South Africa: Sustainability and Antitrust

1. Introduction

As many countries seek to integrate sustainability objectives into their competition law regimes, a range of positions has emerged, from minimal or non-interventionist approaches, such as those limited to the publication of guidelines, to more robust approaches, such as those amending legislation to actively promote sustainability goals. While positions on sustainability may diverge across regimes, a common thread is that competition law continues to evolve beyond the traditional consumer welfare standard, primarily emphasizing short-term price effects, quality and consumer choice, to incorporate broader social and economic considerations, including equality, employment, environmental sustainability and levelling of economic playing fields. In South Africa, the Competition Act, No. 89 of 1998, as amended (Act) incorporates both consumer welfare objectives and public interest imperatives, providing a foundation for more expansive outcomes than those of traditional competition law goals to be pursued.

2. Sustainability in the South African context

When sustainability is discussed in international competition law circles, environmental sustainability tends to dominate the debate. This is to be expected, given the acute need for climate-related challenges to be addressed. In the South African context, sustainability specifically incorporates three interconnected pillars: the environmental, the economic, and the social. As a developing country in which inequality and high levels of unemployment persist, a holistic approach towards sustainability is arguably appropriate – since environmental progress, for instance, cannot be achieved in isolation, nor without economic and social change.

South Africa’s political history and economic background had significant bearing on the country’s current competition policy. The Act was drafted shortly after South Africa’s first democratic elections in 1994, and at a time when the newly elected government was tasked with re-shaping the South African economy into one which would address the legacy of economic distortion and be inclusive of persons previously marginalized.

Although the Act refers to ‘public interest’ specifically in the provisions relating to merger control, the public interest grounds or factors listed therein, are a feature throughout the Act, inclusive of its preamble, its purpose, and with respect to behavioral practices too.

The purpose of competition law in South Africa is set out in section 2 of Act, and articulates a focus on both pure competition factors, as well as social and economic considerations. More specifically, the purpose of the Act is to promote and maintain competition, in order to:

1. promote efficiency, adaptability and development of the economy;
2. provide consumers with competitive prices and product choices;
3. promote employment and advance social and economic welfare of South Africans;
4. expand opportunities for South African participation in world markets and recognize the role of foreign competition in the country;
5. ensure that small- and medium-sized enterprises (SMEs) have an equitable opportunity to participate in the economy;
6. promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons (HDPs); and
7. detect and address conditions in the market for any particular goods or services, or any behavior within such a market, that tends to impede, restrict or distort competition in connection with the supply or acquisition of those goods or services within South Africa.

Section 12 of the Act requires the South African competition regulators to consider each merger notified by assessing both the likely competition effects as well as the public interest effects and provides that the public interest assessment is not secondary to the competition analysis but, rather, is a separate and equally important consideration. Mergers that have no effect on consumer welfare may still be prohibited on the basis of the likely or actual adverse impact on the public interest. Section 12A(3) of the Act provides that when determining whether a merger can or cannot be justified on substantial public interest grounds, the South African competition regulators must consider the effect that the merger will have on:

1. a particular industrial sector or region;
2. employment;
3. the ability of SMEs and HDPs to effectively enter into, participate in or expand within the market;
4. the ability of national industries to compete in international markets; and
5. the promotion of a greater spread of ownership by HDPs and workers in firms in the market.

Notably, in 2024 the Competition Commission (Commission) published Revised Public Interest Guidelines relating to Merger Control (Guidelines), which express that under public interest ground (a) - when assessing the likely effect of a merger on a particular industrial sector or region - the Commission will consider the effect of a merger on development, environmental sustainability, and employment amongst others. The Commission will consider, inter alia, the applicable industrial and environmental policy objectives or practices, and the effect of the merger on the environment (e.g. pollution, increased carbon emissions, etc.). In determining whether the effect of the merger on the industrial sector or region is substantial (impacting the industrial sector or region to a significant degree), the Commission will consider, inter alia, the general socio-economic circumstances of the inhabitants of the region, whether the sector in question involves or influences any constitutionally entrenched rights, whether the merger impedes or contributes towards any public policy goals or economic development plans that are relevant to that sector or region, as well as whether the effect of a merger on the region would threaten that region’s livelihood and sustainability or would support its continued livelihood and sustainability.

Beyond merger control, and from a behavioural or conduct perspective, the public interest considerations may also be presented to outweigh perceived anti-competitive effects arising from an arrangement between competing firms or firms operating at different levels of the supply chain. The public interest considerations are also available as grounds upon which an exemption may be sought, and granted, for an agreement that would otherwise constitute unlawful arrangements between competitors.

