The Competition and Tariffs Commission (CTC) has reversed the acquisition of Profeeds’ 49 percent shareholding by Innscor and fined the conglomerate $40 million (US$1,6 million) for failing to notify the commission of the transaction in terms of the Competition Act.
CTC also directed Innscor to divest out of Profeeds.
CTC, a statutory body was established under the Competition Act [Chapter 14:28] with a dual mandate of implementing Zimbabwe’s competition policy and execution of the country’s trade tariffs policy, but its primary objective is the enforcement the Competition Act.
The commission also reversed the acquisition of Produtrade by Innscor, another agro-processing firm. Innscor owns 49 percent of Profeeds and Podutrade apiece, through its investment vehicle Ashram Investment Private Limited.
In a letter to Ashram, dated May 21, 2020, CTC director Ms Ellen Ruparaganda, said the transactions involving Profeeds, Podutrade and Ashram be reversed while Ashram should immediately divests from Profeeds immediately.
A penalty of $40,6 million representing a portion of Innscor’s turnover for 2018 was also imposed on the entities.
The reasons for the penalty have not been disclosed but the cited section says if notifiable mergers do not meet requirements set out in the Act, the commission can impose a penalty, which does not exceed 10 percent turnover of merging parties.
Efforts seeking further comments from CTC were unsuccessful by the time of going to press.
Innscor said it was still looking at the implications and would issue a statement soon.
The Profeeds issue has been on and off investigations for just over six years.
Profeeds and Produtrade were established by the Philp brothers in 2007 but due to capital constraints, Innscor bought the shareholding in the business and has since grown it exponentially with analysts saying ordering Innscor to divest out of the business would create complications.
This was also retrogressive as it exposes Zimbabwe’s unattractiveness as an investment destination and militates against the country’s “open for business” policy.
“The objective of competition law under free markets is to promote; serve public interest while also balancing with economic efficiency,” said one analyst with a local research firm.
“In cases where the two conflict one would expect authorities to be practical and consider what would be the best interest to the country: its public and its economy.
“The commission should protect business against anti-competitive practices without stopping good business sense especially at a time when offshore funding is quite limited.
“Economies are not grown by stifling the growth of big business but by providing small business the environment to access capital.” Zimbabwe’s average stock-feed production is currently at 200 000 tonnes, about 70 percent of its installed capacity. This makes it small in comparison to South Africa which averages 3,5 million tonnes a year.
In 2018, CTC blocked NatFoods plan to merge with Profeeds under a structure that would have created African Feed Mills. According to CTC, National Foods is one of the largest manufacturers and marketers of food stuffs in the country while Profeeds is also a leading manufacturer and distributor of stock feeds in Zimbabwe.
The transaction was part of eight mergers and acquisitions CTC either assessed or approved in the first half of 2018, including Tanzanian milling giant Bakhresa’s acquisition of a 100 percent stake in grain miller and feed stock producer Blue Ribbon.