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RESALE PRICE MAINTENANCE

What is Resale Price Maintenance?

Resale price maintenance (RPM) occurs when a supplier enforces a minimum price at which a retailer or distributor must on-sell those goods, thereby preventing the reseller from setting own prices for goods/services. Under RPM arrangements, retailers are not allowed to sell products below the specified minimum price, even if they want to offer discounts or promotions. Most common forms of RPM arrangements are where a supplier i) sets a specific price – a minimum retail price or a minimum margin, at which a product must be resold, and ii)imposes restrictions on how much a reseller can discount the product price.

Prohibition of RPM

Section 2 of the Competition Act [Chapter 14:28] (theAct) defines an unfair business practice as a restrictive practice or conduct specified in the First Schedule. In terms of Section 42, acts or omissions specified in the First Schedule are unfair business practices for purposes of the Act. Paragraph (9) of the First Schedule provides for RPM as an unfair business practice and defines it as specifying the minimum price at which a product must be resold to customers. The practice restricts businesses from competing effectively and is a breach of the Act.

Recommended Resale Price

Suppliers can recommend prices at which resellers may resell products, an arrangement  known as recommended resale price, and which is not RPM as a reseller may resell products at a price they determine themselves. However, if a supplier tries to force a reseller to sell at the recommended resale price, it becomes RPM.

Anticompetitive Effects of RPM

Whilst price ceilings can be a mechanism to protect consumers from exploitation by unscrupulous retailers, the same cannot be said for RPM, given the likely anticompetitive effects arising from such arrangements. Setting of floor prices reduces incentive for innovation and operational efficiency while restricting competition and deteriorating consumer welfare.  The following anti-competitive effects are associated with RPM: –

• Higher prices for consumers  – by imposing minimum resale prices on products, prices are kept artificially high restricting retailers’ ability to offer discounts or compete on price.
• Limited consumer choice – when businesses engage in RPM, consumers lose out as they cannot shop around for better value. RPM prevents retailers from engaging in non-price competition such as customer service, product quality and product selection. This reduces consumer choice and results in a less competitive marketplace.
• Creation of barriers to entry for new players – when manufacturers/suppliers enforce minimum resale prices, it is difficult for new entrants to compete on price to gain market share.
• Limited access to goods and services – if retailers cannot set their own prices or engage in price competition, they may choose not to stock certain products or serve certain markets where profitability is uncertain (e.g., remote areas). This results in limited access to goods and services for consumers in these areas.
• Formation and maintenance of cartels – RPM can be used to fix prices at all stages of distribution and facilitates cartels. Retailers can conspire to set retail prices at monopoly levels and, because it is the manufacturer who appears to be setting retail prices, collusion diverts attention from the collective price setting by the retailers.

Criminal Liability for Engaging in RPM

The Act provides for criminal liability of any person who engages in RPM. In terms of Section 42 (3) of the Act: –

“Any person who enters into or engages in or otherwise gives effect to an unfair business practice shall be guilty of an offence and liable – a) in the case of an individual  to a fine  not exceeding level twelve or to imprisonment for a period not exceeding two years or to both such fine and imprisonment; and b) in any other case to a fine not exceeding level fourteen.

The Commission, after establishing a case of RPM, refers the matter for prosecution and the appropriate level of fine is determined by the presiding officer.

Zim’s citrus exports seen soaring this year

ZIMBABWEAN citrus exports to China are expected to be surpassed this year after the total external trade of the fruit variety reached a value of US$33,78 million last year, up from just over US$10 million in 2021.

The prediction is based on the General Administration of Customs of China (GACC), in June, allowing 11 local citrus orchards and six citrus pack houses to export the fruit variety into China.

Fresh citrus produce to be exported includes sweet orange (citrus sinensis), mandarin orange  (citrus reticulata), grapefruit (citrus paradisi), lemon (citrus limon and  citrus aurantifolia) and sour orange (citrus aurantium).

In its second quarter newsletter, the Competition Tariff Commission (CTC) said with stability coming into play post-pandemic and sudden growth in demand, this created growth opportunities for Zimbabwean agricultural citrus farmers.

