Walmart on charm offensive after muted welcome in South Africa

After a rough ride Walmart has finally opened the door on Africa, winning its battle to takeover a retail chain in South Africa.

Walmart may be forgiven for feeling a little unwelcome in its first foray into South Africa. After being put through a gruelling inquisition by the nation's competition authorities, the world's largest retailer has finally been given permission to do business here.

A ruling by the country's competition tribunal last week opened the way for Walmart to close the 16.5 billion rand (Dh9.02bn) takeover of Massmart, albeit with mild conditions. The tribunal was closely watched by analysts as a test of South Africa's openness to foreign investors. Massmart is similar to Walmart, a low-margin, low-cost distributor of branded consumer goods.

Pitted against the US giant were unions, government officials, producers and rival local retailers who wanted the Massmart takeover stopped or at the very leastsubjected to draconian conditions.

Opponents of the deal - and they were vociferous - warned that Walmart would flood the local market with cheap Chinese imports, putting local suppliers out of business.

"Everything you find in a Walmart store in America is made in China," South Africa's director general of trade and industry, Lionel October, said in an interview with BusinessDaynewspaper. "You've got a complete … hollowing out of America's industrial base."

Chinese imports are a particularly sensitive issue in South Africa, which has seen its once robust textile industry all but destroyed by a flood of cheap goods from the East. Walmart told the tribunal that local quotas would put it at a disadvantage to local retailers.

The company had to endure intense scrutiny of its operating procedures during the month-long tribunal. Union officials and executives from local retailers gave evidence against it; Walmart itself turned out an army of lawyers and even flew in the chief executive of its Chilean subsidiary to testify on the benefits of the large retailer in a developing market.

In the end, the tribunal gave the merger the go-ahead with the proviso that a group of retrenched Massmart workers be rehired and that existing labour agreements between the South African company and unions be maintained.

The ruling will be a relief to Walmart. The US retailer has struggled to maintain growth at home in recent years and has looked to foreign expansion to make up the numbers. Africa is enjoying historically high growth and is an attractive target for foreign retailers.

South Africa is expected to generate US$76 billion (Dh279.14bn) of retail sales this year, according to Business Marketing International, a research organisation. By 2015, this is expected to be $114bn.

And it is not just South Africa that was at stake. Other countries on the continent that are generally less well resourced than South Africa tend to follow its lead in issues of economic policy; a ruling that imposed harsh conditions would likely have been taken up by a number of the countries to the north that Walmart is eyeing for future expansion.

In the meantime, the company will have to do some damage control. The ruling came as a shock to the government and the main union organisation, Cosatu, which had hoped the deal would be tied to stringent conditions imposing local purchasing quotas.

"The approval does nothing to address the fundamental concerns raised by Cosatu, the South African government and numerous other concerned South Africans," said Patrick Craven, the Cosatu spokesman. The union has issued a strike warning and threatened mass protests against the deal. The government, too, has said it will study the tribunal's decision and may take further action.

However, its options are limited as South African law does not make provision for blocking foreign investment.

In the meantime, Walmart has indicated it will conclude the takeover as speedily as possible. It has also set up a 100 million rand fund to support small business. It plans to open as many as 100 stores in the next three years.

Walmart executives are also expected to go on a charm offensive, meeting union and government officials in a bid to soften opposition to the deal.