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OVERVIEW

Hopes that tech focus and reforms will spark economic growth

 

Change at the Élysée Palace has brought hope that, after two years of uncertainty and division during election campaigning, the new leadership can unlock much-needed economic growth for France.

President Emmanuel Macron has promised to “work for everyone”, with an ambitious program of reforms; his party seeks to take the center ground of French politics, and has rebranded as La République en Marche (The republic on the move).

His broad goals are to increase investment and develop a new model for growth that benefits social mobility and the environment.

 

“I am for a progressive world. I do not propose to reform France; I propose to transform it at its deepest level,” President Macron has said.

His plans include making budget savings of €60 billion in the next five years, reinvesting €50 billion and creating a €10 billion to renew industry. He proposes to reduce the number of public servants by 120,000, make France’s famously strict labor laws more flexible, make deep reforms to state pension schemes, and slash corporation tax from 33 percent to 25 percent.

The goal is to bring unemployment down to 7 percent by 2022 – it’s currently 9.6 percent, compared to just 3 percent in Germany. There are also plans to reduce social security contributions, giving individuals more spending power.

Education and technology are key areas of focus for investment. The Macron vision is for France to be a world leader in the development of green technologies, for organic food to be served in schools and workplace canteens, and more resources in schools and for adult training and education.

 

“We will make France a land of experimentation, where it will be simpler and faster to experiment with new industrial solutions,” Macron has said.

Changing gear

In many ways, France is ripe for transformation in its economy, and this change is taking place already, if slowly. The proportion of French GDP coming from services has risen from 76.6 percent in 2005 to 78.8 percent in 2015.

Technology has been a key element of this shift in emphasis, and France has been making a name for itself as a hotspot for startups. Research by Tech.eu suggests that in 2016, venture capitalists invested in 590 French tech startups, compared with 520 in Britain and 380 in Germany.

 

In mid-2017, the world’s biggest startup campus opened in Paris. Station F, the brainchild of billionnaire telecommunications entrepreneur Xavier Niel, is designed to put everything that startups need under one very large roof. Among the founding partners are Facebook, which has opened a “Startup Garage”, Vente-Privee, and Amazon Web Services.

 

On the World Economic Forum’s networked readiness index, which assesses the factors, policies and institutions that enable a country to leverage information and communication technologies (ICT) for increased competitiveness and wellbeing,

France ranks 24th out of 139 countries. It has climbed two places in the past two years, and is described by the WEF as “pushing the frontier of networked readiness in the country. France is the global leader in delivering public online services to its citizens”. There is a dedicated Minister of State for Digital Affairs.

 

A publicly funded initiative to promote French startups under a single brand, La French Tech, was launched in 2012, and support for technology-based businesses is expected to strengthen under Macron, who was present at the opening of Station F.

 

Paris is fifth (just ahead of Berlin) out of 60 cities that make the European Commission-supported European Digital City Index, which describes how well different cities support digital entrepreneurs.

 

In addition to Station F, there are around 250 co-working spaces, and some high-profile innovation hubs, including the NUMA hub, as well as a strong talent pool emerging from the capital’s respected universities.

 

But the tech revolution extends well beyond the capital. Lyon has been nominated by the government as one of 13 “Metropole French Tech”, with research centers, innovation labs, incubators and co-working spaces to foster and accelerate startups. Toulouse, meanwhile, home of Airbus Industrie, is emerging as a center of expertise in software development and “Internet of Things” hardware, with close links between educational institutions, investors, industry and SMEs. And Bordeaux hosts the international event Bordeaux Digital week at centers across the city. The city attracts talent working on mobile apps, gaming and e-commerce. Grenoble is acknowledged as a global nanotechnology cluster. The list goes on.

 

These hotbeds of innovation represent a tiny part of the French economy, at least for now, but they are highly important because the broader economy is in need of a shot in the arm. GDP growth has hovered around the 1 percent mark for several years, which puts France lagging behind growth rates seen in the UK and Germany. The paradox is that while some individual French brands and companies are among the strongest performers on the world stage in their sectors, there has been a malaise in the broader French economy.

 

There are signs that things are on the up, however. Irrespective of the changing of the guard at the palace, the World Bank was already tipping acceleration in growth, to 1.2 percent this year and next, rising to 1.4 percent in 2019.

Macron was swept into power with two-thirds of the popular vote, and in June 2017, consumer confidence hit a 10-year high. But the challenge he faces, even with such a mandate, is considerable. And as early as Bastille Day, some commentators were starting to wonder if the new king’s crown was already losing some of its lustre.

 

As others have found before him, changing France’s labor practices can be a painful if not impossible process. While young entrepreneurs may be putting in long hours and embracing digital opportunities, there are strong French traditions around long holidays and a comfortable, long retirement. And with other controversies playing out on the sidelines – such as that over an official role for Madame Macron – the ability of Macron to implement his policies is far from certain.

 

Looking ahead

 

There are opportunities, as consumers adjust to the changing reality in which they live, for brands to make meaningful connections. They can be not just present but also relevant, enriching people’s lives, even in small ways.

 

For brands that fail to get the balance right between the volume and presence of their advertising, and the meaning and value it delivers to the audience, there is a very real danger of creating a consumer backlash. The latest Kantar TNS Connected Life study shows that almost half of French consumers feel they’re being followed by brands online, and they’re using ad blockers at double the global average rate.

 

The strongest and most successful French brands are telling stories that resonate with people’s lives. Consumers here are sophisticated and discerning; they expect an increasingly complex relationship with the brands they make part of their lives.