The Common Market for Eastern and Southern Africa (COMESA) Competition Commission (CCC) has successfully dismantled anti-competitive practices that were restricting trade and limiting consumer choices in the beer and spirits sector across Eswatini, Zambia, and Uganda.
This landmark action follows an investigation into the global beverage giant, Diageo Plc. The conduct described as ‘cartel-like’ by CCC CEO Dr Willard Mwemba, during the third annual press conference held at Radisson Blu in Nairobi, Kenya, refers to three specific anti-competitive agreements established between Diageo, the major supplier, and its independent distributors.
These agreements effectively choked competition at the distribution level, leading to the harmful results such as higher prices and reduced choice that a formal cartel among competitors would cause.
Dr Mwemba explained the complexity of the market, noting that in countries like Eswatini and Zambia, Diageo has production agreements with competitors, such as AB InBev, where the rival company actually manufactures Diageo’s products on its behalf.
AB InBev operates in Eswatini through Eswatini Beverages, a subsidiary that manufactures, markets, and distributes a range of its beer brands within the country.
“This arrangement means that a product a consumer might assume is manufactured by Diageo Plc. is actually being produced by a competitor,” said Dr Mwemba.
He added that this widespread cross-manufacturing practice is already a significant concern in the private sector because it severely blurs the lines of competition.
Vertical Restraints
Compounding this issue, according to Dr. Mwemba is that Diageo and other major industry players engage in the same set of vertical restraints rules imposed down the supply chain.
These include resale price maintenance (RPM), agreements that prevented distributors from setting their own prices, directly leading to artificially inflated costs for the end consumer.
They also used absolute territorial restrictions, which were clauses that illegally carved up the regional market, stopping distributors in Eswatini from selling into neighbouring countries and vice versa.
Finally, they imposed single branding requirements, which forced distributors to exclusively carry Diageo products, stifling competition from rival brands and making it difficult for new products to enter the market.
“When all dominant companies employ these identical practices, the result is the institution of cartel-like behaviour,” Dr Mwemba stated. He emphasised that the companies end up exhibiting similar market conduct to the detriment of consumers and other businesses.
“Even if these companies do not have a formal, horizontal cartel agreement, the collective effect on the market suppressed price competition and market partitioning is identical to that of an illegal cartel,” he concluded.
This is why the competition regulator viewed the parallel use of these vertical restraints as a grave threat to healthy markets.
The investigation, initiated by the CCC in June 2021, targeted the company’s distribution agreements across several COMESA Member States.
The Commission found evidence of potential anti-competitive practices such as Territorial Restrictions, Single Branding, and Resale Price Maintenance.
Following extensive engagement, the commission and Diageo entered into commitment negotiations in May, culminating in a formal Commitment Agreement confirmed on September 23.
This resolution spared the affected countries, including Eswatini, from the negative economic effects of a cartel-like environment.
Key corrective actions demanded by the CCC were multi-pronged.
First, Diageo was required to completely terminate the most restrictive distribution arrangements in both Eswatini and Zambia. Second, the distribution agreement in Uganda was immediately revised to remove all competition-restricting provisions. Finally, Diageo agreed to pay a substantial financial settlement amount of USD 750 000 to address the serious concerns related to the illegal practices.
The successful conclusion of this case highlights the vital role of the CCC in protecting consumers and businesses in the Common Market.
By actively investigating and removing these illegal barriers, the commission has ensured that the Eswatini market, and others, will benefit from fairer prices, wider choice, and open trade.
The commission welcomed Diageo’s corrective actions and has committed to continuous monitoring of the Commitment Agreement to ensure sustained compliance and fair competition across the Common Market.
This intervention stands as a firm warning to multinational corporations that anti-competitive practices will be met with decisive action by regional regulatory bodies, according to Mwemba.
