Walmart and Massmart: American Dream, African Nightmare

Recently, American giant Walmart started talks about talks about acquiring South African retail group Massmart. Naturally, the share price of Massmart rose as soon as speculation about the acquisition began. Naturally, leaders in business had to get involved and spoke of the amazing potential impact of this acquisition, and how it showed South Africa to be a favourable investment destination. Naturally, the trade unions had to get involved to speak on behalf of the workers about the impact on the general population. And naturally, the random guy sitting at home really has no idea what’s going on, but seeks to be king of dinner table conversation by speaking eloquently of what they read in the paper (synonymous with tabloid) the previous day. But what does this mean for South Africa and Africa as a whole?Foreign direct investment is good. It brings money into a country, which strengthens the exchange rate, and provides more money to trickle down through all sectors of society. Foreign direct investment also brings about new technology and methodology, which advances the impacted society. In addition to this, jobs are created, and everyone lives happily ever after with their dogs and fluffy bunnies.  This is the gospel according to economic theory. Economic theory and economic models look at past data, and predict future trends, but the question is, what really happens on the ground? Walmart is massive. Strategically starting off in smaller, rural areas, aiming to offer the cheapest prices to consumers, it grew to be the biggest retail chain in the world. Its revenues are now greater than most countries’ GDP figures. It has expanded into Europe, Asia and South America, and now has its sights set on Africa, the biggest growth opportunity for businesses worldwide. One should not forget that Walmart is a business entity, and not a philanthropic organisation. So even though, in theory, there are proposed benefits to its arrival on our shores, what is the cost? First of all, as a commercial entity, Walmart will seek to gain market share, grow its operation, and become the market leader. Because of its size and large base, it can easily engage in a price war with competitors, starving them and becoming dominant in the market. As a dominant buyer, they will have large bargaining power with local suppliers, determining prices, and possibly starving local suppliers. Economic theory suggests that after some time, things will turn to equilibrium, and those who have lost jobs will find jobs in other industries. But in reality, it means that Mr. Dlamini is unable to pay for his child’s school fees as he has now gone out of business with his small retail store. It would mean that Ms. Khuzwayo cannot raise the funding for her agricultural venture, as it is no longer feasible, meaning she cannot provide her dependents the university education that she never had. To survive, each individual who has now lost the ability to build assets to create wealth for themselves and future generations has to now beg for jobs from the superpower. On a national and continental level, local industries will struggle to grow as they are competing with international players that have had a head start. As has been mentioned above, these international players destroy local industry leaving local citizens at the mercy of the superpowers.American and European countries apply protectionist measures  in different industries. Africans can’t build their agricultural sector well enough because of how inefficient European farmers are heavily subsidized, making it easier for them to sell their produce at much cheaper prices. Yet, Africans are subject to structural adjustment programs from the Bretton Woods institutions, forcing them to liberate trade and free their economies, in the interest of “a better world for all”. Shouldn’t we as Africans also be afforded the right to protect our growing industries? I’m not concluding that foreign investment is bad. On the contrary, it can be very good for the advancement of a society. In Uganda for example, the introduction of supermarkets such as Uchumi from Kenya and Shoprite from South Africa has completely revolutionized how households perform their grocery duties. Smaller street vendors and retailers have closed down as a result, but it has advanced the society to a new level of thinking, and a new base to build upon. What I am concluding is that African states need to protect their citizens, and their industries in order for them to grow to a level where they can compete on the international stage. However this outworks itself, one thing is for sure: citizens in a semi-advanced society who have the assets, freedom and security to build wealth for themselves and future generations will be at a better place than citizens in an advanced society, who have nothing to call their own.

2 thoughts on “Walmart and Massmart: American Dream, African Nightmare

  • October 29, 2010 at 1:32 pm
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    Our governemnts, or powers that be, need to be firm (and innovative). It’s not necessarily Wal-Mart’s fault that Mr. Dlamini and Mrs. Khuzwayo will be put out of business. Policymakers can stipulate that certain percentages of goods/services must be supplied by locals…and put in place cooperatives etc that will still keep ordinary citizens in business. And we need to get over the subsidisation issue. It’s been years now, and nothing has changed. So instead of complaining and pumping funds into our ailing agricultural sectors, why not build up our food processing industries. Our agricultural produce, by virtue of the way majority of African farmers farm, is organic, or if its not organic by definition, its healthier anyway. Let’s market that. Let’s build local processing capacity and stop complaining. But I guess, in the short run, the little people will still get hurt.

    Reply
    • November 1, 2010 at 8:41 am
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      Nomsa,
      Thanks for your comment.
      I think we agree with each other. What I proposed is applying protectionist measures to allow local industries to grow. Building capacity along the different value chains so that local citizens become owners of the country, instead of international superpowers. I agree with you 103%

      Reply

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