Labour costs boost competitive appeal

LOW-COST labour is adding to the competitive appeal of several emerging mining jurisdictions, according to a new index analysing worldwide labour costs, writes Ruth Green.

Staff Reporter

Myanmar, Cambodia and Guinea are among the world’s 10 lowest-cost economies for businesses to operate in when it comes to labour costs, says a new global index by risk analytics company Verisk Maplecroft.

The three countries are ranked in 171st, 169th and 166th place, respectively, in the company’s labour costs index (LCI), which measures a combination of wages, employment regulations, social security contributions and labour productivity to assess the cost competitiveness of workforces across 172 countries.

Myanmar, Cambodia and Guinea are among just 21 countries cited in the index which pose a “low risk” to businesses. Half of these low-risk countries are located in sub-Saharan Africa, which Verisk Maplecroft says is indicative of the “low wages demanded by employees and mandated by governments in these countries”

What’s more, the risk adviser highlights Myanmar and Cambodia as examples of two destinations that are “increasingly replacing Chinese manufacturers in global supply chains”, citing their lower average wages and the fact that Myanmar, unlike China and many other countries, does not require companies to make social security contributions.

For these reasons the company says the two countries perform much better than major manufacturing hub China, which is ranked in 64th place in the index and is marked as “high risk”. However, while the cost competitive appeal of these labour markets may attract businesses, Verisk Maplecroft warns that companies should be wary of other risks often associated with poor working conditions, not to mention the high potential for child labour and trafficking.

“The true cost of business in the emerging economies is more than the direct expenses associated with the labour force,” said Charles van Caloen, a senior analyst at Verisk Maplecroft. “It is essential for companies to understand and price in risks, such as strikes, disruptions and poor worker health, when making market entry or strategic sourcing decisions.”

At the other end of the spectrum, Italy, France, Belgium and Spain are the most costly and least competitive locations to hire workers out of 172 countries. Finland is ranked in fifth place, which contrasts with its position in the most recent Fraser Institute survey, where it was named as the top jurisdiction for mining companies to operate.

Wealthy European countries are home to higher average wages and expensive severance mechanisms, which typically lead to high social security contributions, with employers often bearing the brunt of these heightened costs. This, so explains Verisk Maplecroft, is why 26 European countries are ranked as “extreme risk” in the index and risk deterring investment.

“The cost of employing staff is a key consideration for companies when they consider where to invest,” said van Caloen. “Countries that have high labour costs relative to productivity levels risk deterring mobile international capital that can bring jobs and growth in its wake.”

Norway, which the Fraser Institute has named as the 10th best place for mining companies to operate, is positioned in 13th place in the LCI. It has one of the highest minimum monthly wages in the index at $US3840, whereas France, which is second in the LCI, has the second-highest social security contributions in the world.

This article was first published on affiliated portal

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