Section 10 of the Act allows firms intending to engage in practices that would be regarded as anti-competitive to apply to the Commission for an exemption from the ordinary provisions of the Act. In terms of this section, the Commission may grant an exemption if the practice concerned is required to attain any of the following objectives:

1. the maintenance or promotion of exports;
2. the promotion of effective entry into, participation in or expansion within a market by SMEs or HDPs;
3. change in productive capacity necessary to stop decline in an industry;
4. the economic development, growth, transformation or stability of an industry designated by the Minister of Trade, Industry and Competition; or
5. competitiveness and efficiency gains that promote employment and industrial expansion.

Further, the South African legal system is underpinned by the Constitution of the Republic of South Africa, Act. No. 108 of 1996 (Constitution), and section 39(2) of the Constitution guides every court, tribunal or forum interpreting legislation and developing the law, to do so in accordance with the spirit, purport and objects of the Constitution. Most recently, the Constitutional Court (Court) in Mediclinic provided a significant interpretation of the Act, emphasizing the need to align the Act with the Constitution, which includes the Bill of Rights. The Mediclinic case concerned a merger in the private healthcare sector involving hospitals in relatively small towns – Mediclinic Potchefstroom and two multi-disciplinary hospitals in Klerksdorp called Wilmed Park Private Hospital and Sunningdale Hospital. One of the contentious issues raised in the Mediclinic case was that of a likely post-merger price increase in the target hospitals, impacting uninsured patients (i.e., private patients not subscribed to a private medical aid fund) in particular. In its ruling, the Court viewed the application of competition law as a constitutional obligation on the part of the state to promote and protect socio-economic rights, including the right to access healthcare. The Court noted that “maintaining or increasing the scope for choice of essential and much-needed services with particular regard to the plight of the financially under-resourced or the vulnerable, should always be at the back of the decision-makers’ minds when dealing with mergers. This is, after all, one of the key demands of the Preamble and purpose of the Act”. The Court thereby reaffirmed the dual purpose of the Act, being to address both competition law and socio-economic objectives, underscoring the constitutional imperative of interpreting legislation in a way that promotes transformative justice and the realization of constitutional rights. Additionally, Chapter 4 of the Constitution provides, and in respect of environmental protections, that:

Everyone has the right to:

• an environment that is not harmful to their health or wellbeing
• to have the environment protected for the benefit of present and future generations, through reasonable legislative and other measures that:
  • prevent pollution and ecological degradation
  • promote conservation
  • secure ecologically sustainable development and use of natural resources, while promoting justifiable economic and social development

This holistic approach to sustainability, as applied by the South African competition authorities, also aligns with global frameworks such as the United Nations Resolution 70/1, Transforming our world: the 2030 Agenda for Sustainable Development’ (Resolution). The Resolution promotes a balance among the three pillars to achieve long-term well-being for all and creates 17 sustainable development goals (UN SDGs) all grounded in the economic, social, and environmental dimensions of sustainable development. The 17 SDGs are internationally agreed and are set out in the table below.

Table 1: Sustainability Goals Set Out By UN Resolution 70/1

• Goal 1: End poverty in all forms everywhere
• Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture
• Goal 3: Ensure healthy lives and promote well-being for all at all ages
• Goal 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
• Goal 5: Achieve gender equality and empower all women and girls
• Goal 6: Ensure availability and sustainable management of water and sanitation for all
• Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for all
• Goal 8: Promote sustained, inclusive, and sustainable economic growth, full and productive employment and decent work for all
• Goal 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
• Goal 10: Reduce inequality within and among countries
• Goal 11: Make cities and human settlements inclusive, safe, resilient, and sustainable
• Goal 12: Ensure sustainable consumption and production patterns
• Goal 13: Take urgent action to combat climate change and its impacts
• Goal 14: Conserve and sustainably use the oceans, seas, and marine resources for sustainable development
• Goal 15: Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
• Goal 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
• Goal 17: Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development

3. The connection between environmental sustainability and competition law

From a horizontal and vertical behavioral or conduct perspective, environmental sustainability can intersect with competition law where companies wish to cooperate to achieve sustainable practices. To further their Environmental, Social and Governance (ESG) goals, companies in a wide range of sectors are seeking up to operate in more sustainable ways and to explore opportunities to cooperate in achieving sustainable outcomes. It is widely understood that collaboration, whether horizontal or vertical, can lead to substantial economic benefits, in particular where they combine complementary activities, skills or assets. Collaboration can also allow for cost-savings, risk-sharing, increasing investments, pooling know-how, enhancing product quality and variety and the faster launching of innovation. Similarly, collaboration can mitigate the impact of shortages and disruptions in supply chains, as well as reducing dependencies on products, services and technologies. Collaboration is sensible for the attainment of sustainability objectives, including that unilateral initiatives alone cannot achieve the scale of change required to have meaningfully impact on the UN SDGs, systemic change (at least temporarily) triggers extra costs that individual companies may not be able to bear without suffering a ‘first-mover disadvantage’. For example, developing sustainable technologies (such as alternative fuels or biodegradable materials), may be prohibitively expensive for individual firms, but by sharing R&D efforts and costs, competitors can accelerate innovation. However, cooperation among competitors, and even suppliers and/or customers, may raise antitrust concerns or cause contraventions, which may deter collaboration, even if the objective is sustainability.

