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BORAINS BRAINS Foreign Investment in South Africa Writer Nic Borain
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oreign investment is a good thing, right? Especially ‘bricks and mortar’ foreign investment, better than the short term flows of ‘hot money’ that flood in and out of our markets, destabilising almost any financial instrument you could name. Direct foreign investment helps redress the fact that our national books do not balance with the rest of the world’s, basically there is more money, goods and services flowing out of our country than flow back in. It’s called BOP (unbalanced balance of payments). Foreign direct investment (FDI) shows local and domestic investors that: the rest of the world trusts the country; global corporations believe they can make a profit here; that the legal regime is stable and that their assets and personnel are safe enough to justify the investment. FDI brings technology and skills into the country and it exposes our domestic industry to best-practice competition, systems and management. Doesn’t it? So why has the government come out in such stern opposition to the Walmart acquisition of a controlling stake in Massmart (the holding group of such well know domestic brands as Macro, Game and Builders Warehouse)? In November 2010 Walmart announced plans to buy 51% of Massmart in a transaction worth about R16.5bn. The Competition Commission approved the deal without conditions. But since then, government in the form of the Department of Economic Development and the Department of Trade
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and Industry as well as the Department of Agriculture, Forestry and Fisheries has raised serious objections. The government argues that the Commission is obliged to weigh the “public interest” of the deal and that there are no significant balance of payment benefits because Massmart is already 72% foreign owned. Government argues along lines almost identical to those used by Cosatu and community groups that have strongly opposed the deal (although government submissions are less hyperbolic and sentimental). The government asserts that: historically, the net effect of Walmart’s entry into any domestic economy is a reduction in total employment and wage levels, especially in the retail sector; the manufacturing sector gets hollowed out as Walmart sources the cheapest Asian goods. Cosatu is more strident, arguing that Walmart is guilty of a number of inhuman employment practices, including “wage theft” forcing employers to work overtime if they want to keep their jobs. Walmart has defended itself on most of these counts, denying that its average wage is below the retail norm in the US and asserting that there is no evidence that the company is an abusive employer. They countered that job loss is unlikely (Walmart plans to create 500 000 jobs in the next five years) and that studies have shown that launches of Walmart branches have no statistically relevant impact on the number of small businesses or self-employed Americans.
Government’s strategy is risky Walmart is not a bunch of Girl Scouts coming here to sell us cookies. It is right and fitting that government should keep an eye on employment and manufacturing impacts in a deal like this one and any conditions that it is able to extract from Walmart will be welcome. But there is a very thin line that gets walked here. There is a growing impression of an overall hostility of this government towards business, foreign and local. I do not think government has successfully argued that Walmart is any better or worse than the domestic retail sector and therefore its lining up with Cosatu is discomforting. Walmart employment practices and the consumerism the company is associated with is a fashionable cause, not without good reason, of left-wing groups, social movements and trade unions internationally. It is fine for Cosatu to play hardball with the wily and powerful Walmart even to try and keep it out of our economy on (shaky) assumptions that the local yokels are easier to beat at the industrial bargaining game. But government should be wary of being a cheerleader for one social player in the contest that is the modern capitalist economy. Global and domestic business is starting to see our leaders as instinctively suspicious of foreign investment and business in general. This is not an impression we can afford to give the world.