Investment and Investment Finance in France Natacha Valla Head of - - PowerPoint PPT Presentation

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Investment and Investment Finance in France

Natacha Valla Head of Policy and Strategy Division Economics Department European Investment Bank

“Investment in France: gearing up momentum” Banque de France, May 3, 2018

Since 2015, the investment recovery is driven by the private sector, especially non-financial companies and IPP investment

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Real investment by sector Real Investment by asset

Note: Cumulative change of quarterly real investment relative to the 1Q08 level, with sector-level contributions. Source: Econ calculations, Eurostat, national authorities Note: Cumulative change of quarterly real investment relative to the 1Q08 level, with asset class contribution. Source: Econ calculations, Eurostat

Cumulative change relative to 1Q08 Cumulative change relative to 1Q08

• 14.0%
• 12.0%
• 10.0%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 Financial corporations Government Households and NPISH Non-financial corporations Total

• 14.0%
• 12.0%
• 10.0%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 Bio resources Dwellings IPP Machinery and equipment Other buildings and structures Total

Infrastructure investment has been falling rapidly since 2013, due to lower government investment

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Note: Annual infrastructure investment as a share of GDP, broken down by occupational sector. Source: Econ calculations, Eurostat, national authorities Note: Annual infrastructure investment as a share of GDP, broken down by institutional sector. Source: Econ calculations, Eurostat, national authorities

Infrastructure investment, occupational Infrastructure Investment, institutional

per cent of GDP per cent of GDP

0.5 1 1.5 2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Utilities Transport Communication Education Health 0.5 1 1.5 2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Government Corporate PPP Non-PPP Proejct

What can 12,500 firms in Europe, of which 600 in France, can tell us about recent investment trends?

EIB investment survey:

• 12,483 firms surveyed across EU28 (of which 602 in France)
• Non-financial corporations with 5+ employees in manufacturing,

services, construction and infrastructure sectors

• Information on:
• Firm characteristics and performance
• Investment needs and constraints
• Past investment activities and future focus
• Investment finance
• Representative of the economy (firms weighted by value-added)
• Data collected from April-July 2017

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Investment activity is picking up, driven by the strong performance of the manufacturing sector

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Note: Plots the share of firms with investment expanding/contracting relative to the share of firms investing, by sector or Member State; cross centred on EU average. Source: Econ EIBIS

Investment cycle

Large SME Infr Serv Constr Man FR EU DE GR HU IE IT LV LT LU MT NL PL PT RO SK SI ES SE UK AT BE BG HR CY CZ DK EE FI

• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25% 30% 60% 65% 70% 75% 80% 85% 90% 95% 100% 105% Firms expecting to increase/decrease investment in current financial year (net balance,%) Share of firms investing Low investment expanding High investment expanding Low investment contracting High investment contracting

Purpose of previous year's investment Future investment priorities

share of total investment share of total investment

Looking ahead to the next three years, the main investment priority is replacement, followed by developing new products, processes or services

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Note: Average response, in per cent. Q. What proportion of total investment was for (a) replacing capacity (including existing buildings, machinery, equipment, IT) (b) expanding capacity for existing products/services (c) developing or introducing new products, processes, services?

Source: Econ EIBIS

Note: Share of firms by main purpose of investment, in per cent. Q. Looking ahead to the next 3 years, which is your investment priority (a) replacing existing buildings, machinery, equipment, IT; (b) expanding capacity for existing products/services; (c) developing or introducing new products, processes, services?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% EU 2016 EU 2017 FR 2016 FR 2017 Manufacturing Construction Services Infrastructure SME Large Capacity expansion Replacement New products/services Other 0% 20% 40% 60% 80% 100% EU 2016 EU 2017 FR 2016 FR 2017 Manufacturing Construction Services Infrastructure SME Large Capacity expansion Replacement New products No investment planned

Areas of investment Innovation activity

average share allocated average share allocated

Machinery and equipment remains the main investment area for firms and the share allocated to employee training is higher than the EU average

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Note: Average of responses for allocations by area in per cent: Q. In the last financial year, how much did your business invest in each of the following with the intention of maintaining

• r increasing your company’s future earnings?

