Malawi: Competition and Fair Trading Commission

Malawi’s competition policy was adopted in 1997, with the broad objective of creating an enabling environment for businesses, promoting economic efficiency and protecting consumer welfare. To ensure effective implementation of the competition policy, Parliament enacted the Competition and Fair Trading Act (CFTA) in 1998 and brought it into force on 1 April 2000. This article briefly discusses the CFTA and developments around it during 2014–2015, including brief case studies.

The CFTA identifies four key areas of action: regulation of mergers and acquisitions; abuse of dominance and market power; anticompetitive business practices; and protection of consumers from unfair trading practices. In targeting these four areas, the Act seeks to encourage competition in the economy by prohibiting anticompetitive trade practices; regulating and monitoring monopolies and concentrations of economic power; protecting consumer welfare; strengthening the efficiency of production and distribution of goods and services; securing the best possible conditions for the freedom of trade; facilitating the expansion of the base of entrepreneurship; and providing for related matters. Above all, the CFTA establishes the Competition and Fair Trading Commission (the Commission) to enforce the provisions of the Act. The Commission acts as an autonomous and government-funded agency mandated to regulate, monitor, control and prevent acts or behaviours that are likely to adversely affect competition and fair trading in Malawi.

The Commission has the following functions: regulating mergers and acquisitions of companies; monitoring monopolies and concentration of market power and taking corrective action against abuse of dominance; prohibiting anticompetitive practices by enterprises against each other; and taking corrective action against enterprises that practise unfair trade against consumers.

This semi-judicial body is charged with the responsibility of adjudicating cases on the aforementioned matters through a Board of Commissioners (the Board), and with support from the Secretariat, which undertakes investigations into allegations and presents reports to the Board. The Board is further divided into committees, which are delegated to deal with specific subject matters. The following committees have been formed: the audit and finance committee, the appointments and remuneration committee and – of particular interest to this article – the technical committee responsible for hearing cases and making preliminary assessments of case investigations for recommendation to the Board. The technical committee is also delegated to provide interim orders pending ratification by the whole Board.

This division of responsibilities between the Board (comprising a lawyer, an economist, an accountant, two representatives of civil society and three ex officio members representing the government) and the Secretariat, which is headed by the executive director, ensures that there is fairness and objectivity in the operations of the Commission and also that there is a separation of powers between investigations and case adjudication. The Secretariat also enforces decisions of the Commission in all four areas identified above, through a compliance system that involves both internal processes (memoranda of undertaking) and filing the Commission’s orders with the courts. In the event of criminal sanction, the Commission is not empowered to enforce these as the law gives that responsibility to the courts, and criminal processes are instituted.

In the 2014–2015 financial year the Commission registered 42 alleged violations of the CFTA, which represents a 61.5 per cent increase from cases reviewed in the 2013–2014 fiscal year. This increase in cases received and reviewed is on account of increased awareness about the CFTA by the private sector and the general public, as well as enhancement of the Commission’s staffing.

The Commission also processed 76 consumer complaints in the 2014–2015 financial year. These include complaints received and processed in the 2014–2015 financial year, as well as those received in the 2013–2014 financial year and concluded in the 2014–2015 financial year.

Mergers and acquisitions

The CFTA defines a merger as having occurred if one firm acquires control over another or if a firm acquires control of a productive asset. Therefore, under the act, mergers and acquisitions are one and the same. Similarly, the CFTA treats affiliated firms as one economic entity. Mergers, takeovers, joint ventures or acquisitions of shares or assets are notifiable to the Commission, which reserves the right to determine the potential or actual impact of the merger on competition in the Malawian market.

The CFTA does not provide thresholds for merger notification and hence all mergers are notifiable, despite the fact that some may be of little or no significance. Just as foreign mergers are notifiable if they have presence in Malawi, so also are mergers between a non-Malawian and a Malawian company, or mergers of non-Malawian companies where one or both of them has an economic presence in Malawi.

The CFTC Secretariat has a merger notification form that forms part of the CFTA 2006 Regulations, which are read together with the CFTA. This form must be filled in by the applicant at the time of notification. A merger notification fee is also payable to the Commission.¹ However, at least one pre-notification meeting between the applicants and the Secretariat is always encouraged to assist in providing appropriate information. The Commission is open to holding teleconferences upon request.

