February 2019

By Étienne Bodard

Last January 2018, French President Emmanuel Macron gathered more than 140 global business leaders at the Choose France Summit—to promote France as an attractive destination for up to €3 billion in foreign investment. Soon after at the World Economic Forum in Davos, Switzerland, Mr. Macron triumphantly declared, “France is back.”

One year later, President Macron again touted the Choose France theme for 2019. Only this year, he poignantly skipped the annual Davos gathering to focus on challenges to his reform agenda at home.

What happened?

The launch of the so-called popular “yellow vest” protest movement that began in France in November 2018 has forced Mr. Macron to make a number of concessions to his overall reformist agenda. These include canceling a proposed fuel tax increase; conceding a €10 billion plan to increase purchasing power (wage rises for the poorest workers and tax cuts for pensioners); postponing constitutional reforms; and launching a “Grand Debate” on key topics of concern, which appear to be limited to taxes, ecology and environment, State organization, and democratic debate and citizenship.

At the national level, French leaders have voiced their concern over the protests. Minister of the Economy and Finance Bruno Le Maire went so far as to characterize the economic impact of the yellow vest movement as an "economic catastrophe," based on its impact on retailers, hotel chains, high-street stores, and restaurants.

In this context, questions are arising in the minds of foreign investors. Will President Macron retreat from pro-business measures that have already been implemented? How will the Grand Debate impact the government’s economic and social policy? Will the policy reform agenda be modified or not?

Broadly speaking, the yellow vest movement is not seen as having weakened France’s overall attractiveness as a destination for foreign investment. According a recent Kantar survey for Business France and based on answers from 500 foreign opinion leaders from Germany, UK, United States, India, and China, France remains the second most attractive European country for foreign investment, behind Germany and ahead of the UK. Among foreign investors, generally, 87% view France as attractive, while 61% view France’s attractiveness as having improved in the past two years.

On the other hand, a recent report released by the American Chamber of Commerce in France and Bain & Company mitigates this overview. The report notes that while more than 50% of U.S. investors see France as being more attractive than other EU countries and 80% of those are positive about Macron’s economic and social reforms, France's overall attractiveness has slightly decreased. In addition, 80% of respondents are worried about the current French social climate, especially regarding potential long-term consequences of the yellow vest movement.

That being said, the 2019 Choose France Summit has announced €547 million in foreign investment. In the health sector, Chinese Microport announced €350 million for a new R&D center to be located near Paris. In the food sector, Mars Inc. plans to invest €120 million in its industrial sites, while Cisco says it will invest €60 million in research and innovation. In artificial intelligence (AI), both Microsoft and IBM are set to create dedicated innovation centers in France.

Moreover, signs point to President Macron continuing with his planned pro-business agenda and building on the measures implemented in the first 18 months of his 5-year term—including defending a 30% flat tax on financial income and labor law reform. The government’s Action Plan for Business Growth and Transformation is still on track to be implemented in the first half of 2019.

Notwithstanding this momentum, Mr. Macron’s agenda will be constrained by other factors, not the least of which is the continuing resonance of the yellow vest protest movement. The May 2019 European elections—in which a rise in far-right and nationalist trends is projected—are also expected to alter some of the original planned measures of President’s Macron’s governmental program. For example, Mr. Macron is considering temporarily freezing corporate tax reductions, one of his signature campaign promises which included a pledge to reduce corporate taxes from 33% to 25% by 2022.

To further respond to the demands of the yellow vest movement, President Macron is likely to leverage France’s presidency of the G7, whose theme this year is the fight against economic inequality. Fighting tax evasion—a demand by the yellow vests—will also be a focus, in part by leveraging France’s new “GAFA” taxation (Google, Apple, Facebook, Amazon), slated to raise up to €500 million for public coffers.

How does this all add up?

Even though President Macron does not seem to be reversing his pro-business stance, he does appear ready to consider some concessions aimed at raising the overall purchasing power of the average French citizen and middle classes. Indeed, additional measures are expected to be announced following the conclusion of the Great Debate. Some proposals could yet still be submitted via a potential public referendum that might be organized by Mr. Macron for May 26the date for European elections in Franceor later.

To answer the twin challenges of satisfying the yellow vests' concerns while at the same time raising France’s profile and investment attractiveness—all within a fraught post-Brexit contextPresident Macron is likely to rely on his trademark presidential “en même temps” (“at the same time”) approach. It is a daunting bet, but the president appears determined to pursue both ends, concurrently. Only a future analysis will prove if President Macron will have succeeded in this wager.

In the meantime, Mr. Macron has a date for a first appraisal: January 2020—you guessed it—the date of the next Choose France Summit.

Stay tuned as we continue to track these developments in France.