Wal-Mart: In or out of Africa?

Proponents of Wal-Mart's $2.37 billion move to acquire South Africa's Massmart say it will bring needed jobs. Opponents worry about a flood of Chinese goods. Will South Africa approve the bid?

Wal-Mart's $2.37 billion move to acquire South African retailer Massmart is surpassed only by its $11 billion takeover of British retailer Asda in 1999. It would add 288 stores and 14 more countries to its revenue-churning arsenal.

But the South African government's Competition Tribunal could thwart the bid in a decision due by May 31.

Wal-Mart's obsession with selling the lowest-priced goods would shift purchase orders away from South African-produced goods to those produced more cheaply in China, argue South Africa's powerful trade unions. According to a government witness at the Com­petition Tribunal, shifting just 1 percent of Massmart's product line from local goods to imported goods would cost South Africa 4,000 jobs, a statistic Wal-Mart and Mass­mart vigorously dispute.

'We know their story in the US'

"We've looked at Wal-Mart's record, we know their story in the US, and we know what impact they have on the employment, and on the market," says Christy Hoffman of UNI Global Union, the worldwide union federation representing 20 million workers, in an interview. "A lot of the evidence we submitted to the Competition [Tribunal] shows what is the impact of Wal-Mart in the communities where they operate, and overall there is a decline in wages, there is a slight decline in employment, and the supply chains are put under substantial pressure. Small and medium-sized businesses cannot compete with Wal-Mart."

For its part, Wal-Mart promises to "honor preexisting union relationships" and to abide by South African labor laws. "Wal-Mart's mission is to save people money so that they can live better lives," said Doug McMillon, president and chief executive officer of Wal-Mart International, in his Sept. 2010 announcement of the Massmart buyout.

Massmart CEO Grant Pat­tison assured government officials earlier this month that 99 percent of groceries sold in Mass­mart stores and 90 percent of general merchandise are locally produced, and that purchasing patterns wouldn't change under Wal-Mart ownership.

The greater benefit of a relationship with Wal-Mart, he said, would be "making the Massmart supply chain more efficient."

But efficiency may be in the eyes of the beholder. According to Ms. Hoffman, Wal-Mart essentially pulled out of the German markets because German authorities discovered that Wal-Mart was selling milk at below cost, and this was affecting other businesses. "They were told by the German authorities they couldn't operate this way in Germany, using their business model, so they left."

Benefits may outweigh costs

Not everyone is against Wal-Mart's entry into South Africa, of course.

Mike Schussler, owner of Economists.co.za, a Johannesburg-based economic research firm, says that the possible loss of jobs will be more than offset by the benefits that a major retailer and employer like Wal-Mart would bring to the South African economy – and the consumer.

"Wal-Mart is the biggest [private] employer in the world,," says Mr. Schussler. "If we're stopping the lar­gest employer in the world from coming to South Africa, then we are being stupid. We only employ less than 40 percent of our adult population. We could use the jobs.

"If Wal-Mart uses South Africa as a base into Africa, then our companies would be able to learn how they do business," Schussler adds. "We are going to learn business systems from Wal-Mart. We can learn about logistics into Africa, which, as we know from a World Bank study, is one of the most expensive logistics regions in the world, and nobody does logistics better than Wal-Mart. And because Wal-Mart wants to do business in Africa, this would be a benefit for the whole of Africa."