The Committee continued with the third day of hearings into the Walmart /Massmart merger. At the outset, the Chairperson explained that the Committee had postponed these hearings for some time, pending a decision by the Competition authorities, and was aware that a notice of appeal had been issued, but the Committee still had to report to Parliament on questions of employment, industrial development, local manufacturing and economic development. These hearings would not consider questions forming the basis of the appeal, and those involved with the court action were asked to draw the attention of the Committee to any such matters if they were raised. The presenters were also given permission not to answer any questions that may touch on these matters.
Empowerment SA, a business linkage network, stressed that
Members asked about imports from China, in particular, enquired how foreign owners of spaza shops operated successfully and whether they were compliant with all licence and health regulations, what could be done to ensure that suppliers were able to compete in the area of traditional foods, and how South Africa could become more globally competitive. They also asked for the views of casualisation of labour, and how small businesses could attract more market share.
Mr Kurt Illetschko noted that he had some suggestions for how the proposed Supplier Development Fund could be used, and outlined the benefits of micro-franchising, citing examples of how this operated, how it had been used successfully in Botswana and Kenya, and what might be an option for South Africa. Members asked for comments on monopolies, and asked whether Mr Illetschko believed that large companies were likely to pose threats to smaller local businesses.
Economic Justice Network outlined its concerns about the merger, which were linked to issues of degradation of the environment, manufacturing processes, goods procurement, and the effect of large mergers on small independent producers. The Network suggested that the Competitions Tribunal should conduct full investigations into companies from whom goods were sourced, that those companies who supported forced removals, or caused environmental damage, should not be supported, and that farmers who used harmful chemicals should likewise not be supported. It further recommended that the large companies should be partnering with small producers and traders to assist them to develop. In the area of human and employee rights, the Competition Authorities were urged to ensure that companies wishing the merge were complying with best practices, including allowing employees to join trade unions, and working with organised labour movements. Any mergers should be shown to make improvements to the quality of life of South Africans. Members asked whether a short-term creation of jobs should be allowed, despite fears that jobs might be lost in other sectors later, and also questioned whether the Network believed that farmers should be subsidised, and what methods they should employ in their own farming.
The Free Market Foundation noted that no comments to date had centred on the rights of consumers, although the whole purpose of competition policy was to protect consumers. Consumers should have freedom of choice, and it was not the function of the Competition Authorities to interfere with this. The presenter cited some decisions recently that seemed to have gone contrary to this principle, and said that there needed to be more clarity on what issues should be dealt with by the Competition Commission, and what should be left to other government agencies. The Foundation also though that there was a worrying trend of large firms approaching the Competition Authorities to try to stamp out their competitors, rather than concentrating on improving their own services. Foreign competition should be controlled by trade policy, but once again the consumer should be free to decide whether or not to purchase foreign goods. It was stressed that
The South African Youth Council was concerned about the global track record of Walmart, particularly around procurement and said that the full impact of its entry on communities and local suppliers must be assessed. The Council was concerned that jobs would be lost not only in the merged entity, but in the supplier base, as well as suppliers of competitors, and noted that workers may be forced to accept poorer conditions and casualisation. It was concerned that Walmart’s entry would reinforce concentration of the retail sector in a few hands. Cheap imports were likely to affect local producers detrimentally. The Council called on Parliament to take account of social justice considerations, whenever foreign direct investments were made, and suggested that such investment should also be in line with local industrial development strategy and growth of new industries. In addition, Parliament should call for a monitoring system to be set up that could calculate the multiplier effect and local content quotas should be imposed. Members asked for comment on the proposed expansion into rural areas, and asked whether the Council was concerned with the cheap labour elsewhere, or import of goods.
The afternoon session saw four submissions being made by the Labour Research Service (LRS), Law Review Project, Law Society of the
The Labour Research Service submission revealed that its research had found that the relationship between Massmart workers and management had deteriorated due to a hardening of management attitudes an a change in conditions of employment in order to make Massmart more globally competitive. Employees were forced to work a 40 hour rolling week with Sundays being considered as normal time. Workers were forced to work Sundays and public holidays and moreover they were forced to work a compressed week without overtime. The LRS opposed the deal and sought its prohibition by the Tribunal. In the event that the deal was approved, the Labour Research Service suggested conditions that had to be placed on the merged entity.
The Law Review Project briefed the Committee on the organisation's jurisprudential concerns with the state of competition policy and law in
The Law Society of the
The submission by the Department of Economic Development explained its rationale for intervention. The size of the Walmart/Massmart merger could undermine government’s policies that were focused on employment creation. Moreover there was a very strong likelihood that domestic supplies would be replaced by imports and this would affect the entire value chain from suppliers of raw materials and components to suppliers of finished products. The Department dispelled a number of myths such as South Africa was adopting a protectionist stance, it was against foreign direct investment, other countries were much more open to FDI, that the government sought to protect monopolies, that it was unfair to impose conditions on Walmart, that government sought to disadvantage poorer consumers and that the government' approach was out of line with the rest of the world.
Chairperson’s opening remarks
The Chairperson read out a statement noting the mandate of the Committee and the way in which the hearings would be conducted. These public hearings had been postponed for some time, whilst awaiting the outcome of the Competition Authorities’ hearings on the merger between Walmart and Massmart. These public hearings had been postponed for some time, whilst awaiting the outcome of the Competition Authorities’ hearings on the merger between Walmart and Massmart. These public hearings did not relate to the facts or law being dealt with by the Competition Authorities, the Committee wished to avoid a perception that it was stepping into the Competition Commission (CC) arena. A notice of appeal had been filed on 27 June 2011 with the
The Chairperson also asked anyone involved in the Walmart / Massmart appeal to alert the Committee to any other issues that were subject to judicial decision.
Empowerment SA submission
Mr Mphuthi Mphuthi, Chairman, Empowerment SA, introduced Empowerment SA as a business linkage network, and outlined the areas in which it worked. It had access to over 1 000 creditworthy suppliers. It had, since establishment, been the source of black economic empowerment (BEE) investment opportunities worth over R150 million. He described some of the recent successful transactions (see attached presentation for full details).
He noted that the unions had been quite vocal in the deliberations, but very little had been said by black business, which was unfortunate. He stressed that
He noted that small, medium and micro enterprises (SMMEs) were known to be job creators, with 90% of all new jobs created in this sector between 1985 and 2005. By 2020, it was estimated that 2.5 million jobs would be created by this sector.
