South Africa on a clear path to benefit from trade in manufactured goods with other African countries

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By Virusha Subban, Partner Specialising in Customs and Trade, Baker McKenzie Johannesburg

President Cyril Ramaphosa outlined the country’s Economic Recovery Plan on Thursday 15 October 202o, during which he explained that South Africa  imported goods (excluding oil) are worth around ZAR1.1 trillion annually, and that if just 10% of these were manufactured locally, the country would add 2% to its Gross Domestic Product (GDP). Further he said that the rest of Africa currently imported ZAR 2.9 trillion in manufactured goods from outside the continent, and if South Africa could supply 2% of those goods to its African peers, it would add 1.2% to its GDP. The African Continental Free Trade Agreement (AfCFTA), which entered into force on 30 May 2019, will streamline intra-African trade in manufactured goods. The first commercial deal of the world’s biggest free-trade pact is set to take off soon, on 1 January 2021.

Baker McKenzie’s research, compiled in conjunction with Oxford Economics, AfCFTA’s US$ 3 trillion Opportunity (report), looked at African imports from outside the continent and revealed that manufacturing products, industrial machinery and transport equipment constituted over 50% of Africa’s combined needs. Currently, Africa’s most important external suppliers of manufactured goods are Europe (35%), China (16%) and the rest of Asia including India (14%). By contrast imports from other parts of Africa account for only 16% of total merchandise imports.

The report also revealed that over three quarters of African exports to the rest of the world were heavily focused on natural resources, primarily raw materials. The report compared Africa’s 20 largest economies in terms of the share of exports destined for other economies on the continent. Some economies, such as Uganda and Zimbabwe, bucked the overall trend, trading more with their neighbours than other African nations do. Yet, their economies are small in contrast to those of Egypt, Nigeria and South Africa, which together represent more than half of the continent’s GDP. Egypt and Nigeria, for instance, have very limited trade relationships with their African peers. As major fuel exporters, they are focused on exports outside the continent.

Manufacturing GDP represents on average only 10% of GDP in Africa. This means that limited production capabilities within Africa are currently being compensated for through foreign imports. Yet, this manufacturing deficit could be eventually satisfied within the continent and enabled by AfCFTA. Manufactured products currently exported to African countries by their peers, primarily industrial machinery and motor vehicles, represent a third of the total trade flow in Africa. But a significant share of these intraregional exports of manufactured goods are re-exports of imported manufactured products from the rest of the world.

This shows that African nations do not trade more with each other because of a misalignment between what various African countries need and what is produced on the continent. This misalignment signals missed opportunities to reduce foreign imports from outside Africa and increase trade flows within the continent.

South Africa stands to maximize the benefit from AfCFTA with regards to future growth and further trade expansion, due to its existing strong connections across the continent and its already well-established manufacturing base. Smaller economies, such as those of Ghana and Côte d’Ivoire, also stand to benefit from the agreement due to existing favourable conditions, such as having open economies, good infrastructure and supportive business environments, and they could also quickly ramp up their intracontinental exports.

For AfCFTA to succeed fully, more countries need to diversify their production of goods to better match the import needs of their continental neighbours. As such, President Ramaphosa’s plan to increase trade in manufactured goods with other African countries is the right approach.

 

All That Glitters Is Not Gold: The Slow Uptake of The Covid-19 Loan Guarantee Scheme in South Africa  

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Chantel van Zyl, Senior Associate, and Penjani Mseteka, Associate, Banking and Finance Practice, Baker McKenzie, Johannesburg

Following the economic downturn and immense pressure placed on businesses as a result of the worldwide COVID-19 pandemic and ensuing global lockdown, National Treasury, the South African Reserve Bank (SARB) and the Banking Association of South Africa (BASA) announced the launch of the COVID-19 Loan Guarantee Scheme (the Scheme) on 13 May 2020. The aim of the Scheme was to provide financial support to distressed businesses with a turnover below ZAR300 million. The National Treasury initially provided a ZAR100 billion guarantee to the Scheme with an option to increase the guarantee to ZAR200 billion, depending on the success of the Scheme.

 COVID-19 Loan Guarantee Scheme: Phase I

Although the National Treasury has taken a significant portion of the risk, the participating commercial banks do not receive full guarantees for each loan and therefore carry a portion of the risk if the qualifying business is unable to repay its loan under the Scheme. Currently Absa, Bidvest Bank, First National Bank (FirstRand), Grindrod Bank, Investec, Mercantile Bank, Nedbank, SASFIN Bank and Standard Bank are participating in the Scheme. The main purpose of the loans is to enable businesses to withstand the economic pressures of the COVID-19 pandemic by having access to borrower-friendly loans for operational expenses.

In terms of the Scheme, SARB has received a guarantee from National Treasury and SARB has lent money to commercial banks at the repo rate plus 0.5%. The commercial banks then on-lend the money to struggling businesses at the repo rate plus 3.5%. The conditions of the funding were, amongst other things, that the businesses needed to:

  • have a turnover of less than ZAR300 million;
  • be existing bank clients;
  • be financially distressed as a result of the COVID-19 pandemic;
  • be registered with the South African Revenue Services (SARS);
  • apply for only one loan; and
  • repay that loan over a five-year period.

Despite Government’s hope that the Scheme would provide much needed relief to depressed business and boost the economy, by July 2020, only a small portion of the available funds had been disbursed to businesses. As at July 2020, of the approximately 35 000 entities that applied for loans only 8 000 received funds under the Scheme.

National Treasury believed that the slow uptake was due to a critical flaw in the Scheme’s design. Ultimately, the commercial banks that were tasked with disbursing loans to qualifying candidates were using their traditional creditworthiness checks. This was problematic as the purpose of the Scheme was to assist businesses financially distressed due to COVID-19, yet those businesses that so desperately required assistance did not qualify for such assistance.  The Scheme failed to address the requirement to ease creditworthiness assessments, whilst still ensuring that the banks could provide credit in a responsible manner to candidates that are likely to be able to repay the loans.

