Beruflich Dokumente
Kultur Dokumente
PESTLE ANALYSIS
Summary
France has a checkered political history, with intermittent periods of monarchy preceding a semi-presidential form of
democratic republic. France achieved political stability in 1958, when the Fifth Republic came into existence under the
leadership of General Charles de Gaulle. Since then, 10 presidential elections have taken place, with both left-wing and
right-wing parties assuming power. In 2012, Franois Hollande was elected president, coming to power with the promise
of economic, labor and other structural reforms to revive the economy's competitiveness. However, stagnant economic
conditions provide him with little leeway to carry out these reforms.
The country's low GDP growth has been adding to its woes, as state finances remain precarious. France's social
landscape presents a favorable picture. However, there are concerns that the country's aging population will increase
social security expenditure. Unemployment is high and is likely to create social issues if it persists for long.
Technologically, France's performance has been noteworthy, although the government can introduce policies to leverage
innovation. Business taxes are also high compared to other developed countries and act as a deterrent to investment.
The French government remains committed to strong environmental legislation and controlling greenhouse gas (GHG)
emissions.
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PESTLE Analysis
Political analysis
Overview
France is one of the founding members of the European Economic Community, and successive governments have tried
to ensure the continuation of economic reforms in order to meet the targets set by the EU. Although the country has
achieved some success, more time is required to fully break away from a past marked by high government intervention.
France's counter-terrorism strategy is recognized as one of the most effective in Europe, with the government going to
great lengths to prevent attacks. The decentralization law is expected to increase the efficiency of public administration.
The president's low approval ratings are also making it difficult for reforms to be implemented.
Table 3:
Current strengths
Current challenges
Future prospects
Future risks
Source: MarketLine
MARKETLINE
Current strengths
Democratic principles firmly in place
Democratic principles have taken firm root in France since the adoption of the Fifth Republic in 1958. Elections are
considered to be fair and transparent. According to the World Bank's Worldwide Governance Indicators for 2014, France
ranked highin the 88.63 percentilein terms of voice and accountability. This indicator measures the extent to which a
country's citizens are able to participate in selecting their government, as well as freedom of expression, association and
the media.
Strong counter-terrorism stand
France's counter-terrorism strategy is recognized as one of the most effective in Europe. The country witnessed Islamic
terrorism in the 1980s, and since then rules have been tightened to tackle and prevent terrorist actswhich are
designated as serious offences punishable by severe penalties. The key element of the French counter-terrorism
strategy is effective intelligence, which is backed by dedicated magistrates. France has gone to great lengths to prevent
terrorist acts in the country. It has supported international missions to curb terrorisms in places such as Mali, Algeria, Iraq
etc.
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PESTLE Analysis
Current challenges
Political row over immigration
Managing immigration will be a big challenge as the country continues to face a heavy influx of both legal and illegal
immigrants. The president has called for limitations on non-EU migration, especially during the economic crisis and has
vowed to crack down on illegal immigrants. This focus on immigration is due to the high unemployment rate that has put
pressure on housing and schooling. The influx of immigrants and their integration in the French society was a major
political issue during the May 2012 presidential elections and is expected to remain prominent. Regulations regarding
residency and welfare benefits have been tightened, with the government aiming to reduce the number of immigrants.
Concentration of power in few hands
In France, the government continues to play a prominent role in business compared to many other EU countries. Despite
attempts to decentralize, France remains highly centralized with an elite group dominating the state and corporate
sectors. The heads of French business establishments have formed a small and very closely knit group which greatly
influences the government policies. The concentration of power within a small group not only gives rise to corrupt
practices but also increases the "anti-system" sentiment among the masses, which makes it difficult for reforms to be
implemented. Although the government has passed legislation to decentralize authority and give wide-ranging fiscal and
administrative powers to locally elected officials, the process has been slow.
Future prospects
Local government reforms
The government took up several reforms at the local level, including reinforcement of the powers of inter-communal
associations. The reforms also involved clarifying the powers and financing of various tiers of the local government
(regions, departments, districts, cantons, inter-communal structures, and communes) and consolidating legal and other
public services to overcome longstanding problems of overlapping responsibilities. This is expected to create synergy
and savings between the central, regional and local governments by streamlining different administrative layers. Mr.
Hollande's proposal reduces the number of regional authorities in France to from 22 to 14. Additionally, by the year 2020
he also proposed phasing out around 100 administrative departments that are divided among the regions.
Reformist minded politicians
Franois Hollande's coalition won an absolute majority in the 2012 elections, providing it with the authority and power to
implement fiscal and structural reforms. However, he failed to implement structural reforms needed to spur growth;
however, he did not succeed as many ministers had a socialist bent of mind. In 2014, President Hollande reshuffled his
cabinet twice where he brought reformist minded politicians to pull France out of this economic stagnation. The reformist
minded ministers are expected to embark on long overdue reforms, which are very crucial for the French economy to
remain competitive in the global marketplace.
Future risks
Protests over reforms
The government has been co-operating with trade unions and social partners to reduce the likelihood of protests in the
wake of structural reforms to revive the country's economy. However, trade unions were reported to have expressed
disappointment over reforms in pension and retirement schemes and this is threatening to balloon into large protests if a
political consensus cannot be reached. With many industrial plants on the verge of closure, raising the likelihood of mass
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PESTLE Analysis
redundancies, further protests are likely.
