Walmart/Massmart merger: public hearings (day2)

Meeting report

The Committee wished to avoid a perception that it was stepping into the Competition Commission (CC) arena. It fully respected the separation of powers, and for that reason nothing to do with the approval of the merger, or the conditions imposed by the Competition Tribunal (CT), or any facts or law around this merger, would be canvassed during these hearings. This also included the existing labour agreements, retrenchments, the status of the South African Commercial, Catering and Allied Workers Union However, the Committee had to report to the National Assembly on questions of employment, industrial development, local manufacturing and economic development. Conditions related to labour affairs, including upholding of existing labour agreements, retrenchments, the status of the South African Commercial, Catering and Allied Workers Union (SACCAWU), or the setting up of a supplier development fund and training programmes. The Chairperson requested all presenters to avoid dealing with these issues, and to focus instead on the impact of the merger on employment, industrial development, local manufacturing and economic development. She further requested anyone involved in the Walmart / Massmart appeal to alert the Committee to any other issues that were subject to judicial decision.
On the previous day, the presenters had managed to deal with the issues effectively, which was appreciated, and it was hoped that the same would happen on this day’s hearings. She stressed the responsibility of the Committee during public hearings to allow people to address issues.

Congress of South African Trade Unions (COSATU) submission
Mr Sidumo Dlamini, President, Cosatu, noted that when the Competition Tribunal (CT) had published its reasons for approval of the merger, it had noted that “our job in merger control is not to make the world a better place, only to prevent it becoming worse as a result of a specific transaction”. However, South Africa was burdened with high rates of structural unemployment and poverty, and Cosatu believed that this comment showed lack of sensitivity to adverse consequences that could arise through inappropriate interpretation of competition laws, and was too narrow an interpretation. Considering Walmart’s past record, Cosatu believed that the takeover was not in the best interests of this country. The CT should have considered the competition and public interest effects of a proposed merger. It appeared to have ignored the wider interests of workers in both Massmart and other retailers. Even if this decision was measured against narrowly-defined competition objectives, it fell short of meeting the standard set out in the Competition Act.

Given Walmart’s size and notorious business practices, the supposed value of the merger should have been weighed against the adverse impact on jobs and conditions, in both retail and other feed-in sectors, such as agriculture, agro-processing, chemicals, clothing and textiles.

Cosatu commended the Committee for holding these public hearings, but said that because of the complexity of the competition law, it was likely that most of civil society did not yet fully appreciate the likely adverse consequences, and called upon the Committee to consider further processes that enabled broader participation.

Mr Dlamini reiterated that SACCAWU had filed a notice of intention to appeal. Cosatu had filed a Section 77 notice with the National Economic Development and Labour Council (NEDLAC) to embark on protest action. The fact that the CT had apparently erred in its decision highlighted the broader problem with the competition legal framework. Cosatu had consistently raised concerns with excessive consumer prices, especially in relation to basic foods and services, and the hardship for the poor caused by collusive behaviour amongst corporates, which remained a huge challenge. The CT seemed to place too much faith in the (flawed) principle that fair pricing was dependent on free market principles, and it did not enquire into who would bear the social costs.

In the past, punitive actions taken by the Competition Authorities had not translated into broader general relief for consumers. Many investigations had been dependent on corporate leniency arrangements, and there was insufficient protection for those in the supply or value chain who did not report because they were afraid of victimisation. There was therefore a need for more stringent legislation. Cosatu expressed its concern that the Competition Amendment Act had not yet been brought into operation, and called on the Committee to follow up on this, particularly since the 2011 State of the Nation Address also indicated the likelihood of legislative reform to strengthen the Competition Act, to open the market to new participants. Cosatu suggested that there was a need for intensive discussion with stakeholders, including NEDLAC, on the type of investment and Foreign Direct Investment (FDI) that should be encouraged.

Mr Dlamini said that this merger had highlighted that the Competition Act did require that certain public interest considerations should be taken into account. Public interest concerns raised by affiliate unions had been addressed through the imposition of certain minimal conditions.

The Chairperson cautioned Mr Dlamini that he was starting to deal with the merits of the case before the Appeal Court.

Mr Dlamini said he respected this ruling. He continued with another paragraph in his presentation. He noted that locally, there had been vertical integration as suppliers faced pressure on prices from retailers, who wielded excessive bargaining power,. This was particularly so in the agri-food sector. Farmers tended to be the biggest losers, as they received progressively less of the proportionate share of revenue. He illustrated this by quoting statistics from the United States of America (USA). A report by the Food Pricing Monitoring Committee noted that the structure made it difficult for smaller players to enter the market, either as retailers or as food processors and distributors.

The Chairperson asked Mr Dlamini not to elaborate further on point 2.2.1, but move to procurement, in paragraph 2.3.

Mr Dlamini noted that Cosatu would continue to engage. He noted that the CT had refused to accede to the call for imposition of mandatory minimum quotas for procurement of local content, which would have afforded local industries some protection against the flooding of the market with cheap, imported goods, because it believed that this would constitute discriminatory treatment, since other retailers did not have to comply with such requirements. However, he stressed that Walmart was not only the largest global retailer, but was also bigger than the next four global retailers combined. Already, there was a pattern of local retailers positioning themselves to retrench workers. He requested that the Committee must consider their plight.

Discussion
Mr X Mabasa (ANC) asked which other countries had been harmed by monopolistic tendencies.

Mr Mabasa asked for further clarity on the harm caused by monopolies, especially given that South Africa had huge economic disparities. He also asked how monopolies would threaten the livelihood of workers.

Mr Z Ntuli (ANC) asked whether Cosatu had any suggestions for correction of the Competition Act.

Mr S Marais (DA) referred to the comment on the foreseeable adverse impact on jobs and conditions, and asked whether Cosatu was making assumptions, or whether this was based on realities abroad.

Mr Marais thought that Cosatu’s comments seemed to indicate lack of faith in the South African Competition Authorities to deal with anti-competitive behaviour, and if this was so, then he asked what suggestions it wished to make.

Mr Marais referred to the statistics quoted from the USA, and noted that this was the first time Cosatu had expressed its support for farmers. However, he commented that it would be useful to know how much of the eventual selling price of wine, per bottle, accrued to farmers, the State and retailers.

Mr M Nchabeleng (ANC, Portfolio Committee on Labour) added that he would also like to hear how much the farm workers obtained.