“Zimbabwean citrus exports have been increasing over the past eight years with the highest export value recorded in 2022 of US$33,781 million. Fresh or dried oranges are the main exports,” the CTC said.

“China’s import of Zimbabwean citrus produce will increase citrus exports compared to 2022. 

“The CEA facilitates citrus exporters’ access to a bigger market and market diversification opportunity reducing dependence on local markets. 

“Given that farmers are complying with GACC standards, this means investment into machinery and processes to ensure that products meet standards.”

The CTC said that improvement in local farms and orchards transforms the farming industry through innovations and adoption of new technologies.

The commission based its findings off the recorded trade figures listed on international trade tracking website, the Trade Map.

“According to Trade Map, China imported citrus fruits worth US$594 million in 2019 alone,” the CTC said. 

“China’s orange production has slightly increased over the past 3 years from 2018/19 to 2020/21, from 7 200 000 MT (metric tonnes) to 7 500 000 MT, while consumption increased from 6 989 000 MT to 7 335 000 MT.

“In the same period, there has been a drastic reduction in imports from 4 340 000 MT to 2 900 000 MT and stagnant exports of 55 000 MT. 

“Before the pandemic, China’s orange imports witnessed seven consecutive

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Citrus exports rakes in US$33,8 million

Sikhulekelani Moyo, mskhulekelani16@gmail.com

Zimbabwe’s citrus exports raked in US$33,8 million in 2022 with fresh or dried oranges singled out as the main contributors to exports receipts, the Competition Tariff s Commission (CTC) has said.

In its latest newsletter, CTC said the country’s citrus exports have been increasing over the past eight years with the highest export value of US$33, 781 million recorded last year.

“In 2021, citrus fruit production in Zimbabwe was 138,264 metric tons (MT) and has been growing at an average annual rate of 2,89 percent, according to the World Bank. It exported 57,283 MT of citrus produce to the UK, Singapore, UAE, Malaysia, Hong Kong, Netherlands, and Zambia,” said CTC.

Zimbabwe and China entered into a Citrus Export Agreement (CEA) , a development that CTC said will open new opportunities  to boost  agricultural trade.

Eleven citrus orchards and six citrus pack houses from Zimbabwe were selected to be part of the citrus exporters to China.

Fresh citrus products to be exported include sweet orange (citrus sinensis), mandarin orange (citrus reticulata ), grapefruit (citrus paradisi), lemon (citrus limon and citrus aurantifolia), and sour orange (citrus aurantium).

The commission said the agreement will bring increased demand for agricultu ral produce and improvement in the balance of trade as well as the transf ormation of the farming industry and gaining new markets.

China ‘s import of Zimbabwean citrus produce will increase citrus exports compared to 2022. The CEA facilitates citrus exporters’ access to a bigger market and market diversification opportunity reducing dependence on local markets,” they said.

Given that farmers are complying with General Administration of Customs of China (GACC) standards, this means investment into machinery and processes to ensure that products meet standards. Improvements in local farms and orchards transform the farming industry through innovations and adoption of new technologies.”

According to Trade Map, China imported citrus fruits worth US$594 million in 2019 alone.

China’s orange production has slightly increased over the past three years from 2018/19 to 2020/21, from 7 200 000 MT to 7 500 000 MT, while consumption increased from

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Zim in line to reap big from China citrus market

ZIMBABWE’S citrus producers stand to benefit from the massive Chinese market following the conclusion of the Citrus Export Agreement (CEA) with Asia’s largest economy, says the Competition and Tariff Commission (CTC).

Signed in 2015, the agreement was largely designed to secure a ready export market for citrus produce for smallholder growers under the Shashi Irrigation Scheme in Bindura.

The agreement smoothens the movement of first-order shipments from registered companies that have met stipulated compliance requirements.

Zimbabwe’s fresh and dried citrus exports reached an eight-year high of US$33,8 million in 2022, from less than US$5 million in 2015, and tapping into the Chinese market provides an excellent opportunity to further stimulate the shipments.

In 2021,citrus fruit production in Zimbabwe was 138 264 tonnes.