Source: Econ EIBIS

Note: Average of responses in per cent: Q. What proportion of total investment was for developing or introducing new products, processes, services? Q. Were the products, processes or services new to the company, new to the country, new to the global market?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% EU 2016 EU 2017 FR 2016 FR 2017 Manufacturing Construction Services Infrastructure SME Large

Land, business buildings and infrastructure Machinery and equipment R&D Software, data, IT, website Training of employees Organisation/business processes

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 FR 2016 FR 2017 Manufacturing Construction Services Infrastructure SME Large No Innovation New to the Company New to the Country New to the World

average share average share

The average share of the capital stock that is reported to be of high quality is lower in France than in most EU countries

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State-of-the-art machinery and equipment Share of high energy efficiency buildings

Note: Average of responses in per cent: Q. What proportion, if any, of your machinery and equipment, including ICT, would you say is state-of- the-art? Source: Econ EIBIS Note: Average of responses in per cent: Q. What proportion, if any, of your commercial building stock satisfies high or highest energy efficiency standards? Source: Econ EIBIS 0% 20% 40% 60% 80% AT DE HU LU IT ES FI IE SI SE NL LV MT EE LT BE HR DK CZ PT RO UK SK FR PL BG State-of-the-art machinery and equipment 2016 0% 20% 40% 60% 80% AT DE ES HU IE HR SI MT PT IT LU DK NL BE BG SK UK EE LV CZ RO SE PL FI FR LT High energy efficiency standards 2016

Perceived investment gap

share of firms

Manufacturing firms are most likely to have invested too little

• ver the past 3 years, while firms in infrastructure least likely

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Note: Share of responses in per cent: Q. Looking back at your investment

• ver the last 3 years, was it too much, too little, or about the right amount?

Source: Econ EIBIS

0% 20% 40% 60% 80% 100% Large SME Infrastructure Services Construction Manufacturing FR 2017 FR 2016 EU 2017 EU 2016 Invested too much About the right amount Invested too little Don't Know/refused

Capacity utilisation (EIBIS)

average share at or above capacity

Note: Average share of responses in per cent: Q. In the last financial year, was your company operating above or at maximum capacity attainable under normal circumstances? Source: Econ EIBIS

0% 10% 20% 30% 40% 50% 60% EU EU Manufacturing FR Manufacturing Construction Services Infrastructure SME Large 2017 2016

Investment barriers by size/sector Long-term barriers to investment

share of responses share of responses in per cent

More than seven in ten firms view uncertainty about the future and labour market regulations as obstacles to investment

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Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is each of the following an obstacle? Is a major

• bstacle, a minor obstacle or not an obstacle at all?

Source: Econ EIBIS Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is each of the following an obstacle? Is a major

• bstacle, a minor obstacle or not an obstacle at all?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% Uncertainty about the future Availability of finance Adequate transport infrastructure Business regulations Labour market regulations Access to digital infrastructure Energy costs Availability of skilled staff Demand for product or service EU 2017 FR 2017 2016

36 68 56 29 72 69 32 46 74 42 67 51 36 80 72 36 37 80 38 60 44 35 67 66 32 34 83 45 56 59 32 70 58 35 39 68 37 68 49 34 72 63 34 43 73 43 56 57 30 70 67 33 37 77

Uncertainty about the future Availability of finance Adequate transport infrastructure Business regulations Labour market regulations Access to digital infrastructure

Manufacturing

Energy costs Availability of skilled staff Demand for product or service

Construction Services Infrastructure SME Large

Number of firms in manufacturing

by number of employees

Regulations that apply to firms with 50 workers can be

• bstacles to investment (and employment)

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Note: Histogram of the number of firms in France, fiscal year 2014, NACE sector C – Manufacturing (sectors 10 to 33 at 2 digit level), by number of employees (from 20 to 80 employees) Source: Bureau van Dijk’s Orbis database

50 100 150 200 20 30 40 50 60 70 80 Number of employees

• Sharp fall in the number of

firms with 50+ employees

• Regulations can have a

negative impact on productivity, employment and investment

• We find that larger firms tend to

be more productive but firms just above the 50+ threshold are less productive than firms below the threshold

• See, e.g., Garicano, Lelarge

and van Reenen (AER, 2016)

One third of the firms consider that professional training and higher education should be the main public investment priority

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Note: Proportion of responses in per cent: Q. From your business’ perspective, if you had to prioritise one area of public investment for the next 3 years, which one would it be? Source: Econ EIBIS