Another serious critique of the Scheme was the slow processing of loan applications. Considering that the purpose of the loans was to assist distressed businesses with paying pressing obligations, such as salaries and rentals, the long processing time meant that the Scheme was not as useful to businesses as had been expected prior to its launch.

 COVID-19 Loan Guarantee Scheme: Phase II

 As a result of the slow uptake of the potential ZAR200 billion in funding, the Scheme was revised to make loans more attractive to businesses. On 26 July 2020, Treasury, SARB and BASA announced various changes to the Scheme to make funds more accessible to the public. The most notable change to the Scheme was the cancellation of the requirements for applicants to have a turnover of less than ZAR300 million. Instead of the turnover limitation, the Scheme has introduced a maximum loan amount of ZAR100 million per business. Banks have the option to syndicate funding greater than ZAR50 million, thereby distributing the risk of larger loans across multiple banks.

Whilst banks cannot disregard their internal credit assessment methods, they have agreed to embrace the emergency spirit and object of the Scheme by being more discretionary when determining the creditworthiness of candidates. In that vein, another amendment to the Scheme was introduced, namely, the relaxation of the good standing requirement. Provided that a business was in good standing with its bank as at December 2019, instead of February 2020, the business would have passed the good standing check. Another, more attractive feature of the revamped Scheme is that businesses can access the loans over six months, instead of the original requirement that the loan be used within three months. Importantly, the Scheme has extended the capital and interest repayment holiday to six months after the last utilisation, effectively doubling the previous payment holiday period of three months after final utilisation.

The first deal under AfCFTA gets under way as negotiators adapt to new virtual reality

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By Virusha Subban, Partner specialising in Customs and Excise at Baker McKenzie in Johannesburg

The African Union (AU) announced in August that negotiations around the first commercial trade deal under the African Continental Free Trade Area Agreement (AfCFTA) would be finalised by January 2021. The trade agreement was due to launch on 1 July 2020 but was understandably delayed due to the impact of COVID-19 on logistics and trade in the region. The AU, which is leading discussions around first AfCFTA deal, noted that negotiations would take place via a new African Virtual Trade-Diplomacy Platform, allowing parties from across many different timelines to meet in a secure online environment.

The physical constraints of doing deals during global lockdowns has made negotiation and due diligence more difficult for all dealmakers, but virtual teleconferencing services have done much to address the logistical challenges and have provided the ability for parties to continue negotiations efficiently. Africa’s new virtual trade platform is a service that is likely be of great benefit in speeding up negotiations across vast regions, housing many different cultures, languages and legal frameworks. Its effective use could lay the foundations for more efficient cross-border negotiations in many other Africa-wide commercial and governmental trade initiatives going forward.

The trade in technology services is an especially pertinent area of focus for all countries in Africa that are in the process of adapting to a virtual, post-pandemic reality. Currently, services traded between African countries are mostly limited to the transport sector. Other notable sectors offering a trade in services include energy, financial services, infrastructure development and tourism. These are largely contained between the continent’s main economic hubs: South Africa, Morocco, Egypt and Nigeria. In contrast, trade in services globally is oriented towards the information and communications technology and financial sectors.

Debates on trade liberalization are often focused on trade in goods, but the liberalization of trade in services can be equally important for the welfare of African countries. According to research from Baker McKenzie and Oxford Economics, AfCFTA’s US$ 3 trillion Opportunity, Africa’s trade in services could represent a way to overcome the current production and industrialization limitations that threaten to hold up the Africa-wide trade in goods. Because a service can either be traded directly or serve as an input into the production process of a product, the liberalization of trade in services is not as hindered by current infrastructural or logistic deficits as the trade in goods. In this way, Africa’s service trade sector can benefit from bypassing the industrialization phase.

The research shows that the trade in services is especially promising, considering the services sector currently accounts for over half of gross value added in Africa. The increasing importance of services across the continent also suggests Africa could accelerate this growth in the future through AfCFTA. In order to fully realise such benefits, however, there needs to be a better understanding among policymakers of the important role that services can play in regional value chains. This will allow the continent to address the structural constraints on growth in these sectors. The report notes that easing restrictions on foreign government policy throughout the continent will increase the flow of service trade between countries. For example, allowing more access to the information and telecommunications systems would encourage companies to enter new markets.

The report shows, for example, that lowering the cost of access and usage of communication and fortifying network security will encourage businesses to set up or ramp up operations in the continent. According to the report, currently more than 22% of African countries have higher data costs for 1GB of mobile data than the average for the rest of the world, with a Cable report in 2019 noting particularly high data costs in Zimbabwe, Equatorial Guinea, Saint Helena and Djibouti, for example. The high costs and limited availability or reliability of data connectivity pose a barrier to players entering the technology services market and increases the risk of unreliability and lack of efficiency for those in the market.

Ways to more effectively leverage the trade in services in Africa is likely to receive significant attention as virtual negotiations around the first AfCFTA deals get under way. In the meantime, the finalisation of the first deal deserves to be celebrated for its significance – it signals the beginning of an exciting new global trading zone in a post-pandemic world.

Focused intervention is critical in the fight against HIV and AIDS in Tanzania

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The incidence of AIDS-related deaths has halved in Tanzania since 2019, however the disease is still at epidemic proportions, with an estimated 1.6 million people in the country, living with HIV and AIDS. HIV is highly prevalent in the southern highlands of Tanzania, with infection rates of 11.4% in the Njombe region – more than double the national average of 4.9%.

USAID Boresha Afya – Southern Zone Programme

Organisations such as the United States Agency for International Development (USAID), are supporting Tanzania’s people, and government, in the fight against HIV and AIDS. In 2016, the agency announced the launch of the USAID Boresha Afya – Southern Zone Programme, specifically targeting HIV/AIDS in southern Tanzania.

The programme, managed by Deloitte Tanzania, is an intensified collaborative, and co-ordinated approach, implemented with the vision to fight HIV and AIDs in Tanzania through an integrated platform for the delivery of health services to the region, as well as maximising on the many resources of government, including health facilities, and community initiatives. Due to run until 2021, it has been implemented in 43 councils in the Iringa, Njombe, Morogoro, Lindi, Mtwara and Ruvuma regions.