Mr Nchabeleng asked how the merger would impact on job creation and job security, and what benefit would accrue to South African workers and those in the retail industry, and how this would affect the value chain. He also asked if Walmart would be using labour brokers in job creation

Mr Nchabeleng asked about the track record of Walmart in dealing with labour issues and casualisation of labour.

Mr Marais noted the comment by Cosatu that the free market principles were flawed, and asked how Cosatu suggested that procurement should take place to ensure that consumers were able to buy goods at the lowest possible prices.

The Chairperson noted that some of these questions delved into the merits and said that Cosatu need not respond if it would have difficulty in doing so without dealing with matters forming part of the court proceedings.

Mr Dlamini agreed that he would try avoid going into detail on some issues. He noted that Cosatu had a relationship with a global union, consisting of 20 million workers, and that it did compare practices worldwide, from which it had ascertained that Walmart had a poor record in terms of workers’ rights, salaries, and security of jobs, despite promises that it had made, so that not only had it exploited workers, but had not given any guarantees as to job creation. Cosatu believed that this merger ran contrary to government’s desire to create decent jobs. This was the most vulnerable sector. Massmart generally used “flexi-labour”, with more than 60% of its employees not eligible for organisational rights, or even being dismissed for trying to join a union.

The Chairperson cautioned Mr Dlamini not to continue with this point.

Mr Dlamini said that it was necessary not only to look at the direct results of the merger on the employees of Massmart, but also to look at the other sectors, such as farming, who would be affected. He noted concerns that local manufacturing could be stifled by Walmart being able to buy goods, more cheaply, from other countries. South Africa, unlike other countries, did not offer subsidies to farmers. When prices were reduced, it was the local farmer who suffered, as he would often have to reduce prices, and sell at a loss. The end result would be that jobs would be lost somewhere. Although a company may promise to create jobs, it was necessary also to look at the jobs that would be lost as a result of the merger, in other sectors.

Mr Dlamini said that this then led to the point made by Mr Ntuli. The Competition Act had not given sufficient powers to the Competition Commission to ensure that the fines levied would be used to redress the harm. Large companies such as Walmart could afford to pay fines every day, and continue to act as before. He suggested that the Committee should call for the Competition Amendment Act to be brought into operation, and perhaps also for it to be even further strengthened. The impact of the merger would be huge, and may only be felt fully over time.

Ms D Tsotsetsi (ANC) asked how a merger could impact on the economy of the country.

Mr Mabasa noted that some of his previous questions had not been answered. Although he respected the Chairperson’s comment that certain questions could not be addressed, he still wished to hear about the dangers of monopolistic companies, and the effects on workers and their families. He also wished to hear what the effect of monopolies would be on businesses in rural areas, townships and informal settlements.

Mr Marais reiterated his question whether Cosatu had faith in the Competition Authorities.

Mr Dlamini responded that Cosatu had faith in the country’s laws, but felt that there were some areas where the Competition Act should be strengthened. He reiterated his comment that some companies would prefer to pay fines and continue their current practices, and said that this should be addressed.

Mr Dlamini also repeated that the merger must be viewed across the whole value chain. The industry depended on suppliers, manufacturers and distributors. When monopolistic companies moved into an area, they tended to cut the value chain and this had a huge impact. The unions were concerned that there would be severe job losses. Currently, South Africa had 36% unemployment, which was very high, and this was likely to increase. This situation was diametrically opposed to government’s intention to create 5 million jobs in ten years, and this could not be achieved if local businesses were to be forced by a giant company to close.

South African Commercial, Catering and Allied Workers Union (SACCAWU) submission
Mr Mduduzi Mbongwe, Deputy General Secretary, SACCAWU, said that South Africa had still to address apartheid’s legacy of high levels of unemployment, poverty, and inequality. He said that it was important to understand the structure of the sector, and its conditions. This merger placed retail structures under scrutiny. The retail sector was vast, and was the fourth largest contributor to South Africa’s Gross Domestic Product (GDP), contributing about 14%. 87% of the employers in the sector were small enterprises, around 9% were of medium size, and the rest were large enterprises. The sector, overall, employed about 16% of the active workforce in the country. Around 250 000 jobs were located in the large chains, with about 80 000 jobs located in Small, Medium or Micro Enterprises (SMMEs). Small enterprises were more vulnerable to change, although they were recognised as the path to job creation and development. SMMES were, in addition to being retailers to the public, also customers of the largest suppliers. Walmart had said that it wanted to remove “the middle man” (without defining who this was) and SACCAWU was concerned that this could spell the demise of some SMMEs. Large retailers would be able to adjust their plans and import more, or extract cheaper prices from their suppliers, but SMMES did not have this opportunity. Large retailers also competed with smaller enterprises, particularly for essential foodstuffs, and all of these enterprises must be taken into account when considering the effect of the merger. Massmart had already been taking over small players, which led to displacement of jobs in other companies in the sector.

Most SMMES had difficulties in obtaining financing and credit on favourable terms, although large retailers were able to extract better conditions. The growth of malls impacted on small enterprises, and the costs that small operators had to carry were already greater than the larger firms, so the impact of the merger would be devastating.

The Chairperson noted that some of these issues were veering towards the matters set out in the notice of appeal and she cautioned that there should be no direct reference to these issues.

Mr Mbongwe said that he wished to clarify the premise on which this submission was based. He had been trying to contextualise the issues. However, he pointed out that even before this proposed merger, SACCAWU had tabled a proposal at NEDLAC that a summit should be convened to develop a national plan for the sector.

Mr Mbongwe said that most employees in the sector did not benefit from skills development and training. Less than 10 000 of the 80 000 employers in the sector were paying their levies to the Sector Education and Training Authority (SETA) and he recommended that a policy be developed to address this.

Mr Mbongwe noted that whilst the unions supported foreign direct investment in principle, they believed that this must be responsible investment that did not undermine the developmental priorities of the country.

Mr Mbongwe also submitted that it was also necessary to strengthen the authorities, particularly the position of the CC, and the Competition Act. The CC no longer had the authority to take decisions. SACCAWU was not happy with the way that the CT had dealt with the merger. There was a need for more active participation of workers, and disclosure of relevant information to facilitate this participation.

Mr Mbongwe reiterated that consumers bought from retailers, not from suppliers, and this meant that retailers exercised undue power over their suppliers, including price directions. Here too, the Competition Act should be strengthened to ensure that the developmental agenda of the country was not undermined.

