As France emerges from a nationwide lockdown, national investment agency Business France is set to play a key role in rebooting the economy. Prior to becoming chairman of Business France, Pascal Cagni worked at US tech group Apple. Steve Jobs taught him a lot, he admits.
Q: How has France adjusted?
A: When the Covid-19 hit, we had four main issues to address. Saving lives, jobs, providing liquidity to businesses and now is really about capital. First, we need to protect some strategic investment. That's nothing new. We moved the threshold triggering the screening of FDI down to 10%, from 25%, [for listed companies] and we didn’t add any new technology sectors, except for biotech. Not a big revolution, and it shouldn’t make investors afraid. Then, we need to address the potential lack of capital of some companies as small and medium enterprises (SMEs) are typically not known for being highly capitalised across Europe.
Q: How are you going to achieve these aims?
A: In France, savings typically accounted for 15% of people’s incomes – but this went up to 30-40% [during the lockdown]. The first four months had higher savings than had been made in typical full year. We need to think about how we are going to mobilise this capital. We believe that now we really need a comeback of the state in the economy. In this perspective, we have singled out five verticals to focus on: tourism, automotive, aerospace, tech and green transition at SMEs.
Q: Are you expecting a ‘V-shape’ or ‘U-shape’ recovery?
A: Economic forecasts point to a 10-11% GDP decrease this year (compared to 6% in Germany and 2-3% in Sweden). We may have a big dip but because of state intervention we're going to see more of a ‘V-shape’ recovery.
In the last three years, France has implemented a massive cycle of reforms [under President Emmanuel Macron] and foreign investors recognised this. According to EY data, France attracted more FDI projects than the UK for the first time in 2019. AT Kearney listed France as the 5th most attractive FDI destination in the world ahead of the UK and Germany last year. A few FDI projects may be cancelled (possibly 5-10%) but investors will take a long-term view.
Q: What do you expect over the mid-to-long-term?
A: Globalisation is not going away. When I worked at Apple, I cut costs by sourcing nickel in Guinea, manufacturing motherboards in Taiwan and assembling microchips in Sweden. If you combine the kilometres for each component of an iPhone, it’s more than 850,000km. I’ve been living 20 years of my life surfing, contributing and iconising globalisation. It’s going to change, but it’s not going away. Suddenly, we have realised that 90% of the production of key products like basic drugs has gone to China and India. It’s going to be a different, more fragmented globalisation. We are going to assess what we can produce closer to consumers and decision makers, and we're going to agree on giving volume effect to those sectors. Personally, I believe we are going towards a massive [economic] specialisation.
Q: Will start-ups drive the post-Covid recovery?
A: Some fledgling start-ups could struggle but those that remain may have more reasonable valuations.
Now is the time [to provide capital] to allow some start-ups to reinvest. At Apple, we invested up to 10-14% of our revenues in R&D in 2000-2002. It allowed the company to revolutionise MP3 players [with the iPod]. I believe that counter-cyclical investing is full of opportunity.
At Business France, a pillar of our strategy is going to be technology and tech start-ups.
Q: How do you plan to nurture French start-up ecosystems?
A: Attracting and nurturing talent is the number one priority. France offers visas to people who set up companies in the country. France also offers aggressive tax credits to encourage research and development. With regards to venture capital funds, I don't expect the likes of Sequoia to come and open an office here. I expect them to come at a later stage but first we need to develop and nurture our own ecosystems.
Pascal Cagni is the chairman of Business France and CEO of C4 Ventures.
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