PRESENTATION TO THE PORTFOLIO COMMITTEE ON ECONOMIC DEVELOPMENT ON 15 YEARS OF COMPETITION ENFORCEMENT Commissioner: Tembinkosi Bonakele 10 March 2015

 Addressing anticompetitive conduct in the last 15 years  Key highlights o Mergers o Cartels o Abuse of dominance  Case studies o Walmart/Massmart merger o Nestlé/Pfizer merger o Bread cartel o Pioneer Foods settlement o Construction cartel o Cement cartel Table of contents

Successes in identifying and taking actions to address anticompetitive mergers and prohibited business practices in different markets including: o Basic food products affecting the poor (such as bread, maize meal, baking flour, milk, eggs) o Industrial inputs products important for industrialisation, infrastructure and employment (such as steel, concrete pipes, polymers, diesel, glass) o Sectors critical for growth and development (such as HIV/Aids drugs, banking and telecommunications)Essential inputs into Manufacturing – Basic Chemicals and Polymers. o Imposing conditions on mergers with an adverse impact on public interest considerations. Addressing Anti-Competitive Conduct in the last 15 Years The Commission has also enhanced its public profile o SA ranked amongst the best in the developing world o SA ranked 8 th by the World Economic Forum for effectiveness of anti- monopoly laws o Commission is well respected among peers and is an active member of the SADC competition committee, the African Competition Forum and the BRICS competition forum o Commission appointed Chair of the African Competition Forum

Increase in the size of administrative penalties imposed by the Tribunal o Between 2004 – 2008, about R579 million compared to R4.3 billion between 2009 – o Examples include: o 2009 – Sasol (R250million) o 2010 – Pioneer Foods (R500million) o 2010 – Sasol (R111.7million) o 2011– Aveng Limited (R128.9million) o 2011– AfriSam (124.9million) o 2011 – Lafarge Industries (R148.7million) o 2012 – Telkom SA (R449million) o 2013 – Several construction firms (R1.46 billion) o 2013 – Telkom (R200million). Enforcement Highlights Cumulative administrative fines levied ( )

Between 2004 – 2008, increase in the number of merger notifications. o Merger thresholds increased in o Financial crisis Careful balancing of competition issues with public interest considerations in mergers assessments: o Employment o Sector or region o SMEs and HDI-owned businesses o Ability of industry to compete internationally Increase in innovative remedies in merger cases o Massmart/Wal- mart merger Preventing anticompetitive concentration in consumer markets o Pick’ n Pay/Fruit & Veg Merger Regulation Highlights Merger Trends ( )

The Tribunal has only decided on about 11 abuse of dominance cases over the past 15 years, finding that abuse occurred in 8. o However, only two cases have been subject to a penalty imposed by the Tribunal. o Even the recent penalty against Sasol is subject to an appeal. o The Commission has over the decade been involved in investigations and prosecutions against Sasol and Mittal o Whilst there have been some positive decisions in favour of the Commission on some of these matters, the fundamental issues relating to excessive pricing remain unresolved o This continues to have a detrimental effect in downstream industries, given the importance of the intermediate inputs in industrial development Abuse of Dominance Highlights

In May 2011, the merger was approved with conditions: o No retrenchments from the merged entity’s operations in South Africa for a period of two years. o The parties must reinstate the 503 employees that were retrenched during 2009 and June 2010 (no time period specified for this condition). o The merged entity must honour the existing labour agreements with SACCAWU for at least 3 years. o Massmart must establish a Supplier Development Fund (SDF) by February o R242 million was set aside as SDF which was envisaged to operate for 5 years. o The purpose of the fund is to assist eligible South African Small and Medium Enterprises, particularly black-owned, black-empowered or local manufacturers. o Enabling Massmart to increase and diversify its local procurement capacity. The Wal-mart/Massmart Merger

Fund investment spend forecast (over 5 year duration) Value available to commit per investment area as at September 2013 Value of disbursements per investment area as at September 2013 Ezemvelo Direct Farm Programme R R R Manufacturing SMEsR R R Service projectsR R R Service to suppliersR R0R TOTALR R R The Wal-mart/Massmart Merger Source: Massmart Supplier Development Fund Annual Report 2013, page 10. A summary of the investment forecast of resources to beneficiaries over the funds 5 year duration

