Between January and June 2021, 192 industrial site installation projects were launched in France. This is about 80% more than in 2020 at the same time. Although encouraging, this upturn should not obscure a much more complex global situation. Within the European Union, France remains the most deindustrialised country: the sector represented 10% of GDP in 2018, compared with 21.1% in Germany.
Within the EU itself, the disparities are significant. Central and Eastern European countries (CEECs) now benefit from lower labour costs (from €18.30/hour in Slovenia to €5.3/hour in Bulgaria, compared to €44.7/hour in Denmark) and seem better placed to welcome returning industries. A report by the Polish Institute of Economics estimated that in 2020 the CEECs could generate a profit of 22 billion dollars per year thanks to relocations from China
Generally speaking, it is difficult to talk of a genuine comeback of industry in Western countries, in terms of figures at least. But as far as political will and social acceptance are concerned, reindustrialisation has become one of the rare subjects of consensus in the last few years. As Magali Joëssel, Managing Director for the SPI (Société de projets industriels) fund at Bpifrance, explains, “factory” is no longer a “dirty word”. Today, this shared view is slowly being translated into action and sees an emerging, more modern form of industrialisation, in line with the climate crisis.
Political will and strategic dependencies
The Covid-19 crisis has been a wake-up call for industrial policies. As the saying goes, “every cloud has a silver lining”, and the pandemic has shown how many countries in the world rely on Asia’s manufacturing industry. The European Union has identified 137 products in sensitive ecosystems for which the EU is highly dependent on foreign suppliers. Over half of these dependencies originate from China (52%), followed by Vietnam (11%) and Brazil (5%). Six strategic areas have been listed: raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors, cloud and edge technologies. As a result, countries are stepping up incentives and investments. In France, the France Relance plan has earmarked €35 billion to support industry in five areas: decarbonisation, relocation, modernisation, R&D and training. European projects are developing fundamental value chains, such as the European battery alliance (nicknamed “battery Airbus”)which wants to build 15 gigafactories in the EU by 2025, with the support of Tesla, BMW, Stellantis, Northvolt and Arkema, among others. The pharmaceutical strategy for Europe follows the same logic, for the production of active pharmaceutical ingredients, as does the 7 billion euro hydrogen plan introduced by the French government.
Industrial reinvention does not always mean relocation
Despite political will and pressure from voters for “made in France” products, reindustrialisation cannot be a return to the past. With the exception of strategic sectors, massive relocation is seen as unrealistic and the globalised structure of supply chains, together with the issue of production costs, has put paid to most plans. However, a reshuffling of the cards might be on the horizon. The first, and most talked about, agent of change is the digitisation and automation of production. 3D printing, robotisation, customisation, artificial intelligence, predictive maintenance and digital twins mean that reindustrialisation needs modern infrastructures.
These flexible and competitive factories bring new employment opportunities and major work changes to the industry. As stated in a OECD report : “with productivity improving in the manufacturing industry, relocated jobs are few on the ground, and more likely to be highly skilled, technical and well-paid”. Modernisation goes hand in hand with regionalisation. The report adds that “a regional rebalancing of value chains appears to be on the horizon, leading to greater diversification and distribution of production. In addition to global hubs, production is expected to concentrate on regional/local hubs closer to end markets”. Which means that Morocco can now claim to be “Europe’s industrial backbone” : at the height of the pandemic, its textile factories quickly switched to the production of 10 million surgical masks a day, mainly for export.
Spearheading regions
In the context of “next-shoring” (a term coined by McKinsey in 2014, to focus on the physical proximity to emerging markets), the appeal of local sites is obvious and not just in terms of labour costs. The first factor is one of minimal risk. Faced with global health vulnerability, a possible economic war between America and China, or industrial espionage, the idea of local production seems to make a lot of sense. Environmental targets may also play a part. “Between 1995 and 2015, France reduced its industrial carbon footprint by 40% (…) but imports are now a lot higher due to relocation, which means that France’s overall carbon footprint has increased by 17%,” explained French Minister for Industry Agnès Pannier-Runacher. As a result, reindustrialisation seems a rational response to the ambitions of the European Green Deal. Finally, the issue of skills is essential and remains a problem in “deindustrialised” countries, such as France. In June 2021, there were 336,000 industrial vacancies in France , in contrast with a general unemployment rate at 8%.
For regions, this race to attract industry poses a number of challenges. Adapting infrastructures to modern industry is crucial. To revitalise medium-sized cities (which rely on the public sector for over 40% of their income), connectivity plays a central role. Think tank Institut Montaigne states that “the expansion of digital coverage (broadband/5G) is a unique opportunity to reorganise economic activity in unconnected areas”. “Urban manufacturing” suggests that new forms of non-polluting production are possible in cities and could benefit from short supply chains and pools of urban skills. In London, Hackney and Tower Hamlets’ “Maker Mile” showcases the potential for local production, between makerspaces and “the dilution of industrial boundaries in the commercial, design and training sectors”. Finally, the industrial identity of regions needs addressing to involve players in a common project. In this light, the Grand-Orly Seine Bièvre region has published a Manifesto for an industrial and productive territory. Its proposals might be modest, but they endorse collective and local ambitions. And The Lyon Metropolis has published a “Manifesto for an evolving industry committed to the environment”. These are but two examples of local authorities taking proactive charge of their industrial future.