Of that output, Zimbabwe exported 57 283 tonnes to the United Kingdom (UK), Netherlands, Singapore, Malaysia, Hong Kong in Asia, United Arab Emirates (UAE), and Zambia.

Apart from their health benefits to human consumption, citrus products have another essential utility given their medicinal values such as in the production of insecticides, cosmetic and soap industries.

According to the World Bank, Zimbabwe’s citrus exports have been growing at an annual rate of 2,89 percent since 2015, with the highest export value recorded in 2022.

South Africa, Egypt, Australia, the United States of America (USA), and Spain with regard to the Chinese citrus market.

In 2022, South Africa topped the fresh and dried oranges suppliers list to the Chinese market deliveri ng products worth US$117,499 followed by Egypt at US$36,181, Australia (US$35,564), USA (US$30,137) while Spain supplied US$7,942.

Zimbabwe is primed to benefit immensely from the Chinese citrus fruit market if the opportunity is taken up seriously,particularly after a dip in China’s citrus imports given the unprecedented rise in freight and labor costs attributable to Covid-19 pandemic.

Although the Chinese market presents a huge opportunity for Zimbabwe’s citrus exports, the country faces stiff competition from other African markets, hence the need to invest more in enhancing quality and competitiveness of products to meet international standards.

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Almin Metal Industries acquires City Glass

ALMIN Metal Industries (Almin) has acquired three companies — RD Architectural Aluminium (AA), Lupane Timber Products (LTP) and City Glass and Paint Supplies (City Glass) —  becoming one of the biggest merger deals inked recently.

Almin is a Zimbabwean-registered company with various subsidiaries operating in the manufacturing sector and related markets.

It extrudes and powder coats various aluminium profiles, irrigation pipes and fittings and complements local production through the sale of imported aluminium accessories.

Almin has operations in Harare, Bulawayo, Mutare and Gweru.

AA, LTP and City Glass have interests in fabrication and installation of aluminium and glass windows, doors, shopfronts and building facades among others.

The parties approached the Competition and Tariff Commission (CTC) in February this year seeking approval of the deal, which has since been concluded.

 “The commission approved the merger on condition that Almin, its subsidiaries and affiliates, and its successors in title should supply other aluminium and glass fabricators with toughened and tinted glass, and offer non-discriminatory terms and conditions on glass supply that include inter-alia prices, quantity, quality and or any other,” CTC said in its second quarter report.

It said the merged operation would offer several services including fabrication processes and painting and processing of trees into timber.

CTC approves six mergers

“The aluminium market has more competitors as the barriers to entry are minimum. As an importer, entry and exit in the market is free,” it said.

“However, it is difficult as a manufacturer. The glass market has imported products as Zimbabwe does not produce glass but value adds to imported glass thus the market is highly competitive with numerous players.

“The timber market has exogenous tree plantations controlled by the Forestry Commission. It also has numerous timber product manufacturers (formal and informal), big competitors and a number of small players (40% of the market).”

The report said all the industries were extremely competitive with many formal and informal new players.

The commission classified the transaction as a conglomerate merger with vertical elements,

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Shepco acquires shares in Haggie Rand

MINING and industrial equipment manufacturing concern, Shepco Industrial Supplies (Shepco) has acquired a significant shareholding in Haggie Rand Zimbabwe (Haggie Rand) for an undisclosed amount.

The two parties approached the Competition and Tariff Commission (CTC) in March this year seeking approval of the deal, which has since been accorded.

The acquisition comes barely a year after Haggie Rand Zimbabwe parent company, the Industrial Development Corporation of South Africa, invited suitors saying it was exiting the Bulawayo-based firm.

Shepco is a business group with mining, industrial and manufacturing operations of nails, bolts and nuts, spares and maintenance for the mining industry, mining equipment (locomotives, loaders, co-pans, conveyor rollers), and distributing safety wear.

Haggie Rand produces steel wire products including wire drawing, wire rope, aluminium conductors and chains and fittings.

The commission defined the relevant market as the drawing of wire in the whole of Zimbabwe, and manufacturing and distribution of nails in the country.

