The French government issued a new decree on Thursday that basically says that the government should okay foreign takeovers in a few strategic industries (including water, energy, telecoms and transport), effectively creating a veto right for the government. Does this imply a return of political risk in France?
Political risk in France = negative image + government decisions
Political risk in France is not something that we often talk about. In fact, political risk is something that we tend to completely forget in the case of developed countries. That might be a mistake. Adverse regulation is something that might happen in any minute in a country where radicals are as strong as they are in France, and where antiliberalism is as accepted as in France.
Just to give you one example: France recently legislated in order to halt the further expansion of Amazon.com. Moreover, there is this negative image of France among international investors who have practically deserted the country since 2012 (FDI inflows dropped an astounding 77 percent in 2012).
The new decree: making it harder to get in? Yes and no.
- Of course, it will be harder to get into French strategic industries for foreign investors. According to the new decree, the government can decide “whether the national interest is satisfied” – this is a concept that can be considered as “anything goes”. It is not an exact rule, a regulation to comply with. It effectively might make decision making quite subjective.
- On the other hand, similar rules exist in other countries, including the United States.
- It might be better and less costly for a foreign investor to get in an industry by discussing terms with the government, than engaging in a full-blown fight with it later on.
- The new regulation is a personalized, tailored rule, created for the on-going Alstom case, and that is the most worrisome factor in all this.
Electoral interest in the heart of the matter
- France has recently adopted an austerity package, introduced by a Prime Minister who is considered by many left-wing politicians a “right-winger”. Moreover, the European Parliamentary election is to take place at the end of this month and the government should pay attention to this challenge (the Socialist Party is lagging behind the National Front and the moderate right-wing oppositon party, the UMP).
- The French public opinion prefers a temporary nationalisation instead of a foreign investor (for Alstom).
- In France, antiliberalism is widely accepted. It has a culture and a tradition, it has its myths.
- There is no political danger in this governmental decision, it is even politically beneficial.
The fact that the international image of France might suffer another blow – that is another challenge that needs to be tackled later than next week. And that is the point.