Walmart shows up Patel as gatekeeper

2011-05-31 17:52

Johannesburg  - The government's backing of trade unions opposed to Walmart's R16.5bn bid for retailer Massmart Holdings [JSE:MSM] signals that future foreign investment will have to fit in with labour's interests.

While conditions imposed on the deal by competition authorities are not onerous, they are the first clear signs of Economic Development Minister Ebrahim Patel exerting influence over foreign direct investment in South Africa.

The former trade unionist was appointed in 2009 and charged with tackling chronic unemployment, but his ideas - particularly that of government-driven growth under the banner of the 'developmental state' - have struggled to gain traction.

The admittedly small concessions he wrung out of US retail giant Walmart show the concept has sprouted roots.

"Whilst South Africa is open for business, the costs and difficulties of investing are great with Minister Patel pushing the developmental state agenda," said Peter Attard Montalto, emerging markets economist at Nomura International.

"Power seems to have shifted very much to his Economic Development Department and away from National Treasury."

The deal, Walmart's biggest foreign acquisition since it bought Britain's ASDA in 1999, is seen as a test case for foreign investment in South Africa, where trade unions wield enormous political clout.

The Competition Tribunal on Tuesday approved the deal which would see Walmart acquire 51% of Massmart but said the merged entity must agree not to fire any workers for two years, and set up a R100m "development programme" for local suppliers.

A decision to impose local supply targets would have violated international trade rules and opened the way for Walmart to apply for relief at the World Trade Organisation through the US government.

Investors edgy

Government intervention on the Walmart/Massmart transaction has put foreign investors on edge, especially after the tribunal earlier this month set conditions on a takeover by Japan's Kansai Paint of local firm Freeworld Coatings [JSE:FWD].

"It is not fair to say Patel is anti-investment - that is far from the truth. He is, however, trying to balance investment with the developmental state," Attard Montalto said. "Only time will tell however if he has got the right balance here."

In 2009, the government torpedoed a $24bn tie-up between local telecom MTN Group and India's Bharti Airtel, over concern that MTN Group [JSE:MTN] could lose its national character. The Bharti/MTN transaction would have created the world's third-largest mobile group by subscribers.

Independent political analyst Nic Borain said President Jacob Zuma's government was using the country's competition authorities "for purposes for which they were not intended", throwing up another layer of uncertainty for outside business.

"It is not the job of the Competition Commission to act as a vetting agency for the total social good of particular inward investments," Borain said.

The government and unions were concerned about Walmart's global supply network which, they said, might lead to a flood of cheap imports, sparking job losses and squeezing local suppliers. They had asked for targets on using local suppliers and a freeze on job cuts.

Their action has further dented South Africa's image as a investment destination, some critics say.


  • Francois - 2011-05-31 18:47

    Come on mr Patel, do one for our brothers and sisters in Africa and force SA companies to procure locally in THOSE countries and let's see what Cosatu has to say about the losses of jobs in SA then. What is good for the goose must be good for the gander?

  • R Albert - 2011-05-31 18:48

    It is now cofirmed that the Competition Authority is not an independent Court but a political tool for the Trade Unions.

  • Andrew van Wijk - 2011-05-31 18:48

    This situation of cheap imports is a farce, look at what the Gov has done in regards to the textile industry in this country, wiped out 1000's of jobs due to cheap clothing imports ex China. What about Checkers/Shoprite, Clicks, Pick n Pay they all import goods from China, they don't have restrictions on their supplier base. Pure sour grapes is my guess as there are no unions or political cronies getting kick backs ?

  • Parks - 2011-05-31 19:28

    I think it is high time that the government steps in, & lays down certain conditions for these multi-national companies. Far too often, these take-overs & buy-outs are followed by restructuring, donwnsizing & retrenchment, which is obviously the last thing we need. There is far too much emphasis placed on profit profit profit, with little regard for the man in the street. Secondly, I don't really care which agency takes care of the social aspects of these multi-national deals, but somebody has to do the job. We cannot continue blindly following the free market principle, where a few at the top get very rich while the majority of the working class (and middle class)get desperately poor. We have seen numerous examples of this in of this in many of the advanced economies of late.

      firefighter - 2011-06-01 08:36

      @Parks. Have you ever taken the time to look up the words "Communism" or "Socialism" in the dictionary? You clearly do not have an inkling of Economics - if you had you would not have polluted this blog with your meaningless drivel

      one-way - 2011-06-01 09:51

      Yep, I suppose you also say,"Even if a bottle of Klippies costs a R1000 ,it`s still a bargain!"

  • Fred - 2011-06-01 09:59

    I was in Shoprite Matola, Mozambique, on entering the shop there was a distinct stench of rotten seafood, most products were not local product, the fresh fruit and veg was anything but, some of the eggs were rotten, the CD stand wobbled and the plastic childrens truck was broken, we were also made to pay for plastic shopping bags that are not made to the same standards as they are in SA, although the bags are a better quality Spar standards were also very poor, Southern Africa needs decent, affordable first world competition to sort out the rip-offs that have been taking the consumer for a ride for donkeys years. Cannot make any sense out of the government stance to cheaper, better, more choice, could it be that none of them have been given a directorship.

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