Due to the customer supplier relationship between activities of the merging parties, the merger was classified as vertical. Haggie Rand is involved in wire drawing whereas Shepco is a manufacturer and distributor of wire nails.

“Competition analysis considered theories of harm affecting vertical mergers namely input and customer foreclosure,” CTC said in its second quarter report.

“Input foreclosures arise when Haggie Rand restricts access to nail wire that it would have otherwise supplied to Shepco’s competitors such as Coal Zim, Survival Fasteners, Tassburg Fasteners and other competitors outside the merger.

“Haggie Rand is producing way below its production capacity due to working capital challenges, constituting at most 1% of the market. Its current investors are unwilling to inject funding to resuscitate operations hence Haggie Rand is severely undercapitalised.”

CTC further noted: “Market power is one of the prerequisites to engage in input foreclosure.

“In this instance, Haggie Rand does not have the ability to engage in such a practice as it is a very small player.

“Moreso, 90% of locally drawn wire is imported.

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Zimbabwe records 50% increase in merger transactions

ZIMBABWE has recorded a 50% increase in merger transactions since January this year as companies expand their portfolios in response to the Second Republic’s pro-business policies.

The Competition and Tariff Commission (CTC) has revealed that the manufacturing industry is dominating the approved 12 transactions followed by the financial and insurance sector as well as agriculture, forestry and fishing.

The Commission reveals that 75% of the transactions involved Zimbabwean firms and the remaining 25% involved South African companies acquiring local entities.

CTC spokesperson Mr Tatenda Zengeni highlighted that the increase in merger transactions is driven by investors’ desire to grow businesses.

“Seven merger transactions were approved without conditions and three were approved with conditions while one transaction was prohibited and one transaction awaiting representations. There was a 50% increase in merger decisions rendered in the first half of 2023 compared to the first half of 2022. The merger disapproved had negative ramifications in the FMCG market,” said Mr Zengeni.

“Post-merger, the merged entity would acquire market power to the detriment of competitors and consumers. In cases approved with conditions, companies in upstream markets were ordered to continue providing downstream firms at nondiscriminatory terms and conditions to address issues of input foreclosure after a merger has been consummated, then in other cases approved with conditions, companies were ordered to divest as a remedy to address anti-competitive concerns such as using market power to prevent competitors from entering or expanding in a market,” he added.

Some of the transactions concluded in the first half of the year include the acquisition of Marsh Holdings by Old Mutual Zimbabwe Limited, Zimco Group Proprietary by Autox Proprietary, the purchase of Fertiva Proprietary by Kali Union as well as a joint venture involving Horncul Investments and Blackhide Investments.

There is also the purchase of majority shareholding in Danny’s Auto by a South African Company, a merger involving Almin Metal Industries and City Glass and Paint, the acquisition of a 50% stake in Shanksville Farming by Annunaki Investments and the acquisition of a 100% shareholding of Davis Granite by Takura Capital Partners, among others. – ZBC

TIED OR CONDITIONAL SELLING

What is Tied or Conditional Selling?

Tied or conditional selling occurs when a supplier makes the sale of one product or service (the tying product) conditional on the purchase of another product or service (the tied product), and thus the tying product is not sold separately. An example is a situation where a supplier of medical devices to hospitals and clinics stipulates in its sales contracts that the consumable medical products used with the devices must be purchased exclusively from it. Such requirements significantly limit the customer base available to competing manufacturers of consumables. If the medical devices supplier has a substantial market power in the relevant medical devices market, the arrangement may amount to a restrictive practice.

Prohibition of Tied or Conditional Selling

Section 2 of the Competition Act [Chapter 14:28] (the Act) defines tied or conditional selling as “any situation where the sale of one commodity or service is conditional on the purchase of another commodity or service.”

The Act prohibits tied or conditional selling as a restrictive practice. A restrictive practice is defined in relation to tied and conditional selling as any agreement, arrangement or understanding, whether enforceable or not, between two or more persons, any business practice or method of trading, any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person or any situation arising out of the activities of any person or class of persons, which restricts competition directly or indirectly to a material degree, in that it has or is likely to have the effect of limiting the commodity or service available due to tied or conditional selling.

