The government’s intervention in Walmart’s proposed purchase of Massmart is unprecedented and extraordinary, according to counsel for the merging parties.
But given that Walmart is the world’s largest retailer, the government and unions expect the deal will have far-reaching consequences for domestic suppliers and employment.
These public interest issues are at the heart of what the Competition Tribunal will weigh up once closing arguments are made today. There are no competition issues as Massmart does not dominate in any category, although it leads in general merchandise with a 17.5 percent market share, and in liquor and home improvement, both with 16.5 percent.
David Unterhalter, senior counsel for the merging parties, said on Friday while questioning the State’s witness that the government’s submission was “very unusual” as it aimed to intervene against one firm.
“Your clients’ intervention is extraordinary” from a public policy point of view, he said, adding that public policy was usually applied to assist sectors and exporters. Instead the government sought to intervene in how one firm should act. “We have never had an intervention of this kind.”
James Hodge, a partner at Genesis Analytics, which prepared an economic report on the deal for the government, said while he could not speak for the government, his report gave context to the government’s concerns that the deal would result in a “hollowing out of local manufacturing”.
Hodge said there was common cause that there would be some displacement of local suppliers, including cutting out local middlemen that import goods for Massmart, because Massmart was expected to import directly through Walmart’s global supply chain.
But it would not simply be a reorganisation of what Massmart already imported. “The issue is to what extent imports will increase. There may be a complete displacement of local suppliers,” Hodge said.
He said that, because of Massmart’s size, even small increases could have a big effect. He estimated that a 1 percent change in imports could cost 4 000 jobs.
Massmart has said its store expansion programme, which will be sped up if the deal goes ahead, would create jobs and consumers would benefit from lower prices. Unterhalter said a 5 percent drop in prices could create significant employment.
Massmart chief executive Grant Pattison said it was not possible to impose procurement targets as the group had 4 500 suppliers and 120 000 products. If the merged entity was forced to meet targets it would shed jobs as it could not compete.
Being forced to buy from certain suppliers would skew negotiations in favour of suppliers, so normal market forces would no longer apply. This would have substantial competitive consequences, including removing the incentive for local suppliers to be more efficient.
If local procurement targets were set then they needed to be government legislated and applied to the whole industry.
But Hodge said that the issue of domestic supply was merger-specific due to Walmart’s global purchasing power.
“There are ways these conditions could be fashioned. It was not useful to argue everything was unworkable without looking at options. We need to look at some workable measures to protect local supply without affecting competitiveness.”
He said a condition on procurement targets was that the merging parties invest in supplier development. “We would want a rand value to that.
“I am not convinced there is nothing workable, but maybe there is a trade-off between efficiency and slightly less protection.” - Business Report