Shoprite's trade, exchange rate and investment relates issues in and around South Africa, submitted in International Business class, Amsterdam Business School, MBA 2013

1. Amsterdam Business School
MBA International Business, part-time
Assignment week 2, November 4th, 2013
Shoprite Holdings Ltd, South Africa
Michelle Donovan 10429859
Kivanc Ozuolmez 10429832

2. Shoprite is Africa‟s biggest retailer, with 1456 stores in 17 countries, and 18 brands. Its headquarters
and most of its outlets are located in South Africa, but other key countries it operates in are Namibia,
Angola, Zambia, Nigeria and Botswana. It is 20th in the top JSE listed countries by market capital and
is also listed on the Namibia and Zambia stock exchanges. As we write Shoprite is making headlines
due to some of the challenges it is facing when doing business abroad as well as from foreign
investment into its home market. We will look at some examples of issues it has faced in the past or
continue to face in the areas of trade, exchange-rate-related issues, and foreign investment.
Trade-related issues: Zambia
Although there are several free trade areas in Africa, “every African country imposes trade barriers on
its neighbours” (Shoprite Holdings Ltd Integrated Report 2013, p.10). South Africa is a member of
SACU (South African Customs Union) as are Botswana and Namibia, but even though there may be
no tariffs, there are plenty of non-tariff trade barriers. In this section we have decided to focus on
Shoprite South Africa‟s trade with Zambia, since they are not members of the same free trade area,
and so the barriers to trade are likely to be more numerous and costly. Zambia is a member of
COMESA (Common Market for East and Southern Africa), a different free trade area.
Zambia is an important trading partner for South Africa and Shoprite : “More than half of Zambia‟s
imports originate from South Africa (59%)” (van Blerk, p.13). In terms of number of stores, Zambia is
the second biggest market for Shoprite outside of South Africa (Shoprite Holdings Ltd Integrated
Report 2013, p.5). In order for Shoprite to import food products of South African origin into Zambia,
many certificates and permits are required (2007 UPDATE SURVEY OF NON TARIFF BARRIERS
TO TRADE:ZAMBIA, FINAL REPORT, p.25) and Customs officials can make it difficult to import
goods by, for instance, limiting their opening hours, stopping trucks multiple times to ask for
payments, performing unnecessary quality inspections, and having different interpretations of rules
(ibid, p.19). Shoprite must therefore be spending a lot of resources on paperwork and a considerable
amount of time must be lost at the border for processing documentation and in waiting time. “In one
notable example of trade barriers…Paul Brenton and Gozde Isik of the World Bank describe how the
South African supermarket chain Shoprite spends USD20,000 a week on import permits to distribute
meat, milk, and plant-based goods to its stores in Zambia alone. For all countries it operates in,
approximately 100 (single entry) import permits are applied for every week; this can rise up to 300 per
week in peak periods. As a result of these and other requirements, there can be up to 1,600 documents
accompanying each truck Shoprite sends with a load that crosses a border in the region… lack of
coordination across government ministries and regulatory authorities also causes significant delays,
particularly in authorizing trade for new products. Another South African retailer took three years to
get permission to export processed beef and pork from South Africa to Zambia.”(Charalambous, p.29)
“Shoprite PTY spends an estimated ZAR 40 million to secure ZAR 93 million worth of SADC tariff
reductions – on administrating compliance with RoO and import documentation. It should be noted
that Shoprite is considered to be highly efficient, by global standards, and is one of the top 40 listed
companies in South Africa. The costs it incurs should therefore be taken as a minimum achievable”
(Charalambides, p.27)
Of course, such costs will be reflected in the price of goods in Shoprite stores, which could render
them less competitive. Shoprite‟s CEO: “In Africa the bureaucracy of intra-African trade is a major
challenge. Tedious trade agreements and administration-heavy import/export requirements make
cross-border trade a lengthy and complicated process. The inefficiency of various customs agencies
and government departments make product distribution lead times untenably drawn out and
inefficient, which has a negative impact on product availability and costs.”
Another barrier to trade which Shoprite has experienced is local resistance. For example, in Chipata in
Zambia‟s Eastern Province, farmers complained that Shoprite had put them out of business as they
were no longer able to sell their vegetables, and they threatened to burn the store down. To prevent
this, a partnership was set up in which the villagers would supply Shoprite with five agreed-upon
vegetables: cabbage, green beans, onions, tomatoes and lettuce. This initiative took place under an
arrangement called the Luangeni Partnership Forum. The threat of direct action was thus redirected

