The Strategist

Emmanuel Macron sets to sell state assets

06/15/2018 - 14:46

Long-awaited privatization of state assets begins In France. Paris confirmed that it intends to sell large blocks of shares in the airports operator ADP, the energy and gas company Engie and the organizer of lotteries Française des Jeux (FdJ). On Monday, the government will submit for consideration a draft amendment to the law that prohibits the sale of state assets by the government. The law is expected to come into force early next year. It is remains to be resolved how many shares will be put up for sale and how it will be arranged. After the announcement of the final decision to sell state assets in ADP shares, the company that controls the capital airports of Charles de Gaulle and Orly rose in price by 5%. The government owns 50.6% of the company's shares. It is expected that it will put up most of its assets for sale.

Chairman of the Joint Chiefs of Staff
Chairman of the Joint Chiefs of Staff
The Minister of Economy and Finance of France, Bruno Le Maire, announced in an interview with the daily Les Echos that the state’s share in the three companies listed above reaches about € 15 billion. The government wants to use proceeds from the sale to reduce the budget deficit and create a multi-billion fund, which will invest in innovative projects.

"It's about rethinking the state's place in the French economy," said Bruno Le Maire. "What state do we want to have: which is ready to only receive dividends or which prepares for the future? We want to better protect the interests of society. In our opinion, the state will be better able to protect them through regulation, rather than presence in the capital."

According to the Minister of Finance, the state should control those assets that are directly related to national sovereignty: nuclear power, defense and the largest national operators such as the SNCF railway company. Curiously, the position of Le Maire in relation to the SNCF is diametrically different from what President Macron thinks about the railway operator. On Wednesday, the Parliament approved a law on the SNCF’s reform on the eve of opening of the French domestic market for foreign companies. The draft reform caused sharp discontent among the workers and already led to strikes and protests, which provoked chaos on the French railways. However, despite the resistance of the railway employees union, the government insisted on the reform with minor changes to the original version and agreed to take on the company's billion-dollar debts.

In addition to privatization, the list of reforms includes relaxed requirements for small businesses, increased share of profits for workers, as well as a propaganda campaign aimed at persuading the French to buy shares of French companies. According to the French government's press secretary, Benjamin Griveaux, France is building "people's capitalism."

Plans for the privatization of ADP, formerly called Aéroports de Paris, also sparked heated debate. The authorities have not yet decided what to do with the land on which the airports are located and which belong to the ADP. According to Le Maire, the government will give a 70-year license to a company that buys the operator. Upon expiration of the license, the assets, including land, will return to the state. The government also intends to retain the veto over the sale of assets during the license period, and contract terms, including airport fees, will be reviewed every five years. Most likely, the new owner of ADP will be the construction company Vinci, which now possesses 8% of ADP.

As for FdJ, the authorities intend to tighten legislation in the gaming industry before selling its share in the company. In addition, the government will retain the so-called "golden share" in Engie, which enables to veto the sale of strategic assets.

New measures indicate France currently wants to reduce the state's presence in business. In 2015, the audit department of Cour des Comptes stressed that in some cases, the authorities' demand for high dividends hinders development of enterprises and companies. In total, the French government owns € 100 billion in shares and other assets in 81 companies, including Safran gun company, automakers such as Renault and the operator of the nuclear power plant EDF. Last year, the government already sold 4% of Engie for € 1.5 billion, after which its share in the company fell to 24%.

Privatization is Emmanuel Macron's new attempt to make structural changes in the economy after the labor market reform, business tax cuts and the SNCF railway reform. The president hopes that his reforms will accelerate economic growth and create more new jobs. However, the structural reforms are causing more acute resistance of trade unions and workers every day.

 "The government's policy can be considered as a bad business for the country and good for shareholders," says Eric Coquerel, a deputy from the leftist France Unbowed. "We should be ashamed of such privatization because it is contrary to the interests of the nation."

Emmanuel Macron has to show positive results of his economic reforms as soon as possible, because the economic growth in early 2018 has slowed down dramatically. Unemployment in the country reaches 9%, and public debt grew to 97% of GDP by the end of 2017.