Business Strategies: South Africa's Competition Commission accedes to protectionist arguments

The Department of Trade and Industry's case was simple: the government is investing a great deal of time and money in developing local industries to meet local demands.

If, they argued, the Freeworld was sold to foreign interests, then jobs and profits (and therefore taxes) would be lost in South Africa.

CompComm said that there was merit in the government's argument and approved the sale but on stringent conditions.

But Kensai is not taken aback by the conditions and immediately accepted them, saying that it would complete the purchase of outstanding shares at the price previously offered and make payment "with the next week." Local analysts say that not only is Kensai not surprised but that its offer document said proposed product and plant development would take place - and those plans are very similar to the demands of CompComm.

For CompComm, a telling point is that the coatings industry in South Africa has undergone a significant consolidation and is now concentrated in a small number of mostly large companies. The absorption of Freeworld into Sensai - which has a joint venture with Du Pont - would further reduce competition.

One of the conditions of the approval is that Kensai will exit the JV with Du Pont.

Other conditions are that Kensai will continue to produce "decorative coatings" in South Africa for at least ten years and will build a manufacturing plant within five years. In addition, it will create a local R&D facility and agree to no compulsory job losses at Freeworld for at least three years.

More controversially, Kensai must implement a black economic empowerment deal within two years, which may cause some problems in Japan if it is viewed as contrary to race equality laws.