THE WALMART/MASSMART MERGER
PRELIMINARY SUBMISSION BY BUSINESS UNITY SOUTH AFRICA (BUSA)
TO THE PORTFOLIO COMMITTEE OF ECONOMIC DEVELOPMENT,
PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA
19 JULY 2011

1.	BACKGROUND

BUSA is a confederation of business organisations including chambers of commerce and industry, professional associations, corporate associations and unisectoral organisations.  It represents both big and small business across sectors on macro-economic and high-level issues that affect it at the national and international levels.  BUSA’s function is to ensure that business plays a constructive role in the country’s economic growth, development and transformation and to create an environment in which businesses of all sizes and in all sectors can thrive, expand and be competitive. 

As the apex business organisation in South Africa, BUSA represents the views of its members in a number of national structures and bodies, both statutory and non-statutory. BUSA also represents businesses' interests in the National Economic Development and Labour Council (NEDLAC).

We view our submission as important to our efforts to support Parliament in its legislative and oversight activities, as well as the high priority that BUSA places on engaging constructively with the Executive, Members of Parliament and social partners alike.

2.	INTRODUCTION

BUSA appreciates the opportunity to submit comments on the Walmart/Massmart merger to the Portfolio Committee of Economic Development. BUSA has open lines of communication with the competition authorities, with whom we co-operate annually in stakeholder engagement events to help promote competition and responsible corporate citizenship in our economy.

We noted the indication that submissions may cover the likely impact of the merger, particularly on employment, industrial development, local manufacturing and economic development; as well as on conditions imposed by the Competition Tribunal. The comments contained in this submission are on select issues within this framework that the broader business community was able to reach consensus on in the time allotted. 

The remainder of the document commences with some general remarks on the notice periods for submissions to Parliamentary Committees, before we make the opening statement on the business view of the Walmart/Massmart merger. The remaining sections then interrogate the perceived policy vacuum around what is deemed in the public interest and what sort of conditions should be imposed in this regard; raise some concerns in relation to local procurement provisions and the use of the competition authorities to make determinations in areas where statutory provisions already exist.

3.	NOTICE PERIODS FOR SUBMISSIONS TO PARLIAMENTARY COMMITTEES

BUSA respects the role the Parliament plays in our democracy. We have to this effect gone as far as to establish a Parliamentary Office within a stone’s throw from Parliament to ensure that there is a proper platform for communication between Parliament and organised business. Because we are supportive of Parliament’s role, we also want to ensure the quality and inclusiveness of our contributions to the work of the Committees of Parliament. 

In this regard, we have to at the outset mention our concerns about the short notice  period (5 working days) allowed for written documents to be submitted in support of submissions for this hearing. This is half the minimum period normally provided to stakeholders who would like to respond to calls by Parliamentary committees for written submissions. For federated, voluntary associations such as BUSA and a number of its member organisations, ensuring formally mandated viewpoints tailored to the requirements of each public hearing requires the exertion of significant effort to ensure the necessary inclusivity. In support of this very important quest we humbly request the Committee to grant us at least 10 working days in which to submit future comments. 

4.	GENERAL STATEMENT IN RESPECT OF THE WALMART/MASSMART MERGER

BUSA saw the Competition Tribunal’s decision on the Walmart/Massmart acquisition as a pragmatic one. The announcement that the acquisition had been approved with conditions on local procurement, recognition of unions and on retrenchments represented an outcome most of the parties involved should be able to accept. It appeared to be a realistic solution to what has been a very complex scenario. At the same time, the limits of the acquisition authorities’ mandate as set out in the announcement should be respected by all parties.

BUSA’s position is that the acquisition will increase competition in the retail sector and is thus in line with the provisions of the New Growth Path in seeking to raise levels of competition in the SA economy. It must be remembered that the competition authorities must also be seen to be acting in the interests of consumers.

BUSA still needs to emphasize that the laws and regulations governing foreign investment of any type should as far as possible be clear, predictable and transparent. The timelines involved should also be as short and predictable as possible. In this regard, we hold the process as it related to the Walmart/Massmart merger as less than ideal. This is especially so if one considers that South Africa must become a most favoured destination for foreign investment to facilitate economic growth, if we are to realise the ambitious job creation targets that we have set for ourselves.

