Walmart deal under scrutiny

6/02/2011 6:40:02 AM


SACCAWU members demonstrating against the Walmart takeover of Massmart outside the DTI offices in Pretoria where the Competition Board hearing was being held. Photo: Simphiwe Mbokazi

The Competition Tribunal may have given Walmart and Massmart the go ahead but the government still has the scope to challenge its decision.

Department of Trade and Industry spokesman Sidwell Medupe said yesterday that the policy was clear that “we welcome investment”, but the government would study the tribunal’s ruling to determine whether specific measures adequately met the public interest tests set out in the Competition Act to ensure South Africa was not faced with job losses.

The government will meet with Walmart and Massmart to discuss their commitments in light of the tribunal’s conditions and based on statements company executives made during the proceedings that they did not intend to materially increase the level of imports.

Based on the outcome of the study of the conditions and the companies’ response, “we will decide on the next steps to take. The government reserves its legal options at this stage,” Economic Development Minister Ebrahim Patel, Trade and Industry Minister Rob Davies and Agriculture, Forestry and Fisheries Minister Tina Joemat-Pettersson said in a statement.

The tribunal will release the full reasons for its decision this month. Parties to the hearings, such as the government or trade unions, may then lodge an appeal to the Competition Appeal Court if they are dissatisfied. If the government appeals, the merger will still proceed unless it gets an interdict.

Heather Irvine, a director at Norton Rose South Africa, said there was no legal mechanism in terms of local law that would enable the government to block foreign investment in South Africa in the national interest.

This is in contrast to Canada, for example, where the Investment Canada Act provides for a committee of ministers who decide whether investments are in the national interest. In South Africa, the tribunal has a narrow focus on public interest, besides matters of competition.

Norton Rose South Africa (formerly Deneys Reitz) represented the government in the tribunal hearings on the Walmart/Massmart deal.

“It is not realistic for the government to make a decision on an appeal until it has considered the reasons for the tribunal’s decision,” Irvine said. If the government decides to appeal, it could do so on the basis that the conditions are not adequate or that the tribunal has not interpreted public interest correctly. Trade unions could follow the same process.

Saliem Patel, the director of Labour Research Service, said government intervention in the deal was spot on as it was worried about jobs and the impact on industrial development.

“Walmart is a company that can destroy entire sectors of the economy.”

He said the government’s intervention in this deal was proof of a positive shift in government thinking on foreign direct investment, specifically that foreign investment needed to contribute to job creation and economic development.

“I am hoping we see more of this,” Patel said.

But Leon Louw, the executive director of the Free Market Foundation, said the government should not have intervened in the merger. He said the purpose of competition law was to lower prices and increase consumer choice. “Public interest is an amorphous, virtually meaningless concept, an excuse to do anything.”

A business’s objective was to increase efficiency by using fewer people to do more. “That is what modernisation is and if we want to be part of Bric (Brazil, Russia, India, China) then we need to strive for this.”

The government should not obstruct or control mergers. Instead it should have investor-friendly policies, such as tax incentives and liberalisation, Louw said. He added that Canada’s investment council was a bad idea as it protected less competent industries from more competitive ones.

Davies said the deal would have a “destabilising” impact on the economy as a surge in imports might undermine manufacturing output.

Lars Christensen, the head of emerging markets at Danske Bank in Copenhagen, said: “It illustrates the same interventionist instincts that (are) evident within large parts of the government. It’s clumsy behaviour. This was a labour protection issue, not a competition issue. It has a damaging effect on foreign investor sentiment.”

Tony Twine, an economist at Econometrix, said: “This says to potential investors: be careful about the attitude of the South African government. What you read today may not be the same as what you hear tomorrow.” – Additional reporting from Bloomberg.

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