India business awaits changes

to Raj-era labour laws

DHARUHERA, India (AFP):  With steel machines hissing and whirring and staff studiously manning production lines, Sunder Rajan’s factory about two hours southwest of New Delhi is prospering.  But Rajan’s plant, one of seven spread across four states that churns out car steering systems, faces an uphill battle complying with India’s myriad of archaic, complex and often bewildering labour laws. “There are a huge number of laws, with individual inspectors for individual laws in individual states,” said Rajan, CEO of Sona Koyo Steering Systems.  “It’s a nightmare,” he said, adding that he has numerous staff working full-time on compliance issues.

Businesses argue that conforming to India’s 44 national and more than 150 state labour laws is not only costly and time-consuming, it has deterred foreign investors, and hobbled manufacturing in a country struggling through the worst slowdown in two decades.

Prime Minister Narendra Modi, who took office in May, has pledged to overhaul the laws, one of the major reforms his right-wing government says is vital to revive the economy.

In his Independence Day speech on Friday, Modi underlined his desire for India to become a manufacturing hub, and invited the world’s industries to set up shop in the South Asian country.

He also urged the country’s youth to set up their own manufacturing businesses, questioning why India was forced to “import even the smallest of things”.

Rajan welcomed Modi’s speech as “a sign of good intentions” but said his government now needed to “create the right conditions”.

“We still need for example better labour laws, infrastructure and faster environmental clearances for this to happen,” he told AFP.

The government introduced labour bills this month including to allow more overtime and women to work night shifts, but the left-wing opposition has threatened to block them.

Although trade unions agree reforms are overdue, they oppose the bills, saying worker safety and other conditions are being watered down.

“The laws at the moment are badly enforced so workers, especially in small factories where unions don’t exist, are already hugely unprotected,” said Gautam Mody, general secretary of the New Trade Union Initiative.

“These bills will create mini Bhopals,” he said, referring to the 1984 industrial disaster that killed thousands.

- Spittoons and whitewash -

India’s labour laws date back to the British Raj. Some regulations require companies to keep numerous records for inspection and file reports on attendance, overtime and sick leave.

Others say factories must have a sufficient number of spittoons and washroom walls should be whitewashed regularly.

“There is a lot of confusion in the minds of workers and employers as to which laws apply to them and which don’t,” said economist T.S Papola, a former government advisor on labour reforms.

Companies with more than 100 employees cannot fire anyone without state government permission first.

“That’s the most controversial law, the most serious bone of contention,” said Papola, of the Delhi-based Institute for Studies in Industrial Development.

India has “one of the most rigid labour markets in the world”, deterring many firms from expanding, according to the World Bank.

The laws are also motivating companies to hire more contract workers, who can be fired more easily, are not involved in collective bargaining and receive fewer benefits.

India needs to modernise, “reduce the number of and simplify labour laws” to increase flexibility and encourage the growth of formal workforces, it said in a recent report.

About 94 percent of Indian workers are in what the government calls the informal sector, including domestic service, agriculture and construction. Most labour laws don’t apply to those workers, leaving them with little or no protection.

- Much-needed jobs -

Some 10 million people are pouring into cities and towns annually searching for jobs in a country where half of the population is under 25.

Manufacturing contributes about 15 percent to the economy, less than China, but India wants to hike that to create tens of millions of jobs.

At Rajan’s factory, his 500 contract workers put together steering systems for automakers in India and exports to John Deere in the United States.

Mamta Mandhal, 21, takes home about 7,400 rupees ($121) a month, after compulsory contributions to insurance and other schemes.

After three years studying for a diploma in mechanical engineering, it is Mandhal’s first job.

She concedes the pay is low and desperately wants to be part of Sona’s formal workforce, whose wages and entitlements are higher. But she is not complaining.

“It was difficult to find work. There were 60 graduates in my class. I am grateful and working hard,” she said, in between manning a machine that produces steel components at the plant in the town of Dharuhera.

Rajan, whose staff number 3,500 in total, said he needs a flexible workforce to stay competitive especially during downturns. Laying off formal workers can take months and even years of negotiation.

“Nobody likes to retrench anybody. But we need to be competitive, productive to compete globally. All of the stakeholders need to understand this,” Rajan said.

Russian food embargo smells like

opportunity for LatAm

SAO PAULO (AFP): Russia’s embargo on US and EU food products has opened a window of opportunity for Latin America, which could capitalize on the Ukraine crisis to become a major food supplier to Moscow. Furious over the sanctions Western countries have imposed on Russia over its support for Ukraine’s separatist rebels, the Kremlin announced on August 7 it was placing a “full embargo” on most food imports from the United States and European Union. That could enable major Latin American food producers like Brazil, Argentina, Chile and Mexico to get a foothold in the Russian market, analysts told AFP.

But challenges abound, including long shipping distances, production costs, the difficulty of scaling up production to meet massive Russian demand, and the political tensions such exports could create with Western allies.