USAID Boresha Afya leverages multiple role players to achieve maximum impact in the area. Working closely with people living with HIV is vitally important in an area where being HIV positive carries considerable stigma. Working with technical partners on the ground, including scores of peer educators, health facilities, and professionals, is a mammoth task, requiring large-scale project management skills, resources and experience. To manage the effective and transparent deployment of the considerable financial resources provided by US taxpayers, USAID engaged Deloitte Tanzania, to plan, implement and oversee USAID Boresha Afya over its five-year lifespan.

Sustained efforts for measurable progress

Working under Deloitte’s skilled and experienced direction, health officials and non-governmental organisations are making slow but very measurable gains in communities, villages and towns. These are achieved through a targeted approach towards truly effecting healthcare interventions that include regular, sustained follow-ups with members of the community living with HIV on their anti-retroviral treatment, and reaching their sexual partners.

Deloitte Tanzania’s responsibilities include ensuring impact through accountable delivery, and monitoring the programme’s effectiveness. Owing to programme interventions, as of September 2019, approximately 203,931 HIV positive clients were on anti-retroviral therapy (ART), equivalent to almost 19% of over 1.1 million Tanzanians on ART. In a similar vein, the programme had managed to lower clinical malaria cases to 0% in Lindi, Mtwara, Morogoro and Ruvuma regions, as a result of the programme’s intervention.

Headed by Deloitte’s Consulting Partner in Tanzania, Carlton Jones and Chief of Party, Dr Marina Njelekela, the dedicated team of 229 individuals including support staff, are ensuring that the USAID Boresha Afya programme is on track to help Tanzania achieve its commitment to UNAIDS’ 95-95-95 target to end AIDS. That target envisages that, by 2030, 95% of people living with HIV will know their status; 95% of those diagnosed will receive ongoing antiretroviral therapy, and 95% receiving treatment will have achieved viral suppression.

In southern Tanzania, it is now – finally – becoming possible to believe in a generation without AIDS

South Africa: Commission Issues Buyer Power Enforcement Guidelines

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South Africa: Commission Issues Buyer Power Enforcement Guidelines

By Angelo Tzarevski, Senior Associate,  and Ryan McKerrow, Associate, Competition & Antitrust Practice, Baker McKenzie, Johannesburg

On 18 May 2020, the Competition Commission of South Africa (Commission) announced the release of its Buyer Power Enforcement Guidelines (Guidelines). The Guidelines are a response to amendments to the Competition Act (Act) that took effect in February this year, introducing a prohibition against the abuse of buyer power by dominant firms (Amendments). They also build on the Buyer Power Regulations (Regulations), which were published at the same time that the Amendments came into play.

Economic Protection of SMEs and HDPs

The prohibition against the abuse of buyer power is geared towards uplifting small and medium enterprises (SMEs) and firms controlled or owned by historically disadvantaged persons (HDPs). This is intended to be achieved by preventing exploitation by dominant firms, which might, in the absence of the Amendments, be tempted to leverage bargaining power asymmetries to impose unfair prices or other trading conditions on the SMEs or HDPs that supply them. Notably, the prohibition applies only to specific sectors designated by the Minister of Trade, Industry and Competition, which currently include the agro-processing, grocery wholesale and retail, and ecommerce and online services sectors.

The economic protection of SMEs and HDPs speaks to one of the primary objectives of the Act, which is to provide an opportunity for all South Africans to participate fairly in the national economy. Competition Commissioner Tembinkosi Bonakele points out that economic inclusion is not just a social imperative, but also a platform for more competitive and dynamic markets, greater economic growth and increased employment.

Commissioner Bonakele notes that the Guidelines are timely, given that the fair participation of SMEs and HDPs in the economy is under increased threat as a result of the COVID-19 national disaster. In particular, the widespread effects of the national disaster give rise to a growing concern that powerful buyers might attempt to shift their own economic hardship onto their suppliers. The Commission has already taken enforcement action in the dairy industry on this basis and is poised to implement further enforcement measures in other parts of the food value chain and in the online services industry.

The Commission’s Approach to Buyer Power

The Guidelines provide an indication of the general principles that the Commission will apply when assessing whether impugned conduct contravenes the prohibition against the abuse of buyer power. This is primarily intended to provide certainty to firms seeking to comply with the requirements of the Act, but will also inform those seeking to lodge or defend abuse-of-buyer-power complaints.

In terms of the Guidelines:

  1. the Commission will assess impugned conduct by reference to its effects on the relevant suppliers, rather than effects felt by the final consumers of the products concerned;
  2. in determining whether a price or trading condition is fair, it is not necessary for the Commission to have regard to the challenges faced by a supplier or to its efficiencies;
  3. trading conditions will generally be unfair if they are one-sided, onerous or disproportionate to their stated objective, and if they unreasonably transfer risks or costs onto suppliers; and
  4. while there is no materiality threshold in respect of the harm caused by the abuse of buyer power, the Commission is likely to focus on more material cases, including those impacting a larger number of suppliers.

Unfair Prices

In line with the Regulations, the Guidelines provide that the Commission will consider, amongst others, two broad benchmarks in assessing whether a price is fair: (i) the price paid to other suppliers of like products; and (ii) the price previously paid to the same supplier for the product concerned.

In respect of the first of these benchmarks, where the price under scrutiny is materially lower than those paid to other suppliers of like products, the Commission is likely to find this price unfair, unless the dominant buyer can establish an objective justification for the difference in prices paid. A price difference in excess of 3% will pass the Commission’s initial screening process. This threshold is slightly more generous than the 5% threshold contemplated in the draft guidelines, which were released for public comment in October last year.

In respect of the second benchmark, the Commission will consider whether there has been an unfair reduction in the price paid to a supplier, either through a direct price reduction or by imposing costs on, or requiring rebates from, a supplier, which reduces the effective price paid to the supplier. Again, the Commission will screen complaints on the basis of a 3% differential, and an objective justification can be put up in defence of a price reduction that passes the screening process. However, in this regard and of particular relevance during the COVID-19 crisis, the Guidelines indicate that market shocks will not provide a blanket justification for transferring costs and risks to suppliers. The burdens accompanying market shocks are generally expected to be fairly distributed throughout supply chains, rather than concentrated on those with less bargaining power.

