Stiglitz calls for R2bn Walmart jobs fund

Stiglitz calls for R2bn Walmart jobs fund

FMCG SUPPLIER NEWS

Business Day - Jun 12th 2012, 08:27

The R100m fund proposed by the Competition Tribunal to mitigate the harmful effects of Walmart’s entry into the South African market is inadequate and should be increased to up to R2bn, says Nobel laureate Joseph Stiglitz. 

The Competition Appeal Court has approved Walmart’s takeover of Massmart on condition that an "investment remedy" be found to empower local suppliers to respond to "the challenges posed by the merger".

The size of the proposed supply chain development fund was one of several differences of opinion among three experts appointed to assist the court. This led to two reports being prepared.

Prof Stiglitz and Genesis Analytics managing partner James Hodge were appointed by the government and the South African Commercial, Catering and Allied Workers Union to craft a remedy. Massmart and Walmart appointed Mike Morris, research professor at the School of Economics of the University of Cape Town.

The Stiglitz-Hodge report said a supplier development fund equal to "many multiples of the proposed R100m" would be needed to ameliorate the effect of the Walmart transaction on the economy. They proposed a fund in the range of R500m-R2bn, allocated over five to 10 years.

In his ruling at the Competition Appeal Court, Judge Dennis Davis criticised the tribunal’s acceptance of the condition of a supplier development fund of R100m.

He said there was "inadequate interrogation" of this proposal, given the concerns raised by the opponents over increased imports and, in turn, the potential for a negative effect on the economy.

The Stiglitz-Hodge report said a large fund would "materially address the concerns of the court and provide sufficient incentives to Massmart to implement a serious programme to empower local suppliers".

Prof Morris said in his report that throwing large amounts of money at a problem seldom solved it. "When too much money is floating around under these conditions the chances of corruption and waste increase enormously."

He believed a smaller, but "highly focused and well-managed fund" was likely to have a greater effect than a large, unfocused and overmanaged programme.

Prof Stiglitz and Mr Hodge examined the supply development fund set up by Massmart and said because of its narrow focus on small and medium-sized enterprises (SMEs), it "effectively becomes a form of corporate social responsibility programme".

Their report asked that recipients of the fund should not be limited to SMEs or businesses owned by historically disadvantaged persons, although they may be afforded greater emphasis.

Prof Morris asked for a grading of firms which will require capacity building, but focused on small and medium-sized suppliers.

The experts agreed the desired outcome should be "sustainable supplier development" outlasting the fund and that the concept be adopted by other retailers. Also, the programme "must not simply result in a squeeze on wages or employment at supplier firms".

The experts agreed that the fund should have a high level of public oversight and accountability and that the key to success would be Massmart’s "buy-in" to ensure changes in procurement.

Lawyers representing Walmart and Massmart said yesterday all parties had a month to prepare their responses before heading back to the appeal court.

The government’s legal representative, Heather Irvine, said the Stiglitz-Hodge report gave some practical guidelines for the fund.