Sweet Victory!

 

Windhoek – The tussle and subsequent victory by the Namibian government against American retail giant, Wal-Mart, presents a unique case study that small economies can exercise some form of control over multinational corporations.

The case in which Namibia successfully forced the world’s biggest retailer to agree to certain conditions for its entry into the local market, has gone against general belief that powerful multinational companies have grown beyond the control of local governments.

The American company bought the majority stake in Massmart, which has operations across Southern Africa in Malawi, Namibia, South Africa, Swaziland, Tanzania, and Zambia.

Since, the R17 billion merger deal required approval by local competition regulators, the Namibian Competition Commission (NaCC) spent the whole course of 2011 wrestling with Wal-Mart in the country’s courts to have conditions attached to the merger with South Africa’s third-largest retailer.

The competition commission imposed three conditions: that there be no job losses within two years of the merger; that Wal-Mart allow for local participation; and that the merger not harm local competition.

And late last year, Wal-Mart dispatched a team from Britain to assess the quality of Namibia’s agricultural products – with the intention to strike a procumbent deal with local producers for the supply of its retail chain.

Tembinkosi Bonakele, the former deputy commissioner of the Competition Commission of South Africa has commended Namibia in its handling of the Wal-Mart and Massmart merger, describing it as a very unique scenario.

“The unique thing about Wal-Mart is its size. It really takes scale to another level. But for a small country like Namibia to have wrestled with a giant like Wal-Mart and come out with some form of concessions is something very unique,” says Bonakele.

Bonakele made the comments during a recent public lecture on Namibia’s victory over Wal-Mart.

The public lecture was organised by the competition commission and Polytechnic of Namibia’s School of Economics and Finance.

Although the merger posed little threat to the local economy since Wal-Mart does not compete with Massmart in Namibia the NaCC Chief Executive Officer, Mihe Gaomab II, noted that it was essential to impose conditions on the merger.

For instance, “Wal-Mart committed to establish a programme to develop local suppliers prevented the displacement of certain small businesses that would otherwise have been displaced, given Wal-Mart's proposed entry into areas presently under served by large retailers,” Gaomab II explained.

“As much as we recognise foreign direct investment, we are saying don’t close down our shops; don’t cut off the suppliers that are already there. Employment at all Wall-Mart stores in Namibia has been also safeguarded; we made sure that workers’ rights are protected.”

Gaomab II said Wal-Mart’s entry into the Southern Africa market has generated lots of interest from consumers, suppliers, competitors and governments alike.

“Everybody is watching Wal-Mart. They are going to revolutionise the retail sector in this region, no doubt,” Gaomab II said.

Gaomab II explained that SACU states require an effective merger control regulation ‑ evidence of an increase in cross-border transactions, including investment and business concentrations and alliances. 

“SACU experience has shown that competition issues are not easy to avoid at bilateral negotiations, given the advanced stage of integrating economic activities in the region,” he said.

A 2003 research carried out in SADC revealed that countries without proper enforcement mechanism of competition rules ‑ mergers have produced market structures that have made it easier for a group of firms to cartelise the market, and this has enable the merged entities to act more like a monopolist. 

The report found that most of the SACU members have very few firms in their markets, hence, it is attractive for these firms to merge in order to avoid competition among or between them.

 

 

 

••• Preceded by reputation

 

Bonakele stressed that the hullabaloo regarding Wal-Mart entering the South African market had nothing to do with competition. He believes it was more of local stakeholders being petrified by the sheer size of the American company.

“The unique thing about Wal-Mart is its size. It really takes scale to another level,” Bonakele said.

Last year, the Competition Appeals Court dismissed concerns raised by the South African Competition Tribunal and the departments of trade and industry, economic development and agriculture, forestry and fisheries over possible effect the Wal-Mart could have on the South African economy.

Bonakele stressed that the judge at Competition Appeals Court had no choice but to dismiss the government’s concerns because it was difficult to quantify the potential harm Wal-Mart would have on the local industry.

“There was no evidence and it was difficult to quantify that there will be an increase in imported goods, or that prices will go down. It was more of stakeholders jittery about Wal-Mart – whether they will be able to compete,” Bonakele said.

The Dean of Schools of Economics and Finance at Polytechnic of Namibia, Kofi Boamah, is of the opinion that Wal-Mart was preceded by its reputation. Wal-Mart’s reputation across the globe points to exploitation of workers and bullying the local suppliers.

But the Ghanaian-born academic does not see any potential harm on the Namibian economy. “I would say that we need them. For me, I believe in competition because competition brings quality.

“When you allow companies to engage in monopoly, the ultimate end and aim is to give consumers whatever they want. They don’t take into consideration what the consumer want, they decide what they want consumers to consume, which is not appropriate.

“Organisations like Wal-Mart, it is not the first time we are having them in a small country like Namibia. Look at the Game, look at the Builder’s Warehouse, look at all these companies that are here now, are they Namibian companies – no.

“Why are you scared of another company coming in? We should let them come in and they will still see themselves out – the bad ones go out and good ones will stay.

“In the meantime, consumers will be satisfied by being able to make choices, instead of being restricted by what is in the market. 

That’s the good side of it.”

On the other side, Boamah cautioned that “many of these multinational companies are very dangerous. The concerns that were raised by the NaCC are true”.

“Some of them can buyout local companies, retrench their workers and take over. Because they are big, they enjoy economies of scale, and the small man will not be able to compete with them ‑ in the end they phase out.

“It is important for an organisation like NaCC to serve as moderator, moderating these companies so that we don’t fall in the same trap which some countries have fallen into”.

October 2013
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