Unfair Trading Conditions

The Regulations provide that the fairness of a trading condition imposed on a supplier may be determined with reference to three considerations: (i) whether the trading condition unreasonably transfers risks or costs to the supplier; (ii) whether it is one-sided, onerous or dis-proportionate to the objective of the particular clause concerned; and (iii) whether it bears no reasonable relation to the objective of the supply agreement.

The Guidelines indicate that the Commission will have regard to the above considerations when assessing the fairness of a trading condition, but that these considerations are not exhaustive and may be supplemented as the Commission’s experience in buyer power matters grows. Further, the Commission will also have regard to the specific types of trading practices identified in other jurisdictions as being unfair.

The Guidelines also provide provisional, non-exhaustive lists of trading terms that are likely to be considered an abuse of buyer power when applied in particular sectors. For example, in the agro-processing and grocery wholesale and retail sectors, a term enabling a buyer to pay a supplier later than 30 days from delivery is considered unfair. An example of an unfair trading practice in respect of the ecommerce and online services sectors is the failure of a provider of such services to suppliers to provide the terms and conditions of operating on the services in plain and intelligible language.

Avoidance

Importantly, the Act prohibits a dominant firm from avoiding or refusing to purchase products from an SME or an HDP in order to circumvent the unfair pricing and trading conditions prohibitions described above. The Guidelines are particularly instructive in the interpretation of the prohibition against avoidance in so far as they set out a non-exhaustive list of factors that the Commission will consider in assessing whether the dominant firm’s rationale for avoiding or refusing to purchase products is to circumvent the unfair pricing and trading conditions prohibitions.

Looking Forward

The Guidelines are certainly a valuable tool for assessing the Commission’s appetite for, and likely approach to, buyer power cases. Dominant buyers are encouraged to have regard to them when engaging with SMEs and HDPs in the designated sectors.

Having said that, the Guidelines should be treated with caution. The Guidelines are not legislated and, therefore, cannot be construed as providing any safe harbours for avoiding prosecution or automatically resulting in a contravention of the Act if they are not strictly adhered to. The Guidelines are merely indicative of the likely approach of the Commission and do not provide a prescriptive indication of how the Commission will respond to particular conduct.

Moreover, it should be borne in mind that the prohibition against the abuse of buyer power is an entirely new concept in South African law. Accordingly, there will be an inevitable element of uncertainty in its application by the competition authorities in the immediate future. Nevertheless, with time it is anticipated that the authorities will build a body of jurisprudence in this area, providing more clarity on their approach to buyer power cases and much-needed business certainty, both for dominant buyers and for SME and HDP suppliers

Locking Down Legal Proceedings During COVID-19

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By Darryl Bernstein, Partner and Head of the Dispute Resolution Practice, Rui Lopes, Associate, and Nothando Mthimkhulu, Candidate Attorney, Dispute Resolution Practice, Baker McKenzie Johannesburg

There is no doubt that the COVID-19 pandemic has created widespread uncertainty for businesses around the world. During this time, many businesses have been faced with a mounting risk of potential legal disputes and drastically changed circumstances, to which have had to adapt in order to survive.

In response to the spread of COVID-19 in South Africa, the government implemented various measures and regulations to contain and limit the spread of the virus. President Cyril Ramaphosa, in his address on 23 April 2020, announced that the country would implement a risk-adjusted alert level system. This system determines the level of restrictions to be imposed on the country as the economy gradually reopens. The higher the risk, the more extensive the restrictions. As the country moves to the lower risk levels, a lot of these restrictions will ease up, allowing more industries to operate, with more extensive movement allowed. During level 4, the country’s borders have continued to be closed and no cross-border travel has been allowed. This has posed difficulty for businesses who had planned to begin operating as normal, especially those transacting across borders. As restrictions ease, such difficulties could result in a rise in the number of disputes being brought before the courts.

During levels 5 and 4 of the lockdown, litigation continued, subject to certain conditions contained in the Directions released by the Minister of Justice and Correctional Services (Directions) on 26 March 2020, as part of the Disaster Management Act 57 of 2002. According to the Directions, access to courts was restricted to only matters that were essential and urgent, which included: service and execution of court orders relating to COVID-19; service of domestic violence protection orders; service of process relating to claims prescribing and all eviction, execution of attachment orders, etc. As South Africa prepares to move into level 3 of the lockdown, it is anticipated that further updates from government regarding these restrictions might be forthcoming.

Due to the restrictions placed on legal proceedings by the courts and the expected resultant backlog, businesses considering legal action during the lockdown should ensure that litigation is the best platform to address the matters they face, and consider whether there are other forms of virtual dispute resolution that could be used to resolve these matters more efficiently. For example, various legal practitioners have proposed a move towards an online court system, which would allow parties to a matter to mediate online via video conferencing tools. In addition, parties to a dispute are able to negotiate via video conferencing or teleconferencing calls instead of the usual face-to-face format, if all parties have access to the right technology and infrastructure needed to conduct the negotiation in this way. Further, legal practitioners have been making use of CaseLines, an electronic case management and litigation system introduced in the Gauteng High Court in January this year, which allows lawyer to easily access and store legal documents needed in a legal case.

Adaptable businesses that engage with legal advisors who are able offer virtual, cross-border legal advice and solutions will be more successfully able to address current challenges around the resolution of disputes, during the pandemic and beyond.

