NUMSA Submission on the Wal-Mart/Massmart Merger to the Portfolio Committee on Economic Development 20 July 2011

The National Union of Metalworkers of South Africa (NUMSA) has a membership of over 250,000, in the engineering, metal, white goods, packaging and automotive industries, amongst others. We therefore have an interest in this matter.

Our opposition to the proposed Wal-Mart/Massmart merger must be understood and located within a broader economic, political and legal context.

South Africa's biggest challenges by far are its massive levels of unemployment, poverty and inequality. Government has clearly placed finding a solution to these three core challenges facing South Africa at the top of its agenda.

In 2009 President Jacob Zuma said in his inaugural State of the Nation Address: "The creation of decent work will be at the center of government policy". Government has clearly placed finding a solution to these three core challenges facing South Africa at the top of its agenda.

In the submission before you we have tabled and identified problems and challenges that makes this merger to be completely against the objectives of what we have set ourselves as a country particularly as it relate to eradication of the triple crisis of unemployment, poverty and  inequalities.

What are some of these challenges that require closer interrogation insofar as the Wal-Mart deal is concerned?

1. No government in the world that find itself with such huge developmental challenges as our government, that has committed itself to a new economic growth, to drive industrialization, a government that is serious about retaining and defending it's productive capacity with the sole intention of creating decent work to meet the needs of the vast majority who are victims of the tripled crisis of unemployment, poverty and inequalities can allow a such deal as the one of Wal-Mart to go though.

2. The decision of the Competition Commission to allow this deal is biased to the imperialist interest driven by Wal-Mart and is totally at odds with the national agenda that seeks to grow and build our economy, growing our productive capacity and to create decent jobs in the interest of responding to our immediate social needs.

The above experience illustrate a deeper crisis imposed in our country by the market driven nature and content of the Competition Act and other pieces of legislation where we have witnessed a take-over of strategic industries, assets and the economy. Whilst we have been told by many that the South African government must not intervene in the economy, Standard Bank is owned 20% by the Chinese State Bank, Absa is owned 51 % by the British.  

To those who those claim that the prohibition of the proposed merger would affect investor confidence in South Africa and discourage Foreign Direct Investment, Numsa has always distinguished between genuine Foreign Direct Investment and imperialist take overs. .

This deal cannot be support because of its nature and character as stated above but also because of Wal-Mart's global notorious disrespect for worker rights, the firm's specific business model and practices that will have a disastrous impact on South Africa's economy.

We want to submit that in our country the retail sector is important in its own right but cannot be seen in isolation from its supply chain and the manufacturing, food, agriculture, agro-processing, clothing and textile, chemical and transport industries that are involved in the production of goods for sale through retail outlets. The retail sector acts as the intermediary or conduit between those productive sectors and the end-consumer.

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

This would have several harmful effects on both the retail sector and its suppliers. Economists have studied this phenomenon and describe, among others, the waterbed effect, the spiral effect and the creation of monopsony (single customer market - market in which there is only one buyer) that follows the arrival of Wal-Mart's business practices and business model in a given market or sector.

It is our submission that there are two areas of concern in relation to employment issues. The first is the effect on employment within the wholesale/retail sector itself and the second on the local industries and businesses that supply the sector.

Since the Competition Tribunal's decision, Pick n Pay has announced the retrenchment of more than 3000 workers. It is pushing the bounds of credibility to believe that these job losses have nothing to do with the arrival of Wal-Mart.

We believe that in order to compete with Walmart, the big competitors such as Pick n Pay and Shoprite Checkers will be forced to cut costs and they will attempt to do this by reducing labour costs.

The effect on employment in smaller retail outlets may be far greater. Wal-Mart has already indicated that it intends to embark on an aggressive expansion programme and advertising campaign.

This we contend will lead to the closure of many small retailers particularly in the rural areas. Many of these small outlets are owned by historically disadvantaged people. It will also bring job losses which will not necessarily be replaced by Wal-Mart jobs.

The committee's attention is drawn to a study by the University of Bonn on "The Effect of Wal-Mart on Local Labour Markets". The research was done in the United States.
The research found that every store that opened destroyed three local jobs for every two created. Further, retail employment was reduced by an average 2.7% in every state where Wal-Mart sets up in business. (Neumark D, Zhang J and Ciccarella S, 2007, "The Effects of Wal-Mart on Local Labour Markets" The Institute for the Study of Labor (ZA))

In another study in the United States, the Economic Policy Institute showed that Wal-Mart's trade deficit with China alone eliminated 196,000 US jobs between 2001 and 2006. According to the research 133,000 of the jobs were manufacturing jobs. (Scott R E, 2007 "The Wal-Mart Effect: Its Chinese Imports have displaced nearly 200,000 US Jobs". June 26 EPI Issue Brief #235).

