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South Africa wary of Walmart's 'muscle'

From Nkepile Mabuse, CNN
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Walmart's African opposition
  • South Africa's government seeks a review of Walmart's takeover of Massmart
  • The U.S. retail giant bought Massmart in a $2.4 billion deal
  • Ministers call for stricter restrictions to ensure jobs are not lost

(CNN) -- South Africa's government is calling for more guarantees that Walmart's foray into the country will not hit local suppliers and cause job losses. One minister has even described the retail giant's buying power as a threat to food security.

The world's biggest retailer announced in June that it had completed its $2.4 billion acquisition of a majority stake in local firm Massmart after winning approval from South Africa's Competition Tribunal.

But the merger has raised concerns among South African officials, with three government departments filing a request for a review of the deal, calling for more binding conditions.

In a joint statement last week, the ministers of trade, economic development and agriculture said the government believed "that given Walmart's global purchasing power, the merged entity will significantly increase imports and reduce purchases from local suppliers in South Africa.

"This will affect entire value chains from the suppliers of raw materials and components to the producers of the finished product," they said.

The ministers are calling for stricter restrictions to ensure the deal will not affect local production and cost jobs. When the tie-up was announced, competition authorities imposed a two-year ban on firing workers.

Walmart has promised to create 15,000 jobs and buy the majority of its goods locally. And in a recent statement, Massmart said that Walmart had a "demonstrable track record of developing local suppliers in the markets within which it operates, not least because this makes commercial sense."

We cannot further decrease the opportunities for local farmers to have access to markets.
--Tina Joemat-Pettersson, South African Agricultural Minister

Massmart owns nine wholesale and retail chains, with nearly 300 stores in 14 sub-Saharan African countries.

The government's application for a review of the deal is expected to be heard by the Competition Appeal Court sometime in October.

Walmart is known for having low prices because it pays low wages and negotiates tough with its suppliers. And with a worldwide revenue that is bigger than South Africa's GDP, Walmart's entrance into that country has made politicians concerned.

Ebrahim Patel, minister of economic development, recently said of Walmart: "It has a procurement muscle that no one else has and that procurement muscle, if misapplied, can have a damaging effect on the South African economy,"

Agricultural Minister Tina Joemat-Pettersson went even further, labeling the company's buying power a threat to food security.

"We cannot further decrease the opportunities for local farmers to have access to markets," she said.

But some economists say the opposition from the South African government is sending mixed signals to much-needed investors. A recent U.N. report said South Africa lags behind countries such as Libya, Nigeria and the Democratic Republic of the Congo in terms of attracting new businesses.

According to the "World Investment Report 2011," South Africa is the 10th-largest recipient of foreign direct investment in Africa and 128th in the world.

Between 2009 and last year, the country's foreign direct investment dropped by 70%. High labor, electricity and transport costs all make doing business in South Africa more expensive than in other parts of the continent.

Economist Mike Schussler says South Africa should raise its game. "If we want to compete with the rest of the world and we want the benefits that everyone else has then we have to make sure that we get better in every way that we possibly can," he says.

Other analysts believe that the government's opposition to the Walmart takeover has more to do with politics than jobs.

"Walmart has paid up the money already, so there is nothing that they (the government) can do, which is why this is all theater," says political analyst Moeletsi Mbeki. "It's about dramatics, making the poor black workers believe that their interests are being looked after."

Unemployment has been growing in South Africa and so has pressure on the state to address it. For years, the government has presided over shrinking industries and massive job cuts.

So even if the government wins its battle against Walmart and gets better guarantees, the issues behind widespread unemployment and poverty will not go away.