The COVID-19 situation as vector to the emergence of an SME based economic model in Mauritius

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By Rishi Foolell, Freelance Management Consultant and Trainer with a background in BPO

Bridging the socio-economic gap in anticipation to catalyzing national economy and exalting macro business escalation

PART I

A great man once had a dream for his country. He envisioned a population of entrepreneurs contributing to the economic breakthrough of a nation solely dependent on international imports. People, all we had were people, but he saw these people as an asset to the socioeconomic growth of a booming nation. The breakthrough never materialized. Did the dream die? Say the least not in the actual circumstances. The Covid-19 situation has pioneered perspectives that have remained latent all through the last twenty or so years. We have witnessed the limitations of the private sector as a generator of long-term employment as much as the limitations of the government to attenuate social discontent towards prophesied labour downsizing. The government is not a bottomless well of funds and cannot be partisan to either the private sector or the lambda citizen. Economic prosperity cannot be the ground of social unrest, nor can social disintegration be the pebble in the toe to economic continuity. An economy that erects itself at the expense of social integrity is one that collapses sternly at the end of the line, but it is as true that businesses are set up to generate returns and profits. And this is exactly the hot spot where hammer hits steel. If the circumstances are moulded where the civil society is driven towards self-productivity and wealth generation we can anticipate the ascent of a prosperous economy within a healthy social environment. What if a government could bridge the gap between the elite and the precarious? What if the elite tutor a business culture that could revive the entrepreneurship dream of the late 90’s? What if the precarious could aspire to economic self-sufficiency? The implications could be seminal in engendering an unruffled socioeconomic environment, for social stability is undeniably the fuel to a flourishing economy.

Though the pillar of our national economy, the private sector has reached a saturation point when it comes to capitalizing on domestic investments, and as countermeasure has started regionalizing its operations and investments in view to optimize profitability. Africa is the new land of abundance and Mauritian companies have already set foot in diverse economic endeavours on the continent with the undeterred support of the state. A brilliant step towards economic prosperity. The private sector can only sublime in these conditions. But it is a dire reality that companies cannot perpetuate themselves without a stronghold within their domestic markets. In times of crisis, we retreat within the security of our homes and await the storm to pass. Same applies to businesses with externalized markets. In international crisis times they can retreat to their domestic markets and sustain viability until situations clarify. But how to ensure viability if the domestic market is shredded by social unrest and precarity? The tourism sector is one amongst numerous vivid examples. Return to normality is nowhere near. The local market is the logical recourse to viability. But in circumstances where the common citizen strives in the anticipation of losing his financial independence it will be challenging to generate revenues through domestic sales. As long as we have a population that relies solely on incomes secured from an employment within the private sector, we will not make the grade to a consolidated domestic market. With the Covid-19 situation, the private sector, partnered with the state, is being given the opportunity to conciliate economic downsizing and long-term viability. A few figures never harmed intellect. Canada : 77% of new jobs within a span of ten years fostered by SMEs with a yearly average of 40% contribution to GDP. 64% new jobs in the US with a mean of 44% contribution to GDP. EU with 70% job creations and 40% contribution to GDP. It is no more a debatable fact that SMEs boost competitiveness, drive innovation and generate wealth. Within an SME-based economy, macro companies are guaranteed of a sheltered domestic market. Let us keep these figures in mind as we elaborate on the prerogative for the joint venture state-private sector to catalyze a new SME-based economy in Mauritius.

Within the upcoming weeks and months, downsizing will become inescapable for certain economic actors. The private sector conglomerate and the state have the opportunity to turn the situation to advantage by initiating and tutoring an entrepreneurial culture aimed at those who are to be the collateral damages of Covid-19. An estimated 100,000 job losses are predicted by the end of 2020. Neither government nor the private sector has the capacity to generate 100,000 new jobs within the next 5 to 10 years. SMEs can, or at the least hold the potential to. If macro companies cannot sustain new employments, they can facilitate the creation of SMEs that can take the relay of the employment process and in the same time ensure continuity and growth of their own activities. Through an optimized downsizing and outsourcing process, the private sector conglomerate and the state can set the trail for a new era of entrepreneurship in Mauritius, leading to on the one hand to an upscale in profit margins of macro companies while on the other hand instigating an increase in national wealth generation. An SME-based economy stimulates an optimized taxation system, elicits a drop in social prestations and defuses employment-related crisis. The private sector conglomerate has a formative role to play, and should play its role in social upliftment and generating financial independence within the society it is rooted. The last few years have witnessed the economic ascent of elite companies, but at the same time social disintegration lurked. Domination can be achieved through fear, but fear coupled with the bated breath of an ominous future gave birth to the Tunisian situation in late 2010. Will the Mauritian tourism sector survive within similar conditions? A sector that represents a staggering 30% stake of the elite groups revenues. The food production and retail sector will undeniably endure a drastic drop from its comfortable 20% stake when the precarious struggle to consume. Over 60% of Mauritian elite companies’ turnover is contingent on local consumption and more so on social integrity. Without a proper bolstering of the domestic market it will be imprudent for the elite to foresee buoyant results on the long run. The fittest survive not because of exceptional prowess but solely for their ability to adapt to changes, and to changes to their immediate environment.

We are an anomaly on the African continent. Few are the African countries who can still boast control over their national economy. For the past 50 years, the macro industry has blossomed in Mauritius, to a substantial extent, only thanks to the prevailing stability of the social fabric. The macroeconomy of the Arab world survived solely due to capital investments from companies solidly-rooted in their domestic markets. Companies sourcing resources on the African continent are for the most part European, American and Chinese-based. Social strife in providing countries does not distress profits derived by consumption in their domestic markets. Paradoxically it boosts profits through cut-rate labour and inexistent legislative shelter to the workforce. The workforce is not the consumer. The principle nowhere adapts to Mauritius where the workforce is the core end-consumer. The Mauritian macro industry comprises of local investors with local stakes. Safeguarding a sane and cosseted socioeconomic environment equates to safeguarding business viability and continuity. The African model is not the paradigm to pursue. Potent lobbying aimed at replicating models of the type can only be elicited by naïve intellect with no long term foresight. The intent of lobbying should not be a copy-paste process but rather the enforcement of adaptative strategies that advocate for business integrity within the specifics and limitations of the host environment. A repressive business culture which assails social integrity is, beyond reasonable doubt, non-productive for the expansion of the Mauritian macro industry. In the prevailing state of affairs, the longevity of the macro industry is intricately allied to social welfare through individual self-sufficiency. This enterprise should not be construed as a social call-out enkindling macro companies to further fund government schemes. It is a clear-cut concise business optimization process aimed at boosting profitability and viability of the Mauritian macro industry across the Covid-19 crisis and beyond, coupled with a strategic social haul up an action plan.