Mr Mbongwe reiterated the call for a summit involving all stakeholders, to develop a broader agenda, to safeguard South Africa’s objectives.

Discussion
Mr Marais noted that Cosatu had indicated that unemployment figures in South Africa stood at around 17 million people, who were therefore outside the unions’ reach. He asked how the unions suggested that they could become part of the mainstream. He also asked how many members SAACAWU had.

Mr Marais said that it was difficult for small and medium businesses to become globally competitive, because of lack of subsidies. The only way they could do so was by becoming more competitive through economy of scale, which led them to merge. He asked how SACCAWU suggested that South Africa could become more competitive globally, and whether the main problem lay in the cost of production, pricing, or other factors.

Mr Mabasa asked whether there was not a danger of ending up with employed but poor workers, who would still burden the social grant system, and asked for comment on casualisation of labour.

Mr Mabasa asked about the likely impact of the merger on small and spaza shops, particularly in light of comments about the malls already having an impact. He also enquired about the impact in the rural areas, where the poorest people tended to live.

Mr Nchabeleng said that a submission on the previous day had noted that Walmart was not allowed to operate in some countries, and wondered if the commitment it had apparently made in South Africa might indicate a change of heart.

Mr Ntuli asked for further comment on participation in employee development and training.

Ms D Tsotetsi (ANC) noted that the South African government had put economic policy and preferential procurement policies in place, with the intention of enhancing fair competition, and she asked how the merger might affect fair competition. She asked how these measures might impact on fair competition.

The Chairperson noted that Mr Nchabaleng’s questions touched on the conditions attached to the merger, and requested that SAACAWU, similar to other presenters, should not answer questions that went to the issues addressed in the appeal.

Mr Mbongwe referred to Mr Marais’ question on membership of SAACAWU and said that the comparison between the membership of SAACAWU and the unemployment figures appeared to be based on an incorrect premise. Whilst it was true that members of SACCWU were breadwinners, they were often supporting their unemployed children also.

Mr Mbongwe said that monopolies tended to take over smaller players, and SAACAWU had called for the summit precisely to try to develop mechanisms that would assist the smaller entrepreneurs to survive in the sector, and become globally competitive. At present, only the fittest survived. A number of factors contributed to productivity, and these differed from one sector to another. If management adopted an authoritarian style, and did not recognise the value of workers’ direct interaction with customers, the workers would become demoralised and the companies would be devalued. That had to be addressed at industry level.

Mr Mbongwe said that many workers in this sector were employed in an atypical form – perhaps only employed for 15 hours a week, and earning only just enough for transport to work. This forced some workers to opt to rely on social grants rather than be employed. He urged that these forms of employment must be phased out, so that all jobs were full-time, permanent and secure, in line with the need to advance decent work in the sector. Massmart operated a number of divisions, including wholesale, and although it might boast of reducing prices, this may relate only to luxury goods, which did not affect ordinary people. There were already complaints that spaza shops and small traders had had to close. Metro Cash and Carry used to employ 10 000 people, but had been forced to cut back to employing only 1 000. Many of those running spaza shops currently had started these businesses after being retrenched by retail companies.

Mr Mbongwe started to respond to questions about Walmart’s stance on labour rights, but the Chairperson cautioned that he should not proceed.

Mr Mbongwe said that fewer employees in this sector were being trained because the majority were now flexi-or part-time employees, whose working hours were set from Friday to Sunday, the busiest periods, when no training was offered. Issues of procurement were dealt with in the appeal.

Mr Marais repeated his questions as to how SACCAWU proposed that more people be brought into employment, and how South African companies could become more competitive.

Mr Mbongwe responded that SAACWU had about 150 000 members. He stressed that many workers who were retrenched were still in touch with the unions, and SAACAWU wished to address their plight.

Mr Mbongwe thought that productivity could not be isolated from competitiveness, and he felt he had already addressed this issue.

Mr Mabasa asked for the difference in impact on a worker who was fully employed and a casual or temporary worker.

Mr G Boinamo (DA, Portfolio Committee on Labour) asked whether South Africa, given the 36% unemployment rate, would be able to realise the goal of creating 5 million jobs, without foreign investment, and questioned why there appeared to be resistance to FDI. Walmart had the potential to employ numerous employees, and the resistance by the unions seemed to be contrary to the spirit of fair competition. He asked why, if Walmart could procure and sell goods at lower prices, other companies could not also merge, and do the same, allowing competition to thrive. He said that surely SACCAWU would like to see as much employment as possible, even if this was temporary. He also questioned why South Africa seemed to fear competition, although it was ostensibly in favour of a free market system.

Mr Mabasa countered that the creation of jobs could not be seen as an achievement if the employees were effectively receiving “slave wages”. He thought that if a person was employed, but effectively was not able to provide for his family, that could amount to enslaving the entire family.

The Chairperson asked how SACCAWU defined a “decent job”.

Mr Mbongwe said that SACCAWU was one of the first to campaign for lower prices and had called for price controls on food, although there had been some opposition to this move. The question was how lower prices could be achieved. He reiterated that SACCAWU was in favour of responsible FDI, but if such foreign investment in fact led ultimately to destruction of jobs, then it defeated government’s objectives. Greater importation of goods would create jobs in other countries, but destroy those in South Africa. Unions wanted to achieve full employment, which meant that the ultimate benefit across all sectors must be considered, and every transaction judged on its net effect on job creation.

Mr Mbongwe then addressed the question of permanent and temporary employment. A person employed on a temporary basis did not have the benefits of pension, medical aid or unemployment insurance, and thus ultimately became a burden on the State. This was where the “decent work” principle applied. An employee should be able to sustain himself and not end up relying on a State subsidy. However, many workers were currently earning less than a living wage.

Food and Allied Workers Union (FAWU) submission
Mr Katishio Masemola, General Secretary, FAWU, noted that FAWU had not been involved in the initial Competition Commission proceedings considering the transaction, because only labour unions having a direct interest were informed of this transaction. FAWU represented workers in the food manufacturing and beverage processing industry, and those in agriculture. He was aware of the limitation on the issues to be addressed.

Mr Masemola noted that some years ago he had been involved in examining the impact of frozen chicken products being imported from Brazil, which threatened local production and processing. Walmart had an even larger global supply chain, including Latin American and South East Asian countries, so this merger could pose an even greater problem. Like the previous presenters, he noted that procurement from abroad resulted in jobs being retained abroad, but lost locally. Although products would be available at a cheaper price, more people would still be unable to purchase them, because they were now unemployed.

