FROM BUSINESS WORLD OF 15 JANUARY 2007
The money-spinner nation
Lakshmi Mittal’s
acquisition of Arcelor put Luxembourg on Indians’ mental map. I had never been
to Luxembourg before; from photographs I had imagined the Arcelor headquarters
to be a chateau – a country house to which you drove up along a long shaded
avenue. So I was surprised to find it situated in the center of Luxembourg,
close to the railway station.. I had expected ‘Mittal-Arcelor’ to be emblazoned
in bold on it; instead, I found that the building still bears the name ‘Arbed’
in big stucco lettering at the top (Arbed was Luxembourg’s steel company which
was merged with Usinor of France and Aceralia of Spain to form Arcelor in
2001). The new name of the company is found at the entrance in small letters. I
had imagined Lakshmi Mittal looking out of its windows on his green, wooded
domain; actually, he looks out on busy noontime traffic. That is, when he
visits the four-story office mansion built almost a century ago. He does it
often; Arcelor-Mittal no doubt engages much of his attention these days. But he
has not converted the office into his residence; he stays in a hotel.
Why the
Mittal-Arcelor affair made such big news in India is clear – Lakshmi Mittal is
of Indian descent, and all true Indians wanted to take up cudgels for him –
verbally. But why did it stir people so in Luxembourg? Luc Frieden, minister of
justice, the budget and the treasury, said it was because the father or uncle
of almost everyone had once worked in Arbed. Jeannot Krecké, minister of the economy,
commerce and sports, attached importance to the survival of manufacturing
industry. (They do have thick portfolios, these Luxembourg ministers; after
all, there are only 15 of them.) Arbed is to Luxembourgers what the Tata Steel
is to India. It is an icon; whatever happens to it will reverberate in the
local polity – even though Arbed today employs just 6,000 people out of the
country’s work force of 311,000, and produces just 4 million tons of steel.
There is also a
local way of doing things into which the hostile bid for Arcelor did not fit.
Luxembourg has a small share of Arcelor’s equity, and prefers to have a voice
in the board. Its government likes to resolve issues by consultation. It also
favours shared decision taking, for which it has tripartite bodies in which it
brings together workers and employers. Mittal’s reputation as a capitalist
buccaneer caused some trepidation at the outset. But both the government and
the Mittals (Lakshmi and his son Aditya) have been talking and learning each other’s
ways. Luxembourg has a small and approachable government; it acts quickly, and
looks for solutions friendly to business. When Luc Frieden drafts a law, he
talks to businesses and institutions to learn what they would like to see in
it.
I am sure that
if Mittal thinks about it, Luxembourg’s ways must contrast to its favour with
those of Indian governments. Their slow, opaque, ponderous ways may not so much
affect services which require little of land, logistics or investment. But in
manufacturing industry, costs depend a great deal on the infrastructure
provided by the government. And timing is important in a competitive industry;
it makes all the difference how quickly one can go into production. In quality
of government, Luxembourg with its small, agile government would score higher
than India.
All of
manufacturing employs only 11 per cent of Luxembourg’s labour force. Despite –
or perhaps because – of the fading of industry, Luxembourg has the highest
national income per head in Europe, more than twice that of France, Britain or
Japan. Admittedly, the figure involves a bit of sleight of hand, for many
people come every day and work in Luxembourg, which is only 82 km long and 57
km wide. Germans call their Turkish workers guest workers, although they have
been guests for over 40 years; German guests in Luxembourg, however, commute to
work in the morning and go back to their homes across the border every evening,
as do workers from France and Belgium, the other countries encircling
Luxembourg. A third of Luxembourg working population is non-resident. Foreign
workers speed along six-lane highways. As they enter the city, street signs
tell them how many parking spaces are available in which underground car park.
Underground
activity goes quite far back in Luxembourg’s history. For it is settled on a
sandstone cliff overlooking the confluence of the Alzette and Petrusse rivers.
