Wal-Mart to buy 51 percent of Massmart

Wal-Mart’s USD 2.4 billion offer is the Arkansas-based company’s second biggest investment in more than a decade. In that time, Wal-Mart has grown its international revenue from virtually zero to a quarter of its annual USD 400 billion turnover (2009).

The significance of this investment – and let’s not forget Wal-Mart was prepared to stump up double the amount for all of Massmart – has not been lost on audiences in South Africa or elsewhere in Africa.

There are one billion consumers in Africa, 40 percent of whom live in urban areas, and according to a McKinsey report on Africa’s booming opportunities, Africa already has more middle-class households than India. It’s fitting that a company like Wal-Mart that has always understood the economies of scale is leading the way for America. Africa’s consumer market has scale, and plenty of it.

Although Wal-Mart could not acquire the whole of Massmart as initially intended, this transaction will still prove valuable for Wal-Mart. The company is set to reap an advantage as an early mover. But it won’t be easy. South Africa is a quirky market; its labour force is unionised and combative when compared with the rest of the world. However, when viewed as a “Gateway to Africa,” South Africa is a winner.

With a good deal of its supply coming from China, Wal-Mart will surely be able to take a knife to Massmart’s costs by bringing its scale to bear.

This is what South Africa’s unions seem to fear most: being inundated with cheaper produce from China.

Cosatu, South Africa’s largest labour federation, has already threatened Massmart with the “mother of all boycotts” in opposition to the deal. South African unions want to keep existing labour and supplier agreements, among other things.

While Wal-Mart has long tussled with organised labour in the U.S., unions like Cosatu, which is in a governing alliance with the ruling ANC, wield enormous power over South African politics and the economy.