On 19 March 2020, Minister Patel, the South African Minister of Trade and Industry, adopted two antitrust measures as part of the response to the Covid-19 pandemic. In order to facilitate cooperation in the private healthcare sector, a block exemption has been adopted permitting conduct that would otherwise be contrary to the Competition Act. In addition, regulations have been adopted strengthening the ability of the Competition Commission (the Commission) and National Consumer Commission (NCC), the consumer protection agency, to tackle exploitative price hikes for essential products.
The block exemption and the regulations form part of South Africa’s concerted response to the Covid-19 pandemic since the South African President declared a national state of disaster on 15 March 2020. In order to implement these measures, the Commission has set up a dedicated team to fast-track the investigation and prosecution of any allegations of anti-competitive conduct during this period.
In an effective suspension of the requirements of the Competition Act, the block exemption permits cooperation between stakeholders at various levels of the private healthcare sector in order to ensure that there is adequate capacity and stocks at healthcare facilities throughout South Africa to respond to the Covid-19 national disaster. The block exemption covers hospitals and healthcare facilities, medical suppliers, medical specialists and radiologists, pathologists and laboratories, pharmacies and medical aid schemes.
The block exemption permits a range of conduct that would otherwise attract fines amounting to 10% of the annual turnover for a first time offender and 25% of annual turnover for a repeat offender. While the permitted conduct varies across the categories of stakeholders, in the main, the block exemption provides for coordination relating to stock availability and to procurement. For example, hospitals may coordinate on patient allocation based on their respective capacities, while medical aid schemes may cooperate to reduce the cost of diagnosis, tests and diagnostics, treatment and other preventative measures.
Cooperation is only permitted under the block exemption if it is at the request of, and in coordination with, the Department of Health and is for the sole purpose of responding to the Covid-19 pandemic. The block exemption does not allow any communication and agreements in respect of prices unless specifically authorised by the Minister of Health.
Simultaneous to the adoption of the block exemption, Minister Patel has adopted regulations designed to strengthen the ability of the Commission and the NCC to respond to incidences of exploitative pricing of basic food and consumer items, emergency products and services, medical and hygiene supplies, and emergency clean-up products and services
While the Competition Act already prohibits excessive pricing by dominant firms, the regulations specify that the Commission will, in particular, look at the average margin or mark-up of the goods and services for the three months prior to 1 March 2020 to determine whether any price hike is excessive. The regulations also empowers the NCC to use the same test to determine whether any price increases constitute unconscionable and unfair conduct for the purposes of the Consumer Protection Act.
In addition, the regulations require suppliers to develop and implement measures to ensure the equitable distribution to consumers or customers and to maintain adequate stocks of goods. These measures may include limiting the number of items of specified products (including basic food items, household products and personal hygiene products) that can be purchased by consumers.
Subject to the existing penalties under the Competition Act and the Consumer Protection Act, a breach of the regulations can lead to material sanctions including a fine of up to R 1 million (approx. USD 57,000), a fine of up to 10% of annual turnover and imprisonment for a period not exceeding 12 months.
Business operating in the affected sectors will need to carefully consider the impact of these developments. While the risks for suppliers of essential goods arising from the regulations are evident, businesses in the private healthcare sector will also need to ensure that any cooperation unambiguously falls within the scope of the block exemption. The Commission has indicated, in the strongest terms, that it will prioritise the investigation of any allegations.
The block exemption demonstrates the Commission’s willingness to adopt a flexible approach regarding the application of the Competition Act during the Covid-19 pandemic. Further thought should be given as to whether other sectors of the South African economy should also benefit from a block exemption to alleviate current challenges (e.g. supply chain of essential retail products).