The protection of competition: A suspended verdict
At times the Egyptian Competition Authority has played an active role in curbing monopolistic practices — but not always.
 
 
 

On May 1, the courier service Glovo unexpectedly announced that it will suspend operations in both Egypt and Chile — one day after the company received 150 million euros from investors and venture capital funds. 

The timing of the move raised speculations regarding the pressure that the German company Delivery Hero might have exercised on Glovo. Delivery Hero owns 16% of Glovo’s shares, and there was speculation that the former would only approve of the fund transfer if Glovo pulled out of Egypt. Aside from the shares in Glovo, Delivery Hero owns the online food delivery service Otlob, its major competitor in the Egyptian market. 

But then in mid-June, the Authority for the Protection of Competition and Prohibition of Monopolistic Practices (also known as the Egyptian Competition Authority) received an official notice from Glovo and Delivery Hero announcing that the former would resume its activities in Egypt. Delivery Hero also pledged not to misuse its shares in Glovo to harm its economic activity inside Egypt. This development came after the ECA gave the two companies 30 days to change the arrangements between them, which the ECA considered to be a violation of the Law on the Protection of Competition and the Prohibition of Monopolistic Practices. 

It has not been officially clear why Glovo decided to return to the Egyptian market, but press reports said that the intervention of the ECA was the primary cause. The decision came during the 30-day grace period. 

ECA has taken different approaches to other recent business deals that gave rise to a suspicion of monopoly or threatened market competition. The Uber and Careem deal is one such example. 

A few months ago, the ECA publicly announced its rejection of Uber’s acquisition of Careem, the two primary ride-hailing companies in Egypt. In July 2018, Bloomberg had reported that Uber was conducting preliminary talks with Careem to merge their transport services in the Middle East. ECA chairman Amir Nabil stated that the two companies must notify the agency 60 days prior to any deal. In a press interview, he also stated that the merger will make it difficult for other companies that want to compete in the market. He cited the example of Osta, another ride-hailing service that was quickly driven out of the market because it could not compete with the two companies. 

On October 23 , 2018, the state-run Official Gazette, which covers new legislation, published ECA’s decision to implement “preventative measures” before the merger of the two companies. The decision stated that the acquisition will lead to the full control of user data, which would subject it to many dangers and harm the market at large. 

The decision also pointed out that the acquisition would cause prices to increase and service quality to deteriorate. It also warned against the limiting of consumer choices and the potential job losses for drivers in case there were no guarantees of protection. Finally, the ECA demanded that the two companies notify the agency before signing a deal and expect a response within 60 working days. 

On March 26 of this year, the ECA received a notice about the Uber and Careem deal. It then released a statement saying that it will run a screening procedure and announce the agency’s approval, conditional approval, or rejection soon. After the US$3.1 billion deal was signed last March, the ECA retreated from its original position. It then expressed its concern about the deal — which it described as unlawful — and stated that it will discuss the issue further with the relevant stakeholders and competitors before announcing the agency’s final position on the acquisition. The ECA granted itself a renewable 60-day period to make a decision. 

In early May, the ECA stated that Uber and Careem have shown sufficient keenness to comply with the provisions of the Law on the Protection of Competition and the Prohibition of Monopolistic Practices, but it stressed that the agency has not made a decision regarding the acquisition yet. 

The discrepancy in the ECA’s positions on Uber and Glovo leaves us with many questions about the role it plays and the boundaries of the agency’s autonomy and limitations. 

How ECA came into being

Until 2005, powerful businessmen close to decision-makers successfully lobbied against the issuance of the Law on the Protection of Competition and Prohibition of Monopolistic Practices, which now governs the work of the ECA and allows it to intervene in agreements signed outside of Egypt if they harm the Egyptian economy. 

In 2001, Egypt signed the European Union-Mediterranean Free Trade Area partnership. The agreement, which set a number of conditions related to the regulation of competition and monopoly, came into force in 2004. Then in 2004, the Protection of Competition bill was introduced in Parliament as the “Law on the Protection of Competition and Prohibition of Monopolies”, and it originally set 65% as the minimum acquisition threshold for a company to be considered as monopolizing the market. 

