Can Wal-Mart bring happy days to Africa?
South Africa, one of the fastest-growing economic regions in the world, seems a natural place for Wal-Mart to invest, say economists. But South African unions are pushing back.
Johannesburg, South Africa — Can Wal-Mart bring happy days to Africa? South Africa’s top union leaders don't think so, and they're ramping up pressure to make sure the Arkansas-based retail giant fails in its multibillion dollar bid to take over Africa's biggest general merchandise retailer.
Wal-Mart Stores Inc. announced Monday it placed a $4.25 billion offer to buy up the shares of South African retailer Massmart Holdings Ltd. as a way of entering South Africa's market. Wal-Mart executives called the deal “a great opportunity."
Many economists also see Wal-Mart’s entry as a good sign for African consumers, and in particular South Africa’s growing black middle class.
“You’ve got a growing African class of consumers who can afford to buy more consumer goods,” says Aly-Khan Satchu, an independent investments expert and market-watcher from Nairobi. “I think this is going to be a win for Wal-Mart. It shows that corporate America remains nimble and it shows that they are starting to change the way they view Africa, no longer just as a source of commodities and raw materials, but as a market for consumers.”
A 'compelling growth opportunity'
As the most developed country in sub-Saharan Africa, with a stable government and a steady growth rate of 7.5 percent over the past 16 years, South Africa is an attractive base for any company thinking of expanding into Africa, one of the fastest-growing economic regions in the world.
"South Africa presents a compelling growth opportunity for Walmart and offers a platform for growth and expansion in other African countries,” regional head Andy Bond said in a company statement (pdf) announcing the bid to buy Massmart, which owns 290 stores in 13 countries in Africa. “South Africa possesses attractive market dynamics, favorable demographic trends and a growing economy.”
Wal-Mart is used to taking risks. In July 2006, the retail chain shut down all of its 85 stores in Germany after its American model failed to take off with Germany’s quality-conscious consumers. Wal-Mart seems to be having a better run in India, with nearly 140 stores up and running by December 2009, and plans of further expansion. (Watch this time graph of Wal-Mart's domestic and international growth.)
But as a recent three-week-long public-sector strike shows, South Africa is not an easy market to enter. Nearly one-quarter of its 49 million citizens is unemployed; 40 percent live at or below the poverty line.
Labor unions 'alarmed'
The country’s largest trade union, COSATU, which makes up the largest supporter of South Africa’s current ruling left-leaning coalition, has already announced its opposition to Wal-Mart’s entry, and South Africa’s penchant for licenses and other bureaucratic paperwork could very well stall Wal-Mart’s grand opening for months, or more.
In a statement Tuesday, the Congress of South African Trades Unions (COSATU) said it was "alarmed" by the bid and "will oppose the setting up of any Walmart stores."
“Wal-Mart has a reputation for undermining labor standards, and we can expect some of that in South Africa,” adds Tony Ehrenreich, secretary for COSATU in the Western Cape province. “Wal-Mart has the reputation for being a low cost producer of goods, that leads to a dip in domestic South African goods. That will lead to closures in South Africa’s manufacturing sector. This is not good for South Africa.”
South Africa does “have a very high level of interference,” admits independent financial analyst Mr. Satchu, noting the power of South Africa’s trade unions. “I don’t know how Wal-Mart is going to handle that. But it’s important for people to understand the necessity of not missing the boat” on Africa’s growth.