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Walmart deal a risk to SA - Ministers

Aug 02 2011 12:04

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Cape Town - The R16.5bn takeover of Massmart Holdings [JSE:MSM] by United States retail giant Walmart poses a risk to the South African economy if more stringent conditions are not applied to the merger agreement, the government said on Tuesday.

The merger as it stood threatened to cause a decline in local manufacturing and production, it said in a statement issued by Trade and Industry Minister Rob Davies, Agriculture and Forestry Minister Tina Joemat-Pettersson and Economic Development Minister Ebrahim Patel.

The three ministers filed papers with the Competition Appeal Court last month, seeking to have the Competition Tribunal's decision to approve the merger set aside.

At a media briefing, Patel said the government would be derelict in its duty if it did nothing "when there is a clear and compelling evidence of probable job losses or deterioration in the working conditions of South African workers due to increased imports as a result of the proposed transaction".

For this reason, it was trying to get more appropriate conditions attached to the conditions of the merger.

Patel declined to reveal details of these new conditions, but said there needed to be "better protection for jobs in the Massmart supply chain than what we currently have in place".

On the question of whether it would not be better to negotiate with Walmart - which is taking a 51% stake in the local retailer - rather than go to court, he said efforts had been made in this regard, but had not proved successful.

"It is within the capacity of Walmart to agree to a fair and reasonable set of conditions, which will ensure that South Africa as a whole benefits from the entry of the company into the local market.

"The failure by Walmart to agree to such conditions, or offer reasonable or binding commitments, is regrettable.

"We have a simple request: Please ensure your entry into the local market results in a net increase in jobs and local production capacity.

"In the absence of reasonable commitments, government has no option but to pursue the matter through the courts," he said.

In their joint statement, the ministers spelt out the main risk they believe the merger poses.

"The main risk to South Africa that the merger poses is an increase in imports by Walmart-Massmart, causing a decline in local manufacturing and production."

This risk was across a wide range of consumer product sectors, including agro-processing, the furniture industry, electronics, plastics and household goods, as well as clothing and textiles.

"These effects, if realised, will lead to the closure of a number of local businesses and local job losses," they said.

Walmart size

The sheer scale of Walmart's international operations has made government intervention necessary.

"Walmart's revenue is estimated to be $408bn (about R2.7 trillion) - larger than South Africa's GDP (gross domestic product). In 2004 Walmart, if it was measured as a country, would have been China's eighth largest trade partner and would have a GDP larger than 75% of countries worldwide.

"In 1995, no more than 5% of Walmart products were imported; by 2005, this figure had increased exponentially to 60%. Walmart's procurement division employs 1 400 employees, sourcing from 6 000 factories across the world, though largely from China.

"Government believes that given Walmart's global purchasing power, the merged entity will significantly increase imports and reduce purchases from local suppliers in South Africa.

"This will affect entire value chains - from the suppliers of raw materials and components, to the producers of the finished product.

"Government believes a ripple effect in the sector is inevitable; competitors of the merged entity will also respond by importing more and procuring less from local suppliers," they said.

Davies told the briefing it would be a mistake to construe the government's intervention in the merger as signalling its attitude towards foreign investment.

"We're dealing with a large merger between a foreign investor and an entity which is already dominated by foreign interests.

"So the fact is that, as a general proposition, that this is a statement that says something about the approach of government towards foreign investment, that is just completely mistaken," he said.

Joemat-Pettersson warned the merger could pose a threat to South Africa's food security through its impact on the agro-processing and farming sectors.

The Walmart-Massmart merger was approved by the Competition Tribunal of SA on May 31 this year, subject to certain conditions. The SA Commercial, Catering and Allied Workers' Union has appealed against this clearance.

The tribunal's decision has been welcomed by both Walmart and Massmart.

At a public hearing on the merger at parliament last month, government indicated it was not seeking to veto the deal, but believed public interest concerns made a review essential.


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