But in the final draft of the bill, the “prohibition of monopolies” was changed to “prohibition of monopolistic practices” and only a 25% share of market dominance was needed to trigger enforcement. Market dominance was defined as “the ability of the dominant entity to manipulate prices and/or the volume of supply without having competitors that can limit or curb those manipulative practices.” The bill allowed for market control, but it prohibited those who control the market from abusing their dominance and engaging in monopolistic practices.

The law did not only specify the parameters of monopolistic practices, but it also outlined a regulatory mechanism for business deals to preclude any kind of monopoly.

The legal distinction between “monopoly” and “monopolistic practices” is a smart one, as Medhat Nafea, an economy expert and the chief executive officer of Metallurgical Industries Holding Company, said in an article published by the privately owned Al-Shorouk newspaper. Nafea states that this distinction “prevents the Egyptian Electricity Holding Company, for example, from being charged with monopoly abuse, as it has dominance over the production and distribution of electricity.” But at the same time, the law prohibits the company from “preventing other competitors seeking to enter the electricity market with competitive prices.” 

Mona Yassin, ECA’s first chairwoman (2006-2011), believes that the legal distinction is also beneficial. In a conversation with Mada Masr, Yassin stated that it is unfair to cause harm to a company that naturally controls the market as a result of the quality of its services or products. However, the situation becomes problematic when those who dominate the market abuse their positions and prevent others from competing. 

In 2006, the Authority for the Protection of Competition and Prohibition of Monopolistic Practices was established after Law 3/2005 was passed in Parliament along with its executive regulations. The law was passed during the pre-2011 era, when corruption and monopoly were known to be rampant, and which were further exposed after the ouster of former President Mubarak and some of his regime’s prominent figures. 

ECA’s primary role is to implement the provisions of the Law on the Protection of Competition and Prohibition of Monopolistic Practices. The agency receives requests to conduct investigations on questionable business agreements and activities that harm competition, as well as notifications about other business practices that violate the law. The ECA also produces annual reports on economic activities, in which it reviews policies and legislation that could harm competition. 

The ECA has powers of judicial control that allow it to access governmental and non-governmental papers and data. The agency has an independent budget that is financed from the state budget, but it is also allowed to receive grants as long as their conditions align with the ECA’s objectives. 

In cases of violation, the law imposes a fine that ranges from 1% to 12% of a company’s revenue — and the amount can double if there is a failure to comply with punitive measures. 

But the law does not grant the ECA the authority to impose the fines by itself. The ECA files a lawsuit, then the court initiates criminal proceedings against the violating entities and decides upon the fines. The ECA is also entitled to seek reconciliation after a case has been presented before the court. 

Nabil, the current chairman of the ECA, has long been concerned about the agency’s mandate when it comes to imposing fines. At a press conference last October, Nabil said that the ECA suffers from a dearth of effective monitoring tools to enable the authority to do its job. “The Egyptian Competition Authority is the only competition regulator in the world that does not have the authority to issue fines or take immediate administrative action to combat violations,” he stated. Court cases typically last for many years. According to a study that the ECA conducted internally, the average life of one court case is four years. “This is a very long time to prove a violation and enforce the necessary measures needed to fight monopolistic practices,” Nabil remarked.

The ECA files lawsuits after receiving external complaints or after gathering information itself, which the law allows it to do. According to Article 22, a fine that ranges from LE20000 to LE500,000 is to be imposed on those who fail to provide necessary documents. As for entities that provide false information, the fine ranges from LE50,000 to LE1 million.

However, Yassin states that the ECA always faces challenges when trying to obtain documents and information to conduct investigations, especially if the case involves companies owned by the state or high-level authorities. So although the ECA is granted a degree of judicial power, it often receives the message that the information is confidential, Yassin says.

Heba Shahin, an expert on competition protection and a visiting professor at King’s College London, believes that the problem is not solely confined to state-owned companies. In her view, there are substantial difficulties in obtaining any kind of information from either private or state-owned companies. 

Information gathering and fine levying aside, there is another structural limitation in the ECA mandate, as dictated by the law. This limitation unfolded clearly in the Uber and Careem case. Shahin explains that the ECA does not have an actual mandate to stop any merger or acquisition deals because the law only stipulates sending a notification to the competition authority. In other words, it does not give it the power to stop business deals. 

