France has a long history of political and economic involvement in Africa. Today, its influence is seen through investments, military presence, and development aid.
On Sunday, June 30, France conducted the first of two rounds of elections to determine the composition of the National Assembly, the nation’s parliament. The final results, including the selection of France’s next prime minister, will be revealed after the second-round vote on July 7.
However, early results align with pre-election polls: President Macron’s centrist coalition has performed poorly, securing third place, while extremist parties on both political spectrums have surged ahead.
The far-right National Rally party emerged as the clear winner with approximately 33% of the vote. A coalition of left-wing parties followed with 28%, while Macron’s centrist Renaissance party garnered around 20%.
Given France’s political system, a power-sharing arrangement between President Macron and the new prime minister—referred to as cohabitation—or a minority government (with no single party holding an absolute majority in parliament) seems likely. Either scenario would complicate governance and inject uncertainty into French politics and policy.
French Elections: Implications for Investors
Recent market volatility has sparked concerns about the eurozone’s stability, echoing the 2011-2012 sovereign debt crisis. However, fears of France leaving the euro are exaggerated. Despite this, financial markets remain uneasy.
French government bond markets have experienced a downturn, with 10-year spreads over German Bunds reaching 86 basis points on Friday – the widest gap since the 2012 eurozone crisis.
That reflects worries about the new French government’s ability to implement sustainable policies to reduce the country’s debt, which currently stands at 111% of GDP.
The situation could worsen if a populist National Assembly and prime minister emerge. They might consider reversing fiscally stabilizing pension reforms and increasing government spending to boost political support before the 2027 presidential election. Such actions could destabilize bond markets, reminiscent of the UK’s 2022 “Gilt crisis” triggered by deficit concerns.
With the election’s second round of voting still pending, uncertainty will persist in the short term. Consequently, French government bonds, the equity market, and bank stocks are likely to remain under pressure until the political landscape becomes clearer.
While the situation warrants attention, it’s important to maintain perspective. The current circumstances, though concerning, do not necessarily indicate an imminent eurozone breakup or French exit from the euro.
What Does This Mean For Investing in Africa?
France has a long history of political and economic involvement in Africa, dating back to its colonial past.
Today, French influence in Africa is seen through various channels, including investments in sectors such as mining, telecommunications, and energy across the continent, military presence, and development aid.
In addition, France’s foreign policy has traditionally supported stability and economic growth in its former colonies through various bilateral agreements and development aid programs.
Hence, the outcome of the French parliamentary elections could alter the dynamics of this relationship in several ways.
Potential Policy Shifts and Their Impact
Economic Investments
If Macron’s alliance secures a majority, his administration will likely continue to foster economic ties with African countries.
Macron’s presidency has seen initiatives aimed at boosting French investments in Africa, such as the Choose Africa initiative, which committed €3.5 billion to support African startups and small businesses.
A stable and pro-investment French government could encourage further investments in African markets.
In contrast, a victory for the National Rally might introduce a more protectionist economic stance, potentially reducing France’s investment footprint in Africa.
The RN’s focus on prioritizing French interests could lead to a reevaluation of foreign aid and investments, impacting African economies that rely on French capital and support.
Foreign Aid
France plays a significant role in providing development aid to African nations. French development aid supports infrastructure, healthcare, and education projects across the continent.
A shift towards a far-right government could lead to significant changes in its foreign aid policies. The National Rally has previously advocated for a more insular approach, which might result in reduced foreign aid and a focus on domestic issues.
That could impact development projects and investment flows into African countries that rely on French support.
Trade Relations
France is a major trading partner for many African countries.
Changes in trade policies could affect bilateral trade agreements, potentially leading to more stringent conditions or a re-evaluation of existing agreements. This could disrupt the flow of goods and services, affecting businesses that rely on stable trade relations with France.
Strategic Interests and Security
France has strategic interests in Africa, particularly in the Sahel region, where it has been involved in counter-terrorism operations.
A far-right government might reconsider France’s military engagements abroad, which could alter the security landscape in regions where French military presence has been a stabilizing factor.
Opportunities for Investors
Despite potential policy shifts, Africa remains a continent of immense economic potential.
The African Continental Free Trade Area (AfCFTA) is set to create the largest free trade area in the world, offering new opportunities for investors.
French companies and investors need to adapt to the changing political landscape to continue capitalizing on these opportunities.
Africa’s vast reserves of natural resources continue to attract investment. French energy companies, such as TotalEnergies, have significant operations in Africa.
Changes in French foreign policy could influence the regulatory environment and investment climate in these sectors, but the underlying demand for energy and resources is likely to remain strong.
In addition, the telecommunications sector in Africa is booming, with increasing mobile penetration and internet usage.
French companies like Orange have a substantial presence in the African telecom market. Continued investment in this sector is crucial for supporting Africa’s digital transformation and economic growth.
Also Read: African Economic Outlook 2024: Resilience and Opportunities for Investors
Navigating the Political Uncertainty
Investors should closely monitor the outcomes of the French parliamentary elections and subsequent policy announcements.
Engaging with local partners like Daba and understanding the regulatory environment in African countries will be essential for navigating any potential changes. Diversifying investments and seeking opportunities in multiple sectors can also mitigate risks associated with political uncertainty.
The French parliamentary elections are a critical event with potential ramifications for investing in Africa. While the rise of the National Rally introduces an element of uncertainty, Africa’s economic prospects remain robust.
Investors must stay informed and adaptable to leverage the opportunities that the continent offers amidst the evolving political landscape in France.
Staying attuned to policy changes, engaging with local stakeholders, and diversifying investments will be key strategies for navigating this complex environment and maximizing the potential for growth in Africa.
