WELCOME TO OUR ONLINE ANNUAL REPORT 2011

Stakeholder engagement feedback

A wide variety of issues were identified, investigated and debated during our stakeholder engagement process. These issues included the Walmart effect, South Africa’s Consumer Protection Act, product safety, Broad-based Black Economic Empowerment (BBBEE), rural poverty, the marginalisation of unemployed youth, labour rights, unsustainable consumption, local manufacturing competitiveness, biodiversity systems, the crisis in education, energy security, crime and corruption, waste management, HIV and AIDS, water security, job security, food security and many others.

We were humbled by the intensity of the various stakeholders’ participation and the manner in which they freely shared with us their ideas, perspectives and expectations. It became clear during the engagement process that the central role that retailers occupy in the supply chain leads to high expectations among stakeholders, who recognise that our supplier convening power and access to consumers provides a powerful opportunity to influence supplier and customer behaviour.

This section provides an extract of some of the issues and feedback that most attracted our attention during the process.

JOB SECURITY

Media discourse

Job security was top of mind for organised labour and government and this topic received moderate media visibility. In the latter part of 2010, media focus on business and employment issues increased significantly, as government released its New Growth Path Strategy and began reinforcing the need for job creation. The themes covered that resonate in Massmart’s context are job creation, job protection, casualisation and general job security issues. Job creation as a specific theme receives very high media coverage.

The intensity with which these themes were covered in the media is indicated in the chart below

Perspective

Based on the official strict definition, approximately 25% of South Africa’s population is currently unemployed. The broader definition, used by the South African Institute of Race Relations (SAIRR), which includes numbers for discouraged work-seekers, estimates the percentage of unemployed to be higher at 32.4%.

Unemployment in South Africa has risen by approximately 26% between 1994 and 2010. Of those who are unemployed, more than half are youths between the ages of 15 and 34 years old.

A key aspect within the retail industry is our reliance on non-permanent employees. These employees supplement permanent staff numbers to help retailers meet peak trading activity demand, particularly over weekends.

ENERGY SECURITY

Media discourse

Energy security received high media visibility and was strongly reported during the first half of 2011 when Eskom was emphasising the thin reserve margin between supply and demand. Media coverage centred on the potential job and production losses which could occur in the mining industry in the event of extended load-shedding. The themes covered in the media that resonated most for Massmart were energy security in general, alternative energy products, energy efficiency of operations and energy efficient products.

The intensity with which these themes were covered in the media is indicated in the chart below

Perspective

The absence of sufficient electricity-generating capacity has been and continues to be a constraint on the South African economy's ability to accommodate a growth rate high enough to achieve government’s goal of creating 500,000 new jobs per annum. As the national electricity utility battles to meet demand, insufficient supply has already resulted in rolling power outages that disrupt economic activity.

The crisis has led to a 25% annual increase in electricity tariffs every year for three years (2010- 2013) for the purpose of funding a programme to build new generating capacity. In addition, the energy crisis has created greater awareness among industry and households that energy efficiency must be improved and efforts made to reduce electricity consumption. Despite these initiatives, South Africa’s energy supply remains vulnerable, with an energy generation reserve margin of 12%, compared to a desired reserve margin of 15%.

FOOD SECURITY

Media discourse

Surprisingly, food security received very low media visibility, although it was identified in our research as the highest priority for non-governmental organisations (NGOs). The themes covered that resonate in our context were food security in general, producer security, price security and, at the lowest level, nutritional security. Perspective Although South Africa is an exporter of agricultural commodities and the Constitution entrenches the right to adequate nutrition, it is estimated that approximately 14% of the population is vulnerable to food insecurity.

The intensity with which these themes were covered in the media is indicated in the chart below

Perspective

Although South Africa is an exporter of agricultural commodities and the Constitution entrenches the right to adequate nutrition, it is estimated that approximately 14% of the population is vulnerable to food insecurity.

In recent years, rapidly rising fuel, energy and food prices have made it difficult for average South Africans to meet basic household needs. This has been exacerbated by incidences of price collusion among major food manufacturers. NGOs express the view that producers, agri-processors and retailers should work together to reduce costs and wastage within the food supply chain, without undermining competition.

WATER SECURITY

Media discourse

Water security received moderate media attention and relatively consistent coverage. Water security coverage followed a similar trend to that of energy security (albeit at a slower pace) and this could prove indicative of a looming crisis. Media reports indicate that 84% of South Africa's freshwater systems are threatened. The themes covered that resonate in Massmart’s context are water security in general, phosphates in laundry detergents, water efficient products and rainwater harvesting.

The intensity with which these themes were covered in the media is indicated in the chart below

Perspective

South Africa’s average rainfall of 450mm p/a is approximately half that of the global average (860mm p/a). South Africa is therefore considered to be one of the 30 driest countries in the world. It is predicted that climate change will make South Africa both hotter and drier and that globally, water demand will outstrip supply by as much as 40% in 2030.

