Saturday, June 4, 2011

Walmart: All eyes on Africa By Lynley DONNELLY 3 June



 The victorious Walmart bid to buy 51% of local retailer Massmart could boost South Africa's profile as a trading launch pad into the African continent.


                                                                       Photo: Wal-Mart Stores, Inc./AP


 But experts warned this week that government's handling of the affair might result in investors leapfrogging South Africa altogether, going directly to fast-growing continental counterparts.
 The Competition Tribunal approved the deal this week, but imposed conditions on the purchase after the departments of trade and industry, economic development and agriculture, forestry and ­fisheries joined proceedings. Government had requested conditions related to local procurement, job losses, labour rights and small-business development.
 Ultimately, the retailer agreed to conditions it had volunteered, including a promise to forgo any retrenchments for two years, to continue to recognise the South Africa Commercial, Catering and Allied Workers' Union as the collective bargaining agent for the next three years and to establish a R100-million fund to support local suppliers.
 But, while the Competition Tribunal's handling of the deal is likely to have been viewed positively by international investors, government's handling of the matter, particularly its use of the competition authorities as an "investment screening tool", has raised alarm bells, said Peter Draper, a senior research fellow at the South African Institute of International Affairs (Saiia).
 He echoed comments made in an article published by Saiia, following the World Economic Forum in early May, in which he said there was growing business scepticism about state-driven development and the apparent increasing interventionist attitude to foreign direct investment, particularly the use of "competition authorities to act as a quasi-inward investment regulator", as seen in the Walmart matter.





 He detected a growing feeling in both international and domestic investor circles that "South Africa is not getting it right". Draper said on Wednesday that it remained to be seen how the tribunal's decision would be handled by government in the light of "building momentum" to formalise the screening of foreign investment processes.
 "Outside investors are watching this very closely and asking if South Africa should be the base from which to broaden into Africa," he said. Many were beginning to take a five- to 10-year view of developments in countries such as Kenya and Nigeria. Despite the range of political problems and infrastructural backlogs these countries faced, in time they could "cream off" some of the investment that might otherwise have gone South Africa's way, Draper said.

'African growth story'

 The increasingly popular "African growth story" could simply result in investors leapfrogging South Africa and going directly to other countries, he said. Africa has, in the past decade, grown GDP at an average of 5.2% a year. Growth for 2011 is forecast at the same rate.
 Nevertheless, the tribunal's handling of the matter was "a victory for transparency". While it was clear that Walmart and Massmart were willing to accept some concessions, the institution "had maintained the rule of law" and had "been shown to work", said Draper, which would be positively received by investors.
 South African companies are perceived to be important players on the continent. However emerging powers such as India and China are challenging our supremacy on the continent, according to Draper.
 Our outward trade footprint is concentrated in Southern Africa and increasingly in West Africa, in countries such as Nigeria and Ghana. The continent is already South Africa's third-largest continental trading partner, after Asia and Europe, according to figures from the department of trade and industry.
 China is South Africa's largest trading partner at the moment. South Africa has exported about R11.7-billion worth of exports to China so far this year, representing a 13.5% share of the country's total exports. The country exported about R13.5-billion worth of goods to the rest of the continent in 2011, or 15.6% of its total. But so far this year, trade and industry department statistics show a 6.5% drop in trade with Africa. Massmart already has significant operations in other parts of Africa.
 Stanlib analyst Theo Botha said South African retailers often acted as pioneers for their local manufacturers and suppliers when they moved into the continent.
 Using large food company Tiger Brands as an example, he noted that manufacturers and suppliers follow a retailer into a market, which initially exports supplies from South Africa. But with time, and once it has developed a greater understanding of a particular African country and consumer, retailers acquire local products and suppliers, bringing with them greater efficiency, lower costs and better corporate governance.
 This creates a "win-win situation" for the retailer, the supplier, and the customer, Botha said.
 The path Massmart and Walmart choose to pursue with regard to the rest of the continent remains to be seen, said Botha, but he doubted significant shifts would take place within the next 18-months at least.
 Massmart requires time to integrate the Walmart model into its South African operations and only then will a roll-out into the rest of Africa be likely to be explored.
 More immediate benefits are likely to be felt by South African consumers, Botha said, particularly in terms of food, as local retail giants such as Pick n Pay face off against the efficiencies and competitiveness Walmart can offer.
 Massmart already has significant operations in other parts of Africa, including Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania and Uganda. Its sales on the continent are 8% of its total sales.
 In a joint media briefing earlier in the week Doug McMillon, chief executive of Walmart International, said the company was interested in learning more about sub-Saharan Africa.
 Walmart intended to support Massmart in the further development of its cash-and-carry food brand, Cambridge, and other relevant formats. "We'll make decisions based on what local communities and customers want and need as it relates to the business opportunity and let that play out over time," said McMillon.
 Massmart chief executive Grant Pattison said Massmart was seeing a lot of advance in Nigeria. "They seem to be coming right economically and politically and we're making good progress on identifying sites there. We're trying to find a way to get into places like the Democratic Republic of Congo and Angola and Senegal."

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