Walmart deal a risk to SA - Ministers

2011-08-02 12:04

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.

  • Kiran08 - 2011-08-02 12:24

    I would imagine some of the new conditions been imposed such as to include govt. kickbacks in this deal! The usual suspects are not getting anything out of this. Walmart should show the govt. the middle finger - so much so for investor confidence when the govt. stooges put their finger in the pie!!!

  • Freddie - 2011-08-02 13:08

    Why doesn't any ANC minister think about the poor CONSUMER? I want cheap goods. I do not want to subsidise inefficient South African business and non-workers.

  • - 2011-08-02 13:24

    The potential job losses are minute compared to the potential disaster of nationalisation!

  • Born To Fish - 2011-08-02 13:32

    Only because no comrade benefited from this.....

      Wayne - 2011-08-02 15:14

      Exactly spot on the money!!!

  • Danny Baromen - 2011-08-02 13:35

    Welcome them to the country and then slam the door in their faces... what a wonderful way to encourage foreign investment...

  • kenroid - 2011-08-02 13:41

    If government doesn't get a piece of the pie - they won't let it happen!

  • Jan - 2011-08-02 13:44

    The government already killed many sectors of manufacturing by allowing the Chinese to flood the markets with cheap products. I would love to see Walmart here just to get better service at my local Game store. With so many employees doing nothing it is a disgrace that they actually get paid to do nothing.

  • The_Lil_Wizard - 2011-08-02 13:47

    Something tells me the ministers want a piece of that R2.7 trillion pie!

  • Jiri - 2011-08-02 13:48

    when Barclay's Bank bought into Absa where there also concerns for jobs and did they also have to guarantee jobs in SA... I seam to have read that ABSA has shed a few jobs since the merger.

  • Mad Dog - 2011-08-02 13:49

    Nothing like the TOTALITARIAN threat of the anc!!

  • Sabs - 2011-08-02 13:54

    Odd then that government is imposing tolling on Gauteng roads which will have similar effect i.e. increase cost of business and lead to job losses

      tryanything - 2011-08-04 04:13

      Me Protest Min Speed on Motorway is 40Kmh

  • Zooma Lema - 2011-08-02 14:03

    We need the long term capital investment to grow our economy. Or was the bribe to the ANC government not big enough?

  • Faansie - 2011-08-02 14:03

    The deal will fall through

  • denise.wilshire - 2011-08-02 14:06

    I am so sick of the on going corruption and horse trading that abounds in this country! From someone who grew up within the once robust textile hub of the Western,Eastern Cape and KZN, this concern government comes a bit too late. When one takes into consideration, that since the ANC has come to power and opened it's arms to the "Cheap Chinese" trade, we have shed jobs to such an extent in this industry, sufficient to cause large scale poverty throughout all sectors of the community. If one goes garment shopping throughout our retail stores, there is very little evidence of quality goods. Cheap fabrics and poor garment construction are the norm. We are forced to purchase these goods as there are no others at hand. What happened to "BUY SOUTH AFRICAN"? Where is our sense of NATIONAL PRIDE? Probably traded for some under the counter back hand! Is it too late to get back on track?

      james4usa - 2011-08-02 14:30

      Walmart saves the ave US family $2500 pa. I used to buy item at Cohens HWare for $46 Walmart sells same for $17. If cheap Labour SA can't compete with smart cheap labour China you have a problem.

      chaka - 2011-08-02 14:35

      Denise, I absolutely agree with you. Beside that fact that it is bad quality, the prices charged are disgusting.

  • Jiri - 2011-08-02 14:07

    I am confused. Walmart bought into S A. Good money came into the country. Surely if they thru there buying power can reduce the cost of the retail price of goods, then they are helping to keep inflation under control That in turn could imply no increase in interest rates. Is that not good for SA. If the imports cost us manufacturing jobs then surely the problem lies with our labor. Costs to high, lazy workers etc, inefficient etc and then we should tackle that problem, not bash Walmart. Then address the issue, that it is there intention to open many extra stores which need staff, which increases quality employment. So it is all not bad to Walmart to come here. I think we should be grateful that at least some companies have faith in SA. Something we seam to lack.

  • Welleducated - 2011-08-02 14:10

    What is the point of saving R10 when we will lose thousands of jobs? Walmart should never be allowed into SA! Jobs in SA are more importatnt than saving a few Rands in my pocket! I don't care which stupid or uneducated fool agrees with Walmart's entry into SA, because they are just fools with no brain to educate themselves about the Walmart effect. I am not a farmer nor a supplier to any store, but I have a brain and have read about the damage it causes the country. I prefer jobs to saving my few Rands every month. My vote is anti-Walmart.

