International
Tuesday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Oct 3, 2006, 07:52

The Irish Independent also reports that the ESRI has called for a delay in admitting migrant workers from the new EU member states, cautioning that another 55,000 migrants will arrive next year from existing member states.

The Irish Times reports that up to 40,000 telephone subscribers and their families were left without a basic service last night after Eircom cut off their supplier Smart Telecom from its network over a billing dispute.

Smart Telecom issued no warning to its customers before Eircom cut off their outgoing calls service at 5pm yesterday because of a debt of some €4 million that Smart has not paid.

Eircom said last night it would continue to facilitate Smart customers for the 999 emergency service and incoming calls until Monday.

Well known as a former sponsor of the weather forecast after RTÉ new bulletins, Smart is among the biggest of the independent phone service suppliers that have been seeking to establish a foothold in the Irish market.

The company's future has been in some doubt since it emerged last month that its biggest shareholder - businessman Brendan Murtagh - was providing up to €3 million per month to keep it afloat.

A spokesman for Smart declined last night to comment on the viability of the company which has made numerous staff redundant in an attempt to cut costs. "We regret any inconvenience caused, and we are working to rectify the situation and come up with a solution."

Customers have been advised to contact the telecoms regulator ComReg. A spokesman for the regulator said newspaper adverts would be placed to advise customers about their options. A telephone number would be provided, and information would be made available on the regulator's website www.comreg.ie

"We regret what has happened insofar as it pertains to the company and how it affects customers.

"We will be making information available to customers so that they can make alternative arrangements, and provision will be made for people not to be left without services for a period."

An Eircom spokesman said: "We regret that we've been forced to terminate most services to Smart because of non-payment of bills.

"In the interest of customer care we are maintaining access to emergency services and incoming calls for a period."

The Irish Times also reports that Aer Lingus shares fell by 1.2 per cent yesterday in their first official day of trading on the Dublin and London stock exchanges.

Several million shares were traded and the stock closed down, at €2.45. The shares were under pressure early in the day, at one point down 2.8 per cent, but staged a recovery later on.

Traders said trading was relatively modest, with most of the frantic activity taking place last week when its shares could be purchased on the grey market.

Most investors purchasing between €10,000 and €30,000 got their full allocation. But anyone investing between €100,000 and €250,000 were severely cut back.

The Minister for Finance, Brian Cowen, and the Minister for Transport, Martin Cullen, visited the Dublin Stock Exchange, along with the airline's chairman, John Sharman, to mark its entry to the official list.

Mr Cullen issued a statement to the market last night reiterating the Government's intention to block any sale of the Heathrow landing slots.

The Government's shareholding will be needed to stop this, but also the votes of one other shareholder, the statement made clear.

Those who purchased shares before the airline listed are sitting on strong gains. The shares listed at €2.20 and this means they have appreciated by over 11 per cent by close of business yesterday. With the airline not prepared to pay dividends at this time, capital appreciation of the stock will prove all-important.

The softening of oil prices over recent weeks has given momentum to airline stocks like Ryanair and Aer Lingus.

The Irish Examiner reports that graduate workers in the public sector are earning as much as 30% more than their counterparts in private industry.

A new ESRI report shows that recent graduates in the public sector earn as much as 19.32, compared to 13.91 for their counterparts in the private sector.

The report says that even on a monthly basis, recent graduates are earning more in the employment of the Government that in the private sector, with monthly pay of €2,971 per month compared to €2,494.

The reports’ authors, Philip O’Connell and Helen Russell, said the 18% difference in monthly earnings came even though private sector employees work longer hours.

The Economic and Social Research Institute (ESRI) said the disparity between pay scales reflects that a greater number of employees in the public sector have third level qualifications, and tend to stay in their positions for longer.

It also emerged, in the report, that those working in the public sector worked fewer hours, €36.84 per week as against €41.09 in private companies.

More than half of all employees in the private sector were paid a bonus compared to just 10% in the public sector.

But there is very little difference on the size of the bonus payment for between the public and private sector.

“Even including bonuses, the public sector wage premium remains at 7% when we [allow] for other factors that influence wages,” the report said.

