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Uganda-owned assets in Kenya under threat

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Shaka Kariuki, chairman Competition Authority of Kenya (CAK). Photo | NMG

Kenya’s competition watchdog is trying to secure the powers to auction off some of the properties owned by companies domiciled in its borders that have violated the country’s competition laws and neglected to pay the required fines.

This is poised to directly affect those firms that have ownership ties with Ugandan businesses, should they be found to be in violation of Nairobi’s Competition Act, according to the new amendments put up. Should this amendment get passed, Ugandan companies that export their goods and services to Kenya will survive because they operate under the Ugandan legal system; however, those with Kenyan subsidiaries will have those units targeted. Ditto Ugandan firms whose parent companies are domiciled in Kenya.

Once found guilty, they would be issued administrative sanctions or financial penalties that include cease and desist orders, something that gnaws at their assets whilst constraining their cash flows.

Once these sanctions are issued, the Competition Authority of Kenya (CAK) plans that that’s where its investigations will start. This entails responses from the involved parties with a rigorous fact checking mechanism.

“In order to make the Act more robust to attend to emerging issues in the Kenyan market, the Authority has developed a draft Competition (Amendment) Bill, 2024 after a review of the existing provisions and considering our enforcement experience and international best practices,” the CAK stated in a notice.

The entire purpose of all these competition laws, according to Mr Sam Wetasa, executive Director of the Uganda Consumer Protection Association and a member of the COMESA Competition Commission, is to control monopolies and their detrimental effects on consumers because monopolistic traits proliferate rapidly and take many different forms.

The majority of the firms or individuals that CAK has sanctioned in the past have moved to pay the fines when they have been imposed. Some others have resisted, even after exhausting all appeal channels, like the Tribunal and the High Court. This is what has prompted the CAK to now insert new clauses in its Act that give it teeth for enforcing more compliance of these rules that protect Kenyan consumers while accumulating more cash for itself during the process.

Letter of the law

A draft of the Bill seen by this publication states that the Authority “may enforce an order by attachment and sale, or by sale without attachment, of any property’s attachment of debts; appointing a receiver; or in such a manner as the nature of the relief granted may require.”

This means that the CAK could seize a company’s or individual’s property, such as assets or equipment, and then directly sell that property without needing a formal attachment process. It would even allow the Authority to seize any debts owed to the company or individual that is subject to its order. For example, if another company owes money to the offending company, the CAK can intervene to claim this money so that it satisfies the penalties or fines involved.

In some instances, the CAK could appoint a receiver to take control of the company’s operations or manage its assets to ensure that the receiver manages the firm’s assets to pay any fines or penalties involved under the penalty notice.

“At the end of the day it’s the consumer that you are trying to protect. This is to enable them to have access to a variety of goods and services that are competitively priced. When you have a situation where that is not working, then the stakeholder that gets hurt most is the consumer,” the CAK chairman Shaka Kariuki told the Nairobi Securities Exchange on May 18.

“And for the businesses, we ensure that regardless of the size of your business, it’s needed to have an equitable, fair playing field. A business can fail on many aspects, but it should not fail because your rights as a small and medium enterprise are infringed on by the bigger players in the market,” he added.

Base fine rate

The base fine rate for a firm found to be in violation of the Competition Act is 10 percent of its annual turnover. However, if it has aggravating or mitigating factors, its score ranges from 0 to 3 percent, which may increase or decrease its exposure.

The Authority has profited handsomely from these fines. Should Ugandan firms with Kenyan subsidiaries violate its regulations, they run the risk of having to pay a portion of the fines the watchdog is collecting. These rose from Kshs12.8m (Shs365.9m) to Kshs15.7m (Shs448.8m) in the fiscal year that ended in June 2023.

Carrefour Kenya is one culprit. The High Court upheld a decision that found its operator Al Futtaim Hypermarkets Limited guilty of abuse of buyer power whose conduct was found exploitative. It’s now grappling with a Kshs1.1 billion (Shs31.4b) fine that CAK slapped it last year.

Buyer power refers to the influence and control exerted by buyers, typically large corporations or retailers, over suppliers in commercial transactions. This power dynamic often leads to conditions that can be exploitative, particularly for smaller suppliers or producers who have limited leverage.

There are a couple of Ugandan firms with Kenyan subsidiaries that are operating in various sectors, including banking, telecommunications, insurance, manufacturing, and more.

They often share resources, expertise, and best practices with their Kenyan counterparts, enhancing their competitiveness and contribution to the regional economy. Some of them include: National Insurance Corporation (Uganda) Ltd, Jubilee Holdings Limited, Centum Investment Company Uganda Limited, I&M bank, Equity Group, KCB Group, Uganda Breweries ltd that’s a subsidiary of East African Breweries Ltd, Sarrai Group which has investments on Kenya in companies like Rai Cement and Mumias Sugar Company and SafeBoda, a ride-hailing company.

Currently, the only enforcement tools available to CAK for fines are advocacy and declaration orders.

Competition law

But the Authority is in several engagements with stakeholders from consumers to different firms that are thought to be affected to change this. They are required “to submit comments, feedback, views, and any written memoranda on the draft Competition (Amendment) Bill, 2024.”

Dr Adano W Roba, the Acting Director-General of the Authority said that “the submissions should be received on or before Tuesday, June 11, 2024 at 5:00PM. The Authority shall hold a physical forum on 14th June, 2024, in Nairobi to collect more views.”

Following multiple revisions, the Competition Bill, 2022 was finally ratified by the President on February 2, 2024, following its introduction before Parliament by the Minister of Trade, Industry, and Cooperatives (Minister) in 2022.

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

The Competition Act, 2023 (the Act), which establishes Uganda’s first-ever national competition law, fixes the problem of the previous system’s reliance on sector-specific competition laws, such as those governing the banking, telecommunications, and energy sectors.

The Act’s regulations, however, are expected to be delayed until later this year and are intended to operationalise the Act by providing more information on things like the documentation and procedure needed for an approval and the thresholds that the Act aims to achieve.

“If certain thresholds meant to be unregulated are not put into place, the Act would target everyone, which is bad. You need, like, a threshold of turnover, the market share needs to be defined, and things of that sort,” said Mr Wetasa.

After the Act’s effective date has passed, the Trade Minister must present any regulations created under the Act to Parliament within six months.