Physical Address
Kampala, Uganda
This article provides a commentary on the Competition Bill, 2022 (the “Bill”) which was tabled before Parliament in December 2022. The Bill is presently at Committee stage and will be considered by the Parliamentary Committee on Tourism, Trade, and Industry. Suffice it to say that Uganda has no substantive law on competition and this Bill, when passed into law, would be the first.
The primary policy objective of the Bill is to control anti-competitive behaviour of firms in Uganda. Other objectives include consumer protection, promotion of the sustainability of competition, promotion of market freedom and removal of barriers to entry into markets.
This commentary is restricted to clauses in the Bill that relate to its application, administration, exemptions, and penalties, and highlights the potential loopholes of the law with a comparative analysis of the Competition Act of Kenya (the “Kenya Act”). The commentary also makes proposals for enhancement of these clauses.
General application
Contrary to most legislation, the Bill does not provide for the persons, legal or natural, to whom the law will apply. Instead, it provides the subject matter to which the law will apply, including anti-competitive practices and agreements, abuse of dominant position, and the effects of mergers & acquisitions and joint ventures on competition.
By not explicitly indicating the persons to whom the law will apply, the application clause of the Bill creates a lacuna in the law that may be exploited by government or private players in concert with government to engage in anti-competitive practices and continually impose barriers to entry in trade. This is because from a reading of that clause, it is not clear to whom the law is intended to apply and particularly, whether or not it will apply to government and government agencies.
By way of comparison, the Kenya Act expressly provides that the Act applies to all persons including the government, state corporations and local authorities in so far as they engage in trade, and further indicates the sectors to which the law applies.
Therefore, the inclusion of a subject-scope in the application clause of the Bill is critical and would not only go a long way in setting the right tone for compliance but would also create an avenue through which state and non-state actors alike can be held accountable for anti-competitive practices.
Territorial application
Similarly, unlike the Kenya Act, the Bill is silent on the territorial application of the law. The Kenya Act expressly provides that the Act applies to, among others, a person or citizen ordinarily resident in Kenya; corporate entities incorporated in Kenya or carrying on business within Kenya; or any person that supplies or acquires goods or services within Kenya. It follows therefore that both foreign and local entities doing business in Kenya are bound by the law.
This clause is critical because it levels the playing field for local and foreign entities competing in the same local market. It also checks the anti-competitive practices of powerful foreign entities and would potentially spur local entrepreneurship and innovation, especially in a country like Uganda that has not previously had a comprehensive competition regime.
Administration
The Bill proposes that the responsibility for administration of the law lies with the Ministry responsible for trade, assisted by a technical committee. This proposal presents three critical challenges.
Firstly, the capacity of the Ministry of Trade, Cooperatives, and Industries (the “Ministry”) to ably discharge its functions in terms of the expertise and efficiency required to implement an effective competition framework is of high concern. While the Bill proposes that the Ministry would be assisted by a technical committee in its functions, the Bill does not exhaustively indicate the roles of that committee and simply grants power to the line Minister to determine what the functions of the technical committee will be. In any case, the mandate of administration of the law lies with the Ministry, the presence of a technical committee notwithstanding, and the capacity and efficiency challenges that bedevil the Ministry will also impact the committee.
Secondly, the proposal to have the Bill administered by the Ministry raises concerns relating to unchecked exercise of political control and abuse of executive discretion which would manifest itself in, among others, the arbitrary or unjustified grant of exemptions for the sole benefit of state cronies. It is indeed not unusual for entities closely associated with the state to benefit from such favours. The fact that the Bill provides for the possibility of aggrieved parties to seek judicial remedies does not help matters because such parties will then have to shoulder the time and financial cost of litigation in challenging the decisions of the Minister.
The third challenge relates to conflict of interest, especially in matters where the government and state agencies are engaging in trade. It is highly unlikely that the Ministry would effectively address anticompetitive practices of another state agency or government ministry.
As has been adopted in other jurisdictions, it may be prudent to have an autonomous entity solely charged with the responsibility of administering and enforcing the Act. While the government recently commenced initiatives to rationalize parastatals, an autonomous Competition Authority goes to the root of commerce and enterprise and must remain a standalone entity. It is only with autonomy that the concerns raised above would be allayed.
Exemptions
The Bill grants power to the line Minister to exempt entities from the application of the law if such exemption is necessary in the interests of national security or public interest, or where the benefits of the anti-competitive practice outweigh the negative effects of competition.
This clause is ambiguous because the Bill neither defines what amounts to ‘public interest’ nor ‘interests of national security’. Therefore, the grounds for granting an exemption are too vague and leave room for abuse. Further, vesting the power to grant exemptions solely in the Minister also creates the concerns raised earlier in this article, on political patronage.
In contrast, the Kenya Act contains clear provisions on exemptions and the grounds thereof, which include promotion of exports, promotion of technical progress in an industry, exemptions in relation to intellectual property rights and exemptions in respect of professional rules, among others. The Act also vests the power to grant the exemptions with the Competition Authority, which has the authority to grant or reject an application for exemption based on a review of information submitted by an applicant.
It is critical for the Bill to provide for clear and transparent provisions on exemptions and to set out more objective criteria for exemption qualification to ensure a consistent and predictable application of the rules on exemption. It is also critical for the power to grant exemptions to be moved to an institution rather than the Minister, to ensure independence and fairness.
Offences and penalties
The Bill proposes to impose individual liability on persons in charge of entities where such entities are found to be in violation of provisions of the law. The Bill further proposes to impose individual liability for company directors, if it can be proved that an entity engaged in anti-competitive practices with the consent or connivance of the directors.
The imposition of individual penalties is a harsh stance adopted, especially because the Bill already contains provisions on financial and other penalties for non-compliant entities.
Further, the possibility of directors being held personally liable risks rendering the role of directors in companies as more operational than strategic. This is so because directors may be forced to inquire into all the practices of a company to avoid potential personal liability under the Act. It is indeed arguable that the imposition of financial penalties would drive increased compliance and while that may be true, this liability should be limited to officers of the entity and not the directors, especially for entities with independent non-executive directors.
Conclusion
Without a doubt, a comprehensive competition regime / framework will go a long way in promoting consumer protection, innovation, and removing barriers to entry into commerce in Uganda. Effort must however be made to ensure that the provisions in the law are practicable and are able to serve the purpose for which the law is intended.
Disclaimer: “The views and opinions expressed on the site are personal and do not represent the official position of Stanbic Uganda and Khulani Capital.”