Perceived public investment priorities

proportion of responses

0% 20% 40% 60% 80% 100% Slovenia Spain Luxembourg Poland Greece Italy Belgium Malta Netherlands Estonia Romania Sweden Denmark UK Finland Hungary Portugal Croatia Ireland Czech Rep France Slovakia Latvia Germany Bulgaria Austria Cyprus Lithuania Childcare/schools Professional training/HE Hospitals/care Social housing Transport infrastructure Public transport ICT infrastructure Energy supply/distribution None/DK/Refused

Source of investment finance

average proportion average proportion

External finance, especially bank loans, accounts for a greater share of investment finance in France than in the EU

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Type of external investment financing

Note: Average of responses in per cent: Q. What proportion of your investment was financed by each of the following? Source: Econ EIBIS Note: Q. Approximately what proportion of your external finance does each of the following represent? Source: Econ EIBIS

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 FR 2016 FR 2017 Manufacturing Construction Services Infrastructure SME Large External Internal Intra-group

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 FR 2016 FR 2017 Manufacturing Construction Services Infrastructure SME Large Bank loan Other bank finance Bonds Equity Leasing Factoring Non-institutional loans Grants Other

share of responses share of responses

The highest proportion of dissatisfaction with external finance in France and the EU is related to collateral requirements

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Share of finance constrained firms Dissatisfaction with external finance

Note: Proportion of firms considering themselves finance constrained: Finance constrained firms include: those dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive)

• r they would be turned down (discouraged)

Source: Econ EIBIS Note: Average share of responses, in per cent Q. How satisfied or dissatisfied are you with ….? Source: Econ EIBIS 0% 2% 4% 6% 8% 10% Large SME Infrastructure Services Construction Manufacturing FR 2017 FR 2016 EU 2017 EU 2016 Rejected Received less Too expensive Discouraged 0% 5% 10% 15% Type of finance Collateral Length of time Cost Amount obtained France EU 2016

Note: Proportion of firms reliant on internal finance over share financially constrained firms, by sector or Member State.

Firms are less likely in France than in the EU to be finance constrained and to rely exclusively on internal funds

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Source: Econ EIBIS

Finance cross

Large SME Infr Serv Constr Man FR EU DE GR HU IE IT LV LT LU MT NL PL PT RO SK SI ES SE UK AT BE BG HR CY CZ DK EE FI 0% 5% 10% 15% 20% 25% 30% 35% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Firms happy to rely exclusively on internal funds Share of firms that are external finance constrained

Local government account for half of public investment but it has decreased with cuts in transfers from the State since 2014

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Note: Public investment as share of GDP undertaken at the central as well as local and regional levels Source: Eurostat

Share of public investment

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Estonia Sweden Finland Luxembourg Denmark Romania Latvia France Netherlands Czech Republic Poland Croatia Slovakia Hungary Greece Austria Slovenia Lithuania Bulgaria United Kingdom Cyprus Malta Belgium Germany Italy Spain Ireland Portugal EU-28 Euro area % of GDP

Local and Regional Central

What can 555 municipalities in Europe, of which 36 in France, can tell us about local infrastructure investment?

EIB survey on municipality infrastructure investment:

• 555 municipalities surveyed across EU28 (of which 36 in France)
• Interviews of decision makers at municipality level (mayors and

senior officials) on local infrastructure investment

• Information on:
• Past infrastructure investment activities and future focus
• Perceived infrastructure investment gaps and barriers
• Infrastructure quality
• Infrastructure investment finance
• Representative (municipalities weighted by urban population)
• Data collected from May-August 2017

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Infrastructure quality in municipality Municipalities’ perceived investment gap

share of responses average score between 1 (low) and 5 (high)

Compared to the EU average, French municipalities report a smaller infrastructure investment gap, due to relatively higher infrastructure quality

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Note: Proportion of responses: Q. For each of the following, would you say that, overall, past investment in your municipality has ensured the right amount of infrastructure, or led to an under provision or over provision of infrastructure capacity?

Source: Econ EIBIS

Note: Average score: Q. How would you assess the quality of infrastructure each of these areas in your municipality on a scale of 1 to 5 where 1 means it is completely outdated and 5 means it is up to latest international standards.