“These are substantial wage differences in early careers and appear to be higher than those observed in other countries ... Our findings would seem to have clear implications for the next public sector benchmarking exercise.”

The country’s 248,000 public sector workers earned an average of €866.55 a week, the latest CSO data shows, or €45,000 a year. The average industrial wage is just under €35,000.

The Financial Times reports that Siemens, Europe’s largest engineering group, on Monday took the rare step of halting a 30 per cent executive pay rise to stem an angry tide of criticism over the troubled mobile handset division it paid a Taiwanese company to take over last year.

Three thousand German jobs were put at risk last week when the handset company, BenQ Mobile, announced that it was filing for insolvency after its Taipei parent, BenQ Corp, decided it could no longer afford to fund it.

The prospect of Siemens executives enjoying a hefty pay rise while their former workers faced unemployment prompted politicians and union leaders to accuse Siemens of being “irresponsible” and creating “a total mess”.

Angela Merkel, Germany’s chancellor, called chief executive, Klaus Kleinfeld, who announced on Monday that Siemens was setting up a €35m ($44m) solidarity fund for BenQ Mobile’s workers, €5m of which will come from the pay rise the company’s management board decided to forego.

Though it is not unknown for senior executives to share financial pain with their workers – top management at British Airways took a 15 per cent pay cut after the September 11 attacks for example – reversing an already agreed pay rise the size of Siemens’ is unusual.

The move underlines the fact that no matter how international German companies become, they are still beholden to the political and social constraints of their homeland.

“The debate had really started to seriously damage the company. We decided we needed to react very quickly,” a Siemens official said.

Investors were happy when Siemens divested its increasingly troublesome handsets division to BenQ last year. But the move has come back to haunt the German group, underlining the risks of paying a company to take a business away quickly. Siemens reported losses of €550m on its handsets division last year, of which €413m were directly attributable to BenQ.

The German group is now investigating whether any of the €117m it still owes BenQ can be redirected to BenQ Mobile. It also owes BenQ Mobile €50m.

Siemens is considering taking legal action against BenQ, in particular over the future use of its name and patents. Mr Kleinfeld was forced to deny allegations that Siemens had acquiesced in the surprise insolvency of BenQ Mobile last week.

The allegations are “an outrageous defamation,” he said. He also called BenQ’s decision to close the unit “reprehensible”.

But it was unclear if the new fund would end Siemens’ problems. An official of engineering union IG Metall called it “a drop of water in the ocean”, adding: “I have the impression this is much more about getting the management out of the firing line.”

The FT reports that European industrial growth showed little signs of slowing last month, according to closely watched surveys on Monday that set the scene for further central bank interest rates rises.

The eurozone manufacturing purchasing managers’ index (PMI) was unchanged in September, and in the third quarter was down only “very slightly” compared with the previous three months, according to the Royal Bank of Scotland, which releases the index with NTC Economics.

Meanwhile, UK manufacturing output expand at its fastest rate for more than two years, according to a similar survey.

A continuing robust industrial performance helped ameliorate fears that a US-led global slowdown would hit GDP growth in the near future. As in Japan, where the Bank of Japan’s Tankan survey revealed better manufacturing sentiment than expected, the latest data strengthened the case for higher borrowing costs.

However, growth in US factory activity slowed more than expected in September to the lowest since May, the Institute of Supply Management said on Monday.

The latest data came as the European Central Bank prepared to lift its main interest rate by another quarter percentage point to 3.25 per cent at its meeting in Paris on Thursday. It is likely to cite the robust pace of economic activity, as well as fears about inflationary pressures in the pipeline.

The Bank of England’s monetary policy committee is expected to leave interest rates at 4.75 per cent when it meets this week, but money markets are forecasting a further quarter-point rise before the year is out, most likely in November.

Adding to inflation fears, the eurozone PMI showed manufacturers’ output prices rising for the 14th consecutive month as companies sought to pass higher costs on to customers. Capacity constraints continued to push up raw material prices. In Germany, output prices rose at the second fastest rate since the survey started in September 2002.