The Commission takes a keen interest in any merger or acquisition that takes place in Malawi, or outside Malawi involving companies that have presence in Malawi,² regardless of annual turnover, as the CFTA does not provide for thresholds. In the absence of authorisation, the transaction is of no legal effect in Malawi.

During 2014–2015, the Commission reviewed 13 merger authorisation applications, which represents a 150 per cent increase from the previous year’s cases. Out of the 13 mergers assessed, seven were notified to the COMESA Competition Commission, and as required by article 26(6) of the COMESA Competition Regulations, the Commission was requested to make an assessment of the impact of the proposed mergers and acquisitions on competition and trade in Malawi. All the COMESA mergers were found to have no negative effect on competition or trade in Malawi. The mergers were, therefore, recommended to the COMESA Competition Commission for authorisation.

Of the six merger applications made to the Commission, five applications were for mergers that involved a party with no commercial presence in Malawi. Therefore, the applications were assessed as negative clearance. Of the six proposed mergers, only one was found to likely result in substantial lessening of competition in the relevant market. The merger was approved subject to undertakings by the parties to mitigate the possible negative effects on competition. These proposed mergers are detailed as follows:

• acquisition of 100 per cent shareholding in Group Developments Limited and its subsidiaries by Gillanders Arbuthnot and Company Limited;
• application for negative clearance for acquisition of 60 per cent shareholding in Quton Limited by Maharashtra Hybrid Seeds Company Limited;
• acquisition of 100 per cent shareholding in Chemicals and Marketing Limited by Cambria Africa Plc;
• acquisition of 100 per cent shareholding in Sunshine Paints Limited by Silkon Paints Limited;
• acquisition of 100 per cent shareholding in Group One Armoured and Armed Security Services Limited by Kenya Kazi Services Limited; and
• acquisition of ISP business and related assets of Burco Electronic Systems Limited by Telekoms Networks Malawi Limited.

The Commission also recommended authorisation of the following international mergers to the COMESA Competition Commission:

• merger between Cannon Assurance Limited and Metropolitan International Holdings Proprietary Limited;
• acquisition of Kenya Towers Limited, Malawi Tower Limited and Uganda Towers Limited by Eaton Towers Limited;
• merger between Platform Specialty Products Corp and ArystaLifescience Limited;
• merger between Improchem Proprietary Limited and Africa’s Water Treatment Business;
• acquisition of Pepkor Holdings Proprietary Limited by Steinhoff International Holdings Limited. Pepkor Holdings has business presence in Malawi through Pep Stores, an apparel chain store in Malawi;
• merger between Ethos Private Equity Fund VI and Corrugated and Tissue Divisions of Nampak Products Limited; and
• proposed acquisition of at least 51 per cent of shareholding of Gateway Insurance by Pan Africa Insurance Holdings Limited.

Anticompetitive practices

Anticompetitive business practices are generally defined as the category of agreements, decisions and concerted practices that result in the prevention, restriction or distortion of either actual or potential competition. Abuse of dominance and market power is an example of anticompetitive business practices and hence falls within the purview of the CFTA.³ Anticompetitive business practices are either illegal per se or illegal by rule of reason. A conduct is illegal per se if, regardless of its objective and effect or any justifications of the conduct, there is a presumption of harm on competition.

In the exercise of its mandate of regulating restrictive business practices, the Commission received and investigated complaints regarding conducts that were alleged to have an effect or likely effect of lessening competition in any given market.

In the period under review, the Commission registered 42 alleged violations of the CFTA that came to its attention through complaints submitted by stakeholders and through the Commission’s own observation of the markets. This figure represents a 61.5 per cent increase compared to cases reviewed in the 2013–2014 fiscal year.