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% EU France Urban transport Health Education Housing Environment ICT

Too much About the right amont Too little Don't Know/refused

3.2 3.4 3.4 3.5 3.6 3.3 3.3 3.4 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 EU France Urban transport Health Education Housing Environment ICT

Gaps to be closed within five years? Obstacles to infrastructure investment

share of responses in per cent net balance in per cent of municipalities

Municipalities perceive health and education as the areas where the infrastructure gaps are the most difficult to close in the next 5 years

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Note: Share of responses in per cent. Q. To what extent is each of the following an obstacle to the implementation of your infrastructure investment activities? Source: Econ EIBIS

Note: Q. How confident are you that the under provision / quality in area will be addressed in the next five years? * Net balance is the share of firms seeing a positive effect minus the share of firms seeing a negative effect

Source: Econ EIBIS

0% 20% 40% 60% 80% 100% Budget Debt Ceiling Access to external finance Technical capacity Coordination Length of approval process Political and reg. stability A major obstacle A minor obstacle

0% 20% 40% 60% 80% 100% EU France Urban transport Health Education Housing Environment ICT

Positive net balance Negative net balance

Municipality infrastructure planning Municipality Investment Focus – 5 years

per cent share of responses in per cent

Less than half of French municipalities carry out independent assessments of infrastructure projects before implementation

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Note: Q. Before going ahead with an infrastructure project, do you carry out an independent assessment of…? And: how important would you say are the results of the independent assessment/s when deciding whether or not to go ahead with a project?

Source: Econ EIBIS

Note: Average share: Q. Looking ahead to the next five years, will the largest share of your spend on infrastructure in each of these areas be for maintenance and repair, modernisation or the construction of new infrastructure?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100%

EU France Urban transport Health Education Housing Environment ICT

• Mainten. and Repair

Modernisation New Infrastructure Don't know/refused

0% 20% 40% 60% 80% 100% France EU France EU France EU France EU Budget Economic costs and benefits Enviromental and social impact Fit urban development strategy Always Frequently

Ex-ante infrastructure project assessment Importance of ex-ante assessments

share of responses in per cent share of responses in per cent

French municipalities perceive independent assessments of infrastructure projects as less critical for implementation than in other EU countries

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Note: Source: Econ EIBIS Note: Q: And how important would you say are the results of the independent assessment/s when deciding whether or not to go ahead with a project? Source: Econ EIBIS EU France Germany Italy Spain Poland United Kingdom Other Northern Europe Other Southern Europe Other Central Europe South East Europe Baltics Benelux The budgetary implications of the

• peration and

maintenance of the proj The broader economic costs and benefits of the project The environmental and social impacts of the project An analysis of the extent to which the project fits into your broader u 28 42 46 48 43 43 43 43 47 45 62 52 61 61 53 50 53 60 55 60 50 60 66 54 53 58 58 67 50 56 55 51 61 57 59 50 62 48 77 77 80 89 73 70 77 83 74 69 68 73 74 72 50 100 Spain Other Central Europe Germany Italy Baltics Poland Other Northern Europe Benelux South East Europe Other Southern Europe United Kingdom France A critical factor An important factor A factor that may have some influence A factor that does not influence decision

Municipalities’ investment finance sources Municipalities’ external finance sources

average share in per cent average share in per cent

Compared to the EU average, French municipalities tend to rely more on external finance, especially from banks

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Note: Average share: Q. Can you tell me approximately what proportion

• f your infrastructure investment activities were financed by each of the

following? Source: Econ EIBIS Note: Average share: Q. Approximately what proportion of your external finance does each of the following represent? Source: Econ EIBIS 20 40 60 80 100 EU France

Own Resources EU programmes Other transfers External Finance

10 20 30 40 50 60 70 80 90 100 France EU

Capital Markets Banks NPBs IFIs Other

Conclusion

• Real GDP growth is accelerating, supported by strong private sector

investment, especially in the manufacturing sector and IPP investment.

• Infrastructure investment has been falling since 2013, driven by lower

government investment, in particular by local authorities due to cuts in transfers from the State.

• The main obstacles to investment are uncertainty about the future (75%
• f French firms), labour market regulations (71%), business regulations

and taxation (65%) and availability of staff with the right skills (62%).

• External finance (especially bank loans) accounts for a greater share of

investment finance than in the EU, both for firms and municipalities.

• Municipalities plan to invest in new infrastructure but do not

systematically carry ex-ante assessments.

• There is scope to strengthen policy coordination at different levels of

government and to (further) improve the quality of local investment.

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Thank you

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