Beginning in the 2010s, awareness of the need to reindustrialize France and the effective movement that followed accelerated in the early 2020s with the Covid-19 pandemic and the war in Ukraine, these two crises shaking up production chains and highlighting France’s weaknesses in its industrial autonomy.
Since 2017, 80,000 net jobs in industry have been created and the industry’s share of GDP has (finally) stabilised. It was also, Nicolas Dufourcq reminds us, during this decade that Bpifrance was created, in 2013.
In a context of exacerbated globalization where protectionism has become commonplace, France must adopt an “emerging country mentality” towards its industry, says Nicolas Dufourcq. Becoming a champion of industrial sectors, mainly with high added value, requires support as close as possible to innovative companies, both in terms of financing and by strengthening the functioning of the economy in knowledge “technopoles” where the links between entrepreneurs, universities and financiers must be tightened. Reindustrialization is also at the forefront a technological challenge that should make it possible to support and accelerate the decarbonization of France.
The health crisis and the war in Ukraine have been a stark reminder of the points of fragility born of the break-up of our industrial value chains, spread across the globe, the result of 40 to 50 years of trade globalization. Coupled with the challenges of profound transformations of our productive apparatus required by the climate transition, and in Europe with the question of energy being more expensive than before the crisis, it is therefore a succession of new challenges that are facing French industry, which was not lacking in them. The renaissance of industry in France is nevertheless possible and innovation is, more than ever, the key to this renewal.
Reindustrialization, a long-term process that can only be achieved through innovation
The process of deindustrialization of the French territory has been profound. This has been established for a long time. From the mid-1990s to the mid-2010s, in nearly 20 years, the French economy lost nearly 1 million manufacturing jobs on its territory. In reality, we could go back several decades, but this period is instructive insofar as this movement was not experienced with the same intensity by all industrialized countries (Germany or Switzerland being the typical examples, with a weight of industry in GDP that remained stable during the same period).
Not so much that French companies have lost the ability to produce and sell their products around the world. France still has efficient and powerful industrial companies, with a global reach. But more than our neighbours, with the possible exception of the United Kingdom, they have strongly developed their productive base abroad. In a context of globalization exacerbated by China’s entry into the WTO in 2001 and France’s entry into the euro zone around the same time, the productive base located in France has weakened markedly. Without going over all the factors that may have led to this movement, detailed in a book in which I wanted to have all the stakeholders of that time testify, the result is there. A drop in the weight of industry in GDP from 15% to 10%, a sharp decline in employment, companies that are still conquering but whose sales from their foreign subsidiaries represent nearly 3 times their domestic value added (compared to parity for German, Italian and American companies), a large and persistent trade deficit and a lasting weakening of the territories seeing industrial activity erode.
It has been clear to successive governments since 2012 that this situation needs to be halted and reversed. A rebound that public policies are trying to stimulate more and more vigorously. While the gap in cost-competitiveness that had widened with our partners and close competitors in Europe (Germany, Northern Europe) in the early 2000s has led to a major effort to reconverge since then, in particular through the reduction of contributions on wages and more recently the reduction of production taxes, no single policy can resolve structural differences in cost competitiveness with the countries of Eastern or Southern Europe. and even more so with emerging countries. These more supply-side policies are therefore only understood as a necessary condition to improve the room for manoeuvre of French companies, allowing them to invest and innovate, to digitize and automate, real levers for building a solid and competitive local offer. It is equally clear that such a movement can only take place over a long period of time and with the fruit of deep and patient policies. The creation of Bpifrance in 2013 was one of the milestones in this direction, with the mission of supporting the innovation capacity of industrial companies, and compensating for the long-degraded self-financing capacities of these companies exposed to tough international competition and poorly positioned in the range.
The first successes of these policies have been recorded, in the years preceding the health crisis, with a relative stabilization of the weight of industry in GDP, a rebound in the creation of industrial jobs in the economy (+80K or so since the end of 2017) reversing a continuous trend of contraction since 2001, a net balance sheet of factory creations identified by various increasingly positive barometers and an increasingly strong dynamic of foreign investment Industrial. However, there is still a lot of room for improvement. As France still has an innovation deficit to fill: a persistent lag of nearly 1 point of GDP in R&D expenditure or a rate of innovative industrial SMEs, at 54%, 20 points lower than Germany, the continuation of this supply-side policy, favourable to the competitiveness of companies, is therefore essential to succeed in reviving industry in our territories.
Challenges that are piling up and reinforcing the key issue of innovation
Faced with these structural challenges to the competitiveness of French industry, many challenges have emerged or have increased in recent years that will have to be met by the national industry to achieve its objective of renewal.
On the one hand, the war in Ukraine has gone through this and the questioning of European energy supplies is a major challenge for the continent’s industrialists. Gas and electricity prices in Europe, although back to levels well below the peak reached in the summer of 2022, remain significantly higher than before the health crisis and than those in other geographical areas. The fall in European energy consumption observed over the past year has certainly been due to greater sobriety and efficiency in households and businesses, but also to a sometimes sharp drop in production in heavy industry, of 10% to 20% in certain activities.