Controversial ban on burqa
A ban on burqa has been imposed in April 2011, which seriously undermines religious freedom in France and the
government has shown no intention of revoking it. The US Department of State had also criticized France for imposing
the ban on wearing face-covering veils in public as symbolic of "growing xenophobia, anti-Semitism, anti-Muslim
sentiment, and intolerance toward people considered 'the other'". However, a recent ruling in mid-2014 by the European
Court of Human Rights upheld France's ban on wearing full-face veils in public, which further stoked controversy with
many critics, argued that ban violates several articles of the European Convention on religious freedom. The court
accepted the French's government argument that the veil obstructs social cohesion and stated the government has
genuine interest in the promotion of social bonding among its citizens. The law has been enforced in public places,
including public transportation, government buildings, and other spaces such as restaurants and movie theaters. Those
breaking the law are fined up to EUR150 or should compulsorily attend a course in citizenship.
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PESTLE Analysis
Economic analysis
Overview
The country has well-developed infrastructure. The banking sector is improving and has remained resilient over the past
few years. Nevertheless, exposure to EU periphery countries remains a risk to the sector. The country's public finances
remain weak but the government is working to strengthen it. The country's current account deficit needs to be narrowed
by reviving competitiveness in the tradable sectors. Rising household debt and overvalued house prices are the risks
facing the economy.
Table 4:
Current strengths
Current challenges
Starting a business
Well-developed infrastructure
Future prospects
Future risks
Source: MarketLine
MARKETLINE
Current strengths
Starting a business
In the World Bank's Doing Business 2015 report, France was ranked 28th out of 189 economies. It takes only 4.5 days to
start a business in France, which is well below the OECD average of 9.2 days. Further, cost (percentage of income per
capita) to start a business is 0.9%; again well below the OECD average of 3.4%. In addition, there is no paid-in minimum
capital (percentage of income per capita) for starting a business in France; whereas, it is 8.8% in the OECD countries.
Well-developed infrastructure
France possesses one of the best infrastructures in Europe. The country has over 11,000km of well-maintained
highways and close to 1 million km of roads, which is the longest network in Europe. In comparison, the UK has a road
network of nearly 0.40 million km, while Germany has around 0.23 million km. The French railway network is one of the
most integrated and well organized in Europe, providing quality service. The network is stretched across 32,000km, with
nearly 2,000km of high-speed lines.
France is a global air transport hub with around 500 airports. The two largest airports in the country, Charles de Gaulle
and Orly in Paris, handle around 75 million passengers annually. Furthermore, five of the main seaports in Europe are
situated in France, including Marseille (the largest French and third largest European port), Le Havre (the fifth largest
European port), Dunkirk, Rouen, and Saint-Nazaire. The nation also boasts a highly-developed telecommunications
system, with extensive cable and microwave radio relay networks, fiber optic systems, and satellite systems. The worldclass infrastructure network enables France to offer international investors excellent conditions and drives the overall
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PESTLE Analysis
economic engine of the nation.
Current challenges
Weak government finances
According to the OECD, France posted a budget deficit of 4.28% in 2013, which is above the target of 4.1% it promised
EU and way above the 3.0% limit set by the Maastricht Treaty. The government has repeatedly failed to bring its deficit
below its own target over the past several years and thus violated EU's fiscal rules. In 2014, it is also projected to miss its
targeted deficit target of 3.6% of GDP by a wide margin and is expected to post a deficit that is close to its 2013 figure.
Similarly, in the government's draft budget for 2015 presented in early October 2014, the government backed off from its
previous promise to curtail deficit and projected a deficit of 4.4% of GDP, which irked the EU.
However, in late October 2014, the government revised its budget deficit figure and stated that it would cut its budget by
an additional EUR3.9 billion and thereby avoided a standoff with the EU. Nevertheless, it remains to be seen whether the
government is committed to consolidation given that in the past it has broken such promises.
France's public debt as a percentage of GDP was at 93.5% in 2013, which is far above the upper EU limit of 60.0%.
Public debt has constantly been on the rise and has reached alarming levels, and the IMF has forecast that the debt to
GDP ratio will rise in the medium term. Nevertheless, based on the modest improvement in curtailing the deficit over the
past few years and after ECB President Mario Draghi's statement that he would take all necessary steps to save the
euro, yields on sovereign bonds have declined since mid-2012. Hence, the government should take advantage of lower
yields to prop up markets' confidence on French government's commitment towards fiscal reforms.
France's public spending as a percentage of GDP is one of the highest among the OECD countries. This tradition of
maintaining a large welfare state is one of the major causes of elevated debt and a high deficit. Ideally, a large welfare
state can be maintained when the economy is growing and receiving sufficient tax receipts to fund welfare schemes.
With a stagnating economy, revenue will take a hit due to lower tax receipts and will make it difficult for the government
to continue spending on welfare schemes at the present level.
The government should actively pursue economic and social reforms to maintain its credibility in the international
financial market. The government's failure to achieve its target of reducing the deficit in the future could lead to a bearish
investor sentiment. Since a major part of French sovereign debt is held by foreign investors; the situation could worsen if
investors shun French sovereign debt due to ineffective fiscal consolidation on the part of government. Consequently,
borrowing costs for the French government may see an uptick as yields rise and this may further hamper fiscal
consolidation, leading to a vicious circle.
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PESTLE Analysis
Figure 2:
16.00
Percentage of GDP
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Source: OECD
Figure 3:
MARKETLINE
200
180
Percentage of GDP
160
140
120
100
80
60
40
20
0
MARKETLINE
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PESTLE Analysis
Figure 4:
1600.0
1400.0
1200.0
1000.0
800.0
600.0
400.0
200.0
0.0
Spain
Italy
Portugal
Ireland
France
Source: OECD
MARKETLINE
Figure 5:
70
Percentage of GDP
65
60
55
50
45
40
35
30
2002
2003
2004
2005
2006
2007
2008
2009
2010
Germany
Ireland
Greece
Spain
France
Italy
Portugal
United Kingdom
Source: Eurostat
2011
2012
2013
MARKETLINE
ML00002-012/Published 11/2014
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PESTLE Analysis
countries were able to offset this deficit by generating a surplus in other trade categories, France was unable to do that.
