New Competition Amendment Bill gives Govt the right to block foreign investment in SA
On 12 July 2018, the South African Minister of Economic Development tabled the new Competition Bill, 2018 before Parliament, which proposes various amendments to the Competition Act. While many of the amendments set out in the Bill were foreshadowed in the version published for public comment last year, one significant addition not previously mooted is the proposed new section 18A of the Act.
Section 18A is entitled "Intervention in merger proceedings involving foreign acquiring firm". In broad terms, the section establishes a framework within which a committee appointed by the president (comprising cabinet members and other public officials) is given the power to decide whether or not a proposed transaction may proceed if it involves an acquisition by a "foreign acquiring firm" and relates to certain yet to be identified national security interests.
A "foreign acquiring firm" is defined as an acquiring firm which was incorporated, established or formed under the laws of a country other than South Africa; or whose place of effective management is outside the Republic. This latter portion of the definition is probably aimed at South African firms that have relocated their head offices from South Africa to other countries, an issue that has been of concern to government for some time.
This provision is likely to create significant uncertainty (and potentially a disincentive) for foreign investors.
For transactions that fall within the ambit of section 18A, a 'double notification' procedure is contemplated where the merging parties must notify the transaction to the committee prior to notification to the competition authorities.
The committee will have 60 days to consider and decide whether the proposed transaction "may have an adverse effect" on the national security interests of the Republic. The president may agree to extensions of this period, on good cause shown. The committee may then prohibit implementation of the merger or impose conditions. If it is prohibited, the jurisdiction of the competition authorities is ousted and they may not consider the transaction.
The President is required to identify and publish in the Government Gazette a list of national security interests of the Republic, including the markets, industries, goods or services, sectors or regions in which a merger involving a foreign acquiring firm must be notified to the Committee in terms of this section 18A.
In determining what constitutes national security interests, the president must take into account all relevant factors including the potential impact of a proposed transaction:
- On the Republic’s defence capabilities and interests;
- On the use or transfer of sensitive technology or know-how outside of the Republic;
- On the security of infrastructure, including processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of citizens and the effective functioning of government;
- On the supply of important goods or services to citizens, or the supply of goods or services to government;
- To enable foreign surveillance or espionage, or hinder current or future intelligence or law enforcement operations;
- On the Republic’s international interests, including foreign relationships;
- To enable or facilitate the activities of illicit actors, such as terrorists, terrorist organisations or organised crime; and
- On the economic and social stability of the Republic.
The committee is empowered to take into account other factors, including whether the foreign acquiring firm is a firm controlled by a foreign government.
Although this right of intervention in acquisitions by foreign firms exists in other countries, such as Canada, these powers of intervention in South Africa are novel. While South Africa has been one of the leading jurisdictions in relation to the role of public interest factors in merger control, this assessment has to date been conducted by the competition authorities themselves as an integral part of their assessment of a merger. The minister of economic development has had the power under the Act to intervene in the merger control process – effectively as an interested third party – where this is warranted on public interest grounds.
In recent years, in high-profile transactions involving the acquisition of South African entities by large international corporations, a practice has developed of first approaching the minister and entering into negotiations as to the type of commitments that might be appropriate to address the public interest grounds provided for in the Act.
However, the proposed section 18A goes further, as it will give a political body the power to prohibit a merger independently of the competition authorities and thereby prevent the ordinary merger control process from occurring at all. Alternatively, it may impose conditions prior to the assessment by the competition authorities.
Furthermore, the considerations that may be taken into account by the committee are extremely broad – the provisions go far beyond traditional public interest factors that have been the focus of legitimate ministerial intervention to date.
It is not clear whether merger parties will be required to self-assess whether a particular transaction needs to be notified to the committee or whether this will specified in regulations. In practice, it is likely that the Commission will act as a 'gatekeeper' and refer notifications back to the committee where it appears such a notification should have been made.
An area of uncertainty is the nature of the recourse (if any) that merging parties might have against adverse decisions of the committee. Section 18A does not expressly provide for any avenue of review or appeal.
The possibility of judicial review is likely to lie against decisions of the committee, but the basis on which such a review could be brought is less clear – an assessment would have to be made as to the nature of the committee as a decision-making body, and the appropriate standard of review that therefore ought to be applied. Having regard to the apparently politically-oriented and policy-laden nature its decision-making powers, the committee may well be subject to a less stringent standard of accountability when compared to the competition authorities themselves.
Jean Meijer is a Partner at Herbert Smith Freehills.