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France at greater risk of business disruption than Afghanistan

France is the only advanced economy judged at 'high risk' from upset caused by civil unrest, according to British study

PUBLISHED : Wednesday, 03 August, 2016, 7:01am
UPDATED : Wednesday, 03 August, 2016, 12:50pm

Firms looking to quit the UK following the Brexit vote may wish to avoid France, judging by a report that says the country is highly vulnerable to business disruption.

France is the only advanced economy judged at "high risk" from upset caused by civil unrest. It is more vulnerable than emerging markets like South Africa, Argentina, Brazil — and even Afghanistan — political risk firm Verisk Maplecroft said.

"As companies assess the viability of relocating European headquarters from the UK following the Brexit referendum, the findings provide a useful insight into some of the structural problems facing business in France," the firm says.

France has suffered sizable protests on a roughly weekly basis over the last year and lacks means to prevent grievances escalating, Verisk Maplecroft said. Violent protests struck Paris in June, for instance, as police clashed with demonstrators objecting to changes to France's restrictive labour laws.

"This type of civil unrest can result in both physical damages to property and business interruption due to the disruption to key infrastructure," the report says.

The controversial reforms were passed in July, decreasing the risk of protests and strikes for the next six months, according to Kit Nicholl, a country risk analyst at IHS Markit.

"With the exception of a few national demonstrations in September and October (the first is on September 15), the protest movement is likely to fizzle out, markedly decreasing the disruption to France's operational environment," according to Nicholl.

However, transport strikes and disruption are likely to continue through 2016, Nicholl said.

"So far this year, there have been severe spells of disruption to road, rail, marine, and air transport and cargo. Further strikes by air-traffic controllers, Air France staff, port workers in Marseille and Calais and employees of the national rail network are likely in the three-month outlook," he says.

Meanwhile, the UK rated as "low risk" for business disruption, on a par with Germany, but marginally better than Switzerland and Finland.

Verisk Maplecroft said the UK's vulnerability could increase however, as its new government begins arduous negotiations to quit the European Union (EU).

"The implications of the UK's vote to leave the EU increase the potential for unrest in the country. The possibility of price rises for imported goods, combined with a slowdown in economic activity is likely to serve as a key source of popular discontent," the firm said.

Protests occurred in London and other UK cities in the wake of the referendum, as remain voters objected to the outcome. Some corporates and banks have touted the idea of re-headquartering or moving staff to countries like France, Germany, Luxembourg or the Netherlands that remain in the EU.

The UK economy trumped expectations last week to grow by 0.6 per cent between April and June, quarter-on-quarter. However, this data went no further than one week after the Brexit vote on June 23.

Meanwhile, Markit's flash Purchasing Managers' Index (PMI) suggested the UK economy shrunk in July by its fastest monthly rate since early 2009.

"The state of a country's economy is a critical bellwether for the likelihood of civil unrest. Factors such as inflation, unemployment, the cost of living and the removal of food or fuel subsidies are key sources of discontent that increase the potential for mass demonstrations or violence," Verisk Maplecroft said.

Other than France, the only Western economy in the high-risk category for disruption was Greece, which lost its developed market status in 2013 following its debt crisis.

Italy was the next-most vulnerable country in the EU, but was only judged to be at "medium risk." It was rated as roughly on a par with the US, where demonstrations have taken place in some states in protest against the shooting of African-Americans by police.

The French economy posted zero growth between April and June, after growing by 0.7 per cent in the first quarter, according to official data on Friday.

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