3. into a joint economic initiative with Shoprite. Although this was an improvement, it was not a perfect
solution and local resistance continued.
Current issues facing Shoprite in Zambia now are a workers‟ strike and a dispute about share sales.
3000 workers went on strike in October 2013 seeking higher pay, and after a few days, Shoprite fired
them all. When the Zambian government threatened to revoke its trading licence, Shoprite backtracked
and raised their wages by 34%.
In July 2013, Shoprite‟s Zambian representative director sold 1.67 million shares at a discount of up to
57 % to local pension funds. Shoprite says this sale was unauthorized and is right now in a legal
process to try to reverse this sale. Both incidents show some of the risks of trade-related issues when
doing business in another country.
Currency rate related issues: Shoprite’s financial analysis
As Shoprite operates in 17 different countries, and uses numerous currencies for its foreign financials
and imports, Shoprite‟s activities expose it to a variety of financial risks, including foreign currency
exchange rates, effects of changes in debt and interest rates. The group‟s overall risk management
focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects.
(Shoprite Annual Financial Statements, 2012 p.58).
Shoprite uses various financial instruments such as forward foreign exchange rate contracts as
economic hedges, avoiding foreign creditors and minimizing net monetary assets which are subject to
translation risks.
Although currency exchange rates are seen as a risk, both positive and negative effects of exchange
rate fluctuations exist in Shoprite‟s annual reports. Based on the 2013 income statement, Shoprite had
exchange rate losses in trading activities totaling to 3.793.000 ZAR (0.1% loss of net annual income)
but could benefit from the exchange rates in financial activities totaling to ZAR 537.727.000 (14% of
the net annual income). Similarly, as stated in its cash flow statement for 2013, Shoprite benefited
from the exchange rate effects totaling to ZAR 92.851.000.
The figures from 2013 may look like Shoprite benefits from the currency rate fluctuations, but in
previous years the foreign currency translations varied by years; (Shoprite Annual Financial
Statements, 2012), (Shoprite Holdings Ltd Integrated Report 2013)
-
2011, loss of ZAR 142.451.000 (rate to total equity: loss 1.99%)
2012, gain of ZAR 288.699.000 (rate to total equity: gain 2.25%)
2013, gain of ZAR 537.727.000 (rate to total equity: gain 3.53%)
Even though Shoprite uses financial instruments to minimize the exchange rate effects, the effects are
still largely visible on Shoprite‟s financial statement, and result from not-easily-predictable financial
performance.
Investment-related issues: India, Nigeria, and competition from foreign investors in the home
market
In 2004 Shoprite decided to expand to its first location outside of Africa - Mumbai, India. A franchise
deal was struck with the Nirmal Group and a cash and carry i.e. wholesale supermarket was opened.
However due to Indian government policy, they were not able to open retail outlets, because the Indian
government had not yet allowed foreign direct investment (FDI) in the retail sector, although it
allowed FDI in the cash & carry wholesale business. Although the Wholesale store was successful in
an economy experiencing a slowdown, Shoprite´s annual report said `Until the government frees up
retail in India and the Group is able to open outlets in Mumbai and elsewhere to achieve economies of
scale, its business in India cannot achieve break-even results”. In 2010 the joint venture was called off
and Shoprite´s store closed down. CEO Whitey Basson had reportedly said at the company's interim