He referred to the huge outcry about the possible impact of the merger on spaza shops, in particular. These challenges that such shops already faced included their focus on and concentration in retail, adding no value. There was a proliferation of shopping malls and foreign businesses in townships, although these shopping mall tenants were largely Stock-Exchange listed companies. Metcash had closed 51 stores to open hybrid retail stores, coming directly into competition with the spazas. Shoprite had also opened similar franchises.
Many of the concerns referred to the perception that the merger would lead to job losses. There were already challenges with Massmart, in its current form. It was growing through acquiring other stores, attaining its BEE targets through acquisition, rather than true Broad-Based BEE (BBBEE). International suppliers had global deals with Walmart, and big retailers were not only importing cheap imports, but were also now selling “traditional foods”, removing business from small suppliers.
Empowerment SA believed that it would help black manufacturers if there was support for the establishment of a supplier fund by Massmart and Walmart.
The Chairperson ruled that Mr Mphuthi should not deal with this, as it formed part of the conditions set by the Competition Tribunal (CT).
Mr Mphuthi said that many of the unions were concerned about job losses.
Mr Mphuthi cited a number of organisations that he believed could assist (see attached presentation for full details). It was also necessary to create trade partnerships with the countries that the President had visited, and for
Mr G Boinamo (DA, Portfolio Committee on Labour) noted that South Africa imported more from China than other countries, and he asked to what extent China was importing from South Africa, and whether this was a significant factor in the South African economy.
Mr Mphuthi said that
Mr Boinamo asked how foreigners obtained trading licences to operate their spaza shops in African townships. Most of the shops in rural areas were run by foreigners, and he questioned how they managed to obtain rights, when local businesses claimed it was difficult to do so. He also asked if they were monitored for compliance to health rules.
Mr S Marais (DA) added that it was also necessary to ask how the foreign businesses survived.
Mr Mphuthi said that the foreign-run stores tended to focus on imports, particularly of goods that were “dumped” in
Mr Boinamo said that traditional foods had for many years been available from supermarkets, and he asked whether Mr Mphuthi was suggesting that they be “reclaimed” from the larger traders, and, if so, how this could be done.
The Chairperson asked if Mr Mphuthi felt that this was a positive development.
Mr Mphuthi said that it was important that SMME manufacturers producing those goods should be able to get their products on the shelves. Good products had been on offer for some time. However, many SMMEs could not afford to comply with the standards that the large supermarkets demanded. If Massmart could “adopt” black suppliers, they could be assisted to get their product on the shelves, could then increase their production, and in that way gain access to larger markets.
Mr Marais commended Mr Mphuthi for not only highlighting the problems but also offering some possible solutions. He agreed that the current BEE objectives were not being achieved and he asked for any suggestions to ensure that empowerment was effective.
Mr Marais asked what government should do to make it easier for new South African countries to become globally competitive, produce and procure locally, and export. He asked whether tax incentives or subsidies might be appropriate.
Mr Mphuthi said that there had been some successes in BBBEE, and he believed that in general
Mr Marais asked if Mr Mphuthi had any view on the acquisition, by a Chinese company, of 45% of a South African platinum company, with the apparent aim of beneficiating the platinum outside
Mr Mphuthi said there was a difference between a company coming into an existing market in South Africa and one simply seeking a licence in order to beneficiate outside. He would prefer to see the entry of companies who were prepared to grow with
Mr Z Mabasa (ANC) asked whether
Mr Mabasa noted that other companies had already posed challenges to township businesses, and he asked whether this was not an indication that
Mr Mphuthi said that he did not believe they could be barred altogether. It would be more beneficial to achieve a shift in mindset so that local producers and suppliers would view these companies as potential clients and use them to grow their own businesses.
Mr Mabasa noted that many monopolistic companies employed casual labour, denying rights and benefits to workers. He wondered if this was not in fact adding to existing social and economic problems. Mr Mabasa suggested that it might be preferable to protect jobs already held, instead of relying on promises to create more jobs.
Mr Mphuthi said that if companies employed people on a casual basis only, and this did not result in a net gain of jobs, they should not be supported. Only companies who developed skills should be supported.
Mr Z Ntuli (ANC) asked for clarity on the points raised about countries who traded aggressively.
Mr Mphuthi said that
Mr Ntuli was also not sure what suggestions were being made about SMMEs, and if they could prosper if large entities entered the market.
Mr Mphuthi said that he could not say that there would be no losses of jobs if cheap imports were allowed. However, he urged that small businesses should identify opportunities in other countries, and again, he urged that they should view larger companies as clients rather than merely as competitive importers. Many of the countries he had named drove hard businesses, but did recognise the expertise available in
The Chairperson asked what Empowerment SA would suggest for small businesses, to assist them to attract business to themselves.
Mr Mphuthi said that his company had dealt with a number of large retailers, both in the food and clothing sectors. A successful model involved shopping space, allowing SMMEs to open franchises within their stores.
Mr Kurt Illetschko submission
Mr Kurt Illetschko gave a submission in his personal capacity. He had been involved in franchising for a number of years. He apologised in advance that his slide presentation made some suggestions that were directly connected to the conditions of the merger, but said that he would also like to make general comments about franchising, which he believed offered sustainable development for businesses.
Mr Illetschko suggested a portion of the Supplier Development Fund that had been proposed should be allocated to franchising. He briefly defined a franchise, noting that it had evolved from product franchises to business format franchising, whereby not only the product and trademark were offered, but where the franchisor also offered advice on how to run the business profitably, and controlled quality and business performance. Micro-franchising was another option, but
Franchises started from existing successful businesses. An existing company could expand either through opening branches, which would require working capital and reliance on managers, or it could go the franchise route, whereby the franchisee would be responsible for funding, and would therefore be more motivated to operate the business successfully. Most of the 500 000 franchisors in
He stressed that micro franchising would encompass all aspects of ordinary franchising, only on a smaller scale. He suggested that allocation of funding to micro-franchising could address six problems. Micro franchising could sustainable small businesses, create jobs and skills transfer and improve the quality of life in rural areas. It could create sustainable BEE initiatives, impact on carbon emission and improve the environment, take pressure off Eskom, and could create manufacturing capacity and export.
He outlined the initiatives that could be achieved through a large company like Massmart creating a solar power subsidiary, similar to something already operating in
The Chairperson thanked Mr Illetschko for his suggestions on the proposed fund.
