AfCFTA update – the streamlining of intra-African trade gathers momentum

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AfCFTA update – the streamlining of intra-African trade gathers momentum

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Africa: The growth and parallel nature of African antitrust enforcement action

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Africa: The growth and parallel nature of African antitrust enforcement action

By Lerisha Naidu, Partner, and Jarryd Hartley, Candidate Attorney, Competition & Antitrust Practice, Baker McKenzie Johannesburg

African antitrust authorities have demonstrated unity of focus in their domestic investigations and prosecution of arrangements relating to the supply of school uniforms. The subject matter of the investigations has chiefly been directed at two core issues: (i) the pricing behaviour of suppliers; and (ii) the existence and impact of exclusive supply arrangements between school uniform suppliers and schools.  While these investigations, in and of themselves, are interesting, it is unsurprising that pricing behaviour and exclusivity arrangements have come under the scrutiny of antitrust authorities. What is perhaps most distinct about these investigations is the parallel nature of the enforcement action on the continent, which has taken place in relation to a key sector that underpins most national development plans and policies.  In particular, the following bears mentioning:

  • In South Africa and on the back of a number of competition complaints, the authority initiated an investigation giving rise to the conclusion of settlements with suppliers. On 10 January 2022, the authority proceeded to issue guidelines relevant to the school uniform investigation.
  • The Egyptian competition authority also issued a decision impugning an exclusivity arrangement between a school and uniform supplier.
  • Similarly, Malawi’s Competition and Fair Trading Commission issued a warning, threatening enforcement action against institutions engaging in exclusive supply agreements in this sector.
  • Zimbabwe’s Competition and Tariff Commission blocked an agreement between a school and two uniform and stationery suppliers after a complaint was lodged and consequent investigation had been conducted.
  • The Eswatini Competition Commission also investigated exclusive supply agreements for the supply of school uniforms and found these agreements to be a violation of local legislation, declaring such agreements to be unlawful and invalid.
  • The Namibian Competition Commission issued an advisory notice, cautioning market players on the potential anticompetitive nature of exclusive arrangements, advising schools to refrain from these agreements or risk investigation.

What is clear about these developments is the multi-jurisdictional and parallel focus of competition law authorities on the continent.  Not only are regulators robustly ramping up on enforcement activity but are, without question, targeting similar sectors and antitrust issues.  Firms that have a pervasive physical presence in Africa should ensure rigorous antitrust enforcement in all jurisdictions to avoid coming under the spotlight, not just once, but seemingly across jurisdictions where authorities are demonstrating a unity of focus, enforcing local laws with equal vigour.

Allianz Risk Barometer 2022: Cyber perils outrank Covid-19 and broken supply chains as top Africa and Middle East business risk

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Allianz Risk Barometer 2022: Cyber perils outrank Covid-19 and broken supply chains as top Africa and Middle East business risk

 

  • 11th Allianz survey: Cyber, business interruption and pandemic outbreak are the top three business risks in Africa and Middle East in 2022.
  • Pandemic outbreak drops from first to third in Africa and Middle East and second to fourth position globally as majority of companies are less concerned and feel adequately prepared for future outbreaks.
  • Political risks and violence is still a major concern in Africa and Middle East as it moves from sixth to fourth due to the number, scale and duration of riots and protests.
  • AGCS CEO Joachim Mueller: “’Business interrupted’ will likely remain the key underlying risk theme for this year. Building resilience is becoming a competitive advantage for companies.”

Johannesburg/London/Munich/New York/Paris/Sao Paulo/Singapore, January 18, 2022

Cyber perils are the biggest concern for companies in Africa and Middle East, South Africa, Nigeria and around the world in 2022, according to the Allianz Risk Barometer which launches on January 18, 2022. The threat of ransomware attacks, data breaches or major IT outages worries companies even more than business and supply chain disruption, natural disasters or the Covid-19 pandemic, all of which have heavily affected firms in the past year

Globally, cyber incidents tops the Allianz Risk Barometer for only the second time in the survey’s history (44% of responses), Business interruption drops to a close second (42%) and Natural catastrophes ranks third (25%), up from sixth in 2021. Climate change climbs to its highest-ever ranking of sixth (17%, up from ninth), while Pandemic outbreak drops to fourth (22%). The annual survey from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,650 experts in 89 countries and territories, including CEOs, risk managers, brokers and insurance experts. View the full global and country risk rankings. Watch the video.

“’Business interrupted’ will likely remain the key underlying risk theme in 2022,” AGCS CEO Joachim Mueller summarizes. “For most companies the biggest fear is not being able to produce their products or deliver their services. 2021 saw unprecedented levels of disruption, caused by various triggers. Crippling cyber-attacks, the supply chain impact from many climate change-related weather events, as well as pandemic-related manufacturing problems and transport bottlenecks wreaked havoc. This year only promises a gradual easing of the situation, although further Covid-19-related problems cannot be ruled out. Building resilience against the many causes of business interruption is increasingly becoming a competitive advantage for companies.”

Violence, changes in legislation and regulation rising concerns in Africa and Middle East

Political risks and violence and changes in legislation and regulation are rising concerns for businesses in Africa and Middle East. Political risks and violence moved from sixth to fourth due to the number, scale and duration of riots and protests such as civil unrest and looting in South Africa. Changes in legislation and regulation moves up three places for fifth in the region.

“Fortunately, large scale terrorism events have declined drastically in the last five years. However, the number, scale and duration of riots and protests in the last two years is staggering and we have seen businesses suffering significant losses,” says Bjoern Reusswig, Head of Global Political Violence and Hostile Environment Solutions at AGCS. “Civil unrest has soared, driven by protests on issues ranging from economic hardship to police brutality which have affected citizens around the world. And the impact of the Covid-19 pandemic is making things worse – with little sign of an end to the economic downturn in sight, the number of protests is likely to continue climbing.”

