Mozambique: Overview

Mozambique keeps on its slow but steady path towards full-fledged enforcement of competition law. The first time the subject was addressed in the country was in July 2007 with the adoption of a communication stating Mozambique’s competition policy. At a time when the country started liberalising a number of key sectors and as groundwork to the free flow of trade within Southern African Customs Union, the goal was then to foster a competition culture by creating the adequate legal framework and an authority to enforce it.

The country has since adopted the Competition Act (approved by Law 10/2013 of 11 April), the Regulation putting in place the Competition Act (Decree 97/2014 of 31 December) and the Statutes of its Competition Authority (approved by Decree 37/2014 of 1 August).

The Mozambican legislation is to a large extent inspired by the Portuguese Competition Act of 2003, the predecessor of the Competition Act currently in force in Portugal. This is of course the result of the linguistic and historic ties between the two countries, as well as the welcome consequence of the institutional cooperation between the Portuguese competition authority and the Mozambican authorities.

More recently, in June 2015, Mozambique adopted Decree 79/2015, which sets out the charges due to the Mozambique Competition Authority (MCA) for a number of services, including merger filings.

Albeit in force as a matter of law, Mozambique’s Competition Act has not been applied in practice until now as the MCA is yet to become operational and the appointment of the members of its board awaits the decision of the Mozambican government.

It must, nonetheless, be stressed that public information suggests the MCA will be fully operational shortly. Should the MCA follow the example of other competition watchdogs in Africa, it can be expected to prosecute undertakings for actions taken before its operationalisation. Hence, companies should carefully plan and assess their practices having effects on the Mozambican market.

Institutional framework

The Statutes of the Mozambican competition authority (the Statutes) entrust the MCA with regulatory, supervisory and sanctioning powers.  Its institutional design follows the structure of most European watchdogs.

The MCA holds powers typical of competition authorities, including to the power to interview the legal representatives of companies involved in a suspected breach of competition law, to request documents and other items of information, to carry out searches (‘dawn raids’), examinations and seizure of documents in the premises of companies and to seal-off the premises of undertakings.

MCA’s decision-making body is the board. The board is composed of its president and four other members, appointed by the government for five-year terms (renewable once). However, day-to-day activities will likely be in the hands of the directorate-general, its investigation branch. Lead by a director-general appointed by the president of the board, the directorate-general will comprise a number of departments, including the mergers and market monitoring department, the antitrust department and the economic studies department.

It bears emphasis that, soon after its adoption, the Statutes were amended by Decree 96/2014, of 31 December. The amendment aimed at increasing the independence of the MCA by means of clarifying its financing mechanisms. It was set that the MCA would receive 5 per cent of the fees charged by a number of sector-specific regulators. For the benefit of transparency, the MCA is obliged to publish an annual report of its activities and to submit it to both the government and the parliament. The MCA is also due to publish on a yearly basis its enforcement priorities.

Until the Mozambican government appoints the members of the MCA’s board, the main question facing practitioners consists in second-guessing how exactly the MCA will apply its powers. Bearing in mind that the Competition Act follows closely the Portuguese Competition Act both in wording and in structure, it is reasonable to expect that the MCA will rely to a large extent on the decisional practice of the Portuguese competition authority. The language factor will unquestionably play a critical role in this respect, in addition to the fact that the Portuguese competition authority keeps a close relationship with Mozambican authorities. Not only are the two countries members of the Lusophone Competition Network, as they have also signed a protocol of technical cooperation in competition matters in August 2010.

