On 13 February 2020 and during the State of the Nation Address, President Cyril Ramaphosa stated the following:

“[e]ffective today, new regulations published in the Government Gazette will enable investigation and action against abuse of buyer power and price discrimination. This will help even the playing field for small businesses and emerging entrepreneurs”.

Indeed, on 13 February 2020, a notice was published in the Government Gazette bringing into force the new laws on buyer power and amended price discrimination provisions in the Competition Amendment Act, 18 of 2018 (“Amendment Act”). These aforesaid provisions were published,

together with the buyer power and price discrimination regulations (“Regulations”), which intend to address the high levels of economic concentration and skewed ownership profile of the South African economy. Furthermore, the Regulations intend to provide direction on how the new laws on buyer power and the amended price discrimination provisions should be applied.

Notably, a firm which contravenes the buyer power and/or price discrimination provisions will face an administrative penalty of up to 10% (ten percent) of its turnover value if it is a first time offender, and up to 25% (twenty five percent) of its turnover value if it is a repeat offender. The Competition Commission is soon expected to release the final guidelines in respect of its enforcement approach to the Regulations.

Below, a summary of the new buyer power and amended price discrimination provisions and Regulations thereto is set out.

Buyer Power Regulations

Section 8(4)(a) of the Competition Act, 89 of 1998, as amended (“Competition Act”) is a new provision which prohibits a dominant firm in a sector designated by the Minister of Trade and Industry (“Minister”) from directly or indirectly requiring from or imposing on a supplier that is a small and medium business (“SME”) and business controlled or owned by historically disadvantaged persons (“HDP”), unfair prices or trading conditions. Sectors designated by the Minister include, the agro-processing, grocery wholesale and retail and e-commerce and online services sectors. Section 8(4)(d) of the Competition Act further prohibits a dominant firm from avoiding or refusing to purchase from SME and HDP suppliers in order to prevent such firms from circumventing section 8(4)(a) of the Competition Act.

The buyer power Regulations apply to a designated class of supplier which supplies less than 20% (twenty percent) of the purchases of the dominant buyer. Notably, the dominant buyer must fall within a sector designated by the Minister and require from or impose on the designated supplier, an unfair price or trading condition. To determine the unfairness of the price and trading condition, the competition authorities will consider the following factors:

Price

• the price paid to other suppliers of like goods or services is higher;
• the magnitude of the price difference;
• price reductions are required from or imposed on the supplier;
• price reductions are retrospective, unilateral or unreasonable;
• costs are required from or imposed on the supplier which reduce the net price; or
• the requirement and imposition of costs is retrospective, unilateral or unreasonable.

Trading Condition

• the trading condition transfers risks or costs onto the supplier;
• the trading condition is one-sided, onerous or not proportionate to the objective of the clause; or
• there is no reasonable relation between the trading condition and the objective of the supply agreement.

Price discrimination regulations

Section 9(1)(a)(i) and (ii) of the Competition Act prohibits price discrimination by a dominant firm as a seller which is likely to have the effect of substantially preventing or lessening competition or impeding the ability of SMEs and HDP firms to participate effectively. For competition law purposes, “participate” entails the ability of or opportunity for firms to sustain themselves in the market. Moreover, section 9(1A) of the Competition Act prohibits a dominant firm from avoiding or refusing to sell to an SME and/or HDP firm in order to circumvent section 9(1)(a) of the Competition Act.

The Regulations on price discrimination apply to a designated class of purchasers which purchase less than 20% (twenty percent) of the goods or services supplied by the dominant seller. The differential treatment must be between a designated class of purchasers and other purchasers outside that class, in respect of equivalent transactions for goods and services of like grade and quality and there is no defense for differential treatment. To determine the price discrimination by a dominant seller, the competition authorities will consider the following factors:

revise competition law compliance policies and provide competition law training to relevant employees. For further enquiries:

• the extent of the price difference or other factors relative to other purchasers in the same market or markets in which the purchaser is a potential competitor;
• the significance of the input in the cost structure of the purchaser or as a driver of sales in the downstream market for the purchaser;
• the duration and timing of the price difference;
• the likelihood of the differential treatment resulting in decreased demand for goods or services offered in the downstream market by the purchaser; and
• the likelihood of the differential treatment resulting in decreased investment by the purchaser.

In conclusion and following this significant development in competition law, it is likely that new competition law issues will emerge. As such, businesses (particularly dominant firms) must be cognisant of the significant practical implications of the new development on their respective businesses. Accordingly, dominant firms (including multinationals with operations in South Africa) must be cautious when dealing with SMEs and HDP firms as the Regulations expose dominant firms to business risks. This will require such corporate entities to please contact Pamela Bodlo on email pamela@mbaincorporated.co.za.