“Preparation is key – in particular for exposed sectors such as retail,” explains Thusang Mahlangu AGCS Africa CEO. “Businesses need to review their business continuity plans (BCP) and should be aware of what is happening around them. Typically, these only focus on national catastrophes, but there is a need for BCP plans to address political disturbances and other types of business disruption like cyber. Having defined, and preferably tested, procedures in place is crucial – these should include staff, client and general communication and social media plans. It is imperative for companies to think deeply about how they can best protect their assets and people.”

Ransomware drives cyber concerns while awareness of BI vulnerabilities grows

Cyber incidents ranks as a top three peril in most countries and regions surveyed including Africa and Middle East, South Africa and Nigeria. It also ranks second in Ghana, fourth in Morocco and Namibia, fifth in Kenya and seventh in Turkey, The main driver is the recent surge in ransomware attacks, which are confirmed as the top cyber threat for the year ahead by survey respondents (57%). Recent attacks have shown worrying trends such as ‘double extortion’ tactics combining the encryption of systems with data breaches; exploiting software vulnerabilities which potentially affect thousands of companies (for example, Log4J, Kaseya) or targeting physical critical infrastructure (the Colonial pipeline in the US). Cyber security also ranks as companies’ major environmental, social and governance (ESG) concern with respondents acknowledging the need to build resilience and plan for future outages or face the growing consequences from regulators, investors and other stakeholders.

“Ransomware has become a big business for cyber criminals, who are refining their tactics, lowering the barriers to entry for as little as a $40 subscription and little technological knowledge. The commercialization of cyber crime makes it easier to exploit vulnerabilities on a massive scale. We will see more attacks against technology supply chains and critical infrastructure,” explains Scott Sayce, Global Head of Cyber at AGCS.

Business interruption (BI) ranks as the second most concerning risk globally and Africa and Middle East, South Africa, Madagascar and Turkey. However, it ranked first in Ghana, Kenya, Morocco and Namibia. In a year marked by widespread disruption, the extent of vulnerabilities in modern supply chains and production networks is more obvious than ever. According to the survey, the most feared cause of BI is cyber incidents, reflecting the rise in ransomware attacks but also the impact of companies’ growing reliance on digitalization and the shift to remote working. Natural catastrophes and pandemic are the two other important triggers for BI in the view of respondents.

In the past year post-lockdown surges in demand have combined with disruption to production and logistics, as Covid-19 outbreaks in Asia closed factories and caused record congestion levels in container shipping ports. Pandemic-related delays compounded other supply chain issues, such as the Suez Canal blockage or the global shortage of semiconductors after plant closures in Taiwan, Japan and Texas from weather events and fires.

“The pandemic has exposed the extent of interconnectivity in modern supply chains and how multiple unrelated events can come together to create widespread disruption. For the first time the resilience of supply chains has been tested to breaking point on a global scale,” says Philip Beblo, Property Industry Lead, Technology, Media and Telecoms, at AGCS.

According to the recent Euler Hermes Global Trade Report, the Covid-19 pandemic will likely drive high levels of supply chain disruption into the second half of 2022, although mismatches in global demand and supply and container shipping capacity are eventually predicted to ease, assuming no further unexpected developments.

Awareness of BI risks is becoming an important strategic issue across entire companies. “There is a growing willingness among top management to bring more transparency to supply chains with organizations investing in tools and working with data to better understand the risks and create inventories, redundancies and contingency plans for business continuity,” says Maarten van der Zwaag, Global Head of Property Risk Consulting at AGCS.

Pandemic preparations improve. Next up – making businesses more weatherproof

Pandemic outbreak remains a major concern for companies but drops from first to third position in Africa and Middle East and from second to fourth globally (although the survey predated the emergence of the Omicron variant). The risk is ranked in the top three in  Ghana, Kenya, and Namibia. While the Covid-19 crisis continues to overshadow the economic outlook in many industries, encouragingly, businesses do feel they have adapted well. The majority of respondents (80%) think they are adequately or well-prepared for a future incident. Improving business continuity management is the main action companies are taking to make them more resilient.

The rise of Natural catastrophes and Climate change to third and sixth position globally respectively is telling, with both upwards trends closely related. Recent years have shown the frequency and severity of weather events are increasing due to global warming. For 2021, global insured catastrophe losses were well in excess of $100bn – the fourth highest year on record. Hurricane Ida in the US may have been the costliest event, but more than half of the losses came from so-called secondary perils such as floods, heavy rain, thunderstorms, tornados and even winter freezes, which can often be local but increasingly costly events. Examples included Winter Storm Uri in Texas, the low-pressure weather system Bernd, which triggered catastrophic flooding in Germany and Benelux countries, the heavy flooding in Zhengzhou, China, and heatwaves and bushfires in Canada and California.

Allianz Risk Barometer respondents are most concerned about climate-change related weather events causing damage to corporate property (57%), followed by BI and supply chain impact (41%). However, they are also worried about managing the transition of their businesses to a low-carbon economy (36%), fulfilling complex regulation and reporting requirements and avoiding potential litigation risks for not adequately taking action to address climate change (34%).

“The pressure on businesses to act on climate change has increased noticeably over the past year, with a growing focus on net-zero contributions,” observes Line Hestvik, Chief Sustainability Officer at Allianz SE. “There is a clear trend for companies towards reducing greenhouse gas emissions in operations or exploring business opportunities for climate-friendly technologies and sustainable products. In the coming years, many corporate decision-makers will be looking even more closely at the impact of climate risks in their value chain and taking appropriate precautions. Many companies are building up dedicated competencies around climate risk mitigation, bringing together both risk management and sustainability experts.”