Mr Mabasa said that the Committee’s discussions had centred around the comparative benefits of having a monopoly, or several smaller firms. He asked whether a large monopoly, which offered a substantial sum of money, should be welcomed, notwithstanding the fact that its opportunities in the long term may not be that substantial.
Mr Illetschko said that he believed in the free enterprise system, and felt that a monopoly could not effectively serve small outlying areas. In
Mr Boinamo asked for clarity on the business concept, and the duty of the franchisee for maintenance.
Mr Illetschko said that this question linked to the previous answer. In the larger towns, the large company could sell the stock and the local entrepreneur could do the installation. In smaller towns, the franchisee should keep some stock, and then install and maintain the equipment. He suggested that the details could be worked out. He reiterated that certain funds should be put into a trust fund and used as surety to support those wanting to go into business. Franchisees would generally have to employ at least one other person, so that would take care of small business and job creation.
Economic Justice Network submission
Mr Simon Vilikazi, Programme Officer, Economic Justice Network, noted that the Network (EJN) also worked with the South African Council of Churches on a number of issues and advocated economic justice for the disadvantaged members of society.
The EJN was concerned about the merger of Massmart and Walmart. In relation to goods procurement, most of the concerns related to the degradation of the environment. The Competitions Tribunal (CT) was being asked, therefore to ensure that it conducted investigations into companies from whom the merged companies procured goods and services, so that they should not procure from organisations who might engage in practices such as forced removal of communities from land.
The second concern related to products whose manufacturing processes caused damage to the environment. EJN urged that merging companies should check the content of the products they bought. Farmers who used harmful chemicals should not be supported. The same applied to raw minerals extraction that caused undue harm. Companies should avoid sourcing products that led to deforestation, and pollution of water and air.
The third concern related to small independent producers. Small scale farmers, informal traders and community producers found it difficult to grow their businesses, because of unfair competition from big enterprises, particularly when they entered the market in townships and rural areas. He called upon the large companies to work in partnership with, and support independent producers. Large companies should help smaller enterprises to improve their standards in order to comply with larger companies’ requirements. The Supplier Development Fund that was suggested could be a good tool to promote local companies.
The EJN had noted destruction of local industries, including the local clothing producers, by importation of cheap goods from China, and from European countries that offered high subsidies to their farmers. Large companies should desist from flooding the stores with cheap imports, and should check certificates of origin. Again, EJN urged that merging entities should work with local associations of producers and support local producers.
Mr Vilikazi noted that South Africa still faced violations of human and workers’ rights by employers in the manufacturing and agricultural sectors. Many workers were also threatened with dismissal when they raised objections. This should be prevented. EJN therefore urged merging companies to undertake an assessment of compliance with best practices of human and workers’ rights, including a check to ensure that companies did allow their employees to join trade unions, and that they should also work with organised labour movements to obtain information.
Mr Vilikazi summarised that both the merging enterprises were privately owned, and had a role to play in realisation of economic and social rights. Any merger should, before approval, be shown to make a contribution to the improvement of quality of lives of South Africans, should not exacerbate existing problems, and should ensure that the culture of respect for rights was entrenched.
Mr Mabasa asked for clarity on the last paragraph of the presentation.
Mr Vilikazi responded that the merged entity would be a large player, and he suggested that the approval of a merger could be used in order to set standards for other companies wanting to do business. Conditions had not been set in the past, but could have improved the current situation if they had been imposed. He noted that EJN worked with mining companies, and it was unfortunate that many of these had obtained licences without conditions, and had then destroyed the environment.
Mr Mabasa asked how the EJN would view a company that might create 5 000 jobs in the short term, but cause the loss of 15 000 jobs in other sectors.
Mr Vilikazi said that this was a difficult question. It was difficult to block a company on the assumption that it might destroy jobs. However, he stressed again that large companies could be used to grow small businesses, such as independent producers, if they worked in conjunction with each other.
Mr Boinamo said that agriculture was the backbone of any economy. South Africa did not currently subsidise farmers, and he wondered if it should not be doing so, so that products produced internally could compete with the pricing of imported goods.
Mr Vilikazi said that the lack of subsidies was also linked to the problems of land redistribution, and the need to make land fully productive. If uncontrolled imports of cheaper products were allowed, consumers would tend to buy the cheaper imports. The EJN’s work in Ghana had shown that cheap imports of chicken cuts from Europe had led to the closure of local chicken farms. People should be urged to buy local produce.
Mr Boinamo also referred to the comment on chemical pollutants, and asked what the EJN suggested should be done.
Mr Vilikazi said that successful models of ecological agricultural production could be employed. Some were already working well in Western Cape, although they needed more support from government. Once again, those producing locally should be supported.
Mr Mandla Hadebe, Programme Officer, Economic Justice Network, reiterated the hope that this merger would not open the floodgates for other large mergers that would flood the market and leave smaller companies in a poor position.
Mr Vilikazi also cautioned that large companies should not use South African relations as a stepping stone to other African countries, possibly acting in ways that would not be permitted in South Africa.
Free Market Foundation submission
Mr Leon Louw, Chief Executive Officer, Free Market Foundation, noted that the Free Market Foundation (FMF) submission was consumer-centred. Very few comments had been made on the rights of consumers to date. The purpose of competition policy was to protect consumers, although other agencies and government departments dealt with other aspects around jobs and protection of employee rights.
Mr Louw noted that “consumer sovereignty”, a phrase coined by William Hutt, had been adapted by Raymond Ackerman as “the consumer is queen”. The phrase meant that consumers could choose what they wanted to buy. The Competition Authorities should not interfere with the choice of the customer, but should instead keep the market free to entry by a number of different players, in the interests of the consumer.
Mr Louw noted that there was confusion about foreign competition and foreign investment. Foreign competition would cover imports subsidised by the European Union (EU). This should be controlled by trade policy. The consumer could then choose whether or not to purchase these imported products. Another matter easily forgotten was that South Africa was in fact a very small global player, comprising under 0.5% of the world’s Gross Domestic Product (GDP) and it should therefore be pleased to be sought after for investment, if it wished to be internationally competitive. He recommended that South Africa should be reluctant to impose too strict controls on who may invest in the country, and who may invest abroad. He suggested that it was necessary to take a longer and more open vision, as the attempt to protect small businesses was making South Africa uncompetitive.
