On 2 February 2024, with the approval by President Museveni of the Competition Act, 2023 (the “Competition Act”), Uganda enacted the long-awaited antitrust reform, by issuing a regulatory act that brings together principles and rules of law aimed at protecting the competitive structure of the market, in the interest of businesses and consumers.
Today, unlike in the past when the regulation of competition in Uganda was remanded to specific sectoral regulations - for example, banking, energy or telecommunications regulations - local and foreign companies wishing to expand their business or enter the Ugandan market can find in a single document the main provisions specifically aimed at regulating competition across the board.
The Competition Act was in fact adopted with the aim of promoting the fair course of competition and counteracting those practices that adversely affect it. To this end, the Competition Act prohibits:
anti-competitive practices and agreements;
abuse of a dominant position;
M&A transactions and establishment of joint ventures that produce a negative effects on competition.
With reference to the first category, similarly to what is provided for at the European level, the Competiton Act identifies as anticompetitive business practices and agreements: on one hand, concerted practices and horizontal agreements through which entities operating at the same market level and potentially competing with each other, agree, for example, on the setting of resale prices, the limitation of the production of goods to be resold on the market or the limitation of investments in R&D, as well as the participation in tenders according to legal and negotiation schemes that, in fact, are collusive towards other participants; on the other hand, concerted practices and vertical agreements through which parties operating at distinct levels of the production chain (e.g. producer and distributor) agree on the resale prices of goods or to guarantee a de facto monopoly in certain territories, thus giving rise to exclusive supply and/or distribution regimes that are highly detrimental to competitors and, ultimately, to end consumers.
As to the second category, the newly introduced rule prohibits the abuse of a dominant position, i.e., the adoption, by those subjects which hold a significant market share, of practices that have the effect of excluding competitors from the market. It should be noted that, departing from the standards identified at European level, where the market share required for an entity to be deemed to hold a dominant position is set indicatively at 40%, the Competition Act sets this threshold at 30%.
With regard to the third category of conduct prohibited by the Competition Act, i.e., mergers, acquisitions and establishment of corporate joint ventures that have an adverse effect on competition, the new rule provides, in the wake of other national and supranational legislators, an ex ante control mechanism whereby companies that intend to carry out such transactions are required to notify the Ministry of Trade. This notification must be made by the subject who, through the transaction, acquires a controlling position in the new entity so established or acquired, i.e., exercises at least 49% of the voting rights, is entitled to appoint more than half of the members of the administrative body and exercises control over the affairs of the business entity.
In the framework thus outlined, however, some problematic aspects still remain. In fact, on one hand, the relationship between the Competition Act and the competition disciplines in force at the regional level (i.e., those adopted by the Common Market for Eastern and Southern Africa and the East African Community) has not been defined; on the other hand, although there have been parliamentary proposals in this regard, no ad hoc independent authority has been established to verify compliance with the provisions identified by the Competition Act.
Therefore, even though the Competition Act represents a fundamental first step towards ensuring the proper functioning of the market's competitive dynamics and, consequently, supporting the economic growth of Uganda, it is hoped that action will be taken to fill the gaps that still remain, in order to create a regulatory framework that is the most complete and organic as possible.
Author: Marta Sartori
Contact: Avv. Anna Francesca Morsoletto a.morsoletto@bergsmore.com