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France more attractive, but still lagging behind

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France more attractive, but still lagging behind
Foreign investors are returning to France but it still lags behind the UK and Germany for attracting foreign investors. Photo: FDcomite/FLickr
13:22 CEST+02:00
There was both good and bad news for France on the economic front on Tuesday. A new study suggested foreign investors were returning to the country, but it was still some way behind Germany and the UK. A high tax burden and labour costs appear to hold it back.

According to an annual study by Ernst and Young, France is once again proving more attractive to foreign investors – news that will give President François Hollande and his Socialists reason to feel relieved, if only slightly.

Ernst and Young found that the number of foreign firms launching new subsidiaries or extensions of existing ones in France in 2013 was 514, an increase of nine percent on the 471 companies who set up outlets in France in 2012.

“France has not reached its pre-crisis level but it has reversed the downward trend, observed since 2010,” Ernst and Young notes. In terms of jobs, 14,122 were created in France last year by foreign investment, compared to 10,542 in 2012.

The sectors that attract the most foreign investment continue to be the country’s highly regarded energy sector, followed by transport and digital technology.

In terms of attracting foreign industry, France remained top of the European league table, although the downside was that the 166 new industry projects did not create many new jobs.

French economy minister Arnaud Montebourg was quick to jump on the positive aspect of the report.

The study “illustrates the vigorous efforts made by the government over the last two years to regain competitiveness and to preserve and increase the attractiveness of the French territory and stimulate job creation,” he said in a statement.

The study also highlighted the positive aspects of investing in France.

“France has some incredible talent, skilled labour, good productivity of labour, management skills and engineering excellence,” the study said.

Marc Lhermitte from Ernst and Young also pointed out that contrary to popular belief France does have good quality administrative services to welcome foreign companies wanting to invest in France.

But that was about the extent of the good news.

The problem for France remains that it is still proving to be less attractive than its main European neighbours Germany and the UK.

Germany saw an increase of 12 percent in the number of foreign firms launching projects in the country last year – 701 in total –and the UK registered a 15 percent increase – for a total of 799 projects set up.

Ernst and Young also stressed that France’s economy was still proving less attractive that its neighbours for attracting companies from the emerging BRIC countries (Brazil, Russia, India and China).

“France still fails to attract projects from other emerging investors. There were only three from India and two from Brazil,” the study said.

Most of the subsidiaries launched in France in 2013 were from the United States – 127 – worth around 25 percent of the total number of projects. That compared to only 19 from BRIC countries.

For the sake of comparison, Germany welcomed 107 new subsidiaries from BRIC countries and in the UK it was 87.

“If France wants to allow itself to dream, it must accept the inexorable tilting of the centre of gravity of the world economy towards emerging economies,” Gerald Karsenti, president of HP France, told AFP.

Karsenti also points to a lack of “coherent” communication.

“If for example most French people don’t know that Grenoble is ranked fifth in the Forbes list of most innovative cities in the world, how would a foreign investor know?” he says.

The study contained further uncomfortable reading for France. Only 34 percent of investors believe the attractiveness of France will increase in the next five years, slightly up on the 27 percent who felt the same in 2012. However the rate of confidence in the German economy for the next five years stands at 49 percent for Germany and 54 percent for the UK.

The problem for France centres on a few old gripes.

Investors want the tax burden reduced on companies as well as a reduction in labour costs and measures to improve the legal environment for businesses.

The French government recently announced measures to try to make France more attractive to foreign investors.

Apart from Hollande’s Responsibility Pact, which is aimed at wiping €30 billion of payroll charges but is yet to take shape, the president recently announced plans to launch “talent passports” to allow foreign graduates, innovators and investors the chance to stay in France for a number of years.

Hollande said the move could impact on between 5,000 and 10,000 people.

And the system of residence permits for students will be altered so visas correspond exactly to the length of their studies.

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