Collaboration is one of the key pillars for the survival of small businesses. However, collaboration between businesses in some areas may lead to the violation of competition laws. For this reason, former Minister of Competition, Trade and Industry at the time, Ebrahim Patel, introduced new regulations that would enable small businesses to collaborate and subsequently, have the opportunity to grow and contribute more to the economy.
On 23 May 2024, Minister Patel signed the Small, Micro and Medium-Sized Business Block Exemption Regulations 2024 (SMME Block Exemptions) into law. These exemptions were to permit SMMEs to conclude certain agreements and conduct certain practices that would otherwise be prohibited by the Competition Act 23 of 2021. Sections 4 and 5 of the Competition Act state that:
“4. Restrictive horizontal practices prohibited
(1) An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if—
(a) it has the effect of substantially preventing or lessening competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive, gain resulting from it outweighs that effect; or
(b) it involves any of the following restrictive horizontal practices—
(i) directly or indirectly fixing a purchase or selling price or any other trading condition;
(ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or
(iii) collusive tendering.
(2) An agreement to engage in a restrictive horizontal practice referred to in subsection (1)(b) is presumed to exist between two or more firms if—
(a) anyone of those firms owns a significant interest in the other, or they have at least one director or substantial shareholder in common; and
(b) any combination of those firms engages in that restrictive horizontal practice.
5. Restrictive vertical practices prohibited
(1) An agreement between parties in a vertical relationship is prohibited if it has the effect of substantially preventing or lessening competition in a market, unless a party to the agreement can prove that any technological, efficiency or other pro-competitive, gain resulting from that agreement outweighs that effect.
(2) The practice of minimum resale price maintenance is prohibited…”
According to the Competition Act, a horizontal relationship is a relationship between competitors.
With Minister Patel’s remarkable strides in signing the block exemption regulations, the following categories of agreements and practices are exempted from sections 4 and 5 of the Competition Act:
9. Subject to regulation 10 and 11, the Minister hereby exempts the following categories of agreements or practices among SMMEs from the application of sections 4(1) and 5(1) of the Act:
9.1. Research and development (R&D) agreements which include outsourcing R&D to third parties or cooperation agreements to conduct R&D.
9.2. Production agreements for production of a good or the provision of a service, or toll manufacturing by one firm for another (standalone or on a reciprocal basis) which do not result in the removal of a competitor from the market.
9.3. Joint purchasing agreements which may include collective purchasing by a subset of firms in a market.
9.4. Joint selling of goods or services to and through intermediaries or other business customers by a subset of firms in a market.
9.5. Commercialisation agreements which include co-operation between firms relating to the selling, distribution or promotion of their products. Agreements may cover all commercial aspects or may be limited to onespecific function, such as distribution, after-sales service, or advertising.
9.6. Standardisation agreements which include setting the technical or quality requirements with which current or future products, production processes, services or methods may comply. These agreements may cover technical specifications, environmental performance, grades or sizes of products, or the terms of approval by a regulatory body.
9.7. Collective negotiations with large buyers or suppliers on the terms and conditions for purchasing or supply.
These exemptions are monumental and will make a world of difference for SMMEs that rely on collaboration for growth.
References
[1] https://www.gov.za/sites/default/files/gcis_document/202406/50746gen2538.pdf