Alleged anticompetitive business practices by the MASM

The Commission received a complaint from the Society of Medical Doctors in Malawi alleging that the Medical Aid Society of Malawi (MASM) was engaged in anticompetitive business practices. Specifically, the complainant alleged that the MASM delayed the payment of health service providers that treated MASM members; was involved in fixing prices; excluded MASM members who sought treatment from MASM Medi Clinics from paying shortfalls while requiring other health service providers to charge shortfalls on MASM members; and offered an automatic 20 per cent reduction on drugs from Michiru pharmacy and a 50 per cent reduction from Mwaiwathu Hospital. All of the anticompetitive business practices were confirmed by the Commission to have taken place, and subsequently the Commission ordered the MASM to cease and desist from engaging in those practices.

Alleged tying by Central Poultry 2000 Limited and Alpha Milling Company Limited

The Commission received a complaint from the Foods Company Limited alleging that Central Poultry 2000 Limited and Alpha Milling Limited were refusing to sell day-old chicks to farmers unless the farmers also bought chicken feed from them. The Commission found no sufficient evidence to support allegations against Central Poultry 2000 Limited but found sufficient evidence supporting allegations against Alpha Milling Limited, which manufactures chicken feed known by the brand name Proto Feeds. During its 39th meeting held on 4 August 2014, the Commission dismissed the case against Central Poultry 2000 Limited and issued a cease-and-desist order against Alpha Milling to immediately stop engaging in tying conduct, and issue public notice in line with the same.

Application by Chibuku Products Limited for authorisation of an exclusive dealing arrangement

The Commission received an application from Chibuku Products Limited (CPL) for authorisation of an exclusive dealing arrangement for its products. The Commission reviewed the application and found that although the arrangement would likely result in restricting competition in wholesaling of CPL’s products, there were some identifiable benefits to consumers from the arrangement.

Alleged predatory conduct by Chibuku Products Limited

On 30 October 2013 the Commission launched investigations into alleged predatory conduct by Chibuku Products Limited, as submitted by Chimera Breweries Limited. Specifically, Chimera alleged that Chibuku Products Limited was spying on operations of Chimera Breweries Limited and incited people in Chikwawa to block the establishment of their factory. During the investigations, the complainant failed to provide more information regarding the same, hence the case was closed.

Alleged price fixing by the Insurance Association of Malawi

The Commission launched an investigation on its own volition, following information alleging that the Insurance Association of Malawi engaged in the setting of premium rates and recommending the same to its members, contrary to section 32(1) and section 34(1) of the CFTA. The investigation was informed that the association’s conduct followed advice from the Registrar of Financial Institutions, who was concerned that some insurance companies were pricing below cost, and this led to the companies facing liquidity problems, among others. On its 40th meeting held on 30 October 2014, the Commission determined that the association engaged in a cartel and ordered them to cease and desist from the practice and make a public withdrawal of any recommended premium rates that might be in force. The Commission committed itself to engaging the Registrar of Financial Institutions to make the office aware of the provisions of the CFTA.

Application for authorisation of an exclusive distribution arrangement by Malawi Telecommunications Limited

The Committee reported that an assessment was conducted on the likely effect on competition of the proposed exclusive distribution arrangement by Malawi Telecommunications Limited (MTL). The Committee reported that the proposed exclusive distribution arrangement involves designation of distributors and wholesalers to distribute MTL’s products in designated areas. Identified distributors and wholesalers are strictly prohibited to sell the products outside their designated areas, but would permit other players like MTL to distribute their products directly in the designated territories. The arrangement also allows the distributors and wholesalers to distribute products of competing firms.

The Commission also found that the exclusive distribution arrangement would make sure that MTL’s recharge vouchers and other products are available in both rural and urban areas at uniform price. Having determined that the advantages outweighed the disadvantages, the Commission, during its 41st meeting held on 6 February 2015, authorised the exclusive distribution arrangement as requested by MTL.

Alleged unfair competition by NBS Bank in the disposal of Group Development Limited (GDL) to Gillanders Arbuthnot

The Commission received a complaint from Mike’s Trading Group alleging that the conditions that governed the disposal of Group Developments Limited (GDL) were discriminatory against them as a local bidder. The investigation found that Mike’s Trading Group was offered the opportunity to purchase GDL twice but failed to pay the price within the agreed dates. The agreement then fell through. When the bidding process was relaunched, Mike’s Trading was allowed to participate again, but Gillanders Arbuthnot was evaluated to be the winner. In both cases, the winner had an opportunity to negotiate the terms and conditions in the sale purchase agreement. The Commission found that there was no way conditions offered to one winner could have prevented another from buying GDL. On that basis, the Commission dismissed the case.

