South African regulators allow Wal-Mart deal

JOHANNESBURG — Regulators have approved Wal-Mart's 17 billion rand (about $2.4 billion) bid to buy a controlling share of a South African chain in a ruling Tuesday that culminated a fierce debate over protectionism in the country with the continent's most promising economy.

Unions and government officials are worried the arrival of the world's biggest retailer will hurt jobs and local manufacturing. In its ruling, the Competition Tribunal, the government agency charged with promoting competition and protecting consumers, said Wal-Mart and South African retailer Massmart could not lay off any workers for two years, must respect Massmart's existing labor agreements for three years and must invest in training South African suppliers.

Wal-Mart and Massmart had already agreed to take the steps regarding layoffs and union agreements. They also pledged to spend 100 million rand (about $14 million) over the next three years to help farmers and other South African suppliers gear up to do business with Wal-Mart.

Opponents called the conditions inadequate. Powerful South African unions have threatened boycotts and strikes to keep Wal-Mart out.

The tribunal said Wal-Mart was likely to bring lower prices and "benefit consumers by strengthening rivalry and improving choice."

It said there would be inevitable losers among South African retailers and producers as a result of the decision, but that it chose a path it hoped would make South Africans more competitive, instead of choosing to insulate local industry.

Arkansas-based Wal-Mart operates in Europe, Asia and across the Americas. Its interest in coming to Africa for the first time has been seen as a vote of confidence not just in South Africa's economy, but in the continent's potential.

The unions and the government departments of trade, agriculture and economic development had argued Wal-Mart would flood South Africa with cheap foreign goods, forcing other retailers to do the same and putting local manufacturers out of business. They also argued during a week of public hearings before the tribunal earlier this month that Wal-Mart was anti-union, and that that would lead to lower wages and fewer jobs.

Wal-Mart and Massmart say their critics' case relied less on evidence than fear. Wal-Mart fought for the deal before the tribunal and before the public, setting up a South African website to make its case. The website includes a video in which politicians, clergy and shoppers in a depressed Chicago neighborhood praise Wal-Mart for bringing jobs and helping the poor by keeping prices low.

In another video on the site, Wal-Mart CEO and president Doug McMillon says his mission in Africa and elsewhere is to help "people save money and live better."

Seeraj Mohamed, director of an economic research unit at Johannesburg's University of the Witwatersrand, was unconvinced.

"Once Wal-Mart enters your economic system, it's like having a really strong and virulent weed or fish," he said in an interview. "They come in and totally change the environment, and other species die out."

But John Luiz, director of international programs at the university's business school, said South Africans should see the arrival of Wal-Mart as an opportunity to become part of the international supply chain.

"It is now up to the suppliers to show their worth and to take advantage of this opportunity which they would not have had without the Wal-Mart entry," Luiz said, adding the Wal-Mart also would have to prove it isn't anti-labor.

Opponents had wanted Wal-Mart and Massmart to be forced to buy a certain percentage of goods locally, a condition the companies argued violated world trade agreements and was not guaranteed to be an efficient or effective way to safeguard jobs. The companies threatened to walk away from the deal if such a condition had been imposed.

Wal-Mart had initially sought to buy all of Massmart, but reduced its bid to 51 percent on the advice of Massmart shareholders, because that means the new entity will continue to be listed on the Johannesburg exchange.

The deal was overwhelmingly approved in January by Massmart shareholders. Those include South Africa's government-owned Public Investment Corp., which invests on behalf of civil service pension funds, and Scotland's Aberdeen Asset Management. Massmart workers, most of whom are black, also have a stake through a trust set up as part of a South African campaign to help those denied economic opportunities under apartheid.

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Charles Fishman tries to take a measured approach. In his book, "The Wal-Mart Effect: How an Out-of-town Superstore Became a Superpower," he describes an innovative small businessman becoming successful because Wal-Mart agreed to sell his product — a microwave gadget for cooking bacon — and pushed him to produce efficiently. Fishman writes cost-cutting at Wal-Mart also means no frills at its Bentonville, Arkansas headquarters, with visitors finding vice presidents' offices furnished with lawn chairs.

But Fishman also recounts how Wal-Mart's enormous appetite for low-cost goods drives factories and farms around the world to pollute or to exploit workers.

Wal-Mart has 8,692 stores in 15 countries, among them Brazil, China and India.

South Africa's Massmart operates in more than a dozen African countries, so buying in means Wal-Mart will have access to more than just 50 million South African consumers.

Africa's middle class is growing, but many on the continent still struggle. Massmart strategies include extending short-term store credit to hawkers. Some of the micro-entrepreneurs who stock their stalls with fruit, candy and other goods from outlets of Makro, Massmart's big box chain, have grown into small businesspeople.

Companies like Ford and Disney are expanding business in South Africa, seen as both a gateway to the rest of the continent and an important market in its own right despite high rates of poverty and unemployment.

Deputy President Kgalema Motlanthe, speaking at an economic development conference this week, insisted South Africa was open for business, and expressed concern that current levels of private investment were too low to sustain growth. South Africa's economy grew by 4.8 percent in the first quarter of 2011, the government announced Tuesday, marking a slow but steady recovery from the global recession.