What's best for the country? Promoting foreign investment and giving citizens access to cheap groceries and retail goods or ensuring that local jobs don't get sent overseas? This is the question that South African politicians, industry heads and employment unions have been debating fervently over the past few weeks.
The blaze was further stoked last week when Wal-Mart, the world's largest retailer, jumped the final hurdle (the South African Competition Tribunal) in its takeover bid for South African retail organisation Massmart, giving the organisation its first presence on the continent.
Wal-Mart's African takeover bid had met strong opposition in South Africa on two fronts. The first was over a concern that Massmart jobs would be shed as Wal-Mart carried out an efficiency drive to bring the new African subsidiary in line with Wal-Mart's operating model. The second concern was for the welfare of those organisations and employees currently working in the supply chain for Massmart.
Union representatives and company spokespeople have expressed concern that Wal-Mart will follow the example of some of its global supply chain and begin to replace local suppliers with cheaper, overseas alternatives. This procurement practice is central to Wal-Mart's business model, as it allows the retailer to source low-cost goods, which in turn enables it to drop in-store prices and compete more effectively with established local providers.
While Wal-Mart made some concessions at the tribunal in order to appease government officials (i.e., agreeing not to fire any Massmart employees for the next two years), the concerns around local procurement practices appear to have been overlooked. A number of government and union officials were hoping to see local procurement clauses written into the buyout proposal. Such clauses would ensure that not only are Massmart's employees' jobs safe after the takeover, but also that suppliers in the organisation's domestic procurement chain feel an element of security in the relationship with the new ownership.
The hearing before the tribunal was essentially a test case for foreign direct investment into South Africa. Government officials and labour unions need to consider the best interests of employees, both internally and within the nation's supply chain. By implementing local procurement clauses, essentially governing the way in which foreign investors run their organisations in the nation, the government runs the risk of making South Africa a far less attractive destination for foreign investment.
What are your thoughts on this matter? Should governments have the power to stipulate the way in which organisations carry out there procurement practices? Would a ruling against Wal-Mart at the competition tribunal negatively impact South Africa's ability to attract DFI?