On the other hand, global competition is intensifying enormously in medium- to high-tech sectors. With the return of increasingly assertive industrial policies (and less and less compatible with WTO rules), an economy like France faces both emerging countries increasingly committed to the upgrading of their industry, sometimes technological leaders in certain segments, and both industrialized countries determined to reconsolidate industrial value chains on their territory. An example of this is China’s automotive sector, which has now become a net exporter after the rapid development of its electric vehicle supply. The weight of this same economy in the production of key technologies for the ecological transition (photovoltaics, wind turbines, heat pumps, etc.) is another. In industrialized countries, and in particular in the United States, increasingly proactive industrial policies such as the Inflation Reduction Act or the Chips Act, which are sometimes protectionist, clearly show that reindustrialization will require very great efforts to stay in the race.
Above all this, the ecological transition adds a set of additional challenges to that of reindustrialization. It presupposes a profound movement towards the decarbonisation of industrial processes, particularly in heavy industry which concentrates emissions, as well as the control and development of a competitive offer on key “green” technologies (hydrogen, batteries, low-carbon mobility, heat pumps, etc.). And all this in a world where decarbonisation policies remain fundamentally uncoordinated, and therefore potentially harmful to competitiveness in the short term.
So far, the causality between decarbonisation and industrialisation has been rather negative. In the past, deindustrialization has rather favored the decline of national emissions (down 23% since 1990, those of the manufacturing industry have fallen twice as fast), a decline moreover in trompe l’oeil since France was becoming more and more net importer of carbon (with finally a carbon footprint of French demand 50% higher than national emissions). This negative causality is a significant risk, especially in the case of tempo imposed by a “disorderly” transition. An illustration of this was made last winter with the impact of the sharp rise in energy prices on heavy industry production. In the face of this type of negative causality, innovation is the only way out.
Successful reindustrialization through innovation, a few ideas
All these challenges and the intense competition that sets in could be frightening. On the contrary, we believe, more than ever, that the path to reindustrialization is possible in France, with the will, the right tools and the right means. As mentioned earlier, there have been increasingly positive indicators on the French industry front in recent years and show that paradigm shifts are possible, provided we have the patience and the necessary resolve.
In the field of innovation in the broadest sense, France has been able to strongly develop a deep and efficient tech ecosystem over the last 10 years, with the help of a complete and efficient financing toolbox. On the industry side, France still has a large backbone of technological leaders in the territory. It also has high-level science, university talent, laboratories, and a breeding ground for successful and ambitious entrepreneurs.
Based on these levers, the few points developed below outline a certain number of avenues and levers for successful reindustrialization through innovation, particularly on the financing side, on which Bpifrance is already mobilizing and will mobilize even more in the coming years.
Develop a high-performance deeptech ecosystem and enable the emergence of industrial startups
An important first step is to be done upstream on the creation of new industrial activities. To revive the demographics of industrial companies, it is important to increase the number of deeptech startups, led by entrepreneurs often from the world of research and inventors of complex objects. Indeed, a large number of these technology-intensive startups are destined to create industrial sites, which are natively decarbonized and digitized.
In particular, it is a question of breaking down barriers in the world of research by bringing together universities and technology transfer structures with ecosystems of entrepreneurs and investors, and of accelerating the growth of these start-ups via a continuum of dedicated funding. This is the purpose of Bpifrance’s Deeptech Plan, launched in 2019, which aims to make France a major player in disruptive innovation on an international scale, with the ambition of creating 500 deeptech startups per year by 2025. These ambitions have been reinforced by the resources made available by the France 2030 programme and stronger coordination with academic actors to strengthen the dynamic of creation.
We are seeing the first results. With 1,800 active deeptech startups (320 created in 2022, a rate of creation twice as high as 5 years ago), the landscape of disruptive innovation in France is changing profoundly. With full support and financing from the pre-creation to the financing of the production lines.
Beyond deeptech alone, it is an entire ecosystem of industrial-oriented startups that must be supported by patient capital. In this context, Bpifrance launched in 2021, as part of France 2030, the Startups and Industrial SMEs Plan aimed at mobilizing €2 billion between 2022 and 2025 through aid, loans, investments and support schemes. This intervention is all the more crucial as there are still difficulties in finding private co-financiers for these upstream, innovative and capital-intensive investment projects.
By supporting these French industrial start-ups and SMEs in their innovation efforts, the objective is to create 100 new factories per year by 2025 (in addition to the “natural” flow of French factory creations) and 10 industrial unicorns by 2030. 35 startups had already inaugurated industrial sites in 2022.
This support for upstream industrial innovation is also key to generating a competitive and natively decarbonised industry. In 2022, nearly half of the industrial startups that raised were identified as greentech, i.e. as solution providers for the climate transition of our economy (with, for example, a significant fundraising by the startup Verkor). Another telling figure: 81% of the factories created in 2022 by industrial start-ups stemming from research are greentech.