Rishi Foolell is a Freelance Management Consultant and Trainer with a background in BPO and was a Project Head before going freelance in 2010.

African competition authorities respond to the COVID-19 crisis

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Lerisha Naidu, Partner, Sphesihle Nxumalo, Associate, and Thato Mkhize, Candidate Attorney, Competition and Antitrust Practice, Baker McKenzie, Johannesburg

The substantial increase in confirmed COVID-19 cases in Africa has led to innumerable complaints of anti-competitive conduct from customers and consumers across the continent, who have expressed concerns over sudden price hikes of healthcare and hygiene products as well as identified essential products. Numerous African competition authorities, aware of the effects of unjustified price hikes and excessive pricing on already vulnerable economies,  have responded by establishing specialised investigation teams, refocusing existing resources to COVID-19 specific complaints and introducing new competition regulations. African competition authorities have further noted that collaboration between themselves and consumer protection authorities, as well as between competing essential service providers, is essential in order to enable countries to adequately respond to the COVID-19 crisis. Unprecedented times appear to have called for unprecedented measures from competition authorities across Africa.

Southern Africa

South Africa

In South Africa, competition and consumer protection authorities are collaborating in their efforts to examine complaints from customers and consumers implicating companies for excessive and/or exploitative pricing of essential products. Such essential products include facemasks, toilet paper and hand sanitizers. In addition, South Africa’s Department of Trade, Industry and Competition have introduced new regulations, which together with existing competition regulations on excessive pricing, deal with pricing and supply matters during the national disaster. These regulations do not prevent market players from implementing necessary price adjustments, their objective being to prevent unjustified price hikes and facilitate the collaboration of essential service providers in a regulated manner.

Further, essential service providers – the private healthcare sector, hotel industry, banking sector and retail property sector – have been granted block exemptions from certain provisions of the South African Competition Act, thereby enabling them to coordinate resources and infrastructure for the benefit of consumers during the period of the national disaster.

Measures introduced by the government have included a level 5 lockdown period, which began on Thursday, 26 March 2020 and mandated all non-essential service providers to allow employees to operate from their homes in order to limit non-essential human interaction. On 1 May 2020, the country began a phased reopening of the economy, with some activities such as the operation of restaurants on a delivery-only basis being permitted, subject to extreme caution. On 13 May 2020, South African President Cyril Ramaphosa announced that government was preparing for a further easing of the lockdown and a gradual opening of the economy. The government’s goal, as stated by President Ramaphosa, is to steadily increase economic activity, while putting measures in place to reduce the transmission of the virus and provide adequate care for those who become infected and need treatment.

The lockdown has affected the operations of both the Competition Commission (Commission) and Competition Tribunal (Tribunal), requiring that both refocus their resources on complaints filed in relation to COVID-19 and other urgent matters. The scaling down of operations by the competition authorities, together with the implementation of virtual hearings, has proved to be necessary, not only to comply with the resolution of the National Coronavirus Command Council, but also to deal with the increase in COVID-19 complaints submitted to the Commission – over 1000 complaints have been received to-date.

Namibia

In Namibia, the Namibian Competition Commission (NaCC) concluded a market analysis, which revealed that the price of immune boosters, hand sanitizers and 3ply facemasks had substantially increased due to growing demand for these essential products. In response to this, the NaCC formed a dedicated task team under its Enforcement, Exemptions & Cartels Division, which continues to investigate and prioritize price exploitation complaints in relation to essential healthcare and hygiene during the COVID-19 crisis.

The NaCC recently published a statement reporting that it has received numerous complaints from the public in the past five weeks relating to price increases for various products. The NaCC admitted that it did not possess direct consumer protection powers, however, due to the absence of an adequate consumer protection legislation framework in Namibia, remedies in relation to the prevailing price gouging practices should be imposed under the Competition Act, where legally permissible.

It has therefore made attempts to have price regulations published in order to complement its current powers under the Competition Act, to enable quicker and more effective redress to the ongoing price exploitation complaints. The NaCC is working closely with other relevant stakeholders in Namibia, and will begin investigations as soon as the required price directives have been published.

Mauritius

Mauritius has also experienced a surge in the pricing of essential goods in response to the COVID-19 pandemic. In addition, certain suppliers of essential goods in Mauritius have come under the spotlight of the authority, suspected of creating artificial shortages of supplies. In response, the Mauritian government announced that its Competition Commission would be tasked with monitoring the market for unjustified price escalations of essential goods, and would prosecute any businesses found to be engaging in such restricted trade practices during this period.

The Competition Commission has clarified that it would not unduly constrain or impede necessary and critical cooperation between businesses, where such cooperation was in the interests of consumers and the public, and did not go further or last longer than necessary. It would not, however, tolerate commercial conduct on the part of dominant suppliers, which opportunistically sought to exploit the crisis to the detriment of consumers.

The Competition Commission further highlighted that the Competition Act did not prohibit suppliers to set maximum prices for their products with a view to limiting unjustified price increases at retail level. It also did not prohibit suppliers from recommending retail prices and affixing recommended retail prices on their products as long as the words “recommended price” appeared on the price label.

East Africa

Although the number of confirmed COVID-19 cases in the East African countries combined are significantly less than those reported in South Africa, competition authorities in Kenya, Tanzania, Malawi and Zambia have adopted a proactive approach to guarding against unjustified price hikes and the excessive pricing of essential goods during this period.

Kenya

The Competition Authority of Kenya (CAK) published a cautionary note warning manufacturers and retailers that were implicated in price fixing, or any sort of price manipulation behavior, that they would be subject to an administrative penalty of up to 10% of turnover. The CAK swiftly began tackling COVID-19 related cases. On 16 March 2020, it announced the first remedial order against a retailer that had exploited its relative strength to the detriment of consumers whose bargaining position had been diminished as a result of COVID-19 in Kenya. The CAK found the retailer to have excessively priced hand sanitizers, and ordered it to refund all the customers who had bought the product at an excessive price.