Economists still expect eurozone growth to slow in the months ahead and in 2007, as the US economy cools, Germany raises its VAT rate by three percentage points in January and past interest rate increases begin to bite. But Jonathan Loynes, economist at Capital Economics, said: “There are few signs from the survey that the industrial recovery is about to run out of steam.” He expected solid GDP growth in the second half of this year.

The surveys also contained good news on job creation. “Manufacturers are responding to production bottlenecks by again recruiting more staff,” said Kevin Gaynor,

The New York Times reports that the burden of housing costs in nearly every part of the country grew sharply from 2000 to 2005, according to new Census Bureau data being made public today. The numbers vividly illustrate the impact, often distributed unevenly, of the crushing combination of escalating real estate prices and largely stagnant incomes.

While many of the highest home values were on the coasts, in places like Southern California and Manhattan, many of the biggest jumps in the percentage of people paying a burdensome amount of their income for housing occurred in the Midwest and in suburbs nationwide, making it clear that the housing squeeze has reached deep into the middle class.

In New York City, more than half of all renters now spend at least 30 percent of their gross income on housing, a percentage figure commonly seen as a limit of affordability. In Staten Island, the percentage paying at least 30 percent of income rose to nearly 60 percent, up from 40.

Among suburban homeowners, there were big increases in the percentage of people with mortgages spending at least 30 percent in places like Loudon County, Va.; Morgan County, Ind.; Nassau County, on Long Island; and Bastrop County, Tex.

“Housing prices have gone up much more than incomes have,” said Christopher Jones, vice president for research at the Regional Plan Association in New York City. “Clearly, you can’t sustain that sort of imbalance over the long run. There’s only so long that housing prices can go up without sustained increases in income to support them.”

The data, from the American Community Survey, was collected throughout 2005, some of it before the real estate market began softening over the past year.

While the escalation in house prices that began in the mid-1990’s has slowed down in most places, and while prices are even dropping in some markets, rents are currently rising.

Historically, it is not unprecedented for housing prices to rise faster than household incomes, since housing prices fluctuate more than median incomes. In recent decades, median incomes have not risen at the rate that they did in the booming 1950’s and 1960’s, yet real estate prices in many parts of the country have escalated sharply in recent years.

“People want to hang on and stay in the market,” said William H. Frey, a demographer at the Brookings Institution in Washington, “and they are willing to stretch themselves to find or to rent a house that is suitable.”

The places with the highest overall percentages of people carrying a heavy housing burden were in fast-growing areas of California, Colorado and Texas.

In Southern California, Temecula and Hemet had the highest percentages of renters paying at least 30 percent, with 74 and 73 percent of renters at that level.

Boulder, Colo., and College Station, Tex., held the record for renters spending at least 50 percent, with 47 and 46 percent.

The biggest jump in the percentages of people paying at least 30 percent of their income on rent, as well as those spending at least 50 percent, occurred in Olathe, Kan., a booming suburb of 114,000 southwest of Kansas City.

S. Lawrence Yun, an economist with the National Association of Realtors, said renters in desirable cities might be spending more of their income on housing in hopes of getting a toehold in places with good schools, better homes and a good quality of life. He said, “There is certainly a concern that people are devoting a large portion of their income to housing, and one of the reasons is due to the more limited housing supply.”

In the New York region, a very high percentage of renters in urban counties spent a big share of income on housing. In the Bronx, Brooklyn and Queens, close to a third of all renters pay at least 30 percent.

But many of the biggest increases in housing burdens occurred outside the city.

Among homeowners, there were big increases in the percentage of people spending at least 30 percent on housing in counties like Nassau, Dutchess, Orange and Putnam. The percentage of households spending at least 50 percent of income also rose in those counties.

In Clifton, N.J., the percentage of mortgage holders spending at least 50 percent of their income on housing rose to 27 percent in 2005 from 12 percent in 2000, a 134 percent rise. In New Britain, Conn., the group paying at least 30 percent more than doubled, rising to 57 percent of people with mortgages, up from 27 percent.

