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Concerns about Patel's Walmart meddling

May 15 2011 10:23 Amanda Visser

Company Data

MASSMART HOLDINGS LIMITED [JSE:MSM]

Last traded 119.00
Change -0.33
% Change 0.00
Cumulative volume 91091
Market cap 25.84bn

Last Updated: 30/10/2014 at 04:26. Prices are delayed by 15 minutes. Source: McGregor BFA

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Pretoria - The intervention by the government, and especially by Economic Development Minister Ebrahim Patel, in the Walmart hearing before the Competition tribunal has been sharply criticised.

Observers at the past week's hearings said it increasingly appeared that Patel was sending a message to foreign companies that he would decide on the conditions for foreign companies to operate in South Africa.

David Unterhalter SC, acting on behalf of Massmart Holdings [JSE:MSM] and Walmart, said this intervention was extraordinary because the government was targeting a specific company.

Such action involved specific interventions based on specific actions to determine how a single private institution should conduct its business, he said.

Unterhalter said the government intervention was a shocking example of how public policy was formed.

“Here you have a minister who says: ‘I like company X and therefore I will make life easier for it. I don't like company Y and therefore I will make life more difficult for it’.”

On Friday Unterhalter berated the government's approach during his cross-examination of state economist James Hodge from Genesis Analytics.

Hodge had compiled a report for Patel’s Department of Economic Development, the  Department of Trade & Industry and the Department of Agriculture, Forestry & Fishing.

These departments and various trade unions, including the clothing and textile workers’ union Sactwu, of which Patel had been general secretary, demand radical conditions to protect jobs and local manufacturers.

Observers say Walmart has never before encountered such aggression and hostility in countries to which it has extended its operations.

Meanwhile, Cosatu has indicated that it will strike if the deal is approved without conditions.

The tribunal hearing has been characterised by an exceptionally aggressive and hostile approach by Rafik Bhana SC, representing the three state departments.

Competition experts have expressed concern over what increasingly looks like direct intervention, in particular deals to determine economic policy.

“The situation is extremely worrying,” a legal practitioner in competition circles told Sake24.

“Competition authorities are now being manipulated to extract extraordinary commitments from foreign companies.”

Government's reaction to the controversial Kansai deal, in which Japanese paint giant took over South African paint company Freeworld Coatings [JSE:FWD], was a danger signal.

Patel has publicly acknowledged that he is the driving force behind the radical conditions for the transactions.

A well-known source in competition circles who wishes to remain anonymous said that initially there were several questions raised about the reason for Patel’s interest in the competition authorities.

Patel is the authorities’ political head.He wants to use competition law as leverage to get concessions from the companies.
“He is the gatekeeper. He has the key and companies have to persuade him to open the gate.”

 “Foreign companies need to jump over a government hoop to get their transactions approved. This is a very dangerous signal being sent out.”

Competition experts say various countries are approaching particular transactions with great circumspection.

The ideal would be to have an institution free of political agendas examine these types of transactions.

 “We have reason to be worried,” said the source.

According to Unterhalter, Hodge’s report maintains that such interventions form part of the minister's public mandate.

“Your client says specific interventions with regard to a specific company form part of his public mandate.”

Hodge said he disagreed and could not speak on behalf of government.

His report referred to concerns about the impact of the deal on the public interest.

Public interest is one of the criteria the tribunal needs to examine when considering approval of the merger. 
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