Merger control in Tanzania

Are you involved in the purchase or sale of a business in Tanzania? You and your business could be at risk of very significant penalties if you fail to comply with the Tanzanian merger rules.

The framework for competition policy enforcement was created by the Fair Competition Act 2003 (the Act), which entered into force in 2004. Section 11 of the Act prescribes that where there is an acquisition of shares or a business or other assets within the jurisdiction of Tanzania and the value of the acquisition is above a value prescribed by an order laid down by the Fair Competition Commission (FCC) then the merger is mandatorily referable to the FCC.

The FCC recently published an order, the Fair Competition,Threshold for Notification of a Merger Order 2006, confirming the threshold at which anticipated acquisitions of businesses must be notified to it for clearance under the Act. The publication of the order is a crucial piece in the jigsaw, not only in a merger control regime, but also of a functioning competition policy in Tanzania as a whole.

The value of the acquisition is to be assessed by reference to the asset value of the market value of the assets of the "merging firms or entities". A notification becomes mandatory in the event that their asset value is above TSsh 800,000,000 (around US$550,000).

Substantive test – when should a merger be cleared? The FCC has been keen to stress that its policy is not to prohibit mergers as a matter of course but to ensure that they do not impinge upon competition in the markets which they affect. Tanzania is committed to a full transition to a market economy, and the FCC is aware of the importance of merger and acquisitions activity as part of that process.

The acquisition of local firms within Tanzania is an important part of attracting foreign direct investment into the country as well as facilitating market entry. Many foreign companies that wish to start up in Tanzania will find that the easiest way to do so is to purchase a firm which is already established, with a ready list of customers, employees and suppliers, as well as perhaps benefiting from local licences and domestically registered intellectual property rights.

On the other side of the equation, where companies wish to exit the market, it is only right that they are able to do so, provided that this does not impact adversely on competition. That point too seems to have been taken on board by the FCC.

When is a merger permissible under the Act? Section 11(1) states that a merger is only prohibited where it "creates or strengthens a position of dominance in a market".

The "position of dominance" concept is fleshed out at Section 5. This is a two part assessment involving an inquiry into whether the merged entity would:

"(a) acting alone,. profitably and materially restrain or reduce competition in that market for a significant period of time; and (b) [possess] a share of the relevant market exceed[ing] 35%"

Dominance is an economic concept and must be treated as such. The notifying parties will need to explain to the FCC...