Nota Bene Podcast Ep. 161
Africa Update: What the Rapid Evolution of the Commercial and Enforcement Environments Mean for International Business, with Andreas Stargard of Primerio
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Listen to the original podcast released March 15, 2023 here:
https://www.sheppardmullin.com/notabene-465
In this episode, Andreas Stargard, a co-founding senior member of Primerio, joins host Scott Maberry to discuss recent international law and policy developments in Africa, including the competition for business on the continent, the anticipation of further AfCFTA integration, and the evolving antitrust enforcement environment.
Guests:
About Andreas Stargard
Andreas Stargard is a co-founding senior member of Primerio, a boutique law firm focused on the African continent. With two decades of experience in antitrust and competition law and commercial litigation, he serves as a legal, strategic, and business advisor to companies and individuals across the globe. His focus areas include antitrust and competition advice, white-collar counseling, contract litigation and negotiation, and resolution of global business disputes, including cartel work. Andreas also advises clients on corporate compliance programs that conform to local and global governance standards, and he has handled key strategic merger-notification issues, including evaluation of filing requirements, avoidance strategies, and cross-jurisdictional cooperation.
Andreas writes and speaks extensively on business litigation, antitrust, and competition-law issues. He is also the Editor-in-Chief of AfricanAntitrust.com and AfricanAntifraud.com, leading online resources on African competition law and anti-corruption matters across the continent.
About Scott Maberry
As an international trade partner in Governmental Practice, J. Scott Maberry counsels clients on global risk, international trade, and regulation. He is also a past co-chair of the Diversity and Inclusion Working Group for the Washington D.C. office, serves on the firm's pro bono committee, and is a founding member of the Sheppard Mullin Organizational Integrity Group.
Scott's practice includes representing clients before the U.S. government agencies and international U.S. Department of Treasury Office of Foreign Assets Control (OFAC), the Department of Commerce Bureau of Industry & Security (BIS), the Department of Commerce Import Administration, the Department of Homeland Security (DHS), the Department of State Directorate of Defense Trade Controls (DDTC), the U.S. Department of Justice (DOJ), the International Trade Commission (ITC), the Committee on Foreign Investment in the U.S. (CFIUS), He also represents clients in federal court and grand jury proceedings, as well as those pursuing negotiations and dispute resolution under the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA) and other multilateral and bilateral agreements.
A member of the World Economic Forum Expert Network, Scott also advises the WEF community in the areas of global risk, international trade, artificial intelligence and values.
Transcript:
Scott Maberry:
Welcome to Sheppard Mullin's Nota Bene, a twice monthly podcast for the C-Suite where we tackle current, national and international headlines affecting multinationals doing business without borders. I'm your host, Scott Mayberry. Let's get started.
Welcome to episode 161 of the Nota Bene podcast. I'm your host, Scott Mayberry. My guest today is Andreas Stargard of the Primerio Group. We're talking about international law and policy developments in Africa. Before I introduce Andreas, I'd like to thank our listeners in over 100 countries worldwide. We're glad you're tuning in and please keep the feedback coming. It definitely influences our programming. You can email me directly with your comments and suggestions. My email address is in the program description.
My guest, Andreas Stargard, is uniquely positioned to give us insights into international law and policy developments in Africa. He has two decades of experience in antitrust in competition law and commercial litigation. He's one of the founders of the Primerio Group, a boutique law firm focused on the African continent. Andreas is a strategic business advisor to companies and individuals across the globe. He has represented executive directors in criminal cartel investigations and frequently helps major multinationals through regulatory merger approvals. He's the editor-in-chief of africanantitrust.com and africanantifraud.com, links in the description.
Andreas, welcome to Nota Bene.
Andreas Stargard:
Thank you, Scott. It is a pleasure to be here again.
Scott Maberry:
Well, we're talking today about international law and policy developments in Africa. The headlines tell us of a continent at a crossroads in geopolitics. There's the US-China struggle for rare earth minerals on the continent, China drilling for oil in Uganda and operating the longest heated oil pipeline in the world, Spain and Italy trying to mend fences in the north following on last year's EU Africa Summit, US Treasury Secretary Yellen visiting South Africa, Senegal and Zambia and US President Joe Biden hosted the US Africa Summit, but still faces a trust gap with some in the region. With those headlines, they tell us what to kind of think about in the big picture and Andreas, maybe we'd start with you talking to us a little bit about the big picture and kind of fight for the African continent, both that involves all of the people outside of Africa, plus very importantly and probably most importantly, the people in the continent of Africa.