Further, the CAK ordered the removal of exclusivity clauses in agreements between manufactures and distributors of maize flour, wheat flour, edible oils, rice, sanitizers and toilet papers, effective 26 March 2020. Exclusive distribution agreements between market players interfere with the allocation of favorable prices in relation to essential goods. The CAK highlighted that negative effects of such agreements may be further exacerbated during pandemics such as COVID-19. In addition, distributors who also operate in the downstream retail market have been requested to provide these essential goods to other retailers on non-discriminatory terms.

Malawi

The Competition and Fair Trading Commission (CFTC) of Malawi concluded an investigation on 23 March 2020, which revealed that 11 pharmacies in Lilongwe and Blantyre were excessively pricing hand sanitizers, facemasks and gloves in response to the COVID-19 outbreak in Malawi. The CFTC  also published a cautionary note warning against excessive pricing during this period. Malawian President Peter Mutharika issued a warning to traders against consumer exploitation. President Mutharika consequently directed the CFTC to step up market surveillance and protect consumers from unfair trading practices in the supply of essential goods in the management of COVID-19. CFTC Executive Director, James Kaphale said it was encouraging that President Mutharika appreciated the role of the Commission in the management plan of COVID-19.

The CFTC has also received market intelligence that certain schools were engaged in discussions with each other and were sharing information about the level of school fees to be applied for Online Learning Programmes. Exchanging commercial information such as pricing intentions or pricing formulae among competitors constitutes collusion, and is prohibited under competition law. The market intelligence also revealed that certain schools were demanding full payment of school fees for online learning, despite that students were not able to access all essential school services such as library and extra-curricular facilities. The CFTC  appealed to schools to structure the provision of essential services such as online learning in a manner that complied with the law, and to engage with parents in order to come up with a win-win scenario that allowed the schools to continue functioning as a business, without unfairly exploiting parents who wanted their children to learn.

Zambia

The Competition and Consumer Protection Commission of Zambia issued a cautionary note directed at companies and individuals that were excessively pricing hygiene products in response to the demand during the COVID-19 crisis.

Tanzania

The Fair Competition Commission in Tanzania has responded to the Ministry of Industry and Trade’s request to monitor and report on whether market players are maintaining reasonable prices on essential items such as sterilizers, masks and disinfectant hand wash during the COVID-19 pandemic.

Seychelles

The Fair Trading Commission (FTC), working in collaboration with the Retailers Association, registered 26 complaints from 18 April 2020 to 25 April 2020, through various platforms, against 20 shops. The complaints related to excessive prices, prices not displayed, suppliers requiring consumers to pay the higher of two prices displayed and expired goods. Although the FTC did not report these complaints as COVID-19 related, the relevant period for their registration seems to be in line with the surge in excessive pricing complaints experienced by certain jurisdictions during the COVID-19 pandemic.

West Africa

Nigeria

From a West African perspective, Nigeria announced a 14-day lockdown of its two major cities, Lagos and Abuja, effective Monday, 30 March 2020 at 11pm. Accordingly, the Federal Competition and Consumer Protection Commission (FCCPC) announced it would scale down  its operations and that its available resources would be redirected to focus on COVID-19-related complaints and issues.

The FCCPC similarly published a cautionary notice to suppliers, retailers and online shopping platforms, warning them against irregularly increasing prices of essential hygiene products in response to increased demand caused by the COVID-19 epidemic. To facilitate compliance with the Nigerian government’s containment measures, which limit movement and restrict human resource capacity, the FCCPC has published a guidance document titled “Business Guidance Relating to COVID-19 on Business Co-operation/Collaboration and Certain Consumer Rights Under the FCCPA”. The guidance document aims at assisting businesses to ensuring compliance with competition and consumer protection regulations.

In addition to the above efforts, the FCCPC introduced an electronic merger filing process, specifying the type of mergers it would accept through electronic filing. The FCCPC has also been active in the enforcement of competition laws amid the COVID-19 crisis. Currently, it has referred four supermarkets and their pharmacy distributors to court for conspiring to hike prices and selling essential products at unfair prices during the pandemic.

Its consumer protection efforts during the pandemic have led to praise by the United Nations Conference on Trade and Development, which recognised Nigeria for its leadership role (as demonstrated by FCCPC’s early warnings against unfair practices and anti-competitive market behaviour) and for its robust determination to enforce the law against any competition law breaches.

North Africa

Apart from communication indicating the scaling down of operations by competition agencies in Morocco, Tunisia and Egypt, no other preventative measures in response to COVID-19 have been communicated by competition authorities in North Africa.

 

Covid-19: pressure points: exacerbating African economic instability (Africa)

Africa Bulletin
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Martin Kavanagh , Nina Bowyer, Peter Leon, Calvin Ho and Bertrand Montembault, Herbert Smith Freehills LLP 

Countries in sub-Saharan Africa were dealing with a myriad of economic and other challenges prior to the outbreak of Covid-19 and these will continue to impact on the outlook of countries in the region.

The pandemic will further exacerbate the challenges faced by the region, speakers participating in international legal practice Herbert Smith Freehills’ ‘Sub-Saharan Africa: The dynamics that matter right now’ webinar, on May 14, indicated.

The outlook in light of the Covid-19 pandemic for sub-Saharan Africa was noted as being grim, as is the case for most countries in the world, given the shock to the global economy.

However, unlike other places in the world, the sub-Saharan African region is not only dealing with this single shock from the pandemic, but also, has to contend with the global effects as these will affect productivity and profit; as well as the commodity shock, with almost every commodity except gold badly affected.

The gross domestic profit of sub-Saharan African countries is expected to decrease by about 5.6% from previous estimates, putting it firmly in recessionary territory.

The region is looking at a growth rate of about 3% this year and is expected to lose up to $80-billion in output.

Countries that rely heavily on their natural resources and tourism for government revenues and foreign exchange are the most vulnerable, as are countries that already have high poverty rates, with these expected to increase substantially.

While there is potential for a recovery in 2021, this is based on assumptions that cannot be predicted currently, including a vaccine or treatment becoming available this year, and recovery beginning in quarter two this year.

If these do not come to fruition, however, the region is looking at an extended economic crisis.

Moreover, there are certain features of the pandemic in Africa that are unique.

