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France sees record foreign investment but...

Ben McPartland · 27 May 2015, 10:56

Published: 27 May 2015 10:59 GMT+02:00
Updated: 27 May 2015 10:56 GMT+02:00

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First the good news.

France is proving more and more attractive to foreign investors, especially when it comes to investing in industrial projects, a new financial report from Ernst and Young concludes.

The amount of foreign investment in France in 2014 saw an 18 percent rise on the previous year reflected in 608 new projects. That compares to the European-wide average increase of just 10 percent.

And 68 percent of foreign bosses polled in the report had a view that was rather positive or positive of France.

"The result is a reflection of the strength of logistics in France and its role as a platform at the heart of Europe," said Ernst and Young's Marc Lhermitte.

And the bad news.

The country is still way behind the UK when it comes to enticing international businesses to invest in the country. Britain saw 887 new investments from abroad, while Germany saw 763 new projects.

The problem for France is also that these foreign investors are creating fewer jobs. The reason France lags behind is blamed on the old gripes of the cost of labour, the tax system and the regulations.

Out of all the new investments last year, only 12,577 jobs were created, which reflects a drop of 11 percent on 2013.

Ernst and Young found it was the opposite scenario across most of Europe where, in general, an increase in investment meant an increase in jobs.

The report said that companies felt penalised by the cost of labour and lack of flexibility in the French market and compared it to the "hyper-flexibility" of the jobs market in the UK, which is famous for its much-criticized zero-hour contracts.

French magazine L'Express pointed out that a new corporate tax credit named CICE aimed at increasing competitveness has helped reduce the cost of labour in industry by 6 percent and that it is now inferior in France to the costs in neighbouring Germany.

But Ernst and Young says more needs to be done.

"The cost of manufacturing in France remains above the European average. France has struggled to justify its price," read the report.

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'It's possible the recovery in France has been slower because of the inflexibility of the labour market compared to other European countries," said Lhermitte.

Much of the foreign investment in 2014 was by companies already established in France expanding their businesses, but Ernst and Young said entirely new investors were still cautious.

"Previous investors have already mastered the legal and administration systems and French regulations but not new investors, he said.

But Ernst and Young's Marc Lhermitte said it wasn't a case of France just following the British model as a route to success, but rather following a previous report by French industrialist Louis Gallois that called for a massive simplification of the system.

Ben McPartland (ben.mcpartland@thelocal.com)

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