Andreas Stargard:
That's truly, I think, a key point to start, even if it's not only at 30,000 feet but 60,000 feet, big picture level. You hit the nail on the head there. It's truly become a global race for the continent and, of course, the folks on the continent have a view on this that can be quite strong from time to time. I think overall it's a question of foreign direct investment versus the sometimes neo-colonial view that some of the African recipients of that investment perceive in a negative way. If we break that up, you are right. There's the US, there's Russia, China and Europe as the main players. I think the rest of Asia has been left somewhat by the wayside. It's really a China and Russia game when it comes to the east there.
For most of us, it's a question of getting foreign direct investment or FDI right on the African continent, which it hasn't been in forever, if you look at the history there of Western or outside forces getting involved in the African economies. In the eyes of some African leaders, it's of course a renewed form of attempted neocolonialism and one has to understand that and I think especially the western diplomats such as the US Ambassador to the UN, Linda Thomas Greenfield, who was just in several countries, Ghana, Mozambique, Kenya, they understand that full well and they try to be sensitive to that concern and that optics of are you just here to exploit us further, now under a different name? It has to be taken into account both by diplomats as well as corporations and NGO interests.
Now, I think your point about the rare earth minerals is very, very important. I'm personally not an expert on that particular subset of issues and mining, but I can tell you this. I mean, it's no secret that the Congo alone, I think, is home to the vast majority, I don't know, 75% or so of various crucial ingredients, rare earth minerals, cobalt, et cetera, that are essential for modern technological devices from cars to phones to satellites. The Congo has a history to this day of civil unrest. Its infrastructure is vastly under equipped and it will benefit certainly from any FDI and the race for those 75 or 70% of cobalt alone will be determined by who is able to convince Congolese leaders through whatever means that that investor is well-placed to assist in mining those assets.
Scott Maberry:
That's so true. What you just said could be unpacked into a show all in and of itself. When you're talking about Congo specifically, or really a lot of the countries there, you've got the issue of civil unrest combined with the issue of foreign direct investment combined with the vast resources there, and the ones we're talking about now, rare earth minerals, that's going to be critical for the green transformation of the planet and it's one thing that I think a lot of people don't quite understand about this transition, that although it's moving us to hopefully a more carbon-neutral or carbon negative economy worldwide, it's going to involve a lot of extractive industries, because all of those minerals are really critical for all the technologies that we're going to be using for this revolution, including computing and power storage and everything in between.
Then in a lot of those combinations of very attractive resources and outside investment in high prices, you get questions of, as you say, civil unrest. Also, we see issues of child enforced labor, all of which complicates the picture enormously for all the parties concerned.
Andreas Stargard:
Absolutely. What your comment there brings to mind, the sort of ... you can't have the good for the earth and the ecology without an initial investment and actual extractive engagement and endeavor. Reminds me of the other areas that are of great importance to the African continent and worldwide, such as agriculture. The war in Crimea and Ukraine shows how important agriculture is. Ukraine has been the food store for grain, et cetera, for vast portions of Africa. Other than South Africa, probably most of Africa has really relied on Ukrainian exports and that has halted. There are intricate relationships between many African independent nations and Russia from the days when their former leaders who were then revolutionaries against colonial regimes were trained by the Soviet Union.
So they're really difficult decisions to be made. Several African countries voted to abstain or even against resolutions against Russia and the United Nations as a result of that history. If we fast-forward to today's sort of cutting edge agricultural research, we used to represent, my firm Monsanto, in the Bayer Monsanto deal back a few years ago, which was the largest ag deal on the African continent worldwide, but also in Africa, and it's the same concept that you mentioned. You can't have a green economy and something positive for the population with actual food stores being replenished locally without also investing into new technologies that are potentially controversial such as genetically modified engineering and GM corn or soybeans that are resistant to certain pests. There's a yin and a yang, if you will, both in the rare earths extraction area, as you mentioned, as well as agriculture and other crucial, basic, yet absolutely imperative economies.
Scott Maberry:
So true, and we have to be able to manage that and we have to be able to balance that. It's something that's a little bit missing, at least in the big picture, from a lot of previous attempts at foreign direct investment in Africa and elsewhere, the idea that there has to be a balance of a lot of different forces. You can't just go in and expect one outcome without affecting all the others.