In fact, France's trade balance in non-energy products, especially capital goods, deteriorated over this period though its
position in services trade has remained stable.
French firms have been losing share in the global export market as a result of waning competitiveness. Declining price
competitiveness has been one of the major causes of the loss of export market share. Labor costs remain high in
proportion to productivity in comparison to its trade partners and this has hurt the most. Labor cost per unit of real output
is higher than many of its trading partners. This is reflected in the elevated real effective exchange rate. Further, French
exports are much more oriented towards EU countries and especially the euro area; in comparison, Germany and Italy
export a much larger share to the BRIC nations. France should try to diversify its exports more towards emerging
nationswhich are growing at a reasonable rate while Europe remains weak. In addition, French exports are mostly
concentrated in a few large sectors such as air and spacecraft related machinery, refined petroleum products, motor
vehicles, parts and accessories for motor vehicles, and pharmaceutical preparations. This suggests that the loss in
export market share may not be due to a decrease in exports of high-tech goods, but due to the inability to compete in
categories where prices play a major factor.
Figure 6:
10.00
9.00
8.00
7.00
Percentage
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2007
2013
Source: OECD
MARKETLINE
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PESTLE Analysis
Figure 7:
110.0
Index 2005=100
105.0
100.0
95.0
90.0
85.0
80.0
75.0
Ireland
Italy
France
United
Kingdom
Euro area
(18
countries)
2013
Germany
Spain
Portugal
2005
Source: Eurostat
Figure 8:
Greece
MARKETLINE
115
110
105
100
95
90
85
80
2005
2006
2007
2008
2009
2010
2011
Belgium
Germany
Greece
Spain
France
Italy
Netherlands
Portugal
2012
2013
United Kingdom
Source: Eurostat
MARKETLINE
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PESTLE Analysis
Future prospects
Non-financial private sectors' health further boosted by easier credit conditions
French businesses remains healthy compared to most of its European peers. Debt of non-financial corporation remains
lower than Portugal and Spain. In addition, debt-to-earnings ratio of firms also remains modest in comparison to most of
its European peers; consequently, French firms' default rates are on the lower side. The European Central Bank (ECB)
has announced measures to boost lending to firms, which should alleviate the credit crunch of firms in the euro area
(France is a member of the euro area), in the short-to-medium term. French firms did not experience strong credit crunch
as experienced by many of its European peers such as Spain and Italy, but, fall in inflation has raised the cost of
borrowing for them in recent years. Amid fears of deflation and weak bank lending in the Eurozone, in September 2014,
the benchmark rate was slashed further to 0.05% and the deposit rate was lowered to -0.20%. The latest cut came after
June 2014, when the central bank went as far as pushing its deposit rate into negative territory as it reduced its deposit
rate to -0.10% from zero previously. It also cut its main lending rate, refinancing rate, by 10 basis points to 0.15% in the
same month.
In June 2014, the ECB announced the suspension of the sterilization program (EUR170 billion weekly) which was started
in mid-2010 to drain out an equal amount of money from the banks it spent on government bonds of Greece, Ireland,
Portugal, Spain and Italy. This was done effectively to control oversupply of money in the system, which the ECB feared
at that point of time could lead to inflation. However, now since the inflation is well below the target of the central bank of
2%, the bank suspended the program which implies this money now stays with the banking system and available for
lending.
Further, the ECB also extended one of its program until December 2016, through which euro area banks will have
unlimited access to unlimited one-week liquidity. In addition, the central bank also announced the way its targeted longerterm refinancing operation (TLTRO) will work. It stated that euro area banks will be able to borrow at a very cheap rate
(0.25%) for four years. The amount that the banks will be able to borrow is a maximum of 7% of the total amount of their
loans to the euro area non-financial private sector, excluding mortgages outstanding as of April 2014.
The ECB will conduct two TLTROs in September and December 2014 of EUR400 billion where the banks will participate
for funding. Moreover, the central bank has also announced banks will be eligible for more funding in a series of TLTROs
to be conducted quarterly from March 2015 to June 2016, which amounts to a maximum of EUR1 trillion. However,
banks should be able to exceed their present lending targets to be eligible for extra funding or they have to repay back
the cash to the central bank two years ahead of schedule. All TLTROs will mature in September 2018. The banks are
forbidden to use this funding for mortgage purposes, which should help in spurring lending towards businesses and not
fueling a housing market bubble.
In September 2014, the ECB also declared the purchases of asset-backed securities (ABS) and covered bond to prop up
lending to the real economy. ABS are securities are backed by underlying instruments such as loans to SMEs, creditcard debt, car loans or mortgages and are packaged into products comprising slices with diverse risk profiles. The ECB
has also made it clear that it would buy simple, transparent and high quality securities, which would not put its asset
quality in jeopardy. All these measures are expected to prop up lending to the real economy.
