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Walmart shows up Patel as gatekeeper

May 31 2011 17:52 Reuters

Company Data

MTN GROUP LIMITED [JSE:MTN]

Last traded 235.67
Change 0.67
% Change 0.00
Cumulative volume 6579027
Market cap 435.60bn

Last Updated: 17/10/2014 at 04:28. Prices are delayed by 15 minutes. Source: McGregor BFA

MASSMART HOLDINGS LIMITED [JSE:MSM]

Last traded 117.20
Change 0.2
% Change 0.00
Cumulative volume 556557
Market cap 25.45bn

Last Updated: 17/10/2014 at 04:28. Prices are delayed by 15 minutes. Source: McGregor BFA

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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.

 
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