Joint Media Statement by the Ministers of Agriculture, Forestry and Fisheries, Economic Development, and Trade and Industry on the Heads of Argument for the legal review and appeal against the decision of the competition tribunal in the Walmart/Massmart merger case

4 Oct 2011

Joint Media Statement by the Ministers of Agriculture, Forestry and Fisheries, Economic Development, and Trade and Industry on the Heads of Argument for the legal review and appeal against the decision of the competition tribunal in the Walmart/Massmart merger case

The Walmart acquisition of Massmart can have a potentially devastating effect on local jobs and the transaction should be sent back to the Competition Tribunal for a proper consideration and more effective conditions to be imposed.

This is the essence of the Heads of Argument filed yesterday by three government departments in the Walmart/Massmart merger case.

The three departments - Agriculture, Forestry and Fisheries; Economic Development; and Trade and Industry - set out their grounds for a legal review and their submission in respect of South African Commercial, Catering and Allied Workers Union (SACCAWU's) appeal of the decision by the Competition Tribunal to approve the merger with minimal conditions.

They argue that the Tribunal's conditional approval of the merger did not meet the minimum public-interest benchmark set out in the Competition Act and that the Minister of Economic Development was bound by the law and the constitution to intervene in the proceedings to ensure realisation of the objectives of the Competition Act.

Measured by its impact on employment and industry, the merger is the most significant ever to come before the competition authorities.

Minister of Economic Development Mr Ebrahim Patel said that government has argued that the merging parties will increase imports, relying on Walmart's vast and extensive international procurement capability. The Tribunal itself agrees that imports will increase, but did not in its hearing allow for thorough deliberation regarding the extent of the harm that it will cause.

"We are concerned that tens of thousands of jobs could be lost in the local factories that currently supply Massmart and other local retailers. We have intervened in the proceedings as government to support local jobs and industrial capacity in South Africa", Minister Patel said.

Minister of Trade and Industry Dr Rob Davies said that Massmart has claimed in the press that it will create 15 000 retail jobs in the next three years. No evidence was led in the Competition process for this claim. Given a shift to imports, Walmart's growth is likely to come at the expense of large numbers of jobs in manufacturing. Had Walmart been compelled to provide more information on the growth of imports, the true extent of job losses in South Africa would have become evident. Walmart refused to provide such information.

"The Tribunal failed to take into account the enormity of the likely impact of the proposed merger on the South African economy. It will result in the closure of many small, medium and micro enterprises (SMMEs) and firms owned by historically disadvantaged individuals.The country's manufacturing base could be further eroded and that capability, once lost, would take many years to win back," Minister Davies added.

Minister Tina Joemat-Pettersson said that the implications of a displacement of local suppliers by Massmart are well understood by the agricultural sector in terms of lost income and likely losses of jobs. It appears that in some industries this has already taken place since the merger.

"For example, olive farmers in some parts of the country have been advised that they should no longer expect orders from Makro (a subsidiary of Massmart) for locally-produced olive oil, as they intend to import cheaper products. If unchecked the shift to imports is likely to have a catastrophic effect on local farmers and agro-processing manufacturers. The sector has been highly supportive of government's continued intervention in this case," Minister Joemat-Pettersson said.

Government is requesting the court to send the matter back to the Competition Tribunal for a more considered evaluation based on adequate information from the merger parties with a view to much stronger conditions being imposed.

The review is based on the fact that the Tribunal unreasonably denied the government departments access to information in the possession of the merging parties. This would have assisted in quantifying the public-interest harm that will arise out of the merger.

Similarly, the Tribunal severely curtailed the time set aside in its calendar for the hearing, and therefore denied a number of witnesses the opportunity of testifying about the likely harm. In addition, those witnesses that were heard could not be fully cross-examined.

Although the Competition Act empowers the Tribunal to determine its own procedures, this should not be at the expense of a thorough evaluation of the likely impact of the merger.

The appeal in which the government departments are also participating is based on government's view that the Tribunal has not correctly interpreted the Competition Act.

The Act states clearly that its objects are, amongst others: to promote employment and advance the social and economic welfare of South Africans; to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; and to promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.

The Act requires that the Tribunal apply its mind to matters of public interest including the effect that the merger will have on: a particular industrial sector or region; employment; the ability of small businesses, or firms controlled by or owned by historically disadvantaged persons, to become competitive; and the ability of national industries to compete in international markets.

The three Ministers emphasised that South Africa remains warmly disposed to foreign direct investment, particularly in the key industrial sectors identified in the New Growth Path and Industrial Policy Action Plan (IPAP2). Such Foreign Direct Investment (FDI) should contribute to growth and job creation, not damage industrial capacity, they added.

"The government departments have intervened to safeguard the public interest and in the accordance with the rule of law. In bringing the review application and in participating in the appeal, government is of the view that the Tribunal did not properly apply its mind to the crucial role it must play in evaluating an extraordinary merger which has very serious implications for the country. The Competition Tribunal should be asked to reconsider the merger application, determine the extent of possible interest harm and to impose conditions that will fully and adequately address the harm," Minister Patel said.

The review and appeal will be heard in the Competition Appeal Court on 20 and 21 October 2011. If not completed, proceedings may also continue on 24 October.

Statement issued by Selby Bokaba, Department of Agriculture, Forestry and Fisheries, Zubeida Jaffer, Department of Economic Development and Sidwell Medupe, Department of Trade and Industry, October 4 2011

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