Saturday, June 4, 2016

A French paradox of the economic kind

La République Square in Paris
My article A French paradox of the economic kind appeared in the Edit Page of The Pioneer.

Here is the link...

On the one hand, rolling labour strikes and a poor business environment has made France less attractive to foreign investors. But on the other, key industries like ship-building, defence and tourism are growing strong

'C’est la lutte finale’ (This is the final struggle/the internationale unites the human race): These words are often heard in Paris these days. In France, May is traditionally the month of pleasant weather, but also the period when the French go on strike. I witnessed it again when I recently paid a visit to my family.
This year, the new wave of strikes is against a new labour Bill, known as the El Khomri law after the lady Minister who introduced it. For the General Confederation of Labour, the hardline trade union, like every spring, the ‘rolling strikes’ are a ‘make-or-break’ situation. Why? President François Hollande had dared to invoke Article 49.3 of the Constitution, allowing the Government to bypass Parliament to get the new labour law through.
The Government used this rare procedure because part of the ruling Socialist Party was ready to vote against its own Government and like in India, whenever the Government proposes a reform, the Opposition does everything to block it just for the sake of opposing something they would have liked to propose themselves.
A ‘rolling strike’ is a French specialty: It is when truckers, rail workers, dockers, airport staff, teachers, etc, go on strike one after the other without prior notice. These ‘strikes’ have, however, serious consequences.
A recent study on attractiveness across Europe shows that while the old continent is generally improving, France is left behind. The report published by the respected firm EY (formerly Ernst and Young), does not agree with President Hollande’s statement that France is “doing better”. The report says that there are worrying signs for the French economy: Of the 15 countries included in the survey, France was the only one to see an overall drop in ‘attractiveness’ in 2015.
While some 600 new foreign investment projects were started in France in 2015, there was an overall drop of two per cent compared to 2014. At the same time, the UK and Germany saw a rise of 20 per cent and nine per cent respectively, with Hungary achieving a 104 per cent increase. Even if France did well in some sectors, this did not translate into actual investments and less than a quarter of investors were planning new projects in France for 2016.
During the present outbreak of strikes, President Hollande, whose popularity has rock-bottomed in recent months, has remained firm: “Too many Governments have given in, that’s why the country was in the state we found it in 2012. A compromise has been reached, a balance has been found, the pro-reform unions and the majority of Socialist supporters are behind this reform,” he said in an interview, though more than 1,000 protesters have already been arrested and 300 people have been hurt in clashes with the police.
There is, however, a French paradox: The country is doing better in several fields. The largest cruise ship in the world was built in the western port town of Saint-Nazaire. It took 32 months in the French shipyard to construct the 362 meters long, 16-deck the floating city which has some 2,500 rooms, 20 dining venues, 23 swimming pools and a park with more than 10,000 plants and trees. The one-billion-dollar Harmony of the Seas has 6,360 passenger capacity.
In April, MSC Cruises signed with STX of Saint-Nazaire, for four new cruisers. The 2,00,000 tonne ships, based on next generation technology, should be delivered in 2022. Australia has also selected DCNS, the French ship-building giant, to build 12 ship submarines. Many analysts were caught by surprise as the state-owned company — which is building six scorpène class submarines in India with the Mazagon Dock Shipbuilders Limited — was in competition with the Japanese as well as Germany’s ThyssenKrupp Marine Systems. The contract is said to be for $38 billion.
And of course, there is the Rafale combat aircraft which has done rather well last year: Twenty-four planes were sold to Egypt and 24 to Qatar, and hopefully soon 36 pieces will be sold to India. Despite the long process (probably due to political considerations after the publicity around the Augusta-Westland scam), Defence Minister Manohar Parrikar has now announced that the deal should be signed this month.
Incidentally, companies like the Saint Nazaire dockyards, after near-death experiences a few years ago, have special agreements with their trade unions. This probably explains their performance.
Despite these examples, France, however, is hardly attractive for foreign, particularly Indian, investments. A few months ago, Business France, the national agency helping the international development of France’s economy, released its annual report for 2015. It analysed foreign investments in France and their contribution to the French economy.
Though over 120 Indian companies are operating in France, employing some 7,000 people, it is not much, despite companies like Aequs, a Belgaum-based company specialising in developing and producing engineering solutions for the aerospace, automotive and oil sectors, acquiring the Besançon site of the French company Sira which employs 320 people.
Besides the seasonal strikes, several factors are responsible for this low performance: A tough French visa policy, the difficulty of the language (compared to the UK for example) or the lack of knowledge about India in general. As a result the general investment climate is not rosy.
To aggravate this there is a severe brain drain. The daily Le Monde recently published a study showing that this is becoming an inescapable trend. Prepared by the Council of Economic Analysis, a report entitled “Préparer la France à la mobilité internationale croissante des qualifies” (Prepare France for qualified people’s mobility) speaks of the exodus of French brain power. According to the National Institute of Statistics, between 3.3 million and 3.5 million people, born in France and aged between 25 years and 55 years, live abroad.
The rate of expatriation has doubled between 1980 and 2010. Though emigration is less than in countries like Germany, and the emigration and immigration of qualified people more or less balance each other, the worrying aspect is that the incoming brains do not settle in France for long — they usually return to their country after a few weeks.
But douce (sweet) France is the world’s top tourist destination (with 84.7 million foreign tourists in 2013) — and tourism is a key sector of its economy, accounting for more than seven per cent of the gross domestic product and two million direct and indirect jobs.
There are indeed many great culinary goodies in France which we can’t advertise in these columns, and though the state of Emergency is still in force after the terrorist attacks of November 2015, the picturesque villages, the old manors, the quiet rivers and the inimitable capital, Paris, with its cafes, museums and shows, remain special.
Despite the seasonal strikes, and even if France if not always Innovative France, it is still Charming France — the best proof is in the large number of Chinese tourists clicking selfies around the Eiffel Tower.

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