LONDON (Reuters Breakingviews) - The French state is a curious shareholder: too active in some cases, too passive in others, and largely unconcerned about underperforming the broader market. President Emmanuel Macron has the chance to rectify these problems. The question is whether he has the desire.
The ex-banker wants to use some of the Republic’s shareholdings to finance a 10 billion euro fund for industry and innovation. That should be no problem: the sprawling portfolio was worth nearly 10 times as much at the end of 2015, and comprised stakes in 1,750 companies in sectors as diverse as transportation, energy, services, finance, defence, telecoms, automobiles, and the media. Macron could, however, usefully go a lot further.
There are many potential conflicts of interest between what suits the state as a political player, its interest as a shareholder, and the long-term public good. Consider its 83 percent stake in utility EDF. A move to reduce energy tariffs, or extract large dividends, might be politically popular but could hurt the company’s profitability and capacity to invest. Or take a pre-election bid to save jobs at Alstom, which prompted the government in October to order high-speed trains that state rail operator SNCF may never be able to run on suitably fast tracks.
In other cases, governments may not have intervened quickly or effectively enough. France’s Court of Auditors in January criticised the state for exercising insufficient oversight over nuclear power engineering group Areva, whose market capitalisation fell by nine-tenths between 2006 and 2016, and for failing to address governance problems in a timely way.
The temptation to allow problems to fester or meddle for political reasons is greater when unemployment is at 9.6 percent and voices from both the political far-right and far-left advocate a bigger role for the state. Companies in which the state had a stake employed nearly 2.4 million people, or one in six workers outside the public sector, at the end of 2015.
There may, however, be a price to pay. The APE, an agency housed in the Finance Ministry, manages four-fifths of the government’s portfolio in euro terms, and the value of the listed shares it holds fell by 54 percent in like-for-like terms in the decade up to the end of 2016, according to the Court of Auditors. That was more than four times the drop in France’s CAC 40 stock index.
Volatile energy and raw materials prices were a factor, and the portfolio has outperformed the national blue-chip index so far this year. But the public auditor reckons past governments share a part of the responsibility.
Selling stakes in companies and sectors that aren’t strategic would help reduce the scope of sectors in which such potential conflicts of interest might arise. So would giving the APE agency more autonomy and new guidelines that distinguish more clearly between sectors and companies in which the state has a clear political interest, such as the nuclear sector, and those where its interest is more commercial and akin to those of any other investor.
A new president and the impending election of a new parliament offer the opportunity to make such changes. But it’s unclear whether Macron has the inclination. The former Rothschild banker may be keen on reforming the labour market, but French business leaders doubt he will adopt a far more laissez-faire attitude to managing the French state’s portfolio.
His track record certainly supports this view. In 2015, during Macron’s tenure as economy minister, the French government spent 1.2 billion euros to raise its stake in French carmaker Renault to maintain the double voting rights of long-term investors, including itself. Little warning was given to either Chief Executive Carlos Ghosn or the board.
If Macron’s instincts haven’t changed, his view on what is in France’s strategic interests is likely to involve keeping cutting-edge technology and know-how tethered to the French soil rather than falling into overseas, and particularly non-European, hands. This, rather than a hard and fast definition of the sectors that are vital to France’s national interests may determine how the state’s portfolio is managed. Macron is a banker by background, but a politician at heart.
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