Mr Louw also noted that there was a propensity in competition law for large competitors to use the law to avoid competition, and try to stop their competitors operating, instead of looking to improve their own performance. The policy was therefore at serious risk of becoming anti-competition.
Mr Louw said that some fundamental principles must be borne in mind, in relation to the arguments around jobs and imports. People tended to focus only on what they could see, which included the actual numbers of jobs lost and the number of companies closing. However, they did not focus on what else was being put in place. A company that increased its market share in one sector would also be spending more money, not readily identifiable, in other sectors, thereby creating more jobs. For instance, if a company were to lay off half its workers, and become more efficient, it would spend the salary savings in other sectors. There was no way, in economic theory, to assess whether the number of jobs lost were more than the number of other jobs gained. The fear that jobs would be lost was always raised during a merger, but the reason was actually that people feared greater efficiency. However, efficiency was necessary in order to create jobs. When workers were retrenched, they were released with skills that they had acquired, and would be taken up elsewhere. The economy was a complex and dynamic phenomenon, and could not be regarded as static. He reiterated that it was impossible to look only at one context, and attempt to compare losses and gains.
Mr Louw suggested that considerations around job creation were in any event not a function of the Competition Authorities. This lay within the mandate of other departments. Competition should be about serving consumers and should be a countervailing force against other policies that attempted to reduce competition.
In relation to imports, Mr Louw said that it must be clearly understood that imports were intrinsically linked to exports, since the money used for importing was earned through exporting. A policy that restricted imports would then also have to restrict exports. South Africa wanted foreign exchange (and therefore exports) in order to import. Economic policy should never restrict imports; they were the reward for exporting competitively. Although the large retailers did not export, the agricultural and manufacturing industries would do so. They would be punished if imports were restricted, although they were in fact the competitive and efficient industries who should be allowed to sell their foreign exchange income to importers. In addition, consumers would benefit from exports.
He therefore summarised that the purpose of competition policy was becoming very muddled. He thought that some strange rulings had been made recently by the Competition Commission. In the Pioneer Foods matter, Pioneer was criticised of undercutting (selling below competitor pricing), monopolistic pricing (selling at too high a price) and collusion (selling at the same price as its competitors). Mr Louw asked how they could have priced their products other than in these three ways. .The Competition Commission had effectively interfered with the rights of consumers to have cheap bread. Another ruling had been given in relation to eggs, but it had effectively protected the large producers against the small producers, who could only be competitive by joining together, which was prohibited. He also noted that the Department of Mineral Resources had asked the LPG gas industry to find some way to make gas cheaper for poor people, to try to address the horrific accidents caused through continued use of paraffin stoves and appliances. Producers had agreed that they could lower the price of gas to poor communities by 50% but were prevented, by the Competition Commission, from collaborating to do so. This went directly against the principles of protecting consumers.
Mr Louw urged that Parliament should rather aim to protect competition and consumers, in one comprehensive law. He also summarised that the incorrect perceptions should be addressed. The country should maximise imports, by allowing competitive companies to export.
The Chairperson said that her understanding of the Pioneer Foods ruling was that it went to the heart of collusion. She thought that Mr Louw’s comments about the bread prices were not correct. Most people found bread to be too expensive, and for many it was unaffordable. This Committee had considered the ruling, and whilst it was unhappy that the Competition Authorities were then not able to take any action other than imposing fines, which pointed to the need to strengthen the legislation, the Committee was satisfied that the ruling itself was in order.
Mr Louw said that, as a fact, the ruling against Pioneer was that their prices were too low and they were driving independent producers out. He said that this could be contextualised by noting that consumers were in fact being forced to pay more.
The Chairperson reiterated that consumers knew what was correct in principle. She could not agree with his comments, and felt that he was not giving correct information to the Committee.
Mr Marais said that inferior quality products were often being offered to consumers.
Mr Louw said that high quality came at a high price. It was necessary to have a full range of outlets, and full range of products, in order to allow the consumer full choice.
Mr Marais asked whether a company wishing to use South Africa as a “springboard” into other countries would necessarily be negative, and how this could influence consumer choices and the economy.
Mr Boinamo said that Pick n Pay Hypermarket used to produce larger loaves at the same price as smaller loaves from other stores. Later, government had stopped this. He asked why government had intervened, since this was clearly to the benefit of consumers.
Mr Louw explained that the “government loaf” had been replaced by the metrication size loaf, and this was probably the regulation that prevented Pick n Pay from selling a larger loaf.
Mr Mabasa said that government would at times have to adjust the markets. Some European countries were subsidising agricultural products, to the extent that developing countries in Africa found it difficult to export to the European Union (EU) countries.
Mr Mabasa noted that apartheid had led to numerous disparities. The free market system had not managed to prevent the 1930s depression. He therefore asked if the market could be expected to control itself and address all negative consequences.
Mr Louw agreed that markets were not perfect. but stressed that it was necessary to have markets that reduced the likelihood of imperfection. Competition should maximise efficiency. The 1930s depression had arisen for different reasons. He agreed that it was necessary to redress apartheid and its evils and thought it outrageous that old legislation was still preventing trade in certain areas.
Mr Ntuli asked what Mr Louw suggested could be done to amend the Competition Act, in order to make South Africa more competitive, or bring the legislation more in line with the size of the economy.
Mr Ntuli referred to the comment that job losses and gains could not be counted. However, he wondered if it was possible to assess figures in the recession.
Mr Ntuli asked if government should increase or decrease tariffs to protect employment.
Mr Ntuli asked for comment on communities who organised boycotts on products.
Ms D Tsotetsi (ANC) pointed out that many consumers did not have full choice, as they were only able to afford the cheapest possible goods. There had been comments that there were likely to be job losses, and so she asked why government should not be expected to intervene. People in South Africa came from disadvantaged backgrounds, and past laws favoured the minority in all aspects. It was now necessary to redress the situation and give the formerly disadvantaged an economic opportunity. The Committee knew that if there was high unemployment, crime levels would also be raised, and this would affect businesses. Interventions by government were aimed at benefiting of the country. If large businesses entered, and did not contribute to development, then she asked why they should be supported. Members were not opposed to investment, but did want to find ways in which the country would benefit.
Mr Louw said that FMF spent much of its time protecting small businesses from interference by local government that attempted to drive small enterprises off the streets. The FMF had managed to reach compromises for street traders, and it would continue to fight for the rights of the unemployed and defend them against over-regulation. Mr Louw said that the index of economic freedom of the world showed that South Africa’s free economic growth was curbed after about 2006. This was unfortunate because countries moving to greater economic freedom would grow faster.