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PESTLE Analysis
Figure 9:
250.00
230.00
Percentage of GDP
210.00
190.00
170.00
150.00
130.00
110.00
90.00
1999
2000
2001
2002
2003
Spain
2004
Germany
2005
2006
2007
France
2008
Italy
2009
2010
2011
2012
2013
Portugal
Source: OECD
MARKETLINE
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
United
Kingdom
Ireland
Germany
Less than 1
2-Jan
France
3-Feb
Italy
4-Mar
Source: OECD
Greece
Spain
Portugal
4 and above
MARKETLINE
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PESTLE Analysis
Percentage
7.00
6.00
5.00
4.00
3.00
2.00
Spain
Germany
France
Apr-14
Jan-14
Oct-13
Jul-13
Jan-13
Apr-13
Jul-12
Italy
Oct-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Jul-08
Oct-08
Jan-08
Apr-08
1.00
Portugal
Source: OECD
MARKETLINE
Percentage
6.00
5.00
4.00
3.00
2.00
Spain
Germany
France
Source: OECD
Italy
Apr-14
Jan-14
Oct-13
Jul-13
Jan-13
Apr-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Jan-11
Apr-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
1.00
Portugal
MARKETLINE
ML00002-012/Published 11/2014
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PESTLE Analysis
risk-weighted assets has increased from around 7.7% from end of 2007 to 13.40% as of Q1 2014. Increased capital
infusion has provided the much-needed boost to the banking sector to absorb more losses from customer defaults on
loans, and increasing non-performing assets for the banks. Shoring up the banks since then has helped in keeping them
solvent and their default probabilities has gone as down as reflected in the narrowed credit default swap spreads.
Further, French banks have lower NPLs than Italy and Spain's banking system, although they are on the rise over the
past few years.
Another metric, NPLs net of provisions to capital shows the relatively stronger resiliency of the French banking system
when compared with its European peers such as Italy, Spain and Germany in an adverse economic scenario. The metric
is one of the most conservative kind and suggests that in a worst scenario of completely writing off the NPLs, without
taking into account value of the collateral linked to loans, the French banking sector's capital will reduce by 19.80%,
which is on the lower side in comparison to 89.87% for the Italian banking system, 39.47% for the Spanish banking
system and 28.47 % for the German banking system.
Moreover, the lower yields (borrowing costs) on covered bonds (debt instruments backed by cash flows from an
underlying investment pool) also reflect investors' upbeat sentiment about the French banking sector's health.
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
ITA
ESP
USA
FRA
Source: OECD
GBR
DEU
MARKETLINE
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PESTLE Analysis
Figure 14: Credit default swaps on five year senior debt of selected banking systems
1,800.00
1,600.00
Basis points
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00
Portugal
Germany
Ireland
Jul/2014
Apr/2014
Jan/2014
Oct/2013
Jul/2013
Jan/2013
Italy
Apr/2013
Jul/2012
Oct/2012
Jan/2012
Apr/2012
Jul/2011
Oct/2011
Jan/2011
Apr/2011
Jul/2010
Oct/2010
Jan/2010
France
Apr/2010
Jul/2009
Oct/2009
Apr/2009
Jan/2009
Oct/2008
Jul/2008
Apr/2008
Jan/2008
0.00
Spain
MARKETLINE
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
DEU
GBR
FRA
ESP
PRT
SVN
Source: OECD
ITA
IRL
GRC
MARKETLINE
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PESTLE Analysis
90.00
80.00
Percentage
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
USA
GBR
FRA
BEL
OECD
DEU
ESP
PRT
IRL
Source: OECD
ITA
MARKETLINE
percentage
6.000
5.000
4.000
3.000
2.000
1.000
Italy
France
Spain
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
0.000
Germany
MARKETLINE
ML00002-012/Published 11/2014
Page 29
PESTLE Analysis
Future risks
Rising household debt, overvalued house prices and risks of house price correction
French household debt as a percentage of disposable income remains moderately high among its western European
peers; nevertheless, it is rising fast, which could be a source of vulnerability for the otherwise resilient household sector
This has been mainly on the back of incessant growth in real estate credit as house prices remain elevated due to low
interest rates, unlike its European counterparts where house prices have declined steeply over the past few years. The
French housing market is still overvalued as the price-to-rent ratio (a measure of the profitability of owning a house) and
the price-to-income ratio (a measure of affordability) remains elevated by 28.9% and 27.4% respectively, when
compared to their longer term averages, according to the OECD.
A small housing market correction in 2012 did not hurt households, given their relatively healthy financial position;
however, should a price correction of a scale of as in Spain or Ireland occur, the impact on household assets and
balance sheets could be serious. Rapidly rising household debt motivated by expectations of rising house prices is
speculative in nature and can spell economic disaster if real estate prices plunge.
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
Italy
Germany
France
Source: OECD
United Kingdom
MARKETLINE
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PESTLE Analysis
Index (2000=100)
210.0
190.0
170.0
150.0
130.0
110.0
France
Spain
Netherlands
Belgium
Ireland
United Kingdom
Euro area
Italy
2013 Q4
2013 Q2
2012 Q4
2012 Q2
2011 Q4
2011 Q2
2010 Q4
2010 Q2
2009 Q4
2009 Q2
2008 Q4
2008 Q2
2007 Q4
2007 Q2
2006 Q4
2006 Q2
2005 Q4
2005 Q2
2004 Q4
2004 Q2
2003 Q4
2003 Q2
2002 Q4
2002 Q2
2001 Q4
2001 Q2
2000 Q4
90.0
Germany
ML00002-012/Published 11/2014
Page 31
PESTLE Analysis
continue, with similarly troubled nations such as Ireland experiencing declines of more than 50%. This suggests that the
Spanish real estate market is on track for further price correction in 2014. The fall in asset prices has further weakened
household finances, as the Spanish ratio of debt to gross disposable income is among the highest. This makes it difficult
to bear debt servicing costs and increases the chances of foreclosure. The continued weakness in the housing prices is
expected to increase the chances of default and the negative impact is likely to affect the French banks both directly and
indirectly.
The rising non-performing loans as of 2013 may point to the impending risks to the French banking sector, although it
remains lower than most of the banking systems. The exposure of French banks to other troubled nations like Greece,
Ireland and Portugal is low; nevertheless, these nations are still recovering from economic crisis and their
macroeconomic situation can also have an effect on the French banking system.
