Few people in South Africa were surprised when labour union Saccawu said it would challenge the approval of Walmart’s takeover of local retailer Massmart.
Even before South Africa’s competition regulator pronounced on the R16.5 billion deal, the retail workers’ union had said it would appeal against any ruling that did not satisfy it. Walmart’s poor record of labour relations and anti-union history in its home US market – despite a better history in the overseas markets in which it operates – makes it a red rag to any labour activist’s bull.
What was more unexpected, however, was the legal challenge to the May 31 judgment brought by three government ministers. On July 20, the ministers of economic development, trade and industry and agriculture, forestry and fisheries said they would seek a legal review of the Competition Tribunal’s decision on largely technical grounds, claiming they had not been given enough time during the tribunal’s public hearing to present arguments and call witnesses to back up their criticism of the 51% takeover.
In anticipation of large-scale job losses in South African industry as a consequence of rising imports by a Walmart-backed Massmart, the ministers had wanted conditions guaranteeing levels of local procurement placed on the companies – which the tribunal failed to impose. Instead, the tribunal accepted an offer the companies made to set up a fund to develop local suppliers.
The entry of Walmart would force South Africa’s economy open in a way other econ-omies were not required to open, they said.
“This transaction has the potential to have the equivalent [effect] as if we went through another massive [round of] tariff reduction,” trade and industry minister Rob Davies said in August.
BATTLE LINES
The fight over Walmart – the next round of which will happen in South Africa’s Competition Appeal Court on October 20 and 21 – lays bare tensions at the highest levels of policymaking. The very ministers who are opposing Walmart’s entry into South Africa have set out highly ambitious plans to accelerate growth and create 5 million new jobs in the 10 years to 2020.
According to Iraj Abedian, chief executive of Pan-African Investment and Research Services in Johannesburg, the government is divided into idealist and pragmatist camps on the issue of FDI. Idealists want to closely dictate what forms FDI should take to ensure that it doesn’t hamper domestic industry or labour, while pragmatists believe that the country should adopt an open approach to investment. The net result, says Abedian, is an incoherent policy approach to foreign investment. “They end up strategizing on the run on an ad-hoc basis as and when an issue like Walmart comes up,” he says.
It may seem strange that such fundamental questions about South Africa’s economic policy direction are being triggered only now, 17 years after the end of apartheid, by Walmart’s arrival (now a fact, as the companies wasted no time in cementing the deal after winning approval).
It is not unusual, however. State intervention and protection of local economies is a theme the world over in the wake of the global financial crisis and recession. In South Africa, those questions have extra relevance because of the slow pace of democracy to improve conditions for the majority of the country’s poor.
Upheavals in north Africa and the Middle East have stoked concern about how long any country can sustain wide income and opportunity gaps. The latest annual survey by the South African Institute of Race Relations think-tank, shows that despite some improvement, inequalities remain stark. Between 1993 and 2008, average annual white per capita income, measured in constant prices, rose 62% from R46,486 to R75,297. While black Africans saw a larger – 93% – increase, their average salary rose from just R5,073 to R9,790.
In addition, policy is also being contested more openly under President Jacob Zuma than it was under his predecessor Thabo Mbeki. “Ideals are allowed to be debated in public as if the public is an ongoing cabinet meeting,” Abedian says.
Finance Minister Pravin Gordhan plays down the differences, but emphasizes that certain basic policies will not change.“We do have debate, but today, if you go to any country around the world, there are very similar debates as well,” he says in an interview with Emerging Markets.
“In South Africa, like anywhere else, you have very sound policies that don’t need any change. For example, pursuing counter-cyclical fiscal policy is a sound principle. It’s something we’ve consistently followed, and we won’t change it. Other elements of macroeconomic policy have been providing a stable environment for business to operate.”
Aubrey Matshiqi, a political scientist and research fellow at the Johannesburg-based Helen Suzman Foundation, is more approving, saying debate is necessary – despite what business interests say – to confront the country’s underlying problems of inequality.
“As South Africa, we want to keep our democratic cake and eat it. Democracy is sound when in discourse we hear views that coincide with ours. The moment our views are challenged, we blame the president for having too loose a hand,” he says.
Symptomatic of Zuma’s looser hand on policy – and his need to accommodate his left-wing labour allies – was the creation in 2009 of the economic development ministry headed by Ebrahim Patel, a former clothing industry union official.
JOB CREATION?
A ministry not yet two years old last November published an ambitious economic policy document specifying a faster growth and the creation of five million jobs in the 10 years to 2020. Such a wide-ranging plan will live or die on the cooperation of, and coordination with, departments as diverse as treasury, mining, land and rural development and agriculture, yet no agreement was reached before the plan was published.
It also raised questions about the government’s ability to implement a vision. Ratherthan create jobs, in fact, the economy has continued to shed them this year.
Matshiqi says it takes two to three years for any new bureaucratic institution to develop the capacity it needs to function. However, once Patel’s ministry does get over its teething pains, economic policy development in South Africa may become more contested terrain, especially given the powerful Cosatu labour federation’s wish for it to take some authority away from National Treasury, which they regard as too powerful and unresponsive to the needs of the country’s poor.
Abedian says such public debate on fundamental policy issues is damaging. “It’s not healthy for creating confidence, for building the brand that says ‘I know what I want, these are my rules of engagement and I want to go along this trajectory’. The trajectory is defined as being hammered out under the public discourse. That’s the danger – the subtext is that nobody has defined what they want to do. Everything is up for grabs, is up for debate. That’s not good for investment, job growth,” Abedian says.
In the fight over Walmart, there is a trade-off between gains government hopes to make from intervening to secure more guarantees for local industry and the potential damage to the country’s image as an investment-friendly destination.
“We’ve obviously considered it,” Patel said in early September. He said, however, that business people are “hard-nosed” and focus on long-term opportunities for growth. As a consequence, levels of FDI flow do not follow perceptions of investment friendliness, he said.
Open battles over policy are part of the backdrop to a crucial conference of the ruling ANC next year that will decide whether Zuma is re-elected as party president. They are a crucial tactic for Zuma. As Matshiqi points out, while the president may appear to be less in control of policy than his predecessor Thabo Mbeki, he is more in control of the party. And it was the last such party conference that saw Mbeki ignominiously defeated by Zuma.
Abedian is concerned, however, that such an open debate will see the country miss investment opportunities it so badly needs. “The developmental state means talk little and act too much. We’re doing the opposite!”