On 08 June 2012, Nestlé South Africa notified the Commission of its intention to acquire the local Infant Nutrition Business of Pfizer Inc. On 14 December 2012, the Commission recommended the approval of the Nestlé/Pfizer merger, conditional on what was called a transitional re-branding remedy The transitional re-branding remedy imposed by the Tribunal envisaged Nestlé divesting the Pfizer brands to an independent third party through a transitional re-branding arrangement. o The remedy is based on a 10 year transitional re-branding period whereby the successful purchaser of the divested Pfizer brands would rebrand the products, o followed by a 10 year black-out period where neither the licensee nor Nestlé can introduce the original Pfizer brands into the South African market. o After the blackout period, Nestlé will then be allowed to re-introduce the divested brands into the South African market, should it wish to do so The Nestlé/Pfizer Merger

Cartel members included Premier Foods, Tiger Brands, Pioneer Food and Foodcorp) o Premier Foods granted leniency for disclosing its role in the bread cartel, flour cartel and maize meal cartel. o Tiger Brands granted leniency for proving further evidence on the flour cartel and maize meal cartel. o For the bread cartel: o 2007 – Premier Foods (R0 million) received immunity. o 2007 – Tiger Brands (R98 million). o 2009 – Foodcorp (R45 million). o 2010 – Pioneer Foods (R196 million) after a contested hearing. The Bread Cartel

Pioneer Foods undertook in terms of the proposed settlement agreement to: o Pay a fine of R500 million to the National Revenue Fund. o Further, an Agro-processing Competitiveness Fund of R250 million drawn from the penalty was conceptualized. Direct Investment Business Support Research Grant Fund size Committed Funds available Interest is at 0%, total reflows of R7.5 million achieved. All reflows will be invested in new clients. Pioneer Foods Settlement A summary of Agro-processing competitiveness fund STATUSNo. OF CLEINTSAMOUNT On-track Under supervision Legal action Ceased operations00 Total PROVINCE VALUE (Rand) NO. OF DEALS JOBS Mpumalanga--- Western Cape Gauteng Eastern Cape Limpopo Kwa-Zulu Natal Northern Cape--- North West Free State Total Geographical spread of APCF

Pioneer Foods undertook in terms of the proposed settlement agreement to: o Reduce the prices of certain of its products for an agreed period of time up to the total value of R160 million. o Increase its capital expenditure budget by R150 million. Pioneer Foods Settlement…. Average wholesale and retail prices for Pioneer Foods’ standard white bread, 06/ /2011

First investigation initiated into the construction sector on 1 February 2009 regarding tenders for the construction of 2010 FIFA World Cup stadia. The second investigation was initiated on 1 September 2009 and covered all big and small tenders for construction projects. o Received approximately 150 marker applications (intention to apply for leniency) and 65 CLP applications which implicated the majority of medium and large firms. o developed and launched a fast track settlement programme on 1 February 2011 to incentivise firms to enter into settlement arrangements. Construction Cartel

Phase 1 of the fast track settlement programme led to 15 firms reaching settlements with the Commission and paying about R1.46 billion in fines. Phase 2 is concerned with the construction cases/projects that were not settled under phase 1. o 24 firms were implicated in construction cases/projects but did not participate in phase 1. o The commission has since referred all remaining cases and aims to close the chapter on construction by March FirmSettlement amount (ZAR) 1. AvengR Basil ReadR EsorfrankiR G LivieroR GiuricichR Haw & InglisR HochtiefR Murray & RobertsR NorvoR RaubexR RumdelR StefanuttiR TubularR VlamingR WBHOR TotalR Construction Cartel

On 02 June 2008, the Commission initiated an investigation against the cement producers alleging that PPC, Lafarge, Afrisam and NPC-Cimpor had entered into restrictive horizontal agreements o The Commission raided the premises of the four cement producers on 24 June 2009 o Subsequently, PPC applied for leniency and confirmed the existence of a cartel among the four cement producers. On 01 November 2011, Afrisam agreed to pay a penalty of R o representing 3% of its 2010 cement annual turnover in the Southern African Customs Union On 28 March 2012, Lafarge agreed to pay a penalty of R o representing 6% of its 2010 annual turnover in the Southern African Customs Union region. The Commission study of the impact of uncovering the cartel o Consumer savings as a result of the cartel being uncovered range approximately between R 4.5 billion to R 5.8 billion for the period 2010 to 2013 o In addition, there has been noticeable change and dynamism in the market, with firms entering territories they previously did not trade in. Cement Cartel

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