Luxembourgers built a castle; but the Austrians, who were visiting Luxembourg
in the 18th century, had an even better idea. They tunneled through
the cliffs and opened bastions overlooking the valley; this underground
fortress was indestructible and made Luxembourg a formidable obstacle to the
imperial armies of France as they fought for the mastery of Europe over
centuries. Wars between roughly balanced empires are impossible to win
decisively. When people despair of winning, their thoughts turn to God. So
religion was its major industry in the Middle Ages; buildings of ancient
monasteries in the centre are a conspicuous reminder of it. Luxembourg is close
to the heart of Europe.
Whereas at one
time this made it the tramping ground of armies, today it is bringing to
Luxembourg the august institutions of the European Union. Brussels is the home
of the European Commission and the fount of its unceasing Directives. But EU is
a federation built from the bottom up; so its members have multiplied its
institutions, and strewn them across member countries. Luxembourg, being
central and beautiful, has got more than its fair share. It could not accommodate
the new European armies of bureaucrats in its old palaces, so it has given over
the next hill to them. There they have built imposing glasshouses; European
Investment Bank, European Court of Justice, Eurostat are amongst the
institutions on this hill.
But while
European bureaucracy may provide the cream, it is finance that is Luxembourg’s
dominant industry. It has an extraordinary concentration of financial service
providers. It is host to 155 banks – only 15 of them local. It has 95 insurance
companies, and 271 reinsurance companies. It has 946 investment companies, 1046
unit trusts and 15 other undertakings for collective investment as they are
locally called. At the beginning of 2006, the combined assets of Luxembourg’s
UCIs were over E1.5 trillion – twice India’s national income. The main business
of its financial sector is to attract the savings of people in neighbouring
countries, principally Germany and Belgium, and to offer them an enormous
variety of avenues for financial investment through companies whose solvency is
assured. Switzerland has been in this business for much longer; it specializes
in investment services for the world’s super-rich. Luxembourg caters more to
the middle classes. To this end, it is home to a large number of mutual funds
which offer standardized combinations of investments to cater to savers who
cannot afford to go to the private bankers of Zurich. It also has branches of
all major Swiss banks, which found it to be a good point of entry into EU
territory. Initially, investors were attracted by lower taxes; but the
difference is now dwindling. Similar funds are available in the home countries
of investors, but Luxembourg has kept its lead. Serge Kolb, Deputy Governor of
the Central Bank of Luxembourg, attributes it to low costs, greater choice of
funds and better knowledge. But as Fernand Grulms of ABBL, the Bankers’
Association of Luxembourg put it, Luxembourg’s command of languages is also
important. A large proportion of the work force speaks German, French and English;
and the financial institutions combine expertise on the regulations of
neighbouring countries. The government is small, approachable, and friendly to
business. So it is really the quality of administration and client service that
gives Luxembourg an edge. This is why Indian companies have for long found
Luxembourg a good place to raise capital. Immediately after they were allowed
to do so, 31 Indian companies issued GDRs in Luxembourg in 1994; since then,
Luxembourg has been a favourite destination of Indian companies floating GDRs
or raising bonds.
But Luxembourg may become attractive to
Indian business for another reason. The European Union is a market of 500
million people with high incomes, as Jean Asselborn, Luxembourg’s minister of
foreign affairs and immigration, points out. Indian companies are buying and
setting up subsidiaries in EU. If they wanted to establish their presence,
Luxembourg would be a strong candidate. It is a small city, consisting largely
of offices; only 75,000 people live in the city. But it offers all the
conveniences of a city, including a concert hall, an opera house and museums of
classical and modern art. It is easy to get into and out of; one can enjoy
country life in one of the villages in the neighbourhood and drive into
Luxembourg for work. One’s children would grow up speaking French, German and
Luxembourgish. Paris, London and Amsterdam would be within driving distance.
And for those who get homesick, there are at least five Indian restaurants –
Star of Asia, Swagat, Himalaya, Everest and Khana Khazana. No wonder Lakshmi
Mittal chose a Luxembourg company to buy into.
