Emmanuel Macron has a flutter on privatisation
It’s a truism in France that when times get tough, the tough get spending on lottery tickets. In cafés across the country, people sit over coffee and gossip, checking to see if their numbers have come up, scratching game cards in the hope of a windfall, no matter how small.
Now the government has won a windfall of its own, with the privatisation of the formerly state-run lottery, Française des Jeux (FDJ). Its listing in November raised €2 billion (£1.71 billion) in the first major public offering of President Emmanuel Macron’s privatisation plans.
To please both the Yellow Vests, who have been protesting against economic iniquity for months, and the European Commission, the former investment banker is seeking to boost government revenues. France’s mountainous debt is forecast to rise to 99.2 per cent of GDP in 2021.
Macron champions state disengagement as a rapid panacea for the country’s dangerously anaemic coffers. A beloved and predictable business holding a monopoly, FDJ was the perfect candidate for his showpiece initial public offering.
Half of the French population played FDJ games at least once a year. In 2018, the French spent a record €16 billion (£13.7 billion) on FDJ, an increase of one-third over four years.
A descendant of Louis XIV’s royal lottery, FDJ was founded in 1933 to help struggling farmers and wounded veterans who had returned from fighting in World War One. Now it is Europe’s second-biggest gaming operator; last year it paid €3.5 billion (£2.99 billion) in taxes and charges.
It seems that such robust financial health has whet Macron’s appetite for more, as he strives to deliver on his campaign promise to launch a €10 billion (£8.5 billion) fund to kickstart technological innovation.
More than a decade after the last wave of privatisations, on November 21, the national lottery became the first major company of his presidency to shift to private ownership. In a country where privatisation has long been equated with treason, round 500,000 individuals cheerfully subscribed to the lottery’s IPO.
Most western countries have already sold off their formerly state-run airlines, railroads and utilities. But France still holds an extensive portfolio of public-sector assets. An OpinionWay survey conducted in March 2018 found that 65 per cent of citizens cherished their “shareholding state,” with its €100 billion (£85 billion) of investments in nearly 1,800 firms.
The French independent public auditor Cour des comptes deplores the huge losses, political meddling and lack of purpose inherent in state ownership. In a philosophical shift, Macron’s pro-business team insists it has no interest in running FDJ-like companies.
Critics of the lottery privatisation, however, have argued that gamblers shouldn’t be left vulnerable to corporate greed. “To boost revenue, one must boost spending on bets. The profit motive and the need to protect gamblers from addiction are in direct competition,” Jean-Michel Costes, the secretary general of gaming watchdog Observatoire des Jeux, said. An increase of just one per cent in FDJ’s revenues would generate 1,000 gambling addicts and put 6,500 others at risk, he said.
In the coming months, a new independent gaming authority will be created, notably to oversee FDJ’s marketing strategy in order to prevent a scenario similar to that in Italy. Its cash-strapped government relaxed regulations around the gaming industry in the mid-2000s and the number of problem gamblers soared from an estimated 100,000 people in 2007 to 400,000 a decade later, according to the largest public research institution in Italy.
Macron did not include the disposal of state assets in his manifesto. Several left and right MPs, as well as former ministers, have accused him of “selling off the family jewels”. The government remains the majority stakeholder in FDJ, having cuts its holding to 20 per cent, from 72 per cent before the sell-off.
Nor does the government concede that its control of the company has been diluted by the sale, and says FDJ will continue to be taxed at the same rate it was before it was listed, while paying €380 million (£324 million) annually for its monopoly license. Revenues from the IPO will flow into creating a public fund to finance risky new technologies. With no state downsizing in sight, chances are it will also suffer from flaws and inefficiencies.
Macron’s real success here is his ability to convince 500,000 French citizens to invest in FDJ. It bodes well for his long-term plan to make domestic companies less dependent on foreign capital and the French state. Finance Minister Bruno Le Maire hailed it as “a reconciliation of the French with the economy and the markets,” in the wake of the 2008 financial crisis.
He made no reference to the period before the crisis, when private investors got their fingers burnt by publicly-owned companies. The energy-provider EDF peaked at €83 (£71) per share in 2007 before collapsing amid rising costs and falling profits: it’s now priced around €9 (£7.7). The phone operator France Telecom’s share price has also fallen dramatically since its market debut in 1997.
In a bid to make a clean sweep, the government offered retail investors in FDJ a 2 per cent discount and one free share for every 10 bought if they held them for a minimum of 18 months. Priced at the top of its range, at €19.90 (£17), FDJ rose by up to 18 per cent on its debut trading day on the Parisian Euronext stock exchange.
“One hundred per cent of winners have tried their luck. Whose turn is next?” says the most famous French lottery slogan. Macron looks emboldened enough to try his luck by pushing ahead with further privatisations.
Energy provider Engie is on the block, as well as 50.6 per cent of the state-owned airports operator ADP, which could yield €8.6bn (£7.34bn). Critics say the ADP sales would compromise the nation’s security and sovereignty, with an unprecedented online referendum launched by opposition MPs to stop ADP’s sale. In a telling sign of the turn in French attitudes towards privatisation, the ballot appears unlikely to reach the threshold needed to force a wider vote on the issue.
The apparent public acceptance of the process is not as stable as it might appear. ADP’s privatisation, for instance, could light a new fire under the Yellow Vest movement. The going could well get tough for Macron’s big gamble.