“This could motivate Latin American companies to turn toward the Russian market. It would be with considerable caution though, because of the political situation,” said Mexican academic Jesus Valdes Diaz de Villegas of Iberoamericana University’s business department.

Such a move would have to come from private firms, “without any kind of statement of support for Russia on the part of the government,” he said.

Russian President Vladimir Putin reached out to Latin America last month on a six-day tour that included a stop in Brazil, the region’s largest food producer.

Moscow then sealed import deals with two dozen Brazilian poultry companies and five pork producers, just days before announcing its Western import embargo.

Russian health regulators have since granted new import permits to 87 meat producers and two dairies in Brazil.

“From the commercial point of view, it’s an opportunity for Brazil. From the political point of view, it’s a problem Brazil will have to deal with,” Jose Augusto de Castro, the director of the Brazilian Foreign Trade Association, told AFP.

The South American country’s bilateral trade with Russia totaled $3 billion in the first six months of the year, $563 million of it in beef.

Castro estimated the country’s additional exports to Russia this year could add up to an extra $300 million to $500 million over previous years.

- ‘Strictly business’ -

Other Latin American countries are smelling similar opportunities.

Russia is currently just the sixth-largest market for Chilean food exports, but businesses there have been in talks with Russian officials to increase exports of fruits and fish.

“The Russians have asked us to help them find suppliers,” said Diego Vicente, the manager of the National Agriculture Society’s Russia-focused Business Development Platform.

The Russian embargo is an “opportunity” for Chile, said the director of the country’s International Economic Relations office, Andres Rebolledo, insisting it was “strictly a business matter.”

Russian officials have also been in contact with Argentine farmers.

“We’ve gotten a lot of requests from Russia, mainly in citrus, dairy and meats,” said Matias Garcia of the Argentine-Russian Chamber of Commerce and Industry.

“Consultations have increased, because the major Russian distributor has to replace the products it used to import from countries like Germany, Italy or Holland. There’s unprecedented potential.”

But he said insufficient production capacity and finding mutually attractive prices could pose obstacles.

For Mexico, which currently sends just one percent of its exports to Russia, the situation provides an opportunity to diversify its partners and reduce its food industry’s dependence on the United States.

Currently, Mexico runs a trade deficit with Russia, but the embargo could change that, said Antonio Gazol Sanchez of the National Autonomous University of Mexico’s school of economics.

“Now an opportunity has opened to balance our trade with Russia if we take advantage of the gap the European Union is leaving,” he said.

Mugabe opens southern Africa

summit with call for growth

HARARE (AFP): Zimbabwean President Robert Mugabe on Sunday opened a summit of southern African leaders by calling for countries to drive growth by exporting more finished goods instead of raw materials. The 90-year-old leader took over as chairman of the Southern African Development Community (SADC) from Malawi’s Peter Mutharika after almost a decade of being excluded from positions of power in the 15-member bloc. He is also in line to lead the 54-nation African Union from next year. Southern Africa must “wean itself from exporting raw materials and create value chains that will lead to the exportation of finished products,” he told the opening of the two-day summit.

“Our region has abundant resources, which instead of being sold in raw form at very low prices must be exploited and beneficiated to add value to the products which we export.”

Mugabe has ruled Zimbabwe since independence in 1980 but a series of economic crises, flawed elections and brutal crackdowns that have brought UN sanctions and turned the former revolutionary into a Western pariah.

He was the only leader from southern Africa not invited to attend a major US-African summit in Washington earlier this month, which included some 45 of the continent’s heads of state.

Rights groups last week urged southern African countries to address abuses and uphold individual freedoms at the meeting in the Zimbabwean resort town of Victoria Falls.

Amnesty International, Human Rights Watch and Zimbabwe Lawyers for Human Rights deplored “serious human rights concerns” in Angola, Malawi, Swaziland, Zambia and Zimbabwe.

They accused Harare of dragging its feet to prosecute perpetrators of political violence in past elections, and denounced secrecy around mining rights and the country’s lucrative diamond fields.

Speaking in the Zimbabwean resort town of Victoria Falls on Sunday, Mugabe said the SADC the bloc prides itself in an impressive track record in peace, security and democracy.

Regional security and socio-economic development are at the top of the agenda of the meeting, which ends on Monday.

Plucky Madagascar car-maker

hopes to shift up a gear

ANTANANARIVO (AFP): When you next shop around for a new car, the chances are you will not buy a Karenjy. For a start, only a dozen are built each year, by hand, on the Indian Ocean island of Madagascar and none are exported outside the impoverished nation. They don’t come with electric windows, airbags, sat nav, or other conveniences long considered standard. And in terms of looks, their long sloping front and boxy hindquarters may be something of an acquired taste. All this has meant that since Karenjy was founded by the state in 1984, the island’s only car manufacturer has been thoroughly pummelled by foreign competition on its home turf.

