Walmart Massmart Acquisition Essay Example

will be advantageous as it will lead to higher private consumption spending due to increased income. Consequently, South Africa's GDP level will also witness growth. The dedication of Wal-Mart in generating numerous employment opportunities offers a chance to tackle the existing 25.7% unemployment rate in the country.

Over the next three years, Wal-Mart has plans to invest in the construction and opening of 500 to 100 new stores. In addition, they have intentions to open about 20 new Cambridge stalls annually (Watson, 2011). This increase in investment spending will greatly contribute to fixed capital formation within South Africa, resulting in higher GDP levels and a positive impact on the growth of the country's economy.

Wal-Mart's investment in Mexico demonstrates the positive impact of foreign direct investment on fixed capital formation. Between 1990 and 2005, Wal-Mart's foreign direct investment resulted in a remarkable growth rate of over 14% in fixed capital formation, surpassing the global average mentioned in Peters' study (2008:5). This data emphasizes the potential for Wal-Mart's investment to greatly contribute to future increases in GDP.

The acquisition of Wal-Mart in South Africa is predicted to have various effects on the country's GDP, including a significant change in the price level of goods. It is highly likely that Wal-Mart will result in a considerable reduction in prices, potentially impacting the national inflation rate similar to its impact in America (Economist, 2011). With Wal-Mart's efficient and technologically advanced supply-chain management, not only will productivity increase within Wal-Mart stores but also within the local retail industry as other suppliers strive to decrease costs and compete effectively on prices.

The aggregate supply curve can

shift due to an increase in productivity without a rise in input prices. The diagram illustrates that when productivity increases, the price level decreases (moving along the AD curve from P0 to P1) and real GDP increases (moving from Y0 to Y1). This shift indicates a change in macroeconomic equilibrium from e0 to e1, represented by the shift from SRAS0 to SRAS1.

The increase in equilibrium GDP means that more national output will be produced at any given price level. Additionally, Wal-Mart has stated its plans to invest 100 million rand in the training of local industries' supply-chain, aiming to enhance competitiveness. According to Makholwa (2011:33), Wal-Mart aims to create incentives for working with local suppliers and assist them in becoming efficient and sustainable.

Investment in South Africa's domestic retail industry has the potential to boost the country's national income. This investment will improve production efficiency, resulting in lower manufacturing costs for local goods. Consequently, domestically produced products will become more affordable and competitive on a global scale. This will lead to an increase in net exports and domestic consumption of local products, ultimately driving the growth of national income levels.

According to Lipsey (2007:408), the acquisition affects both the supply and demand sides. The AD curve will shift to the right if there is an increase in autonomous desired private consumption, investment, government consumption, or net export spending at each level of GDP. This means that shocks in the aggregate demand curve will occur due to increased investment in fixed capital formation, improved efficiency, and lower prices in the local industry.

The diagram depicts that an

augmentation in investment and net exports will prompt a shift in the aggregate expenditure curve from A1 to A2, causing GDP level to elevate from Y0 to Y1. Subsequently, the aggregate demand curve moves upwards and towards the right from AD0 to AD1. Consequently, real GDP increases while the price level relatively rises from P0 to P1. As a result, the macroeconomic equilibrium point shifts from e0 to e1.

The increase in aggregate demand will lead to a higher demand at the increased price level, causing an upward movement along the aggregate supply curve. As a result, retail suppliers will supply more. While foreign direct investment could potentially benefit South Africa's GDP, there may be some disadvantages associated with this deal for the country.

Due to Wal-Mart's decision not to enter a procurement agreement, they may have to rely on importing goods from cheaper foreign suppliers instead of buying products made in South Africa. This can result in an abundance of low-cost imported goods flooding the market, causing a decrease in net exports as people prefer these imports over locally-made products. Rather than promoting economic growth, these imports will actually cause a decline in national income levels, indicating that this acquisition is harmful to GDP growth.

The utilization of advanced logistics and cost-effective management has made Wal-Mart a strong competitor in retail. As a result, smaller businesses are finding it difficult to survive as they cannot match Wal-Mart's prices. With plans for expansion and opening more stores, Wal-Mart may become the dominant player in South Africa's retail industry.

The local retail industry may see a significant decrease in smaller stores because of Wal-Mart's

competitive pricing strategy. As a result, employees in the local retail sector will lose their jobs as these businesses shut down. This will lead to lower disposable incomes, consumption levels, and GDP.

The advantage of economies of scale allows Wal-Mart to rapidly expand and potentially dominate the retail industry in South Africa. However, this dominance may lead to limited product choices, negative effects on prices, quality, and service (Makholwa, 2011:33). As a result, consumers may become dissatisfied and reduce their consumption.

Despite the potential negative impact on GDP, there is strong evidence that Wal-Mart's acquisition of Massmart will greatly contribute to South Africa's economic growth and positively affect its GDP level. Therefore, it is important to fully approve the acquisition while closely monitoring Wal-Mart's activities in the country.