News

Bruno Cavalier
Chief Economist at ODDO BHF

If we judge the French economy by the demographics of its businesses then the verdict is irrefutable: the present situation is one of the best experienced in a very long time. Business start-ups are soaring, bankruptcies are falling, a phenomenon typical of an expanding economy. Whilst these developments are not a leading indicator of future growth, they do allay recurring concerns related to social disruption (rejection of reforms) and political uncertainty (unpopularity of Macron). In any case, it is little short of astonishing that business creation is so strong in a country with such a high tax burden.

The fortnight’s focus

According to INSEE, the number of new companies created exceeded 800,000 in 2019, a record (+18% compared to 2018). Stripping out self-contractors (autoentrepreneurs), who make up 47% of this total, this implies an increase of 430,000 "standard" companies, again a record. For the past three years, this has mainly concerned corporate consulting and trade and warehousing, a sideline to the development of the digital economy; last year, there was also a marked upturn in construction. All told, the uptrend, initiated in 2015, is gaining momentum (chart lhs). According to the Banque de France, the number of business failures was close to 51,000 in 2019 (-5%), the lowest level since 2008 (chart rhs). This concerns most sectors. Loan outstandings of bankrupt companies account for around 0.4% of the total, down from the peaks of 2009 and 2014, two periods when the economy was emerging from recession.

Has France become a paradise for entrepreneurs? Far from it. The tax burden remains heavy. In the budget trade-offs at the time of the “Yellow Vests” crisis, the government chose to postpone the cut in the corporate rate tax¹. The weight of taxes on production remains prohibitive, not to mention the complexity of their calculation. According to the government’s economic think tank², they represent 3.6% of companies’ value-added compared with less than 0.5% in Germany. This hampers competitiveness. The government accepts the principle of reducing these taxes, but this means foregoing tax revenues. A conundrum for the finance ministry? The president of the jury for the 2019 entrance exam to ENA, the school that trains France’s top public servants, recently deplored the fact that a large proportion of candidates saw companies only "as a source of financing for the State's action"! Since 2015, under then president François Hollande, with Emmanuel Macron Minister of the Economy at the time, efforts have been made to recreate a more favourable climate for companies (tax credit, lower social security contributions, flexibility). This project is still far from being completed.

1. In 2020, the corporate tax rate is 31% for large companies, 28% for all others. The goal is to align the rates at 25% in 2022. 2. See Martin & Trannoy (2019), "Taxes on Production: The Good, the Bad and the Ugly", CAE

Discover the full report

Disclaimer:

Disclaimer for Distribution by ODDO BHF SCA to Non-United States Investors:
This research publication is produced by ODDO BHF Corporate & Markets, a division of ODDO BHF SCA (“ODDO”), which is licensed by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) and regulated by the Autorité des Marchés Financiers (“AMF”).
The research, when distributed outside of the U.S., is intended exclusively for non-U.S. customers of ODDO and cannot be divulged to a third-party without prior written consent of ODDO. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This research has been prepared in accordance with regulatory provisions designed to promote the independence of investment research. “Chinese walls” (information barriers) have been implemented to avert the unauthorized dissemination of confidential information and to prevent and manage situations of conflict of interest. This research has been prepared in accordance with French regulatory provisions designed to promote the independence of investment research. The recommendation presented in this document is reviewed and updated at least quarterly following each Quarterly Report published by the issuer that is the subject of this Research Report.
At the time of publication of this document, ODDO and/or one of its subsidiaries may have a conflict of interest with the issuer(s) mentioned. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performances offer no guarantee as to future performances. All opinions expressed in the present document reflect the current context which is subject to change without notice. The views expressed in this Research Report accurately reflect the analyst’s personal views about the subject securities and/or issuers and no part of his compensation was, is, or will be directly or indirectly related to the specific views contained in the Research Report. This Research Report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.
This Research Report is for institutional investors only. It may not contain information necessary for others to make investment decisions. Consult your financial adviser or an investment professional if you are not an institutional investor.
Disclaimer for Distribution by Oddo New York to United States Investors:
This Research Report is produced by ODDO BHF Corporate & Markets, a division of ODDO. This research is distributed to U.S. investors exclusively by ODDO BHF New York Corporation (“ONY”), MEMBER: FINRA/SIPC, and is intended exclusively for U.S. customers of ONY and cannot be divulged to a third-party without prior written consent of ONY. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This research has been prepared in accordance with regulatory provisions designed to promote the independence of investment research. “Chinese walls” (information barriers) have been implemented to avert the unauthorized dissemination of confidential information and to prevent and manage situations of conflict of interest. This research has been prepared in accordance with French regulatory provisions designed to promote the independence of investment research. The recommendation presented in this document is reviewed and updated at least quarterly following each Quarterly Report published by the issuer that is the subject of this Research Report.
At the time of publication of this document, ODDO, and/or one of its subsidiaries may have a conflict of interest with the issuer(s) mentioned. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performances offer no guarantee as to future performances. All opinions expressed in the present document reflect the current context which is subject to change without notice. The views expressed in this Research Report accurately reflect the analyst’s personal views about the subject securities and/or issuers and no part of his compensation was, is, or will be directly or indirectly related to the specific views contained in the Research Report. This Research Report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.
This Research Report is for institutional investors only. It may not contain information necessary for others to make investment decisions. Consult your financial adviser or an investment professional if you are not an institutional investor.
Rule 15a-6 Disclosure:
Under Rule 15a-6(a)(3), any transactions conducted by ODDO, and/or one of its subsidiaries with U.S. persons in the securities described in this foreign research must be effected through ONY. As a member of FINRA, ONY has reviewed this material for distribution to U.S. persons as required by FINRA Rules 2241(h) applicable to dissemination of research produced by its affiliate ODDO.
FINRA Disclosures:
• Neither ONY, ODDO, nor ODDO BHF Corporate & Markets beneficially owns 1% or more of any class of common equity securities of the subject company.
• The research analyst of ODDO BHF Corporate & Markets, at the time of publication of this research report, is not aware, nor does he or she know or have reason to know of any actual, material conflict of interest of himself or herself, ODDO, ODDO BHF Corporate & Markets or ONY, except those mentioned in the paragraph entitled “Risks of Conflicts of Interest.”
• ODDO BHF Corporate & Markets or ODDO may receive or seek compensation for investment banking services in the next 3 months from the subject company of this Research Report, but ONY would not participate in those arrangements.
• Neither ONY, ODDO, ODDO BHF Corporate & Markets has received compensation from the subject company in the past 12 months for providing investment banking services except those mentioned in the paragraph of “Risks of Conflict of Interest”.”
• Neither ONY, ODDO, ODDO BHF Corporate & Markets has managed or co-managed a public offering of securities for the subject company in the past 12 months except those mentioned in the paragraph of “Risk of Conflict of Interest”.
• ONY does not make (and never has made) markets and, accordingly, was not making a market in the subject company's securities at the time that this research report was published.
Regulation AC: ONY is exempt from the certification requirements of Regulation AC for its distribution to a U.S. person in the United States of this Research Report that is prepared by an ODDO BHF Corporate & Markets research analyst because ODDO has no officers or persons performing similar functions or employees in common with ONY and ONY maintains and enforces written policies and procedures reasonably designed to prevent it, any controlling persons, officers or persons performing similar functions, and employees of ONY from influencing the activities of the third party research analyst and the content of research reports prepared by the third party research analyst.
Contact Information of firm distributing research to U.S. investors: ODDO BHF New York Corporation, MEMBER: FINRA/SIPC, is a wholly owned subsidiary of ODDO BHF SCA; Philippe Bouclainville, President ([email protected]) 150 East 52nd Street New York, NY 10022 212-481-4002.
Statement of conflict of interests of all companies mentioned in this document may be consulted on Oddo & Cie’s .