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Africa Legal Network (ALN): Changes in Competition Law in Kenya Print E-mail
Tuesday, 06 December 2011

Historical Background
Then colonial government initiated the first regulation of competitive practice to Kenya’s economy in 1956 with the Price Control Ordinance, and while the ‘invisible hand’ became distinctly more visible in the form of enhanced price controls through 1970s and early 1980s, the middle ground returned with the enactment of the Restrictive Trade Practices, Monopolies and Price Control Act (CAP 504) in 1989 (RTPA).

The RTPA sought to redress the imbalance between producers and consumers, providing a lighter touch to guarantee the protection of consumers without stifling the entrepreneur’s creative spirit but retained the Minister for Finance’s power to fix prices in respect of goods and services produced or provided by businesses which were deemed to be in a monopolistic position. However, those powers to set prices have not been exercised.

New Competition Act  

The government has moved to bolster competition regulation in Kenya with the introduction of the Competition Act (Act 12 of 2010). The Competition Act came into effect on 1 August 2011 and replaced the RTPA with the hope of assisting Kenya to achieve its Vision 2030. But does it provide the fine line of guidance required to steer the economy to prosperity?

Any legislation replacing existing legislation faces challenges and the Competition Act is no exception. It is expected to introduce significant changes to the rules governing the control of mergers, provide strong guidance for consumer welfare, prevent restrictive trade practices and unwarranted concentrations of economic power and strengthen the mechanisms for the hearing of appeals.

New Institutions
In order to oversee all of this, the Act creates two new administrative bodies to replace those existing under the RTPA. The first is an autonomous regulatory agency to be called the Competition Authority, which will replace the Monopolies and Prices Department. The second is the Competition Tribunal which will take over the functions of the Restrictive Trade Practices Tribunal. The Competition Act is modelled on the competition regulation applicable in the European Union and so attempts to bridge the gap between Kenya’s various industry regulators by providing the Authority with an overarching jurisdiction over the various existing bodies charged with consumer protection. In theory, this should bolster the protection available to consumers and, as the Authority develops,would provide a one-stop shop for issues surrounding consumer protection to be addressed.

The Act is expected to strengthen the governance of competition in Kenya by giving the Authority the requisite capacity to more fully promote and safeguard competition in the national economy and enhance the protection of consumers with regard to unfair and misleading market conduct and unwarranted concentrations of economic power as well as helping to protect consumer welfare.

No Thresholds

Under the Act, any merger or takeover, whether over the whole or a portion of a business, will require the prior approval of the Authority. Such approval will be required irrespective of the undertaking’s relevant market share and regardless of whether the principal’s and target’s businesses are substantially similar.

The ‘substantially similar test’ under the RTPA, although vague, provided a nominal threshold for mergers and acquisitions. Not so under the Act where any merger or acquisition even between players providing entirely dissimilar goods or services will be caught. The Act also lacks thresholds in terms of size or market share above which the Authority may exercise its jurisdiction and as a result, any merger or acquisition, from those involving multinationals to those involving corner kiosks, is caught.

If the Authority chooses to follow the Act to the letter, it is likely to be swamped with applications, with the knock-on effect of a reduction in the economy’s appetite for such transactions leading to reduced inorganic market growth.

Treatment of Confidential Information
A separate but related issue lies in the Act’s treatment of confidential information by the Authority. In applying for approval from the Authority, any information provided with the application will not automatically be treated as confidential. While this may be laudable from a freedom of information perspective, it creates a serious disincentive to any knowledge critical businesses contemplating a merger and a real incentive for such businesses to complete such merger without applying for the Authority’s approval.

Restrictive Trade Practices

Turning to restrictive trade practices, the Act has significantly widened the definition of a restrictive trade practice. The definition now goes beyond non-exempted agreements to any decisions or concerted practices that have the object or effect of preventing, distorting or lessening competition.

In this regard, professional associations will have to apply for exemptions under the Act in order to enforce restrictions in their governing rules which have such effect on their particular industry. Where the rules applied by such professional associations are required to uphold the profession’s standards, the Authority will hopefully provide the necessary exemption, preventing the possibility of a downward race with resultant drop in the profession’s standards.

Conversely, suppliers or producers of goods or services who recommend a resale price to their resellers will, under the Act, be required to make their resellers aware that the recommended price is just that – a recommendation and not binding. Further, the words ‘recommended price’ will have to appear next to the price affixed to their products or in any document relating to the product or service, resulting in better dissemination of information to the public, allowing them to make a more informed decision.

Consumer Welfare

Building on the recently upgraded constitutional rights in relation to consumer welfare and protection, the Act seeks to enforce detailed provisions on consumer welfare. These include, for example, a requirement that prior notice be issued to consumers in relation to any imposition of charges and fees by banks, insurers and micro-financiers. Furthermore, if goods are found to fall below prescribed consumer product safety standards once the Act is in force, liability may be traced up the chain from the end consumer to the original business that supplied the goods. The prescription of such minimum safety standards will still be undertaken by the various statutory bodies created for this purpose; however, the Authority’s overarching supervisory role should help to ensure that such standards are not applied discriminatorily and once applied are upheld.

Conclusions
Whilst many of the changes brought about by the Act are laudable, the Act does present the sensitive task of balancing the benefits of controlling anti-competition and control of economic power with the risk of stifling a liberal market economy through application of competition rules. For instance, in seeking to control unwarranted concentrations of economic power, the Act provides the Authority with a wide mandate to review the market and determine where concentrations of economic power exist whose detrimental impact on the economy outweighs the efficiency advantages. Upon the determination of the same, the Authority’s powers span to the making of orders against those persons deemed to hold such unwarranted concentrations of power to dispose of such portion of their interest as the Authority deems necessary. Needless to say, this is a power that should be exercised with caution depending on the circumstances. Thus the Act presents a mixed bag. Its potential to assist in the development of Kenya’ economy cannot be doubted, but the fulfilment of this potential lies with the interpretation and implementation by the Authority and the Tribunal.



Republished with permission of Africa Legal Network.
By Dominic Rebelo ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ), Anjarwalla&Khanna, Nairobi
For more information on ALN, contact Patricia Fokuo, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it



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