The Walmart pledge
The retailer is famous for reducing inflation by 1% through efficiencies in the markets. Why isn't government rolling out the red carpet?
A key idea in the new growth path is that inflation should be tackled so that the country can benefit from cheaper money in the form of lower interest rates.
The NGP urges wage and salary restraint and increased competition as its primary tools for reining in inflation. But business and labour have not been enthusiastic about earnings restraint.
As for competition, consider the construction industry. The competition authorities say there has been so much bid-rigging and price-fixing in this industry, including in our showpiece stadiums, that they have set up a special fast-track settlement procedure with reduced fines for those who move quickly.
There have been so many of these cases recently you would think that the only imperative business faces is to ensure it gets its corporate leniency application in before the competitor so that he gets fined, not you.
It would be cool if there was a gadget that you could turn on which would cut inflation by say 1%, allowing the Reserve Bank to cut rates accordingly.
There is such a thing and it is trying to get into South Africa. It is called Walmart and it is famous in the markets in which it operates for slicing a percentage point off inflation.
Walmart is immensely proud that it drives price and service efficiencies. It sees this as a kind of social welfare, where consumers get greater choice and better prices.
Asda, Walmart’s UK operation, is at the moment guaranteeing consumers that a basket of purchases in its stores will be at least 10% cheaper than in those of its four major rivals. Shoppers are refunded R110 if their R1 100 basket is found not to be 10% cheaper. Asda’s competitors have responded by announcing price cuts of R7,4-billion, according to the Wall Street Journal.
Given that food prices internationally are at an all-time high, you may think government would be rolling out the red carpet for Walmart, but not so.
Government and the Walmart pledge
It, or more specifically, three departments within government—economic development, trade and industry and agriculture—want Walmart to sign a pledge before it can acquire 51% of Massmart, home to chains Makro, Game, Dion and Builders Warehouse.
The pledge includes the demand that it increase the percentage of South African-made merchandise from the current rate of 34% to 50% by 2014.
This is a noble, even desirable, goal, but not one that can be imposed on an individual company. If we as a country want such targets, the sector as a whole will have to agree to them and there will have to be a debate about the costs and benefits of such an approach.
But the pledge, as it stands, is embarrassing. We can’t have different sets of rules for competing businesses.
Equally, Walmart will know that it cannot invest in South Africa, as elsewhere, on a preferential basis. It will know that it has to adhere to the same rules as other businesses here and that agreements that Massmart has in place have to be honoured. It appears that Walmart is keen to invest in both South Africa and Africa and sees Massmart as the ideal vehicle for this purpose. The issue goes to the Competition Tribunal next week.
I asked the department of economic development whether the pledge did not amount to an embarrassment, an object lesson in how not to attract foreign investors. I got a long reply, basically saying that government was playing a facilitating role between the merging parties and the unions.
This seems accurate enough, but who is looking out for consumers? Should the Walmart deal go ahead, and it is my guess that it will, it will increase price competition, perhaps putting billions of rands of savings into the pockets of consumers, including union members.
But this is not the only economic impact. Assume that it helps bring our rate of inflation down by 1% as it has done elsewhere and that interest rates are cut accordingly.
Consumer debt, according to the National Credit Regulator, stands at an eye-popping R1-trillion. Debt repayments are in excess of R100-billion a year.
Cheaper money in the form of interest rates that are 1% lower represent a saving of R10-billion a year for people in debt. Who wouldn’t want that?