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PESTLE Analysis
Social analysis
Overview
France has been grappling with the problems of an aging population and high unemployment. Nevertheless, the country
ranks high in the UN Development Programme's Human Development Index, as it historically played a large role in
providing healthcare and education. It is estimated that government expenditure to meet the pension and healthcare
needs of an aging population will increase in the coming years. The government seems to be ill-prepared for this
situation. Pension reforms were introduced in 2010 and 2013, which attempted to achieve financial balance, but it is
likely to fall back into a deficit if further measures are not taken.
Table 5:
Current strengths
Current challenges
Rising inequality
Future prospects
Future risks
Pension reforms
Aging population
Source: MarketLine
MARKETLINE
Current strengths
Strong performer on the UN's Human Development Index
France has performed well on various social parameters, mainly because of the socialist policies. In 2013, the Human
Development Index for France is 0.884 and it is in 20th position among 187 countries. According to the report, mean
schooling years as of 2012 was 11.1 years, compared to 11 years for Very High Development Countries. Moreover, Life
expectancy at birth is around 81.66 years, one of the highest in the world. This reflects decent education and healthcare
standards in the country.
High fertility rates
France has one of the highest birth rates in Europe and this has seen an upward trend since the 1990s, largely due to
various government measures. According to the Eurostat, the country registered a fertility rate of 2.01 children per
woman in 2010, which is higher than the EA17 average of 1.56 in the same year. France's high birth rate makes it one of
two European countriesthe other being Irelandthat could maintain its current population based on present trends.
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PESTLE Analysis
Number
1.8
1.7
1.6
1.5
1.4
1.3
1.2
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Germany
Ireland
Greece
Spain
France
Italy
Portugal
United Kingdom
2010
2011
2012
Source: Eurostat
Current challenges
Maintaining social expenditure in the time of consolidation
Pressure continues to mount on government finances due to the result of the social security and healthcare needs of an
aging population. France's social expenditure as a percentage of GDP (33%) is one of the highest among its peers
much higher than OECD average (21.9% of GDP). Such high social expenditure is a risk in case there is a deterioration
of government's fiscal health. With the government's struggling to garner taxes in a weak economic situation, the high
expenditure on pensions and healthcare for the elderly will be more difficult to sustain.
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PESTLE Analysis
33
Percentage of GDP
28
23
18
13
8
1980
1985
1990
1995
2000
2005
2009
2010
Austria
Belgium
France
Germany
Italy
Portugal
Spain
OECD - Total
2011
2012
2013
Greece
Source: OECD
Rising inequality
As of 2012, the gini coefficient (a measure of income inequality) of household disposable income stood at 0.31, which is
better that of the EU27 average. The Gini coefficient score of zero corresponds to complete equality while a score of one
corresponds to complete inequality. While in the OECD countries, the richest 10% of the country earn an average
income that is around 9.4 times than that of the poorest 10%, in France; the average income of the richest 10% is 7.2
times that of the poorest 10%.
However, during the euro area crisis period between 2007-12, gini coefficient of household disposable income widened,
which suggests of increasing income inequality. In addition, as the government is forced to undertake austerity measures
to strengthen public finances, the disparity in income may increase in future. This is starker in France, where the poorer
households' disposable income (bottom 10%) went down by 1.3% compared to a rise of 1.7% in the richer households
during 2007-11. Rising inequality creates political, social and economic challenges and stifles upward social mobility.
Taxes and benefits need to be reformed and redistributive policies need to be framed to tackle high inequality
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PESTLE Analysis
Source: OECD
Figure 23: S90/S10 income decile share/ gap between richest and poorest 10%, 2010
30.0
25.0
Number
20.0
15.0
10.0
5.0
Chile
Source: OECD
ML00002-012/Published 11/2014
Page 36
Mexico
United States
Israel
Turkey
Spain
Japan
Greece
Italy
Korea
Portugal
United Kingdom
Australia
Estonia
Canada
Poland
New Zealand
Ireland
France
Switzerland
Netherlands
Sweden
Germany
Hungary
Austria
Norway
Slovak Republic
Belgium
Luxembourg
Finland
Czech Republic
Iceland
Slovenia
Denmark
0.0
PESTLE Analysis
Figure 24: Percentage points change in gini coefficient of household disposable income
(2007-12)
0.04
0.03
percentage points
0.02
0.01
0.00
-0.01
-0.02
-0.03
-0.04
Source: OECD
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
Total
Top 10%
Bottom 10%
Source: OECD
Future prospects
Pension reforms
In 2010, the government adopted pension reforms and entered discussions with trade unions and employee forums to
reach a consensus. In order to ensure the system's long-term sustainability, the retirement age (from when pension
entitlements can normally be claimed) has been raised. This has allowed the government to reduce its social spending.
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PESTLE Analysis
Former President Sarkozy signed the pension reform plan into law in November 2010. Under the new Pension Act, the
retirement age will go up to 62. The measures will have a positive impact, as France will experience the second highest
increase in the average effective retirement age during 2010-20. In 2013, the government raised the pay in period from
41.5 years to 43 years to get a full pension. Nevertheless, critics view the reforms as modest and more radical changes
are needed to tackle the burden of aging population.
Figure 26: Projected increase in the average effective retirement age, 2010-20
4.5
4
3.5
Years
3
2.5
2
1.5
1
0.5
0
Italy
France
Spain
EU
Germany
United
Kingdom
Source: OECD
Future risk
Aging population
French society is challenged by an increase in the aging population. The old-age support ratio [number of people in the
working age (20-64) relative to the number in the retirement age (65+)] is also on a decline because of increased life
expectancy. The elderly dependency ratio (over-65 population as a share of the working-age (15 to 64) population) will
rise sharply from 26% in 2010 to 45.9% by 2050, a rise of 19.9 percentage points This will affect the economy, as the
working age population's contribution to support the non-working would decrease in the future. Although this is similar to
the situation in all developed nations, this is an area of concern.