Businesses also have to become more weatherproof against extreme events such as hurricanes or flooding. “Previous once-in-a-century-events may well occur more frequently in future and also in regions which were considered ‘safe’ in the past. Both buildings and business continuity planning need to become more robust in response,” says van der Zwaag.

Other risers and fallers in this year’s Allianz Risk Barometer:

  • Shortage of skilled workforce (13%) is a new entry in the top 10 risks at number nine.  Attracting and retaining workers has rarely been more challenging. Respondents rank this as a top five risk in the engineering, construction, real estate, public service and healthcare sectors, and as the top risk for transportation.
  • Changes in legislation and regulation remains fifth (19%) globally but moves up three places to fifth in Africa and Middle East. Prominent regulatory initiatives on companies’ radars in 2022 include anti-competitive practices targeting big tech, as well as sustainability initiatives with the EU taxonomy scheme.
  • Fire and explosion (17%) is a perennial risk for companies, ranking seventh as in last year’s survey. Market developments (15%) falls from fourth to eighth year-on-year globally but moves up two places to seventh in Africa and Middle East. Macroeconomic developments (11%) falls from eighth to 10th and from fourth to seventh in Africa and Middle East.

For further information please contact:

Johannesburg: Lesiba Sethoga +27 112147948   lesiba.sethoga@allianz.com

London: Ailsa Sayers  +44 203 451 3391  [email protected]

Munich: Heidi Polke  +49 89 3800 14303  [email protected]
Daniel Aschoff  +49 89 3800 18900  daniel.aschoff@allianz.com

New York: Sabrina Glavan +1 973 876 3902  sabrina.glavan@agcs.allianz.com

Paris: Florence Claret   +33 158 85 88 63  florence.claret@allianz.com

Rotterdam: Olivia Smith  +27 11 214 7928   olivia.smith@allianz.com

Sao Paulo: Camila Corsini +55 11 3527 0235  camila.corsini@allianz.com

Singapore: Wendy Koh  +65 6395 3796    [email protected]

About Allianz Global Corporate & Specialty

Allianz Global Corporate & Specialty (AGCS) is a leading global corporate insurance carrier and a key business unit of Allianz Group. We provide risk consultancy, Property-Casualty insurance solutions and alternative risk transfer for a wide spectrum of commercial, corporate and specialty risks across 10 dedicated lines of business

ESG obligations leading to the risk of increased litigation for African businesses

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ESG obligations leading to the risk of increased litigation for African businesses

By Darryl Bernstein, Partner and Head of the Dispute Resolution Practice at Baker McKenzie in Johannesburg

As African businesses begin to recover and build the resilience needed to successfully navigate COVID-19 disruption, a focus on Environmental Social and Governance (ESG) strategies is proving to be essential for long-term success. In order to stay competitive, organisations based in Africa are engaging meaningfully with ESG to build robust sustainability strategies that meet stakeholder expectations and enable compliance with global and domestic mandatory and voluntary ESG standards and codes.

ESG encompasses a broad range of issues across the spectrum of Environmental (climate change, biodiversity, waste, water and resource use, pollution), Social (human rights, labour practices, HSE, diversity); and Governance (corporate governance, ethics, compliance) matters.

As climate change impacts become clearer and nearer, there is an increasing emphasis on the Environment aspect of ESG. After the pandemic, initiatives in Africa are expected to have a heightened focus on green, low-carbon and sustainable development, via, for example, clean energy production, community care initiatives, green transport and sustainable water projects, wildlife protection programmes and low-carbon development projects.

There is a major role for ESG policies to play in mitigating some of the effects of climate change, through planning and building for hotter temperatures, higher sea levels and more extreme weather conditions, for example. Organisations are adopting new strategies that address climate change risk and identify the sustainable opportunities that arise from addressing climate concerns. To regulate this, there are likely to be developments from African regulators in the near future that address climate risk disclosure requirements for businesses operating on the continent.

Post-pandemic, the discussions around ESG are also resulting in an added emphasis on the Social aspect – which, among other things, focuses on protecting an organisation’s workers and the wider local populations in which these businesses are based. Organisations are looking at ways to build better social programmes that are more resilient to future pandemics and ensure good business practice. A focus on issues such as enhancing considerations around the health and safety of employees and communities, implementing diverse and inclusive workplace cultures, and building good management teams that can pull employees together in all kinds of remote, physical workplace and hybrid settings, put companies in a strong position to move forward.

The Governance aspect has also been emphasized by the pandemic, with an increased focus on due diligence around compliance with regards to anti-bribery and corruption, data privacy and cyber security legislation, for example.

Some of the larger African jurisdictions have already implemented mandatory ESG and sustainability reporting frameworks and, going forward, more African regulators are expected to replace current voluntary frameworks with mandatory ones or to adopt new mandatory frameworks. In turn, organisations operating in Africa will seek guidance and more detail from corporate regulators on how they want to see ESG reported and the practices behind the reporting process.

In South Africa, there are many laws that govern ESG factors, including business and financial sector conduct, economic and social empowerment and environmental protection. Voluntary codes such as the King IV Code on corporate governance and the Code for Responsible Investing in South Africa also serve as a guide to businesses on ESG considerations. Other examples include Kenya, where the Capital Markets Authority introduced Stewardship and Corporate Governance Codes in 2017 and Nigeria, where the Nigerian Code of Corporate Governance was introduced in 2019. Globally, in addition to numerous country-specific laws, there are a plethora of voluntary sustainability focused codes and standards, including the UN Guiding Principles on Business and the Human Rights and UN Guiding Principles Reporting Framework.