Andreas Stargard:
Right, and the diplomacy, as we touched upon, will have to be, like you said, multi-tracked. There will be the political level of influence that is at issue here. There will be the amount in the form of FDI. I think most African leaders are now well aware of the 1980s through early aughts Chinese model of, "Yeah, we'll give you a loan for 2 billion US dollars for your airport or for your highway from your capital to an outlying city", but that will be spent on Chinese companies building those railroads or highways or landing strips and essentially you're indebted. I mean the China, Africa, and by Africa, I'm just referring to overall the continent here, the Africa to China trade imbalance is more massive than it's ever been.
Scott Maberry:
Amazing.
Andreas Stargard:
It's been constantly creeping up and there is concern among African leaders in that regard. If we switch gears and talk about the AfCFTA, the African Continental Free Trade Agreement that's been in the works for many, many years and is only now really coming online during COVID, it's taken effect as it's been ratified and active in most African Union member states, the AfCFTA, I think, that underlying search of African leaders and peoples for their economic independence at its heart. It's a long road ahead, but that's where the AfCFTA I think really springs from. The desire for African nations to really unite, which will be far from easy, but it's there.
Scott Maberry:
It's interesting because there are so many shared goals and then so many conflicting goals as there would be with any FTA and so I'm glad we transitioned to that. We'll talk about a lot of different specifics in our conversation today, but we may as well just move straight into integration under the AfCFTA. So maybe talk a little bit about that agreement, give us a little bit of the background of it, what's happening in terms of overall integration and then maybe that will segue us into thinking about how that's going to affect foreign direct investment through anti-competition roles and otherwise.
Andreas Stargard:
Without repeating myself, the AfCFTA has been on a lot of folks' lips over the last three years because the time for actually taking effect of the underlying treaty was technically around two years ago. It was delayed by the beginning of the COVID-19 pandemic, unfortunately. But to be frank, from my personal view here, this is just my perspective, there was not that much to actually implement at the beginning anyway. But every great project such as the European Union back in the day after World War II, they all start small and you have to start somewhere. So the first brick, so to speak, was laid and we are now talking about a trade pact, a free trade area in principle that covers virtually the entirety of the African Union. I think over 80%, I'm not sure on the numbers right now, but over 80% of the African Union members have signed and deposited, which I guess is the technical term there in international law and treaties, the AfCFTA agreement.
So it has taken effect, it covers over a billion people on the African continent that will be affected by it and it's essentially NAFTA or EU writ large, at least in principle. When it comes to things, you mentioned antitrust or competition law effects, when it comes to those subsidiary elements of the AfCFTA beyond pure trade, beyond pure economics of day-to-day import export, it becomes much more difficult. There are articles written right now in various journals on how best to implement competition regime there. It will be extremely difficult. We already have multinational enforcement bodies such as the COMESA or ECOWAS regimes, which have their own antitrust bodies that cover super national but multi-jurisdictional area, so how do you put another one, another layer essentially, if you will, on top of those domestic enforcers, let's say, of various countries?
Kenya, Uganda, et cetera were already back in the day reluctant to give up authority over their national competition regime, with respect to the COMESA Competition Commission for instance, which is celebrating its 10th anniversary this month. How are they going to react when there's a further level of seating authority that is essentially their own domestic authority over law and enforcement choose a body such as the AfCFTA secretariat? I don't know how that will ever be implemented. I'm somewhat of a naysayer in that regard, but that doesn't mean that it will not happen.
Scott Maberry:
Sure. It's a lot like what you said where there are lots of trade unions around the world and that means a lot of different things to a lot of different groupings, but they all have to wrestle with the same issues, whether or not to have centralized authority and over what, how much sovereignty to seed in order to get unity, whether to have customs union and monetary union, all of those issues. I'm sure that Africa's going to face all those questions and they'll have two steps forward, one step back just like every other agreement does.
Andreas Stargard:
Correct. Correct. I think you touched on a really interesting point and we've been quite engaged. We've held a few crypto webinars, crypto on the African continent, with some thought leaders in that respect. What you touched on there, money, monetary union/trans-border payments, electronic payments, whether it involves crypto or not, how do you transfer funds in highly, highly sort of parochial, outdated regimes in some cases versus in some cases highly advanced regimes? In Kenya with M-PESA being at the forefront of payments, everybody can make electronic payments, if you will, through an old outdated Nokia cellphone. Even the most under banked trader on a local country road by farm stand can make and take electronic payments there, Whereas in many other African nations, that is not so developed. So how do you really accomplish that of having a monetary union or even just a payment system that covers such divergent economies as compared to, let's say, Europe in the '80s
Scott Maberry:
Yeah, and divergent levels of development in the economies. Absolutely. Not to mention divergent levels of transparency and rule of law. So take us back to crypto in Africa later, but then back on this topic of the free trade area, and what about what's happening with a meeting of antitrust enforcers in Egypt under that rubric?