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PESTLE Analysis
Percentage points
70
60
50
40
30
20
10
0
ESP
ITA
DEU
AUT
CHE
NLD
FRA
2010
BEL
GBR
DNK
SWE
ISL
NOR
LUX
2050
Source: OECD
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PESTLE Analysis
Technology analysis
Overview
France is at the forefront of technology initiatives in Europe, with R&D expenditure at 2.26% of GDP in 2012. France's
R&D strengths are in the areas of space science, microelectronics, and energy research. The government has come up
with policy measures to foster research and innovation. The Agency for Industrial Innovation has been created to support
innovation in large companies. Furthermore, the corporate tax rate is being reformed to provide incentives for research
and innovation. The competitiveness clusters will give a boost to private R&D and facilitate further public and private
research.
Table 6:
Current strengths
Current challenges
Future prospects
Future risks
Source: MarketLine
MARKETLINE
Current strengths
Large number of patents received
France has a favorable innovation climate, which is reflected in the large number of patents it generates. It ranks fifth in
the world in terms of the number of patents granted by the US Patent and Trademark Office (USPTO) for its innovations.
As of 2013, the country was behind the UK in terms of the total number of patents granted by the USPTO. Nevertheless,
the fact that France has received a total of 1,40,724 patents as of 2013 indicates that the country has done well to foster
innovation and R&D.
Gross expenditure on R&D
France's expenditure in R&D is one of the highest among the euro area countries. According to the European
Commission, France's R&D spendingwhich was at around 2.26% of GDP in 2012is healthy when compared with
other developed countries in the euro area. In the same year, France's R&D expenditure per inhabitant was around was
around was around EUR712.5, which had been well above the EA17 average of EUR616.2.
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PESTLE Analysis
1,600.0
1,400.0
1,200.0
1,000.0
800.0
600.0
400.0
200.0
0.0
Source: Eurostat
Current challenge
Multiplicity of authority leading to lack of co-ordination
The French R&D and innovation space has a number of research and knowledge institutes with overlapping objectives.
Government bodies such as the Ministry of Higher Education and Research, the Ministry of Industry, and the Ministry of
Defense have to work in tandem to come out with a unified policy. However, the overall objectives of these bodies are
very different, making implementation difficult. Largely, such organizational multiplicity is responsible for the lack of coordination between private enterprises and research bodies.
Future prospects
Political commitment to technological development
Successive governments in France have committed themselves to technological development, resulting in the nation
progressing significantly in this area. This is due to the continual support of successive French governments for R&D in
spite of its poor performance in terms of macroeconomic indicators. Research and higher education are among the top
priorities of the present government. R&D subsidies in France are amongst the highest in OECD countries. The 1 minus
the B index shows France's higher generosity in giving R&D incentives, especially for small and medium enterprises. The
B index measures the before-tax income needed by a firm to break even on $1 of R&D outlays. In fact, subsidies are
much above the EU average and the US. Giving impetus to R&D is the key for France to raise its productivity and living
standards and the government rightly provides high subsidies for R&D activity. This could be helpful in the long run, as
companies will find it more attractive to invest in innovation.
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PESTLE Analysis
1-B index
0.40
0.30
0.20
0.10
0.00
PRT FRA ESP CHL NLD CAN HUN IRL FIN GBR BRA KOR NOR ZAF CZE AUS SVN BEL JPN CHN AUT USA POL DNK LUX MEX SVK SWE CHE DEU NZL
-0.10
Large, profitable firm
Future risks
Lack of inter-linkages between producers and consumers of technology
The level of co-operation between R&D centers and companies is inadequate in France. Government R&D centers do
not always work to leverage technology for industry, leading to a lack of inter-linkages between the producers and
consumers. This results in the duplication of effort or resources being spent inefficiently. The government has to make
efforts to increase the inter-linkages between the producers and consumers of technology.
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PESTLE Analysis
Legal analysis
Overview
France has an independent judicial system that is responsible for the maintenance of law and order. The Constitutional
Council, the highest constitutional body in France with respect to legislation, determines the constitutionality of legislation
prior to the enactment of new laws. The French judicial system is divided into the judicial and the administrative orders of
courts. There is a clear hierarchy of courts at different levels both within states and nationwide.
Compared to other developed EU countries, state regulation of business and labor markets is widely prevalent. Business
taxes are also high compared to other developed countries.
Table 7:
Current strengths
Current challenges
Future prospects
Future risks
Anti-avoidance measures
Source: MarketLine
MARKETLINE
Current strengths
Legal framework comparable to other EU nations
Legal and regulatory aspects are crucial to creating a successful business environment in any country. They reflect the
policy framework and the mindset of the government, and ensure that every company is functioning according to the
nation's statutory framework. The regulatory regime in France has comprehensive laws that are in line with most other
EU nations. There are transparent laws for establishing companies in France. These regulations largely follow EU
directives.
Formal openness to foreign investment
As a member of the EU, France provides a reasonably hospitable climate for foreign investment. According to the UN
Conference on Trade and Development, total foreign direct investment (FDI) stock increased to $1.08 trillion in 2013
from $390.95bn in 2000, with more than 20,000 foreign companies operating in the country and employing nearly 3
million people. While there is no generalized screening of foreign investment, investments involving "sensitive" sectors
are subject to prior approval. Even in these instances, cases of rejection are very low. FDI restrictiveness is way below
its peers such as the UK and Italy, however, higher than Germany and Spain. Nevertheless, the government can open
up more sectors that have still some restrictions for foreign investments. This will help in attracting foreign capital, given
the country's reputation of being investment-friendly.