Mr Masemola indicated that retailers outside the traditional food retail sector were starting to enter this market, because it was quite lucrative, and they could then put pressure on other retailers. Although in general, competition could be positive, it was necessary to look also at what this did for labour standards, and standards of products, neither of which should drop.

Mr Masemola noted that reduced manufacturing capacity in South Africa was not justified, and urged that the net effect on employment must be weighed up. Foreign procurement could cause rising unemployment. As Walmart began to drive prices down, there would be a horizontal chain reaction. Other retailers may cut their costs of labour, particularly by employing casual, instead of full time employees. Some manufacturers were already saying that they hoped to procure from other countries, instead of maintaining local procurement and therefore local jobs.

He added his personal view that if certain conditions were imposed on the new player, these should also be imposed upon competitors, so that there should not be undue differential treatment.

Discussion
Mr Marais noted the reference to the dangers of de-industrialisation. He asked how FAWU suggested that this be turned around, so that South Africa became a competitive industrial player, and could export.

Mr Marais noted the concerns about imported chicken. South Africa had good legislation, with checks and balances in place. However, he wondered if the legislative provisions around mergers were not sufficiently strong to cater for large players who wished to bring in cheap and inferior products, and whether the customs regulations were adequate. He also asked if FAWU had trust in the competition authorities.

Mr Masemola noted that it would be desirable to make trade policy interventions, in addition to strengthening customs control, quality control and the like. Active competition policy could also serve the purpose of supporting increased industrialisation. Although he did not want to go into the merits of the current case, it was possible to consider inserting industrial policy considerations into the Competition Act. It was clear that more needed to be done to correct de-industrialisation.

Mr Marais asked for an indication of FAWU’s membership.

Mr Masemola said FAWU had 127 000 members across the country, with the largest proportion being in food manufacturing and beverage processing. He noted that in 1997, when there was a trade policy rupture, many jobs were lost through subsidised products from Europe entering the market, and this underlined the need for a trade policy regime that also protected the industrial base.

Mr Mabasa asked about the impact that would result from one huge monopoly, or the presence of many producers in the market. He also asked if there was any difference in the impact of such a merger upon urban and rural areas. Mr Mabasa also wanted to know whether the net effects would be felt more harshly by those in higher or lower economic brackets. He also asked whether a monopoly, or a multiplicity of companies, was more likely to promote local procurement.

Mr Masemola said that he was not sure how the new player would see to upliftment of rural dwellers, either through pricing or some other method.

Mr Mabasa clarified his question, saying that in South Africa there were disparities between urban and rural areas. He had wanted specifically to know whether a large player would impact upon families as well as the primary employee.

Mr Masemola said that this was a difficult question. Even when there was healthy competition, there would be higher prices in rural areas, because of the increased cost of transportation and distribution. He did not believe this would be helped if a big player entered the market, unless it employed predatory pricing, in the short term. Long-term, however, the situation would revert to monopoly pricing.

Mr Nchabeleng noted that a previous presentation had made reference to a “predatory pricing” period where all competitors would have to lower their prices, which would be to the benefit of the consumers, but to the detriment of smaller shops, who would lose their customers. However, after a certain period, prices would rise again. He asked how FAWU thought that predatory pricing would affect local farmers selling fruit and vegetables to the larger retailers. He also wondered how this would affect the quality of jobs and the amount of food produced, and what could be done to avoid a vicious cycle.

Mr Masemola agreed that initially the entry of a new player was likely to provide healthy competition. However, the use of predatory pricing would nullify the competition, by undercutting competitors and ultimately putting them out of business, then leading to a monopoly. This monopoly could then introduce monopoly pricing, unless there was government intervention by way of price controls. Lack of healthy competition, and monopolies, would never be in the interests of the consumer. A large player could also not be forced to comply with conditions after the period in which the conditions were imposed had lapsed. The benefits accruing to consumers in the short term would not be guaranteed in the longer term.

Mr Mabasa also asked about the difference of the impact on temporary and casual workers, and those formally employed.

Mr Masemola said that income inequalities in South Africa were widening, and there were widening remuneration disparities. This was also affected by more labour becoming casualised and employees thus earning less. Although SACCAWU would be better placed to speak about the impact at retail level, he could say that, at manufacturing level, manufacturers would be forced to close if they could not compete with imported and foreign procured goods, or alternatively could stay afloat by reducing the number of employees, or the quality of employment, by employing casual instead of permanent staff.

Walmart / Massmart submission
Mr Grant Pattison, Chief Executive Officer, Massmart, said that mergers in South Africa were highly regulated, and various regulatory authorities had jurisdiction. The companies had to comply not only with the Competition Act, but also the Companies Act and there was a high level of involvement by stakeholders. Mergers took a considerable time to finalise. The CC investigation process was inclusive, and wide participation was sought, both directly by the CC, and by interested parties being able to make submissions, without any substantial cost. The public hearings before the CT were also transparent and inclusive, with the CT being able to play an inquisitorial role. The Competitions Act was comprehensive, and even individuals or small businesses could trigger investigations

Massmart therefore submitted that the whole merger process did work quite well, although it was possible to improve it still further. Mr Pattison stressed that the process must be predictable and transparent. The impact of the merger on competition, and the public interest, were important considerations. Although public interest was broadly defined in the Competitions Act, the actual wording was not tight enough, as it did not indicate how the public interest considerations should be balanced. The roles of the employer and employee representatives should also be balanced. He suggested that perhaps there was a need for more vigilant policing over the process, so that the ability of a union to employ delaying tactics, and to leverage negotiation, would be addressed.

There was a misperception that the competition authorities could not rely on other authorities. Mr Pattison submitted that the existing enforcement mechanisms were more than sufficient in creating enforcement. All stakeholders were well representing and afforded full opportunities to state their case.

Mr Pattison said that the Portfolio Committee should be cognisant of the opinions of foreign investors on the process.

Mr Pattison noted that Massmart was intending to create 15 000 jobs over the next five years, and make R60 billion of goods available. It would be working with small and medium enterprises and would be promoting black economic empowerment and procurement.

Discussion
Mr Ntuli asked whether Walmart / Massmart were comfortable with the labour laws of South Africa. If not, then he asked for further suggestions on what needed to be amended.