ESG risk management has become a mainstream component of corporate due diligence programmes, and corporate boards are being held accountable for their ESG practices by their shareholders, stakeholders and management teams. Risks for non-compliance with the multitude of global and local laws, voluntary codes and best practices governing ESG factors range from criminal prosecution and hefty fines to reputational risk and business failure as a result of not fulfilling ESG commitments.

Actual and perceived non-compliance with ESG regulations and best practices have engendered activist shareholder protests and action against the parent companies of global groups. A key challenge for businesses is navigating where the laws end, and business strategy and market expectations begin. This is especially the case when navigating the major global issues of, for example, environmental standards and human rights responsibilities. Such issues often lead to activism, litigation and class actions if a business falls short of sustainability standards or appears to be breaking publicly made promises.

Contractual liabilities around ESG must be carefully considered, as contracts that stipulate compliance with certain standards can trigger a breach of contract claim if there is seen to be any violation of the terms. It would be better for businesses to ensure in advance that they can fulfil specific ESG obligations before agreeing to them contractually. Limitations of liability should also be agreed upon to mitigate the risks.

Further, if companies have made public promises regarding their ESG obligations and they are seen to be not fulfilling such obligations, they could be vulnerable to the threat of class actions that are brought by consumers and shareholder activists. Companies should identify what ESG goals can be properly measured, and what goals should be clearly defined as being aspirational and ensure that this is accurately communicated in the public domain. Reputational damage from ESG non-compliance escalates quickly and can be difficult to recover from.

For African organisations, maintaining a long-term sustainability strategy ensures sound financial performance, full compliance with local and global laws and frameworks, and substantially increased resilience in a challenging post-pandemic environment. In the current global environment, ESG is no longer just about doing the right thing, the dial has shifted and having a legally sound and comprehensive approach to ESG considerations is a prerequisite for business success.

Ten reasons to consider African trade and investment opportunities in 2022

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Ten reasons to consider African trade and investment opportunities in 2022

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African Growth and Opportunity Act eligibility requirements under review in three African countries

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African Growth and Opportunity Act eligibility requirements under review in three African countries

By Virusha Subban, Partner and Head of Indirect Tax, Baker McKenzie Johannesburg

On 2 November 2021, US President Joe Biden announced that three African countries would be terminated from the African Growth and Opportunity Act (AGOA) trade preference program, unless they took urgent action to meet statutory eligibility criteria by 1 January 2022. The three countries listed were Guinea, Mali and Ethiopia. The US administration cited unconstitutional changes in governments in Guinea and Mali and human rights violations in Ethiopia, due to conflict in the country, as reasons for the termination. The statement announced the intention to provide all three countries with a clear benchmark and pathway towards reinstatement so that valued trading partnerships could be resumed.

AGOA eligibility criteria is reviewed annually to ensure that countries qualify to continue to receive the benefits of the trade preference scheme. Requirements for eligibility include, among other things, that countries must be making substantial progress in establishing a market-based economy, as well as following the rule of law and implementing economic policies that reduce poverty and combat corruption and bribery. Countries must also protect internationally recognized worker rights, and must not engage in activities that undermine US foreign policy or national security interests. Countries must not be found to have committed gross human rights violations.

If countries are not making progress with AGOA eligibility requirements, they may be terminated as beneficiaries of the trade preference scheme. Alternatively, the US administration may withdraw or suspend the duty-free treatment of products for a particular country to facilitate compliance with AGOA.

The most recent statistics available, from 2019, indicate that US trade with all three of these countries is not balanced in terms of its reciprocity. According to the Office of the US Trade Representative, Ethiopia was the 84th largest goods trading partner with the US in 2019. In this year, goods exported from Ethiopia to the US were valued at USD 1 billion, and goods imported from the US into Ethiopia were valued at USD 572 million. The US goods trade surplus with Ethiopia was USD 442 million in 2019. In the same year, Guinea was the 161st largest goods trading partner with the US. Goods exported from the US into Guinea amounted to USD 128 million and US goods imported into Guinea totaled USD 9 million. The US goods trade surplus with Guinea was USD 119 million in 2019. Mali was the 178th largest goods trading partner with the US in 2019. Goods exported from Mali to the US totaled USD 68 million and goods imported from the US into Mali totaled US 5 million. The US goods trade surplus with Mali was USD 63 million in 2019.

The US administration recently announced the renewal of its Prosper Africa Initiative, with a message that it would reinvigorate reciprocal trade between Africa and the US. The initiative focuses on improving trade and investment between the US and Africa in sectors such as infrastructure, energy and climate solutions, healthcare and technology.  The Biden Administration is reportedly also supportive of the African Continental Free Trade Area agreement (AfCFTA) – a continent-wide free trade agreement.

The non-reciprocal AGOA, which allows duty- and quota-free exports from eligible African countries into the US, is due to expire in 2025. It was thought that it might be replaced with new, reciprocal trade agreements between the US and African countries that follow the free trade policies of the AfCFTA agreement, as well as the more reciprocal trade relationships promoted as part of the Prosper Africa initiative. However, it appears that adherence to the strict statutory obligations of AGOA membership might continue to be implemented as an effective governance tool, ensuring that AGOA eligibility requirements, which include commitments to constitutionality, the rule of law and human rights, are closely followed in every country that wishes to benefit from duty free trade with the United States. Whether this will change in 2025 and be replaced with more reciprocal trade agreements remains to be seen.

Africa: COMESA Competition Commission publishes draft guidelines on penalty, settlement and hearing procedures

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Africa: COMESA Competition Commission publishes draft guidelines on penalty, settlement and hearing procedures

  By Lerisha Naidu, Partner, Sphesihle Nxumalo, Associate, and Zareenah Rasool, Candidate Attorney, Competition & Antitrust Practice, Baker McKenzie Johannesburg

The COMES Competition Commission (Commission) published draft guidelines to the COMESA Competition Regulations, 2004 (Regulations) for public comment on 19 October 2021. The guidelines aim to provide clarity on the Commission’s policies and procedures, and to foster transparency and certainty in the administration and enforcement of the Regulations. These draft guidelines are based on international best practices and policy approaches of key regulators, including the European Commission. They address three fundamental areas of regulatory enforcement – the determination of fines and administrative penalties, settlement procedures and hearing procedures.

