Currently, the Competition Act of Kenya 2010 (‘the Act”) and the Consolidated Guidelines on the Substantive Assessment of Mergers under the Act (“Consolidated Guidelines”) only require notification of joint ventures if they are full - function and if they meet the required thresholds. Until recently, there were no guidelines and/or rules that specifically addressed joint ventures.
It is in this regard that the Competition Authority of Kenya (“the Authority”) has now developed Draft Joint Venture Guidelines (“draft Guidelines”) which are currently undergoing public participation. The purpose of the draft Guidelines is to provide clarity on transactions that qualify as full-function joint ventures, give guidance on notification requirements and give an overview on the review and analysis of full-function joint venture transactions by the Authority. Notably, the draft Guidelines do not substitute the existing provisions of the Act or the Competition (General) Rules 2019 (“the Rules”). They only supplement them.
Below is an overview of the draft Guidelines.
- 1. Types of Joint Ventures
a) Full-Function Joint Ventures
This is a joint venture that will perform, for a long duration (usually at least 10 years), all the functions of an autonomous economic entity including: operating on a market and performing the functions normally carried on by undertakings operating in the same market; having management dedicated to its day-to-day operations and access to sufficient resources including finance, staff and assets for its business. Such joint ventures are considered mergers under the Consolidated Guidelines
b) Greenfield Joint Ventures
These are joint venture arrangements aimed at engaging in a new business venture separate from and unilateral from activities of the parties to the joint venture. They usually apply where local or foreign entities collaborate with other local domiciled entities to develop new products and services separate from the products and services offered by the parent entities. In some instances, such arrangements may result in full-function joint ventures depending on the prevailing circumstances and as such parties are advised to utilize advisory opinions before implementation of Greenfield Joint Venture transactions.
2. Filing Notifications for Joint Venture Transactions
Unlike in mergers and acquisitions where the target and the acquirer are easily identifiable, the target and acquirer in joint venture transactions are not easily identifiable. For this reason, the Authority will require the parent entities to separately submit documents relating to the transaction by filing the merger notification forms, in the prescribed form, as joint venture parents. The joint venture vehicle will also be required to fill the merger notification form as a joint venture vehicle.
3. Basis for Determination of Assets and Turnover Thresholds
To determine the impact of the proposed transaction in the market, parties to a joint venture will be required to provide complete financial information during filing. This requirement also applies for entities who may not be deriving their turnover in Kenya prior to the joint venture. The parents of the joint venture and their subsidiaries/related companies will also be required to submit the turnover and asset figures, whether or not attributable to parties in Kenya.
The Authority will also use the financial information of the parent entities and the joint venture entity to compute merger filing fees.
4. Elements of Joint Ventures and Analysis by the Authority
a) Impact on Competition Analysis
The competition review of full function joint venture transactions will be guided by the Act, Rules and the Consolidated Guidelines. In order to determine the anti-competitive effects of a joint venture, the Authority will consider the terms of the joint venture agreement(s) including: the activities of the joint venture and its parent undertakings; the governance structure adopted; the duration of the joint venture; the nature and extent of assets transferred to the joint venture versus those retained by the participants; and the freedom parents retain to compete with each other and with the joint venture. Any exclusivity clauses that tend to raise barriers to entry or expansion facing third parties will also trigger review.
b) Public Interest Analysis
Public interest analysis will be based on the Consolidated Guidelines. In particular, the review of public interest issues will seek to identify the positive synergies likely to arise from the transaction. The Authority will also consider the likely technological benefit, real resource savings, compatibility with competition and economies of scale accompanying the transaction.
5. Guidance on New Trends in the Digital Economy
In reviewing the impact of joint venture transactions, the Authority may also consider the aspects of big data and digital economy dynamics of entry and access to data. This will apply to transactions likely to involve big data even where data is not the main component of the transaction. Where likely negative competition and public interest impacts of a joint venture transaction are identified, parties to the joint venture will be required to come up with remedies to mitigate against the harm.
In conclusion, the draft Guidelines, if passed, will offer a clear framework to stakeholders in joint venture transactions on the notification requirements and procedures of the Authority besides those provided under the Act, Consolidated Guidelines and Rules. They are therefore a welcome addition to the competition laws of Kenya.
Article by Audrey Seur and Grace Andati
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