Mr Pattison replied that in general, Massmart believed that there was healthy tension between employers and employees, with a number of mechanisms to prevent abuse. The labour laws created good protection around collective bargaining and unionisation. Many of the questions about reducing workers’ terms and conditions were covered by the Labour Relations Act. However, he would have some difficulty expanding on these questions, in light of the appeal.

Mr Ntuli asked for Massmart’s opinion on local procurement.

The Chairperson ruled that this question should not be answered.

Mr Pattison suggested that the Committee should study the record of the CT hearing, which had gone into the issues in some depth.

Mr Marais asked for an indication of the total workforce of Massmart in South Africa. He also asked for its view about empowerment of employees.

Mr Pattison responded that the workforce was around 30 000, Massmart prided itself on being one of the most empowered retailers in South Africa. It had paid out R500 million to 10 000 employees, who had retained the other half of the shareholding. This was considered one of the most successful empowerment deals in South Africa. Walmart had also committed itself to increasing the Black Economic Empowerment (BEE) scorecard over time. It would continue to invest in skills development and ownership of employees, not only to comply with the law, but also to fulfil its moral responsibility to redress the inequalities of the past.

Mr Mabasa asked about the consequences of the merger, and wondered if this would not result in a monopoly consolidation.

Mr Pattison quipped that it was the dream of every Chief Executive Officer to grow market share. Currently, however, Massmart held less than 20% of the market share, so there was “zero chance” of it becoming a monopoly. South Africa had stringent laws on monopolies, and although these were not so apparent in the retail chain, there were monopolies in the supply chain. This was covered in the Competitions Act. It was difficult, given the quality and size of competitors, for Massmart to achieve a monopoly.

Mr Mabasa asked if the merger would result in inequality being narrowed. It was a given fact that South Africa was one of the most unequal countries in the world. Any new players must contribute to the country’s aims and objectives.

Mr Pattison said that it was difficult for him to elaborate on this without going into the conditions of the merger. It was likely that consumers would be given better prices. There was a substantial emphasis on improving the quality of life of employees.

Mr Mabasa asked if local procurement would be exercised indefinitely, or if this would only be done during the period in which the conditions applied.

The Chairperson ruled that this question need not be answered.

Mr Mabasa asked for comment on the impact of the merger on urban and rural or informal settlements.

Mr Pattison said there were many challenges facing the country, including casualisation of labour and increasing urbanisation. These occurred irrespective of, and were not affected by the merger. However, Massmart would remain focused on investing in the community in which it operated, and would continue to invest in education, women, rural development and youth. He could not comment on whether the nature of the trade would directly improve the lives of rural residents.
Ms Tsotetsi asked for comment on the quotation about the function of merger controls.

Mr Pattison said that this quotation, referred to by COSATU, was not made by Massmart, but by the CT.

Mr Nchabeleng said that the impression was created from the longer written submission, that the unions had not acted in good faith during the merger discussions, and he asked for clarity on that.

Mr Pattison said that there was no intention to impugn bad faith on the part of the unions. He had merely wished to draw the Committee’s attention to the fact that SACCAWU was also representing the interests of Massmart’s competitors, so it had a different perspective. Employees of Massmart were comfortable with the merger, but competitors’ employees had concerns. The Competition Act gave no guidance to the unions.

Mr Nchabeleng noted the comment that 15 000 jobs would be created in five years, but asked what type of jobs these would be, and what would happen after the period of the conditions had expired. He wondered if the unions would be locked out.

Mr Pattison said that Massmart subscribed to the principle of creating sustainable jobs, and it was never its intention to hire, and then retrench anyone, and he considered it a personal failure if there were retrenchments. Most of Massmart’s employees were employed on a permanent basis, although it was forced to employ some flexi-time staff (who were still employed on contracts approved by NEDLAC) because SACCAWU’s members refused to do shift work. Massmart’s customers wanted to be able to shop after working hours and over weekends. SACCAWU would not allow its union members to work during those hours. Massmart and SACCAWU bore the responsibility, collectively, to come up with a solution. It was hoped that every employee would become full time when permanent contracts did allow shift work.

Mr S Ngonyama (COPE) asked how Massmart could enhance growth of many local producers. He also asked about the percentage of local product, and the percentage of imported product.

Mr Pattison said that he could not answer as to exactly how much of the product stocked by Massmart was manufactured locally. Some of the suppliers changed their sources of production from time to time, so he could not verify whether the canned baked beans supplied by Tiger Brands were sourced from South Africa or other countries. That was a matter to be handled by government trade policy and law, and fell outside the control of the retailers. The majority of Massmart’s products were purchased from companies registered in South Africa. He thought that possibly about 60% of the goods it sold were manufactured locally.

Mr Ngonyama noted the sensitivities about inequality of subsidisation on production, and asked whether there were also sensitivities about imports.

Mr Pattison said that subsidisation was beyond the control of Massmart. In regard to supply, he stressed that Massmart would not shift its supply base to gain an advantage, short term, of such things as currency fluctuations or special deals as it wanted to ensure sustainability of supply. Massmart was very sensitive to issues around legalities and would not, for instance, source from countries who used child labour. 

Ms Tsotetsi thought that the public interest considerations surely must include high levels of unemployment, that would result from pricing policies that closed competitors, and high unemployment also led to high levels of poverty and crime.

Mr Pattison responded that indeed there were serious public interests that had to be considered, and this could include the weighing up of creation of jobs in the retail sector against loss of jobs in the manufacturing sector. However, it was also necessary to note that economic savings to consumers in one sector resulted in more being available for consumers to spend in other sectors. The Competition Act did require that such issues must be balanced. Massmart agreed that competition issues were real, serious and needed to be addressed.

Mr Ntuli asked how Massmart suggested that inequality in earnings could be narrowed.

Mr Pattison said that this question related to one of the demands in the SACCAWU appeal.

 Mr Ntuli asked if Massmart supported the Industrial Policy Action Plan (IPAP) and New Growth Path (NGP).

Mr Pattison said that these were excellent policies and programmes overall, although he could isolate certain issues that could be improved. They seemed to address many challenges.

Mr Mabasa asked if small shops were likely to be put out of business as a result of mergers.

