Mozambique: The New Competition Act Of Mozambique

Introduction

11 April 2013 was an important milestone for the Mozambican economy, with the publication of Law no. 10/2013, which establishes the legal framework for competition in Mozambique and creates the Competition Regulatory Authority ("ARC"), which will enforce it.

The new law, which is inspired by the laws in force in Portugal and in most European countries (which, in turn, gather inspiration from European Union law), comes as a result of the efforts made in recent years by the Mozambican government to streamline economic initiative and liberalize some key sectors, such as communications, ports, railways and financial services.

Mozambique thus becomes the first Portuguese-speaking country in Africa to be equipped with a modern competition enforcement system.

Competition Regulatory Authority

The ARC will be an independent authority, endowed with administrative and financial autonomy, with broad supervisory, regulatory, investigatory and sanctioning powers, pursuant to which it will be able to inquire relevant persons, request documents and conduct searches and seizures and the sealing of the premises. The ARC will coordinate closely with the other sectoral regulatory authorities.

The ARC may assign different priorities to certain practices or sectors (under the designated "principle of opportunity," recently introduced in Portugal) and should publish in the last quarter of each year its enforcement priorities for the following year.

Prohibited Practices

The new law has a wide scope, as it applies to both private companies and State-owned companies, and covers all economic activities which produce effects in Mozambican territory (with a number of exceptions).

As under the EU and Portuguese regimes, the new law prohibits agreements and practices which restrict competition, both between competitors ("horizontal" practices, of which the most serious example are the so-called cartels), and between companies and their suppliers or customers ("vertical" practices).

The law also prohibits abusive practices by dominant undertakings (including, among others, the refusal to grant access to essential infrastructure and the unjustified termination of a business relationship), as well as the abuse by one or more companies of the state of economic dependence of their suppliers or customers.

The Act provides, in any case, that prohibited practices may be justified if they lead to economic efficiencies, as well as if they promote the competitiveness of small and medium enterprises and the consolidation of the national economy (as long as such practices do not eliminate competition and are indispensable for the objective to be achieved).

Merger Control

The new law introduces merger control in Mozambique. All concentrations which meet the market share or annual turnover criteria, to be determined by the Council of Ministers, will be subject to mandatory notification to the ARC, within 7 working days after conclusion of the agreement or its project, and cannot be implemented before clearance. The validity of all legal instruments depends on the express or tacit approval by the ARC.

Concentrations subject to prior notification (as well as others on which the ARC decides to request information) should be blocked if they are likely to create or strengthen a dominant position which may significantly impede effective competition in the relevant markets.

Significant Sanctions

Violation of the prohibitions contained in the new law subjects infringing firms to fines up to 5% of the turnover of each company in the previous year. In addition, the breach of the duties to notify concentrations within the statutory period and to cooperate with the ARC is punishable with fines up to 1% of annual turnover.

The law also provides for penalty payments, where appropriate, as well as potentially serious ancillary sanctions, not only because the offender may find itself excluded from participating in tenders for five years, but because it can even find itself confronted with the possible break-up of the offending undertaking. Finally, agreements and practices concluded in breach of the law are null and void.

Comment

The new law will go into effect next July 10, and should be implemented (including, among others, the approval of the Statute of the ARC) by October 8, 2013.

The practical application of the law will depend largely on the organization and functioning of the ARC, and the priorities it will set for the enforcement of competition law. If the ARC follows the example of most European authorities, among priority cases there will be cartels, distribution agreements fixing resale prices, abuses foreclosing competitors by dominant firms, and the implementation of an effective merger control system.

As recognized by the Mozambican government, the implementation of the new competition law should be gradual, and a number of the public interests to be enforced go beyond the protection of a competition process, such as the promotion of national products and services, the competitiveness of SMEs and the consolidation of the national economy (incidentally these are objectives that can justify restrictive agreements).

In any case, given the broad powers and heavy penalties available to the ARC, there is no doubt that all companies with presence (present or future) in Mozambique should consider carefully the impact of the new law on their activities in order to avoid the risk of their market conduct being regarded contrary to the Competition Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.