The determination of fines and administrative penalties

To ensure proportionality and fairness in imposing sanctions for antitrust violations, the Commission has devised a two-step methodology for calculating penalties under the Regulations. The two-step methodology will entail computing a “base amount” and increasing or decreasing it according to aggravating or mitigating considerations, on a case-by-case basis.

Base Amount: The Commission will set the base amount for a fine based on the undertaking’s turnover within the Common Market in the financial year preceding the infringement. The proposed starting point for determining the base amount for specific infringements is a proportion of the infringing entity’s revenue. By way of example, the base proportion of turnover would be 5% for cartel conduct, 3% for abuse of dominance, and 2% for gun-jumping. To compute the final base amount, the Commission will consider the nature, gravity, and duration of the infringement, as well as the number of affected consumers.

Adjustments: The base amount may be adjusted upward based on aggravating factors such as repeat offences, refusal to cooperate and/or being characterized as an “initiator” of the conduct concerned. Conversely, the base amount may be adjusted downward based on mitigating factors such as full cooperation, efficiency justifications for the conduct, extent of involvement, and even negligence in engaging in the alleged conduct. Ultimately, the fine imposed shall not be in excess of 10% of the infringing entity’s annual turnover. To establish a sufficiently deterrent effect, the Commission may increase the fine by up to 1% of the total turnover, subject to the 10% cap. Importantly, fines imposed may exceed the infringement‑related gains.

The Commission may also levy a “symbolic fine” in specific instances. The draft guidelines do not define a “symbolic fine”, the manner in which it will be computed, or under what circumstances it may be imposed. It appears that such a fine would not be computed in accordance with the above two-step methodology. This will involve the exercise of the authority’s discretion and may result in a lack of certainty and clarity, for which additional guidance may be necessary.

Settlement procedures

Procuring settlements is crucial to effective antitrust enforcement, and increases procedural efficiency, thus reducing time and financial resources spent on proceedings. To that end, the draft guidelines are intended to provide direction on the Commission’s approach to settlement proceedings in relation to antitrust infringements.

The guidelines state that no admission of infringement or culpability is required for authorisation proceedings under Article 20 of the Regulations (in terms of which the Commission may grant authorization to an entity to enter and/or give effect to an agreement if its public benefits outweigh any anticompetitive effects), which is in line with the Regulations. However, certain settlement proceedings require an admission of liability – these settlement proceedings are those relating to Article 19 abuse of dominance, Article 21 determination of anticompetitive conduct on request (by any person who believes that an activity by an firm located in a Member State has the effect, or is likely to have the effect, of restricting competition in the Common Market), and Article 22 determination of anticompetitive conduct at the Commission’s own initiative (where the Commission has reason to believe that business conduct by an undertaking restrains competition in the Common Market). Many jurisdictions take a similar approach. The non-imposition of admissions of guilt clauses may go some way towards fostering parties’ willingness to enter into settlement agreements.

The draft guidelines further state that joint representatives must be appointed by the parties when the Commission commences settlement proceedings against two or more parties within a single economic unit. The appointment of joint representatives is simply to ease the settlement discussions.

According to the guidelines, the Committee responsible for initial determinations would be vested with the power to confirm or withhold its confirmation of a settlement reached between the Commission and infringing parties. Withholding confirmation would occur in circumstances of “blatant and unfair settlement terms”. It is unclear whether the Committee would have discretion to either refer the settlement agreement back to the Commission for renegotiation or with proposed changes, or the Committee would have the legal power to make the appropriate changes prior to confirmation of the settlement agreement. Arguably, the former would be a sensible approach to allow the parties to comment on any proposed changes.

Hearing procedures

These rules provide broad guidance on the elements of any hearing, including notice timelines, when hearings may be held, evidence testing, and the conduct of proceedings. The Regulations allow hearings in three situations – during the investigative process, before publication of notice of compulsory recall of defective goods, and before the Committee for initial determination of cases. Hearings may also be requested by a party under investigation. A COVID-friendly inclusion into the guidelines states that hearings can be conducted in private or in public, either via video conference, physical attendance, or both.

The rules specify that if the Committee issues a breach order, it may direct parties to discuss a remedy. If the parties cannot agree on a remedy, the Committee would issue an order without further consultation. Parties would still be able to review and/or appeal the order on the merits.

Lastly, the guidelines note that the determination of the Committee for initial determinations would be published in its official publication. However, parties would be allowed to object to such publication based on legitimate business interests.

Interested parties have been invited to submit their comments on these draft guidelines by no later than Friday, 12 November 2021, by emailing the Registrar of the Commission, Meti Demissie Disasa at [email protected] or [email protected].

New global tax rules will help address imbalances in tax revenue in Africa  

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New global tax rules will help address imbalances in tax revenue in Africa  

New global tax rules will help address imbalances in tax revenue in Africa

By Denny Da Silva, Associate Director, Tax, Baker McKenzie, Johannesburg

One hundred and thirty six of the 140 members of the OECD G20 Inclusive Framework, including South Africa, have agreed on a new set of global tax rules that will reform the world’s tax system. Notably, two African countries that are members of the Inclusive Framework have not yet joined the agreement – Kenya and Nigeria. The two-pillar system will be presented to the G20 Leaders’ Summit at the end of October 2021. It will result in a reallocation of taxing rights from resident to source countries of certain multinational enterprises (MNEs), if thresholds are met, in addition to a 15% global minimum tax rate for certain organizations, implemented from 2023. The agreement aims to redress global tax revenue imbalances and is set to benefit developing economies in Africa.

