France, More Attractive for Foreign Investments

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For the first time France inters the top 5 of the countries most attractive for foreign investments. The country, historically the 3rd European economic power, is now better valued than any time before.

A report recently published by the organisation Ernst & Young Global Limited (EY) about the attractiveness of countries to attract foreign capitals determined that the amount of projects from companies from abroad in France has increased by no less than 31% this year in comparison with the last exercise. In addition, with the imminent exit of the United Kingdom from the European Union, Paris is better valued than London in terms of foreign investment, thus being the preferred European city.

The reasons for the positive view on France, according to the EY

France has the golden medal in industrial foreign projects, which they were already dominating during the last business year and which has augmented by 85%. Not only that, but the managers interviewed for the study don’t seem to think that the enthusiasm about the attractive of France is going away.

The so-called Brexit has indeed spread the preferred location for decision-making centres, according to the study, which had been very much concentrated in the United Kingdom until last year. The country has gotten almost a third of such projects less this year, whereas France has multiplied the amount by three. The UK is still the indisputable leader on the field in Europe nevertheless, but the decrease as its exit from the EU approaches is remarkable.

In spite of going through a period of economic growth in Europe as a whole, the political panorama in the continent is very unstable, with Germany experiencing difficulties to form a government, the UK abandoning the EU, and the rise of nationalism in countries like Italy, the study remarks.

Alternatively, France has stayed relatively calm in that regard, which reinforces the overview of the country as stable. Additionally, the French president has a completely pro-European attitude, which becomes relevant for countries that are interested in investing in the old continent for strategic reasons like the freedom of movement and trade amongst the member states.

This is of special importance because the country can attract more companies from the United States (the main foreign investor in France, with 22% of the projects) which would have normally settled in the UK to have a link with Europe, and also from the UK itself to maintain their relation with the continent.

France has also made great efforts to keep an overall environment of innovation, with the establishment of the French Tech label few years ago and an efficient support action aimed for start-ups. This has enabled the achievement of the second position in Europe for start-up creation, out of which 35% were financed by at least a foreign investor during 2016. In that regard, the degree of trust in the French innovation policies and measures is strong.

Innovation, however, is not only present in start-ups. The study shows that the country is the 2sd in Europe to attract investments in R+D, and is driving efforts into the development of technologies like artificial intelligence (AI).

Due to its privileged location in a very central position in Europe, as well as the existent relation with Maghreb, France is also an ideal location for logistic operations. Additionally, investors value not only the capital of the country, but also other major cities like Lyon, Marseille, Bordeaux, or Nantes, as well as medium and small locations, with a population of less than 200,000 inhabitants, especially in the case of industrial activities.

The last remark to mention from the study is the workforce available in France. With world-class training in almost every possible field, there is a very high number of qualified potential employees for any type of specialisation.

The drawbacks of France

While the points that have been mentioned before undeniably lead to a positive view of the country, some negative sides of investing in France appear to bother greatly the managers interviewed by the EY.

  • The hourly labour cost is one of the highest in Europe, estimated around 37.5 € per worker per hour. This is indeed a turn-off for the potential entrepreneurs that want to establish a company in the country, and the amount of dissatisfied entrepreneurs has gone from 31% last year to 38% in the last EY report.
  • The corporate tax rate in France is currently one of the highest in Europe. However, the current government has plans to lower it down to 25% by 2022, rendering the country more competitive.
  • The administrative procedures for business creation are seen as arduous. Conversely, there are also plans to promote the acceleration of structural reforms to make these procedures easier and faster.

The country is indeed making efforts to improve its economic sphere like investing on innovation and R+D, to which the government dedicates one of the highest allowances in Europe as well as transitioning to the usage of renewable energies, an asset to attract more American entrepreneurs after the country’s refusal to adhere to the Paris Pact.

Despite all the efforts, particularly non-implanted investors appear to have serious doubts about setting their businesses in France according to the data reflected in the last report.

The difficulties that France faces

It’s undeniable that France has been lagging behind its direct competitors in Europe, Germany and the UK, during the last decade. While the recovery has been spectacular according to the last report, and the country has been able to catch up in terms of figures, it’s still behind them.

Although the French results are very impressive, the investments in Germany and the UK didn’t remain stagnant, and also experienced an increase of 6% in both cases. Moreover, in spite of the Brexit, the UK still appears as the indisputable leader to attract foreign projects in the digital sector.

Additionally, due to this lagging period, emerging countries in the past have invested considerably more in Germany and the UK rather than France, and as of today, there are about 600 projects from these countries of difference between them and France.

Another big issue in France is the nature of the projects themselves in relation with employment creation. On average, a project creates only 25 vacancies, whereas in the UK the amount is 42 and in Serbia, 170. Nevertheless, France isn’t very far from Germany in that regard (28 positions per project).

With all, France appears to present a clear advantage over both its competitors, and it’s the amount of highly qualified workers, which isn’t very abundant in neither of them.

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