Business, Politics

Government swings for productive sector over Walmart

By Sipho Hlongwane 2 August 2011

Walmart could single-handedly topple the govenment’s plans to put the economy on a manufacturing- and production-based growth path. That is the rationale behind its decision to appeal the Competition Tribunal’s approval of the Walmart takeover of Massmart. No less than three cabinet ministers came out to bat on Tuesday morning, defending their stance. Their prognosis: if Walmart has its way, we’re doomed. DOOMED, d’ye hear? By SIPHO HLONGWANE.

It’s not very often that three cabinet ministers come out to explain why the government’s crack team of legal eagles is preparing papers to try to interfere in a commercial transaction. But that’s what we had on Tuesday morning at the Union Buildings. Minister of Trade and Industry Rob Davies, Minister of Agriculture, Forestry and Fisheries Tina Joemat-Pettersson, and Minister of Economic Development Ebrahim Patel took turns to explain to the media why the executive was going to appeal the Competition Tribunal’s approval of the Walmart-Massmart deal to the Competitions Appeal Court. 

Ebrahim Patel was at pains to explain that the decision itself isn’t strange, and definitely is not an example of the executive sticking its nose in where it doesn’t belong. The Competition Act allowed for the government to intervene in certain ways, and this was just an example of one of those ways. Cabinet essentially wants to impose tougher conditions on the Walmart merger to protect local suppliers and labour.

The government is arguing that Walmart’s global supply chain would mean that local producers, who are anything but globally competitive, would be left out. Among the clauses that they are questioning is the R500 million purse promised by Walmart and Massmart to develop local suppliers. Davies wanted to know whether this would be just putting money into supplier hands, or would Walmart actually do the grunt work in the “developing” part of the “developing local suppliers” clause. Also, would this purse be limited to raw agricultural processes, or would the agri-processing industry be protected too? Would Walmart buy oranges and also orange juice locally?

“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, across a wide range of consumer products including agro-processing, the furniture industry, electronics, plastics and household goods as well as clothing and textiles,” the statement passed around to the media read. “These effects, if realised, will lead to the closure of a number of local businesses and local job losses”.

Patel was there to argue that in terms of the Competition Act, the government had a moral and legal obligation to act so that this deal wouldn’t imperil local jobs. “It will be a dereliction of duty by the government to stand aside when there is clear evidence for job losses [and] deterioration of working conditions of South African workers due to increased imports due to a transaction,” he said. “We have a simple request to Walmart: please ensure your entry creates jobs. How hard is that?”
Davies argued that Walmart’s potential overlooking of local suppliers would mess with his “production-sector-driven development” plans and Joemat-Pettersson said (borrowing heavily from a tone usually used by doomsday evangelists) that Walmart’s business model would jeopardise South Africa’s food security by bankrupting local suppliers. 

“We have to ensure the ability of our country to produce and supply food,” she said. “Otherwise we become vulnerable to forces that are outside of our control. South Africa’s agriculture has been unable to be globally competitive because of high level of subsidies in developed countries.”

The ministers said that they were suing Walmart because the company had failed to meet their expectations in negotiations. “It is in Walmart’s capacity to agree to fair conditions,” Patel said.

This should not be read as being the government’s approach to foreign direct investment, the ministers said. This was a special case. Also, they were allowed to pick on Walmart. “The sheer scale of Walmart’s international operations made government’s intervention necessary,” they said. Walmart reportedly has a revenue of about R2.8 trillion – more than South Africa’s annual gross domestic product. “Walmart’s purchasing muscle can be damaging if it is misapplied,” Patel said.
We’ve known about the government’s intention to intervene in the Walmart deal for a while now. It was fascinating to note the ministers sent out to explain the decision, as well as their heavy emphasis on protecting South Africa’s manufacturing sector as a basis for suing Walmart. Clearly they’ve been studying the New Growth Path well into the early hours of the morning.

Davies said that the lesson of the 2008 recession was that the countries that protected their manufacturing industry fared better than those which had abandoned the secondary economic sector for “selling derivaties”. Also, there was just no way that South Africa could be globally competitive. Subsidising these businesses in the way that the EU and the US do is out of the question. The next best option was ensuring that the likes of Walmart didn’t expose South African producers to global competition at all. DM

Photo: Minister of Economic Development Ebrahim Patel, Minister of Agriculture, Forestry and Fisheries Tina Joemat-Pettersson and Minister of Trade and Industry Rob Davies. (Daily Maverick)


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