Consumer protection

The CFTA seeks to enhance consumer welfare through the creation of fair conditions for trade. The Commission has conducted awareness programmes to increase its profile as well as to inform the general public of the provisions of the CFTA. The awareness component is crucial for the success of the Commission because Malawi still has relatively high levels of illiteracy. In advocacy messages the crucial link between competition and consumer welfare is often repeated to enable public appreciation of the role of the Commission in protecting both the consumer and the companies.

Relevant cases

In the meantime, the CFTA is being implemented through the 2006 gazetted regulations, which are currently under review. However, from time to time the Commission makes reference to international best practices in the application of competition law when handling competition cases.

The Commission receives many cases on consumer violation. The most reported cases are on: excluding liability for defective goods; misleading conduct (eg, pricing, quality, characteristic, availability, suitability for a given purpose); misleading advertising; supply of harmful goods and goods that do not meet consumption standards; misrepresentation of products or supply of counterfeit products. The Commission processed 76 consumer complaints in the 2014–2015 financial year.

A high priority for the Commission has been placed on advocacy and information for all sectors, to encourage high compliance levels and respect for competition and consumer welfare in Malawi.

Alleged unconscionable conduct by ESCOM Limited

The Commission mediated in a case in which ESCOM unfairly transferred an outstanding bill of the previous occupant of a house to the new occupant. The investigations indicated that the previous occupant had accumulated electricity bills of up to 1.8 million Malawian kwacha. However, they were allowed to vacate the house without paying the bills. When the new occupant moved in, ESCOM immediately disconnected power and asked the new occupant to pay the outstanding bill.

Investigations conducted by the Commission established that ESCOM engaged in unconscionable conduct contrary to section 43(1) of the Competition and Fair Trading Act. In the course of the investigations, ESCOM arbitrary resolved the matter with the complainant. The new occupant was asked to pay the part of the bill that was incurred after the previous occupant had vacated the house, and subsequently, the power was reconnected.

Misleading advertising by TNM Limited

Information submitted to the Commission indicated that TNM Limited engaged in misleading advertising regarding the Moyo Cover insurance policy. This insurance policy was advertised as a free product offered by TNM in collaboration with Nico Life Insurance Company. The Commission investigated the matter after receiving complaints indicating that this information was misleading to the consumers because the insurance policy was not necessarily free. The subscribers were required to subscribe first, and then each month they had to purchase a minimum of 1,000 kwacha of airtime to be eligible for the insurance cover.

Investigations by the Commission into the complaint concluded that TNM did not engage in misleading advertising. The insurance cover was indeed free, and the subscribers were not charged anything. The minimum requirement of purchasing airtime of at least 1,000 kwacha per month was for registration purposes, and the subscribers could use this airtime on calls, SMS and data at the same rate as non-subscribers.

Supply of products that are likely to cause injury to health and physical harm to consumers by Carlsberg Malawi Limited

The Commission ordered Carlsberg Breweries Malawi Limited to improve their safety standards in the processing and packaging of their products, to ensure that they meet the minimum consumption and safety standards. The Commission engaged with Carlsberg following findings of investigations that indicated that the company had supplied products that were likely to cause injury to health and physical harm to consumers. Specifically, the findings showed that foreign objects were found in several bottles of some of the beverages manufactured by the company.

Following the Commission’s involvement, the company complied with the required standards and put in place quality assurance measures. Among others, these include: the replacement of obsolete and outdated production equipment; close monitoring of the production and packaging process; regular inspection of warehouses; regular staff training on quality and safety standards and regular consumer awareness campaigns.

Notes

1. This is 0.05 per cent of combined annual turnover or assets, whichever is higher.
2. Section 35 of the Competition and Fair Trading Act, 1998.
3. Section 32(1) of the Competition and Fair Trading Act, 1998.
4. Section 34(1)b(i) of the Competition and Fair Trading Act, 1998.