United States mass retailer Walmart and South Africa’s Massmart said on Tuesday they welcomed the opportunity to deliver their perspective in the forthcoming Competition Appeal Court proceedings into their R16.5-billion deal.
Three government departments have filed a high-court application to force the Competition Tribunal to set aside its merger approval and review its findings.
The Competition Tribunal approved the R16.5-billion deal in May with conditions that included no retrenchments for two years and a R100-million fund to develop local suppliers. After receiving shareholder, JSE and regulatory approvals, the transaction was finally concluded on June 20.
But the Department of Economic Development, the Department of Trade and Industry and the Department of Agriculture, Forestry and Fisheries have cited “irregularities” in the tribunal hearing procedures.
They are seeking a wider set of conditions as they believe that the merger will lead to an increase in imports that will cause a decline in local manufacturing and production.
“These effects, if realised, will lead to the closure of a number of local businesses and local job losses,” they said.
Local suppliers
The government departments are also arguing that they were not given the documents they requested from the merging parties and they also say their witness list during the tribunal hearings was cut to a minimum.
The companies, however, have always stated that a healthy base of local suppliers was undoubtedly good for its supply chain, consumers and the local economy, thus the establishment of their supplier programme.
“To give further effect to our commitment to local supplier development we recently appointed Mncane Mthunzi with executive responsibility for supplier development. In addition Massmart and Walmart have expressed publicly that we anticipate spending approximately R60-billion over five years on FMCG [fast moving consumer goods] products, most of which will be procured from local suppliers,” they said.
Economic Development Minister Ebrahim Patel said on Tuesday that government’s appeal to the courts was within the law and that the Competition Act made specific mention that government was allowed to do so.
DA: Overestimating the risks
Meanwhile, Democratic Alliance (DA) shadow minister of economic development Kobus Marais says government’s response to the deal showed that it was overestimating the potential risks and underestimating the opportunities.
“Most strikingly, the ministers seem convinced that Walmart’s entry into South Africa will lead to job losses in local procurement and food production. The rationale is that Walmart will import huge amounts of goods from other countries at discounted rates and that this will lead to job losses here. This is an overly simplistic view of the situation that ignores the significant opportunities for job creation that Walmart’s entry into the country would entail,” Marais said.
He said that if Walmart were interested in procuring goods en masse for its South African operations — and for possible expansions into Africa — South African firms would surely be able to compete for the production and delivery of those goods.
“There will also be numerous opportunities for South African firms and workers to get involved in and take advantage of Walmart’s value chain development as it expands throughout South Africa and into Africa. The ministers seem intent on viewing this situation as a threat, as opposed to viewing it as an opportunity,” Marais said.
He also accused the three ministers of being overly concerned with South African firms’ ability to compete with foreign competitors in terms of Walmart’s procurement.
“The fact that South African firms can undercut foreign competitors on transportation costs, can get goods to Walmart faster and have local knowledge means that opportunities abound for South African firms to do business with Walmart,” Marais said.
Necessary investment
He also contended that the ministers were consistently attempting to address issues through the Competition Act and the competition authorities, who are not relevant to questions of anti-competitive behaviour.
“The facts are clear. Walmart’s entry into South Africa will not cause any form of anti-competitive behaviour. Although the Competition Tribunal is empowered to take ‘public interest’ issues into consideration, the scope of the current appeal and indeed the original petition against the merger fall far outside the reach of the Competition Tribunal,” Marias said.
He said the Competition Act does not empower the Competition Tribunal to set policy or precedent on foreign direct investment issues as far reaching as this.
“We can therefore only infer that the ministers are appealing this transaction on an ideological basis to make a point,” Marais said.
Marais said that Patel had suggested that the issue was not about foreign direct investment
“This underlines how the ministers have fundamentally misread this situation. The Walmart/Massmart merger is, at its core, about foreign direct investment and our openness to it. If our economy is to grow between 5% and 7% in order to achieve the significant job growth we need to break the back of unemployment and poverty, then this type of investment is an absolute necessity,” Marais said.
According to Competition Appeal Court registrar Tebogo Mputle, the Competition Appeal Court hearing could be sometime in October. — I-Net Bridge