WALL-MART is coming to Ethiopia: Improved market would come with many lives turning upside down!

Wal-Mart about to enter Ethiopian market, second round of talks reach advanced level , after first round of negotiations fail

◙     Wall-Mart to manage the newly to be formed Ethiopian Trade Enterprise for supplying general mechanize with special focus on food commodities;◙     The Enterprise will replace the current Merchandise Wholesale & Import Trade Enterprise (MWITE),
◙     Wal-Mart would reduce prices on items it sells in Ethiopia; but it would not to carry locally produced items for fear of substandard qualities
◙     The Enterprise to start operations next Ethiopian fiscal year with capital of ETB one billion and paid up capita l f ETB 250 million.

A spirited negotiation is taking place between Ethiopian authorities and senior managers of Wal-Mart Stores Inc., the world’s largest retail firm, on the prospect the latter will enter the Ethiopian market through a management contract, reliable sources disclosed to Fortune.
The talks between the two parties have reached the advanced level, whereby Ethiopian authorities have agreed to form a new state owned company, Ethiopian Trade Enterprise, that will eventually be managed by Wal-Mart, according to these sources. Prime Minister Hailemariam Desalegn hinted two weeks ago, during his question session in Parliament, that his administration is close in forming a cash and carry company, hoping to fight inflation on consumer goods caused by constraints on supply and market inefficiencies.
Subsequently, the Council of Ministers has decided on the formation of the Trade Enterprise which will have an initial capital of one billion Birr, and a paid up capital of 250 millionBr., Fortune learnt.
A European based consulting firm, A. T. Kearny, is also contracted to set up the Enterprise, which is expected to start operations in the next Ethiopian fiscal year, according to a source close to the issue.
The Enterprise to be set up will deal in supplying general merchandise, with a special focus on food commodities, especially those where there is a supply problem such as sugar and edible oil, according to several sources. The pilot project will start in Addis Abeba, but the company will expand its branches to other regions. It is also expected to have 13 warehouses within 10 years, in all regions except for Benishangul and Afar, according to these sources.
With time this Enterprise will replace the current Merchandise Wholesale & Import Trade Enterprise (MWITE), the source also told Fortune. It may also overtake MWITE’s vast warehouse networks.
The federal government has been juggling the idea of forming a local state owned firm to be managed by a foreign company and inviting mega retailers from other countries to open shop here. The latter options required a change of the nation’s investment laws, that keep the business of retailing an exclusive domain of domestic investors.
Unable to tame escalating prices on consumer goods, even after it took control of their subsidised imports and distributions, the administration of former Prime Minister Meles Zenawi had warned local businesses that he would open the sector to the test of foreign competition. It was then that a discussion was initiated with Wal-Mart executives on the prospect of the company coming toEthiopia.
Wal-Mart is an American multinational corporation, and the biggest private employer with over two million employees. Largely controlled by the Walton Family – it was established in 1962 by Sam Walton – the company has 8,500 stores in 15 countries with 55 names. It had registered in 2011 a revenue of 422 billion dollars, 13 times the size ofEthiopia’s GDP, where it made a net income of 15.4 billion dollars.
The appearance of C. Douglas McMillion, president and CEO Wal-Mart International, at the World Economic Forum forAfrica, held in May 2012 in Addis Abeba, was seen as a strong sign in the company’s interest to do business here. Nonetheless, a policy disagreement within macroeconomic advisors of the late Prime Minister appears to have discouraged Wal-Mart from pushing the discussion.
During his stay in Addis, McMillion had met no other official but Eleni G. Medhin (PhD), former CEO of Ethiopian Commodities Exchange (ECX). It was a sign that preliminary talks with Ethiopian authorities on the possibilities of bringing its South African subsidiary, MassMart, did not carry through.
Wal-Mart had offered at the time to reduce prices on items it sells in Ethiopia, but stood on its ground not to carry locally produced items for fear of substandard qualities. Some of the macroeconomic advisors were of the view that the arrival of such a giant retailer in Ethiopiacan only be at the peril of the emerging and venerable domestic industrial establishment.
There was also an idea floated around at the time to form a giant corporation, amalgamating three already existing wholesale enterprises: Merchandise Wholesale & Import Trade Enterprise (MWITE), Building Materials & Supplies Enterprise, and the Procurement Services Enterprise. It was a proposal developed under the Privatisation & Public Enterprises Supervising Agency (PPESA), before the government put a halt to it around three months ago.
Lately though, a steering committee comprising experts from ministries and chaired by macroeconomic advisors at the Ethiopian Development Research Institute (EDRI), a federally funded economic think-tank chaired by Neway Gebreab, took on the job of exploring new options. They came up with the formation of the new enterprise, which will be given out in a management contract to a foreign firm, which very likely become Wal-Mart or its African subsidiary. The administration is confident that through the new enterprise local suppliers and retailers will be able to get business, for the management company would agree to take on all locally available items from domestic companies, according to a member of the steering committee who speaks on condition of anonymity for he is not authorised to speak to the media.
Nonetheless, negotiators on Wal-Mart’s behalf are still pushing for equity participation in the new company, according to sources.
And this could become a deal breaker, according to this source.
But whether the administration creates a new company or brings a management firm, the problem is not one of management but structural constraints in supply, according to a macro-economist Fortune talked to.
“There is no use in creating another MWITE,” he said. “Unless the government works hard to increase supply capacity, especially when it comes to agricultural products, and provision of foreign currency, setting up another enterprise would not help.”