10th February 2025
The Fair Competition (Amendment) Act of 2024 and its Impact on Merger Approvals in Tanzania
Tanzania's business landscape is undergoing a significant transformation following the recent enactment of the Fair Competition (Amendment) Act No. 13 of 2024. This amendment introduces a series of reforms aimed at fostering a more dynamic and competitive market environment. The reforms include, the approval of M&A by the Fair Competition Commission (FCC’) that would otherwise be prohibited on broader ‘public interest’ considerations.
Drive to and Rationale for the Amendments
The underlying principle in regulating M&As from the competition angle is the prevention on M&A arrangements that "substantial lessening competition." The rationale is to regulate competition and protect businesses from dominance and ultimately protect consumers. However, application of such principle could sometimes hinder beneficial mergers with positive economic outcomes. Recognizing this, the law has been amended to introduce this consideration.
The decision of the Fair Competition Tribunal in Chalinze Company Limited Versus Fair Competition Commission & Scancem International (Consolidated Appeal no 6, 10 and 12) of 2022 legal and policy debates and discussions in the Executive and legislature from 2022-2023 have played a significant role and perhaps informs the subject amendments, The dispute in and surrounding the FCT decision in Chalinze Cement related to Scancerm International, a subsidiary of Heidelberg Cement who substantially controls Tanzania Portland Cement PLC (with brand name ‘Twiga Cement’) acquiring 68.33% shares owned by Afrisam Mauritius Investments Holdings in Tanga Cement, PLC (with brand name ‘Simba Cement’). Both Companies are listed, and their shares are traded with the Dar es Salaam Stock Exchange. After investigation, the FCC approved the merger with several conditions. The FCC decision was scrutinized by FCT, FCT prohibited the merger as offending section 11 of the Fair Competition Act since among others it would result in Twiga cement market share above 35% threshold in a post-merger effect. This spurred mixed reactions and led to discussions before the National Assembly on what was considered by the Government as a merger with economic potential. The parties later submitted a revised application which was approved by the FCC.
This case underscored the tension between preventing monopolies and fostering economic growth, a tension that the amendment sought to address. The Chalinze case served as a catalyst for reform, demonstrating the need for a system that could weigh the potential risks of increased market concentration against the potential benefits of mergers and acquisitions for the broader economy, including innovation, efficiency, and investment. The complexities and uncertainties revealed by this case directly influenced the push for legislative changes, ultimately leading to the introduction of the "public interest" test in the amended Act, convergence with practice of regional competition authorities and alignment with East Africa Competition Act.
The addition of section 11A in Fair Competition Act empowers the FCC to consider the broader public interest when evaluating mergers and acquisitions. This means the FCC can now approve mergers that are prohibited but offer substantial public benefits. These benefits could include:
- Technological Advancements: Mergers that drive innovation and technological progress, leading to improved products and services for consumers.
- Enhanced Efficiency: Mergers that improve efficiency in key sectors, leading to lower prices and increased productivity.
- Strategic Investments: Mergers that facilitate crucial investments in infrastructure, technology, or other sectors vital to national development.
Section 11A (2) of the Act as amended provides for the factors which the Commission has to consider in determining such substantial public benefits. These factors are the following:
- the extent to which the proposed merger shall contribute to the greater efficiency in the allocation of resources;
- the extent to which the proposed merger would, or is likely to, promote technical or economic progress and the transfer of skills, or otherwise improve the production or distribution of goods or the provision of services in Mainland Tanzania;
- the extent to which, the target firm faces actual or imminent financial failure and the proposed merger offers the least anti-competitive alternative use of the assets of the business;
- the extent to which the proposed merger shall boost exports from Mainland Tanzania or employment in Mainland Tanzania;
- the extent to which the proposed merger shall affect a particular industrial sector or region;
- the extent to which the proposed merger may affect the ability of national industries to compete in regional and international markets; and
- the extent to which the proposed merger may affect the ability of small businesses to become competitive.”.
A Win-Win for Businesses and Consumers
This shift in focus offers several advantages:
- Greater Flexibility: Businesses gain greater flexibility in pursuing strategic mergers and acquisitions, fostering innovation and growth within the Tanzanian economy.
- Reduced Uncertainty: The clearer and more predictable legal framework provides greater certainty for businesses, reducing the risk of lengthy and costly legal challenges.
- Benefits for Consumers: By encouraging mergers that ultimately benefit consumers, the Amendment Act promotes a more competitive and consumer-friendly market.
Question becomes; How much benefit must the parties demonstrate for it to be considered “substantial” enough to justify approving an otherwise prohibited transaction?
Download The Fair Competiton (Amendment) Act, 2024
Disclaimer! This brief is issued for general information purposes and does not in any way constitute a legal opinion by LAWHILL. LAWHILL shall not be liable for any injury and/or loss arising from relying on this brief. Should you have issue relating to the brief or any other issue, kindly contact our office for an opinion that suits your particular needs.
LAWHILL
