CA Rejects Choppies-Payless Application
The Competition Authority has rejected an application for a buying group exemption from Choppies Distribution Centre and Payless Supermarket.
The applicants are enterprises trading in the Fast Moving Consumer Goods (FMCG) and this makes them direct competitors. However, in terms of the Competition Act competitors can apply for an exemption where there are off-setting public benefits that out-weigh the anti-competitive effects of an undertaking they seek to engage in. The thrust of the application was that the envisaged buying group would enable better purchasing power which would translate into lower prices, better quality products and therefore availing benefits to consumers and employees.
Prior to the current application, the applicants had launched a similar application in 2014, which while it was rejected the applicants were given some time to wind up the buying group agreement and for a period of more than three years the buying group has been active. During the life of the buying group exemption (which continues even now) Payless’s performance reportedly improved, stabilized financially and increased its staff complement. It is the contention of the applicants in the current application that if Payless is not granted the buying group exemption it would suffer devastating harm possibly resulting in liquidation.
When fortifying their case in the current application, the parties or the two stores maintain that the buying group arrangement is the main cause of Payless’s improved performance and stability due to the combined leverage of the two stores economies of scale when buying; stabilised cash flow; ability to rebrand and refurbish its stores; and ability to retain employees, but also created an additional 250 more jobs since the last exemption ( when the weaning-off period was granted), increasing its staff complement from 400 to 650. As a consequence Choppies and Payless are now applying for an exemption to run for a three (3) year period.
In considering an exemption application, the Authority is directed by section 32(1) of the Act on the assessment criteria of exemptions, which provides that, “ Where the Authority finds, on investigation that an agreement other than a horizontal agreement or vertical agreement prohibited by section 25 and section 26 (1) respectively prevents or substantially lessens competition, the Authority may, subject to section 34, grant an exemption from the prohibition if it can be reasonably expected that there will be offsetting benefits for the public directly attributable to the agreement.
Considering this application, the Authority turned out very adverse findings proving a dire case of substantial lessening of competition in the considered market. After a careful Competition Assessment, the Authority established that:
There is no competition between Choppies and Payless, the duo had monthly promotions wherein they had the same goods on promotion at identical or similar prices and the pamphlets were an exact replica of each other. The two stores had alleged that Choppies would not benefit from the arrangement. It however emerged that Choppies was benefiting, particularly given, the quantity of Choppies in house brands found in Payless stores.
Payless did not have any in house brands, but instead sold a variety of Choppies goods in large volumes. Further, the Authority finds that the granting of an exemption to the applicants would be in effect granting the Choppies and Payless the leeway to continue with their price fixing and distortion of competition.
The two stores hinged their application around the assertion that the agreement would yield public benefits that would off-set competition concerns. However, on closer examination of the alleged public benefits claims, it is clear that these are not supported by any documentary evidence. The Parties failed to prove that Payless’ financial stability in the last three years was solely based on it being a member of the Buying Group.
With regard to employment, it is worth noting that initially when the application was made, the two stores claimed that Payless had been able to retain the same number of staff and even increased its staff complement. Upon scrutiny this claim was found to be untrue. Whilst the parties allege that profits have remained low because of some projects Payless had undertaken to revamp its brand, such as refurbishing its stores and rebranding, there are no documents to support these plans and cost thereof.
The parties have mostly made unsubstantiated allegations in support of their application without any concrete evidence. The application is therefore rejected on the basis that there is no evidence that proves that the agreement has any offsetting benefits for the public directly attributable to it in the form of maintenance of lower prices, higher quality or greater choice for consumers, as provided under section 32(1) (a) of the Act, because Choppies and Payless sell the same goods at similar prices especially during the month-end promotion period;
and further the parties or the two stores have failed to prove that the agreement has any off- setting benefits in the form of maintenance or promotion of employment in Botswana as stated under section 32(1)(d) of the Act, instead, the information shows that Payless has reduced its employees and the parties tried to mislead and provided false information to the Authority.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.