Andreas Stargard:
Right. So they just had a significant meeting in Egypt in Cairo of various African heads of state, but also heads of antitrust enforcement agencies. So everybody from Doris Tshepe, who's the new, by the way, as a side note, the new top moss at the South African Competition Commission. She's the head of competition law enforcement in South Africa. She took over from Tembi Bonakele at the end of last year. She was there as well as Dr. Mwemba from the COMESA Competition Commission. Of course, the Egyptian Competition Authority was the host, but all of those enforcers getting together in one African country, even if Egypt is often not really sort of at the forefront of what folks think of, but Egypt is quite active actually when it comes to antitrust enforcement. They've just revamped their merger regime as of a few months ago.
What does that indicate? Well, I think for business leaders and GCs and others who are trying to make deals on the continent and who are probably among your listeners, it means you have to prepare for significant information exchanges among these cartel and monopolization and M&A enforcement agencies. So whether it relates to secret investigations, whether it relates to open M&A deals that are being investigated or whether it relates to market increase that one agency may undertake for a certain sector of the economy, whether it's groceries or mobile money, et cetera, These kind of results and data points that they each gather individually will likely be exchanged with other nations that are on the African continent and that have antitrust enforcement, which at this point is almost everyone. There are MOUs being signed on an almost weekly basis and with further integration of AfCFTA or other regional bodies like ECOWAS, like COMESA, it is a given that there will be significant information exchange among enforcers.
Scott Maberry:
That is a very interesting development. And I think the headline for our listeners is that everything you know about local competition, law enforcement, meaning national competition law enforcement in Africa is going to have to be seen with the overlay of how that's going to work with the other enforcers in the region and on the continent working together with them. So give me a sense of how that's going to work. Does it redefine the market in terms of, let's say, for example, a competition inquiry or does it just redefine who knows about what findings are being made?
Andreas Stargard:
It's a good question. Now, of course, the word market is fraught with so much so weight and meaning in the antitrust context. If we just use it in the sort of popular context of what an economic market constitutes and sort of the general sense of the word, yes, I think it does redefine that. Without getting into technical competition or market definition questions, it does. Secondly, it may reflect a desire to catch previously undetected conduct that was quite public in another jurisdiction. There may have been a cartel in one country that was covered up that functioned essentially as a defacto open secret in another jurisdiction of the continent because perhaps one of the former domestic national monopolies was involved. If that's the case, this corporation among these antitrust enforcers certainly ups the risk, ups the ante for those former national champions or others who've been essentially acting with impunity across borders.
Scott Maberry:
That's a very interesting development, and so if I'm a global multinational doing business in those jurisdictions, I'm going to have to know about that because I'm going to have to change my assumptions about how one jurisdiction is going to treat a monopoly from another jurisdiction.
Andreas Stargard:
Absolutely. Of course, we are in a golden era for M&A activity and I'll tell you those cases that are often the most interesting and problematic are the ones where a purchaser, a good faith purchaser of assets, wherever they may be, in this case, let's say some African nation or even multiple African countries, a good faith purchaser of those business assets finds out, after having done their due diligence and closing on the deal, that some of the revenues and profits generated by that target company that they've just integrated into their own global business, that those revenues actually stemmed from collusive conduct with competitors.
Then having to unravel that, having to determine whether or not you go and seek leniency wherever it's available from the enforcers, that is a difficult task for any general counsel. I don't envy them, and of course we help them, but oftentimes that's when things bubble to the surface of the water that have been underwater for many decades.
Scott Maberry:
That's very interesting. That, I guess now that we're talking about it, as the non-expert looking in on this conversation, that assumes that you get through the merger and acquisition in the first place. So what's the state of M&A approval in these jurisdictions and cooperation across borders about that?
Andreas Stargard:
Good point. I think that is by far the most, I would say, streamlined of all the competition law enforcement aspects. If we take the SACC in South Africa, Competition Commission or the COMESA Competition Commission as examples, they all began their sort of enforcement infancy steps out of the gate with merger review and approval basics. They have then, one ahead of the other in the timeline, but they then graduate usually to anti-competitive business practices, like looking into monopolization, looking into potential collusive cartel type conduct, price fixing or consumer customer allocation or market allocation, and then into the sort of advanced area of do we create a leniency regime, amnesty for perpetrators of antitrust violations where they can come to us and if they fulfill certain conditions such as not having been the ring leader or not having been still engaged in the conduct, et cetera, that they can essentially get a free pass for disclosing valuable information?
