Analysis of Uganda’s New Competition Act, 2023

Introduction

This law intends to promote and sustain fair competition and to prevent practice with an adverse effect on competition markets in Uganda.    

The Act was reconsidered and passed by Parliament on 31st August 2023 after it had been returned by the President in May 2023. The President assented to the Act on 2nd February 2024. The law doesn’t have a commencement date yet, but as is the practice, it will come into force upon being gazetted.

The Act applies to anti-competitive practices, anti-competitive agreements, abuse of dominant position and effects of mergers, acquisitions and joint ventures on competition.

This article intends to highlight the salient aspects of law that any business ought to know to avoid liability.     
 

Supervision:

The Ministry responsible for trade (currently being the Ministry of Trade, Industry and Cooperatives) is mandated to administer the Act. Specifically, under the law, there is established a Technical Committee on Competition and Consumer Protection under the Ministry. This Committee is tasked to assist the Ministry to perform its functions under the Act. This Committee was a proposal by the President after he rejected the earlier proposal of establishing an independent body, the Competition and Consumer Protection Commission to enforce the Act as it is the practice worldwide.  The reasoning of the President was that creation of the Commission would be contrary to the government policy on rationalisation of government agencies to reduce costs of administration, thus freezing creation of any agencies.

It should be noted that during reconsideration of the Act, the Parliamentary Committee on Tourism, Trade and Industry made a strong case for an independent competition commission in line with best practice as is the case in the neighbouring countries of Kenya, Rwanda and Tanzania. They further argued that this law applied to all persons and sectors of the economy including the government. A conflict of interest was most likely to arise if the Ministry was to enforce the law that it was subject to as government, not forgetting the political influence and inefficiencies. Therefore, creation of an independent commission would boost public confidence in the new law.

Hopefully, an amendment to the law can be quickly brought to allow for creation of an independent Commission, so that the long-awaited law can have the anticipated impact.       
  

Prohibition of anti-competitive practices and anti-competitive agreements:

The Act prohibits horizontal and vertical agreements that are deemed anti-competitive. A horizontal agreement is defined as an agreement concluded between parties operating at the same level of the production or distribution chain, and these parties would normally be actual or potential competitors. On the other hand, a vertical agreement is an agreement between parties at different levels of the supply chain. For example, between a manufacturer and distributor, or distributor and retailer.

The law prohibits horizontal agreements that directly or indirectly fix purchase and selling prices, and limit or control production, supply, markets, technical development and investment just to mention a few. On the other hand, vertical agreements that involve exclusive supply and distribution agreements and refusal to deal among others are prohibited.      
 

Abuse of dominant position:

Where a firm has the ability to behave independently of its competitors, customers, suppliers and the final consumer, it is deemed to have a dominant position. A dominant position is not defined merely by market share, but by classification as a market leader. Typically, a company is considered to hold a dominant position if it has a market share of more than 40%, but even a market share of 15% may be considered dominant if it is the largest player in an uneven market.

The Act spells out a number of determinants to guide on whether a person enjoys dominant position, which include among others:

• whether the person supplies or acquires 30% or more of particular goods or services or where 3 or more persons supply or acquire 60% or more of particular goods or services;

• the economic power of the person, including commercial advantages over a competitor which may be measured by reference to product range, established trademarks, customer loyalty, vertical integration of the person, sales or service network;

• the technical advantages enjoyed by the person, which may be judged with reference to patents, know-how and copyright owned;

• the dependence of consumers on the goods or services of the person;

• the monopoly status or dominance acquired through an Act of Parliament, or by virtue of being an undertaking of the government, a government company or a public sector undertaking; and

• the ability to independently determine price, quality, quantity and time of supply of products or services.      
   

A person abuses a dominant position where the person directly or indirectly imposes unfair or discriminatory selling prices or conditions or limits production, markets or technical development to the prejudice of consumers, makes the conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of those contracts. Abuse of dominant position is an offence under the Act, which on conviction, a person is liable to a fine not exceeding one hundred currency points or imprisonment not exceeding four years, or both.

