Walmart-Massmart - South Africa is Not Against Foreign Investment

Cape Town - Government's application to review the Competition Tribunal's recent decision to approve the Walmart-Massmart merger did not mean the government was against foreign investment, the Ministers of Economic Development, Trade and Industry, and Agriculture, Forestry and Fisheries said today.

In a media briefing in Pretoria this morning, the Ministers of Economic Development Ebrahim Patel, Trade and Industry Rob Davies and Agriculture, Forestry and Fisheries Tina Joemat-Pettersson, said government wanted to ensure local suppliers, jobs and food security were not compromised.

The Competition Tribunal in June approved the merger with conditions, including the setting up of a R100 million supplier development fund. However, the three ministers are concerned about the procedures relating to witnesses and conditions related to the decision.

They added that the supplier development fund could pale in insignificance, given the likely impact of a substantial shift to imports by the merged entity.

Patel emphasised that South Africa is not seeking to limit foreign ownership, as prior to the merger, 72% of Massmart's shares had been held offshore.

"So what we are looking at is not the foreignness of the company but what impact it would have on the economy," he stressed, adding that government's only request was that the entry of Walmart resulted in a net increase in jobs and local production.

Patel said Walmart is a large and influential procurer of goods, and that its $408 billion (R2.7 trillion) turnover is bigger than South Africa's gross domestic product (GDP).

South Africa's GDP, according to the World Bank, stood at R2.4 trillion for 2010.

He pointed out that if Walmart was a country, its GDP would be larger than three quarters of all the world's countries.

In 1995, about 5% of Walmart's products were imported but this had increased to 60% by 2005, the three ministers said.

"It will be a dereliction of duty for government to stand aside when there are clear indications of jobs loses with the expected increase of imports," he said, pointing out that the Competition Act allowed for the government to have a say and intervene on mergers.

Patel said the government had made several attempts to negotiate with Walmart, but that the failure of Walmart to offer binding conditions "was regrettable". However, he conceded that the government would be prepared to continue negotiating with Walmart.

"We would be prepared to continue talking to Walmart," said Patel, cautioning that any obligations from Walmart would have to be binding and not vague or general.

On concern that the review was not in keeping with a world that was living in the era of globalisation and that the application could be seen as a protectionist stance, Davies questioned which country was opening themselves up to global markets and said many states still had high tariff barriers.

He also pointed out that those countries which had opened themselves up the most to food imports were the ones that experienced the worst food price hikes.

This, however, didn't mean cutting the country off from the rest of the world, but being strategic about which sectors to support.

Davies said the country had a "remarkably open jurisdiction" when it came to foreign investment because unlike many countries where governments had a say on which sectors foreign companies could get involved in, a public body and process was employed in South Africa.

He said the government continued to engage with foreign investment - and that his department's Trade and Investment SA had a number of investments in the pipeline.

He added that the government's appeal of the Walmart deal wasn't out of step with what was happening in other countries - singling out Canada and its Investment Canada Act, which allows them to forbid foreign investment that doesn't provide a net benefit to the country.

Davies said the concern in this transaction was that the business model must support the productive sectors in the South African economy.

He gave the example of Shoprite's chief executive, Whitey Basson, who at the public hearing that preceded the Competition Tribunal's decision on the merger, had singled out the pasta that the company procured from a local supplier.

Basson had explained that though the pasta may be more expensive than imported pasta, the company continues to procure from the SA firm, because all of the country's retailers also procured from this supplier meaning Shoprite didn't lose out important market share.

However, he pointed out that if one company began procuring from outside SA, all other retailers may have to do so too, which would lead to the reduction of local production.

Davies said a number of questions were still circling around the supplier development fund, which would include the fund only reaching certain sectors and not those which could be replaced by imports.

He also questioned whether the supplier development fund would involve active participation where Walmart worked closely with suppliers or whether it would simply be handing over money to suppliers.

Speaking during the briefing, Joemat-Petersson said South Africa had to ensure that it remained a food secure country.

Dependence on food imports creates a "vulnerable situation" in the country, she said, at the whims of international supply and currency fluctuations.

Added to this, South African farmers' access to US and European markets and to cheap finance had declined, she said.

She said imports were a threat to local employment as local smallholder farmers close if supply was drawn from outside of the country.

Local farmers are not able to compete fairly with farmers from the developed world, which received significant farm subsidies - at about $2 a day, more than many poor Africans, she said.

The government had often been criticised for not supporting farmers, but that the appeal of the Walmart decision is an "absolute indication" of the government supporting its commercial farmers.

Davies said the agro-processing sector employed about 170 000 people and was one of the biggest sub-sectors in manufacturing, making it crucial for the country to develop this sector further, particularly since the country is a net food importer.