By Richard Wachman
On the face of it, Walmart's decision to take South Africa by storm via the acquisition of a controlling stake in Massmart, a leading supermarket chain, looked like a canny deal.
In one fell swoop, it gave America's biggest grocer, and one of the largest companies in the world, a beachhead into the expanding markets of Africa.
But Walmart, which owns Asda in Britain, faces increasing opposition from a coalition of local unions, politicians and anti-capitalist campaigners – all of whom oppose the move.
There is a lot at stake here. Walmart's acquisition of 51% of the Johannesburg-based company for about 17bn rand (£1.6bn) is viewed as a test of South Africa's willingness to allow unimpeded foreign investment. And all this as the ruling African National Congress is being pressed by its radicalised youth wing to adopt a more protectionist stance.
This is not a deal that Walmart can suddenly unpick: it was announced in June and completed recently, approved by Massmart's international investors.
But since then, three government departments and the shopworkers' union, Saccawu, have lodged an appeal with the South African competition tribunal asking it to review its initial decision to let the Walmart deal stand. They fear job losses, the livelihoods of local producers and Walmart's reputation for being anti-union and, allegedly, aggressive in its dealings with staff and competitors.
No one really believes that the competition tribunal, which is to hear the case at the end of October, will actually kick the Walmart transaction into touch. That would sow panic within the foreign investment community and raise fears that South Africa was a Zimbabwe in the making.
But the government is pushing the tribunal to impose far more stringent conditions – and potentially expensive ones – before allowing Walmart's plan to proceed. That is an alarming development for the US company, and could cast a shadow over the work of Andy Bond, Asda's former chairman, who played a pivotal role in overseeing the merger. The deal is Walmart's biggest since it bought Asda in 1999.
Empire
When the South African tie-up was unveiled with much fanfare in the summer, Bond said Massmart hoped to open 40 new outlets a year, not only in South Africa, where it has the bulk of its 300-plus stores, but in countries such as Nigeria, Malawi and Zambia, where it already has a presence. And he said Massmart was targeting new opportunities in places such as Senegal, Cameroon and Angola. "Walmart likes emerging markets and South Africa in particular," said Bond.
But there are forces in South Africa that are seeking to derail Walmart's dream of building a new empire on the continent, to rival its growing international businesses in Asia and South America.
Cosatu, the South African equivalent of Britain's Trades Union Congress, is urging the competition tribunal to endorse the view of Saccawu that "it is not in the best interest of South Africa for Walmart to be allowed into our country, but that if they are, it must be under conditions that protect workers, suppliers, and the wider South African community".
The unions estimate that as many as 4,000 jobs could be lost from industries such as general merchandise – including clothing and footwear – and in food and beverage production if Massmart were to shift just 1% of its procurement from local to imported sources.
A union spokesman said: "Walmart, with sales of more than $405bn [£258bn – more than South Africa's GDP] in 2010, has massive power to dominate the world's global supply chains, and national retail sectors, and to dictate the conditions of trade to thousands of supply firms in other sectors."
He added that Walmart's track record in other countries "has led to massive job losses" and [it] has a tendency to "dictate sector trends that compel all to adapt to 'Walmartisation' in order to compete and survive".
Three South African ministries say Walmart's recent history shows a growing propensity to source from abroad, from countries such as China. In a statement, the government said: "Given Walmart's global purchasing power, the merged entity will significantly increase imports and reduce purchases from local suppliers in South Africa."
One government minister even raised the spectre of the deal posing a threat to South Africa's food security, through its impact on agro-processing and farming.
The Walmart-Massmart merger was initially approved by the competition commission at the end of May with several conditions attached: Walmart had to set up a R100m supplier development fund to help local producers; there should be no merger-related redundancies for two years, and the company must honour existing union agreements for three years.
Walmart has tried to allay fears by promising hundreds of new stores and thousands of new jobs, as well as announcing a planned 50% increase in Massmart's food business. The Americans want to expand the African chain by nearly 9% to 346 stores in 2012, increase trading space by more than 20% in three years, and spend about R1bn a year on capital investment.
Grant Pattison, chief executive of Massmart, said work had begun "to deliver lower prices to consumers, as well as expand sourcing, most of which will come from local manufacturers, amounting to R60bn of additional food and consumer goods purchases".
Doug McMillon, head of Walmart's international division, has told South Africans: "We will provide previously under-served customers and communities with better prices and increased access to the products they want and need."
But none of this has assuaged the fears of critics who fear eventual union derecognition, downward pressure on staff wages and growing procurement from overseas.
The unions have secured the backing of Michael Bride of the North American United Food and Commercial Workers International Union (UFCW). Bride said: "In North America, we have witnessed the devastating effect the Walmart model has had on small business, suppliers and communities."
Walmart has stoked controversy in the US with allegations of anti-union policies, overpriced health insurance, predatory pricing and poor relations with staff, some of whom, it is claimed, have been paid below the minimum wage. Walmart rejects such allegations.
Libertarian
The company has its supporters: Walmart has a positive influence on small businesses, according to a recent study from the American libertarian Ludwig von Mises Institute. The report said that while Walmart's low prices caused some businesses to close, the chain also created opportunities for other small companies "with no net negative impact". Numerous studies have shown that Walmart consumers benefit from low prices.
But any positive PR has fallen on deaf ears in South Africa, where the American company's detractors have formed an "anti-Walmart coalition" and unions have threatened to strike.
Most worrying for Walmart, the South African government has backed the coalition by spearheading the appeal against the Massmart takeover with the competition authorities.
Then again, perhaps it's not that surprising: President Jacob Zuma has pledged to create 5 million jobs over the next three years to cut unemployment in a country where nearly half of working-age adults are out of work.
The economics minister Ebrahim Patel said the government must "make a trade-off between consumption and jobs to protect the economy". Walmart is a big, powerful company, but it may have to make significant concessions in Africa if its latest venture is to see the light of day.
• This article was amended on 11 October 2011 because the original incorrectly quoted McMillon as saying "previously undeserved customers". This should have said "previously under-served customers". This has been corrected.