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PESTLE Analysis
0.070
0.060
0.050
0.040
0.030
0.020
0.010
0.000
United
Kingdom
Italy
France
Belgium
Germany
Spain
Source: OECD
Current challenges
State interference in economic activities
Under the EU's directives, France has liberalized many sectors that used to be government-dominated, but state
intervention remains prevalent in economic affairs. The government encourages mergers between French companies to
prevent takeovers by foreign firms. However, a number of ailing French firms continue to depend on state aid, which is
against the EU policy. French law also provides for the "golden share" under which the state can intervene in the
functioning of a firm even if it does not have a majority stake. This is a cause for concern as it brings rigidity into free
market operations. In December 2009, France failed to win a $20 billion nuclear contract in the United Arab Emirates.
The French companies involved, along with state-controlled Areva, faced criticism from former President Sarkozy for
losing the bid to Korea Electric Power Company. The government ordered an inquiry to look into what went wrong with
the French bids.
In late 2008 when French construction toy manufacturer Meccano's pre-Christmas sales slipped, the French government
stepped in. In July 2009, the Strategic Investment Fund (Fonds Stratgique d'Investissement)a sovereign wealth
fundinvested EUR2.2m in the toymaker. In February 2010, Meccano said that it would repatriate manufacturing jobs
from China to its headquarters in Calais. In April 2011, a mandatory bonus plan suggested by President Sarkozy was
slammed by both unions and businesses. In July 2012, French automobile maker PSA Peugeot Citron announced its
intention to reduce its workforce by 8%. The state minister for industry and the prime minister expressed concern about
the planned layoffs and raised questions about the credibility of the decision, with the possibility of government
intervention.
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PESTLE Analysis
The French minister of culture Aurlie Filippetti joined protesters outside the steel mill of Arcelor Mittal in Florange over
its planned closure. Meanwhile the present finance minister and the then labor minister Michel Sapin, announced that he
would make it highly expensive for business to retrench its workers. In addition, the then France's minister of industrial
renewal, Arnaud Montebourg, also expressed his opposition to industrial closures during the presidential campaign in
April 2012. Moreover, in the past the government hinted that it plans to tighten regulations on plant closures and
retrenchment. In 2013, the government interfered again in a deal in which US based internet giant Yahoo tried to acquire
stakes in French video-sharing website Dailymotion. Even in the acquisition of French engineering giant Alstom by
General Electric in 2014 involved considerable interference by the French government. Such a high level of state
interference may undermine free markets.
Product market regulations
France has not performed well in product market regulation. Product market indicators are a set of metrics that measure
the extent to which policies framed by the government promote or inhibit competition in areas where competition is
possible. Many of the sectors are regulated to a greater extent compared to their European counterparts. This is
indicative of a less competition-friendly market and monopolies in various sectors. The government should take
measures to ease product market regulation to strengthen competition, especially in the communication, services and
retail sector and in a number of other professions. Although, regulations eased during 2008-13, they still remain on the
higher side.
High regulation depresses purchasing power of the households through higher costs of production. Moreover, easing of
regulations will attract investment in various sectors, which will open up new avenues of employment. Because of
inadequate competition, services are generally priced high.
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2008
2013
Source: OECD
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PESTLE Analysis
6.00
5.00
4.00
3.00
2.00
1.00
2008
Source: OECD
Telecommunication (2013)
Post (2013)
2.5
1.5
0.5
Source: OECD
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ITA
BEL
HUN
ESP
AUT
ISR
GRC
SVK
FRA
CAN
CZE
PRT
DEU
ISL
JPN
EST
2013
SVN
OECD
GBR
KOR
IRL
FIN
DNK
NZL
NOR
NLD
SWE
CHL
CHE
AUS
0.00
PESTLE Analysis
2008
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
SWE SVN KOR NZL NLD CHL CHE ISL EST IRL CZE DNK GBR PRT NOR HUN MEX SVK JPN AUT CAN GRC FRA POL DEU FIN ESP ITA ISR BEL LUX
Source: OECD
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PESTLE Analysis
Percentage of GDP
10
8
6
4
2
0
Source: OECD
Future prospects
Anti-avoidance measures
The incumbent government has proposed a host of measures to combat illegal circumvention of taxes, as well as legal
tax avoidance by large corporations that take advantage of loopholes and tax havens. To fight the scourge of tax evasion
by corporates, the government enacted the Finance Act for 2014 and the Amended Finance Act for 2013. The antiavoidance bill is expected to close the loopholes in the French tax system.
Future risks
Tax wedge higher than OECD average
According to the OECD, in 2013, France had one of the highest (married, one-earner couple, two children) total tax
wedge (Income tax, employer and employee social security contributions and pay roll tax as a percentage of labor costs)
among the OECD countries. France's family tax wedge as of 2013 stood at 41.6% (at 100% of average wage), compared
to the OECD average of 26.4% in 2013.
When it comes to the individual tax wedge (single, no child), France once again had one of the highest total tax wedge
among the OECD average. France's individual tax wedge as of 2013 stood at 48.9% (at 100% of average wage),
compared to the OECD average of 35.9% in 2013. High taxes on labor are likely to act as a deterrent to prospective
skilled migrants, who wish to migrate to France. This can affect businesses by acting as a barrier in attracting talent to
French labor pool.