According to African policymakers, a multilateral approach to tax collection has numerous benefits for the continent. Smaller economies like those in Africa are more reliant on business income tax than larger economies. The African Tax Administration Forum (ATAF) previously noted that 16% of total tax revenue in African countries is from corporate tax, compared to 9% in OECD countries. African countries have increased their revenue collection methods and have implemented punitive measures to clamp down on tax avoidance measures because the revenue collected is of the utmost importance to the stability of their economies. But current tax rules have meant that African countries could not collect tax revenue from multinationals, even if they were operating profitably in their countries.

The OECD’s Pillar One changes enable market jurisdictions to charge income tax on a portion of the profits of large multinational companies operating within their borders. It will reallocate taxing rights from their resident countries to markets where they conduct business and generate profits, regardless of their physical presence in that country. Pillar One will apply to MNEs with sales over EUR 20 billion and that generate a net profit above 10% (profit before tax/turnover). Amount A has been confirmed at 25% of an MNE’s residual profit (i.e. profit in excess of 10% of revenue) and will be allocated to market jurisdictions with sufficient nexus using a revenue-based allocation key – being a revenue of at least EUR 1 million from that jurisdiction (or at least EUR 250,000 for jurisdictions with a GDP of less than EUR 40 billion). No agreement has yet been reached on the implementation and design of Amount B, which intends to simplify the arm’s length principle for baseline marketing and distribution activities, but the intention is for this to be completed in 2022.

Pillar Two proposes a new network of rules that will reallocate taxing rights according to a new global minimum tax regime of 15% – aimed at ensuring a minimum effective net tax rate across all jurisdictions. It will apply to all enterprises generating a revenue above EUR 750 million. Model rules for bringing Pillar Two into domestic legislation will be introduced in 2022 and become effective in 2023.

On the African front, ATAF submitted proposals to the OECD on the new agreement and announced in October 2021 that many of its proposals were incorporated into Pillar One, including broadening the agreement to incorporate all sectors, but excluding the extractives sector. ATAF stated that resource-rich African countries price their minerals on their “inherent characteristics” and not on “market intangibles”, and as such, taxing rights should go to the resource-producing country.

ATAF further noted that their request for greater simplification of some of the rules was also incorporated. Specifically, the nexus threshold was reduced to EUR 1 million, down from EUR 5 million, with a lower threshold of EUR 250 000 for smaller jurisdictions with GDPs lower than EUR 40 billion and no “plus factors.” ATAF also secured an elective binding dispute resolution mechanism, as opposed to the existing mandatory dispute resolution process, for eligible developing countries.

ATAF was also pleased that the Subject to Tax Rule (STTR) would be a minimum standard that developing countries can require to be included in bilateral tax treaties with Inclusive Framework members, and that the STTR would cover interest, royalties, and a defined set of other payments. However, there was disappointment that the agreement only allocates 25% of the residual profit to market jurisdictions under Amount A – ATAF had advocated for this to be 35%.

African countries now have until 2023 to implement the new tax rules, navigating difficulties with regard to tax implementation due to capacity challenges and issues with how the rules will impact on countries that are not members of the Inclusive Framework. However, the OECD has stated it will ensure the rules can be effectively and efficiently administered and that they will offer comprehensive capacity building support to countries that need it. Overall, the global tax changes are good news for the continent and are expected to result in increased tax revenue for African countries at a time when capital is direly needed for post-pandemic recovery.

Nigeria’s Newly-Passed Petroleum Industry Bill Attracts Investment to the Region  USA – English 

Africa Bulletin
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Nigeria’s Newly-Passed Petroleum Industry Bill Attracts Investment to the Region  USA – English 

FN Media Group Presents Microsmallcap.com Market Commentary

The African Energy Chamber has entered into agreements with the Nigerian government in order to attract new investment into the nation’s rich oil resources. The newly-passed Petroleum Industry Bill (PIB) is designed to attract further global investment to the Niger Delta, the largest oil-producing region in the continent. New oil corporations such as Decklar Resources Inc. (TSXV:DKL) (OTCQX: DKLRF) are following suit and have set up new drilling operations that are prepared for near-term production. Oil investment continues to ramp up worldwide as Africa Oil Corp (TSX:AOI) (OTC:AOIFF) announces promising second quarter results amid growing oil production revenues. As oil prices rise, major oil company ConocoPhillips (NYSE:COP) has reported a quarterly income just shy of $1 billion and exceeded investor expectations. Oklahoma oil producer Devon Energy Corp. (NYSE:DVN) announced $155 million in dividends for its shareholders as the global energy market continues to expand. Finally, Phillips 66 (NYSE:PSX) has recently paid out healthy quarterly dividends of $0.90 per share to its investors. New developments in the global oil and gas market are showing growth for investors.

Nigeria Seeks New Investment Through Passing Petroleum Industry Bill

The Nigerian government has been positioning itself to meet the demand of the ever-growing energy market through new legislation. Through the passage of the Petroleum Industry Bill (PIB), the nation hopes to attract investment into energy projects through domestic and international companies.

As of today, Nigeria remains the leading oil producer of Africa, with just under 2 million barrels extracted from the Niger Delta every day. Nigerian oil production sits at a value of roughly $143 million per day or $52 billion per year. While most of this production is dominated by foreign oil corporations like Royal Dutch Shell, Decklar Resources Inc. (TSXV:DKL) (OTCQX: DKLRF) is taking advantage of unique proven undeveloped opportunities in a unique way. The low-risk energy company is establishing drilling operations over previously discovered and ignored oil deposits in the Delta. Due to the local scale of the operations, the company is partnering with local communities and providing infrastructure development opportunities in the region.

