State intervention in the proposed merger between Massmart and international giant Walmart hinges on a pledge that the department of economic development is attempting to negotiate with the two parties.
The departments of economic development, trade and industry and agriculture, forestry and fisheries have submitted a joint response to the Competition Tribunal alleging that Walmart and Massmart had agreed to negotiate over the government’s concerns but had become “less flexible” since the Competition Commission recommended last month the merger be allowed to proceed without any conditions.
Attached to the departments’ submission was a draft pledge that the department of economic development wants the two parties to agree to before the merger is approved.
It contains many procurement quotas which Walmart would have to abide by, including that:
- Walmart will increase the percentage of South African-made general merchandise from the current rate of 34,8% to 50% by 2014;
- After 2014 Walmart will agree to an annual 2% increase in South African-made general merchandise;
- Walmart will agree to sourcing 95% of its food and tobacco products locally. The current Massmart rate is 94,9%; and
- Walmart will procure 75% of all of its liquor products locally. The current rate is 74,4%.
The pledge also contains a number of key stipulations by the department of economic development, including that:
- Walmart will commit to a programme that connected local suppliers with Walmart’s global supply chain;
- Walmart will foster stronger relationships with local manufacturers, including small and medium-sized suppliers, BEE and black-owned suppliers;
- Walmart must make resources available for the marketing and in-store promotion of locally manufactured products; and
- Walmart must agree to assist local manufacturers to improve their performance in respect of cost, quality and reliability of supply.
The negotiations appear to have broken down, with the departments’ submission stating: “It has now become apparent to the relevant government departments that there is only a small probability that a suitable agreement will be reached prior to the tribunal hearing scheduled for 22 to 24 March 2011.
“In particular, Massmart was not even prepared to discuss the substance of a pledge which articulated concerns expressed by the trade unions with regard to procurement, BBBEE and small business development and labour,” it says.
The submission states that Massmart “completely and categorically rejected any discussion on setting procurement targets whatsoever for South African manufactured goods”. The department of economic development has accused Massmart and Walmart of delaying making binding commitments to address its concerns and of supplying the information it requested so late that it did not have the time to do a proper analysis of the impact of the proposed merger.
“The relevant government departments find it troubling that the merging parties are prepared only to give vague and general undertakings, which have no binding force,” says the submission. The department also argues that a merger of the size of the proposed deal could, if not regulated properly, undermine its New Growth Path.
Another important issue the department raised is that the merger could have a significant impact on food security. “If the value chains disintegrate, and agriculture, agro-processing and food production become more unviable, then the South African economy will become more vulnerable to international price and currency fluctuations and more affected by international food shortages,” says the submission.
Massmart’s head of corporate affairs, Brian Leroni, said the company was unable to comment at this stage on the parties’ formal submissions because of the proceedings currently taking place in the Competition Tribunal.
“Our own submissions have been filed and we look forward to these being considered by the tribunal during the hearing scheduled for later this month,” said Leroni.