      Rustique - 2011-08-02 17:16

      Subsidised jobs are never permanent jobs, you have to be competitive to sustain employment.

  • gcr - 2011-08-02 14:13

    Surely these ministers could stop and think for one moment as collectively they have now got 3 braincells and a bit form the Trade Unions. How is it possible for a large corporation to import (and pay protective import duties), land and clear goods cheaper than those manufactured in this country. They are trying to punish Walmart/Masmart and the general population for the pathetically poor labour laws in this country - the labour force in this country consists of poorly educated (standards are falling, lazy masses who have a false sense of real worth in terms of what they should be earning. The country is part of the global village - to be a meaningful contributor you need to improve education, increase productivity and pay commensurate wages relative to skills - no skills = minimum wages and be thankful that you have a job. These ministers need to look at the global picture and not this narrow view trade union mentality

  • Anonymous Thinker - 2011-08-02 14:18

    can't really blame them for not wanting to open factories etc here. They'd lose millions every few months due to strikes.

  • MickyM - 2011-08-02 14:23

    Whyu should we as consumers always have to pay South African companies huge prices and they all declare huge profits. Open up our markets - see how the poultry industry requests higher duites on chicken imported from the USA and Brazil and now some tomato canners are askingf or higher duites on imported tomato products as their prices are too high and they can't compete. Until we as South Africa improve our work ethic and productivity, and contain costs and salary increases anually, we will always be the same - more expensive than any other manufacturing / processing company !!! And don't blame the strong Rand..... we would all be worse off if it was not for the strongish Rand.

  • jock - 2011-08-02 14:52

    any company that will bring money into the country,create jobs and skills,provide lower prices is good for the country.This is the type of investment Africa needs

  • Bok Fan - 2011-08-02 15:27

    Yakking on about job losses while malema singlemouthedly takes 25% OFF OUR GDP. I dont like walmart but i dont like these anc hypocrites either

  • dathan.prinsloo - 2011-08-02 15:52

    Just on the face of things, ive just returned from the USA and seen what they have in the supermarkets. By comparison stores like Game and Pick and Pay are understocked. There is a HUGE variety of goods form all over the world. We need to get alongside the rest of the world..they are not waiting for us.

  • Eishh - 2011-08-02 15:59

    The Gov forget the upside. I believe there are some pretty good local (i.e. SA) manufacturers in the current Massmart supply chain with good quality products which may end up in the Wallmart international supply chain. The good efficient suppliers will benefit big time and the bad once will loose out. Therefore job losses to those who show poor performance and job creation at those who excel. Bad new for some good new for others.

  • ekisRay - 2011-08-02 16:19

    Why are they fighting so hard to push investments out of the country? What is the hidden agenda? I want Walmart in. Walmart would be good for me. A bit of competition is what this country needs.

  • nibbie - 2011-08-02 16:35

    SA needs Walmart more than Walmart needs SA. The Govt must wake up to the fact that we aren't the only investment destination.

  • Civil - 2011-08-02 17:24

    South Africa needs to be careful with its asset. Selling businesses to foreigners should be a last resort. Where are the entrepreneurs? We need a South African citizen Entrepreneur to set up a "Tesco" type Supermarket in SA. This will generate work everywhere in SA. Tesco in the UK is a very big Employer and have created 1000's of jobs. What do you say, mr & mrs Entrepreneur?

  • AntiWalmart - 2011-08-02 17:58

    Walmart is not buying into the country or creating anything. They are buying\bought 51% shares from existing shareholders. A lot of these shareholders are not in South Africa hence a lot of the proceeds will\might flow out of South Africa. Walmart will import a lot of its goods. I.e. a lot of money will flow out of South Africa. Dividends on profits generated by Massmart\Walmart will flow out of South Africa. They are like a parasite luring their prey under the guise of foreign investment and then they suck all the blood out of it.

  • will294 - 2011-08-02 18:58

    I would have some sympathy with local entrepeneurs if they didn't screw us at every opportunity. Countless imported items can be obtained far cheaper overseas than from our local robbers. I say that the local retailers deserve every bit of competition that comes their way. I am tired of having to pay double - or even more than double - overseas prices

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