From an abuse of dominance perspective, environmental sustainability interacts with competition law in a number of ways, including for example where, a dominant firm’s conduct may result in exclusionary practices (such as restricting access to essential green technologies, or refusing to share eco-friendly innovations), or predatory pricing to drive out smaller sustainable competitors, or greenwashing as a competitive tactic by misleading sustainability claims which may distort consumer choice and disadvantage competitors making genuine investments in sustainable practices.

Merger control is discussed above, but competition regulators will need to balance the promotion of environmentally sustainable practices with the preservation of competitive markets.

4. Environmental sustainability in South Africa and enforcement record of the Commission

The interaction between the competition law provisions relating to cooperation, cartels, abuse of dominance, and mergers on the one hand, and environmental sustainability on the other, can be viewed through the prism of “shield”- type situations, and “sword”- type situations. In a shield situation, companies take action aimed at fostering sustainability and rely on sustainability considerations before the competition regulators to make a finding that their conduct does not offend competition law principles, or that the conduct is justifiable because the sustainability benefits outweigh the anti-competitive harm. A sword situation pertains to instances where competition regulators or courts use the competition rules to protect competition, and which in turn is expected to be beneficial to sustainability. Below are some highlights of the South African Commission’s experience with environmental sustainability, but which lean toward a sword-type situation.

4.1 Sunside

Sunside concerned the acquisition by the Heineken Group, through Sunside acquisitions, of a controlling interest in NBL Investment Holdings and the flavoured alcoholic beverages, wine and spirits operations of Distell in South Africa, Namibia and select markets across sub-Saharan Africa. The merger was approved subject to competition and public interest-related conditions. This included for companies to continue to accelerate the sustainability efforts of Distell and Heineken South Africa inter alia to protect the environment. As such, Sunside Acquisitions committed to implementing (amongst others) a carbon neutrality initiative, aiming for net zero emissions in production by 2030 and carbon neutrality across the value chain by 2040.

4.2 Air Liquide

Air Liquide concerned an acquisition by Air Liquide, a supplier and producer of industrial and specialty gases, of 16 air separation units owned by Sasol South Africa Ltd (Units). The Units separate atmospheric air into nitrogen and oxygen and are used to produce industrial and specialty gas. The merger did not give rise to competition law concerns but was approved subject to public interest considerations. The conditions include commitments to substantially reduce the carbon emissions associated with with air separation units within ten years of the merger implementation date. It is required that this should be done by initiating, amongst other reduction strategies, a renewable energy procurement process aimed at procuring an aggregate amount of up to 900 MW of renewable energy Other public interest conditions applied include upskilling of employees, entering into transactions to promote ownership by HDPs, procuring inputs from SMEs and businesses owned by HDPs and making surplus oxygen available to customers in the healthcare sector.

4.3 Averda

The Commission prohibited a proposed merger in terms of which Averda, an end-to-end provider of waste management services including hazardous healthcare risk waste sought to acquire three target companies operating an incinerator which can treat all forms of healthcare risk waste and also operating a thermal desorption facility in which waste can be burnt without combustion. The merger would give rise to horizontal overlaps, and the Commission found that the merger would result in the merged entity having high market shares in a number of relevant markets assessed. The Commission’s investigation revealed that Averda has a history of expanding through acquisitions, many of which fall below the threshold to meet the merger notification obligations. The Commission found that Averda’s acquisition of the target firms’ additional burn technology capacity enables the merged entity to withhold supply of capacity to competitors, or price it at a level that makes rivals less competitive. The merged entity’s acquisition of a portfolio of technologies used in healthcare risk waste treatment places it in a unique position to contest contracts/tenders, and this may hinder the effective operations of the competitors, particularly SME and HDP competitors, that traditionally rely on outsourced capacity to effectively compete in these markets.

5. Conclusion

In South Africa, the Act is already configured to incorporate sustainability as part of competition law assessments. As sustainability continues to gain traction, South Africa may be a jurisdiction in which the principle of sustainability develops from discussions to concrete outcomes with lasting impact on the South African economy and its people and which meaningfully contribute towards the attainment of the UN SDGs.