The economy today

France European champion of foreign investment

Audio 04:25

Foreign investment jumped by 24% in France between 2020 and 2021, while it fell by 10% in Germany and increased slightly in the United Kingdom, the two other countries most appreciated by foreign investors.

(Illustrative image) Getty Images/Monty Rakusen

By: Dominique Baillard Follow

3 mins

Despite the pandemic, France is still in 2021 the most attractive European country for foreign investors, according to the annual barometer of the firm E and Y. A very relative first place when we go into the details of this study.

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Let's start by mentioning the most flattering figures: foreign investment jumped 24% in France between 2020 and 2021, while it fell 10% in Germany and increased slightly in the United Kingdom, the other two countries more appreciated by foreign investors.

For the third consecutive year, in terms of number of projects, France beats its two neighbors to the post.

With 1,222 establishments or extension of existing sites, against barely 1,000 across the Channel and 840 on the other side of the Rhine.

Industry is the big winner from this influx of foreign capital.

Activities that have suffered greatly from confinements and breaks in supply chains, automotive, furniture, industrial construction are bringing the manufacture of intermediate goods closer together.

This increased presence of foreign investors in France is a good point for the trade balance, which has been in chronic deficit for almost 20 years.

Because companies with foreign capital contribute strongly to tricolor exports: they weigh 10% of GDP and 35% of sales abroad.

► To read also: Automobile in Europe: car sales fall due to lack of parts manufactured by Ukraine

The other side of this first place is the catch-up effect

Indeed, France is progressing because it is starting from very far away: in 2020 the Covid halted projects in the countries of southern Europe more abruptly than it did in the north, on British soil or German, says Marc Lhermitte,

Y.

It is therefore more of an upgrade than a significant boost in foreign investment.

Another downside: the impact in terms of employment is weak on French soil.

Despite Brexit, the UK is the big winner in this area.

Its exit from the European Union led some foreign companies to withdraw to the continent, and France was the first beneficiary.

Nevertheless the kingdom retains a very strong power of attraction in terms of labor costs.

The hourly cost remains lower than the European average and social law is less restrictive there than in the European Union.

This is why British employees are the first to benefit from foreign investment.

Last point of concern for France: Germany and the United Kingdom are much more welcoming to new settlements.

80% of projects fall into this category with our neighbours, only 30% in France.

How can this large discrepancy be explained?

Competing countries offer much more favorable support in terms of training and administrative procedures.

And they are even more tax-efficient.

The 200 investors interviewed by E and Y appreciate all the reforms undertaken during Emmanuel Macron's first five-year term and in particular the reduction in production taxes, but they expect even more liberal reforms.

And additional efforts in terms of energy transition.

France is in the European average with regard to climate objectives, it can do better, it must do better, because this green dimension will become a localization factor, believes the firm.

A majority of the panel plans to invest more in France, 56%, but the war in Ukraine could compromise this appetite for France.

The average favorable opinion was 75% before March 1, that is to say before the Russian invasion of Ukraine, it then fell to 45%.

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