Each year South Africans utilise approximately 97% of the country’s total annual water supply. Unless water conservation is prioritised, water shortages could have a negative impact on the country’s economic growth and social stability as households, industry and the agriculture sector compete for scarce supply.

CORRUPTION

Media discourse

Corruption within the political context received high visibility in the media, although business-related coverage of corruption was low. Interest in corruption peaked when debate around the Protection of Information Bill intensified amid widespread fears that the Bill could be abused to cover up information on corruption and to criminalise whistleblowers.

It is worth noting that this media discussion was initiated and perpetuated principally by researchers and unions, with little input originating from corporates. The themes covered that are relevant to our context, however, are the cost of corruption to consumers and the cost of corruption to business.

The intensity with which these themes were covered is indicated in the chart below

Perspective

Corruption is damaging to all aspects of society. It adversely affects job security, food security, business infrastructure, healthcare and economic growth. The Council for the Advancement of the South African Constitution believes that approximately 25% of South Africa’s GDP is lost to corruption annually and that corruption increases the cost of goods by as much as 20%.

A 2007 PriceWaterhouseCoopers study revealed that 72% of companies in South Africa reported that they had been the victims of economic crime, in comparison with 43% of companies globally. In addition, on a scale from 0 (highly corrupt) to 10 (highly clean) South Africa scored 4.5 in Transparency International’s 2010 Corruption Perceptions Index.

WASTE MANAGEMENT

Media discourse

The topic of waste management had high media visibility and generally received a consistent level of coverage in the press. The themes covered that resonate in Massmart’s context are waste management in general, recycling and re-use and hazardous post-consumer waste. Interestingly, packaging rationalisation was a relatively neglected area of media focus.

The intensity with which these themes were covered in the media is indicated in the chart below:

Perspective

South Africans generate in excess of 42 million cubic tons of waste per annum. Altogether 95% of urban waste is deposited on land, either in open trenches or in one of the approximately 1,200 landfill sites operated mainly by local authorities. Industry experts have warned that South Africa is rapidly running out of landfill space. This has prompted the government to adopt a waste minimisation approach that places the onus on manufacturers and retailers to reduce the waste sent to landfill.

E-waste in particular is an area of growing environmental concern, as many electronic products contain potentially hazardous components. E-waste generation in Africa is expected to increase by as much as 400% by 2020. The government’s Polokwane Declaration has set clear goals regarding waste generation and disposal. The most prominent among these is the goal of zero waste to landfill by 2020.

EDUCATION

Media discourse

The issue of education was addressed a great deal in the media and featured prominently on the government’s communication agenda. Within our particular context, the education themes covered that resonated most in our context were tertiary education, the education system, development of schools and further education and training.

The intensity with which these themes were covered is indicated in the chart below.

Perspective

Improving basic education was foremost among the government’s ten 2010 development goals. Despite this focus, the Development Bank of Southern Africa education expert, Graeme Bloch (2009), believes that between 60% and 80% of South African schools are currently dysfunctional. The results of the 2011 Annual National Assessment (ANA) indicate that basic literacy and numeracy skills among Grade 3 and Grade 6 pupils are alarmingly underdeveloped.

Better education would play a critical role in addressing many of the socioeconomic issues that hamper South Africa’s growth. Improved education systems would undoubtedly pave the way for more adequately meeting the economy’s demand for skills and achievement of globally competitive productivity standards. In this context, stakeholders indicated that corporate South Africa should prioritise in-house vocational training and corporate social investment in education.

HEALTH CARE, HIV AND AIDS

Media discourse

HIV and AIDS had low media visibility which peaked in December around World Aids Day. It was largely reported as a social issue to be dealt with by the government and did not feature as a particularly visible mainstream business issue. The themes covered that resonate in our context are HIV and AIDS programmes in the workplace, anti-retroviral usage, impact of HIV and AIDS and testing for HIV and AIDS.

The intensity with which these themes were covered in the media is indicated in the chart below

Perspective

In South Africa, approximately 11% of the population is HIV-positive with roughly 18% of people between the ages of 15 and 49 infected with the disease. It is estimated that, in total, 5.7 million South Africans are HIV-positive. Of this number, roughly 330,000 are children under the age of 14. In addition, South Africa is home to approximately 3.4 million orphans, and according to some accounts, more than half of them are believed to have been orphaned as a result of AIDS.

It is generally accepted that HIV and AIDS has impacted upon South Africa’s socioeconomic growth and development. Specific business impacts include lower productivity levels which are attributable to higher absenteeism and the loss of workforce skills and experience. Civil society has generally encouraged corporate South Africa to implement workplace prevention and treatment programmes and to contribute to initiatives that provide care and support within local communities.