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PESTLE Analysis
Environmental analysis
Overview
France is at the forefront of environmental legislation in Europe. The Environment Charter forms a part of the French
constitution, and the country's environmental laws have influenced EU directives considerably. The Ministry of Ecology
and Sustainable Development, which is the authority that implements environmental policies, is responsible for planning
and enforcing regulations and uses economic instruments to ensure compliance. The new law on risk permits a better
economic assessment of natural and technological risks. Furthermore, the government has been using a wide range of
economic instruments such as incentives and taxes to ensure adherence to environmental regulations, and has
attempted to involve regional and local authorities in implementing environmental regulations. The country is well on its
way to meeting its international commitments.
Despite these successes, a lot still needs to be done to reduce the economy's energy intensity and to integrate
environmental concerns into the energy, transport, and agriculture sectors. The proposed changes under environmental
tax reforms are yet to be implemented fully. Implementation of the environmental laws in the coastal areas and
mountains could be strengthened by better integration of local authorities in environmental management policy.
Table 8:
Current strengths
Current challenges
Future risks
Carbon tax
Source: MarketLine
MARKETLINE
Current strengths
Fulfillment of international environmental commitments
France has ratified a number of international environmental treaties and has been at the forefront among EU nations as
far as implementation of the environmental agenda goes. The country has played an active role in the preparation of
global agreements on environmental protection and sustainable development and in the strengthening of international
environmental governance. French environmental policy takes into consideration the country's international commitments
with respect to climate change, biodiversity, water, and marine environments. Moreover, France's aid projects are
determined by environmental concerns and the country is a leading contributor to multilateral environment funds.
The Ministry of Foreign and European Affairs, in close co-operation with the Ministry of Ecology, Energy, Sustainable
Development, and the Sea, is also working to improve its effectiveness by planning coordinated actions in the field of
environment and sustainable development. This co-operation is aimed at strengthening the capacity of developing
countries to participate in environmental negotiations; contributing to the preservation of tropical forests or wetlands; and
illustrating the relevance of the Johannesburg Plan of Implementation and other environmental conventions. As part of its
global environmental partnership, the country initiated the Global Forest Partnership along with Norway in May 2010.
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PESTLE Analysis
Strong environmental policy framework and initiatives
France has a strong environmental policy framework that encompasses relevant EU directives. Since 1990, the focus of
its environmental policies has been the integration of environment and energy concerns. The national environment plan
of 1990 made substantial changes to the environmental administration and more specifically helped in the creation of
Regional Environment Directorates in 1991. The country has been steadily shifting its focus towards sustainable
development and adopted bioethanol clean fuel production in 2009-10.
In 2002, a national strategy on sustainable development was drafted. This led to a proposal for a constitutional charter on
the environment; the implementation of water, nature, landscape, pollution, and prevention and risk management
policies; increases in the capacity of environmental assessment and social and economic analysis; and international
action. France was also one of the largest biodiesel producers in the EU. Moreover, the government has taken initiatives
to "green" its tax system, with the implementation of carbon tax from April 2014 onwards.
Current challenges
Lack of consensus on environmental policies
A political row over environmental issues started in June 2012, when the then French environment minister Nicole Bricq
was asked to step down following her decision to freeze drilling off the coast of French Guiana. The ex-environment
minister along with Arnaud Montebourg, the then French minister for industrial renewal, issued a statement regarding
their keenness to protect marine life. However, the incumbent socialist government subsequently relieved Bricq of her
post and reappointed her as the minister for foreign trade, thus giving a subtle nod to oil exploration companies. This has
enraged various environmental groups and the French Green Party, which supported the new government in the June
2012 national assembly elections. Protesters have raised questions about the government's commitment to
environmental concerns while others have welcomed the move, citing the benefits such as reduction in unemployment
and poverty.
In July 2013, the Hollande's government fired environment minister Delphine Batho for protesting in public against
budget cuts for the environment ministry. This is suggestive of the growing differences within the government with regard
to balancing economic and environmental objectives, posing a significant challenge to environmental protection.
Future prospects
Carbon tax
From April 1, 2014, the carbon tax has been imposed, which is a positive step towards a greener economy. The tax is
expected to cut CO2 emissions in buildings and road transport and buildings by 2 MtCO2 and 1 MtCO2, respectively, by
2017. The CO2 tax is set at EUR7/tCO2 in 2014 and will rise to EUR14.5/tCO2 in 2015 and to EUR22/tCO2 in 2016. The
tax is expected to raise EUR1.78 billion from gas sales (including EUR700m from commercial and industrial sales and
EUR1.09 billion from residential sales), EUR1.55bn from diesel sales, EUR350m from gasoline, EUR370m from fuel oil,
and EUR280m from non-road transport gasoil by 2016. Furthermore, proceeds from, coal, gas and heavy fuel oil used as
a transportation fuel is estimated to be around EUR30m, EUR10m and EUR40m, respectively.
Future risks
Low tax on transport fuel prices
France charges relatively low transport fuel taxes. The country has a comparatively low tax shares from the sale of
automotive diesel prices and unleaded gasoline prices, which indirectly encourages consumers to consume more carbon
rich fuels leading to more pollution. The price of scarce energy resources should take into account the environmental and
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PESTLE Analysis
social costs, and introducing a tax is an effective way to curb reckless use of non-renewable natural resources.
Moreover, the distortive pricing mechanism is inhibiting the development of green technologies and entrepreneurship.
Failure to adhere to such a system could become an impediment to France's emergence as a green economy in the
future.
1.2
USD/Liter
0.8
0.6
0.4
0.2
0
Spain
France
Netherlands
Belgium
Germany
Italy
UK
Netherlands
Italy
1.4
1.2
USD/Liter
0.8
0.6
0.4
0.2
0
Spain
France
Belgium
Germany
UK
Source: OECD
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