Ms Tsotetsi asked how savings from retrenchments would necessarily flow back into the economy. Mr Louw suggested that those retrenched would be skilled, but this was not a given, and he had also not dealt with retrenched workers who may be considered too old to be employed again. This was the reason why informal traders set up, and there were others who were living from hand to mouth.
Mr Marais said that there were many assumptions being made. He asked how Free Market Foundation suggested that the Committee could evaluate the benefits of transactions. He also wondered if performance milestones should be used.
Mr Louw said that assumptions should not be made but principles should be set, and that the legislation should not be used to curtail competition.
Mr Louw noted that it was impossible for him to address all the issues in the time available. However, he referred to two publications, and offered to supply these to the Committee, as they provided useful data, and proved that freer economies had fuller growth, higher standards, and attracted more investment.
The Chairperson asked Mr Louw to respond in writing to the unanswered questions. The Committee would also be interested to hear from him again on issues of competition law.
South African Youth Council submission
Mr Thulani Tshefuta, President, South African Youth Council, said that although a joint written submission had been sent through by the Council (SAYC), Sangoco, and the Studies in Poverty and Inequality Institute, he was making this presentation on behalf of the SAYC. It had an interest in ensuring that young people were and would remain employed. The retail sector took in a number of young and semi-skilled people.
Mr Tshefuta referred to the global track record of Walmart, which included procurement practices that did not promote the economic development agenda of the country and their suppliers. The impact of its entry, on communities and local suppliers, must be assessed.
SAYC thought there would be loss of jobs in the merged entity, as also in the supplier base, suppliers of the competitors and the entire retail sector. There was sufficient evidence that Walmart killed three local jobs for every two that it created. In 2005, the National Bureau of Economic Research found that Walmart reduced earnings of employees by 5%. Workers were compelled to take lower wages and poor working conditions. In addition, the expansion into rural areas would squeeze out small enterprises. The merger would lead to increased casualisation of labour, undermining the principles around decent work.
In relation to local development, Mr Tshefuta said that no economy could thrive on foreign direct investment alone. Walmart’s entry would reinforce concentration of the retail sector into the hands of few owners. This would run contrary to the national efforts to distribute ownership, control and wealth more equally amongst all South Africans. High imports would lead to casualisation, and turn South Africans into a nation of consumers, rather than of producers.
Mr Z Ntuli, Acting Chairperson at this point, asked that no further comments be made on the conditions.
Mr Tshefuta noted that Walmart tended to import from cheap labour countries, and this would affect local producers downstream, as they could not match the resources and economies of scale of potential foreign suppliers.
The SAYC therefore called upon Parliament to ensure that considerations of social justice, specifically relating to job security, social security impact and compliance with the decent work agenda, should be included when foreign direct investment (FDI) agreements were made. Any FDI should also be in line with industrial development strategy and should be directed to stimulating growth in new industries. Parliament should call for long term plans of how mergers could contribute to industrial development, without importing cheaper goods. Parliament should also call for a monitoring system that would calculate the multiplier effect. The textile and clothing sectors should be included in the New Growth Path (NGP), as priority sectors. Local content quotas should be imposed to save jobs.
Mr Boinamo noted the comment that Walmart was “notorious” for importing material from cheap labour countries. He asked whether the SAYC was objecting to the cheap labour, or the goods themselves.
Mr Tshefuta said that SAYC was concerned about both. If South Africa wished to uphold its own laws, it should also promote the spirit of those laws, and although it was accepted that South Africa could not change the laws in other countries, it could choose not to support such countries. Cheap labour in those countries would result in their own companies pricing their goods lower than countries who upheld proper labour laws. This put pressure on potential local suppliers.
Ms Tsotetsi asked for comment on rural expansion.
Mr Tshefuta commented that the plans to take large businesses into rural areas would not only kill the existing small stores, but would also affect those existing businesses’ own supply chains. It may seem that the communities would benefit from obtaining groceries at cheaper prices. However, those most likely to bear the brunt of the cheap goods would be employees. They were less likely to receive employment benefits. This would then impact ultimately on rural development. He suggested rather than local existing rural enterprises should be strengthened and encouraged by government helping them to cut costs.
Ms Tsotetsi noted that government had programmes in place to create jobs and to assist young people to become entrepreneurs. She asked if these were seen as interference or interventions.
Mr Tshefuta said that these programmes were regarded as good interventions. If no attempts were made to assist the young people, they would end up as a liability on the State systems later.
Mr Mabasa said that typically, monopolistic companies would tend to close small businesses, kill competition and casualise labour. He asked if township and rural businesses were likely to survive if such businesses were to enter South Africa.
Mr Tshefuta did not think rural and township businesses would survive against large merger entities, for reasons already highlighted. Monopoly companies would purchase from preferred suppliers, and would attempt to suppress local enterprises.
Mr Mabasa said that casual employees would not obtain benefits like medical aid, pensions, and wondered if this had an impact on their children.
Mr Tshefuta agreed that the adverse economic effects would certainly filter down to the families of employees.
Labour Research Service (LRS) submission
Ms Michelle Taal, LRS Researcher, noted that the Labour Research Service had been commissioned to do research on the structure and operations of Massmart and the conditions of its workers in order to understand the position of workers in the context of the proposed deal after Walmart had made an initial offer to purchase Massmart in September 2010.
The research found evidence that workers at Massmart experienced a high level of victimisation and a hardening of management attitudes which was it attributed to the desire by Massmart management to make the company "globally competitive" in order to attract a global retailer as a buyer, and specifically Walmart. Confirmation of this could be found on Massmart's disclosed strategy to attract a buyer, particularly Walmart.
Ms Taal recommended that the Tribunal be wary of approving a deal that would accept the loss of well-being of workers across the retail and related sectors so as to be "globally competitive". It was further recommended that the Tribunal put clear positive conditions and monitoring processes in place to protect workers, should the deal be passed.
