‘Walmart must go for suppliers fund option’

It appears the Competition Appeals Court will be faced with a very interesting dilemma when it receives two separate and distinctively different recommendation reports recommending a supplier fund connected to the Walmart-Massmart merger.

One proposes that Walmart put up to R2 billion into a fund to benefit South African suppliers during the course of 10 years, while the other recommendation seems to simply hand over the keys to Walmart, without accountability or oversight.

The Competition Appeals Court commissioned three experts to produce the recommendation report. The majority report which calls for the R2bn supplier fund is authored by James Hodge and Joe Stiglitz – the former, a prominent South African economist, and the latter, a Nobel laureate and previously chief economist at the World Bank.

The sole author of the second report is by University of Cape Town Professor Mike Morris, who was appointed as the Walmart-Massmart representative. He opted to write his own report “due to disagreements on content”, according to the Wall Street Journal.

It is no surprise that there were disagreements on content. In fact, one can easily predict the arguments that will be vociferously advanced by Morris and Walmart-Massmart: the figure of up to R2bn is disproportionate to a deal worth a mere R16bn – any fund should be a smaller amount; a fund which mandates open participation could also benefit the merged entity’s competitors and hence would be unfair; and if the governance of such a fund is too loose, then it runs the risk of not being sufficiently targeted.

These arguments are easy to debunk. First, the size of the transaction was for a 51 percent stake, and had Walmart decided instead to purchase all the stock, the actual size of the transaction would be approximately double, and hence the reference to R16bn is artificially low.

Second, even if the fund does indirectly benefit retail competitors, is this not because it will first and primarily benefit the suppliers to whom it is intended? If Walmart’s argument rests upon the contention that it only wants to direct the benefits of such a fund to those suppliers who will deal exclusively with it alone, then this begs two questions.

First, isn’t it in Walmart’s own interests to support its own suppliers anyway? And second, what was the stated benefit of the fund – is it to assist Walmart or to aid SA suppliers?

Here, one is reminded of the famed “Buy America” programme that Walmart ran in the US in the 1980s – an initiative that claimed to help US suppliers to Walmart, actually ultimately succeeded in contributing to their eradication as they became ever more reliant on Walmart’s business, only for the company to pull the plug in its great rush to build its Chinese supply chain.

Third, any suggestion that Walmart should be permitted to govern this fund itself, should be dispelled due to the long Mexican shadow cast upon the company these days.

Walmart is facing some headwinds of late. Apart from the Mexican bribery and reported cover-up scandal. it has challenges elsewhere, none more so than in its home country.

It cannot break into the US urban markets it so desperately needs in order to grow in any wholesale way. It faced a revolt by a sizeable minority of shareholders who voted against its CEO at the recent shareholders’ meeting in Arkansas.

And, perhaps most challenging of all, it is facing a renewed push by workers to organise. One way to interpret the problems that the company is currently grappling with is to say that it should fight even harder against any conditions being imposed in SA which it may consider onerous. However, a more enlightened view is that a company under so much pressure can ill-afford to have so many active open fronts. Walmart should view this as an opportunity for redemption and welcome a fund of R2bn, recognise that it will benefit the SA economy and admit that the Mexican scandal means that it cannot administer this fund itself.

Such admissions would do much to persuade those of us who are Walmart sceptics that perhaps it means what it says when it states that it wants to engage positively in South Africa.

Michael Bride is deputy organising director for Global Strategies for the United Food and Commercial Workers Union of North America.