One area of concern is a lack of reliable data, which means that estimates of cases cannot be relied on and, therefore, speakers indicated that there could be an assumption that things are worse than they look.

Also, the pandemic hit the region later than other areas of the world, and this could have an impact on how it manifests and is managed.

Speakers acknowledged that many governments on the continent took a very proactive approach, with lockdowns, and partial or full closing of borders. South Africa, by way of example, had one of the strictest lockdowns worldwide.

Also, with the continent having a very young population, this will likely have different effects in terms of morbidity rates – with this still to be played out.

On the other hand, the continent’s public health systems are vulnerable; and there is a prevalence of other underlying conditions, such as malnutrition, tuberculosis and HIV; and there is a potential food crisis coming to head – and all of these will impact on how the pandemic plays out in the region.

While these characteristics could be applied to Africa homogenously when analysing the pandemic, speakers acknowledged that each country is unique in its own systems, population, politics and medical infrastructure, besides others, making it difficult to draw up predictions for the region as one entity.

The webinar was held under Chatham House rules.

This article was first published by Engineering News online: https://www.engineeringnews.co.za/article/covid-19-exacerbating-african-economic-instability-2020-05-14/rep_id:4136

COVID-19 – Corporate Compliance and Investigations in a Virtual World

Africa Bulletin
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By Darryl Bernstein, Partner, Head of Dispute Resolution, Wian Steyn, Senior Associate and JJ van der Walt, Associate, Baker McKenzie, Johannesburg

There has been an unprecedented acceleration in the global adoption of the virtual office and the COVID-19 pandemic has clarified the fact that many industries already render their services predominantly through electronic means. This accelerated move into the virtual world has implications for the compliance programmes of large and multinational organizations.

Whilst the definitions of fraud and corruption have not changed, the manner in which these criminal offenses are committed, detected and proved, have. This reality is a function of the virtual world within which all businesses now operate. It is no surprise that, in this day and age, records are contained and stored virtually, and, as such, investigations are rarely conducted without industry-standard e-discovery software and platforms that provide flexible and automated workflow capabilities, text analytics and computer‐assisted review, visual data analysis tools and integrated products.

Long gone are the days where hard copy memorandums stored in steel filing cabinets, check counter sheets, and files of paper invoices were the elements of the best documentary evidence for corporate investigations. Recent trends also show a move away from primarily reviewing and analyzing e-mail content to assessing text messages, including those on instant messaging platforms such as WhatsApp and Skype for Business.

Accordingly, a crucial aspect of any corporate investigation relates to the retention and backing-up of data and information, most of which is stored digitally. Without any data, an investigation is essentially limited to what witnesses are able to recall – to the extent that one is able to identify them without underlying data. This is problematic as it is not uncommon for investigations to commence and conclude years after the incident(s) under investigation occurred. 

The longer the data retention period, the more effectively one can keep records and, conduct and complete investigations successfully. However, a longer retention period also occasions a higher risk that public authorities and regulators could order or subpoena the production of information in respect of their own investigations or inquiries, even where an unrelated third party is the subject of the investigation. To complicate the issue, certain legislation requires retention of specific information for specified periods. This means that if a shorter retention period is adopted, an entity must segregate data required to be retained for the legislatively imposed period, from data that may be freely deleted.

A virtual world further allows for more in-depth and comprehensive investigations. COVID-19 has shown the power of information and data to qualitatively identify and track trends as well as predict future outcomes. Conducting business in a virtual world means that every act leaves a trace and once that trace is seemingly removed, traces of such traces remain. For example, an e-mail is sent by an author to a recipient or recipients on a specific date and at a specified time. The author and each recipient have an e-mail address and an e-mail is usually ‘signed-off’ with a ‘signature’ containing even more information. We have not even touched on the content of the e-mail or the attachment, which would have its own meta-data.

A further aspect that is encountered in almost all domestic and global corporate investigations is the one of data protection, interception and transfer (especially across borders). This, in many instances, requires the data which has been collected for review to be stored on various servers across the globe or in the cloud. This necessitates close cooperation between various parties and internal and external legal advisors globally, to ensure that the data collection and retention processes take place seamlessly and that the integrity of the data and investigation is not compromised. 

There will always be limitations on accessing the personal data of employees, witnesses and third parties, including personal text messages and emails, which may contain key evidence. It is important to balance these limitations with the legitimate requirements of any comprehensive compliance program.

The need to review instant and informal messaging data has also made it increasingly difficult to narrow the scope and filter data by using, for example, tailored search terms. This is because individuals are more likely to make typographical errors and use unofficial word abbreviations and nicknames when using these platforms. This has required compliance and investigation lawyers to adopt innovative methods for reviewing and filtering data, to ensure an effective and comprehensive investigation. 

It is evident that corporate investigations have been virtual for many years, in that most of the data scrutinized as part of an investigation is stored in a variety of electronic forms. Further, current interactions with colleagues, witnesses, regulators and authorities often do not take place face-to-face but rather over video conference facilities. This has resulted in corporate investigations running more effectively from a cost and time perspective, as colleagues can more easily collaborate, share knowledge, information and expertise and take advantage of different time zones. This also assists in reducing travel requirements, which are necessary when conducting physical interviews and meetings. 

The transition from bricks and mortar to remote investigations presents unique and interesting challenges and the usual practices will need to change. The access and imaging of records will shift away from the exclusive review of specific devices (computers, laptops and mobile devices) and will focus instead on whether data is available and legally accessible on servers and in the cloud. Similarly, interview plans will account for the use of various video conferencing and virtual meeting tools. Interviewers need to be properly trained to use these tools and the additional difficulty of assessing witness credibility in this manner will need to be factored into planning and reporting. Reports and records obtained indirectly from employees will also require an additional layer of verification to ensure accuracy. Finally, investigators should be aware, prudent and perhaps even slightly paranoid about privilege. The ease of information sharing in a virtual interview or remote discussion opens the door to inadvertently waiving privilege. 

Virtual investigations require the use of unconventional and cutting-edge electronic solutions, many of which have already been applied with great success and have the potential to produce thorough investigations with beneficial outcomes.

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