Financing innovation and decarbonisation of industrial SMEs and mid-caps through mass door-to-door canvassing
The renewal of the fabric of SMEs, ETIs as well as large industrial groups in our territories, our French Fab, calls for a profound renewal of ranges and production methods through innovation and decarbonization. Since its creation, it has been Bpifrance’s raison d’être to support this transformation through financing but also with an adapted support offer.
In terms of decarbonisation, in concrete terms, we are aiming for a mass door-to-door canvassing of 20,000 SMEs and mid-caps over the next five years in order to offer all the necessary tools to entrepreneurs to engage in the development of a decarbonised and competitive offer. This involves support for the definition of the transition roadmap and the resulting operational actions, the partial assumption of the initial expenses related to the transition and support for long-term and appropriate financing to develop production equipment.
Financing and supporting innovation, robotisation and the digitalisation of production processes will also remain key to ensuring the competitiveness of industrial SMEs and mid-caps. Bpifrance will continue to mobilize its full range of financing and support in order to provide these companies with the necessary levers to succeed in these transformations, alongside private financing. We are also convinced that reviving industry through innovation does not only concern high-tech sectors holding new industrial property, but also any innovation in use, processes (robotic, carbon-free) that makes it possible to strengthen competitiveness, range positioning and therefore the differentiation of companies. Here too, the financing chain, from subsidies to loans and equity investments, and access to an appropriate support offer, must be able to support the emergence of this type of industrial project.
Supporting strategic investments in large production units in the region
The reindustrialisation of the territory and the rebalancing of our external imbalance also requires the ability to bring out very large production units, particularly in the key technologies of the future.
In an exacerbated global and European competition, this requires and will require a strong contribution from the public authorities to bring out new “industrial cathedrals”. France has acquired significant resources with France Relance and France 2030 to support the creation of gigafactories such as the microprocessor factory in Crolles, the battery plant in Douvrin or an automated electrolyser pilot line in Béziers.
In addition to the development of production capacities on the key technologies of digitalization and decarbonization, it is also a question of transforming the current large units operating on production technologies that are still brown. The decarbonisation of heavy industry must therefore be a priority. This is a constraint but also an opportunity that will soon be conferred by the increasingly strong tariff barriers put in place by the European Union. The more heavy industry reduces its carbon footprint, the more the sector will be able to benefit from the relative protection of the carbon border tax. The investment effort to be made, particularly in electrification and carbon sequestration, which will inevitably require a share of public support, is being defined by the creation of decarbonization roadmaps for the 50 main French emitting industrial sites.
Ensuring the development of the skills needed for the industrial renaissance
For any reindustrialisation scenario to work, it must “loop” on a certain number of parameters, and not only that of the financing of innovative industrial investments.
The needs will inevitably be significant in terms of infrastructure, and in particular energy infrastructure to support the needs of electrification, the development of carbon-free hydrogen, etc. Again, in order for this need for equipment to fully participate in reindustrialisation, support for innovation in sectors where technological lag has been taken, such as wind power or photovoltaics, will be essential. In the same way as on some of the key technologies related to the industry of the future and decarbonization where a certain delay exists, France must adopt, to say it provocatively, an emerging country mentality. That is to say, to accept that we will no longer be in the lead on certain technologies, and to do in the coming years what China has been able to do very well for the past 20 years.
Reindustrialization will also require the mobilization of talent, which is essential for industrial sectors to succeed in the challenge of rebounding and innovation. We like to reason about a Bpifrance objective of rebounding the weight of the manufacturing industry from 10% to 12% of GDP by a horizon of around 2035 (i.e. a reindustrialization movement of about 20 years after the opposite movement observed since 1995 and commented on above). We can estimate by a simple calculation that under the conditions of trend productivity of the industry (pre-health crisis), about 400K to 500K additional jobs would be needed in industry by 2035 for the sector to regain more weight in the national production mix. The stakes in terms of skills are therefore considerable. According to a recent study, factors related to the availability of talent and the strength of industrial and innovation ecosystems already account for 22% of industrial investment decisions, close to the burden of costs (28%). The persistent difficulties of recruitment, the unflattering rankings for several years of France in terms of initial training show that the issue of human capital is crucial for our country. And especially in the industry in high demand for cutting-edge technological skills. This requires an unprecedented effort on initial and continuing training, but also on an intelligent migration policy, which we mentioned in a recent study by our think tank, Bpifrance Le Lab. We also strongly believe in improving the attractiveness and image of the industry, which are essential elements to stimulate the training of current and future French workers.
All in all, the efforts to be made to revive our industry are significant and will require patience and consistency over the long term. Deindustrialization took several decades to take place. Reindustrialization will do the same. The forces for the regeneration of our industrial fabric are already present and it is our duty to public authorities, entrepreneurs, employees and citizens to mobilize for this great cause for our economy and our society.
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