Antitrust

The Competition Act explicitly covers anticompetitive agreements, both horizontal (such as price fixing or market sharing) and vertical (such as resale price maintenance and discriminatory pricing). It further sets forth a prohibition of abuse of a dominant position, namely to refuse access to an essential facility, to break a commercial relation in an unjustified manner or to sell goods below cost. The Competition Act considers an undertaking to hold a dominant position when it operates in the market without facing significant competition or when it has a prominent position in the market. The Regulation defines the concept by setting out that an undertaking is deemed to hold a dominant position if its market share is above 50 per cent. However, should the market have strong barriers to entry, undertakings holding a market share below 50 per cent could still be considered to hold a dominant position. In practical terms, when the criteria are fulfilled there is a rebuttable presumption that the undertaking holds a dominant position and it is up for the undertaking to demonstrate otherwise. Accordingly, undertakings that find themselves close to such threshold may wish to carefully consider the effects of their commercial tactics vis-à-vis competitors.

The Competition Act also prohibits the abuse of economic dependence of a trading partner. The concept corresponds to the exploitation by an undertaking of one of its trading partners (either a supplier or a customer) when such trading partner has no ‘equivalent alternative’ to the undertaking’s services in order to obtain or to distribute a certain good or service.

Like many competition law systems (most notoriously that of the EU until 2004), the Competition Act allows for temporary exemptions from the prohibition of the anticompetitive practices. However, practices deemed an abuse of economic dependence cannot be granted such an exemption.

In order to obtain an exemption, undertakings are bound to submit a request for prior assessment by the MCA. An exemption may be granted if the undertaking is able to successfully demonstrate that (i) the objective of the practices at stake will either lead to efficiencies (eg, to speed up economic development or to lead to a better allocation of resources) or is relevant for public interest reasons (eg, to promote national products and services or exports); (ii) the practices at hand are not liable to eliminate competition; and (iii) they do not impose restrictions on competition which are not strictly indispensable for the attainment of their objective.

In accordance with Decree No. 79/2015 of 5 June, exemptions are subject to an annual fee of 150,000 meticais, on top of the 200,000 meticais fee due for the initial request. This is an unusual solution when compared with the more common one-off fee model in those jurisdictions charging a fee for this kind of service.

Merger control

The Competition Act and the Regulation put forward a merger control regime similar to those in force in the Europe Union and provide for mandatory filing in some circumstances.

Concentrations between undertakings (ie, mergers, acquisition of control and creation of a full-function joint venture) are subject to prior notification to the MCA when they fulfil one of the following conditions:

(i) as a consequence of the concentration, a market share equal to or higher than 50 per cent of the domestic market in a specific product or service, or in a substantial part of it, is acquired, created or reinforced;

(ii) as a consequence of the concentration, a market share equal to or higher than 30 per cent but lower than 50 per cent of the domestic market in a specific product or service, or in a substantial part of it, is acquired, created or reinforced in the case where the individual turnover in Mozambique in the previous financial year, by at least two of the undertakings involved in the concentration, is higher than 100 million meticais, net of taxes directly related to such turnover; or

(iii) the undertakings involved in the concentration reached an aggregate turnover in Mozambique in the previous financial year higher than 900 million meticais, net of taxes directly related to such turnover.

In view of the low thresholds as regards the parties’ turnover in Mozambique (particularly as concerns criteria (iii)), undertakings with limited or occasional business activities in Mozambique may easily be caught by the obligation to file transaction with the MCA.

In terms of procedure, the regime is quite similar to the Portuguese merger control regime. It provides for an investigation divided into Phase I (which may last for up to 30 days) and, when deemed necessary, a Phase II (which may last for up to 60 days). Such time limits are suspended in case of: (i) requests for further information (which stop the clock until the parties provide the MCA with the requested information), (ii) submission of remedies by the parties (which stop the clock for 30 working days), and (iii) submission of observations by interested third parties. However, unlike most merger control regimes elsewhere, the Mozambican procedure sets forth an additional 30-day phase during which the board of the MCA is due to adopt a formal decision on the transaction.

As regards the substantial test, the Mozambican regime mirrors the pre-2004 world in the EU and in most of its member states. It is rather focused on determining whether a dominant position will either emerge or be reinforced as a result of the transaction. Some (limited) room is left, however, for the equivalent to the substantial-lessening-of-competition test.

