The Competition Authority of Kenya to Clarify the Rules and Filing Requirements of Joint Venture Arrangements
The Competition Authority of Kenya (the CAK) has published draft joint venture guidelines (the Guidelines). The Guidelines aim to provide clarity, transparency and predictability about joint venture arrangements that require CAK approval. The Guidelines specifically clarify the CAK’s position on what consists of a Full Function Joint Venture, a Greenfield Joint Venture; and lays out the process for notifying and filing a joint venture with the CAK, as well as how the CAK reviews a joint venture’s impact on competition.
The Guidelines are still open to review and amendment, with the CAK inviting comments by Friday, March 5th, 2021. However, the following are the main implications of the proposed Guidelines:
Full Function Joint Venture
The Guidelines define a Full Function Joint Venture as a joint venture undertaking that performs all the functions of an autonomous economic entity for ten (10) years or more including:
- operating on a market and performing the functions normally carried on by undertakings operating in the same market; and
- having a management dedicated to its day-to-day operations and access to sufficient resources including finance, staff and assets in order to conduct for a long duration its business activities within the area provided for in the joint-venture agreement.
Full Function Joint Ventures constitute a merger under the Competition Act and will require notification and filing with the CAK. However, it should be noted that a joint venture established for a purposefully finite period (e.g. a ten (10) year construction project) will not be viewed as having a long duration and will not qualify as a Full Function Joint Venture.
Greenfield Joint Venture
The Guidelines set out Greenfield Joint Ventures as joint venture undertakings in which local or foreign entities collaborate with other locally domiciled entities to develop a new product separate from the products and services provided by the parent entities. Typical distinguishing features of a Greenfield Joint Venture include: a new joint venture vehicle formed by the parties for the purpose of the transaction, undertakings in new areas for the parties in the joint venture, and the transaction entailing entry into a new business area or enhancement of an existing business.
The Guidelines recommend that parties potentially entering into a Greenfield Joint Venture should seek the advisory opinion of the CAK as Greenfield Joint Ventures are reviewed on a case-by-case basis.
Process for Filing a Joint Venture With CAK
The Guidelines set out the registration requirements for a Full Function Joint Venture. The CAK requires the parent entities to separately submit documents relating to the transaction by filling the Merger Notification Forms (MNF) as Joint Venture Parents, and if a joint venture vehicle exists as a part of the undertaking it will also be required to file the MNF. In situations where the joint venture parties have no separate joint venture vehicle, (e.g. a contractual relationship or have acquired existing shares in an existing undertaking that results in a joint venture) the parent entities will only need to separately submit documents by filling the MNF as Joint Venture Parents.
Determination of Impact on Competition
The Guidelines specify how the CAK determines the competition impact a Full Function Joint Venture transaction is likely to have in a market. The CAK considers the turnover and asset figures of all the parents to a joint venture, including the entities directly or indirectly in the control of the joint venture parents and the joint venture vehicle where applicable. In addition, the CAK looks at the terms of the joint venture agreement(s), public interest factors (e.g. the effect of the joint venture on the labour market) and whether the efficiency benefit of the joint venture brings more economic gains compared to the competition detriment. If the CAK makes a finding that a joint venture transaction has negative competition and public interest impacts, it may engage the joint venture parties to come up with remedies to mitigate against the harm. Additionally, the CAK will direct on which of the joint venture parties as well as the joint venture vehicle will be impacted by the mitigating factors.
The draft joint venture guidelines aim to further clarify the rules and reduce the confusion surrounding the competition regulations on joint ventures. Pursuant to the Guidelines, the CAK is committed to further its mandate on fostering competitive markets through transparency.