_n4ncla R ELEASED IN PARTINCLASSIFIED Bl, 1.4(B), 1.4(D) CIA 1010111') UNCLASSIFIED U.S ACTION AF-00 INFO LOG-00 EEB-00 VCI-00 AID-00 GHFS-00 CEA-01 CIAE-00 CTME-00 INL-00 DNI-00 DODE-00 ITCE-00 DOTE-00 EXME-00 AVC-00 E-00 FAAE-00 UTED-00 SIPD-00 DIAS-00 FRB-00 H-00 TEDE-00 INR-00 LAB-01 L-00 VCIE-00 NSAE-00 ISN-00 NSCE-00 OES-00 OMB-00 NIMA-00 PER-00 GIWI-00 MA-00 ISNE-00 SP-00 SSO-00 SS-00 STR-00 NCTC-00 FMP-00 CBP-00 BBG-00 IIP-00 DRL-00 G-00 NFAT-00 SAS-00 FA-00 SEEE-00 /002W 6FDC49 060841Z /38 R 060835Z MAY 11 FM AMEMBASSY PRETORIA TO DEPT OF COMMERCE WASHINGTON DC SECSTATE WASHDC 3656 DEPT OF AGRICULTURE USD FAS WASHINGTON DC DEPT OF TREASURY WASHINGTON DC INFO SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE UNCLAS PRETORIA 001306 SENSITIVE SIPDIS E.O. 13526: N/A TAGS: ETRD, EINV, ECON, SF, BEXP SUBJECT: Deputy Secretary Nides and Ambassador Gips meeting on Walmart with Economic Development Minister Patel REF: A) 11 PRETORIA 842; B) 11 JOHANNESBURG 52; 1. (SBU) The Deputy Secretary for Management and Resources and Ambassador Gips met with South African Minister of Economic Development Ebrahim Patel Wednesday May 4 in a very cordial meeting. Patel opened by joking that Ambassador Gips tenure in South Africa will be judged according to how much Foreign Direct Investment (FDI) he delivers. Deputy Secretary Nides took this opening to raise Walmarts acquisition of 51 percent of South African retailer Massmart. He said Walmarts reputation as portrayed in the media does not reflect its current position and the way it intends to do business in South Africa. 2. (SBU) Patel said one potential issue had been labor standards when he first met Walmart company executives in Davos, but he is now convinced they will do the right thing on labor. The real challenge for South Africa and the question that must be answered, Patel continued, is whether Walmart will be a job creator or whether the result of its entry into the market will be a net loss of jobs in South Africa. UNITED STATES DEPARTMENT OF STATE CLASSIFIED BY DEPT. OF STATE, M. GRAFELD, DAS, A/GIS REVIEW AUTHORITY: CHARLES L DARTS CLASSIFICATION: CONFIDENTIAL REASON: 1.4(B), 1.4(D) DECLASSIFY AFTER: 5 MAY 2021 DATE/CASE ID: 07 NOV 2011 201103096 UNCLASSIFIED UNCLASSIFIED U.S. Department of State Case No. F-2011-03096 Date: 04/25/2012 E5 UNCLASSIFIED U.S. Department of State Case No. Fflni nznoc nm.^. n^ PInn12 UNCLASSIFIED 3. (SBU) Patel was at pains to emphasi,.0 ,n0 .L0 slot against FDI, but the Walmart transaction must deliver jobs and must include the integration of South African companies into the supply and value chains. Unemployment is South Africas biggest problem and foreign investors must understand this. Patel joked mildly that if President Obama feels badly about unemployment in the United States he should come see the problem in South Africa. (Note: Official unemployment rose to 25% in the first quarter of 2011, up from 24% in late 2010; if discouraged job seekers are included, the rate is over 35%.) B1 He stressed that Walmart must put something on the table and work with the SAG to find a settlement. 4. (SBU) In response to a query by the Ambassador about how the competition process works, Patel said it is a three stage process: Competition Commission, Competition Tribunal, possibility of appeal to the Competition Appeals Court. During the Competition Commission phase, SAG thought it would get a deal with the company regarding local sourcing and jobs. The company decided not to negotiate at that point and to rely on the legal process for approval. B1 ] (Note: The Commissions decision was taken to the Tribunal at the request of three SAG departments Economic Development, Trade and Industry, and Agriculture, Forestry and Fisheries.) After the Tribunal (which meets the week of May 9) rules, the losing side can appeal. Patel expressed the belief that the SAG will prevail at the Tribunal but said it intends to appeal if the Tribunal rules in Walmarts favor. Ambassador and the Deputy Secretary expressed the belief that Walmart will be a net job creator and be a positive economic force in South Africa. The company wants to have a constructive relationship with the host government. However, it is concerned that the requested commitments regarding jobs and local sourcing would tie its hands in a way that will affect its competitiveness in a very competitive sector. B1 . (SBU) Patel said they could draft outs to account for market conditions over which the firm has no control, and emphasized it was not too late to establish the right kind of relationship between Walmart and the SAG. 6. (SBU) Ambassador and the Deputy Secretary said refusal to accept Walmart could discourage other foreign investment\ UNCLASSIFIED UNCLASSIFIED U.S. Department of State Case No. F-2011-03096 Date: 04/25/2012 B1 UNCLASSIFIED U.S. Department of State Case No. F-2011-03096 Date: 04/25/2012 UNCLASSIFIED Patel said he thinks people will understand that a decision against Walmart does not mean South Africa does not want foreign investment. B1 GIPS NNNN UNCLASSIFIED UNCLASSIFIED U.S. Department of State Case No. F-2011-03096 Date: 04/25/2012