Nationally, the biggest increase in homeowners spending more than 30 percent of their income on housing occurred in an unincorporated area southeast of Los Angeles called Florence-Graham, where more than a third of residents live in poverty. There, the figure climbed to 43 percent from 17 percent. Other places with big jumps included Wyoming, Mich.; Round Rock, Tex.; and Plymouth, Minn.

In general, the places with the highest overall percentages of homeowners spending that level of income were poorer cities. El Monte, Calif., a Los Angeles suburb, had the highest percentage of mortgage holders, 73 percent, spending more than 30 percent of their income on housing. In Newark, the figure was 72 percent; in El Cajon, Calif., east of San Diego, 69 percent; and in South Gate, Calif., 69 percent.

Jack Kyser, senior economist with the Los Angeles County Economic Development Corporation, said such cities are often the only places that people on the lowest rungs of the economic ladder can afford and they tend to stretch their resources to get in. He said El Monte and South Gate both are growing, largely because Latinos have been moving in.

“These communities are well located to employment opportunities and they can drive and it is not a horrendous drive,” he said. “They are also close to public transportation and use it.”

The numbers, which were analyzed for The New York Times by Andrew A. Beveridge, a demographer at Queens College, provided a glimpse of how hot — and how unhot — some areas had become.

Two Southern California coastal cities, Santa Barbara and Newport Beach, had the highest median house values, at $1 million.

Youngstown, Ohio, a city long hurting economically, had the lowest, at $48,000.

In New York State, the median value of owner-occupied homes actually declined slightly in a few upstate counties, including Oswego, Steuben and Madison. The median house value dropped 9 percent in Buffalo, to $60,800.

Housing values rose only barely in some upstate counties, including Cattaraugus, Cayuga, Chautauqua and Chemung.

Because of a change in census procedures, it was not possible yesterday to reliably gauge the increase in cost burden among homeowners in places with large numbers of condominium or cooperative apartments.

In 2000, the bureau did not count owner-occupied apartments in multifamily buildings; in 2005, it did. So the 2000 and 2005 figures could not be satisfactorily compared for places like Manhattan and San Diego.

In Manhattan, where the median value of all owner-occupied homes hit $718,000, the increase in median gross rents from 2000 to 2005 was 14 percent, well below the 20 percent jump in Suffolk County on Long Island, the 23 percent rise in the city of Passaic, N.J., and the 24 percent jump in Ulster County, N.Y.

The increase in the percentage of Manhattan renters paying at least 50 percent of their income on housing was 13 percent — well below the 50 percent rise in Rockland County.

The data also showed that, among couples living together in Manhattan, about 17 percent were unmarried in 2005, compared with 10 percent nationwide.

Manhattan appeared to have the second highest number of male couples living together, following Los Angeles.

The NYT also reports that about 25 miles south of the Chennai airport, past rows of ramshackle shops and pavements crowded with roadside vendors and assorted cattle, a short turnoff leads to a gated modern oasis.

Inside, at complete variance with the chaos of its surroundings, are the lakes, promenades, lush landscaping and security systems of Mahindra World City. Its modern office high rises already house 4,000 workers with space for several thousand more.

This is the first of India’s special economic zones, or S.E.Z.’s, which could offer a partial solution to the extreme weaknesses in India’s infrastructure: narrow, pothole-filled roads; erratic supplies of electricity and other utility services; and inadequate communication links.

The zone strategy borrows from China’s playbook, and in many ways, is a means to compete with China. In fact, if all goes according to government plan, hundreds of these privately run zones will sprout like miniature foreign islands, offering better infrastructure and jobs, increasing exports and attracting investment from foreigners.

Opposition, however is mounting from political parties, farmers’ groups and economists over how land is acquired and how tax breaks are doled out for such projects. Last weekend, the president of the Congress Party, Sonia Gandhi, a powerful force in the federal government, joined the chorus of critics. At a meeting of chief ministers of her party, Mrs. Gandhi rebuked local governments for being aggressive in acquiring land from farmers.

“Agricultural land should not be diverted for nonagricultural uses,” she said.