Dividends by Massmart poured out to investors outside of the country while workers were at pains to improve their wages and conditions. The deterioration in the relationship between Massmart workers (plus their union) and management was a worrying signal for how Massmart/Walmart envisioned future relationships with regards to retrenchments that began in 2008. The changing of conditions of employment for workers for the worse was seen as victimisation. There were disputes about the imposition of ultra-flexi time contracts, 40 hour rolling week with Sundays as normal time, a compressed working week without overtime and Sunday and public holidays compulsory work. A number of retrenchments had taken place. In 2009, a number of workers were retrenched at Massdiscounters and the company had stated that the retrenchments had nothing to do with a possible takeover.
Ms Taal said LRS opposed the proposed deal and sought its prohibition by the Tribunal. The downgrading of working conditions was contrary to South Africa's policy of economic development through decent work. In the event that the deal was approved, the LRS submitted a number of recommendations as conditions to be placed on the merger entity. These were:
- the suspension of the new performance management system until an agreement could be reached about it with the workers;
- Walmart had to commit to respecting and honoring pre-existing union relationships and the right to new union relationships;
- external monitoring system of such relationships and Walmart had to commit to the rights exercised by workers under South African law throughout Walmart/Massmart operations and to the four ILO core conventions.
- Walmart had to commit to procure locally produced and manufactured goods.
The submission included a 20 page overview of Massmart.
Mr Marais (DA) noted that a number of allegations had been made. He asked if the allegations were based on assumptions or facts. In addition he asked if the views expressed with regards to the merger were objective and came from an independent body or they were the views of the presenter. He asked if there were any suggestions from LRS on how the competition authorities could do their work and if the LRS acknowledged the independence of the Competition Commission. Was the presenter acquainted with the benefits that the workers of Massmart had received from its BEE transactions and commitments?
Mr Mabasa asked what areas a host country might incur from a cost perspective which might not have been articulated by the incoming monopoly companies. In addition he asked if the coming in of a huge monopoly could assist businesses in rural areas or if the businesses could be killed. Lastly, what were the net effects on families such as the dependents or the extended families?
Ms Taal responded that the information they had came from interviews with the current workers conducted during the lead up to the merger. They were not allegations of what would happen after the merger. She had faith in the competition authorities but their view and understanding of global competitiveness needed to be broadened to include decent work. They had information on the benefits that the workers had received from BEE commitments but it was not part of the research to look at the BEE deal but the conditions of work, dividend payout and directors’ fees in the lead up to the merger. It was difficult to predict what would happen in relation to monopolies. The downgrading of jobs at any company would certainly have an effect on the family of the workers.
Ms Tsotetsi asked if there were examples where Walmart had contributed to growth and job creation.
Ms Taal responded that the research had focused specifically on Massmart and not Walmart.
Law Review Project (LRP) Submission
Mr Leon Louw, LRP Executive Director, spoke on the LRP's jurisprudential concerns with the state of competition policy and law in South Africa. Since the Walmart /Massmart matter was settled by the Tribunal the Committee, or its government department, have no case-specific powers for the implementation of competition policy such as the power to review, amend, reverse, confirm or otherwise interfere with the Tribunal's ruling. Such enquiry would have been within the constitutional mandate of the legislature to consider competition law. The LRP assumes that the Walmart/Massmart ruling is regarded as an opportunity for the legislature to review the legislative and institutional environment in which competition law operates.
The existing Act and/or its implementation are jurisprudentially flawed in that it is inconsistent with the section of the Constitution which specifies the country's foundational provisions, one of which is the rule of law which had been found by the Constitutional Court to be binding and justifiable. The rule of law consists of three elements: the separation of powers, legal certainty and general application. The derivatives and implications of these three elements are that quasi-courts such as the Tribunal and Commission ought not to exist. Secondly there are practical considerations that are supposed to be made. The judiciary not only has to elaborate on structural features designed to maximise the prospects that justice is done, but also to maximise the likelihood of adjudicators being impartial. Politically appointed bodies in the executive, especially ones where presiding officers do not have tenure and independent budgets, necessarily entail real or suspected influence, and adjudicator bias. This did not apply to the Walmart/Massmart ruling since the ruling suggests genuine impartiality. One of the checks and balances necessary to maximise impartiality is that there should always be an automatic right of appeal to the judiciary. A right of review is not the same as a right of appeal and there is much confusion about this in South Africa.
The competition law in South Africa was not confined to the promotion of competition and competitiveness, but allowed for rulings on a range of sometimes conflicting consideration. The defined objectives overlap with the functions of other departments and agencies which are more suited to the task.
It is for these reasons that the LRP is of the opinion that the Committee should use this opportunity to revisit competition law and policy. A practical example was given of a meeting between the small to large businesses and the Competition Commission. It was at this meeting that Mr Louw brought to the attention of the Commissioner that business that defended themselves paid heavier fines/penalties (10% of turnover) than those that co-operated with the Commission (6% of turnover). It was clear at this stage that the law was vague and unpredictable. There was widespread anxiety and fear by the business community of the Competition Commission.
The competition structures had grown from a few officials to a massive, costly and very dangerous bureaucratic empire, which appeared to be harming competition more than it is promoting it. That the Walmart/Massmart merger was investigated at all, and was decided on as a matter of unfettered administrative discretion rather than clear and objective law, should, for the legislature, be a matter of grave concern.
The LRP recommended that no attempt be made by the Committee or the legislature to interfere with the Walmart/Massmart ruling but rather use this opportunity to consider reforming the competition law in order to enhance its constitutionality.
Mr Ntuli asked if Mr Louw was of the opinion that members of the Executive were also Members of Parliament with the exception of the President. He asked what caused the deterioration or standard of the rule of law in South Africa.
Mr Mabasa pointed out that he did not get the impression that business communities were fearful of Members of Parliament. The market was not a perfect playing field and hence it was necessary for governments to introduce measures to reduce the harm caused by the imperfection. The government had been voted in by a majority and the majority could not have been coerced.
Ms Tsotetsi asked how it was possible that lawyers who represented big companies were not able to detect the issues that Mr Louw had raised. In South African courts, people were treated more leniently if they were willing to co-operate.
The Chairperson asked what Mr Louw's view was on traditional courts or quasi-courts.
Mr Louw responded that members of the Executive were not Members of Parliament. Cabinet Members were the only people who straddled the separation of powers.
The Chairperson pointed out that the only person who was a member of the Executive and not a Member of Parliament was the President. The rest were Members of Parliament before they became Members of the Executive with the exception of the constitutional provision to Members of Cabinet who could be appointed outside Parliament by the President.
