Steel producer prepares to slash jobs

ArcelorMittal Ostrava, a branch of the Indian steelmaking giant, will lay off 600 employees, citing a "prolonged period of uncertainty" in the European market, company officials said, where excess supply and low demand are pushing down prices and forcing producers to restrict their output.

In response to the cuts, 1,000 workers demonstrated in front of the plant gates Dec. 7.

"Only the most efficient operations with the lowest cost and best service to customers will survive - those that can compete even when the market is down," said Tapas Rajderkar, ArcelorMittal Ostrava's chief executive officer. "ArcelorMittal needs to improve productivity significantly to remain competitive in these challenging times."

ArcelorMittal Ostrava is offering a voluntary leave package to 10 percent of its 6,000 employees, including those in subsidiaries Arcelor-Mittal Energy Ostrava and ArcelorMittal Engineering Products Ostrava, with the period for voluntary resignation starting Dec. 12 and running through Jan. 20. For employees who leave or are laid off, the company will be offering information on retraining through counseling centers, officials said.

The layoffs highlight the increasing strain on the industrial companies that are the backbone of the economy, as demand in major export destinations embroiled in the eurozone crisis falters and GDP growth forecasts for Europe and the Czech Republic continue a downward trend.

"Although in general, we do not expect any mass significant one-off layoffs, the forecast for unemployment is rather negative due to the expected economic slowdown," said Bohuslav Čížek, an analyst at the Confederation of Industry, adding that layoffs are expected to continue in construction, heavy industry and industries related to durable goods, as well as those industries' suppliers and small and medium enterprises.

"Many companies will definitely have to reduce their staff," he said. "Industrial companies will be very careful about hiring new employees and will be forced to find some extra savings measures, including reduction of staff costs."

Cuts are driven by uncertainty in the financial markets and flagging foreign demand. In addition, domestic demand is "slackening," Čížek said, and that will likely be exacerbated by austerity measures and an increased value-added tax (VAT) that take effect next year.

"The VAT cannot and will not be fully moved to consumers. Producers will have to lower their margins," Čížek said. "The VAT as such would not be that destructive, but in times of diminishing demand, it presents another burden for economic recovery."

If all goes as planned, the government will raise the lower VAT rate, which applies to food and construction items, among other things, to 14 percent from the current 10 percent. In 2013, the higher and lower VAT brackets are expected to be unified at 17.5 percent.

"The Czech economy, from our estimates, will experience negative growth next year," said Vít Samek, an economist for the Czech-Moravian Confederation of Trade Unions. "So we can expect increasing unemployment. There is no chance, because there are no proactive policies on the side of the government."

The government is currently working on a proposal to help struggling companies keep on employees based on the German kurzarbeit, whereby employers cut workers' hours rather than lay people off. Companies may already cut employees' working hours, as long as they continue to pay 60 percent or more of wages. Under the new program, if a company cannot afford to keep on all their employees despite the shorter working hours, the state will chip in half of what the company was paying to its employees.

"But kurzarbeit in Germany supports not just the employers but the employees, as well," Samek said. In Germany, employees receive a certain amount of compensation from the state for lost wages. "To pay 60 percent of wages is too low - our wages are not comparable with Germany's."

Rather, what the government needs to do is to devote part of its budget to investments that will create jobs, Samek said, rather than depending on austerity. The 2012 state budget calls for continued fiscal tightening and reining in the deficit to 3.5 percent from 4.6 percent this year.

"The government needs to introduce public procurements, like in transportation - it is the investment that is missing. There is no other solution; you can't retrain the work force because we don't know what to train them for. The government needs to support new investments," Samek said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com