Since the rules for the zones act were made final this year, hundreds of domestic and foreign companies have lined up at the government’s doors for zone licenses so they can take advantage of the easier land acquisition rules and the generous tax benefits.

The government has formally approved 164 such licenses and 266 are pending clearance in the next few weeks. According to the government, the zones could generate 1.8 million jobs and attract $80 billion in investment in the coming years.

In China, many government-developed economic zones like Shenzhen have been spectacularly successful in attracting international investors, and India is hoping to replicate that success.

“Any dependence on public infrastructure is proving futile, we are running out of hope there,” said Subir Gokarn, chief economist at the rating agency Crisil. “The government is now moving on the assumption that if the public sector cannot deliver, let’s try the private sector; that is the only chance it will work.”

In India, providing infrastructure has traditionally been the government’s domain. Only recently have private companies started building toll roads, managing airports and running utilities.

India is desperately in need of an infrastructure lift, even as its industrial output surged 12.4 percent in July, the fastest pace in the last decade. Prime Minister Manmohan Singh’s government is trying to increase government spending on infrastructure to sustain the momentum, but the sums are only a fraction of what China spends.

Now the government’s rush to sign on private investors is falling into trouble. The commerce ministry, which lobbied and succeeded in removing a cap on the total number of special economic zone approvals, is now facing off with the finance ministry, the Central Reserve Bank and the International Monetary Fund. They protest that the tax breaks would seriously curb government revenue, by 900 billion rupees ($19.6 billion).

Those championing the zones, like Kamal Nath, the minister of commerce and industry, have refused to back off. “These zones will boost exports and increase employment,” Mr. Nath said.

In Chennai, the 1,300-acre Mahindra World City developed by the powerful industrial group Mahindra & Mahindra appears to illustrate Mr. Nath’s point.

This first privately operated special economic zone has wide roads, street lighting, water and sewer networks, 24-hour private security, fiber optic cable and even a power station. Space in the zone is fully sold to an array of 32 international and domestic companies.

“Customers say our S.E.Z. compares with the best free-trade zones in Malaysia and China,” said Anita Arjundas, chief operating officer of Mahindra World City.

Special economic zones are an attractive proposition for multinational companies like Dell and Accenture, which have applied for licenses. The Timken Company, based in Canton, Ohio, plans a $1.2 billion investment in a special economic zone to increase its global production capacity.

“The environment is easier to manage, we get tax breaks, and we can cut down on start-up time,” said Ashish Sinharoy, a spokesman for Timken. Roads, power and water supply, logistics support, material handling and customs clearance would all be in place.

But India’s path is unlikely to be smooth, experts say. “China did it differently, its government created and invested in the islands of infrastructure,” said Prakash Gurbaxani, chief executive of TSI Ventures, a collaboration between the property firm Tishman Speyer, which is based in New York, and ICICI Bank of India. “Ideally, the government should support S.E.Z.’s in the early stages.”

In a recent issue of the International Monetary Fund’s quarterly magazine, its chief economist, Raghuram G. Rajan, said that although such zones were laudable, the government should offer only limited tax breaks to developers.

The Central Reserve Bank has said it is concerned over the revenue losses because of provisions like a complete tax holiday for economic zones for the first five years and a 50 percent break for the next five.

The land acquisition has also generated controversy, with several critics including some from the governing Congress Party calling the process a sophisticated land grab and a real estate scam. With each zone requiring that thousands of acres be granted by the government, critics said corruption was bound to become rampant in the process.

In many pockets of rural Maharashtra state where the local government is busy acquiring land for these zones, farmers’ groups have sworn not to part with an inch of their land. One such group, the National Alliance of People’s Movements, has threatened large-scale agitation if farmers’ land is taken away.

“Why cannot they subsidize farmers by building schools, roads and hospitals and providing us with power supply?” asked Sanjay Sangvai, the spokesman in Pune for the National Alliance.

Backers of the economic zones, though, are optimistic. “India will have a very India-specific model as we do not have large lands available,” said Mr. Nath, the commerce minister. “Even though the projects will be small in scale, they will nevertheless be major engines of growth.”