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Fair Competition

Ensuring Fair Competition: Legal and Regulatory Framework for Businesses in Kenya

Introduction:

Competition is the cornerstone of a thriving market economy, promoting innovation, efficiency, and fair pricing. In Kenya, the legal and regulatory framework for competing businesses plays a vital role in safeguarding consumer rights and fostering a competitive market environment. CR Advocates LLP being a top tier multi-award winning law firm in Kenya is well versed with the intricacies of compliance with the dictates of the law on competition between businesses in Kenya.  CR Advocates LLP has been at the center of multiple expansion strategies for businesses either through mergers, takeovers and acquisitions of companies for which the supervision of the Competition Authority of Kenya (CAK)’s mandate and approval needed to be sought.

CR Advocates LLP has compiled valuable practical insights in this article which highlights the key components of the framework and emphasizes the crucial role played by the Competition Authority of Kenya (CAK) in promoting fair competition and protecting the interests of consumers.

Legal Background Summary

  1. The Constitution of Kenya, 2010: The Constitution of Kenya, adopted in 2010, lays the foundation for consumer protection and fair trade in the country. It recognizes the right of every individual to fair and reasonable terms and conditions of service, as well as protection from hazardous products and services.
  2. The Competition Act No. 12 of 2010: The Competition Act No. 12 of 2010 is the primary legal and regulatory framework for competition businesses in Kenya. It establishes the Competition Authority of Kenya as the regulatory body responsible for addressing competition law issues. The Act prohibits anti-competitive agreements, abuse of dominant position, and mergers and acquisitions that may substantially prevent or lessen competition.Under this Act, the Competition Authority has the power to investigate anti-competitive conduct and enforce sanctions against businesses that violate competition laws. It ensures that businesses operate in a fair and competitive market, promoting consumer welfare and protecting consumer rights and interests. The Act also empowers the Competition Authority to formulate guidelines to address emerging competition issues.
  3. The Standards Act, Chapter 496 of the Laws of Kenya: The Standards Act establishes the Kenya Bureau of Standards (KEBS) as the regulatory body responsible for setting and enforcing standards for goods and services in Kenya. By ensuring a level playing field for businesses, KEBS plays a crucial role in regulating competition businesses and addressing anti-competitive practices.
  4. Regional Competition Agreements: Kenya is a party to various regional competition agreements, including the Common Market for Eastern and Southern Africa (COMESA) Competition Regulations and the East African Community Competition Act 2006. These agreements aim to promote competition and economic development by removing trade and investment barriers. By collaborating with other countries, Kenya effectively deals with anti-competitive behaviors that affect competition businesses.

The Role of the Competition Authority:

The Competition Authority of Kenya, established under the Competition Act, plays a central role in ensuring fair competition and protecting consumer interests. Its key responsibilities include:

  1. Investigating anti-competitive practices: The authority investigates allegations of anti-competitive practices such as price fixing, market division, abuse of dominance, and unauthorized mergers and acquisitions.
  2. Promoting fair competition: The authority works to create a level playing field for businesses, ensuring that they compete on their merits and consumers have access to a wide range of competitive products and services.
  3. Enforcing competition laws: The authority enforces the provisions of the Competition Act, imposing fines and sanctions on businesses that breach competition laws.
  4. Providing guidance: The authority offers guidance to businesses on compliance with competition laws, promoting a better understanding of fair competition practices.
  5. Advocating for competition: The authority advocates for competition and its benefits, including lower prices, better quality products and services, and increased innovation.
  6. Advisory services and international collaborations: The authority provides advisory opinions to businesses and the government on competition matters. It also collaborates with international and domestic stakeholders to enhance competition policy and regulation.

Hypothetical Application of the Mandate of the Competition Authority’s Mandate in enforcing Fare Competition between Kenyan Business in the Telco space.

Scenario:

Company A, a dominant player in the telecommunications industry in Kenya, is accused of abusing its dominant position by engaging in predatory pricing practices. Company A allegedly lowers its prices to a level below cost with the intention of driving its competitors out of the market. As a result, several smaller telecommunications companies struggle to compete and are forced to exit the market.

Resolution: The Competition Authority of Kenya (CAK) receives complaints from the affected companies and conducts an investigation into the allegations against Company A. After gathering evidence and conducting hearings, the CAK determines that Company A has indeed abused its dominant position through predatory pricing practices, which have significantly harmed competition in the telecommunications market.

Based on the findings, the CAK initiates legal proceedings against Company A in the Kenyan courts. The court evaluates the evidence presented by both parties and rules that Company A has violated the provisions of the Competition Act. The court may order Company A to cease the predatory pricing practices and may impose penalties, such as fines or other remedies, to ensure fair competition in the market.

Actual Application in Kenyan Courts

In the matter before the High Court in Nairobi challenging the merger/acquisition of KCB and National Bank of Kenya (NBK) in which the mandate of the Competition Authority was invoked and formed the basis of its determination. The Court in Evans Aseto & another v National Bank of Kenya (NBK) & another; Central Bank of Kenya & another (Interested Parties) [2019] eKLR while giving its closing remarks stated as follows:

“Before I conclude, I need to say something about the petitioners’ claim that the deal has not received the blessings of CAK as required by the Competition Act.  All the parties who participated in these proceedings concurred that CAK must authorize certain mergers and any merger which does not receive the authorization of CAK, where the same is necessary, has no legal effect. That being the case, then it goes without saying that the respondents must at the appropriate stage, seek the approval of CAK in order to validate their proposed union.”

This underscores the core and integral function of the Competition Authority in regulating business transactions including but not limited to mergers and acquisitions. This was because the interests of the public needed to be protected and the majority of shares being held by various government entities meant that the acquisition of NBK by KCB would have required more participation of the public and definitely the approval of the Competition Authority of Kenya.

CR Advocates has always been in a position to properly advise our clients who wish to consolidate their business strengths and harness opportunities in growth through mergers, take-overs and acquisitions and have highlighted the processes and guidance in our article on Mergers and Acquisitions through the link: https://www.cradvocatesllp.com/the-law-on-mergers-and-acquisitions-in-kenya/

Business growth in Kenya signals the coming together of multiple business entities to solidify their base and diversify their investment portfolio, and this requires regularly the market players to consult the Competition Authority. CR Advocates LLP can be the lead legal consultant in any such expansions for interested businesses.

Conclusion:

The legal and regulatory framework for competition businesses in Kenya, encompassing the Constitution, the Competition Act, regional agreements, and regulatory bodies like the Competition Authority and KEBS, plays a crucial role in promoting fair competition and protecting consumer interests. The Competition Authority, in particular, ensures that businesses operate in a competitive market, investigates anti-competitive practices, and enforces competition laws. By fostering fair competition, Kenya’s economy benefits from increased efficiency, innovation, and consumer welfare.

CR Advocates LLP has a proven track record of steering mergers, takeover, and acquisition processes between companies has the proven track record to steer an expansion strategy for merging businesses.  We will be delighted to offer our seasoned professional services to your companies and be a part of the growth strategy for your resultant company.

“The information provided in this article is intended for general legal advice and does not constitute legal advice for a specific transaction or case. Since each transaction represents a unique legal context, it is advisable to retain a legal adviser for specific transactions.”

To contact CR Advocates LLP, send us an email at info@cradvocatesllp.com or call +254 100979081 or Book a strategy call HERE or direct message us HERE on WhatsApp at your convenience. Our legal team will be happy to help you.

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