And while Yassin confirms that the ECA is currently examining the deal and its repercussions because of the potential difficulties for rising competitors if Uber dominates the market, she also reiterates that the ECA has no real authority to stop Uber from acquiring Careem. She goes on to add that it is necessary for the ECA to be granted the power to approve, or conditionally approve, requests for acquisition so that it can adequately monitor the consequences and address violations afterwards. 

Shaheen agrees and cites various foreign laws that grant competition regulators the authority to stop acquisitions. In the ECA’s annual report two years ago, the authority stated its desire to “amend the law to allow for a priori monitoring mechanisms for merger and acquisition deals, so that the competition authority’s role is enhanced.” 

What the ECA has been doing

Yassin left her position as the ECA’s chairwoman in January of 2011, a month after initiating an antitrust case against seven film production companies in Egypt. “During that time, the ECA could not directly file a lawsuit in court, so the case was referred to the minister of trade and industry at the time, who then filed the lawsuit directly,” says Yassin. 

After Yassin left, Sameh al-Torgoman, former chairman of the Cairo and Alexandria Stock Exchange and the current chairman of Beltone Financial (who was suspended for financial violations and resigned earlier this year), became ECA’s chairman. Torgoman took on ECA’s chairmanship in mid-January 2011, but he was accused of tampering with case reports that the ECA had prepared on a glass business suspected to use monopolistic practices. He resigned from his position one year later. 

A deputy chief headed the ECA for a year. After that, economist Mona al-Garf was appointed as the chairwoman from November 2013 to November 2017. She stayed for a few months after her term ended to facilitate the agency’s activities, then returned to teaching in the Faculty of Economics and Political Science at Cairo University. In May 2018, Amir Nabil was appointed as chairman of the ECA. 

The ECA led a few important cases in the past several years. In 2007, 20 executives from different cement companies had to testify in court after the ECA published a report accusing them of hiking prices and monopolizing the market. Two years later, the court handed down its final decision; the 20 executives together were fined LE200 million. 

The monopoly on medicine was among the cases where ECA played a role against monopolistic practices. In 2015, the ECA referred a case file — in which it accused four pharmaceutical companies of monopolistic practices — to the Economic Court. The court handed down its final sentence last February, charging 13 executives from these companies with LE420 million. 

The monopoly on poultry was yet another case that the ECA successfully brought to court. As a result, last December, 12 people were fined between LE10,000 and LE1 million for violating Law 3/2005 by refusing to lower prices and therefore harming free competition. 

But the situation is different when it comes to politically sensitive cases. Steel is a case in point. In the 1990s, the monopolization of the iron and steel industry became a hot topic as Egypt witnessed the rise in the market of Ahmed Ezz, a steel tycoon and one of Mubarak’s regime’s most prominent figures. By 1999, Ezz had dominated the market after buying 28% of Dekheila Steel Company, which the government had originally established in the 1980s. Ezz’s control of the Egyptian steel market reached 67%, which fueled a wave of monopoly accusations. In 2004, before the Law on the Protection of Competition and Prohibition of Monopolistic Practices was passed, the chairman of the Central Auditing Authority submitted a request for a formal investigation into Ezz Steel’s monopoly to Parliament. 

The ECA did not address steel industry monopolization its first few years of operation. But in 2009, as a result of public pressure, the ECA announced that it had conducted a two-year investigation and concluded that there are no monopolistic practices in the steel market. ِThe steel file was not addressed again until after the January 2011 revolution, when the Public Funds Prosecution filed a lawsuit against Ezz in the Economic Court in January 2013. He was charged with engaging in monopolistic practices, but was acquitted in June 2013. 

Last year, accusations resurfaced when the Egyptian Consumer Protection Agency referred iron and steel manufacturers to the ECA — after the former reportedly received complaints regarding an agreement to hike steel prices. However, the ECA denied that it had opened any investigations into antitrust violations in the steel market. 