Mr Pattison said that he assumed this question referred to companies who abused their monopolistic behaviour by forcing prices and then closing competitors. The Massmart /Walmart merger would not in fact change the competitive landscape. Walmart would not be a retailer. If Walmart had any fault, it had been accused of lowering prices too much. There was no reason to assume it would lower prices, then raise them again. The fact that a company may be large, or have a large market share, did not automatically mean that it must act unethically. He urged that companies be judged on how they behaved, not how they looked.

Mr K Manamela (ANC) noted that Pick n Pay were currently retrenching about 3 600 employees, for reasons including profitability, and this was an indicator of the current market. He asked why Massmart then believed it could create jobs. Its decisions were taken not for the benefit of workers, but on the basis of profit.

Mr Pattison said he could not comment on Pick n Pay’s actions, but confirmed that Massmart intended to employ another 15 000 over the next five years and increase its market share.

Mr Manamela asked for further clarity on the mandate of SACCAWU, pointing out that it was putting forward political and economic conditions of the workers in the sector.

Mr Pattison reiterated that he had not suggested that SACCAWU had acted in bad faith, but had referred to its role in the competition arena.

Mr Manamela asked why there was so much concern about the Walmart merger in particular.

The Chairperson asked for further clarity as to why Massmart could not isolate the local content. She also asked what was envisaged by “long term”

Mr Pattison explained that Massmart would not generally follow procurement around the world to respond to short-term advantages, but could do so if there was an important and permanent economic change, such as had occurred in China. Imports of food were done not by Massmart, but by its suppliers, and he had stressed that any trade policy responses to imports would need to come from government, who could, for example, complain to the World Trade Organisation (WTO) if another country starting dumping, and call for punitive tariffs. Massmart had no control over this at all. Duty protection was quite complex, and it would be impossible to tell how much of a bag of sugar was sourced locally, and how much from overseas. This was an important matter, but it had nothing to do with Massmart or the merger. Subsidisation was also covered under WTO rules.

The Chairperson asked how Massmart saw its future role in rural empowerment.

Mr Pattison said that Massmart spent 1% of profits, possibly around R100 million per year, on corporate social responsibility programmes, which focused on youth, development of rural women and education. It was aligned to Umsobomvu and the Women’s Development Fund and would attempt to support government policy in its area of responsibility, and work with the relevant government departments.

Afternoon session
Trade Law Center for Southern Africa (TRALAC) submission
Mr Paul Kruger, TRALAC researcher, spoke on the relationship between the access and treatment of foreign suppliers and the World Trade Organisation obligations of South Africa. The General Agreement on Trade in Services (GATS) dealt with trade in services and included general and specific obligations in the form of 'schedules of specific commitments'. The schedules represented the liberalisation commitments and the limitations countries had undertaken to maintain in respect to foreign suppliers and foreign services but it only bound governments to the extent and in the areas indicated in the schedules. South Africa's schedule of commitments in the distribution sector (wholesale trade services, retailing trade services and franchising services) was presented to the Committee. The commitments made by South Africa at the multilateral level were supposed to ensure that the current and future domestic regulatory framework was in line with its GATS commitments. If the government imposed a preferential procurement quota, such measure would be directly in conflict with what SA had agreed to in its schedules. Any aggrieved WTO member state had the capacity to submit a claim under the WTO dispute settlement system. The dispute settlement system was compulsory for South Africa because it had signed and ratified the WTO agreements as single undertaking, of which the Dispute Settlement Understanding (DSU) was part.

South Africa could not deny market access or discriminate against foreign suppliers in the committed areas as this could ultimately lead to dispute settlement under the WTO. TRALAC’s proposed solution was a modification of schedules in line with international rules or designing investment measures in compliance with international rules.

Discussion
Mr D van Rooyen (ANC) asked what the level of compliance was when it came to WTO and what the envisaged challenges were.

Mr Kruger responded that the domestic legislation was in line with international obligations. The danger at times was that international commitments were violated and it was at this stage that a WTO member country could take South Africa to the Dispute Settlement Board.

The Chairperson asked what circumstances had led to Mr Kruger as part of TRALAC to make the submission.

Mr Kruger responded that it was to make Members aware of international obligations and the impact investment measures could have on certain sectors.

Mr S Ngonyama (COPE) asked if there was any other institute that had embarked on the same study as TRALAC and if such an institution existed it should be invited to make a submission. Could not a WTO country, despite the commitments it had made, say no to a foreign supplier if the supplier was supplying goods of inferior quality.

Mr Z Ntuli (ANC) asked if there was any advice TRALAC could give when it came to tariffs such as comparing regional and overseas firms.

Ms D Tsotetsi (ANC) asked if a country would be bound if they were not benefiting.

Mr Kruger responded that each country had committed itself to different schedule. He added that he was only presenting the law as it stood. In addition he stressed that Malaysia was different in that foreign suppliers had to comply with a long list of discriminatory measures. Furthermore tariffs dealt more with trade and goods and not services.

Mr Ngonyama stressed that his question had not been answered.

Ms Tsotetsi stated that no law was case on stones and iron. If the law did not benefit the country then it had to be reconsidered.

Mr Kruger responded that he was not aware of any other comparative that were being done. Furthermore there were exceptions to the commitments that a country had undertaken but none of the exceptions were relevant to the current circumstances. In terms of benefits, Mr Kruger stated that it was what South Africa had committed itself to and that there was a process that had to be followed at the international level to withdraw their commitments but compensation had to be paid for the withdrawal of the commitments. In addition a country could discriminate if the country left a certain sector unbound or it did not commit itself to a certain schedule.

The Chairperson pointed out that the Committee would assess the issues that had been raised when it came to the commitments that South Africa had made.

National Union of Metalworkers of South Africa (NUMSA) submission
Mr Irvin Jim, NUMSA Secretary General, submitted that the opposition to the proposed Walmart/Massmart merger had to be understood and located within the broader economic, political and legal context. Reference was made to the 2009 inaugural State of the Nation Address in which President Zuma stated that the creation of decent work would be at the centre of economic policies. The question was if the merger would advance or oppose the government’s agenda and if it would lead to more decent employment, better wages and working conditions or if it would lead to retrenchments, more casual employment and greater poverty.

NUMSA’s view of the Walmart decision by the Competition Tribunal undermined attempts by the government to grow the economy and it would make it harder for government to achieve its goal of decent job creation. NUMSA argued that the results of the investigations by the Competition Commission and Tribunal on the merger’s effects on current employment and on any particular industry or sector were improper. This was because any proper consideration of the above would have led to the inevitable conclusion that the transaction raised concerns of great magnitude and would have led to the merger not being allowed.

