Global Glance: March 7, 2016
A quick look at intriguing international stories
By John Bostwick, Managing Editor, Radius
Welcome back to Global Glance. This week we look at:
China’s Massive State Layoffs and Zombie Plants
Given China’s vast wealth and global economic power, its severe income inequality, and its recent ability to support echt capitalistic brands like Starbucks (2,000 China-based stores and counting as of January), it’s easy to forget that its ruling party flies the banner of the hammer and sickle. Indeed, China’s constitution more than once notes that the country operates under the “guidance of Marxism-Leninism,” explicitly guaranteeing work for all. Article 42 of the document reads, in part: “Citizens of the People's Republic of China have the right as well as the duty to work.”
That constitutional right may be in peril. Reuters reported last week that two anonymous sources privy to government plans said China will lay off five to six million workers over the next two to three years “to curb industrial overcapacity and pollution.” Reuters indicates that China will pay a remarkable USD$23 billion to maintain “stability and [make] sure redundancies do not lead to unrest.” This number “is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by ‘zombie’ state firms.” These firms have excess staff kept on payrolls “since local governments are worried about the social and economic impact of bankruptcies and unemployment.”
For another good story about redundancies in China, read December’s “Mass Layoffs in China’s Coal Country Threaten Unrest,” from The New York Times. The article addresses the planned dismissals of 100,000 workers at a coal-mining operation in the northeastern province of Heilongjiang. The downsizing is apparently long overdue given the decline in coal demand, but it’s been delayed for fear of worker reprisals. That fear isn’t idle, according to the Times; there were protests in Heilongjiang over late payrolls even before the layoff announcement.
The Times puts the situation in a sociopolitical context: “The unwritten social compact [in China] is that the party delivers growth, jobs and higher living standards, and in exchange, the workers acquiesce to its monopoly on power, surrendering the right to organize unions or protest.” During China’s current economic downturn, its Communist Party may find delivering its side of this compact increasingly difficult.
In case you missed it, the December 28 edition of Global Glance explored China’s evolving labor movement.
Nigeria’s Ghost Workers
Horror-movie fans like me will find it natural to move from the subject of zombie factories to that of ghost workers. So: Reuters reported last Sunday that Nigeria’s Finance Ministry “has removed more than 20,000 non-existent workers from its payroll following an audit, leading to savings of 2.29 billion naira ($11.53 million) from its monthly wage bill.” The auditors cross-checked bank account information with “biometric data” to ferret out false identities — so-called ghost workers — as well as individuals receiving multiple government salaries.
The audit is part of Nigerian president Muhammadu Buhari’s efforts to crack down on widespread corruption and waste in his country, especially corruption and waste related to the state-owned Nigerian National Petroleum Corporation. And just as China’s efforts to rid itself of zombie plants comes amidst declining coal demand, President Buhari’s reform efforts are made all the more urgent by declining global oil prices. Buhari took office in May of last year, and, as The Guardian reported in September, he “has said he would trace and recover what he has called ‘mind-boggling’ sums of money stolen over the years from the oil sector.”
For more context on Nigeria’s ghost workers, check out last Monday’s story in Newsweek. It notes that earlier last month, Nigerian justice minister Abubakar Malami said “the country’s anti-graft agency, the Economic and Financial Crimes Commission (EFCC), has recovered more than $2 trillion of stolen public funds since it was set up in 2003.” Despite that staggeringly high amount of recovered money, Newsweek notes that Nigeria’s “deficit is expected to double to 2.2 trillion naira ($11 billion) in 2016 and it’s seeking loans from the World Bank in order to finance its biggest ever budget.”
Barclays’ Africa Exit
In January, The Wall Street Journal reported that Barclays was “preparing to stage a gradual retreat” from Africa, its leadership having “concluded that being the majority owner of a sprawling African business no longer fits with the bank’s strategy.” The article notes that Barclays is one of the biggest banks in the region and has operated there for a century.
Confusingly, Barclays issued a press release last Monday with the bold headline, “Barclays Africa Group Remains Committed to Africa.” Here’s an excerpt: “Barclays Africa Group Limited (BAGL) wishes to reiterate that we remain committed to Africa, where we continue to be optimistic about our growth prospects, and to operate in the normal course of business. … UK-based Barclays PLC, which owns 62.3% of Barclays Africa, yesterday said it continues to evaluate its strategic options in relation to its shareholding in Barclays Africa Group Limited and expects to update the market at the time of its 2015 full-year results announcement on 1 March.”
That March 1 Results Announcement showed a net loss of £394 million ($555 million) for the company in 2015 (see page seven of the announcement). Many of Barclays’ statements to the press that day undermined the company’s recent claims of “optimism about” and “commitment to” Africa. Here’s an excerpt from an article in The New York Times: “On Tuesday, Barclays said it planned to sell down its 62.3 percent interest in Barclays Africa Group over the next two to three years, reducing it so it would no longer have a controlling stake and would be allowed to remove ‘it from an accounting and regulatory perspective.’ … the lender cited several challenges to owning the business, including regulatory and capital requirements as well as the reach of a British tax, known as a bank levy.” According to the Times, Barclays CEO James E. Staley did indicate in a conference call with the press that the company “would be ‘pleased’ to continue to hold a minority stake in the African business.” But the company will now concentrate on its UK and US operations.
For an informed look at Barclays’ decision to pull out of Africa, check out Omar Mohammed’s piece in Quartz. He emphasizes that the move must be viewed in a broad context, particularly as, according to a source quoted in the article, “[Barclays’] Africa unit is actually generating better returns than the investment bank.” However, Africa’s economic and political instability may have influenced Barclays’ leadership. Mohammed notes: “Currency fluctuations, especially with the South African rand, where the bulk of Barclays’ business in Africa is based, have hit the company hard. On top of that, policy uncertainty by [South African president Jacob Zuma’s] government compounded the volatility in the markets.”