I think to answer your question, merger enforcement is alive and well. It is the most advanced of all the competition law areas of expertise in the enforcement agencies. We just had the FCCPC, the Federal Competition and Consumer Protection Commission, in Nigeria come online a few years ago, and they are, I must say, a terrific agency. We were just there. We co-sponsored a conference with the IBA, International Bar Association, in Lagos last November, and the FCCPC leadership and staff are tremendous. We just filed a deal and got it through in record time. They really get business, they get what in-house legal departments need, which is timing and certainty and predictability, and they are well under the statutory timeline limit for getting mergers reviewed and either approved or approved with conditions. We are very impressed with them and they're one of the newest agencies and they're honestly top-notch. I think the quality improvement I've seen in my years of practicing in this area, the improvement in the quality of enforcement is marked and notable.
Scott Maberry:
That's excellent, and one would hope that the AfCFTA would also help that kind of institution building or capacity building process accelerate because it's one of those places where if it's a continent new to creating a combined market or free trade area, it's got to be building several different structures on the run. It's that old analogy of building the airplane as you're taxiing down the runway to take off, and one of them is going to be just training up your officials to deal with just those quite basic block and tackle issues of meeting your deadlines and communicating with the parties.
Andreas Stargard:
That's right. There were concerns initially, as I'm sure many of your listeners know from their own experience, there are still to this day merger parties or otherwise businesses that are concerned that do business in Africa that are concerned with dealing with any of those enforcement agencies because they worry that there may not be the same level of predictability, professionalism, et cetera that they're used to in the EU or with DOJ, FTC, But I do believe that that is actually fundamentally unfounded in this day and age, at least with respect to 80-90% of the enforcers we know across the continent.
They're well versed in antitrust economics. They're well versed in best practices. ICN, International Competition Network, and OECD best practices, state-of-the-art guidelines that they have issued, Bill Kovacic, former FTC chairman goes over to the various jurisdictions across Africa on a regular basis, so does Professor Fox from NYU, who's now retired, and these are shining lights in the antitrust community and they have all assisted with capacity building as you said.
Scott Maberry:
Well, that is good news, and that's probably something that flies under the radar for the casual observer like myself, but there's really careful consideration for the multinationals that are operating there and want to expand or getting ready to expand onto the continent.
Andreas Stargard:
Absolutely. Yep. I couldn't agree more. Now that's one side, and I do apologize to you listeners that we got sucked into the antitrust black hole so much. It is my traditional area of expertise, so that is naturally where I gravitate towards. But of course there are other aligned areas of the law that impact businesses, such as anti-corruption measures taken. Every corporation in the world knows what the FCPA is. Of course, our own US statute. But there is quite a serious enforcement effort, I think, that's launched as well across various jurisdictions on the continent in Africa with respect to combating corruption.
Of course, that is hobbled in the public eye and in the eye of corporations when political leaders of the various jurisdictions are embroiled in corruption scandals such as good old Cyril Ramaphosa, the South African president recently with his infamous farm gate Phala scandal where over half a million dollars was allegedly stolen from the pillows of his game reserve office that were hidden in a couch where some Sudanese businessman who lives in Dubai allegedly bought several heads of cattle of famed buffalo that President Ramaphosa raises there, and that launched an entire inquiry now, which is still pending, in relation to where those funds came from, whether they were used to buy influence and President Ramaphosa's political future was in the balance.
But since then, he's gotten reelected to the leadership of the ANC about a month ago and coincidentally, South Africa is also the chairman country, he's the technical chairman this year in 2023, of the BRICS the famed multilateral group of nations such as Brazil, Russia, India, China and South Africa, and they are meeting this year in various South African cities. The summit will be in Durban later on in August and so he seems to have survived that quite well so far, unless we find out more in the press. He certainly has his detractors, but none of that can ultimately take away from the efforts of the enforcement agencies that do try to combat this, Regardless of whether or not the leaders are also susceptible to it.
Scott Maberry:
I think it's a constant question. I mean, it's easy to get sunk into the parade of horrors that is official corruption throughout the world and like everywhere else throughout Africa, there are new headlines about South Sudan and where did all the oil money go from that country that started so many years ago with such high hopes. I spent some time there personally working with some of the regional banks, setting up payment systems there. It seemed like it was a new dawn for the whole local region there, and so that's a huge shoe waiting to drop their similar things all over the place. But I think your larger point is that the bigger picture is at the same time as that type of activity continues, so does the activity of agencies and persons and countries and governments and NGOs working to step by step, slowly but surely, increase rule of law, increase transparency, increase anti-corruption enforcement. I'm always interested in hearing both sides of that story because both are equally important.