Using the University of Bonn study, the Southern African Clothing and Textile Workers Union has worked out that if Wal-Mart opens 150 new food outlets, whilst 37,500 jobs would be created some 56,250 jobs would be destroyed in the next five to ten years.

This means a net job loss of 18,750 in retail alone. This should be considered in relation to the quote by the State President which opens this submission.

These job losses are however just the fore-runners of the job losses further upstream.

The "Framework for South Africa's Response to the International Economic Crisis", states that "All the social partners, including parastatals, will encourage local procurement of supplies, services and other requirements wherever possible in order to maintain, and increase local output and employment levels. This applies particularly to the large procurement programmes attached to major public and private investment projects....."

It is our contention that while not being opposed to foreign investment, any such investment has to assist with the achievement of our own societal and economic goals.

NUMSA believes that Wal-Mart's history of sourcing from cheap labour countries will have a disastrous effect on local producers and employment in local manufacturing.

We believe that this will lead to further unemployment. There is now only one producer of "white goods" left in South Africa. This transaction will result in decreased demand for locally produced products and increase the demand for imported goods.

It is not fanciful to see a time when the last remaining home producer of white goods will disappear.

Government's New Growth Path has as its centre the creation of jobs. Any investment local or international must fit into this and any investment which comes at a cost of jobs is too expensive.

Wal-Mart's attitude to procurement and its intentions can be seen by its statement from 2010 and set out by SACTWU in its submission to the Competition authorities: "As the largest retailer in the world, Wal-Mart is renowned for its operating, retailing, marketing and merchandising skills and its leading edge procurement and supply chain capabilities developed over many years of investing and trading across developed and developing countries".

The announcement continues, "By gaining access to Wal-Mart's experience and capabilities relating to procurement and supply-chain, particularly in relation to fresh foods retailing, Massmart will be able to deliver a wider selection of quality products which are more consistently available to customers".

We believe that the entrance of Wal-Mart into South Africa will lead to closure of suppliers and manufacturing industries that supply goods and services to the retail sector.

For NUMSA members this could spell disaster in the white goods and packaging industries amongst others.

If government is to achieve its aim of job creation it has to be done on the basis of an expansion of manufacturing industry and the creation of decent jobs.

Wal-Mart's arrival for all of the reasons given above is a recipe for job losses. Jobs which are created in the Massmart stores are likely to be casual rather than permanent decent jobs. NUMSA does not believe that the conditions imposed on Wal-Mart are sufficient.

Wal-Mart has annual revenue exceeding the gross domestic product of South Africa. To force it to set aside such a small amount for developing local industry is an insult to those who will lose their jobs.

The Tribunal's conditions relating to SACCAWU are not sufficient. Wal-Mart throughout the world operates on an anti-union basis and there is no doubt in our mind that they will pursue the same policy in South Africa whilst paying lip-service to the labour dispensation.

Casual workers are rife in the retail industry and are notorious difficult to organise. Atypical employees are more reluctant to join unions.

Wal-Mart is not some small retailer looking to enter the South African market and bringing in investment. It is a giant with as is set out above has an annual revenue which exceeds the GDP of South Africa.

The anti-union pamphlet placed before the Tribunal should have raised a red flag and sent alarm bells ringing. Wal-Mart did not deny it was their pamphlet; their witness simply said he had not seen it.

Given the history of Walmart we submit that it is clear that they will not contribute to the creation of decent jobs.

At a time, when South Africa, through the legislative process is attempting to deal with the issue of atypical forms of employment we have opened the door to a company with a record of forcing down wages and bad working conditions.

We would contend that even on the issue of competitiveness the Competition Authorities got it wrong. Wal-Mart does not add to competitiveness.

NUMSA supports the work of the Competition Authorities in working to eradicate monopolies. There is no doubt in our mind that action is necessary. We would argue however that allowing Wal-Mart into the market will not achieve this aim, since internationally, the entrance of Wal-Mart into a market has had the opposite effect.