The Act further prohibits persons holding a dominant position in the relevant market from engaging in practices that exploit consumers or exclude competitors by engaging in limited production, price wars, discrimination between customers and suppliers just to mention a few. 

The Ministry is mandated to inquire into every allegation or suspicion of abuse of dominant position.      
 

Mergers, acquisitions and joint ventures:

A person proposing to enter into any merger, acquisition or joint venture is required to give notice of the same to the Ministry in the form that will be prescribed by the regulations to the Act. The Minister is mandated to prescribe the threshold for notifiable mergers, acquisitions and joint ventures by way of statutory instrument. At the moment, this is yet to be issued. A merger, acquisition or joint venture entered into without giving of notice is deemed invalid or void.

The notice is to be given by the person acquiring control through the merger, acquisition or joint venture. The Act defines control to mean the right by a person to exercise restraint or direction over another person and specifically, the ability to exercise 49% or more of the voting rights of the other person, the ability to appoint more than half of the board of directors or the ability to control the affairs of the other person.

The notice required for a proposed merger or amalgamation is given after the board of directors or similar body have accepted the proposal to merge or amalgamate. For a proposed acquisition of control of another person, the notice is given after conclusion of negotiations of the agreement of acquisition of control. In regard to the joint venture, notice is given after execution or signing of the joint agreement by the parties.

Upon the Ministry receiving the notice, it is mandated to inquire into the merger, acquisition or joint venture within 120 days to establish whether the merger, acquisition or joint venture is likely to cause an adverse effect on competition within the market. Where the Ministry fails, neglects or does not communicate the decision regarding the merger, acquisition or joint venture within the 120 days, it will be taken that the Ministry has approved the given merger, acquisition or joint venture.

Where a person who is required to give notice of a merger, acquisition or joint venture fails to do so, such a person commits an offence and is liable on conviction to a fine not exceeding 10% of its annual turnover.

In determining whether a merger, acquisition or joint venture is likely to have an adverse effect on competition in a market, the following will be considered:

• the actual and potential level of competition through imports in the market;
• the level of mergers, acquisitions or joint ventures in the market; 
• the likelihood that the merger, acquisition or joint venture may result in the parties to the merger, acquisition or joint venture being able to significantly and sustainably increase prices or profit margins; 
• the market share of the parties involved in the merger, acquisition or joint venture;    
• the likelihood that the merger, acquisition or joint venture may result in the removal from the market of a vigorous and effective competitor;
• the nature and extent of vertical integration in the market;
• the possibility of a rise in failing businesses;
• the nature and extent of innovation in the market; and
• whether the benefits of the merger, acquisition or joint venture outweigh the adverse impact of the merger, acquisition or joint venture.  

The above notwithstanding, the approval process is forthright and flexible allowing for conditional approvals and stakeholder engagement. A person aggrieved by a decision or order made under the Act, may appeal to the High Court.      
 

Regulations:

The Minister is mandated within 6 months from the date of commencement of the law, to lay before Parliament regulations made under the Act. These regulations are meant to operationalise the Act by giving in greater details, the process flow and documentation required at the different stages envisaged under the law. These are expected later in the year after the Act has come into force.

Conclusion

We note that the Act does not make any connection with the regional competition regimes like Common Market for Eastern and Southern Africa (COMESA), which is already active and East African Community yet to be operationalised. Given the silence, it would appear that the regional regime would take precedent where their thresholds are triggered. We anticipate that clarification will be given by the Ministry on this subject.

Passing of the Act is a welcome development, given that this law has been in the making for the last 20 years and comes at a time when we are seeing more mergers, acquisitions and joint ventures happening. It is our hope that it will further stimulate and enhance investment in the country.     
 

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The content of this article is intended to provide a general guide on the subject matter and should not be relied upon without seeking specific legal advice on any matter.