Walmart deal a signpost to the future

The Walmart-Massmart merger is a litmus test for South Africa that could define the nature and shape of the economy going forward.

The Competition Tribunal hearing into the merger came to an end this week with closing arguments made on Monday. The tribunal has 10 working days to communicate whether it will approve or reject the merger, which means that by May 31 at the latest we should have a decision. Most commentators the Mail & Guardian spoke to believe that the tribunal will not reject the merger, but could apply conditions to it if there is a clear-cut case for them.

Competition lawyer Anthony Norton said that the unions and government would have to present sufficient evidence to the tribunal to demonstrate that, as a direct result of this merger, local procurement would be negatively affected and that this fell within the ambit of the specific public-interest grounds the tribunal may consider in terms of the Competition Act. Norton said the tribunal would have to consider whether there was evidence that the merger (and not other factors) would cause Massmart to change its procurement policies in a manner that would fall within the scope of the specific public-interest considerations.

“Unless the tribunal feels that there is sufficient evidence before it that suggests that employment and procurement policies will be affected negatively, it can’t apply conditions,” said Norton. The nature and scope of the conditions that could be applied to the merger have been a subject of heated debate in the past few months.

Some commentators have suggested that certain conditions such as local-procurement quotas could be challenged in the Constitutional Court, and others believed that the South African government may fall foul of the World Trade Organisation (WTO) commitments that it has made. If the tribunal did impose conditions on Walmart that the retail giant felt violated WTO commitments, it could lodge a dispute at the WTO. Government has denied these allegations.

Lionel October, the director general of the trade and industry department, insisted that the legal advice obtained by government ensured that it would not violate WTO commitments. October also emphasised that government’s main concern was the displacement of local suppliers with international ones, not import and export quotas.

However, these issues are so closely linked, it makes no sense to separate the two. An increase in imports by Massmart after the merger would result in local suppliers being displaced. Based on the “pledge” that government attempted to get Walmart to sign before the tribunal hearing began, the way it intended to protect local suppliers was with procurement quotas, which in effect are import restrictions.

According to government’s submission to the tribunal, a 1% shift in local procurement towards imports could result in 4?000 jobs lost. Economist Mike Schussler said that a 7% to 13% long-term cost-saving would become available to consumers once Walmart entered the market and, if customers spent that “saved” money elsewhere in the economy, somewhere between 28?000 and 52?000 jobs could be created.

“For the ministers and the departments involved, I really hope Walmart does not pull out of the deal,” said Schussler in an opinion piece written for The Times. “The impression that this would give to big businesses would be awful.” There were some late developments on the conditions this week when the Competition Commission, which had initially recommended that the merger be approved unconditionally, insisted that 503 workers who were retrenched by Massmart in February 2010 be reinstated.

The unions argued during the hearing that these retrenchments were geared towards making Massmart a more attractive entity to Walmart. The commission has argued that evidence led during the hearing has highlighted how these retrenchments were linked to the merger and for this reason it wanted this condition applied. Massmart has denied that the retrenchments had anything to do with the merger, which was announced in September 2010.

The other development on Monday was the announcement by Walmart and Massmart that they would launch a R100-million local-supplier fund, that they would respect all existing agreements with the unions and that they would commit to no retrenchments for two years after the merger. Judging from the unions’ response on Monday, they do not think these conditions go far enough. Whichever way the tribunal rules and whatever conditions it chooses to apply, if any, the whole country will be watching.

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Lloyd Gedye
Lloyd Gedye
Lloyd Gedye is a freelance journalist and one of the founders of The Con.

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