In a case study in 2004 entitled, "Wal-Mart's Impact on the American Supermarket Industry" and focused on Oklahoma, Doctor D Rogers set out the following.

Between 1998 and 2003, in the Oklahoma City metropolitan area, 17 new Wal-Mart grocery stores had opened. This had resulted in the closure in the same area over the same time to the closure of 31 chain and independent grocery stores. This is almost two gone to one new!

It is submitted that this and other research showing the same or similar trends was placed before the Competition Authorities but seems not to have been given the weight it should have been when the decision to allow the acquisition was made.

NUMSA also submits that the well documented incidents of unlawful competitive conduct which were placed before the Competition Authorities should have been given more weight in the final decision.

Research of the company's behaviour shows a record of "predatory pricing". Wal-Mart sets its prices low for a certain period to force competitors out of the market. Although this form of anti-competitive action is unlawful in terms of the section 8(d) (iv) of the Competition Act, it is also unlawful in other countries where Wal-Mart has been prepared to ignore the law in order to build its share of the market.

In an article in the Wisconsin State Journal in August 2001 entitled, "Wisconsin Sets Limits on Low Prices at Wal-Mart" the writer, Kades, D, gives details of a case where the company had been charged with 352 charges of contravening the State's Unfair Sales Act by the use of predatory pricing.

These charges came after seven (7) years for attempting to deal with the problem through cautions.

It is clear that its sheer size allows Wal-Mart to successfully evade the law and disregard legislative provisions. We submit that it seems likely that the Competition Authorities can look forward to years of legal battles against Wal-Mart at huge public expense.

Wal-Mart has also admitted guilt to price fixing of some dairy products in the United Kingdom. This is from the Office of Fair Trading, "OFT welcomes early resolution agreements and agrees over 116M pounds."

It is submitted that Wal-Mart with such vast revenue can afford to take chances in challenging country legislation in the pursuit of profit.

Having made these serious observations, NUMSA wish to make the following submission as the necessary intervention required to deal with market oriented merger of Wal-Mart and Massmart:

1. In the interest of the vast majority of our people who are victims of the triple crisis of unemployment, deepening poverty and worsening inequalities, a high powered Presidential Commission of Enquiry must be established with immediate effect to investigate;

(a) The severity of the impact on this deal in the South African economy.

(b) The severity on employment,  on local business, it's impact on local competition,

(c) Any effect on current levels employment; promotion of precarious and atypical work

(d) Any effect it may have on a particular industry or sector of the economy and above all it's impact on the structure of the economy

(e) Any effect on the ability of small business or firms owned and/or controlled by historically disadvantaged persons to become competitive.

(f) The discrepancy between government's economic growth thrust which seeks to increase industrial capacity and the deindustrialization that will take place due to the importation of durable consumer goods by Wal-Mart.

2. The commission will have to determine whether the merger in it's current form would not detrimentally impact on the following fundamental imperatives;

(a) Stimulating local procurement and local content.

(b) Guarantee trade union and worker rights in the operations of Walmart

(c) Compliance with south Africa's economic polices ie trade,industrial and competition policies.

(d) Feasibility to impose a system of monitoring which will enforce consistent compliance thereby ensuring that our industrial program is not being destroyed and undermined by the Wal-Mart deal.

Numsa is convinced that the proposed high powered Presidential Commission and its investigation will give us negative outcomes and we therefore demand that its findings must be the basis that empowers our government to take a political economic decision in the interest of the country agenda for development to reverse this deal.

In conclusion it is our submission that decisions in terms of the Competition Act cannot be made in isolation from the economic imperatives of South Africa. To return to where this submission began the government has committed itself to a job creation/decent work agenda and any decision made by tribunal such as the Competition Tribunal and which will have an effect on the economy must be made with the aim of achieving this end.

We submit that in this case an opportunity was lost to state clearly that public interest issues in competition matters are important and that short terms low price gains cannot be more important than that of preserving jobs and manufacturing industry within the South Africa economy.

Nothing in this submission should lead you to believe that NUMSA thinks that the retail sector is currently perfect. We believe that there are huge problems, to mention only one of casualisation of labour. We do not believe however that allowing Wal-Mart into South Africa is a solution to any such problems, and could indeed make them worse.

Presented by:

Irvin Jim

Numsa General Secretary
Numsa Head Office - Johannesburg
20 July 2011, National Assembly, Republic of South Africa

Issued by NUMSA, July 20 2011

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