Andreas Stargard:
That's right. The important role of this sort of worker bee or worker ant, the bureaucratic, non-political, non-appointed individuals who tirelessly work towards the goal of building a better state, whether it's at the Department of Justice in the US or at the South African Competition Commission, it cannot be underestimated in light of working in the shadow of the political figures that may or may not have the same lofty ethical goals in mind and at heart as they do. But as you say, both of those pathways, and as you also point out, of course, this is not unique to Africa. One may not look further than the last four years of US administration where there were significant allegations of corrupt activities and it has, to be honest, hindered the ability of, I think American attorneys to appear as sort of guiding light posts of Western supremacy when there were all those allegations of misdeeds at our own doorstep. It has made it a little bit harder, I think, for those of us who are practicing on the African continent.
Scott Maberry:
I agree.
Andreas Stargard:
But that set aside, it's, I think, a work in progress.
Scott Maberry:
It is, and it's a lesson in humility. I mean, one thing I remark on frequently is that during the entire post-war era of the global economic system, the United States was a very important leader in all of that along with many other countries, and it tended to make those of us in my generation start to feel like that was the norm and that world integration, A, was going to continue along the liberal model, B, was going to continue to get more transparent, and, C, to your point, was going to continue to be led by the Americans with really no questions asked about our own activities. It was, I think, a rude awakening for a lot of people to realize we're susceptible to all of the bleaker instincts that human beings all have.
I think that's a very important lesson for all of us. We're not really in a position to go around telling us that we are holier than thou and we all have to work together to make ourselves better and to hold each other accountable for all of these things, whether it's not engaging in cartel activity or not engaging in bribery or corruption or not engaging in personally destructive behaviors like we see all the time. It's a constant fight, I think.
Andreas Stargard:
Absolutely. Or to circle back perhaps to the very beginning of our conversation today or how FDI is structured. Do you deal as an American corporation for example, or as an American NGO or an American diplomat? Do you deal with your African counterparts as sort of target companies in a corporate acquisition or do you deal with them as eye level partners? I think many of the, hopefully, I think, current cadre of diplomats and others who are involved in those talks are leaning towards the latter approach, which I do believe is the only way to go nowadays.
Scott Maberry:
I agree and I especially think that's true where so much is at stake for all of us. It's very difficult to convince another person, whoever they are, of the importance of the shared enterprise if you're talking down to them as if they're somehow less important to that shared enterprise than we are. We are all asking a lot of each other in managing this transition, for example, to the new economy worldwide, in managing famine and disease and disaster, managing climate change, not to mention managing any given merger or acquisition. It's really important that we're all working together and I think the decades where one party could dictate terms to another party is ending and we're now in an era where we're really going to test our ability to cooperate.
Andreas Stargard:
Amen to that. I couldn't have said it better.
Scott Maberry:
Well, before we get off of competition law developments, we talked about cartel enforcement, we talked about this really interesting hierarchy that you set up, whereas nations gather the capacity to regulate in these areas, you go from kind of merger control to the next level of complexity, which is monopoly, and cartel activities to the next level of complexity, which is amnesty and lenience and self-disclosure regulations, all the while you've got, you mentioned, digital markets and payments issues. I'd like to come back to that. What's happening in digital markets, what's happening in payments, what are the things to be watching out for there?
Andreas Stargard:
Digital markets, of course, has ... and I'm using that as a singular term here, that the topic of digital markets has been at the forefront of the discussion, as your listeners may know, in virtually the entire global marketplace, whether it's in the EU, whether it's in the US, China or also in Africa. I think it is one of those areas where there really is not that much of a learning curve when it comes to any jurisdiction that is concerned because we are all concerned equally almost by definition in terms of the global marketplace that is the digital environment. The concept of gatekeepers, et cetera, that is embodied in some of the legislation that we see in Europe, for instance, that applies across state lines.
