Regional local public investment dynamics

Monday, 21 january 2019

Groupe BPCE is a major partner of local government bodies in France. Leveraging extensive knowledge of this market, BPCE’s economists have produced an analysis of local public investment strategies in France between 2011 and 2016.

Local government bodies are the largest category of public investor in France. In recent years, they have nevertheless had to cope with increasing budget constraints that have often led them to make decisions to the detriment of investment. This ex-post analysis aims to highlight the public investment strategies employed on a regional scale between 2011 and 2016, as well as the factors that determined public decision-makers’ choices.

The aggregate situation of local government bodies changed substantially between 2011 and 2016. They simultaneously reduced their investment to levels not seen since decentralization and suffered from deteriorating finances. In these conditions, they pursued varied and adaptive strategies that led to disparities in local growth rates.

Policy factors are a first source of explanation for these disparities (importance of good management by local government bodies, and of their initial level of debt before any real deterioration in their situation).

Socioeconomic factors are also important determinants of local public investment: the poorest and least dynamic areas in terms of GDP growth are also those whose situations deteriorated the most over the last few years. On the one hand, they have fewer resources because they collect less tax, while on the other, they have relatively higher spending as they have to pay for more social benefits and services. Nevertheless the investment needs of rural regions, and even more so of mountainous regions, are much higher than average.

Conversely, although most regional conurbations seems to attain “acceptable” levels of economic equilibrium more easily, the Île-de-France and Rhône regions, but also more particularly Paris, seem to suffer from specific difficulties in spite of their dynamic local economies and concentration of activities and wealth.

The policy context is set to change in the coming years, with the introduction of what can be considered to be highly restrictive rules governing new contractual relations (limits on increased operating expenditure, reductions in financing needs, improvement in debt reduction capacity). The risk is that this policy emphasis on restoring solvency prolongs and increases decisions that are detrimental to investment. Renewed growth nevertheless offers room for maneuver, but this will essentially benefit – via higher revenues and lower spending – large conurbations and regions that have been less adversely affected in terms of solvency and more successful in maintaining acceptable levels of equipment.

The continuation of this analysis and its update when new data becomes available will provide a means of ensuring the stability and coherency of the statistical groups highlighted. It will also provide a means of analyzing local government investment strategies over time.

To know more

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Les dynamiques territoriales de l’investissement public local


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