Empowerment And Competition Law In South Africa: A Playbook For Investors, Sponsors And Advisors

The legal framework

The constitutional foundation for empowerment measures lies in Section 9(2) of the Constitution, which mandates that such measures must be rational, proportionate and directed at achieving substantive equality, as affirmed by established constitutional jurisprudence.

This constitutional underpinning is carried through into the Competition Act, whose Preamble and Section 2 expressly recognise empowerment objectives, and further reinforced empowerment objectives by the Competition Amendment Act of 2018. The intersection manifests in two principal areas of competition law: merger control and conduct enforcement. 

Merger control: Public Interest as a substantive requirement 

South African merger assessment involves two stages: a traditional assessment of the effects on competition and an inquiry into whether the merger is in the public interest. Crucially, public-interest considerations are assigned equal weight to competition effects, and the authorities must assess public interest through the lens of the constitutional rights affected by the merger, as established in Competition Commission v Mediclinic [2021] ZACC.

Revised public interest guidelines impose a positive obligation to promote a greater spread of ownership by Historically Disadvantaged Persons (HDPs) and workers in every merger. This is not a box-ticking exercise. It is a substantive requirement that drives outcomes in mergers, especially complex or high-profile matters, and it remains a current focal point of regulatory scrutiny. The Minister has also signalled an intention to participate more actively in merger proceedings on public interest grounds.

The public interest factors that must each be considered in a merger include the effect on a particular industrial sector or region; employment, which often involves the effect on HDP employment; the ability of small businesses or firms controlled or owned by HDPs to enter into, participate in, or expand within a relevant market; the ability of national industries to compete in international markets; and promoting the spread of ownership in the relevant market, particularly in relation to the levels of ownership by HDPs and workers.

Conduct enforcement: Protecting HDP participation

In the realm of conduct enforcement, the abuse of dominance and price discrimination provisions under Sections 8 and 9 of the Competition Act serve to prevent dominant firms from impeding the ability of HDP firms to participate effectively in the economy and from imposing unfair trading conditions or discriminatory pricing on HDP firms.  

Whilst the prohibited practices provisions under Sections 4 and 5 do not contain specific provisions aimed at advancing HDP participation, a practice has developed through consent orders to address alleged contraventions by way of public interest commitments in addition to payment of administrative penalties and without admitting liability.  

Practical Implications: The playbook for Mergers and Acquisitions 

For those involved in mergers and acquisitions B-BBEE is often a key deal variable, and is inescapable in notifiable mergers. Parties should assume that a merger will attract public interest conditions to advance HDP participation, especially in sectors with concentration concerns or empowerment sensitivities. Even where there are no competition issues, a merger can still be blocked or have conditions imposed where the effect would reduce HDP participation, unless compensating commitments are given. Timing and risk management are therefore critical considerations throughout the deal lifecycle.

On the conduct enforcement side, firms should engage in portfolio risk management and carefully consider their trading terms and pricing practices with respect to HDP firms.  

Merger planning: From early assessment to post-merger compliance 

Effective merger planning begins with early assessment at the earliest stages of the deal lifecycle; from the information memorandum through to the term sheet and due diligence. This includes evaluating the effects on existing empowerment shareholding structures, employment demographics and supplier relationships, developing a public interest strategy and narrative, and pricing in public interest commitments.

Proactive engagement with the Competition Commission is essential, informed by timing, deal complexity and public profile considerations. When structuring public interest conditions, parties should bear in mind that no prescribed specific conditions or commitments exist; rather, conditions must address public interest concerns, be commercially viable, capable of meaningful implementation, and subject to compliance monitoring.

Stakeholder management is equally important. Trade unions, government departments and other interested parties, such as local communities who may raise transformation concerns during the merger review must be engaged. The merger filing itself must address current HDP participation at affected levels, proposed changes, the empowerment narrative of how the merger promotes HDP participation, initiatives to enhance empowerment as part of the deal, and commitments to improve or maintain HDP participation levels post-merger.

Post-merger compliance demands that deliverables are embedded into corporate governance and contract management frameworks. This includes establishing monitoring committees with appropriate independence, maintaining dashboards for ownership levels, dividend flows, supplier-development KPIs and localisation spend, and undertaking regular reporting to authorities that is timely, evidence-rich and candid about variances, with proposed corrective measures.  

Once approved, conditions must be implemented and tracked. This usually involves governance structures, monitoring ownership and supplier development, and reporting to the authorities. In practice, this can include monitoring committees, tracking ownership levels and supplier development metrics, and reporting on performance and any variances.

Core levers for merger clearance

Several core levers are commonly deployed to secure merger clearance. In the area of ownership, these include maintaining or increasing HDP ownership at the target or holding company post-merger for a set period, committing to concluding a future B-BBEE transaction within a specific timeframe, divesting business or assets to HDPs within a defined period, and implementing Employee Share Ownership Plans (ESOPs) with emphasis on HDPs — incorporating economic rights, dividend flows, governance rights, funding visibility and certainty, and timelines or milestones.  

Supplier development levers encompass procurement from B-BBEE-compliant suppliers, enterprise development programmes, and HDP localisation and procurement undertakings aligned to sectoral realities.  

Employment levers include HDP management representation on the board or in senior management, moratoriums on retrenchments of HDPs, and ring-fencing jobs for HDPs or employing a specified number of HDP workers within a specific time frame.  

Skills development levers involve training programmes targeting HDP workers and bursary schemes for HDPs. More generally, parties may also commit to achieving specific B-BBEE scorecard levels. 

Conduct enforcement: Practical compliance measures

For dominant firms subject to the legislated provisions of Sections 8 and 9, practical compliance measures include operationalising fair-trading and non-discrimination policies toward SMEs and HDP firms in designated sectors, establishing data systems evidencing consistent pricing and trading-term logic, and avoiding long-term offtake or supply terms that could be characterised as exerting buyer power or entrenching exclusion in respect of SMEs and HDP firms.  

Firms should also implement governance structures that flag transactions likely to trigger public interest issues and mandate empowerment impact analyses alongside competition risk reviews. Periodic internal audits and board-level dashboards tracking exposure and compliance are also advisable.

For conduct falling under the non-legislated provisions of Sections 4 and 5 — that is, conduct between competitors and parties in the supply chain — the consequences of contravention include administrative penalties and consent orders, that of late cater for public interest commitments of one kind or another.  

What this means in practice

Most of the pressure sits in how these issues are handled early in a transaction. Ownership, employment and supplier relationships tend to draw focus, particularly in sectors where they are already under scrutiny.

Where these are addressed upfront, with a clear and workable position, transactions tend to move more smoothly through the process. Where they are not, they often come back during the review, when there is less room to adjust.

Andersen in South Africa's Corporate, M&A and Competition practice works at the intersection of these disciplines, advising clients on structuring transactions that are both commercially sound and empowerment-compliant.