Open for Business?

Source: Ethan Miller/Getty Images.

Partly with the help of foreign investors, Portugal privatized its way to a bailout exit. Greece’s long-stalled privatization program sprung to life this spring—again, with the help of foreigners. France, which voluntarily proclaimed itself “Open for Business” two months ago, is waffling on foreign capital. If you’re like us, you may be wondering exactly what European politicians’ position is on foreign investment at this point. And, like many things eurozone, the answer is: It’s complicated. But the sentiment toward foreign money has a long history of being quite bifurcated and the politics tricky, obscuring the fact a foreign acquisition of a business injects capital and vibrancy into an economy. However, recent waffling seems more like political posturing than a worrying trend for investors.

As businesses look to expand abroad, citizens in their destination countries often fret those foreign firms’ buying up too many companies and assets, wresting control of their economies. It’s reminiscent of the 1980s US, when then-hot Japan was on a shopping spree, snapping up Rockefeller Center and the Pebble Beach Golf Course, to much consternation among many Americans. Folks fret the profits heading overseas, but they miss that a lot of the inputs—jobs—and other resources would be sourced here, not abroad. What foreign investment really says is foreigners see opportunity in your economy, and they want to put money to work in your country. And folks are now beginning to see such opportunity in Europe’s much-maligned periphery.

As a core part of bailout terms, Greece established the Hellenic Republic Asset Development Fund (HRADF) in July 2011 to facilitate the sale of state-owned property. Early on, progress was slow. As recently as last year, HRADF had privatized more public officials leading the fund than public assets. But things have been looking up lately as investors, particularly foreign investors, have been more eager to snatch up Greek property. An Arabian Investment fund recently purchased the Astir Vouliagmenis peninsula. A Canadian public pension fund is on a list of investors interested in purchasing a stake in Thessaloniki, a Greek water and sewer company. And more recently, China Ocean Shipping Group became the favored investor to win a bid for a majority stake in Greece’s main port of Pireaus. Looking ahead, the HRADF is also considering securitizing assets to sell on the Greek stock exchange—another option for foreign investors that hasn’t been available in the past.

Portugal, too, has made its way along the privatization path, a key step toward exiting its bailout next month. In 2011, Portugal sold a 21% stake in utility company Energias de Portugal to China’s Three Gorges Corporation. The government also sold its stake in formerly state-run electricity grid operator REN, an airport operator and the postal service, with foreign investors playing a key role. In January, officials accepted an offer from China’s Fosun International to buy Portugal’s largest insurance group for €1 billion—outbidding a US private-equity fund.

This all seemingly alludes to euro-politicians’ being pro-foreign investment—a sensible position! However, these two are merely bound to do so by bailout terms.

France, a nation partly responsible for those privatization-to-attract-foreign-investment mandates applied to Portugal and Greece, is waffling on how open to business to be, exactly. President FranÇois Hollande and the primary opposition, the centre-right Union for Popular Movement (UMP) are both engaged in assessing the valuations of French businesses targeted by foreign firms. Yup, it seems Hollande, his finance minister Arnaud Montebourg and UMP leadership have business cards reading both “Politician” and “Investment Banker.” In various forms, all argue judging deal valuations isn’t the responsibility of shareholders, even though firms’ bylaws say otherwise. Montebourg even suggested striking a deal to balance the bidding firm’s interest and “the interests of France.” The shareholders, owners of the targeted firm, weren’t referenced.

So what changed between the “Open for Business” speech and now? Simple. An election.

Hollande gave his “open for business” speech back in February—just in time for France’s municipal elections in March. Those elections were set to go off amid media and popular sentiment that claimed the French economy was ailing. He was currying favor with constituents who thought he and his party weren’t doing enough to right the ship (even though it wasn’t listing in the first place—the “sick man” rhetoric was primarily based on PMI readings that didn’t capture growth). But his vote-getting ploy didn’t work very well, his party lost significant support, his base was upset at the shift right and overall popularity continues to wane. According to one poll, it’s at a record low.

Which brings us to that split sentiment on foreign money. It’s likely Hollande’s motivations have shifted. In Europe, there is already at least some sense of there being a “European identity.” Hence, Hollande may favor potential bids from European firms. The UMP is going so far as to suggest a “temporary nationalization” while the government crunches the numbers on a bid. (Kidding, we doubt they crunch any numbers other than polls.) Hollande’s opposition looks like an effort to hold off the UMP’s nationalistic stance—standard political jockeying. This looks like standard political jockeying. Politicians lean one way when it seems likely to aid their election chances, only to reverse later. We’d just suggest this is another reason investors are better served judging the totality of what politicians do and not what they say.