On September 1, Decklar Resources Inc. announced that Oza 1 has been re-entered successfully with old tubing and completion equipment removed, well maintenance performed, and the deeper zones cemented off to isolate them from the target reservoirs. A new wellhead has been installed, the site prepared and production testing equipment installed for the re-completion of the target zones in the Oza-1 well.

Then on September 30, Decklar announced that it has completed initial flow testing of the remaining two target zones, which offered promising well deliverability and commercial flow rates. According to the update, the initial flow testing of the L2.4 sand resulted in a flow rate of 10.3 million standard cubic feet of natural gas per day and L2.2 sand resulted in a flow rate of 1,361 bopd. Following successful testing, the company expects the well to be put on commercial production after the completion equipment is installed.

“We are very pleased with these initial test results from the first three target zones of the Oza-1 well re-entry,” said Decklar Resources CEO Duncan Blount. “After such promising well deliverability and commercial flow rates, we now look forward to completing the remaining Oza-1 well testing activities as we work towards commencing commercial production.”

Decklar Resources also recently closed a purchasing agreement with Purion Energy Limited in order to expand operations into the local Asaramatoru Oil Field, which is also located in OML 11, the same block where Decklar is currently developing the Oza Oil Field. Asaramatoru, which was formerly operated by Shell Petroleum Development Co. of Nigeria, was awarded to Prime and Suffolk by the Nigerian government in 2004 as part of the first Marginal Field Program. Prime and Suffolk reentered the existing two wells and commenced initial production testing activities in 2014, producing an average of 2,700 b/d of oil during intermittent production over 3 years.

Decklar Resources and Prime are now moving forward with a full field development plan that will include expansion of the processing infrastructure to enable handling and processing of up to 20,000 b/d of crude for the expected peak production levels and includes installing a 10 km export flowline from the field to a tie-in point at the Oloma flow station, which is connected to the Bonny export terminal, the largest on the African continent.

Sustainability Initiatives Attracting New Investment to Energy Companies

Decklar Resources Inc. (TSXV:DKL) (OTCQX: DKLRF) is spearheading its new oil developments through cooperation with existing oil industry personnel in the Delta. The company has appointed a management team that is focused on sustainable development of infrastructure for communities surrounding the oil fields.

Africa Oil Corp (TSX:AOI) (OTC:AOIFF) recently announced high revenues for Q2 2021 and the receipt of dividends from its 50% acquisition in Petroleo Brasileiro SA Petrobras (NYSE:PBR). Africa Oil Corp has a substantial interest in expanding crude production networks. Its acquisition of Petroleo Brasileiro SA Petrobras is in line with capital flows into the 70% ESG ranked company, a current investment trend reflected in other oil companies.

Along with its net-zero emissions goals, ConocoPhillips (NYSE:COP) has actively pursued more favorable ESG investment metrics in order to attract new capital. The company was recently downgraded in ESG risk from “Severe” to “High” in its measured exposure to social, environmental, and governance issues. The move to decrease ESG risk from the industry leader is being made to capitalize on the recent investment trend.

More companies are following suit, and Devon Energy Corp. (NYSE:DVN) has managed to secure a rank of 27 out of 282 oil and gas producers. This puts the company in the top 9.5% percent of producers in the industry in terms of ESG metrics. This move attracts shareholders who are currently seeking large returns in the energy industry with a relatively lower impact on the environment. More oil companies across the globe are following suit.

Finally, Phillips 66 (NYSE:PSX) is following up on its goals in its 2020 sustainability report citing a profitable recovery from recent geopolitical turmoil in oil markets. The company seeks to follow new standards for ESG accounting transparency in order to encourage more responsible development in its regional interests. The company is primarily focused on oil production sites in Texas, Oklahoma, and Kansas.

Proposals of new models for energy production are setting the recent tone for oil and gas development. Decklar Resources Inc. (TSXV:DKL) (OTCQX: DKLRF)  is following suit through low-risk developments at a local scale in the Niger Delta.

For more information on Decklar Resources Inc. (TSXV:DKL) (OTCQX: DKLRF), please click here.

DISCLAIMER: Microsmallcap.com (MSC) is the source of the Article and content set forth above.  References to any issuer other than the profiled issuer are intended solely to identify industry participants and do not constitute an endorsement of any issuer and do not constitute a comparison to the profiled issuer. FN Media Group (FNM) is a third-party publisher and news dissemination service provider, which disseminates electronic information through multiple online media channels. FNM is NOT affiliated with MSC or any company mentioned herein. The commentary, views and opinions expressed in this release by MSC are solely those of MSC and are not shared by and do not reflect in any manner the views or opinions of FNM. Readers of this Article and content agree that they cannot and will not seek to hold liable MSC and FNM for any investment decisions by their readers or subscribers. MSC and FNM and their respective affiliated companies are a news dissemination and financial marketing solutions provider and are NOT registered broker-dealers/analysts/investment advisers, hold no investment licenses and may NOT sell, offer to sell or offer to buy any security.
 
The Article and content related to the profiled company represent the personal and subjective views of the Author (MSC), and are subject to change at any time without notice. The information provided in the Article and the content has been obtained from sources which the Author believes to be reliable. However, the Author (MSC) has not independently verified or otherwise investigated all such information. None of the Author, MSC, FNM, or any of their respective affiliates, guarantee the accuracy or completeness of any such information. This Article and content are not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action; readers are strongly urged to speak with their own investment advisor and review all of the profiled issuer’s filings made with the Securities and Exchange Commission before making any investment decisions and should understand the risks associated with an investment in the profiled issuer’s securities, including, but not limited to, the complete loss of your investment. FNM was not compensated by any public company mentioned herein to disseminate this press release but was compensated twenty five hundred dollars by MSC, a non-affiliated third party to distribute this release on behalf of Decklar Resources Inc.

