to seek repeated approval from the CAK for transactions and agreements that might have no net effect on competition. Block exemptions will additionally ease the regulatory burden of undertakings by reducing the transaction costs of firms seeking approval for said agreements.

To enhance the ease of doing business, the CAK is committed to the reduction of ‘red tape’ by targeting those agreements that do have the likelihood of distorting or substantially lessening competition. Similarly, through the application of block exemptions to agreements that do not have an effect on competition, the CAK’s limited human, capital and time resources are freed and can be re-deployed to other targeted enforcement activities. It is expected that block exemptions may focus on the de minimis and the exemption of some activities.

In conclusion, the CAK is currently leveraging its resources to ensure competition enforcement ‘bang for your buck’ by facilitating category-specific compliance with the Act and better targeting of competition enforcement. In addition, these interventions make the Competition Authority more visible and promote discussion about competition matters in a jurisdiction only just beginning to grapple with the imperatives of the Competition Act.

Notes

1. Part III of the Act prohibits restrictive business practices ranging from agreements and concerted practices by parties either in horizontal or vertical relationships (sections 21 and 22), to abuse of dominance practices (section 24).