Emmanuel Macron has been hard to keep out of the headlines - and he probably wouldn’t want it any other way. The media-savvy French President has risked ire at home by courting President Trump on recent state visits, but this has been a calculated gamble. His grandstanding is designed to further France’s position, and put himself at the forefront of international politics.
Behind all the bluster and hand-holding, however, a quiet revolution is under way. While elements of the French public may be dissatisfied with his sweeping reforms, Macron is making changes that most observers say are long overdue. The result has been an already noticeable improvement in France’s business environment, and a shot at becoming the continent’s dominant economy.
Signs of success
Much as critics question Trump’s role in the United States’ economic success, it’s hard to pinpoint what effect Macron has had on the economy. Where Macron differs is that he was a key component of the preceding government and can claim some of the plaudits for any vestigial benefits of Hollande’s policies.
The stats certainly look good. Foreign investment rose by 16% in 2017 on the previous year, with 1,298 foreign investment projects marking a ten-year high. Of these, 412 involved companies making their first investment in France. Notably, American firms accounted for more jobs created through these projects than any other, although the majority of projects were still funded from elsewhere in Europe. Indian investment projects increased by 73%, while 343 of the projects were in the manufacturing sector.
All indications are that these trends will continue this year, too. 2018 has already seen some big investment deals for France, including a $600 million Mercedes-Benz factory and $2.2bn of pledged investment by Salesforce over the next five years. And Macron is not standing still, pledging $1.8 billion of public investment in artificial intelligence funding over the same period.
Financial analysts ING predict 2.1% GDP growth in 2018, a seven-year high, and the unemployment rate is at a 9-year low. With the UK’s stock falling somewhat after Brexit, France is well-positioned to leapfrog its neighbour as Europe’s second largest economy, behind Germany. In other words, the picture is very rosy. But what has Macron done to achieve this, if anything?
While France may already have been on an uptick, there can be no doubt that Macron’s presence has offered encouragement to international investors. Indeed, this was his entire platform. As a former investment banker and economy minister, Macron has made a career of butting heads with politicians and challenging the status quo of business in France. His aim as a classical centrist was to present a socially liberal but economically conservative platform - and chiefly, to make France a more attractive destination for businesses big and small.
His achievements in this regard over the past year have been nothing short of momentous. They began in earnest with labour market reforms in September 2017, curtailing what some saw as the excessive power of collective bargaining. Companies are now allowed to directly negotiate with employees rather than going through unions, allowing for more competitive and industry-specific deals. A business can now mandate longer working hours where these are deemed necessary, rather than being held to ‘across-the-board’ hours controls.
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The law also introduced a new cap on damages awarded for unfair dismissals and made it easier for multinationals to close loss-making endeavours in the country. These have made it easier and less risky to hire and fire talent, a particular concern in specialist industries such as manufacturing. With France boasting a huge technical manufacturing base, it’s hoped that this will encourage big companies to take more risks and invest greater sums in the country.
Tax cuts are one of the most visible signs of support for businesses, and Macron has introduced a whole slate of them. Where former President Hollande once tried to impose a 75% ‘super tax’ on the rich, Macron now wishes to court them, and has abolished the ‘wealth tax’ on all assets except property. He has also pledged to lower the country’s corporate tax rate from 33.3% to 25% by 2022 - well below the combined rate in Germany, and far closer to the UK and Ireland.
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A new flat tax has been introduced on all investment income, saving as much as 20% for investors in some prior equities. Payslips have also been simplified and social welfare contributions have been lowered, to the benefit of both businesses and employees. The savings for these groups will be made up in part from a rise in taxes on state pensions at all but the lowest levels, which are one of the government’s largest expenses.
Small businesses will also no longer be handcuffed by a requirement for owners to hold a minimum of 25% equity, in order to avoid the country’s wealth tax. This should incentivise mergers & acquisitions, the sale of stakes and the raising of equity capital for business expansion. The move was designed to address a traditional issue of scaling for French businesses, who have always done small business well, but found it more difficult to expand at home and abroad.
All of these changes will only serve to complement France’s many traditional strengths. Strong domestic talent from world-leading institutions continues to drive expertise in aerospace, pharmaceuticals and precision engineering, as does France’s reputation for R&D; the country boasts generous tax cuts on research expenses and spends the second most on R&D in Europe. France has also gained a burgeoning reputation for high tech startups, which are now dominating the Consumer Electronics Show and numerous international rankings - in no small part due to Macron’s work as Minister of the Economy, Industry and Digital Affairs.
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Macron’s party, La République En Marche!, will retain a strong majority for several more years, meaning there is little to halt the progress of reforms. The only question is whether the positive effects take hold before voters can express their discontent with the pace of change. The signs are positive however, and little is likely to stop Macron - a relentless reformist with dreams of international recognition, and a new era of French business dominance.
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