Prudence needed in Walmart deal

David Lewis, the head of Cosatu’s Corruption Watch, is not given to outbursts but he is prone to speaking his mind in a considered and rather fearsome fashion. As a former Competition Tribunal chairman and as an academic well-versed in industrial policy, it is probably worth paying some attention to his considered thoughts on the manner in which the Economic Development Department (EDD) has intervened in the merger between Massmart and Walmart.

It was perhaps inevitable, given the nature of the parties involved and the implications of the deal, that the completion of this merger was going to involve a rather unedifying process. Indeed it does seem that competition law, including the creation of precedent, is no different from any other law making and as Otto van Bismark is reputed to have said: “If you like laws and sausages, you should never watch either one being made.”

Presumably Lewis, who expressed his concerns at a Wits Law function last week, is not squeamish about the concept of the government being allowed to intervene in the Competition Tribunal’s hearings. The Competition Act provides for the minister of economic development to intervene. This provision seems appropriate in the Walmart-Massmart merger, which has the potential to alter the local retail and manufacturing landscape. It would have been remiss of the department not to participate in the proceedings in a bid to protect the long-term interests of the economy.

The South African government is not alone in attempting to influence the nature and direction of foreign investment flows. Research by the Treasury indicates that South Africa has one of the least restrictive and intrusive approaches to foreign investment. It maintains a generally hands-off position despite growing evidence that foreign investment does not always generate the sort of benefits claimed by its advocates.

Given that Walmart has only one objective to consider in its foray into Africa, namely the generation of returns for its shareholders, it would have been remiss of the EDD not to get involved. In a global economic environment that is struggling to deal with the fallout from an obsession with short-term private sector profit generation, few commentators would have challenged the EDD’s right to get involved in the merger proceedings.

Sadly, however, it scores badly in the execution of its involvement and consequently left itself open to the sort of criticism levelled by Lewis. For those who do not recall the details involved in the proceedings, the Competition Appeal Court’s ruling handed down last month provides a useful recap. While the court appears to have adopted an even-handed approach to the matter, its account of the EDD’s involvement highlights the concerns raised by Lewis.

From the start, the EDD’s attempts to run a negotiation process in parallel with the Competition Commission’s investigation caused problems and might have resulted in an early “own goal” given that it encouraged the commission to recommend an unconditional approval although the negotiations had secured nothing.

The EDD’s complaints about the tribunal’s scheduling inflexibility would have been more persuasive if the EDD had been more consistent and timely in its involvement. As it was, the tribunal was correct in not allowing the department an indefinite amount of time to sort out the precise nature of its intervention.

If the EDD is to avoid one of the country’s most successful new institutions from degenerating into a messy sausage factory, it will need to be more circumspect in its involvement in merger activity.

This article originally appeared in the Business Report on 12 April 2012.