At a very basic level, many of your listeners have experienced it by virtue of working from wherever they were during the last two and a half years. So do national boundaries really still matter? That's a question. In the world of crypto, when we move on to that topic, which sort of is in between the digital markets and the payment systems, but of course is its own sort of sui generis question, fewer than a third I think of African jurisdictions currently have regulated crypto verse, if you will. We are somewhat at the forefront. We are hosting a bunch of webinars with effective parties. We have clients in the space including crypto exchanges in Africa, but all of them, it is really no exaggeration to say that, were affected by the implosion of the FTX empire that so ignominiously fell apart in the last months of 2022. Several hundred of entities were listed in the bankruptcy filings, many dozens of which were in Africa in terms of creditors, and of course that has a domino effect and it certainly has affected the African crypto verse.
Scott Maberry:
Absolutely. Do you expect that to result in greater regulation and more accelerated regulation?
Andreas Stargard:
Yes. There is a short answer. There's just no way around it. As I said earlier, I think that anything digital is so transposable in so many ways from jurisdiction to jurisdiction, right? Because as we see here in the US, there's constant congressional hearings about regulation post FTX. That's my prediction personally. There will be more bankruptcies, there'll be more significant fallout. Setting aside Mr. Bankman-Fried's personal criminal fortunes or misfortunes, there will be more and there will be more regulation as a result. I think that can be transposed from the US to the EU to the Bahamas as well as various African countries.
Scott Maberry:
Yes, I agree with that, and I think we're only seeing the tip of the proverbial iceberg with that. I think that especially when you just look at the creditor list in FTX, that's not just crypto companies that are going to be affected, that are going to get stiffed for their debts, but many other industries also. So that fallout is going to be really important to keep track of.
Andreas Stargard:
Absolutely. I mean, banking. Some of your listeners may have heard of Silver Gate banking. Silver Gate Bank was one of the few US banks that was the banker to the crypto bros, if you will. I think that's become a technical term at this point almost, and that has seen a huge drop in its share price and has had to raise money actually just to keep its liquidity requirements up to date. We'll see where that goes. All the way to other, as you said, the fallout will be felt much more broadly than just the immediate participants in the crypto verse, such as the entire Miami hospitality industry has literally seen a drop in, I think something like 50% because all the folks from FTX and related entities that used to go there on weekends have all but disappeared.
So literally from the waiter in South Beach to the banker on Wall Street to various of their African counterparts have been affected.
Scott Maberry:
Yeah, fascinating story, and only just the beginning of that story. It seems like we're jumping around a little bit and I apologize for that. But coming back then to competition, before we leave that. Taking together all of the enforcement issues, the regulatory issues, fines on the rise, various national jurisdictions coming online as real enforcers, what would you say the takeaways are for our audience? What should businesses be doing right now to prepare for these changes as they continue to unfold this year?
Andreas Stargard:
All right. Big picture in that regard with respect to competition I think is if you as an entity or an individual planning to do business or currently doing business in any African jurisdiction are in any way dominant, are in any way eyeing a potential acquisition or eyeing being a target in a potential acquisition, i.e., an M&A activity, which most aren't, to be honest, very few people start sort of greenfield development. Mostly you get into a new country by virtue of acquiring someone. So in those cases, which may be a few of your listeners that they're exactly in that seat position, I would highly advise that you consider taking the enforcement agency seriously from the get-go.
The most troubling aspect we've seen over the years, which has become less and less justifiable, inversely proportionate to the advancement of these competition agencies, is private clients not taking African antitrust enforcers seriously. That's a grave mistake, and their immediate GC may not pay the price, but future generations of legal departments will inherit headaches. So just do it now. Don't wait. Don't try to skirt a filing where it's necessary and legally required because they are starting to enforce. And by they, I mean virtually all of them, all of the enforcement agencies are starting to enforce failure to file penalties. Whether there's a failure to file or notify an otherwise mandatorily notifiable transaction, they're issuing fines and they're not necessarily small. I think taking them at face value and seriously is the name of the game.
Scott Maberry:
Good. So planning or doing business, make sure you got your filings figured out, put that onto the timeline just as you would in a US acquisition or a European acquisition. That makes total sense. What about avoiding penalties for bad behavior, monopoly behavior or cartel type behavior? I suppose one big thing would be what I tell our listeners almost every episode, if it's been a while since you've dusted off your competition policies, procedures, and training, it'd be a good time now to take a look at that because you're going to need to have that in place in Africa.