“Everything is based on design and the previous Karenjys looked very bulky,” said Nantenaina Andrianaivoson, a young Malagasy father who drives a Peugeot 307.

“There was plenty of room for improvement.”

Even a Papal endorsement from John Paul II, who cruised around the central city of Fianarantsoa on a custom built Karenjy “Papamobile” during a 1989 visit, was not enough to save the firm.

In 1993, Karenjy — which means ‘a stroll’ in Malagasy — was placed under administration and the government simply abandoned it, spelling a slow walk to death.

The factory became dilapidated, its shop floor surrendered to vegetation that grows quickly in the hot sun on this island of 20 million residents off southeast Africa.

Building materials were unusable, but a few tools and a spare car remained.

- ‘Rebirth’ -

In 2008, French-Malagasy company Le Relais bought the carcass of the firm hoping to turn it around.

But after a year-long refurbishment, a coup plunged the country into a deep political and economic crisis which brought punishing international sanctions.

The resultant strife cost Madagascar — already one of the world’s poorest countries — $8 billion and tens of thousands of jobs, according to World Bank estimates. Not an ideal market in which to sell cars.

But now, according to Le Relais’s Luc Ronssin, “Karenjy is rising from the ashes after a 15 year coma.”

Last week Karenjy unveiled its latest model, the “Mazana 2,” along with plans to increase production around twentyfold to 200 units a year by 2017.

That is still a tiny rate of production by any measure, but would make up two percent of the 8,600 cars Madagascar imported last year.

Hopes are pinned on the new Mazana — meaning strong in Malagasy — which will hit the market next year and is a low maintenance 4x4 designed for the island’s rugged terrain.

It bears a passing resemblance to a Hummer but makers say it will also suit the wallet of impoverished Malagasy consumers.

It will be “very competitively priced and cheaper than imported vehicles,” said Ronssin.

An AFP reporter who test-drove the car attests to its sturdiness even on rough and winding roads.

- ‘A question of patriotism -

The company’s optimism about the market has been spurred on by last year’s election, which heralded the return of democracy and the resumption of relations with international donors.

The United States recently allowed Madagascar back in to a lucrative trade pact that gives preferential access to US markets, further kindling hopes of a brighter future for Malagasy business.

The country’s new leader Hery Rajaonarimampianina has toured the world seeking to bring investors and jobs to Madagascar.

But Karenjy is not just aiming to make a quick buck, it also wants to be socially responsible.

Owners have so far resisted bringing robots to the factory floor, there is no production line and work is done by hand by 70 specialised workers.

“Le Relais has a specific approach to business: making money is not a problem, the question is what to do with it to create real social development,” said Ronssin.

On an island that has felt the full force of globalisation, that is a message that resonates with the patriotic Malagasy.

Resident Patrick Fananontsoa drives a Mazana 1 originally bought by his brother.

“My brother wanted to buy a Mazana 1, because he was fed up with all the Chinese cars,” said Fananontsoa, “it was a question of patriotism.

“It was also a little cheaper and efficient with decent petrol consumption.

“The design may be a bit rustic, but lots of people like it.”

Still, given the “complicated” global operating environment, Ronssin says Karenjy cars will only be targeted for the domestic market.

International car buyers may have to wait a little while yet before buying their first Karenjy.

Brussels pleads with Germany

to let wages rise

BERLIN (AFP): Germany must increase workers’ salaries to help its neighbours out of the economic slump, the European Union’s employment commissioner Laszlo Andor said Saturday. The Hungarian said Berlin’s big foreign trade surplus was hurting its European partners, and urged it to stimulate domestic demand by increasing wages and public expenditure. “The rise in salaries has fallen behind the rise in productivity in Germany” for more than a decade, Andor told the German conservative daily Die Welt, in an interview due to be published on Sunday. Brussels was now urging Germany, the EU’s economic powerhouse, to relax its iron grip on wages, which he said was “indispensible” for the recovery of the rest of the region.

“It would be better if salaries rise in parallel with productivity,” Andor added.

His comments come amid signs of stalling growth in the 18-member eurozone, particularly its largest economies Germany and France, as the bloc struggles to recover from years of financial crisis.

Brussels now appears to be taking a view long championed by France that a rise in German salaries would give the struggling eurozone a much-needed stimulus.

France’s President Francois Hollande this month called on Berlin to boost spending as “the best favour Germany could do for France and for Europe” to help growth.

“It’s very important that Germany increases public spending, stimulates demand and reduces its excessive trade surplus, which is hurting its European neighbours,” Andor said.

“Changing wage policy is indispensible, the Commission believes,” he told the paper.

Bundesbank chief Jens Weidmann last month said German wages have scope to rise as much as 3 percent because “we are practically in a situation of full employment”.

This runs counter to many on the German right, including Chancellor Angela Merkel, who believe its low wage policy has given the country its competitive edge.

Pay remains a prickly issue in Germany, which has just approved its first national minimum wage to come into effect in January 2015, despite stiff opposition from employers.