NUMSA stated that it was not against responsible foreign direct investment in South Africa and it supported any economic development stemming from such investment. However Walmart's investment in South Africa should not be supported because the firm's specific business model and practices would have adverse consequences for South Africa's economy and the crucial issue of employment.

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Mr S Marais (DA) interjected saying that a number of issues had been commented on that infringed on the case before the appeal court.

The Chairperson responded that the presenter was talking about a general decision.

Mr Marais stressed that there were certain words that were of concern such as "this deal".

The Chairperson requested the presenter to refrain from talking on matters or conditions that had been effected since the matter was sub judice.

Mr Ngonyama referred to the fourth paragraph of the guidelines given to presenters by the Committee. He stated that the Committee was listening to the impact the deal had on employment.

Mr X Mabasa (ANC) requested that Mr Jim speak more generally. The Committee needed the input from NUMSA. Where the matter was sub judice, the presenter had to be minimal. He motivated for the continuation of the submission.

Mr Ntuli suggested that the Chairperson was the only one in a position to correct speakers, not other Committee Members.

Mr M Nchabeleng (ANC) suggested that the Committee continue listening to the submission. In addition, he stated that nothing prevented a Member from helping the Chairperson.

Mr K Manamela (ANC) was of the opinion that NUMSA should continue because the paragraph that had been referred to by Mr Marais did not have an impact on the conditions handed out by the Committee. More so, NUMSA had indicated that they were no party to the current court proceedings.

The Chairperson allowed the presenter to continue with the submission but she cautioned him.

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Mr Jim pointed out that the creation of enormous and unmatched buying countervailing power or buyer power as a result of the entry of the world's largest retailer into the South African retail sector would impact not only on Massmart's competitors in the retail space, which could include SMMEs and informal traders, but would also reverberate up the supply chain.

Since the Competition Tribunal's decision, Pick n Pay had announced that it intended to retrench more than 3000 workers. NUMSA was of the opinion that in order to compete with Walmart, the big competitors such as Pick n Pay and Shoprite Checkers would be forced to cut costs and they would attempt to do this by reducing labour costs. It was brought to the attention of the Committee that every Walmart store that opened destroyed three local jobs. NUMSA was of the opinion that Walmart's history of sourcing from cheap labour countries would have a disastrous effect on local producers and employment in local manufacturing. The entrance of Walmart would lead to closure of suppliers and manufacturing industries that supply goods and services to the retail sector.

Walmart's annual revenue exceeded the gross domestic product of South Africa hence to force it to set aside such a small amount for developing the local industry was an insult to those who were going to lose their jobs. The Tribunal's conditions imposed in relation to SACCAWU were insufficient. Walmart throughout the world operated on an anti-union basis and there was no doubt that they would pursue the same policy in South Africa whilst playing lip service to the labour dispensation.

Research of the company's behavior showed a record of "predatory pricing". NUMSA stated that Walmart set its prices low for a certain period of time in order to force competition out of the market. Anti-competitive action was unlawful in terms of the Competition Act. Such conduct was the same in other countries in which Walmart operated in and Walmart was prepared to ignore the law in order to build its share of the market. The sheer size of Walmart would help the company successfully evade the law and disregard legislative provisions.

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The Chairperson again pointed out to the presenter that a number of issues in the oral submission infringed on the conditions set by the Committee.

Mr Jim commented that he was disappointed by the Committee. He suggested that he submit a recommendation to the Committee without any motivations.

Mr Manamela stated that a determination had to be made based on whether the Committee wanted to create the impression that it called the public to make submissions and on the basis of the legal conditions it imposed, created an impression that the Committee blacked out certain sections of the submissions.

Ms Tsotetsi requested that Mr Jim continue in accordance with the conditions and that he was not supposed to be discriminated against. The Committee was doing its job on behalf of the public and workers were part of the public.

Mr Ntuli said that the Chairperson had to make a ruling on whether Mr Jim continue.

Mr Marais stated that the Committee was questioning the ruling that they had made in the previous meeting.

Mr Nchabeleng stated that the rules that the Committee had set had to be adhered to.

The Chairperson stressed that the Committee had agreed on the procedure and they were supposed to stick to that procedure. He gave Mr Jim the opportunity to continue with the recommendations.

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Mr Jim went on to outline NUMSA’s recommendation which was that a Commission of Inquiry be established by the President in order to investigate the severity of the WalMart/Massmart deal on the South Africa economy, on employment and on local business.

Discussion
Mr Van Rooyen welcomed the submission from NUMSA. He asked if there were other compelling reasons for the President to establish a Commission of Inquiry as had been suggested by NUMSA.

Mr Mabasa asked if there was a difference to workers between a monopoly player throughout the country and a number of players were there was collusion. He asked what was needed in order to have workers with huge families earn the right salaries. Was it correct to say that a big monopolistic player was likely to have an adverse effect on small businesses in townships and rural areas? Did casualisation of labour do a country more harm than good?

Ms Tsotetsi asked what had to be done in order for South Africa to dig out the truth.

Mr Nchabeleng asked what impact would casual labour have on job security, job creation and poverty.

Mr Ntuli asked if Mr Jim was speaking on behalf of NUMSA or poor South Africans.

Mr Marais noted that most of the things mentioned had been alluded to by Walmart and others voluntarily. He asked if Mr Jim did not have trust in legislative powers or if there was any other hidden agenda.

The Chairperson cautioned Mr Marais on what he had said because it would seem as if Mr Jim was not presenting in good faith.

Mr Jim responded that his view was that there was a crisis in the country: unemployment, poverty and inequality and the gap between the rich and the poor continued to widen. A lot of jobs had been lost and this was happening against the backdrop of a seriously de-industrialising country. Walmart, which had destroyed jobs globally and had dropped prices, was on the verge of being allowed into South Africa. A number of fundamental questions had been evaded by Walmart. Mr Jim pointed out that in big companies the devil was in the detail. Furthermore, casualisation was the order of the day in Walmart. The country would experience a complete shedding of jobs. Something had to be done quickly to create employment and industrialise the country. To approve such a deal was a setback for the country.

The Chairperson noted that in addition to the recommendation to establish a Commission of Inquiry, NUMSA also had some views on the work that should be done by the Commission.