Mr Louw said that the Executive was in Pretoria, the Legislature in Cape Town and the Judiciary had branches all over, but in particular Johannesburg, hence there was a separation of powers. The separation of powers meant a firewall between the members of the Executive branch, Legislative branch and the Judiciary.
The Chairperson said that the Executive also had offices in Cape Town.
Mr Louw said that a report would soon be published by the Department of Justice. The Financial Advisory and Intermediary Services Act was given as an example. This law had changed very little but the real law was in 600 pages of regulations which was made outside the legislature by means of the delegated powers. In addition Members of Parliament did not make the law per se but they authorised members of the Executive to make the law. The main substantive laws were supposed to be made in the legislature and not by the Executive. The rule of law was not concerned with equity but government had to operate according to certain rules such as separation of powers, legal certainty and general application. He did not know the answer as to whether South Africa was falling down the rule of law index. The business community did not fear Members of Parliament but they feared the Competition Commission. Moreover where lawyers were used to defend a company under investigation, it ended up paying heavier fines. He pointed out that markets were imperfect and so was the government. Regulatory impact assessments were supposed to be done in order to assess the intended and unintended consequences of policies. There was a need to learn from the world and that was what the rule of law index did. Greater impact was seen on small businesses as opposed to big businesses since big businesses could represent themselves. It was not appreciated how many small companies were involved in collaborating with the competition authorities. Mr Louw agreed with Ms Tsotetsi that courts were indeed lenient but competition authorities said that if a company did not ask for leniency, then it would be penalised - and in essence courts did not operate this way. He added that traditional courts had tenure but he did not have sufficient information to make an informed opinion.
The Chairperson said that when it came to the initiation of legislation the National Executive could prepare and initiate legislation in terms of section 85(2)(d) of the Constitution. Such legislation could be introduced by a Cabinet Member or a Deputy Minister in the Assembly in terms of section 73(2) of the Constitution.
Law Society of the Northern Provinces submission
Mr Peter Steyn spoke on the following matters: the institutional structure of the competition authorities created by the Competition Act; the jurisdiction and powers of the competition authorities; the process in the Act for assessing mergers and the test for assessing mergers in the Act.
In terms of the institutional structure of the competition authorities, the Act created three distinct and independent competition authorities: the Competition Commission (headed by the Competition Commissioner which was an administrative body that investigated all mergers and decided intermediate-sized mergers); the Competition Tribunal (an adjudicative body which decided large mergers and appeals against the Commission's decision on intermediate mergers; its members were appointed by the President on recommendation by the Minister of Economic Development) and the Competition Appeal Court (which was a division of the High Court and which decided on appeals against decisions of the Tribunal). The key features of these authorities were their independence which gave decisions credibility, checks and balances in the structure through the separation of investigative and decision making roles and allowing appeals and thirdly their specialist nature in that the field was a specialist field which involved both law and economics.
Mr Steyn said that the Law Society supported the current structure of the competition authorities under the Act and submitted that they contributed to the successful, credible and effective enforcement of the Act.
In terms of jurisdiction and powers of the competition authorities, the Act set out the jurisdiction of the competition authorities including on merger control. Section 3(1) of the Act provided that the Act applied to economic activity within, or having an effect within South Africa. The Law Society supported this approach since it excluded irrelevant matters and it ensured the most appropriate use of the staff and resources of the competition authorities. Furthermore, it was beyond the powers of the competition authority to assess a merger on matters that fell outside the scope of the merger control test. To do so would be unlawful. In addition, it was not the role of the competition authorities to make, regulate or implement other industrial and economic policies which currently fell under the jurisdiction of government department. Hence the jurisdiction and powers of the competition authorities on merger control were appropriate and effective and need not be reconsidered.
The merger control process involved a number of phases. The first phase was an investigation by the Commission. The second phase was adjudication by the Tribunal pursuant to a public hearing. The Act allowed for the participation in the merger control process and Tribunal hearing of all relevant stakeholders. The Minister of Economic Development was supposed to be notified about each merger, as well as other third parties like competitors or customers with a recognised material interest. All participating stakeholders could make representations, lead evidence, cross-examine witnesses and submit documents to the Tribunal. A decision by the Tribunal would be made in which it also gave reasons for its decisions. The tribunal could impose conditions on its approval of a merger. The decisions were subject to appeal. Mr Steyn said that the merger control process promoted a transparent, fair and effective assessment of mergers.
In conclusion it was pointed out that the Act was a product of a thorough policy review and extensive negotiations between all stakeholders including Government, trade unions and businesses. It was submitted that the merger control regime functioned well in practice and it allowed for full stakeholder participation in a public forum. Accordingly, the Law Society stated that there was no need for the South Africa merger control regime to be reconsidered.
Mr Marais asked if Mr Steyn was confident that the Competition Commission and the Tribunal had applied their mind in all cases in terms of their findings in all cases including the Walmart case. In addition, he asked if a challenge by government on the findings of the Tribunal impacted in any way on their reputation and their independence and would that impact on South Africa's global competitiveness.
Mr Mabasa asked if a merger between two huge companies was not a recipe for small companies to be trampled upon.
The Chairperson asked Mr Steyn if as a lawyer he was able to represent everyone and if he was of the opinion that small and medium enterprises were well represented.
Mr Steyn said that he could not respond to the question about the representation of small businesses but with regard to the Competition Act, anyone could lay a complaint with the Commission
The Chairperson pointed out that people and small businesses could only lay complaints if they were aware of their rights and they were aware of the existence of the Competition Commission.
Mr Steyn said that the Commission played an advocacy role.
The Chairperson asked what the role of the Law Society was.
Mr Steyn responded that the Law Society had a committee that focused on competition law. The challenge was to increase advocacy and training and this had to start at universities. He went on to stress that the competition law authorities had been transparent and there was an effective competition framework in the way the Act had been applied. In addition, the Act allowed the Minister and government to be involved in the process hence government could challenge the decisions that were made so long as they were within the framework. If a merger resulted in a monopoly then it was a serious issue. The creation of a monopoly would raise competition concerns. Competition laws were there to protect firms from monopolies.
Ms Tsotetsi asked for clarity with regards to the merger (paragraph 3.2) if the competition authorities were within their mandate.
Mr Steyn responded that the Competition Commission was a creation of the Act and their powers were in the Act and if they went beyond their powers they were doing something that the Act had not mandated.
Ms Tsotetsi asked what the implication was of the competition authorities acting beyond their powers.