One of the most notorious (and striking) aspects of the merger control regime is the fact that the MCA may on its own motion require the notification of a concentration that does not meet the threshold for mandatory filing. It is entitled to do so within six months of the public announcement if it deems that the transaction may significantly hinder competition. The MCA must take a formal decision within 60 days but until then the parties must refrain from implementing the transaction.

Last, but by no means least, it must be noted that the recent Decree 79/2015 of 5 June set the merger filing fee at 5 per cent of the annual turnover of the participant undertakings. In cases of acquisition of exclusive control, the obligation to notify rests on the acquiring party. The fee is therefore, in principle, calculated on the basis of its individual turnover. However, in cases of mergers, acquisitions of joint control and creation of joint ventures, the duty to notify rests on all parties involved. Thus, it appears that the filing fee is due by all parties and calculated on the basis of all companies’ turnovers. This move is certainly far from encouraging M&A activity in Mozambique and raises questions as to how far compliance pays off when compared with gun jumping.

Penalties

As in most jurisdictions, in Mozambique competition law infringements may be subject to severe penalties. Undertakings may be subject to fines of up to 5 per cent of their annual turnover if they are found to have entered in a restrictive agreement or other restrictive practices (such as abuse of dominance or of economic dependence), or to have breached the obligation of prior notification of a concentration. As bizarre as it may seem, the fine in the latter case may be lower than the actual filing fee.

Undertakings are further liable to fines of up to 1 per cent of their annual turnover if they refuse to cooperate with or provide information to the MCA, or are found to have provided false, inaccurate or incomplete information. Likewise, failure to notify a concentration within seven business days of its completion is also punishable with a fine of up to 1 per cent of the turnover of the parties involved.

While the Competition Act explicitly sets out the criteria that must be complied with for the determination of the amount of a fine, once operational the MCA is further due to publish more specific guidelines.

Moreover, should the MCA conclude that the infringement is of particular severity, it may also apply ancillary penalties, including the publication of the penalty in the national gazette and in one of the newspapers with the highest circulation in the relevant geographic area (national, regional, or local) and impose restrictions on participating in public tenders for up to five years. More striking, however, is the fact that the MCA is entitled to impose the spin-off of an undertaking, the transfer of shareholder control, the sale of assets, a winding-down of activities or to take any other act or measure which it deems necessary to eliminate harmful effects on competition.

The Competition Act further allows the MCA to impose periodic penalty payments on undertakings of up to 5 per cent of their average daily turnover. Such measure shall only be applied if objectively necessary and in cases where an undertaking (i) fails to comply with a decision imposing either sanctions or the adoption of specific measures; or (ii) does not respond, or responds with false statements, to an MCA’s request for information during a merger control proceeding.

It should be noted that the MCA’s decisions are enforceable titles. Accordingly, should an undertaking fail to comply with the decision within the deadline set, the MCA will be free to require the decision’s enforcement before the Tax Enforcement Court.

Judicial review

Pursuant to article 45 of its Statutes, the decisions of the MCA are subject to judicial review. Decisions including the application of fines or other sanctions may be appealed to the Judicial Court of the City of Maputo. Decisions concerning merger control or exemptions can be appealed to the Administrative Court.

It must be stressed that while the appeal against decisions of the MCA generally suspends the effects of the decision, the appeal against decisions imposing fines does not. In such cases, the addressee of the decision can request the court to suspend the effect of the decision but has to prove that the implementation of the decision would cause serious damage. The appellant will in any case be required to provide a guarantee.

Conclusions

At the moment, a significant degree of uncertainty surrounds the application of competition rules in Mozambique due to both the novelty of the legislation and the question marks around the establishment of the MCA. The wording of both the Competition Act and the Regulation on certain aspects adds further uncertainty.

Accordingly, the most advisable approach for undertakings operating in Mozambique is to carry out thorough self-assessment exercises in regard to their commercial practices and to judiciously analyse future steps with an impact on competition.