4. results presentation in Johannesburg at the start of March 2010 that the „„constraining price rules (in
India) made a single-store operation unprofitable.'' Because it was unable to expand, Shoprite was not
able to become successful in India.
The Nigerian government has set a goal for its economy to become one of the top twenty largest
economies in the world by 2020 and as such has done a considerable amount to encourage foreign
direct investment. Shoprite‟s strategy in numerous countries including Nigeria has been to expand,
including by investing in real estate to enable the construction of shopping malls with large Shoprite
stores in them. In an interview from 2008 with Shoprite‟s General Manager in Nigeria, it was
explained that Shoprite‟s experiences in Nigeria have been overwhelmingly positive: “As a foreign
investor into Nigeria, the federal government and its regulatory agencies made every effort to
accommodate our concerns by giving advice and support when we opened in December 2005. With
the efforts of the federal government to stamp out corruption, any legitimate organisation that wants to
invest and operate in Nigeria, will receive their full support and assistance…The federal government
of Nigeria has a clear policy of supporting legitimate foreign investors and as such, there are agencies
like the Nigerian Investment Promotion Commission (NIPC) that provide the necessary assistance and
advice in setting up one's business here. Additionally there are also other regulatory agencies such as
the Nigerian Customs Service (NCS), the National Agency for Food and Drug Administration and
Control (NAFDAC) and the Standards Organisation of Nigeria (SON) which also have dedicated
departments which lend support to organisations operating in Nigeria…Nigerians are generally very
accommodating to foreign investors and are eager to see their country develop…We have fully
supported locally made products and have since our inception made use of our self designed "Product
of Nigeria" labels to create an instore awareness with our Nigerian customers that we totally support
Nigeria and its efforts of developing this economy. As a result of this, we are delighted to see that
most of our customers are in fact Nigerian.” Shoprite continues to expand in Nigeria. In August 2012,
Shoprite announced it would invest about 32 billion naira (205 million USD) in real estate
development in Nigeria to aid its expansion there. At the time it has four malls in Nigeria and it
planned to add nine more.
The contrast between Shoprite‟s experiences in India and Nigeria show that government policy
decisions in the target countries can have a huge impact on the success or failure of foreign expansion
efforts.
Another important aspect of foreign direct investment to consider, is the impact FDI from outside into
its home country, South Africa, on Shoprite‟s business. In 2011, Wal-mart made its first investment in
South Africa, taking a controlling stake in Massmart Holdings Ltd. for 16.5 billion ZAR (2.3 billion
USD). Shoprite swiftly announced it will open more stores to try to stay ahead of the competition.
Since Wal-mart‟s entry into South Africa, Shoprite has started to use exclusivity clauses which specify
that it can be the only supermarket operating in its malls. In October 2013, Shoprite launched a legal
case at the Western Cape High Court challenging the legality of a Walmart-owned Massmart Game
store in the CapeGate centre competing directly against its own outlet in this mall. Shoprite‟s legal
challenge is based on an exclusivity agreement with the mall‟s landlord, Hyprop Investments, which
allows it to operate as the sole supermarket, grocery store and liquor store in the centre, bar Pick n Pay
and Woolworths. The outcome might affect the US‟s largest retailers ambitions to become a major
player in the South African grocery market. Shoprite said in its court papers that there was "little
doubt" it would lose sales and suffer financial loss if Game was permitted to trade as a general
supermarket, grocery store, or liquor store at the CapeGate centre, and naturally Wal-mart claims the
case is "an attempt to stifle legitimate competition by Game and is, by implication, prejudicial to South
African consumers". We await the outcome of this case.
Conclusion
Shoprite‟s experiences doing business in its home market, other Africa countries, and India,
demonstrate some of the risks and opportunities of doing business internationally. Differences in trade
barriers, government policies and exchange rates can and will continue to affect Shoprite in positive

5. and negative ways. It will be interesting to follow the progress of Shoprite as many of the challenges
they are dealing with are not resolved and are in the news at this moment.

6. References:
Shoprite Holdings Ltd Integrated Report 2013
Shoprite Annual Financial Statements, 2012 found at:
http://www.shopriteholdings.co.za/InvestorCentre/Documents/June_2012_Annual_Financial_Stateme
nts.pdf
“A Brief Overview of intra-African trade in east and southern Africa: Kenya, Zambia and Uganda”,
Rudi van Blerk, found at: http://www.tralac.org/files/2013/05/S13IP012013-van-Blerk-Briefoverview-of-intra-African-trade-in-east-and-southern-Africa-20130519.pdf
www.comesa.int
Trade Barriers Hindering African Growth, by Lorys Charalambous, Tax-News.com, Cyprus
10 February 2012, found at:
http://www.tax-news.com/news/Trade_Barriers_Hindering_African_Growth____53899.html
“What Shoprite and Woolworths can tell us about Non-tariff Barriers”, October 2013, Nick
Charalambides, found at: http://allafrica.com/stories/201310220337.html
2007 UPDATE SURVEY OF NON TARIFF BARRIERS TO TRADE:ZAMBIA, FINAL REPORT
Prepared by: Imani Development International Ltd
Prepared for: Regional Trade Facilitation Programme
FOOD FRONTIERS IN ZAMBIA: RESISTANCE AND PARTNERSHIP IN SHOPRITE‟S RETAIL
EMPIRE
Darlene Miller, found at: http://africafiles.org/article.asp?id=18515
http://www.evancarmichael.com/Franchises/4263/Shoprite-calls-off-India-Franchise-Agreement-withNirmal-Lifestyle.html
http://www.ventures-africa.com/2012/08/shoprite-to-invest-205m-on-real-estate-development-innigeria/
http://www.howwemadeitinafrica.com/interview-shoprite-ceo-talks-retail-in-africa/21086/
http://www.tradeinvestnigeria.com/feature_articles/786598.htm
http://www.freshplaza.com/article/60899/India-Shoprite-buy-may-push-Future-Carrefour-deal
http://www.bloomberg.com/news/2011-08-23/shoprite-to-accelerate-store-expansion-to-fight-walmart-in-south-africa.html
http://www.freshplaza.com/article/114300/South-Africa-Shoprite-sues-to-fend-off-Walmart
http://www.africaoutlookmag.com/content/shoprite-files-interdict-against-walmart-south-africa