Andreas Stargard:
Absolutely, and I think that's key and you're right, to have an annual review to literally transpose, just copy and paste in large regard with some local modifications, of course, to the extent that the laws are different, but to be honest, cartel infractions are cartel infractions, whether you're in China, Germany, or South Sudan. If you're fixing prices with your direct horizontal competitors, it's a pretty squarely identical conduct and the laws are fairly universal in that regard. Dust off your competition policy book, your training, whether it's in-person or online for your senior executives and salespeople, and ensure that, again, going back to acquiring a company or a group of companies that does business on the continent, make sure that you do your due diligence in that regard as well. I think that it bears repeating that many of these cases of collusion are coming to the surface only after an acquisition by a foreign multinational corporation that has then come to realize that it inherited an entire mess of a price fixing cartel upon acquiring a domestic enterprise.
Scott Maberry:
That's a good headline too. You've painted a very clear picture. I can see it quite perfectly now as you say it, because if I'm conducting diligence on a ... just say it's an M&A acquisition target that they've conducted business in a certain way and they've had no problems doing business in a certain way in any jurisdiction, and yet they are acting in collusive ways or other unlawful ways, we can't assume that there won't be any problems with that after I acquire it, and it's just like any other area of law in any other jurisdiction. You don't want to buy a violation, and you certainly want to know what those violations are before you get in there. So good due diligence. Great take away.
Andreas Stargard:
That's right. Especially since in the past, these competition regimes are fairly new. Let's not beat around the bush, right? Other than South Africa, most of them are only within the last 15 years, if not really in the last few years like Nigeria. There was not this culture of compliance and this culture of understanding what a cartel really is and what it means to the consumer welfare standard and to the loss to the economy and as a whole, the effective net loss. When you look at that, you're taking over a company or buying a company or corporate assets that did not have the culture of compliance, that did not have a culture of understanding that fixing prices with your competitor or assigning customers or regional areas of competition to each other was wrong, not morally, but legally wrong, that culture did not exist in many of these jurisdictions, so there's a high likelihood of that bubbling under the surface.
Scott Maberry:
Yeah, it presents an issue that every company needs to be thinking about a lot now across a whole bunch of different spectra where culture really matters. It always has, but there are more ways in which it matters now. This is a good one. If I'm acquiring a company, I want to know what their culture was. I want to know that it's going to align with my company's culture. I want to make sure that my company culture is in a process of constant improvement on these areas, and that when I discover an issue, a violation or a potential violation, I need to know that the people who are responsible in the company for dealing with that know how to do the right thing and know how to get the issue resolved at the right level.
Andreas Stargard:
That's right. To expand on the culture point here, just very briefly, I think that's crucial, actually. It's a very good point that I hadn't thought of, but it's worth raising. Extra traditional, outside the traditional realm of antitrust enforcement factors do play a big role in African competition law and I want to highlight that, and I've said it on the previous sessions that I've appeared here on the podcast, the South African Competition Commission, the COMESA Competition Commission, they all look to factors that lie outside of traditional antitrust law as we see it in the west. Public interest factors are enshrined in the actual statutory framework that they have for their antitrust enforcement.
So culture right there actually plays an important role. Oftentimes we see in South Africa, for example, there are conditions imposed on otherwise unproblematic M&A deals that will result in the retention or in the increase of certain types of employees or officers and directors of traditionally disadvantaged groups, minority groups or majority groups, as the case may be that were previously excluded from their respective economies. Those are factors, cultural factors, if you will, cultural/economic factors that many companies that have not done business on the African continent may not be used to, and they may balk at that, but that is a fact and one must live with it.
Scott Maberry:
Isn't that a fascinating development? Because now you're telling me that if I'm a non-African company doing business in Africa and I haven't gotten my act together on my company's social awareness or my company's cultural values, it may be African law that forces us in that direction, and that's got to be good for everybody.
Andreas Stargard:
That's actually very interesting. Right. The catchphrases that we hear and the catch abbreviations/acronyms that we hear, DEI, ESG, et cetera, that are now being used in the sort of political, sometimes silly battles domestically in the US and elsewhere over political correctness may actually come back with quite a bite in getting a deal through, for example, in South Africa or elsewhere. You're absolutely right. On top of that, the second element of that is what passes as DEI or ESG initiatives here may not be sufficient there. It may be a completely different ballgame because true equity ownership is often at stake for BEE certification, which is a regime in South Africa relating to ownership and influence on corporate matters by certain groups. So you really have to hire, I think, local experts to guide you through those tricky labyrinths.
Scott Maberry:
Well, that's a great place to end. This is a really important piece of the puzzle, and I really appreciate your time enlightening us on some of these developments. Thank you so much, Andreas, for being with us today.
Andreas Stargard:
Thank you, Scott. It was a pleasure doing this with you.
Scott Maberry:
Great.
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