EMERGING markets might be booming, but South Africa seems, at first glance, an odd place for Walmart to expand. Inflation is in the high single digits; unemployment is at 20 per cent; and the workforce is highly unionised.

Massmart, South Africa’s third largest grocer, is not without promise, however. It offers Walmart a route into 13 near-by countries, which are expanding far more quickly than their developed neighbour.

Sales at Massmart are already growing quickly, averaging 15.5 per cent over the last ten years. Walmart is unlikely to boost the top line much faster, but its record of margin expansion will serve it well.

Massmart’s ebitda margin is at 4.9 per cent, compared to 6.5 per cent at its American suitor. If executives can bring down costs (no mean feat when one considers the power of the trade union) this deal could yet come good.