Friday, June 7, 2013

Ethiopia keeps Walmart waiting

Ethiopia’s government is famously protective of its economy, especially telecoms, banking and retail. So when the late prime minister, Marxist-influenced Meles Zenawi, met senior Walmart executives face to face last year, it might have seemed an incongruous pairing. But rising food inflation, combined with traders hoarding goods to avoid government-imposed price caps, made the prospect of big stores arriving to deliver cut-price goods appealing. Negotiations are continuing with the American giant under Meles’s successor Hailemariam Desalegn (pictured). But progress is slow. “The price has to go down for the sake of the consumers,” Hailemariam told the FT of the likely benefits of the entry of Walmart, which has found a foothold on the continent, via taking a majority stake of South Africa’s Massmart. Ethiopia’s under-developed market and population of 85m – the second highest in the continent – is part of the appeal to consumer-oriented companies such as Walmart keen to crack an untapped market. But high inflation risks undermining the government’s growth strategy. Officials are proud of an economy that has grown in double-digits in the seven years to 2011. Low wages and subsidized power prices are critical to Ethiopia’s bid to secure foreign investment into priority areas it has opened to foreign investment – such as light manufacturing for export. But although Prime Minister Hailemariam says negotiations are still on, he has not met Walmart’s representatives face to face and is leaving talks to his ministry of trade in the hope of arriving at a “win-win” solution. The biggest foot in the door Walmart may gain is a management contract for a state-run cash-and-carry company, on a similar basis to a management contract granted for telecoms, rather than outright ownership. “Always we are very cautious…if huge companies like Walmart come in, those who are in the trading sector will be in trouble. That is witnessed in many African countries. [After big foreign investors arrive] you don’t find local people engaged in this kind of [retail] business, because…they cannot compete in the process.” Hailemariam is also mindful that defending a weak “infant” private sector is not only an economic necessity but a political one too in a country where ethnic and regional interest groups are carefully balanced and directed. “A huge influx of foreign direct investment… becomes very dangerous and it becomes political in the country…because our domestic investors and private sector will be dissatisfied with the process, and then it becomes a tension, source of tension.” Walmart may wait a while yet. Source:The Financial Times

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