Anticompetitive effects of tied or conditional selling

Tied or conditional business practices are exploitative and exclusionary in nature and may act as a barrier to entry by new market players. Even in scenarios where there are no exclusionary effects, tying may have direct exploitative effects, for instance when used by suppliers with substantial market power to price discriminate, which is another anti-competitive practice. Anti-competitive effects of tied or conditional selling are as follows: –

To The Customer

• it has exploitative effects on consumers through forcing them to buy an undesired product (the tied product) in order to purchase the product, they want (the tying product)

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Zimbabwe Competition Law: Restrictive Practices

The Competition and Tariff Commission (“Commission”) is a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”) to implement and enforce Zimbabwe’s Competition Policy and Law. The Act provides for, as one of the Commission’s functions, the investigation, prevention and discouraging of restrictive practices which are contrary to public interest.

What are Restrictive Practices?

These are practices, agreements, understandings, or arrangements between independent companies that significantly lessen competition or limit market access. These practices reduce the degree of contestability of a market, such as cartels or other forms of horizontal or vertical market restraints, abuse of dominant market position, monopolization, price discrimination, and the like. They are employed mainly by dominant firms which have market power, preventing other firms from competing fairly in the marketplace, and often result in the exploitation of consumers by denying them choice and quality. 

According to section 2 of the Act, restrictive practice” means—

(a) any agreement, arrangement or understanding, whether enforceable or not,

between two or more persons; or

(b) any business practice or method of trading; or

(c) any deliberate act or omission on the part of any person, whether acting

independently or in concert with any other person; or

(d) any situation arising out of the activities of any person or class of persons;

which restricts competition, directly or indirectly, to a material degree.

Consequences of restrictive practices

Restrictive practices can: –

• undermine the efficiency and fairness of markets resulting in higher prices, poorer service delivery and stifling of innovation
• prevent or restrict entry into any market of new players producing or distributing any commodity or service
• result in the creation of monopolies situations which are contrary to public interest

Powers of the Commission to Investigate Restrictive Practices

Section 28 of the Act empowers the Commission to make such investigation as it considers necessary into any restrictive practice which it believe exists or may come into existence. 

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THE ADMINISTRATIVE PENALTY FOR NON-NOTIFICATION OF MERGERS  

All mergers which meet notification thresholds must be notified to the Competition and Tariff Commission (‘the Commission’) – a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”), mandated to promote and maintain fair competition in all sectors of the economy of Zimbabwe through regulation of mergers, amongst other areas. This article provides a general overview of the administrative penalty for non-notification of mergers as provided for in the Act.

What are the Timelines for Merger Notification?

Section 34A (1) of the Act, provides that a party to a notifiable merger is required to notify the Commission in writing of a proposed merger within thirty days of the i) conclusion of the merger agreement between the merging parties; and/or ii acquisition by one of the parties to that merger of a controlling interest in another.

What Happens if Parties Fail To Notify Within Stipulated Timelines?

If the merging parties fail to fulfil the above requirement and proceed to consummate a merger without the Commission’s approval, the Commission is empowered to impose a penalty as provided for in terms of section 34A (3) of the Act. The Commission may impose a penalty if the parties to a merger i) fail to give notice of the merger as required; and ii)proceed to implement the merger without the approval of the Commission.

What is the Level of Penalty Imposed by the Commission?

Section 34(4) of the Act provides a penalty imposed in terms of subsection (3) may not exceed ten per centum of either or both merging parties’ annual turnover in Zimbabwe, as reflected in the accounts of any party concerned for the preceding financial year. The penalty imposed by the Commission serves as a deterrent against non-notification of mergers and promotes compliance by merging parties. The applicable penalty is calculated as a proportion of merging parties’ turnover on a scale from zero percent (0%) to 10 percent (10%).

What are the Factors Considered by the Commission in Calculating the Penalty?

The penalty level is based on an analysis of factors listed in section 34A (5) of the Act. In determining whether the proportion of the penalty will be at the higher or lower end of the scale (i.e. 0% to 10%), the Commission will be guided by the extent of violation of the following factors:-

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