Mr Jim emphasised that a disaster was about to kick in because of the Walmart deal.

The Chairperson cautioned Mr Jim – as she had other presenters. She stated that the five priorities of the country were high on the agenda and the Committee would make sure that those priorities were achieved.

South African Clothing and Textile Worker's Union (SACTWU) submission
Mr Etienne Vlok, Director of the SA Labour Research Institute, the research wing of SACTWU, said SACTWU was concerned about the impact the merger would have on employment within Massmart's current suppliers, suppliers of other retailers and other retailers. Walmart was the world's largest retailer by far. The company was said to pressure suppliers constantly to lower their prices. At the same time Walmart buyers continually searched the globe for still-cheaper sources of supply.

The attention of the Committee was drawn to Mexico which could be a blueprint of what could happen to South Africa. Since 1991 Walmart had grown to about 1789 stores. The second biggest retailer, Soriana, had only 500 stores. There had been consolidation within the Mexican retail sector and as such fewer benefits for consumers. There was an increasing oligopolistic market structure in which four firms controlled more than 80% of sales. This counteracted the benefit to Mexican households of lower prices. There had been a dramatic increase in imports by Walmart as compared to its competitor retailers in Mexico. The effect of Walmart's business on Mexican suppliers was that Walmart had driven many suppliers out of business. In addition he stated that Walmart maintained its profit margins and never reduced their margins. Walmart passed on savings in price at the expense of the manufacturer, not itself. Mexico was not the only country that had been affected by job losses and pressure on suppliers as a result of Walmart. Other countries included the United States itself, Honduras, Guatemala and Bangladesh.

There would be a decreased demand for locally produced products because of imports by Walmart due to Walmart's power, scale and links with China and other low-cost countries. The result would be retrenchments, factory closures and de-industrialisation. Furthermore there would be increased barriers to entry in the retail market and there would also be a negative impact on consumers. The manufacturing industry was also at risk if foreign goods could be sourced cheaper.

Walmart claimed that it expected to save South African consumers R5 billion but it did not state how this would be done. Evidence from Mexico and the USA showed that it achieved such savings through importing more and more. In addition such savings would be offset by increased retrenchments and factory closures, increased poverty and welfare burden on the state and increased de-industrialisation. In the opinion of SACTWU, lower prices at the expense of jobs was not the solution.

In addition, SACTWU was of the view that competition authorities were supposed to take a long term view on the effects of mergers as opposed to the immediate impact. It was stated that competition law was not apolitical or objective but was a political choice. Competition law in South Africa was supposed to suit the socio-economic objectives and what was appropriate for the growth path in South Africa.

Discussion
Mr Mabasa asked what impact a monopolistic player would have in a developing country where poverty had to be reduced and what would be the impact on families of workers who were to be casualised.

Mr Ntuli asked for the number of stores that had been closed down in Mexico as a result of Walmart.

Mr Ngonyama asked if Mr Vlok was defining Massmart within the bent of oligopolistic companies, and if so, were the laws governing monopolies misplaced.

Ms Tsotetsi asked if workers in rural areas were going to earn the same wages as their counterparts in urban areas if Walmart were to move to rural areas.

Mr Vlok responded to Mr Mabasa's question that a powerful player with huge resources could get cheap products from low-wage countries and sell these products in their stores. Hence they would undermine other retailers which bought from local manufacturers where the product was slightly more expensive. The result would be that competitors would slowly fall away. The more jobs that were lost, the greater the burden would be on the state since more people would need grants. He did not have the figures requested by Mr Ntuli on the number of stores that had been closed in Mexico. The CEO of Walmart had said that 15 000 jobs would be created but he had not said how the jobs would be created. As such the jobs could be created through taking them from other retailers. Whether Massmart fell into some of the areas of oligopoly was worth investigating. The impact of employment in rural areas was referred to because there were fewer opportunities for people who worked in rural areas as opposed to people who worked in cities. Mr Vlok said he could not answer the question on difference in wages in rural and urban areas, because SACTWU did not organise the workers in the retail sector. However there was a difference in wages amongst clothing workers in the clothing sector.

Earthlife Africa submission
Mr Muna Lakhani, Earthlife Africa Co-coordinator, said the current conditions put in place by the Competition Board made no provision for local content and there was certainly no commitment by Walmart into the future. The amount of R100 million placed on the table as a supplier support programme was meaningless unless further terms and conditions were attached such as specific local supply ratios by percentage of turnover and agreeing to ensure a "hands off" approach to the books of suppliers and to ensure that contracts were not onerous to suppliers.

Walmart's practices were problematic in terms of employment issues, local development issues, impacts of globalisation and to the environment where Walmart was known for green-washing, supporting anti-green politicians and selling toxic toys.

A Walmart store opening reduced the country-level retail employment by about 150 workers for every 100 jobs that had been created and this in essence meant that each Walmart worker replaced approximately 1.4 retail workers. Walmart was also renowned for low wages and gender and racial discrimination. Walmart was said to be highly suspicious of labour unions and this led to Walmart creating separate departments to make co-operation between workers more difficult.

In terms of local development there was increased poverty in countries were Walmart was present. Walmart's pricing pressure on suppliers could lead to consumers paying higher prices because of the "waterbed effect".

In terms of environmental issues Walmart had a reputation of green-washing such as labeling non-organic food as organic and misleading consumers in the process. In addition Walmart caused water pollution and supported whale slaughter.

The Committee was asked to consider with their hearts if the direction that was being taken on the Walmart deal was best for the people of South Africa, the country and the environment. The Members were asked not only to consider the economics but also the morality, ethics, principles entrenched in the Constitution and  history that today allow the Parliament to hear views from members of the public. For a few short term gains, the people of South Africa could face long term harm.

Discussion
The Chairperson stressed that as a Committee they were not going to influence any decision. The intention of the hearings was to open up space for people to talk. A report would be compiled on the hearing and the report would be tabled in Parliament.

Mr Nchabeleng asked if Earthlife would accept any funding from Walmart.

Ms Tsotetsi commended the submission by saying that it was the first submission that referred to gender and racial discrimination vis-a vis the Constitution of South Africa.

Mr Lakhani responded that Earthlife would not accept any form of funding from Walmart. Any money it received had to be cleared with other branches who had to be satisfied with the environmental track record of the company or organisation that had donated the money. He asked Committee Members to follow their hearts and not their pockets.

The meeting was adjourned.