5.	POLICY VACUUM AROUND PUBLIC INTEREST AND THE IMPOSITION OF CONDITIONS

The debate in the Competition Tribunal around the public interest issues surrounding the Walmart/Massmart merger and the potential conditions that should be imposed on the merging parties highlighted a significant policy vacuum in South Africa. Not only is there no clear definition of what types of public interest issues need to be considered in a transaction such as the Walmart/Massmart merger, but there is no certainty as to what sorts of conditions could be imposed in order to address any public interest concerns. Furthermore, there is no clarity as to the appropriate venue or mechanism for the consideration of these types of issues. 

Despite this less than ideal situation, however, a full airing of perspectives occurred, due process was followed, and the merger was approved, with certain conditions imposed. That part of this story is now behind us and there should be no ex-post facto attempt to intervene in this transaction. The focus now must be on ensuring that we address this policy vacuum before we are again faced with a similar situation. 
Steps have already been taken in this direction. In February 2011, the National Treasury released a discussion document entitled “A review framework for cross-border direct investment in South Africa”. In this document, Treasury indicated that while “South Africa is committed to maintaining an open environment for investment … in the acquisition of existing domestic business, the benefits of foreign investment must be balanced against possible risks for local employment and production … as well as broader economic concerns…” The stated purpose of the discussion document is to enable Treasury to develop regulations for cross-border direct investment that not only address the public interest issues but also “support consistency in policy on inward investment across government departments” and “provide policy certainty for investors through the transparency of decision-making”. In summation, the new policy framework is “intended to provide a transparent mechanism for assessing the balance of public interests”. 
BUSA supports the introduction of measures that will enhance certainty, transparency and clarity around: 
•	the specific public interest matters that will be considered when assessing whether to allow foreign acquisition of South African assets; and 

•	the types of conditions that may be applied to proposed mergers or acquisitions, when deemed necessary for reasons of public interest. 

6.	CONCERNS IN RELATION TO PROCUREMENT PROVISIONS

A significant concern throughout the consideration of the Walmart/Massmart merger has been the protection of the local manufacturing industry, whose health is considered vital for job creation. This is a concern that BUSA shares and actively pursues in forums such as the New Growth Path and engagements on the Industrial Policy Action Programme. 

With respect to ensuring support for the local manufacturing industry, government has sought concessions to have Walmart agreeing on certain targets for local procurement. This may be quite understandable in a country with high levels of unemployment and a struggling manufacturing sector. It is, however, also contentious in light of the fact that there are no stipulations on local procurement for long-established domestic retailers; there is only an assumption that they are known to be buying local to a certain extent. 

Under the General Agreement on Tariffs and Trade Article (GATT) III, as argued correctly during the proceedings at the tribunal, the same local procurement requirements that the government is seeking to have imposed on the merged entity would, by implication, have to apply to the domestic retailers as well. GATT Article III requires that foreign entities be afforded the same treatment as local entities. Any stringent requirements on foreign entities will be considered to be a violation of GATT Article III. This could result in South Africa being brought before the WTO dispute settlement body by the US. The General Agreement on Trade in Services (GATS) is equally applicable in this matter as well, as South Africa has opened up for foreign retailers on its GATS commitments. 

7.	THE USE OF THE COMPETITION AUTHORITIES TO MAKE DETERMINATIONS IN AREAS WHERE STATUTORY PROVISIONS ALREADY EXIST

In addition to determinations around procurement, findings were also sought by labour in respect of the reinstatement of employees who had been retrenched by the domestic partner to the merger for operational reasons in 2010. Consistent with the allusion to a policy vacuum in the previous section, the question arises whether the Competition Tribunal is the place where such issues ought to be dealt with? This is rightly a sensitive concern, but one we feel should warrant consideration as long as there are extensive statutory provisions and institutional infrastructure through which adherence to employment laws and sound labour relations are already being regulated. Once the acquisition was approved as recommended by the Competition Commission, Massmart like any other business operating in South Africa had to adhere to South African laws and regulations as it has done previously in any event. This includes laws relating to labour and employment.

The Competition Tribunal is not versed in labour matters and it is not seized with these powers. It is undesirable that it involves itself in labour matters which are best left to the labour laws and processes provided for regulating the employment relationship in terms of such laws.  
 
The concern here is to ensure that South Africa sends a clear and consistent message to international investors about the regulatory and legislative regime that governs foreign direct investment in the country. The business community across the globe needs a predictable environment in order to be able to make investment decisions. It was therefore important that we use the correct institutions for the clear purpose that they were intended. The Competition Tribunal is not versed in labour matters and it is not seized with these powers. It is undesirable that it involves itself in labour matters which are best left to the labour laws and processes provided for regulating the employment relationship in terms of such laws.