According to Yassin, the ECA was not able to prove that Ezz had committed any violations that harmed the market, even though his company dominated the steel industry. She adds that his market dominance was a result of the quality of his product, which nonetheless did not stop other steel manufacturers, including foreign companies, from competing in the Egyptian market and thus keeping the prices low. The only monopolistic practice that the ECA registered in its investigation had to do with the contracts that Ezz signed with his buyers. According to Yassin, when the ECA brought it up with Ezz Steel, the format of the contracts were changed accordingly. 

Politics are thus inevitably bound to influence the work of the ECA, whether it identifies monopolistic practices in a particular case or not.

During the height of Qatar’s diplomatic crisis, which reached its peak in 2017 when Egypt, Saudi Arabia, United Arab Emirates, and Bahrain imposed an embargo on Qatar, the ECA received complaints against beIN Sports, accusing the network of monopolizing broadcasting rights of football events. The ECA decided to take the case file to court. In October 2017, beIN Sports and its chairperson Nasser al-Khalifi were summoned to court and charged with violating Law 3/2005 by forcing subscribers to use a Qatari satellite. Last September, the Economic Court ruled to fine the company and its chairperson LE400 million. 

Last year, the ECA also demanded that FIFA give Egypt-based channels the right to broadcast World Cup matches, which the Qatari network had the exclusive rights for. 

Independent expert Shaheen and former ECA head Yassin both believe that the ECA’s structure, functions and expertise need to evolve if it is to avoid political influence in its work. 

“The ECA needs a balance between administrative autonomy and a necessary subsidiarity to the government. The current form includes ministers and representatives from commerce and industry chambers who all have direct business interests,” Shaheen states. The board of directors has to be made up of people who do not have conflicts of interest — i.e. independent, specialized experts, she explains. The other end of the balance necessitates that the ECA be subordinate to the prime minister because he oversees all economic affairs. Therefore, he must review the decisions of the ECA and ensure that they are in the best interest of the national economy. According to Shaheen, there is no competition regulator in the world that is completely independent from the government. 

Yassin shares the same sentiment. “What will preserve the ECA’s autonomy and objectivity are two things. First, it has to be directly subordinate to the prime minister and away from other ministers who have direct commercial and industrial interests. Second, the ECA has to have more independent members on the board of directors — as opposed to those who only represent economic and commercial entities — so that decisions made at the end are more autonomous,” she says.

The ECA operates under the Ministry of Trade and Industry, which used to be responsible for appointing the ECA’s chairman and board of directors. But last January, this role was transferred to the prime minister. The ECA’s board of directors consists of the agency’s chairman, three representatives from the State Council, the Ministry of Trade and Industry, and the Ministry of Supply and Internal Trade, three representatives from the Cairo Chamber of Commerce, the Federation of Egyptian Industries, and the Consumer Protection Agency, and finally three legal and economic experts. 

Shaheen adds that one fundamental problem that has persisted since the establishment of the ECA is the lack of professional and academic expertise in competition protection. It is not a subject that is taught in universities for example. As she explains, a large group was appointed to run the ECA when it was first established, but the members were not sufficiently trained to manage the agency and lacked the specialized credentials needed to make intelligent and informed decisions. Thirteen years after the ECA’s establishment, there is still a marked dearth of professional training in the field of competition protection. 

Shaheen also says however that without an active role in stopping harmful business deals, all this required expertise’s benefits can go to waste. “Why study and analyze the deal if there is no real power to stop it?” she asks. 

Shaheen believes that for the ECA to be more effective, it needs to focus on implementing three vital measures. The first is a compliance program. The second is an advocacy program (to raise awareness about Law 3/2005). The third is the dissemination of guidebooks among companies and lawyers to explain the mechanisms and operations of the law. She also emphasizes the government’s required role in enhancing the ECA’s activities: by providing the agency with young, trained professionals and monitoring its decisions to make sure they enable true competition in the market. 

She adds that allowing for competition and ensuring that there is a flow of companies entering and exiting the market as supply and demand ebb and flow are fundamental to the free market system. She explains that the purpose of competition is not only to open the market, but also to ensure the availability of good quality, affordable, and diverse products and services. In return, producers will be able to achieve more profits. All of this requires a sound system of managing competition, which requires a strong government to implement laws and create strong competition regulators.

AD
 
 
Hadeer El-Mahdawy