Mr Steyn responded that the merger control test said that the Tribunal was supposed to assess the effect of the merger on competition and public interest grounds. The tribunal did not have powers to assess the merger on any other grounds with the exception of the grounds that had been mentioned in the Act.
Economic Development Department submission
Professor Richard Levin, Director General, Economic Development Department, said that the presentation would focus on the impact of the merger and mergers in general on employment, industrial development, local manufacturing and economic development and in essence avoiding referring to issues subject to judicial decision. The Director-General went on to outline the purpose of the Competition Act. The Act also provided for "public interest" issues to be considered, even where competition would not be negatively affected. The Tribunal or the Commission had to consider the effect a merger would have on a particular industrial sector or region, employment and the ability of small businesses, or firms controlled or owned by historically previously disadvantaged persons, to become competitive. In addition section 18(1) of the Act empowered the Minister of Economic Development to intervene in any merger to protect the public interest.
The relevance of government policy was that departments believed that the merger was likely to have a negative impact on employment. Government policy was informed by the unemployment situation in the country. The ruling party manifesto saw employment creation as one of the five key priorities. In addition the New Growth Path adopted by Cabinet in October 2010 focused on employment creation. There were also food security concerns in that if the value chain disintegrated, agriculture, agro-processing and food production would become unviable. In addition the South African economy would become more vulnerable to international price and currency fluctuations and more affected by international food shortages.
The rationale for intervention was that the merger of the size of Walmart/Massmart transaction could undermine government's policies focused on employment creation. Furthermore there was a strong likelihood of significant replacement of domestic purchases with imports.
The Director-General went on to dispel some myths. The first one was that South Africa was adopting a protectionist stance. South Africa had an open trade regime, with lower aggregate tariffs, the trade policy was aligned with the industrial policy. The second myth was that the merger was about foreign direct investment. Massmart was 72% foreign owned and there was unlikely to be a change in foreign ownership. South Africa sough foreign direct investment (FDI) that would help rebuild the productive sectors of the economy. The Director-General dispelled the myth that other countries were much more open to FDI. He gave an example of Canada and the Investment Canadian Act which made provision for a 'net benefit" assessment for FDI assessing. An example was given of how Canada blocked an investment bid by BHP Billiton for Potash. Other myths were that the government sought to protect monopolies, that it was unfair to impose conditions on Walmart, that government sought to disadvantage poorer consumers and that the government' approach was out of line with the rest of the world.
In conclusion the Director-General stated that the government sought to protect the public interest by ensuring that the merger did not undermine employment, industrial development, small business and firms controlled by historically disadvantaged individuals. Government believed that evidence in the possession of Walmart/Massmart could confirm the extent of the negative impact of the merger. The government applied to review the Tribunal's decision on the merger and the process it adopted in the merger hearing. He said that the government supported a transparent, independent and expeditious merger review process, in which all key stakeholders, including government, could engage meaningfully in order to ensure outcomes which were pro-competitive and in the public interest.
Mr Marais asked the Director-General if he was aware that Wesizwe Platinum mine in South Africa had been bought by a Chinese firm and beneficiation would be going to China. He asked if the Director-General had faith in the Competition Commission and if he had knowledge of how many cases the Government and the Minister had appealed against the Competition Commission. In addition, he asked if Government was supposed to have veto powers against the Competition Commission and the Tribunal and, if so, under what conditions. He asked if there was a need to amend the Competition Act.
Mr Mabasa asked if huge monopolies, if unchecked by governments, swallowed small companies and reduced competition and if it was correct for a developing country to have a policy that narrowed the gap between the haves and have nots and at the same time try and reduce poverty.
The Chairperson responded to Mr Marais' question that there was an intention by the Competition Commissioner to amend the Competition Act.
Prof Levin responded by acknowledging the independence of the competition authorities and by expressing his trust and faith in their impartiality. He said that it did not however mean that he was supposed to blindly agree with each and every decision that the authorities made and the legislation provided. In a democracy under the rule of law, people were supposed to be encouraged to use all instruments to engage and contest decisions. Furthermore he pointed out that the Executive was not supposed to have veto powers over the decisions of independent authorities and he was not aware of anything in government which was contemplating veto power. The Act made provision for review of decisions by the Tribunal and hence everything that was happening was within the ambit of the law. Government was not appealing against a decision but they wanted the decision to be reviewed. He did not have the number of cases that the government appealed against the Competition Commission.
The Director-General responded to Mr Mabasa's question by saying that there was a challenge to promote and sustain small and micro businesses. It was important for government to put in mechanisms that allowed for the advancement of small businesses of previously disadvantaged groups and this would allow for the protection of existing jobs and the creation of new jobs and the steps taken would be in line with broad government policy. Such policies would need to narrow the social inequality gap.
Mr Garth Strachan, Chief Director: Industrial Policy, Department of Trade and Industry, responded that he was not aware of the case of the Chinese firm that had been referred to by Mr Marais and hence he was not going to comment. He said that such information could be furnished at a later stage to the Committee. However government would be strongly opposed to beneficiation taking place abroad at the expense of South Africans. Government would intervene if a takeover was at variance with the government's industrial policy.
Mr Duncan Hindle, Special Adviser, Minister of Agriculture, said that there was a need to look at the bigger picture and not to be seduced by immediate and short term benefits.
Mr Joseph Ramagwai Sebola, Acting Deputy Director-General, Department of Agriculture, Forestry and Fisheries, pointed out that the Department promoted local production and local processing.
Ms Stefane Mohale, Director, Department of Economic Development, said that a beneficiation strategy had been released for public comment.
The Chairperson asked if the Department of Economic Development was interfering or intervening.
The Director-General referred to section 18(1) of the Competition Act which gave the Department powers to intervene and not to interfere.
Ms Tsotetsi commended the Director-General for the presentation.
The Chairperson said that after the public hearings, the internal legislature processes would take their course.
The meeting was adjourned.
- SAYC presentation
- Law Review Project submission
- Law Society submission
- Empowerment South Africa presentation
- BlackSash submission
- Free Market Foundation submission
- Minister Joemat-Pettersson submission
- Mr Kurt Illetschko oral presentation
- Mr Kurt Illetschko submission
- Mr Kurt Illetschko presentation
- Labour Research Service submission
- Department of Economic Development, Trade & Industry and Agriculture, Forestry & Fisheries Submission
- Economic Justice Network submission
- We don't have attendance info for this committee meeting
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