Increasing competition policy enforcement across Africa

Africa Bulletin
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Increasing competition policy enforcement across Africa

By Angelo Tzarevski, Associate Director, and Zareenah Rasool, Candidate Attorney, Competition & Antitrust Practice, Baker McKenzie Johannesburg

Competition policy continues to be viewed by regulators as a key driver of economic growth globally. Across Africa, competition policy enforcement is increasingly being employed as a tool to boost economic performance and promote the revitalization of trade and industry following the devastating impact of COVID-19. The effects of the pandemic have led to negative economic growth in a number of African jurisdictions, and have given rise to opportunistic, anticompetitive behaviours such as unreasonable price increases and price gouging, coordination amongst competitors, and other unsavoury business practices that erode competition.

Over the past two years, African competition regulators have actively engaged in efforts to address these pandemic-related effects, however, there has also been a general upward trend in competition policy enforcement across the continent. A number of African jurisdictions have strengthened their competition and antitrust regimes by way of amendments to existing legislation, the introduction of new laws and regulations, and renewed fervour and political will to enforce existing laws.

Matrices used to analyse economic transformation, such as the Bertelsmann Transformation Index, have noted the existence of comprehensive competition laws that are enforced (to some degree), in at least 46 African jurisdictions. This is reflected by the enforcement scores for each of the 46 countries listed in the graph below, measured on a scale of 1 to 10, where 10 denotes the existence of comprehensive competition laws that are strictly enforced.

As indicated, almost half of the jurisdictions received a score of five or higher, demonstrating robust enforcement across much of the continent. Additionally, a review of historical scores indicates a year-on-year increase in respect of a number of African jurisdictions, with countries such as Eswatini, Ethiopia and Namibia each ranking higher than the previous year.


This upward trend in enforcement is highlighted by a number of significant recent developments in competition law regulation around the continent.

On 6 September 2021, the COMESA Competition Commission issued its first penalty for failure to notify a transaction within the prescribed time periods, which amounted to 0,05% of the parties’ combined turnover in the common market in the 2020 financial year. This was imposed in relation to the proposed acquisition by Helios Towers Limited of the shares of Madagascar Towers SA and Malawi Towers Limited.

The authority’s decision to impose a penalty in this matter is a clear shift towards stricter enforcement of merger regulations. This has been observed for some time, with the authority increasingly approaching parties on the basis of publicly available information and requesting further information about transactions to enable it to assess whether the transactions are notifiable. Until the Helios Towers decision, the authority generally adopted a softer stance in relation to the timing of merger notifications. The decision to penalize the parties is intended to deter future violations of the competition regulations and signal to market participants that the authority will enforce the regulations more vigorously.

In Mozambique, almost seven years after the promulgation of competition legislation, the Competition Regulatory Authority became operational in January 2021. Shortly after that, the authority amended its merger filing fees on 16 August 2021. Prior to the amendment, there had been significant concern around the exorbitant filing fees of 5% of merging parties’ turnover. Following the amendment, the applicable filing fee was changed to 0.11% of the turnover in the year before filing, with a maximum limit of MZN 2.25 million. This move highlighted the authority’s willingness to be receptive to changing market and economic conditions and valid concerns surrounding competition policy.

Further, the rapid rise in the digital economy has resulted in some competition authorities acknowledging that the regulation of digital markets necessitates a more nuanced approach. In May 2021, the South African Competition Commission launched a market inquiry into online intermediation platforms, which focuses on digital platforms that intermediate transactions between businesses and consumers. The scope of the inquiry includes eCommerce marketplaces, online classifieds, travel and accommodation aggregators, food delivery and App stores.

The Malawi Competition and Fair Trade Commission submitted itself to a Voluntary Peer Review, through a tool used by the United Nations Conference on Trade and Development, which evaluates the competition law and policy of a country, as well as its institutional arrangements and effectiveness in competition law enforcement. The Review began in October 2020 and was finalised in July 2021. Following the conclusion of the Review, the UNCTAD issued a report to the Malawian authority, where it made recommendations in respect of (amongst other things): (i) the substantial amendment or repeal of the Competition and Fair Trading Act; (ii) the Commission’s budget; and (iii) the Commission’s approach to dispute resolution and adjudication. The review process sought to identify areas of improvement in Malawi’s legal and institutional framework in order to enhance the quality and competency of competition law and policy in Malawi. Amendments to the competition law regime in Malawi are anticipated in the coming years.

In a move toward enhancing the efficiency and effectiveness of its enforcement activities, the Competition Authority of Kenya operationalised an Informant Reward Scheme on 1 January 2021. The scheme provides a mechanism and framework for informants to receive financial incentives in exchange for actionable information in the course of the Competition Authority’s investigations. The Scheme is targeted at persons with credible intelligence regarding restrictive trade practices, mainly cartel-like conduct. An informant who provides intelligence leading to the closure of an investigation through penalization, is entitled to up to 1% of the administrative penalty imposed by the Authority, which payment has been capped at KSH 1 million. Globally, similar schemes have been instrumental in uncovering and prosecuting cartel behaviour and bolstering competition law enforcement, generally. The implementation of a scheme in Kenya reflects the competition authority’s increasing appetite to enforce the regime and root out restrictive practices.

These recent developments in competition policy enforcement draw attention to the continent’s collective enthusiasm in ensuring competition compliance, and its determination in promoting and protecting more effective economies. We anticipate this trend will continue, with more intensive competition policy enforcement becoming predominant across the region. As competition authorities gain traction in the execution of their mandates, businesses transacting in Africa should ensure that they are fully compliant with all competition laws and regulations.

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